The Concept of Credit period of thirty five (35) days, where he received P6,438.

00 as cash advance to
defray his travel expenses.
Part I. Loan
Within the same period, petitioner was issued another travel order, T.O. 2268,
People v. Concepcion
requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from
30 June to 4 July 1982, a period of five (5) days, where petitioner received a cash
FACTS:
advance of P495.00.
Defendant authorized an extension of credit in favor of Concepcion, a co-
partnership. Defendant’s wife was a director of this co-partnership. Defendant
On 14 January 1983, petitioner presented both travel orders for liquidation,
was found guilty of violating Sec. 35 of Act No. 2747 which says that “The National
submitting Travel Expense Reports to the Accounting Section. When the Travel
Bank shall not, directly or indirectly, grant loans to any of the members of
Expense Reports were audited, it was discovered that there was an overlap of four
the Board of Directors of the bank nor to agents of the branch banks.” This Section
(4) days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner
was in effect in 1919 but was repealed in Act No. 2938 approved on January 30,
collected per diems twice. Petitioner was required to comment on the internal
1921.
auditor's report regarding the alleged anomalous claim for per diems. In his reply,
ISSUE:
petitioner denied the alleged anomaly, claiming that he made make-up trips to
W/N Defendant can be convicted of violating Sections of Act No. 2747,
compensate for the trips he failed to undertake under T.O. 2222because he was
which were repealed by Act No. 2938.
recalled to the head office and given another assignment.
HELD:
In the interpretation and construction, the primary rule is to ascertain and
Issue:
give effect to the intention of the Legislature. Section 49 in relation to Sec. 25 of
Was petitioner under obligation to return the same money (cash advance), which
Act No. 2747 provides a punishment for any person who shall violate any
he had received?
provisions of the Act. Defendant contends that the repeal of these Sections by Act
No. 2938 has served to take away basis for criminal prosecution. The Court holds
Held:
that where an act of the Legislature which penalizes an offense repeals a
No. Executive Order No. 10, dated 12 February 1980 provides as follows:
former act which penalized the same offense, such repeal does not have the
effect of thereafter depriving the Courts of jurisdiction to try, convict and
"B. Cash Advance for Travel
sentence offenders charged with violations of the old law.
"4. All cash advances must be liquidated within 30 days after date of projected
The Concept of Loan return of the person. Otherwise, corresponding salary deduction shall be made
immediately following the expiration day."
Yong Chan Kim v. People Liquidation simply means the settling of indebtedness. An employee, such as
herein petitioner, who liquidates a cash advance is in fact paying back his debt in
Doctrine: the form of a loan of money advanced to him by his employer, as per diems and
In commodatum, the bailor retains the ownership of the thing loaned, while in allowances. Similarly, as stated in the assailed, decision of the lower court, "
simple loan, ownership passes to the borrower if the amount of the cash advance he received is less than the amount he spent
for actual travel x x x he has the right to demand reimbursement from his employer
Facts: the amount he spent coming from his personal funds." In other words, the money
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture advanced by either party is actually a loan to the other.
Department of the Southeast Asian Fisheries Development Center (SEAFDEC) with
head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of Hence, petitioner was under no legal obligation to return the same cash or money,
the Research Division, he conducted prawn surveys which required him to travel i.e.,the bills or coins, which he received from the private respondent.
to various selected provinces in the country where there are potentials for prawn
culture. On 15 June 1982, petitioner was issued Travel Order No. 2222 which Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
covered his travels to different places in Luzon from 16 June to 21 July 1982, a
"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."
Herrera v. Petrophil
Facts:
On December 5, 1969, Herrera and Petrophil Corp. entered into a "Lease
Agreement" where Herrera leased to Petrophil a portion of his property, subject
inter alia to the following conditions:3. The LESSEE shall pay the LESSOR a rental
of a total of P2,930.20 per month on 2,093 sqm more or less, and that the Lessor
should be paid 8years advance rental based on P2,930.70 per month discounted
at 12%interest per annum before registration of lease. On Dec. 31, 1969, Petrophil
paid the advance rentals for the first 8 years, subtracting the amount of
P101,010.73, the amount it computed as constituting the interest or discount for
the first 8 years, in the total sumP180,288.47.On Aug. 20, 1970, Petrophil
explained that there had been a mistake in computation, and thereby reducing the
amount to only P98,828.03.On Oct. 14, 1974, Herrera sued Petrophil for the sum
of P98,828.03,claiming this had been illegally deducted from him in violation of
the Usury Law. Petrophil argued that the amount deducted was not usurious
interest but was given for paying the rentals in advance for 8 years. Judgment
favoured Petrophil. Herrera appealed to the SC, insisting that such interest is
violative of the Usury Law; and that he had neither agreed to nor accepted
Petrophil’s computation of the total amount to be deducted for the eight years
advance rentals.
ISSUE: Whether or not the contract is a loan or lease.
RULING:
Lease. As its title plainly indicates, the contract between the parties is one of lease
and not of loan. It is clearly denominated a "LEASE AGREEMENT. The provision for
the payment of rentals in advance cannot be taken as are payment of a loan
because there was no grant of money as to constitute an indebtedness on the part
of the lessor. On the contrary, Petrophil was clearing its obligation by paying the 8
years rentals, and it was for this advance payment that it was getting a discount.
There is no usury in this case because no money was given by Petrophil to Herrera.
There was neither loan but a mere discount which Herrera allowed Petrophil to
deduct. The discount was in effect a reduction of the rentals which the lessor had
the right to determine, and any reduction thereof, by any amount, would not
contravene the Usury Law. The difference between a discount and a loan or
forbearance is that the former does not have to be repaid. The loan or forbearance
is subject to repayment and is therefore governed by the laws on usury. To
constitute usury, "there must be loan or forbearance; the loan must be of money
or something circulating as money; it must be repayable absolutely and in all
events; and something must be exacted for the use of the money in excess of and
in addition to interest allowed by law. "The elements of usury are (1) a loan,
express or implied; (2) an understanding between the parties that the money lent
shall or may be returned; that for such loan a greater rate or interest that is
allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a
corrupt intent to take more than the legal rate for the use of money loaned. Unless
these four things concur in every transaction, it is safe to affirm that no case of
usury can be declared.
Garcia v. Thio
FACTS
Respondent Thio received from petitioner Garcia two crossed checks which
amount to US$100,000 and US$500,000, respectively, payable to the order of
Marilou Santiago. According to petitioner, respondent failed to pay the principal
amounts of the loans when they fell due and so she filed a complaint for sum of
money and damages with the RTC. Respondent denied that she contracted the
two loans and countered that it was Marilou Satiago to whom petitioner lent the
money. She claimed she was merely asked y petitioner to give the checks to
Santiago. She issued the checks for P76,000 and P20,000 not as payment of
interest but to accommodate petitioner’s request that respondent use her own
checks instead of Santiago’s.
RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was
no contract of loan between the parties.
ISSUE
(1) Whether or not there was a contract of loan between petitioner and respondent.
(2) Who borrowed money from petitioner, the respondent or Marilou Santiago?
HELD
(1) The Court held in the affirmative. A loan is a real contract, not
consensual, and as such I perfected only upon the delivery of the object of the
contract. Upon delivery of the contract of loan (in this case the money received by
the debtor when the checks were encashed) the debtor acquires ownership of
such money or loan proceeds and is bound to pay the creditor an equal amount.
It is undisputed that the checks were delivered to respondent.
(2) However, the checks were crossed and payable not to the order
of the respondent but to the order of a certain Marilou Santiago. Delivery is the
act by which the res or substance is thereof placed within the actual or
constructive possession or control of another. Although respondent did not
physically receive the proceeds of the checks, these instruments were placed in
her control and possession under an arrangement whereby she actually re-lent the
amount to Santiago.
Petition granted; judgment and resolution reversed and set aside.
Pantaleon v. AMEX
FACTS:
After the Amsterdam incident that happened involving the delay of American
Express Card to approve his credit card purchases worth US$13,826.00 at the
Coster store, Pantaleon commenced a complaint for moral and exemplary
damages before the RTC against American Express. He said that he and his family
experienced inconvenience and humiliation due to the delays in credit
authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the
award of damages in favor of Pantaleon, holding that AmEx had not breached its
obligations to Pantaleon, as the purchase at Coster deviated from Pantaleon's
established charge purchase pattern.
ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.
2. Whether or not AmEx is liable for damages.
RULING:
1. Yes. The popular notion that credit card purchases are approved “within
seconds,” there really is no strict, legally determinative point of demarcation on
how long must it take for a credit card company to approve or disapprove a
customer’s purchase, much less one specifically contracted upon by the parties.
One hour appears to be patently unreasonable length of time to approve or
disapprove a credit card purchase.
The culpable failure of AmEx herein is not the failure to timely approve petitioner’s
purchase, but the more elemental failure to timely act on the same, whether
favorably or unfavorably. Even assuming that AmEx’s credit authorizers did not
have sufficient basis on hand to make a judgment, we see no reason why it could
not have promptly informed Pantaleon the reason for the delay, and duly advised
him that resolving the same could take some time.
2. Yes. The reason why Pantaleon is entitled to damages is not simply because
AmEx incurred delay, but because the delay, for which culpability lies under Article
1170, led to the particular injuries under Article 2217 of the Civil Code for which
moral damages are remunerative. The somewhat unusual attending
circumstances to the purchase at Coster – that there was a deadline for the
completion of that purchase by petitioner before any delay would redound to the
injury of his several traveling companions – gave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social humiliation sustained by
Pantaleon, as concluded by the RTC.
BPI Investment v. CA
FACTS
Frank Roa obtained a loan from Ayala Investment and Development Corporation
(AIDC), for the construction of his house. Said house and lot were mortgaged to
AIDC to secure the loan. Roa sold the properties to ALS and Litonjua, the latter
paid in cash and assumed the balance of Roa’s indebtedness wit AIDC. AIDC was
not willing to extend the old interest to private respondents and proposed a grant
of new loan of P500,000 with higher interest to be applied to Roa’s debt, secured
by the same property. Private respondents executed a mortgage deed containing
the stipulation. The loan contract was signed on 31 March 1981 and was perfected
on 13 September 1982, when the full loan was released to private respondents.
BPIIC, AIDC’s predecessor, released to private respondents P7,146.87, purporting
to be what was left of their loan after full payment of Roa’s loan. BPIIC filed for
foreclosure proceedings on the ground that private respondents failed to pay the
mortgage indebtedness. Private respondents maintained that they should not be
made to pay amortization before the actual release of the P500,000 loan. The suit
was dismissed and affirmed by the CA.
ISSUE
Whether or not a contract of loan is a consensual contract.
HELD
The Court held in the negative. A loan contract is not a consensual contract but a
real contract. It is perfected only upon delivery of the object of the contract. A
contract o loan involves a reciprocal obligation, wherein the obligation or promise
of each party is the consideration for that of the other; it is a basic principle in
reciprocal obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply is a proper manner with what is incumbent upon
him
Saura v. DBP
FACTS:
 In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now
DBP, for an industrial loan of P500,000 to be used for the construction of a
factory building, to pay the balance of the jute mill machinery and equipment
and as additional working capital. In Resolution No.145, the loan application
was approved to be secured first by mortgage on the factory buildings, the
land site, and machinery and equipment to be installed.
 The mortgage was registered and documents for the promissory note
were executed. But then, later on, was cancelled to make way for the
registration of a mortgage contract over the same property in favor of
Prudential Bank and Trust Co., the latter having issued Saura letter of credit for
the release of the jute machinery. As security, Saura execute a trust receipt in
favor of the Prudential. For failure of Saura to pay said obligation, Prudential
sued Saura.
 After almost 9 years, Saura Inc, commenced an action against RFC,
alleging failure on the latter to comply with its obligations to release the loan
applied for and approved, thereby preventing the plaintiff from completing or
paying contractual commitments it had entered into, in connection with its
jute mill project.
 The trial court ruled in favor of Saura, ruling that there was a
perfected contract between the parties and that the RFC was guilty of breach
thereof.
ISSUE: Whether or not there was a perfected contract between the parties.
HELD: YES. There was indeed a perfected consensual contract.
·Article 1934 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 delivery of the object of the contract.
· There was undoubtedly offer and acceptance in the case. The application of
Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant,
and the corresponding mortgage was executed and registered. The defendant
failed to fulfill its obligation and the plaintiff is therefore entitled to recover
damages.
· When an application for a loan of money was approved by resolution of the
respondent corporation and the responding mortgage was executed and
registered, there arises a perfected consensual contract.
· However, it should be noted that RFC imposed two conditions (availability of raw
materials and increased production) when it restored the loan to the original
amount of P500,000.00.
· Saura, Inc. obviously was in no position to comply with RFC’s conditions. So
instead of doing so and insisting that the loan be released as agreed upon, Saura,
Inc. asked that the mortgage be cancelled.The action thus taken by both parties
was in the nature of mutual desistance which 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.
·WHEREFORE, the judgment appealed from is reversed and the complaint
dismissed.
Commodatum
Producers Bank v. CA
FACTS:
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor
and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla,
in incorporating his business, the Sterela Marketing and Services (“Sterela” for
brevity). Specifically, Sanchez asked private respondent to deposit in a bank a
certain amount of money in the bank account of Sterela for purposes of its
incorporation. She assured private respondent that he could withdraw his money
from said account within a month’s time. With this, Mrs. Vivies, Sanchez and a
certain Estrella Dumagpi, secretary of Doronilla, went to the bank to open an
account with Mrs. Vives and Sanchez as signatories. A passbook was then issued
to Mrs. Vives. Subsequently, private respondent learned that part of the money
was withdrawn without presentment of the passbook as it was his wife got hold
of such. Mrs. Vives could not also withdraw said remaining amount because it had
to answer for some postdated checks issued by Doronilla who opened a current
account for Sterela and authorized the bank to debit savings.
Private respondent referred the matter to a lawyer, who made a written demand
upon Doronilla for the return of his client’s money. Doronilla issued another check
for P212,000.00 in private respondent’s favor but the check was again dishonored
for insufficiency of funds.
Private respondent instituted an action for recovery of sum of money in the
Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez,
Dumagpi and petitioner. The RTC ruled in favor of the private respondent which
was also affirmed in toto by the CA. Hence this petition.
ISSUE: WON THE TRANSACTION BETWEEN THE DORONILLA AND RESPONDENT
VIVES WAS ONE OF SIMPLE LOAN.
HELD: NO.
A circumspect examination of the records reveals that the transaction between
them was a commodatum. Article 1933 of the Civil Code distinguishes between
the two kinds of loans in this wise:
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.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However,
there are some instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same
goods returned at the end of the period agreed upon, the loan is a commodatum
and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. In case of doubt,
the contemporaneous and subsequent acts of the parties shall be considered in
such determination.
Catholic Vicar v. CA
Facts:
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an
application for registration of title over Lots 1, 2, 3, and 4, said Lots being the sites
of the Catholic Church building, convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. The Heirs of Juan Valdez and the
Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
respectively, asserting ownership and title thereto since their predecessors’ house
was borrowed by petitioner Vicar after the church and the convent were
destroyed.. After trial on the merits, the land registration court promulgated its
Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez appealed the decision of the land registration court to the
then Court of Appeals, The Court of Appeals reversed the decision. Thereupon, the
VICAR filed with the Supreme Court a petition for review on certiorari of the
decision of the Court of Appeals dismissing his application for registration of Lots
2 and 3.
Issue: Whether or not the failure to return the subject matter of commodatum
constitutes an adverse possession on the part of the owner
Decision: No. The bailees’ failure to return the subject matter of commodatum to
the bailor did not mean adverse possession on the part of the borrower. The bailee
held in trust the property subject matter of commodatum.
Petitioner repudiated the trust by declaring the properties in its name for taxation
purposes.
Pajuyo v. CA
Facts: Pajuyo entrusted a house to Guevara for the latter's use provided he should
return the same upon demand and with the condition that Guevara should be
responsible of the maintenance of the property. Upon demand Guevara refused
to return the property to Pajuyo. The petitioner then filed an ejectment case
against Guevara with the MTC who ruled in favor of the petitioner. On appeal with
the CA, the appellate court reversed the judgment of the lower court on the
ground that both parties are illegal settlers on the property thus have no legal right
so that the Court should leave the present situation with respect to possession of
the property as it is, and ruling further that the contractual relationship of Pajuyo
and Guevara was that of a commodatum.
Issue: Is the contractual relationship of Pajuyo and Guevara that of a
commodatum?
Held: No. The Court of Appeals’ theory that the Kasunduan is one of commodatum
is devoid of merit. 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 tenant’s withholding of the property would
then be unlawful.
Republic v. Bagtas
FACTS:
 May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines
through the Bureau of Animal Industry three bulls: a Red Sindhi with a book
value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for
a period of 1 year for breeding purposes subject to a breeding fee of 10% of
the book value of the bulls
 May 7, 1949: Jose requested for a renewal for another year for the three bulls
but only one bull was approved while the others are to be returned
 March 25, 1950: He wrote to the Director of Animal Industry that he would
pay the value of the 3 bulls
 October 17, 1950: he reiterated his desire to buy them at a value with a
deduction of yearly depreciation to be approved by the Auditor General.
 October 19, 1950: Director of Animal Industry advised him that either the 3
bulls are to be returned or their book value without deductions should be paid
not later than October 31, 1950 which he was not able to do
 December 20, 1950: An action at the CFI was commenced against Jose praying
that he be ordered to return the 3 bulls or to pay their book value of P3,241.45
and the unpaid breeding fee of P199.62, both with interests, and costs
 July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan
Valley, particularly in the barrio of Baggao, and of the pending appeal he had
taken to the Secretary of Agriculture and Natural Resources and the President
of the Philippines, he could not return the animals nor pay their value and
prayed for the dismissal of the complaint.
 RTC: granted the action
 December 1958: granted an ex-parte motion for the appointment of a special
sheriff to serve the writ outside Manila
 December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died
on October 23, 1951 and administratrix of his estate, was notified
 January 7, 1959: she file a motion that the 2 bulls where returned by his son
on June 26, 1952 evidenced by recipt and the 3rd bull died from gunshot
wound inflicted during a Huk raid and prayed that the writ of execution be
quashed and that a writ of preliminary injunction be issued.
ISSUE: W/N the contract is commodatum and NOT a lease and the estate should
be liable for the loss due to force majeure due to delay.
HELD: YES. writ of execution appealed from is set aside, without pronouncement
as to costs
 If contract was commodatum then Bureau of Animal Industry retained
ownership or title to the bull it should suffer its loss due to force majeure. A
contract of commodatum is essentially gratuitous. If the breeding fee be
considered a compensation, then the contract would be a lease of the bull.
Under article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the
contract be commodatum, still the appellant is liable if he keeps it longer than
the period stipulated
 the estate of the late defendant is only liable for the sum of P859.63, the value
of the bull which has not been returned because it was killed while in the
custody of the administratrix of his estate
 Special proceedings for the administration and settlement of the estate of the
deceased Jose V. Bagtas having been instituted in the CFI, the money
judgment rendered in favor of the appellee cannot be enforced by means of
a writ of execution but must be presented to the probate court for payment
by the appellant, the administratrix appointed by the court.
QUINTOS VS BECK 69 PHIL 108
Facts: Quintos and Beck entered into a contract of lease, whereby the latter
occupied the former’s house. On Jan 14, 1936, the contract of lease was novated,
wherein the QUintos gratuitously granted to Beck the use of the furniture, subject
 to the condition that Beck should return the furnitures to Quintos upon demand.
Thereafter, Quintos sold the property to Maria and Rosario Lopez. Beck was
notified of the conveyance and given him 60 days to vacate the premises. IN
addition, Quintos required Beck to return all the furniture. Beck refused to return
3 gas heaters and 4 electric lamps since he would use them until the lease was due
to expire. Quintos refused to get the furniture since Beck had declined to return
all of them. Beck deposited all the furniture belonging to QUintos to the sheriff.
ISSUE: WON Beck complied with his obligation of returning the furnitures to
Quintos when it deposited the furnitures to the sheriff.
RULING: The contract entered into between the parties is one of commadatum,
because 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 latters
demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741
of the Civil Code). 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 eletric lamps.
As the defendant had voluntarily undertaken to return all the furniture to the
plaintiff, upon the latter's demand, the Court could not legally compel her to bear
the expenses occasioned by the deposit of the furniture at the defendant's behest.
The latter, as bailee, was nt entitled to place the furniture on deposit; nor was the
plaintiff under a duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the four electric lamps.
Simple Loan or Mutuum
People v. Puig & Porras
Facts:
Respondents were conspiring, confederating, and helping one another, with grave
abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of
Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the
management of the Bank and with intent of gain, did then and there willfully,
unlawfully and feloniously take, steal and carry away the sum of P15,000.00,
Philippine Currency, to the damage and prejudice of the said bank in the aforesaid
amount.
However, the trial court did not find the existence of probable cause because (1)
the element of ‘taking without the consent of the owners’ was missing on the
ground that it is the depositors-clients, and not the Bank, which filed the complaint
in these cases, who are the owners of the money allegedly taken by respondents
and hence, are the real parties-in-interest; and (2) the Informations are bereft of
the phrase alleging "dependence, guardianship or vigilance between the
respondents and the offended party that would have created a high degree of
confidence between them which the respondents could have abused.".
Issue:
Whether or not the 112 informations for qualified theft sufficiently allege the
element of taking without the consent of the owner, and the qualifying
circumstance of grave abuse of confidence.
Held:
Yes.
The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of
the Informations and, therefore, because of this defect, there is no basis for the
existence of probable cause which will justify the issuance of the warrant of arrest.
Petitioner assails the dismissal contending that the Informations for Qualified
Theft sufficiently state facts which constitute (a) the qualifying circumstance of
grave abuse of confidence; and (b) the element of taking, with intent to gain and
without the consent of the owner, which is the Bank.
The RTC Judge based his conclusion that there was no probable cause simply on
the insufficiency of the allegations in the Informations concerning the facts
constitutive of the elements of the offense charged.
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.
Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly established
the nature of possession by the Bank of the money deposits therein, and the duties
being performed by its employees who have custody of the money or have come
into possession of it. The Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of confidence, to the
 damage and prejudice of the Bank, without particularly referring to it as owner of
the money deposits, as sufficient to make out a case of Qualified Theft.
BPI FAMILY BANK V. FRANCO
(Simple Loan)
· 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 Franco’s 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 Franco’s accounts, it cannot
prevent him from demanding payment of BPI-FB’s 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 BPI-
FB as debtor.
Bobie Rose V. Frias vs Flora San Diego-Sison
GR No. 155223
FACTS:
Bobie Rose Frias owns a house and lot acquired from Island Masters Reality and
Development Corporation (IMRDC) through a Deed of Sale and covered by transfer
certificate of title (TCT) in the name of IRMDC.
Frias, as the First Party, and Dra. Flora San Diego-Sison as the Second Party,
entered into a Memorandum of Agreement (MOA) over the property with the
following terms and conditions:
“xxx for and in consideration of the sum of P3,000,000.00 receipt of which is hereby
acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have
agreed as follows:
1. That the SECOND PARTY has a period of 6 months from the date of the
execution of this contract xxx to notify the FIRST PARTY of her intention to
purchase xxx at a price of P6,400,000.00 xxx another six months within
which to pay the remaining balance of P3.4 million.
2. xxx
3. That in case the FIRST PARTY has no other buyer within the first six months
from the six months from the execution of this contract, no interest shall
be charged by the SECOND PARTY on the P3million however, in the event
that on the sixth month the SECOND PARTY would decide not to purchase
the aforementioned property, the FIRST PARTY has a period of another six
months within which to pay the sum of P3 million pesos provided that the
said amount shall earn compounded bank interest for the last six months
only. Under this circumstance, the amount of P3 million given by the
SECOND PARTY shall be treated as a loan and the property shall be
considered as the security for the mortgage which can be enforced in
accordance with law.”
Frias received from San Diego-Sison P2million cash and P1million post-dated check
dated February 28, 1990, instead of 1991, which rendered the check stale. Frias
then gave the TCT in the name of IRMDC and the Deed of Absolute Sale over the
property between Frias and IRMDC.
San Diego-Sison decided not to purchase the property and informed Frias through
a letter reminding of the agreement that the amount of P2Million be considered
as a loan payable within 6 months. However, Frias failed to pay San Diego-Sison
who later filed a complaint for sum of money with preliminary attachment. Also,
San Diego-Sison averred that Frias tried to deprive her of the security for the loan
when Frias made a false report of the loss of her owner’s copy of the TCT and be
issued a new owner’s duplicate copy of said title.
The trial court ordered Frias to pay San Diego-Sison the sum of P2million plus
interest at the rate of 32% per annum beginning December 7, 1991 due to the
compounded interest stipulated in the MOA. The appellate court affirmed the trial
court’s decision but modified the rate of interest from 32% to 25% effective June
7, 1991 when the interest rate prevailing in 1991 ranged from 25% to 32% per
annum and that the P2Million was considered as a loan in June 1991.
Frias argued that the interest rate was contrary to the MOA because it provided
that if San Diego-Sison would decide not to purchase the property, Frias has the
period of another six months to pay the loan with compounded bank interest for
the last six months only.
ISSUES:
 Whether the compounded bank interest should be limited to 6 months
only as stipulated in the contract.
 Whether CA committed error in awarding 25% interest per annum on the
2million peso loan even beyond the second 6 months stipulated period.
 Whether San Diego-Sison is entitled to moral damages.
HELD:
  The Court said that the phrase “for the last six months only” should be
taken in the context of the entire agreement. It agreed with CA’s
interpretation of the phrase:
“Their agreement speaks of two periods of six months each. The first six- month
period was given to plaintiff-appellee (respondent) to make up her mind whether
or not to purchase defendant-appellant’s (petitioner’s) property. The second six-
month period was given to defendant-appellant to pay the P2 million loan in the
event that plaintiff-appellee decided not to buy the subject property in which case
interest will be charged “for the last six months only”, referring to the second six-
month period. This means that no interest will be charged for the first six-month
period while appellee was making up her mind whether to buy the property, but
only for the second period of six months after appellee had decided not to buy the
property. This is the meaning of the phrase “for the last six months only”. Certainly,
there is nothing in their agreement that suggests that interest will be charged for
six months only even if it takes defendant-appellant an eternity to pay the loan.”
Having considered it as a loan, the monetary interest for the last six months
continued to accrue until actual payment of the loaned amount.
The court further explained why interest must be paid:
“ The payment of regular interest constitutes the price or cost of the use of money
and thus, until 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.”
 The Court found no error in awarding 25% interest per annum on the
P2Million loan even beyond the 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.” Besides, Frias and San Diego-Sison agreed and as stipulated in
the contract that the loaned amount shall earn compounded bank
interests.
Yes. The court agreed with “the findings of the trial court and the CA that
petitioner’s act of trying to deprive respondent of the security of her loan by
executing an affidavit of loss of the title and instituting a petition for the issuance
of a new owner’s duplicate copy of TCT No. 168173 entitles respondent to moral
damages. Moral damages may be awarded in culpa contractual or breach of
contract cases when the defendant acted fraudulently or in bad faith. Bad faith
does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong. It partakes of the
nature of fraud.” Xxx “Petitioner’s actuation would have deprived respondent of
the security for her loan were it not for respondent’s timely filing of a petition for
relief whereby the RTC set aside its previous order granting the issuance of new
title. Thus, the award of moral damages is in order
Sebastian Siga-an, petitioner, vs. Alicia Villanueva, respondent.
Facts: Respondent filed a complaint for sum of money against petitioner.
Respondent claimed that petitioner approached her inside the PNO and offered
to loan her the amount of P540,000.00 of which the loan agreement was not
reduced in writing and there was no stipulation as to the payment of interest for
the loan. Respondent issued a check worth P500,000.00 to petitioner as partial
payment of the loan. She then issued another check in the amount of P200,000.00
to petitioner as payment of the remaining balance of the loan of which the excess
amount of P160,000.00 would be applied as interest for the loan. Not satisfied
with the amount applied as interest, petitioner pestered her to pay additional
interest and threatened to block or disapprove her transactions with the PNO if
she would not comply with his demand. Thus, she paid additional amounts in cash
and checks as interests for the loan. She asked petitioner for receipt for the
payments but was told that it was not necessary as there was mutual trust and
confidence between them. According to her computation, the total amount she
paid to petitioner for the loan and interest accumulated to P1,200,000.00.
The RTC rendered a Decision holding that respondent made an overpayment of
her loan obligation to petitioner and that the latter should refund the excess
amount to the former. It ratiocinated that respondent’s obligation was only to pay
the loaned amount of P540,000.00, and that the alleged interests due should not
be included in the computation of respondent’s total monetary debt because
there was no agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment to petitioner in the
amount of P660,000.00 through mistake, petitioner should return the said amount
to respondent pursuant to the principle of solutio indebiti. Also, petitioner should
pay moral damages for the sleepless nights and wounded feelings experienced by
respondent. Further, petitioner should pay exemplary damages by way of
example or correction for the public good, plus attorney’s fees and costs of suit.
Issue: (1) Whether or not interest was due to petitioner; and (2) whether the
principle of solutio indebiti applies to the case at bar.
Ruling: (1) No. Compensatory interest is not chargeable in the instant case
because it was not duly proven that respondent defaulted in paying the loan and
no interest was due on the loan because there was no written agreement as
regards payment of interest. Article 1956 of the Civil Code, which refers to
monetary interest, specifically mandates that no interest shall be due unless it has
been expressly stipulated in writing. As can be gleaned from the foregoing
provision, payment of monetary interest is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of monetary interest. Thus, we have held
that collection of interest without any stipulation therefor in writing is prohibited
by law.
(2) Petitioner cannot be compelled to return the alleged excess amount paid by
respondent as interest. Under Article 1960 of the Civil Code, if the borrower of
loan pays interest when there has been no stipulation therefor, the provisions of
the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil
Code explains the principle of solutio indebiti. Said provision provides that if
something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In such a case, a
creditor-debtor relationship is created under a quasi-contract whereby the payor
becomes the creditor who then has the right to demand the return of payment
made by mistake, and the person who has no right to receive such payment
becomes obligated to return the same. The quasi-contract of solutio indebiti harks
back to the ancient principle that no one shall enrich himself unjustly at the
expense of another. The principle of solutio indebiti applies where (1) a payment
is made when there exists no binding relation between the payor, who has no duty
to pay, and the person who received the payment; and (2) the payment is made
through mistake, and not through liberality or some other cause. We have held
that the principle of solutio indebiti applies in case of erroneous payment of undue
interest.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio
indebiti, exemplary damages may be imposed if the defendant acted in an
oppressive manner. Petitioner acted oppressively when he pestered respondent
to pay interest and threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite lack of agreement
thereto. Thus, the award of exemplary damages is appropriate so as to deter
petitioner and other lenders from committing similar and other serious
wrongdoings
Case Digest No. II-16 | GR No. 138677 | Ligutan v Court of Appeals | Vitug
FACTS:
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the
amount of P120,000.00 from Security Bank and Trust Co. The obligation matured
and the bank granted an extension. Despite several demands from the Bank,
petitioners failed to settle the debt which then amounted to P114,416.10. The
Bank sent a final demand letter however petitioners still defaulted on their
obligation. The Bank then filed a complaint for recovery of the due amount.
Petitioners instead of presenting their evidence had the schedule reset for two
consecutive occasions. On the third hearing date, the trial court resolved to
consider the case submitted for decision.
Two years later petitioners filed a motion for reconsideration which was denied
by the trial court. Petitioners then interposed an appeal with the Court of Appeals,
the appellate court affirmed the judgement of the trial court except the 2% service
charge which was deleted pursuant to Central Bank Circular No. 763. The two
parties filed their motions for reconsiderations and the Court of Appeals resolved
the two motions: that the payment of interest and penalty commence on the date
when the obligation became due and a penalty of 3% per month would suffice.
The petitioners filed an omnibus motion for reconsideration which was then
denied by the Court of Appeals.
ISSUE:
Whether or not the 15.189% interest and the penalty of 3% per month (36% per
annum) is exorbitant, iniquitous, and unconscionable.
RULING:
Petition is DENIED.
HELD:
The question of whether a penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution will depend on such factors as, but
not 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 Court of Appeals, exercising its good judgement has reduced the penalty
interest from 5% a month to 3% a month. Given the circumstances and the
repeated acts of breach by petitioners of their contractual obligation, the Court
sees no cogent ground to modify the ruling of the appellate court.
The stipulated interest of 15.189% per annum, does not appear as being excessive.
The essence or rationale for the payment of interest, quite often referred to as
cost of money, is not exactly the same as that as a surcharge or a penalty. A penalty
stipulation is not necessarily preclusive of interest, if there is an agreement to that
effect, the two being distinct concepts which may separately be demanded. The
interest prescribed in loan financing arrangements is a fundamental part of the
banking business and the core of a banks existence.
NACAR VS GALLERY FRAMES
FACTS
Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey,
Jr. Nacar alleged that he was dismissed without cause by Gallery Frames on
January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery
Frames guilty of illegal dismissal hence the Arbiter awarded Nacar P158,919.92 in
damages consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme
Court affirmed the decision of the Labor Arbiter and the decision became final on
May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the LA for
recomputation as he alleged that his backwages should be computed from the
time of his illegal dismissal (January 24, 1997) until the finality of the SC decision
(May 27, 2002) with interest. The LA denied the motion as he ruled that the
reckoning point of the computation should only be from the time Nacar was
illegally dismissed (January 24, 1997) until the decision of the LA (October 15,
1998). The LA reasoned that the said date should be the reckoning point because
Nacar did not appeal hence as to him, that decision became final and executory.
ISSUE:
Whether or not the Labor Arbiter is correct.
RULING
No. There are two parts of a decision when it comes to illegal dismissal cases
(referring to cases where the dismissed employee wins, or loses but wins on
appeal). The first part is the ruling that the employee was illegally dismissed. This
is immediately final even if the employer appeals – but will be reversed if employer
wins on appeal. The second part is the ruling on the award of backwages and/or
separation pay. For backwages, it will be computed from the date of illegal
dismissal until the date of the decision of the Labor Arbiter. But if the employer
appeals, then the end date shall be extended until the day when the appellate
court’s decision shall become final. Hence, as a consequence, the liability of the
employer, if he loses on appeal, will increase – this is just but a risk that the
employer cannot avoid when it continued to seek recourses against the Labor
Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory
damages, the Supreme Court ruled that the old case of Eastern Shipping Lines vs
CA is already modified by the promulgation of the Bangko Sentral ng Pilipinas
Monetary Board Resolution No. 796 which lowered the legal rate of interest from
12% to 6%. Specifically, the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:
2. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
1. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial demand
or upon judicial demand whichever is appropriate and subject to the provisions of
Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
3. If already liquidated, rate of interest shall be 6% per annum, demandable
from date of judicial or extra-judicial demand (Art. 1169, Civil Code)
4. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per
annum demandable from the date of judgment because such on such date, it is
already deemed that the amount of damages is already ascertained.
3. Compounded Interest
– This is applicable to both monetary and non-monetary obligations
– 6% per annum computed against award of damages (interest) granted by the
court. To be computed from the date when the court’s decision becomes final and
executory until the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
– Final and executory judgments awarding damages prior to July 1, 2013 shall
apply the 12% rate;
– Final and executory judgments awarding damages on or after July 1, 2013 shall
apply the 12% rate for unpaid obligations until June 30, 2013; unpaid obligations
with respect to said judgments on or after July 1, 2013 shall still incur the 6% rate.
Notes:
NACAR V. GALLERY FRAMES AND/OR BORDEY, (2013)
(Compensatory, Penalty or Indemnity Interest)
*Amending the Eastern Shipping Doctrine
*Important: because this case discusses the amendment of the legal interest in
loan and forbearance of money, credits or goods from 12% to 6% effective July 1,
2013.
Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796,
approved the amendment of Section 2 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the
pertinent portion of which reads:
Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract
as to such rate of interest, shall be six percent (6%) per annum.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate allowed in judgments
shall no longer be 12% per annum but will now be 6% per annum effective July 1,
2013.
Ø It should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the 12% per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of 6%
per annum shall be the prevailing rate of interest when applicable.
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:
I. 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.
II. 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:
New guidelines in the award of interest:
1.) When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be 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 6% 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.
2.) When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded 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), but 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.
3.) 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 be6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
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.
Eastern Shipping Lines, Inc. v CA (Credit Transactions)
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND
MERCANTILE INSURANCE COMPANY, INC., respondents.
VITUG, J.:
FACTS:
This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants'
custody, filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.
the losses/damages were sustained while in the respective and/or successive
custody and possession of defendants carrier (Eastern), arrastre operator (Metro
Port) and broker (Allied Brokerage).
As a consequence of the losses sustained, plaintiff was compelled to pay the
consignee P19,032.95 under the aforestated marine insurance policy, so that it
became subrogated to all the rights of action of said consignee against defendants.
DECISION OF LOWER COURTS: * trial court: ordered payment of damages, jointly
and severally * CA: affirmed trial court.
ISSUES AND RULING:
(a) whether or not a claim for damage sustained on a shipment of goods can be a
solidary, or joint and several, liability of the common carrier, the arrastre operator
and the customs broker;
YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the
goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver
the goods in good condition to the consignee.
The common carrier's duty to observe the requisite diligence in the shipment of
goods lasts from the time the articles are surrendered to or unconditionally placed
in the possession of, and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance by, the person
entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals,
161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a presumption arises
against the carrier of its failure to observe that diligence, and there need not be
an express finding of negligence to hold it liable.
(b) whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision
appealed from is rendered; and
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT)
I. 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.
II. 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:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be 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.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded 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) but 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.
3. 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.
(c) whether the applicable rate of interest, referred to above, is twelve percent
(12%) or six percent (6%).
SIX PERCENT (6%) on the amount due computed from the decision, dated 03
February 1988, of the court a quo (Court of Appeals) AND A TWELVE PERCENT
(12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon
finality of the Supreme Court decision until the payment thereof.
RATIO: when the judgment awarding a sum of money becomes final and
executory, the monetary award shall earn interest at 12% per annum from the
date of such finality until its satisfaction, regardless of whether the case involves a
loan or forbearance of money. The reason is that this interim period is deemed to
be by then equivalent to a forbearance of credit.
NOTES: the Central Bank Circular imposing the 12% interest per annum applies
only to loans or forbearance of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6%
interest under the Civil Code governs when the transaction involves the payment
of indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general. Observe, too, that in these cases, a
common time frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged amount is fully
paid.
UCPB vs Beluso
FACTS: On April 1997, spouses Beluso constituted other than promissory notes, a
real estate mortgage over parcels of land. 3 of their promissory notes were
renewed several times. Subsequently, spouses failed to deliver payment upon
UPCB’s demand. As a result, their mortgage was foreclosed. Spouses filed Petition
for Annulment, Accounting and Damages against UCPB. Trial court ruled in favor
of the spouses. CA affirmed the same decision.
ISSUE: Whether the contract between the spouses Beluso and UPCB is valid.
HELD: No. Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
The provision stating that the interest shall be at the “rate indicative of DBD retail
rate or as determined by the Branch Head” is indeed dependent solely on the will
of petitioner UCPB. Under such provision, petitioner UCPB has two choices on
what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a
rate as determined by the Branch Head. As UCPB is given this choice, the rate
should be categorically determinable in both choices. If either of these two
choices presents an opportunity for UCPB to fix the rate at will, the bank can easily
choose such an option, thus making the entire interest rate provision violative of
the principle of mutuality of contracts.
Advocates for Truth in Lending, Inc. vs. BSP, et. al.
G.R. No. 192986 / January 15, 2013
FACTS:
Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer claim that
they are raising issues of transcendental importance to the public and so they filed
Petition for Certiorari under Rule 65 ROC seeking to declare that the Bangko
Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank
Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue
enforcing Central Bank Circular No. 905, issued by the CB-MB in 1982, which
"suspended" the Usury Law of 1916 (Act No. 2655).
R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered
the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed
by the Usury Law.
In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of 1982.
Section 1 of the Circular, under its General Provisions, removed the ceilings on
interest rates on loans or forbearance of any money, goods or credits.
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB.
ISSUE/S:
1. Whether the CB-MB exceeded its authority when it issued CB Circular No. 905,
which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates. NO
2. Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB
Circular No. 905. YES
RULING:
1. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No.
1684 has long been recognized and upheld in many cases. As the Court explained
in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 "did
not repeal nor in anyway amend the Usury Law but simply suspended the latter’s
effectivity;" that "a CB Circular cannot repeal a law, [for] only a law can repeal
another law;" that "by virtue of CB Circular No. 905, the Usury Law has been
rendered ineffective;" and "Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon."
By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’
freedom of contract to agree freely on the rate of interest. It cited Article 1306 of
the New Civil Code, under which the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or
public policy.
2. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that, "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of any
money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or
juridical, shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended." It does not purport to suspend the Usury Law only as it
applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury
Law, the new BSP-MB did not retain this power of its predecessor, in view of
Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The
petitioners point out that R.A. No. 7653 did not reenact a provision similar to
Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas 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. Act No. 2655, an earlier law, is much broader in scope,
whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns
loans by banks and other financial institutions. Had R.A. No. 7653 been intended
to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.
Further, 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 contrary to
morals, if not against the law.
SPOUSES DAVID B. CARPO and RECHILDA S. CARPO, Petitioners,
- versus -
ELEANOR CHUA and TINGA, and ELMA DY NG, CHICO-NAZARIO, JJ. Respondents.
DOCTRINE: Usurious loan transaction is not a complete nullity but defective only
with respect to the agreed interest.
In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since it is
the only one that is illegal.
FACTS:
1. Petitioners borrowed from respondents the amount of P175,000.00, payable
within six (6) months with an interest rate of six percent (6%) per month. To secure
the payment of the loan, petitioners mortgaged their residential house and lot.
2. Petitioners failed to pay the loan upon demand. Consequently, the real estate
mortgage was extrajudicially foreclosed where the respondents emerged winners
in the public auction.
3. Petitioners failed to exercise their right of redemption, thus a certificate of sale
was issued and new TCT was issued in the name of respondents. Despite the
issuance of the TCT, petitioners continued to occupy the said house and lot,
prompting respondents to file a petition for writ of possession.Writ of possession
was then issued.
4. Petitioners filed a complaint for annulment of real estate mortgage and the
consequent foreclosure proceedings.
5. Petitioners claim that following the Courts ruling in Medel v. Court of
Appeals the rate of interest stipulated in the principal loan agreement is clearly
null and void. Consequently, they also argue that the nullity of the agreed interest
rate affects the validity of the real estate mortgage.
ISSUE: A. Whether the interest rate is valid.---NO
B. Whether validity of said interest rate affects the Mortgage Contract.--NO
HELD: A. INTEREST RATE
Petitioners contend that the agreed rate of interest of 6% per month or 72% per
annum is so excessive, iniquitous, unconscionable and exorbitant that it should
have been declared null and void. Instead of dismissing their complaint, they aver
that the lower court should have declared them liable to respondents for the
original amount of the loan plus 12% interest per annum and 1% monthly penalty
charge as liquidated damages, in view of the ruling in Medel v. Court of Appeals
where the Court found that the interest stipulated at 5.5% per month or 66% per
annum was so iniquitous or unconscionable as to render the stipulation void.
In a long line of cases, this Court has invalidated similar stipulations on interest
rates for being excessive, iniquitous, unconscionable and exorbitant.
In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum.
By the standards set in the above-cited cases, this stipulation is similarly
invalid.From that perspective, it is apparent that the stipulated interest in the
subject loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant to
the freedom of contract principle embodied in Article 1306 of the Civil Code,
contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. In the ordinary course, the codal provision
may be invoked to annul the excessive stipulated interest.
B. INTEREST RATE INVALIDITY &MORTGAGE CONTRACT
The question as to whether the invalidity of the stipulation on interest carries with
it the invalidity of the principal obligation is crucial . The consideration of the
mortgage contract is the same as that of the principal contract from which it
receives life, and without which it cannot exist as an independent contract. Being
a mere accessory contract, the validity of the mortgage contract would depend on
the validity of the loan secured by it.
Notably in Medel, the Court did not invalidate the entire loan obligation despite
the inequitability of the stipulated interest, but instead reduced the rate of
interest to the more reasonable rate of 12% per annum. This is congruent with
the rule that a usurious loan transaction is not a complete nullity but defective
only with respect to the agreed interest.
Further, Article 1273, Civil Code, provides: "The renunciation of the principal debt
shall extinguish the accessory obligations; but the waiver of the latter shall leave
the former in force."
Article 1420 of the New Civil Code provides in this regard: "In case of a divisible
contract, if the illegal terms can be separated from the legal ones, the latter may
be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since it is
the only one that is illegal.
The principal debt remaining without stipulation for payment of interest can thus
be recovered by judicial action. And in case of such demand, and the debtor incurs
in delay, the debt earns interest from the date of the demand (in this case from
the filing of the complaint). Such interest is not due to stipulation, for there was
none, the same being void. Rather, it is due to the general provision of law that in
obligations to pay money, where the debtor incurs in delay, he has to pay interest
by way of damages
Hence, it is clear and settled that the principal loan obligation still stands and
remains valid. By the same token, since the mortgage contract derives its vitality
from the validity of the principal obligation, the invalid stipulation on interest rate
is similarly insufficient to render void the ancillary mortgage contract.
(Note: I included the below in case it is deemed relevant in Credit Trans)
C. UNDUE INFLUENCE
RTC pronounced that the complaint was barred by the four-year prescriptive
period because of vitiated consent through undue influence.
SC: Disagrees. Article 1391, in relation to Article 1390 of the Civil Code, grants the
aggrieved party the right to obtain the annulment of contract on account of factors
which vitiate consent. Article 1337 defines the concept of undue influence, as
follows:
There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress.
While petitioners were allegedly financially distressed, it must be proven that
there is deprivation of their free agency. In other words, for undue influence to be
present, the influence exerted must have so overpowered or subjugated the mind
of a contracting party as to destroy his free agency, making him express the will of
another rather than his own.
The RTC had likewise concluded that petitioners were barred by laches from
assailing the validity of the real estate mortgage.
SC: Agrees. If indeed petitioners unwillingly gave their consent to the agreement,
they should have raised this issue as early as in the foreclosure proceedings. It was
only when the writ of possession was issued did petitioners challenge the
stipulations in the loan contract in their action for annulment of mortgage.
Evidently, petitioners slept on their rights.
Clearly then, with the absence of undue influence, petitioners have no cause of
action. Even assuming undue influence vitiated their consent to the loan contract,
their action would already be barred by prescription when they filed it. Moreover,
petitioners had clearly slept on their rights as they failed to timely assail the
validity of the mortgage agreement.
Part II. Deposit
Voluntary Deposit
BPI v. The Intermediate Appellate Court & Zshornack, G.R. No. L-66826, August
19, 1998
Facts:
Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings
account and a peso current account. An application for a dollar drat was
accomplished by Virgillo Garcia branch manager of COMTRUST payable to a
certain Leovigilda Dizon. In the PPLICtion, Garcia indicated that the amount was to
be charged to the dolar savings account of the Zshornacks. There wasa no
indication of the name of the purchaser of the dollar draft. Comtrust issued a check
payable to the order of Dizon. When Zshornack noticed the withdrawal from his
account, he demanded an explainaiton from the bank. In its answer, Comtrust
claimed that the peso value of the withdrawal was given to Atty. Ernesto
Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashiers
check for P8450 issued by the manila banking corporation payable to Ernesto.
Issue: Whether the contract between petitioner and respondent bank is a
deposit?
Held: The document which embodies the contract states that the US$3,000.00
was received by the bank for safekeeping. The subsequent acts of the parties also
show that the intent of the parties was really for the bank to safely keep the dollars
and to return it to Zshornack at a later time. Thus, Zshornack demanded the return
of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil
Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
Agro-Industrial Development Corporation v. Ca and Security Bank & Trust
Company, G.R. No. 90027, March 3, 1993, 219 SCRA 426
Facts:
On July 3, 1979, petitioner (through its President- Sergio Aguirre) and the Spouses
Ramon and Paula Pugao entered into an agreement whereby the former purchase
two parcel of lands from the latter. It was paid of downpayment while the balance
was covered by there postdated checks. Among the terms and conditions
embodied in the agreement were the titles shall be transferred to the petitioner
upon full payment of the price and the owner's copies of the certificate of titles
shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos
then rented Safety Deposit box of private respondent Security Bank and Trust
Company.
Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs
Ramos demand the execution of a deed of sale which necessarily entailed the
production of the certificate of titles. In view thereof, Aguirre, accompanied by the
Pugaos, then proceed to the respondent Bank to open the safety deposit box and
get the certificate of titles. However, when opened in the presence of the Bank's
representative, the box yielded no such certificate. Because of the delay in the
reconstitution of the title, Mrs Ramos withdrew her earlier offer to purchase.
Hence this petition.
Issue:
Whether or not the contractual relation between a commercial bank and
another party in the contract of rent of a safety deposit box is one of bailor and
bailee.
Ruling:
Yes.
The contract in the case at bar is a special kind of deposit. 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 Pugaos.
American Jurisprudence:
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
bail or bailee, the bailment being for hire and mutual benefit.
Our provisions on safety deposit boxes are governed by Section 72 (a) of the
General Banking Act, and this primary function is still found within the parameters
of a contract of deposit like 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.
Thus, depositary’s liability is governed by our civil code rules on obligation and
contracts, and thus the SBTC would be liable if, in performing its obligation, it is
found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement.
Roman Catholic Bishop of Jaro v. Dela Pena, G.R. No. L-6913, November 21, 1913,
26 Phil 144
FACTS : The plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Peña was the duly
authorized representative of the plaintiff to receive the legacy. The defendant is
the administrator of the estate of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed that he had on
hand as such trustee the sum of P6,641, collected by him for the charitable
purposes aforesaid. In the same year he deposited in his personal account P19,000
in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war
of the revolution, Father De la Peña was arrested by the military authorities as a
political prisoner, and while thus detained made an order on said bank in favor of
the United States Army officer under whose charge he then was for the sum thus
deposited in said bank. The arrest of Father De la Peña and the confiscation of the
funds in the bank were the result of the claim of the military authorities that he
was an insurgent and that the funds thus deposited had been collected by him for
revolutionary purposes. The money was taken from the bank by the military
authorities by virtue of such order, was confiscated and turned over to the
Government.
While there is considerable dispute in the case over the question whether the
P6,641 of trust funds was included in the P19,000 deposited as aforesaid,
nevertheless, a careful examination of the case leads us to the conclusion that said
 trust funds were a part of the funds deposited and which were removed and
confiscated by the military authorities of the United States.
ISSUE : Whether or not Father de la Peña is liable for the loss of the money under
his trust?
RULINGS : The court, therefore, finds and declares that the money which is the
subject matter of this action was deposited by Father De la Peña in the Hongkong
and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken
from the bank by the armed forces of the United States during the war of the
insurrection; and that said Father De la Peña was not responsible for its loss.
Father De la Peña's liability is determined by those portions of the Civil Code which
relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also
bound to preserve it with the diligence pertaining to a good father of a family" (art.
1094), it also provides, following the principle of the Roman law, major casus est,
cui humana infirmitas resistere non potest, that "no one shall be liable for events
which could not be foreseen, or which having been foreseen were inevitable, with
the exception of the cases expressly mentioned in the law or those in which the
obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Peña
did not thereby assume an obligation different from that under which he would
have lain if such deposit had not been made, nor did he thereby make himself
liable to repay the money at all hazards. If the had been forcibly taken from his
pocket or from his house by the military forces of one of the combatants during a
state of war, it is clear that under the provisions of the Civil Code he would have
been exempt from responsibility. The fact that he placed the trust fund in the bank
in his personal account does not add to his responsibility. Such deposit did not
make him a debtor who must respond at all hazards.
Necessary Deposit
Durban Apartments Corp. v. Pioneer Insurance and Surety Corp, G.R. No. 179419,
January 12, 2011, 639 SCRA 441
FACTS: July 22, 2003, Pioneer Insurance and Surety Corp, by right of subrogation,
filed with the RTC of Makati a Complaint for Recovery of Damages against Durban
Apartments Corp. (or City Garden Hotel) and defendant before the RTC, Vicente
Justimbaste. Respondent averred that it is the insurer for loss and damage of
Jeffrey S. See’s 2001 Suzuki Grand Vitara in the amount of P1,175,000.00. On April
30, 2002, See arrived and checked in at the City Garden Hotel before midnight,
and its parking attendant, Justimbaste got the key to said Vitara from See to park
it. On May 1, 2002, at about 1:00 am, See received a phone call where the Hotel
Chief Security Officer informed him that his Vitara was carnapped while it was
parked unattended at the parking area of Equitable PCI Bank See went to see the
Security Officer, thereafter reported the incident to the Operations Division of the
Makati City Police Anti-Carnapping Unit, and a flash alarm was issued. The police
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. and Justimbaste. See
gave his Sinumpaang Salaysay to the police investigator, and filed a Complaint
Sheet with the PNP Traffic Management Group in Camp Crame. it paid the
P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank, Inc.
as indemnity for the loss of the Vitara.
The Vitara was lost due to the negligence of Durban Apartments and Justimbaste
because it was discovered during the investigation that this was the second time
that a similar incident of carnapping happened in the valet parking service and no
necessary precautions were taken to prevent its repetition. Durban Apartments
was wanting in due diligence in the selection and supervision of its employees
particularly defendant Justimbaste. Both failed and refused to pay its valid, just,
and lawful claim despite written demands.
ISSUE: Is petitioner liable for the loss of See’s vehicle?
RULING: Yes.
Article 1962, in relation to Article 1998, of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them
as depositaries, provided that notice was given to them, or to their employees, of
the effects brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised relative to the
care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his
vehicle for safekeeping with petitioner, through the latter’s employee,
Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of
deposit was perfected from See’s delivery, when he handed over to Justimbaste
the keys to his vehicle, which Justimbaste received with the obligation of safely
keeping and returning it. Ultimately, petitioner is liable for the loss of See’s vehicle.

YHT Realty Corporation v. CA, G.R. No. 126780, February 17, 2005, 451 SCRA 638
FACTS:
Respondent McLoughlin would always stay at Tropicana Hotel every time
he is here in the Philippines and would rent a safety deposit box. The safety deposit
box could only be opened through the use of 2 keys, one of which is given to the
registered guest, and the other remaining in the possession of the management
of the hotel.
McLoughlin allegedly placed the following in his safety deposit box – 2
envelopes containing US Dollars, one envelope containing Australian Dollars,
Letters, credit cards, bankbooks and a checkbook.
On 12 December 1987, before leaving for a brief trip, McLoughlin took
some items from the safety box which includes the ff: envelope containing Five
Thousand US Dollars (US$5,000.00), the other envelope containing Ten Thousand
Australian Dollars (AUS$10,000.00), his passports and his credit cards. The other
items were left in the deposit box. Upon arrival, he found out that a few dollars
were missing and the jewelry he bought was likewise missing.
Eventually, he confronted Lainez and Paiyam who admitted that Tan
opened the safety deposit box with the key assigned to him. McLoughlin went up
to his room where Tan was staying and confronted her. Tan admitted that she had
stolen McLouglin’s key and was able to open the safety deposit box with the
assistance of Lopez, Paiyam and Lainez. Lopez also told McLoughlin that Tan stole
the key assigned to McLouglin while the latter was asleep.
McLoughlin insisted that it must be the hotel who must assume
responsibility for the loss he suffered. Lopez refused to accept responsibility
relying on the conditions for renting the safety deposit box entitled “Undertaking
For the Use of Safety Deposit Box”
ISSUE: WON the "Undertaking for the Use of Safety Deposit Box" admittedly
executed by private respondent is null and void.
HELD: YES
Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in this case.
The hotel business like the common carrier’s business is imbued with public
interest. Catering to the public, hotelkeepers are bound to provide not only
lodging for hotel guests and security to their persons and belongings. The twin
duty constitutes the essence of the business. The law in turn does not allow such
duty to the public to be negated or diluted by any contrary stipulation in so-called
“undertakings” that ordinarily appear in prepared forms imposed by hotel keepers
on guests for their signature.
In an early case (De Los Santos v. Tan Khey), CA ruled that to hold
hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary
that they be actually delivered to the innkeepers or their employees. It is enough
that such effects are within the hotel or inn. With greater reason should the
liability of the hotelkeeper be enforced when the missing items are taken without
the guest’s knowledge and consent from a safety deposit box provided by the
hotel itself, as in this case.
Paragraphs (2) and (4) of the “undertaking” manifestly contravene Article 2003,
CC for they allow Tropicana to be released from liability arising from any loss in
the contents and/or use of the safety deposit box for any cause whatsoever.
Evidently, the undertaking was intended to bar any claim against Tropicana for any
loss of the contents of the safety deposit box whether or not negligence was
incurred by Tropicana or its employees. The New Civil Code is explicit that the
responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal
property of the guests even if caused by servants or employees of the keepers of
hotels or inns as well as by strangers, except as it may proceed from any force
majeure.41 It is the loss through force majeure that may spare the hotel-keeper
from liability. In the case at bar, there is no showing that the act of the thief or
robber was done with the use of arms or through an irresistible force to qualify
the same as force majeure.
Part III.
Guaranty
28. American Home Insurance Co. of New York v. F.F. Cruz & Co., Inc., G.R. No.
174926, August 10, 2011
29. Salvador P. Escano, et al v. Rafael Ortigas Jr., G.R. No. 151953, June 29, 2007
Facts:
On April 28, 1980, Private Development Corporation of the Philippines (PDCP)
entered into a loan agreement with Falcon Minerals, Inc. (Falcon) amounting to
$320,000.00 subject to terms and conditions. [“Nagpautang ang PDCP sa Falcon ng
$320K]
On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George A. Scholey,
and George T. Scholey executed an Assumption of Solidary Liability “to assume in
[their] individual capacity, solidary liability with [Falcon] for due and punctual
payment” of the loan contracted by Falcon with PDCP.
Two (2) separate guaranties were executed to guarantee payment of the same loan
by other stockholders and officers of Falcon, acting in their personal and individual
capacities. One guaranty was executed by Escaño, Silos, Silverio, Inductivo and
Rodriguez.
Two years later, an agreement developed to cede control of Falcon to Escaño, Silos
and Matti. Contracts were executed whereby Ortigas, George A. Scholey, Inductivo
and the heirs of then already deceased George T. Scholey assigned their shares of
stock in Falcon to Escaño, Silos and Matti. An Undertaking dated June 11, 1982 was
executed by the concerned parties, namely: with Escaño, Silos and Matti as
“SURETIES” and Ortigas, Inductivo and Scholeys as “OBLIGORS”
Falcon eventually availed of the sum of $178,655.59 from the credit line extended by
PDCP. It would also execute a Deed of Chattel Mortgage over its personal properties
to further secure the loan. However, Falcon subsequently defaulted in its payments.
After PDCP foreclosed on the chattel mortgage, there remained a subsisting
deficiency of Php 5,031,004.07 which falcon did not satisfy despite demand.
Issue: Whether the obligation to repay is solidary, as contended by respondent and
the lower courts, or merely joint as argued by petitioners.
Held/Ruling:
In case, there is a concurrence of two or more creditors or of two or more
debtors in one and the same obligation, Article 1207 of the Civil Code states that
among them, “[t]here is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.” Article
1210 supplies further caution against the broad interpretation of solidarity by
providing: “The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.” These Civil Code provisions
establish that in case of concurrence of two or more creditors or of two or more
debtors in one and the same obligation, and in the absence of express and
indubitable terms characterizing the obligation as solidary, the presumption is that
the obligation is only joint. It thus becomes incumbent upon the party alleging that
the obligation is indeed solidary in character to prove such fact with a preponderance
of evidence.
Note that Article 2047 itself specifically calls for the application of the
provisions on joint and solidary obligations to suretyship contracts. Article 1217 of
the Civil Code thus comes into play, recognizing the right of reimbursement from a
co-debtor (the principal debtor, in case of suretyship) in favor of the one who paid
(i.e., the surety).[However, a significant distinction still lies between a joint and
several debtor, on one hand, and a surety on the other. Solidarity signifies that the
creditor can compel any one of the joint and several debtors or the surety alone to
answer for the entirety of the principal debt. The difference lies in the respective
faculties of the joint and several debtor and the surety to seek reimbursement for
the sums they paid out to the creditor. In the case of joint and several debtors, Article
1217 makes plain that the solidary debtor who effected the payment to the creditor
“may claim from his co-debtors only the share which corresponds to each, with the
interest for the payment already made.” Such solidary debtor will not be able to
recover from the co-debtors the full amount already paid to the creditor, because
the right to recovery extends only to the proportional share of the other co-debtors,
and not as to the particular proportional share of the solidary debtor who already
paid. In contrast, even as the surety is solidarily bound with the principal debtor to
the creditor, the surety who does pay the creditor has the right to recover the full
amount paid, and not just any proportional share, from the principal debtor or
debtors. Such right to full reimbursement falls within the other rights, actions and
benefits which pertain to the surety by reason of the subsidiary obligation assumed
by the surety.
*Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of P1.3M; Legal
interest of 12% per annum on P 1.3M computed from March 14, 1994. Assailed
rulings are affirmed. Costs against petitioners
30. Atok Finance Corporation v. CA, G.R. No. 80078, May 18, 1993
FACTS:
 Sanyu Chemical Corporation (Sanyu Chemical) as Principal
 Sanyu Trading Corporation (Sanyu Trading) along with Private Stockholders (as
sureties):
o Sps. Danilo E. Arrieta & Nenita B. Arrieta
o Leopoldo G. Halili
o Pablito Bermindo
 They Executed a Continuing Suretyship Agreement1 in favor of Atok Finance
Corporation (Atok Finance) as creditor.
 Under this Agreement, Sanyu Trading and the individual private respondents who
were officers and stockholders of Sanyu Chemical did:
(1) For Valuable and/or other consideration x x x, jointly and severally
unconditionally guarantee to ATOK FINANCE CORPORATION (hereinafter called
Creditor), the full, faithful and prompt payment and discharge of any and all
indebtedness of [Sanyu Chemical] x x x (hereinafter called Principal) to the
Creditor
The word ‘indebtedness’ is used herein in its most comprehensive sense and includes
any and all advances, debts, obligations and liabilities of Principal or any one or
more of them, here[to]fore, now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether direct or acquired by the
Creditor by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined and whether
the Principal may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter become barred by any statute of
limitations, or whether such indebtedness may be or otherwise become
unenforceable.”
 then hold private respondents and Sanyu Chemical solidarily liable.
 27 November 1981: Sanyu Chemical assigned its trade receivables outstanding
as of 27 November 1981 with a total face value of P125,871.00 to Atok Finance
in consideration of receipt from Atok Finance of the amount of P105,000.00.
o The assigned receivables carried a standard term of 30 days;
o It appeared, however, that the standard commercial practice was to grant an
extension of up to 120 days without penalties.
 13 January 1984: Atok Finance commenced action against Sanyu Chemical, the
Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the RTC-Manila to:
o Collect the sum of P120,240.00
o Plus penalty charges amounting to P0.03 for every peso due and payable for
each month starting from 1 September 1983.
 Atok Finance alleged that Sanyu Chemical had failed to collect and remit the
amounts due under the trade receivables.
 Sanyu Chemical and individual private respondents sought dismissal of Atok’s
claim upon the ground that:
o Such claim had prescribed under Article 1629 of the Civil Code and
2 Article 2052; NCC
o
Lack of cause of action
o
Also contended that the Continuing Suretyship Agreement, being an
accessory contract, was null and void since, at the time of its execution, Sanyu
Chemical had no pre-existing obligation due to Atok Finance.
 The trial court rendered a decision in favor of Atok Finance. (Respondents had
no evidence)
o Private Respondents appealed before the IAC but was dismissed
o Dismissed the appeal upon the ground of abandonment, since the private
respondents had failed to file their appeal brief
o CA granted petition for relief of judgment
 Held that a surety agreement is an accessory contract and therefore cannot
exist without a principal contract, which was not proven to have existed when
the time the surety agreement was constituted.2
 Cited Article 2052 which states that a guarantee cannot exist without a valid
obligation.
 Cited Art. 1629, which made Sanyu Chemical free from liability.
ISSUE (S):
1)WoN that Agreement must be held null and void as having been executed without
consideration and without a pre-existing principal obligation to sustain it and would
2) WoN private respondents are liable under the Deed of Assignment on the
receivables thereby assigned.
RATIO: Petition for Review is hereby GRANTED DUE COURSE, and the Decision of the
CA are hereby REVERSED and SET ASIDE. RTC decision reinstated but modified.
Penalty is reduced to 18% per annum (instead of P0.03 for every peso monthly or
36% per annum.
In the First Issue: (Relevant to DOCTRINE)
 Article 2052 is not to be read in an absolute and literal manner and carried to the
limit of its logic.
 This is clear from Article 2052 and 20533 of the Civil Code itself: “Art. 2052. A
guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the performance of a
3:
“A guaranty may also be given as security for future debts, the amount of which is not yet
known; there can be no claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured.” 

 viodable or an unenforceable contract. It may also guarantee a natural
obligation.
 In Rizal Commercial Banking Corporation and the NARIC cases4 rejected the
distinction which the CA in the case at bar sought to make with respect to Article
2053, that is, that the “future debts” referred to in that Article relate to “debts
already existing at the time of the constitution of the agreement but the
amount [of which] is unknown,” and not to debts not yet incurred and existing
at that time.
 A surety is not bound under any particular principal obligation until that principal
obligation is born. But there is no theoretical or doctrinal difficulty inherent in
saying that the suretyship agreement itself is valid and binding even before the
principal obligation intended to be secured thereby is born, any more than
there would be in saying that obligations which are subject to a condition
precedent are valid and binding before the occurrence of the condition
precedent.
 Comprehensive or continuing surety agreements are common in present day
financial and commercial practice. A bank or a financing company which
anticipates entering into a series of credit transactions with a particular
company, commonly requires the projected principal debtor to execute a
continuing surety agreement along with its sureties.
 By executing such an agreement, the principal places itself in a position to enter
into the projected series of transactions with its creditor; with such suretyship
agreement, there would be no need to execute a separate surety contract or
bond for each financing or credit accommodation extended to the principal
debtor. This is precisely what happened in the case at bar.
In the Second Issue: (Not so Relevant)
 The contention of Sanyu Chemical was that Atok Finance had no cause of action
under the Deed of Assignment for the reason that Sanyu Chemical’s warranty of
the debtors’ solvency had ceased.
o In submitting this contention, Sanyu Chemical relied on Article 1629 5
 Assignment of receivables is a commonplace commercial transaction today. It is
an activity or operation that permits the assignee to monetize or realize the value
of the receivables before the maturity thereof. In other words, Sanyu Chemical
received from Atok Finance the value of its trade receivables it had assigned;
Sanyu Chemical obviously benefitted from the assignment. The payments due in
the first instance from the trade debtors of Sanyu Chemical would represent the
4
See notes
5“Art. 1629. In case the assignor in good faith should have made himself responsible for the
solvency of the debtor, and the contracting parties should not have agreed upon the duration
of the liability, it shall last for one year only, from the time of the assignment if the period
had already expired. If the credit should be payable within a term or period which has not
return of the investment which Atok Finance had made when it paid Sanyu
Chemical the transfer value of such receivables.
 the assignor Sanyu Chemical becomes a solidary debtor under the terms of the
receivables covered and transferred by virtue of the Deed of Assignment. And
because assignor Sanyu Chemical became, under the terms of the Deed of
Assignment, solidary obligor under each of the assigned receivables, the other
private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo
Halili), became solidarily liable for that obligation of Sanyu Chemical, by virtue of
the operation of the Continuing Suretyship Agreement.
 Put a little differently, the obligations of individual private respondent officers
and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement
were activated by the resulting obligations of Sanyu Chemical as solidary obligor
under each of the assigned receivables by virtue of the operation of the Deed of
Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting
period set out in Article 1629 of the Civil Code.
 It follows that at the time the original complaint was filed by Atok Finance in the
trial court, it had a valid and enforceable cause of action against Sanyu
Chemical and the other private respondents. We also agree with the Court of
Appeals that the original obligors under the receivables assigned to Atok Finance
remain liable under the terms of such receivables.
Notes: (For your reference.)
In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co.,
Inc:
Mr. Justice J.B.L. Reyes, made short shrift of the private respondents’ doctrinaire
argument:
“Under his third assignment of error, appellant Fojas questions the validity of the
additional bonds on the theory that when they were executed, the principal
obligation referred to in said bonds had not yet been entered into, as no copy thereof
was attached to the deeds of suretyship.
This defense is untenable, because in its complaint the NARIC averred, and the
appellant did not deny that these bonds were posted to secure the additional credit
that Fojas has applied for, and the credit increase over his original contract was
yet expired, the liability shall cease one year after the maturity.”

sufficient consideration for the bonds. That the latter were signed and filed before
the additional credit was extended by the NARIC is no ground for complaint. Article
1825 of the Civil Code of 1889, in force in 1948,expressly recognized that ‘a guaranty
may also be given as security for future debts the amount of which is not yet known.’ ”
(Italics supplied)
In Rizal Commercial Banking Corporation v. Arro:
The Court was confronted again with the same issue, that is, whether private
respondent was liable to pay a promissory note dated 29 April 1977 executed by the
principal debtor in the light of the provisions of a comprehensive surety agreement
which petitioner bank and the private respondent had earlier entered into on 19
October 1976.
Under the comprehensive surety agreement, the private respondents had bound
themselves as solidary debtors of the Diacor Corporation not only in respect of
existing obligations but also in respect of future ones. In holding private respondent
surety (Residoro Chua) liable under the comprehensive surety agreement, the Court
said:
“The surely agreement which was earlier signed by Enrique Go., Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one
which, in this case is the loan obtained by Diacor as evidence by a promissory note.
What obviously induced petitioner bank to grant the loan was the surety agreement
whereby Go and Chua bound themselves solidarily to guaranty the punctual payment
of the loan at maturity. By terms that are unequivocal, it can be clearly seen that the
surety agreement was executed to guarantee future debts which Daicor may incur
with petitioner, as is legally allowable under the Civil Code.
Relevant provision of deed of assignment:
“2. To induce the ASSIGNEE [Atok Finance] to purchase the above contracts, the
ASSIGNOR [Sanyu Chemical] does hereby certify, warrant and represent that x x x
(g) the debtor/s under the assigned contract/s are solvent and his/its/theirfailure to
pay the assigned contract/s and/or any installment thereon upon maturity thereof
shall be conclusively considered as a violation of this warranty; and x x x
The foregoing warranties and representations are in addition to those provided for
in the Negotiable Instruments Law and other applicable laws. Any violation thereof
shall render the ASSIGNOR immediately and unconditionally liable to pay the
ASSIGNEE jointly and severally with the debtors under the assigned contracts, the
amounts due thereon.
31. Bank of Commerce, et al. v. Sps. Andres and Eliza Flores, G.R. No. 174006,
December 8, 2010
Facts:
Spouse Flores borrowed money from petitioner bank in the amount of Nine Hundred
Thousand Pesos (P900,000.00) on Oct 1993. Respondents executed a Real Estate
Mortgage5 over the condominium unit as collateral, and the same was annotated at
the back of CCT No. 2130. Two years later again the spouses borrowed One Million
One Hundred Thousand Pesos (P1,100,000.00) from petitioner bank, which was also
secured by a mortgage over the same property annotated at the back of CCT No.
2130.
On Jan 1996 respondents paid One Million Eleven Thousand Five Hundred Fifty-Five
Pesos and 54 centavos (P1,011,555.54), as evidenced by Official Receipt No. 1477417
issued by petitioner bank. On the face of the receipt, it was written that the payment
was "in full payment of the loan and interest." Respondents then asked petitioner
bank to cancel the mortgage annotations on CCT No. 2130 since the loans secured by
the real estate mortgage were already paid in full. However, the bank refused to
cancel the same and demanded payment of Four Million Six Hundred Thirty-Three
Thousand Nine Hundred Sixteen Pesos and Sixty-Seven Centavos (P4,633,916.67),
then petitioner bank applied for extra-judicial foreclosure of the mortgages over the
condominium unit. The public auction sale was scheduled on September 4, 1998.
Respondents filed suit with the RTC, Quezon City, assailing the validity of the
foreclosure and auction sale of the property.
RTC granted respondents’ prayer for issuance of a writ of preliminary injunction,
restraining petitioner bank from foreclosing on the mortgage and ordered that
specific performance with damages and injunction filed by plaintiffs, Sps. Andres and
Eliza Flores against defendants, Bank of Commerce and Stephen Z. Taala, is hereby
DISMISSED. Likewise, the counterclaim filed by defendants, Bank of Commerce and
Stephen Z. Taala against plaintiffs, Sps. Andres and Eliza Flores is DISMISSED for
insufficiency of evidence.
Upon appeal, CA rendered a Decision reversing the decision and the resolution of the
RTC entering a new order:
(a) ordering the cancellation of the real estate mortgage annotations on the dorsal
side of CCT No. 2130 of the Registry of Deeds of Quezon City;
(b) ordering appellee Bank to issue a corresponding release of mortgages to plaintiffs-
appellants’ CCT No. 2130;
(c) declaring null and void the challenged extra-judicial foreclosure and public auction
sale held on March 25, 2004 together with the Certificate of Sale dated April 14, 2004
issued in favor of appellee Bank; and,
(d) appellees’ counterclaims are ordered dismissed, for lack of sufficient basis
therefor.
Issue:
WON the real estate mortgage over the subject condominium unit is a continuing
guaranty for the future loans of respondent spouses despite the full payment of the
principal loans annotated on the title of the subject property.
Held:
Yes, A continuing guaranty is a recognized exception to the rule that an action to
foreclose a mortgage must be limited to the amount mentioned in the mortgage
contract.23 Under Article 2053 of the Civil Code, a guaranty may be given to secure
even future debts, the amount of which may not be known at the time the guaranty
is executed. This is the basis for contracts denominated as a continuing guaranty or
suretyship. A continuing guaranty is not limited to a single transaction, but
contemplates a future course of dealing, covering a series of transactions, generally
for an indefinite time or until revoked. It is prospective in its operation and is
generally intended to provide security with respect to future transactions within
certain limits, and contemplates a succession of liabilities, for which, as they accrue,
the guarantor becomes liable. In other words, a continuing guaranty is one that
covers all transactions, including those arising in the future, which are within the
description or contemplation of the contract of guaranty, until the expiration or
termination thereof.
The language of the real estate mortgage unambiguously reveals that the security
provided in the real estate mortgage is continuing in nature. Thus, it was intended as
security for the payment of the loans annotated at the back of CCT No. 2130, and as
security for all amounts that respondents may owe petitioner bank. It is well settled
that mortgages given to secure future advance or loans are valid and legal contracts,
and that the amounts named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the four corners of the
instrument the intent to secure future and other indebtedness can be gathered.
Respondents’ full payment of the loans annotated on the title of the property shall
not effect the release of the mortgage because, by the express terms of the
mortgage, it was meant to secure all future debts of the spouses and such debts had
been obtained and remain unpaid. Unless full payment is made by the spouses of all
the amounts that they have incurred from petitioner bank, the property is burdened
by the mortgage.
Decision of the CA is REVERSED and SET ASIDE. The decision of the Regional Trial
Court dated December 4, 2002 is hereby REINSTATED.
32. Philippine Blooming Mills, Inc. v. CA, G.R. No. 142381, October 15, 2003
FACTS: Ching was the Senior Vice President of PBM. In his personal capacity and not
as a corporate officer, Ching signed a Deed of Suretyship for trust receipts and bound
himself as a co-maker of a promissory note to cover a trust loan. All of which were
loaned from TRB.
PBM defaulted in its payment of the three liabilities. PBM and Ching filed a
petition for suspension of payments with the Securities and Exchange Commission.
The petition sought to suspend payment of PBMs obligations and prayed that the SEC
allow PBM to continue its normal business operations free from the interference of
its creditors. One of the listed creditors of PBM was TRB.
PBM and Ching moved to dismiss the complaint on the ground that the trial
court had no jurisdiction over the subject matter of the case. PBM and Ching invoked
the assumption of jurisdiction by the SEC over all of PBMs assets and liabilities. TRB
filed an opposition to the Motion to Dismiss. TRB argued that (1) Ching is being sued
in his personal capacity as a surety for PBM; (2) the SEC decision declaring PBM in
suspension of payments is not binding on TRB; and (3) Presidential Decree No. 1758
(PD No. 1758), which Ching relied on to support his assertion that all claims against
PBM are suspended, does not apply to Ching as the decree regulates corporate
activities only.
The trial court denied the motion to dismiss with respect to Ching and affirmed
its dismissal of the case with respect to PBM. The trial court stressed that TRB was
holding Ching liable under the Deed of Suretyship. As Ching’s obligation was solidary,
the trial court ruled that TRB could proceed against Ching as surety upon default of
the principal debtor PBM. The trial court also held that PD No. 1758 applied only to
corporations, partnerships and associations and not to individuals.
Upon the trial courts denial of his Motion for Reconsideration, Ching filed a
Petition for Certiorari and Prohibition before the Court of Appeals. The appellate
court granted Chings petition and ordered the dismissal of the case. The appellate
court ruled that the SEC assumed jurisdiction over Ching and PBM to the exclusion of
courts or tribunals of coordinate rank.
TRB assailed the Court of Appeals Decision before this Court. In Traders Royal
Bank v. Court of Appeals, this Court upheld TRB and ruled that Ching was merely a
nominal party in SEC Case No. 2250. Creditors may sue individual sureties of debtor
corporations, like Ching, in a separate proceeding before regular courts despite the
pendency of a case before the SEC involving the debtor corporation.
In his Answer dated 6 November 1989, Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision approving a revised rehabilitation plan for PBMs creditors, and that PBM
obtained the credit accommodations for corporate purposes that did not redound to
his personal benefit. He further claimed that even as a surety, he has the right to the
defenses personal to PBM. Thus, his liability as surety would attach only if, after the
implementation of payments scheduled under the rehabilitation plan, there would
remain a balance of PBMs debt to TRB.
ISSUE: Whether Ching can be sued separately and whether Ching is liable for
obligations PBM contracted after execution of the Deed of Suretyship.
RULING: Yes, Ching can be sued separately to enforce his liability as surety for PBM,
as expressly provided by Article 1216 of the New Civil Code. It is elementary that a
corporation has a personality distinct and separate from its individual stockholders
and members. Being an officer or stockholder of a corporation does not make ones
property the property also of the corporation, for they are separate entities. Ching’s
act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC
jurisdiction over his person or property, for jurisdiction does not depend on the
consent or acts of the parties but upon express provision of law.
Also, Ching is liable for credit obligations contracted by PBM against TRB before and
after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the
tenor of the deed itself, referring to amounts PBM may now be indebted or may
hereafter become indebted to TRB. The law expressly allows a suretyship for future
debts. Article 2053 of the Civil Code provides:
A guaranty may also be given as security for future debts, the amount of which is not
yet known; there can be no claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured. (Emphasis supplied)
Furthermore, this Court has ruled in Dio v. Court of Appeals that:
Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is executed. This is the
basis for contracts denominated as continuing guaranty or suretyship. A continuing
guaranty is one which is not limited to a single transaction, but which contemplates
a future course of dealing, covering a series of transactions, generally for an indefinite
time or until revoked. It is prospective in its operation and is generally intended to
provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor
becomes liable. Otherwise stated, a continuing guaranty is one which covers all
transactions, including those arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or termination
thereof. A guaranty shall be construed as continuing when by the terms thereof it is
evident that the object is to give a standing credit to the principal debtor to be used
from time to time either indefinitely or until a certain period; especially if the right to
recall the guaranty is expressly reserved. Hence, where the contract states that the
guaranty is to secure advances to be made from time to time, it will be construed to
be a continuing one.
In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of any debt, any indebtedness, or any sum, or the
guaranty of any transaction, or money to be furnished the principal debtor at any
time, or on such time that the principal debtor may require, have been construed to
indicate a continuing guaranty.
33. Security Bank & Trust Company v. Cuenca, G.R. No. 138544, October 3, 2000,
341 SCRA 781
I. Facts
* Creditor: Sccurity Bank and Trust Co.
Debtor: Sta. Ines Melale Corp.
Surety: Rodolfo Cuenca
A. Sta. Ines is a corporation engaged in logging operations. In 1980, it was
granted by Security Bank a credit line in the amount of Php 8M. To secure payment,
it executed a chattel mortgage over some of its machineries and equipments. And as
an additional security, its President and Chairman of the Board of Directors Rodolfo
Cuenca, executed an Indemnity agreement in favor of Security Bank whereby he
bound himself jointly and severally with Sta. Ines. After Cuenca resigned, Sta. Ines
obtained a Php 6M loan. Because of its difficulty in making the amortization
payments, in 1989 it requested Security Bank a complete restructure of its
indebtedness, which was approved without prior notice to, or prior consent of
Cuenca. Still it was unable to pay.

B. Contention of the Petitioner
Security Bank insists that the 1989 Loan Agreement was a mere renewal or
extension of the Php 8M original accommodation, that Cuenca waived his right to be
notified of and to give consent to any substitution, renewal, extension, increase,
amendment, conversion or revival of the same, and that it was a continuing surety.
C. Contention of the Respondent
Cuenca argues that the 1989 agreement extinguished the obligation under
the 1980 credit accommodation by novation.
II. Issues
WON the 1989 Loan Agreement novated the original credit accommodation
and Cuenca’s liability under the Indemnity Agreement.
III. Ruling
Yes. The 1989 Loan Agreement is extinguished by novation the obligation
under the 1980 P8 million credit accommodation. It is essential in the law of
suretyship that any agreement between the creditor and the principal debtor that
essentially varies the terms of the principal contract without the consent of the
surety, will release the surety from liability. The 1989 Loan Agreement expressly
stipulated that its purpose was to liquidate, not to renew or extend, the outstanding
indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan
Agreement, which had allegedly extended the original P8 million credit facility.
Indeed, the stipulation in the 1989 Loan Agreement providing for the surety
of respondent, without even informing him, smacks of negligence on the part of the
bank and bad faith on that of the principal debtor. Since that Loan Agreement
constituted a new indebtedness, the old loan having been already liquidated, the
spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a
surety for the new loan.
G.R. No. 72275 November 13, 1991
PACIFIC BANKING CORPORATION, petitioner,
vs.
HON INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA,
JR., respondents.
FACTS:
The case is a petition for review on certiorari of the decision of the
Intermediate Appellate Court. In the case, Cecilia Regala obtained a Pacific
Credit Card and her spouse, Roberto Regala signed as her guarantor. The
holder of the card purchased goods and/or services under the pacificard
amounting to P92, 803.98. Despite the execution of demand from the bank,
the couple did not comply. The trial court renders judgment for the plaintiff
and against the defendants condemning the latter, jointly and severally, to
pay said plaintiff the amount of P92,803.98, with interest thereon at 14% per
annum, compounded annually, from the time of demand on November 17,
1978 until said principal amount is fully paid; plus 15% of the principal
obligation as and for attorney's fees and expense of suit; and the costs.
The defendants appealed to the Intermediate Appellate Court. Wherein the
said court modified only as to appellant Roberto Regala, Jr., so as to make him
liable only for the purchases made by defendant Celia Aurora Syjuco Regala
with the use of the Pacificard from October 29, 1975 up to October 29, 1976
up to the amount of P2,000.00 per month only, with interest from the filing
of the complaint up to the payment at the rate of 14% per annum without
pronouncement as to costs.
ISSUE:
Whether or not, Roberto Regalado as a guarantor is limited to pay up to only
P2000 per month in the liability of his spouse to the said bank,
DECISION:
The undertaking signed by Roberto Regala, Jr. although denominated
"Guarantor's Undertaking," was in substance a contract of surety. As
distinguished from a contract of guaranty where the guarantor binds himself
to the creditor to fulfill the obligation of the principal debtor only in case the
latter should fail to do so, in a contract of suretyship, the surety binds himself
solidarily with the principal debtor. It is true that under Article 2054 of the
Civil Code, "(A) guarantor may bind himself for less, but not for more than the
principal debtor, both as regards the amount and the onerous nature of the
conditions. It is likewise not disputed by the parties that the credit limit
granted to Celia Regala was P2,000.00 per month and that Celia Regala
succeeded in using the card beyond the original period of its effectivity,
October 29, 1979. We do not agree however, that Roberto Jr.'s liability should
be limited to that extent.
A guarantor or surety does not incur liability unless the principal debtor is
held liable. It is in this sense that a surety, although solidarily liable with the
principal debtor, is different from the debtor. It does not mean, however, that
the surety cannot be held liable to the same extent as the principal debtor.
The nature and extent of the liabilities of a guarantor or a surety is
determined by the clauses in the contract of suretyship.
ACCORDINGLY, the petition is GRANTED. The questioned decision of
respondent appellate court is SET ASIDE and the decision of the trial court is
REINSTATED.
GR No. 172041 | Gateway Electronics Corp v Asianbank Corp | Velasco
FACTS:
In July 1996, Geronimo delos Reyes and Andrew delos Reyes executed
separate but almost identical deeds of suretyship for Gateway in favor of
respondent Asianbank Corporation. Later developments saw Asianbank
extending to Gateway several export packing loans and secured by a chattel
mortgage over Gateway’s equipment. Gateway initially made payments on
its loan obligations, but later on defaulted. Asianbank extended the maturity
dates of the loan several times. Gateway issued two checks but was
dishonored for insufficiency of funds. Asianbank’s demand for payment upon
Gateway and its sureties went unheeded.
In December 1999, Asianbank filed a complaint for a sum of money against
Gateway, Geronimo and Andrew. And in October 2003 the RTC rendered
judgement in favor of Gateway. Gateway, Geronimo and Andrew appealed to
the CA and then Gateway filed a petition of insolvency in November 2004. In
October 2005 the CA affirmed the decision of the RTC. Gateway and
Geronimo interposed a motion for reconsideration and followed by a
Supplemental Motion for Reconsideration on January 2006. On December
2004, Gateway was declared insolvent by the RTC in Imus and directing all its
creditor to appear before the court for the purpose of choosing the assignee
of Gateway’s estate.
In March 2006, the CA denied the motion for reconsideration.
ISSUE:
1. Whether or not an action commenced by a creditor against a
judicially declared insolvent for the recovery of his claim should be
dismissed and referred to the insolvency court.
2. Whether or not claims against a surety may proceed independently
from that against the principal debtor.
3. Whether or not the surety cannot be made to pay since the principal
cannot, owing to the order of insolvency, be made to pay its
obligation.
4. Whether or not a deed of suretyship would secure a loan obligation
contracted three years after the execution of the surety deed.
HELD:
The petition is DENIED and the CA resolution AFFIRMED with modifications
that any claim against Gateway, shall be pursued before the RTC in Cavite as
the insolvency court.
RULING:
1. The issuance of the insolvency order of December 2004 had the effect
of automatically staying the civil action for a sum of money filed by
Asianbank against Gateway. No creditor whose debt is provable
under this Act shall be allowed, to prosecute to final judgement any
action therefore against the debtor until the question of the debtor’s
discharge shall have been determined, and any such suit proceeding
shall, upon the application of the debtor or of any creditor, or the
assignee, be stayed to await the determination of the court on the
question of discharge. (Sec 60 of Act No. 1956)
2. A creditor’s right to proceed against the surety exists independently
of his right to proceed against the principal. Under Art 1216 of the
Civil Code, the creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. If the obligation is
 joint and several, the creditor has the right to proceed even against
the surety alone.
3. The rule that the obligation of a guarantor may be less, but cannot be
more than the principal debtor. The rule cannot plausibly be
stretched to mean that a guarantor or surety is freed from liability as
such guarantor or surety in the event the principal debtor becomes
insolvent or is unable to pay the obligation. The essence of a
suretyship contract refers to an agreement whereunder one person,
the surety, engages to be answerable for the debt, default, or
miscarriages of another known as principal.
4. A continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of dealing,
covering a series of transactions, generally for an indefinite time or
until revoked. It is prospective in its operation and is generally
intended to provide security with respect to future transactions
within certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable.
GR. No. 145578
Tupaz IV, Tupaz vs. CA, BPI
Facts:
Jose C. Tupaz IV - VP for Operations and Petronila C. Tupaz -VP/Treasurer of
EL ORO Engraver Corporation, entered into a contract with the AFP - Armed
Forces Of The Philippines to supply the latter with “survival bolos.”
To finance the purchase of the raw materials for the bolos, Jose Tupaz and
Petronila Tupaz on behalf of EL ORO Corporation, applied with respondent
bank BPI - Bank of the Philippine Islands for 2 commercial Letters of Credit.
The LCs were in favor of El Oro Corporation’s suppliers, TANCHAOCO
Manufacturing Incorporated.
Simultaneous with the issuance of the LCs, the 2 Tupazes, Jose Tupaz and
Petronila Tupaz.. ,(okay) petitioners hereto signed TRUST RECEIPTS in favor
of respondent bank BPI.
Now here comes the issue. Jose C. Tupaz IV signed, in his personal capacity,
a trust receipt corresponding to a Letter of Credit for P564,871.
The problem was, petitioners did not comply with their undertaking under
the TRUST RECEIPTS. Respondent bank naturally made several demands for
payments but EL ORO Corporation made partial payments only.
So as a consequence, respondent bank BPI sent final demand letters to EL
ORO Corporation where EL ORO replied that it could not fully pay its debt
because the AFP (Armed Forces of the Philippines) had delayed paying for the
survival bolos. (in short, naipit sya)
Issue:
Did Petitioners herein stated bind themselves personally with regard to the
company debt herein described when they signed the Trust Receipts?
Held:
NO.
A CORPORATE REPRESENTATIVE signing as a solidary guarantee as corporate
representative did not undertake to guarantee personally the payment of the
corporation’s debts.
In the aforementioned trust receipt, petitioners signed below its clause as
officers of El Oro Corporation. Thus, under petitioner Petronila Tupaz’s
signature are the words “Vice-Pres–Treasurer” and under petitioner Jose
Tupaz’s signature are the words “Vice-Pres–Operations.” By so signing that
trust receipt, PETITIONERS DID NOT BIND THEMSELVES PERSONALLY LIABLE
FOR EL ORO CORPORATION’S OBLIGATION.
In Ong v. Court of Appeals, a corporate representative signed a solidary
guarantee clause in two trust receipts in his capacity as corporate
representative. There, the Court held that the corporate representative did
not undertake to guarantee personally the payment of the corporation’s
debts.
A corporation, being a juridical entity, may act only through its directors,
officers, and employees. Debts incurred by these individuals, acting as such
corporate agents, are not theirs but the direct liability of the corporation they
represent.
(exception)
As an exception, directors or officers are personally liable for the
corporation’s debts only if they so contractually agree or stipulate.
Prudential Bank v Intermediate Appellate Court and Anacleto Chi G.R. No.
74886 December 8, 1992
Through a letter of credit, the bank merely substitutes its own promise to pay
for one of its customers who in return promises to pay the bank the amount
of funds mentioned in the letter of credit plus credit or commitment fees
mutually agreed upon.
Facts:
Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co.,
Ltd. of Japan for the importation of textile machineries under a 5-year
deferred payment plan. To effect the payment, PRMI applied for a
commercial letter of credit with the Prudential Bank and Trust Company in
favor of Nissho. Prudential Bank opened Letter of Credit No. DPP-63762 for
$128,548.78 Against this letter of credit, drafts were drawn and issued by
Nissho, which were all paid by the Prudential Bank through its correspondent
in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were accepted by
PRMI through its president, Anacleto R. Chi, while the others were not. Upon
the arrival of the machineries, the Prudential Bank indorsed the shipping
documents to the PRMI which accepted delivery of the same. To enable PRMI
to take delivery of the machineries, it executed, by prior arrangement with
the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his
capacity as President of PRMI company
At the back of the trust receipt was printed a form to be accomplished by 2
sureties who, by the very terms and conditions thereof, were to be jointly and
severally liable to the Prudential Bank should the PRMI fail to pay the total
amount or any portion of the drafts issued by Nissho and paid for by
Prudential Bank. . PRMI was able to take delivery of the textile machineries
and installed the same at its factory site. Chi argued that presentment for
acceptance was necessary to make PRMI liable. The trial court ruled that that
presentment for acceptance was an indispensable requisite for Philippine
Rayon’s liability on the drafts to attach.
Issue :
Whether or not presentment for acceptance was needed in order for PRMI
to be liable under the draft.
HELD :
Presentment for acceptance is defined an the production of a bill of exchange
to a drawee for acceptance. Acceptance, however, was not even necessary in
the first place because the drafts which were eventually issued were sight
drafts. Even if these were not sight drafts, thereby necessitating acceptance,
it would be the Bank (Bank of America) — and not Philippine Rayon — which
had to accept the same for the latter was not the drawee.
The trial court and the public respondent, therefore, erred in ruling that
presentment for acceptance was an indispensable requisite for Philippine
Rayon’s liability on the drafts to attach. Contrary to both courts’
pronouncements, Philippine Rayon immediately became liable upon Bank of
America’s payment on the letter of credit. Such is the essence of the letter of
credit issued by the petitioner. A different conclusion would violate the
principle upon which commercial letters of credit are founded because in
such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the
petitioner, respectively, would be placed at the mercy of Philippine Rayon
even if the latter had already received the imported machinery and the
petitioner had fully paid for it.
In fact, there was no need for acceptance as the issued drafts are sight drafts.
Presentment for acceptance is necessary only in the cases expressly provided
for in Section 143 of the Negotiable Instruments Law (NIL).
In the instant case then, the drawee was necessarily the herein the Bank of
America. It was to the latter that the drafts were presented for payment.
Bitanga vs. Pyramid Const.
G.R. No. 173526
August 28, 2008
FACTS: Pyramid filed with the RTC a Complaint for specific performance and
damages with application for the issuance of a writ of preliminary attachment
against the petitioner and wife Marilyn.
Respondent alleged in its Complaint that, it entered into an agreement with
Macrogen Realty, of which Bitanga is the President, to construct for the latter
the Shoppers Gold Building located in Parañaque City. Respondent
commenced civil, structural, and architectural works on the construction
project. However, Macrogen failed to settle respondent’s progress billings.
Petitioner, through his representatives and agents, assured respondent that
the outstanding account of Macrogen would be paid and relying on the
assurances made by petitioner, respondent continued the construction
project.
Later, respondent suspended work on the construction project since the
conditions that it imposed for the continuation thereof, including payment of
unsettled accounts, had not been complied with by Macrogen. Respondent
instituted with the Construction Industry Arbitration Commission (CIAC) a
case for arbitration against Macrogen Realty seeking payment by the latter of
its unpaid billings and project costs. Before the arbitration case could be set
for trial, Pyramid and Macrogen entered into a Compromise Agreement, with
petitioner acting as signatory for and in behalf of Macrogen Realty.
Under the Compromise Agreement, Macrogen Realty agreed to pay
respondent the total amount of P6,000,000.00 by installments. Petitioner
guaranteed the obligations of Macrogen Realty under the Compromise
Agreement by executing a Contract of Guaranty in favor of respondent, by
virtue of which he irrevocably and unconditionally guaranteed the full and
complete payment of the principal amount of liability of Macrogen. Upon
joint motion of respondent and Macrogen Realty, the CIAC approved the
Compromise Agreement.
Macrogen Realty failed and refused to pay all the monthly installments
agreed upon in the Compromise Agreement. Hence respondent moved for
the issuance of a writ of execution against Macrogen, which CIAC granted.
The sheriff filed a return stating that he was unable to locate any property of
Macrogen Realty, except its bank deposit of P20,242.33, with the Planters
Bank, Buendia Branch.
Respondent then made, a written demand on petitioner, as guarantor of
Macrogen to pay the liability or to point out available properties of the
Macrogen within the Philippines sufficient to cover the obligation
guaranteed. It also made verbal demands on petitioner. Yet, respondent’s
demands were left unheeded.
Petitioner filed with the RTC his Answer to respondent’s Complaint. As a
special and affirmative defense, petitioner argued that the benefit of
excussion was still available to him as a guarantor since he had set it up prior
to any judgment against him. According to petitioner, respondent failed to
exhaust all legal remedies to collect from Macrogen the amount due under
the Compromise Agreement, considering that Macrogen Realty still
had uncollected credits which were more than enough to pay for the same.
Given these premise, petitioner could not be held liable as guarantor.
ISSUE: WON petitioner cam avail of the benefit of excussion
HELD: petition denied for lack of merit; CA affirmed; Bitanga (alone; not
including his wife who is not a party to the compromise agreement) is liable
as per Compromise Agreement or the contract of guaranty.
NO
Under a contract of guarantee, the guarantor binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do
so. The guarantor who pays for a debtor, in turn, must be indemnified by the
latter. However, the guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the debtor and resorted to
all the legal remedies against the debtor. This is what is otherwise known as
the benefit of excussion
Article 2060 of the Civil Code reads:
Art. 2060. In order that the guarantor may make use of the benefit of
excussion, he must set it up against the creditor upon the latter’s demand for
payment from him, and point out to the creditor available property of the
debtor within Philippine territory, sufficient to cover the amount of the debt

It must be stressed that despite having been served a demand letter at his
office, petitioner still failed to point out to the respondent properties of
Macrogen Realty sufficient to cover its debt as required under Article 2060 of
the Civil Code. Such failure on petitioner’s part forecloses his right to set up
the defense of excussion.

Worthy of note as well is the Sheriff’s return stating that the only property of
Macrogen Realty which he found was its deposit of P20,242.23 with the
Planters Bank.

Article 2059(5) of the Civil Code thus finds application and precludes
petitioner from interposing the defense of excussion. We quote:

Art. 2059. This excussion shall not take place:

xxxx

(5) If it may be presumed that an execution on the property of the principal

debtor would not result in the satisfaction of the obligation.

As the Court of Appeals correctly ruled:

We find untenable the claim that the Bitanga cannot be compelled to pay
Pyramid because the Macrogen Realty has allegedly sufficient assets. Reason:
The said [petitioner] had not genuinely controverted the return made by
Sheriff Bisnar, who affirmed that, after exerting diligent efforts, he was not
able to locate any property belonging to the Macrogen Realty, except for a
bank deposit with the Planter’s Bank at Buendia, in the amount
of P20,242.23. It is axiomatic that the liability of the guarantor arises when
the insolvency or inability of the debtor to pay the amount of debt is proven
by the return of the writ of execution that had not been unsatisfied
AUTOCORP and Rodriguez vs. ISAC and BOC
G.R. No. 166662
June 27, 2008
FACTS: Autocorp Group, represented by its President, Rodriguez, secured an
ordinary re-export bond from private respondent Intra Strata Assurance
Corporation (ISAC) in favor of public Bureau of Customs (BOC), to guarantee
the re-export of 2 units of car (at 2 different dates) and/or to pay the taxes
and duties thereon. Petitioners executed and signed two Indemnity
Agreements with identical stipulations in favor of ISAC, agreeing to act as
surety of the subject bonds
In sum, ISAC issued the subject bonds to guarantee compliance by petitioners
with their undertaking with the BOC to re-export the imported vehicles within
the given period and pay the taxes and/or duties due thereon. In turn,
petitioners agreed, as surety, to indemnify ISAC for the liability the latter may
incur on the said bonds
Autocorp failed to re-export the items guaranteed by the bonds and/or
liquidate the entries or cancel the bonds, and pay the taxes and duties
pertaining to the said items, despite repeated demands made by the BOC, as
well as by ISAC. By reason thereof, the BOC considered the two bonds
forfeited.
Failing to secure from petitioners the payment of the face value of the two
bonds, ISAC filed with the RTC an action against petitioners to recover a sum
of money plus AF. ISAC impleaded the BOC “as a necessary party plaintiff in
order that the reward of money or judgment shall be adjudged unto the said
necessary plaintiff.”
Petitioners filed a MTD, which was denied. RTC ordered Autocorp to pay ISAC
and/or BOC the face value of the subject bonds plus AF. Autocorp’s MR was
denied. CA affirmed the trial court’s decision. MR was denied. Hence this
Petition for Review on Certiorari
ISSUE: WON these bonds are now due and demandable, as there is yet no
actual forfeiture of the bonds, but merely a recommendation of forfeiture,
for no writ of execution has been issued against such bonds, therefore the
case was prematurely filed by ISAC
HELD: PETITION IS WITHOUT MERIT
YES
The Indemnity Agreements give ISAC the right to recover from petitioners the
face value of the subject bonds plus attorney’s fees at the time ISAC becomes
liable on the said bonds to the BOC, (specifically to re-export the imported
vehicles within the period of six months from their date of entry) regardless
of whether the BOC had actually forfeited the bonds, demanded payment
thereof and/or received such payment. It must be pointed out that the
Indemnity Agreements explicitly provide that petitioners shall be liable to
indemnify ISAC “whether or not payment has actually been made by the
[ISAC]” and ISAC may proceed against petitioners by court action or otherwise
“even prior to making payment to the [BOC] which may hereafter be done by
[ISAC].”
Article 2071 of the Civil Code provides:
Art. 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty
within a specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of
the period for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed
period for its maturity, unless it be of such nature that it cannot be
extinguished except within a period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends
to abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any
proceedings by the creditor and from the danger of insolvency of the debtor.
SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID BANK
CORPORATION, FIRSTBUSINESS PAPER CORPORATION (FBPC)
RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an "omnibus
line" credit facility worth P10 million in favor of (FBPC). The terms and
conditions of the agreement as well as thechecklist of documents necessary
to open the credit line were stipulated in a "letter-advise" of the Bank. The
documents essential for the credit facility and submitted for this purpose
werethexxx(c) Continuing Guaranty for any and all amounts signed by
petitioner-spouses Luis Toh andVicky Tan Toh, and respondent-spouses
Kenneth and Ma. Victoria Ng Li xxx The spouses Toh were then Chairman of
the Board and Vice-President, of FBPC, while respondent-spouses Ng Li were
President and General Manager of the same corporation.5The Continuing
Guaranty set forth no maximum limit on the indebtedness that respondent
FBPC may incur and contained a de facto acceleration clause. So as to
strengthen this security,the Continuing Guaranty waived rights of the sureties
against delay or absence of notice or demand on the part of respondent Bank,
and gave future consent to the Bank's action to “extend or change the time
payment, and/or the manner, place or terms of payment, “including renewal,
of the credit facility or any part thereof in such manner and upon such terms
as the Bank may deem proper without notice to or further assent from
the sureties. On 16 June 1993 respondent FBPC started to avail of the credit
facility and secured letters of credit.7 FBPC opened thirteen (13) letters of
credit and executed a series of trust receipts over the goods allegedly
purchased from the proceeds of the loans.9On 13 January 1994 respondent
Bank received information that respondent-spouses Kenneth Ng Li and Ma.
Victoria Ng Li had fraudulently departed from their conjugal home.10 On
14January 1994 the Bank served a demand letter upon FBPC and petitioner
Luis Toh invoking the acceleration clause11 in the trust receipts of FBPC and
claimed payment for P10,539,758.68 as unpaid overdue accounts on the
letters of credit plus interests and penalties within twenty-four(24) hours
from receipt thereof.12 The Bank also invoked the Continuing Guaranty
executed by petitioner-spouses Luis Toh and Vicky Tan Toh.On 17 January
1994 respondent Bank filed a complaint for sum of money. Petitioners also
contended that through FBPC Board Resolution, petitioner Luis Toh was
removed as an authorized signatory for FBPC and replaced by respondent-
spouses Ng Li and Padilla for all the transactions of FBPC with respondent
Bank.24 They even resigned from their respective positions in FBPC. Finally,
petitioners averred that sometime in June 1993 they obtained from
respondent Kenneth Ng Li their exclusion from the several surety
agreementsthey had entered into .
ISSUE:
WON spouses TOH are discharged as sureties under the Continuing Guaranty.
HELD
This Court holds that the Continuing Guaranty is a valid and binding contract
of petitioner-spouses as it is a public document that enjoys the presumption
of authenticity and due execution. Similarly, there is no basis for petitioners
to limit their responsibility so long as they were corporate officers and
stockholders of FBPC. Nothing in the Continuing Guaranty restricts their
contractual undertaking to such condition or eventuality.But as we bind the
spouses Luis Toh and Vicky Tan Toh to the surety agreement they signed
somust we also hold respondent Bank to its representations in the "letter-
advise" of 16 May1993. Particularly, as to the extension of the due dates of
the letters of credit, we cannot exclude from the Continuing Guaranty the
preconditions of the Bank that were plainly stipulated in the "letter-advise.
“Insofar as petitioners stipulate in the Continuing Guaranty that respondent
Bank "may at anytime, or from time to time, in [its] discretion x x x extend or
change the time payment," this provision even if understood as a waiver is
confined per se to the grant of an extension and does not surrender the
prerequisites therefor as mandated in the "letter-advise." In other words, the
authority of the Bank to defer collection contemplates only authorized
extensions, that is, those that meet the terms of the "letter-advise.
“Certainly, while the Bank may extend the due date at its discretion pursuant
to the Continuing Guaranty, it should nonetheless comply with the
requirements that domestic letters of creditbe supported by fifteen percent
(15%) marginal deposit extendible three (3) times for a period of thirty (30)
days for each extension, subject to twenty-five percent (25%) partial payment petitioners herein, or at the very least, mitigate the liability of the surety up
perextension.Furthermore, the assurance of the sureties in the Continuing to the value of the property or lien released
Guaranty that "[n]o act or omission of any kind on [the Bank's] part in the
–
premises shall in any event affect or impair thisguaranty"51 must also be read
"strictissimi juris" for the reason that petitioners are only accommodation If the creditor has acquired a lien upon the property of a principal, the
sureties, i.e., they received nothing out of the security contract they creditor at once becomes charged with the duty of retaining such security, or
signed.5An extension of the period for enforcing the indebtedness does not maintaining such lien in the interest of the surety, and any release or
by itself bring about the discharge of the sureties unless the extra time is not impairment of this security as a primary resource for the payment of a debt,
permitted within the terms of the waiver,i.e., where there is no payment or will discharge the surety to the extent of the value of the property or lien
there is deficient settlement of the marginal deposit and the twenty-five released x x xx [for] there immediately arises a trust relation between the
percent (25%) consideration, in which case the illicit extension releases the parties, and the creditor as trustee is bound to account to the surety for the
sureties. Under Art. 2055 of the Civil Code, the liability of a surety is measured value of the security in his hands.60For the same reason, the grace period
by the terms of his contract, and while he is liable to the full extent thereof, granted by respondent Bank represents unceremonious abandonment and
his accountability is strictly limited to that assumed by its terms. forfeiture of the fifteen percent (15%) marginal deposit and the twenty-
fivepercent (25%) partial payment as fixed in the "letter-advise." These
It is admitted by respondent Bank before the trial court that several letters of
payments are unmistakably additional securities intended to protect both
credit wereirrevocably extended for ninety (90) days with alarmingly flawed
respondent Bank and the sureties in the event that the principal debtor FBPC
and inadequate consideration- the indispensable marginal deposit of
becomes insolvent during the extension period. Compliance with these
fifteen percent (15%) and the twenty-five percent (25%)prerequisite for each
requisites was not waived by petitioners in the Continuing Guaranty. For this
extension of thirty (30) days.The foregoing extensions of the letters of credit
unwarranted exercise of discretion, respondent Bank bears the loss; due to
made by respondent Bank without observingthe rigid restrictions for
its unauthorized extensions to pay granted to FBPC, petitioner-spouses Luis
exercising the privilege are not covered by the waiver stipulated in
Toh and Vicky Tan Toh are discharged as sureties under the Continuing
theContinuing Guaranty. Evidently, they constitute illicit extensions
Guaranty.
prohibited under Art. 2079 of the Civil Code, "[a]n extension granted to the
debtor by the creditor without the consent of theguarantor extinguishes the
guaranty."As a result of these illicit extensions, petitioner-spouses Luis Toh
and Vicky Tan Toh are relievedof their obligations as sureties of respondent
FBPC under Art. 2079 of the Civil Code.By the same token, there is no
explanation on record for the utter worthlessness of the trust receipts in
favor of the Bank when these documents ought to have added more security
to the indebtedness of FBPC. To be sure, the goods subject of the trust
receipts were not entirely lost since the security officer of respondent Bank
who conducted surveillance of FBPC even had the chance to intercept the
surreptitious transfer of the items under trust. In addition, the attached
properties of FBPC were perfunctorily abandoned by respondent Bank
although the bonds therefor were considerably reduced by the trial
court.58The consequence of these omissions is to discharge the surety,
45. SECURITY BANK AND TRUST COMPANY, Inc. vs. RODOLFO
M. CUENCA
DOCTRINE:
An extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty. The 1989 Loan Agreement
expressly stipulated that its purpose was to “liquidate,” not to renew or
extend, the outstanding indebtedness. Moreover, respondent did not
sign or consent to the 1989 Loan Agreeement, which had alledgedly
extended the original P8 million credit facility. Hence, his obligation as
a surety should be deemed extinguished, pursuant to Article 2079 of
the Civil Code, which specifically states that “[a]n extension granted to
the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty.
An essential alteration in the terms of a Loan Agreement without the
consent of the surety extinguishes the latter’s obligation. The
submission that only the borrower, not the surety, is entitled to be
notified of any modification in the original loan accommodation is
untenable - such theory is contrary to the to the principle that a surety
cannot assume an obligation more onerous than that of the principal.
That the Indemnity Agreement is a continuing surety does not authorize
the lender to extend the scope of the principal obligation inordinately; A
continuing guaranty is one which covers all transaction, including those
arising in the future, which are within the description or contemplation
of the contract of guaranty, until the expiration or termination thereof.
FACTS:
Security Bank granted a credit line in the amount of 8 million
pesos in favour of Sta. Ines, a corporation engaged in logging
operations and in which Rodolfo Cuenca is the President. In order
to secure payment, Sta. Ines executed a chattel mortgage over some
of its machineries and equipments and as an additional security
Cuenca executed an Indemnity Agreement where he bound himself
jointly and severally with Sta. Ines and without the benefit of
excussion of whatever amount the client may be indebted to the
bank by virtue of aforesaid credit accommodation(s) including the
substitutions, renewals, extensions, increases, amendments,
conversions and revivals of the aforesaid credit accommodation(s).
After Cuenca resigned, Sta. Ines was able to obtained a loan of
6 million pesos, but was unable to pay the amortization payments
and requested Security Bank a complete restructure
of its indebtedness which was approved and without prior notice to
or consent of Cuenca. Despite that Sta. Ines was still unable to pay. As
a result Security Bank made failed attempts to demand from Sta. Ines
and Cuenca the fulfillment
of their obligation, thus a complaint was filed and a decision in
favour of Security Bank was rendered which held Cuenca liable.
On appeal, Cuenca contends that the original agreement of 8
million loan was extinguished by novation when the obligation
under the 6 million loan and subsequent restructuring was granted.
ISSUE:
Whether Cuenca is liable as a surety to the 6 million loan under the
Indemnity Agreement?
HELD:
NO.
The Indemnity Agreement is a continuing surety and as such does not
authorize the bank to extend the scope of the principal obligation
inordinately. A surety being an onerous undertaking, a surety
agreement is strictly construed against the creditor, and every doubt is
resolved in favor of the solidary debtor. The fundamental rules of fair
play require the creditor to obtain the consent of the surety to
any material alteration in the principal loan agreement, or at least
to notify it thereof. Hence, petitioner bank cannot hold herein
respondent liable for loans obtained in excess of the a
mount or beyond the period stipulated in the original agreement,
absent any clear stipulation showing that the latter waived his right to
be notified thereof, or to give consent thereto. This is especially true
where, as in this case, respondent was no longer the principal
officer or major stockholder of the corporate debtor at the time
the later obligations were incurred. He was thus no longer in a position
to compel the debtor to pay the creditor and had no more reason to bind
himself anew to the subsequent obligations.
46. Palmares v CA (Negotiable Instruments Law)
PALMARES vs. CA (288 SCRA 422)
FACTS:
Private respondent M.B. Lending Corporation extended a loan to the
spouses Osmeña and Merlyn Azarraga, together with petitioner
Estrella Palmares, in the amount of P30,000.00 payable on or before
May 12, 1990, with compounded interest at the rate of 6% per annum
to be computed every 30 days from the date thereof.
On four occasions after the execution of the promissory note and
even after the loan matured, petitioner and the Azarraga spouses
were able to pay a total of P16,300.00, thereby leaving a balance of
P13,700.00. No payments were made after the last payment on
September 26, 1991. Consequently, on the basis of petitioner's
solidary liability under the promissory note, respondent corporation
filed a complaint 3 against petitioner Palmares as the lone party-
defendant, to the exclusion of the principal debtors, allegedly by
reason of the insolvency of the latter.
ISSUES:
(1) Where a party signs a promissory note as a co-maker and binds
herself to be jointly and severally liable with the principal debtor in
case the latter defaults in the payment of the loan, is such undertaking
of the former deemed to be that of a surety as an insurer of the debt,
or of a guarantor who warrants the solvency of the debtor? Or WON
Palmares is liable
(2) WON the penalty charge of 3% per month and attorney's fees
equivalent to 25% of the total amount due are highly inequitable and
unreasonable
HELD:
(1) YES.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship.
a surety is bound equally and absolutely with the principal, and as
such is deemed an original promisor and debtor from the beginning.
This is because in suretyship there is but one contract, and the surety
is bound by the same agreement which binds the principal. In
essence, the contract of a surety starts with the agreement, which is
precisely the situation obtaining in this case before the Court.
It is a cardinal rule in the interpretation of contracts that if the terms of
a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control. In
the case at bar, petitioner expressly bound herself to be jointly and
severally or solidarily liable with the principal maker of the note. The
terms of the contract are clear, explicit and unequivocal that
petitioner's liability is that of a surety.
(2) YES.
It must be remembered that from the principal loan of P30,000.00, the
amount of P16,300.00 had already been paid even before the filing of
the present case. Article 1229 of the Civil Code provides that the court
shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. And, even if
there has been no performance, the penalty may also be reduced if it
is iniquitous or leonine.
The grant of attorney's fees equivalent to 25% of the total amount due
is, in our opinion, unreasonable and immoderate, considering the
minimal unpaid amount involved and the extent of the work involved in
this simple action for collection of a sum of money. We, therefore,
hold that the amount of P10,000.00 as and for attorney's fee would be
sufficient in this case.

47.
E.ZOBEL, INC. vs. CA
GR# 113931, May 6, 1998
FACTS: Respondent Spouses Claveria, doing business under the
name “ Agro Brokers”, applied for a loan with respondent Consolidated
Bank & Trust Corp. (now SOLID BANK) amounting to P2.875M. The
loan was granted subject to the condition that respondent spouses
execute a chattel mortgage over the 3 vessels to be acquired and that
a continuing guarantee be executed by Ayala International Phils., Inc.,
now herein petitioner E.Zobel, Inc. in SOLID BANK’s favor. The
Claverias defaulted in the payment of the entire obligation upon
maturity. Petitioner moved to dismiss the complaint asserting that its
liability as guarantor of the loan was extinguished pursuant to A.2080,
NCC. It argued that it has lost its right to be subrogated to the first
chattel mortgage in view of SOLIDBANK’s failure to register the chattel
mortgage with the appropriate government
agency. SOLIDBANKmeantime claimed that A.2080 is not applicable
because petitioner is not a guarantor but a surety.
HELD: In the contract executed by petitioner in SOLIDBANK’s favor,
albeit denominated as a “Continuing Guaranty”, is in fact a contract of
surety. The contract’s terms obligates petitioner as “surety” to induce
SOLIDBANK to extend credit to the Claverias. The contract clearly
disclose that petitioner assumed liability to SOLIDBANK, as a regular
party the undertaking and obligated itself as an original promissory. It
bound itself jointly and severally to the obligation with the Claverias. In
fact, SOLIDBANK need not resort to all other legal remedies or exhaust
the Claverias’ properties before it can hold petitioner liable for the
obligation. Since the petitioner is a surety, A.2080, NCC is
inapplicable. Said article applies where the liability is as a guaranty not
as a surety.
48. PHILIPPINE BLOOMING MILLS v. CA, GR No. 142381, 2003-10-
15
Facts:
Ching was the Senior Vice President of PBM. In his personal capacity
and not as a corporate officer, Ching signed a Deed of Suretyship dated
21 July 1977 binding himself
On 24 March and 6 August 1980, TRB granted PBM letters of credit on
application of Ching in his capacity as Senior Vice President of PBM.
Ching later accomplished and delivered to TRB trust receipts, which
acknowledged receipt in trust for TRB of the merchandise subject of
the... letters of credit.
On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB.
Ching signed as co-maker in the notarized Promissory Note evidencing
this trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of
payments with the Securities and Exchange Commission ("SEC"),
docketed as SEC Case No. 2250.
On 9 July 1982, the SEC placed all of PBM's assets, liabilities, and
obligations under the rehabilitation receivership of Kalaw, Escaler and
Associates.
On 13 May 1983, ten months after the SEC placed PBM under
rehabilitation receivership, TRB filed with the trial court a complaint for
collection against PBM and Ching.
On 25 May 1983, TRB moved to withdraw the complaint against PBM
on the ground that the SEC had already placed PBM under
receivership.
On 23 June 1983, PBM and Ching also moved to dismiss the complaint
on the ground that the trial court had no jurisdiction over the subject
matter of the case.
Issues:
THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT
RULED THAT PETITIONER ALFREDO CHING WAS LIABLE FOR
OBLIGATIONS CONTRACTED BY PBM LONG AFTER THE
EXECUTION OF THE DEED OF SURETYSHIP.
T
HE COURT OF APPEALS COMMITTED AN ERROR WHEN IT
RULED THAT THE PETITIONERS WERE LIABLE FOR THE TRUST
RECEIPTS DESPITE THE FACT THAT PRIVATE RESPONDENT
HAD PREVENTED THEIR FULFILLMENT.
HE COURT OF APPEALS COMMITTED AN ERROR WHEN IT
FOUND PETITIONER ALFREDO CHING LIABLE FOR
P15,773,708.78 WITH LEGAL INTEREST AT 12% PER ANNUM
UNTIL FULLY PAID DESPITE THE FACT THAT UNDER THE
REHABILITATION PLAN OF PETITIONER PBM
Ruling:
The petition has no merit.
The case before us is an offshoot of the trial court's denial of Ching's
motion to have the case dismissed against him. The petition is a thinly
veiled attempt to make this Court reconsider its decision in the prior
case of Traders Royal Bank v. Court of Appeals.
[48] This Court has already resolved the issue of Ching's separate
liability as a surety despite the rehabilitation proceedings before the
SEC.
Ching is liable for credit obligations contracted by PBM against TRB
before and after the execution of t... he 21 July 1977 Deed of
Suretyship.
Ching would like this Court to rule that his liability is limited, at most, to
the amount stated in PBM's rehabilitation plan.
Ching is still liable for the amounts stated in the letters of credit covered
by the trust receipts. Other than his bare allegations, Ching has not
shown proof of payment or settlement with TRB. Atty. Vicente Aranda,
TRB's corporate secretary and First Vice
President of its Human Resource Management Department, testified
that the conditions in the TRB board resolution presented by Ching
were not met or implemented
The trial court found and the appellate court affirmed that the
outstanding principal amounts as of the filing of the complaint with the
trial court on 13 May 1983
WHEREFORE, we AFFIRM the decision of the Court of Appeals with
MODIFICATION
49. Escaño and Silos vs Ortigas Jr.
March 25, 2016
G.R. No. 151953 (2007)
Ponente: J. Tinga
Facts:
1. On April 28, 1980, Private Development Corp. of the Philippines
(PDCP) entered into a loan agreement with the Falcon Minerals, Inc.
(Falcon) whereby PDCP agreed to male available and lend to Falcon
the amount of US $320, 000.00 for specific purposes and subject to
certain terms and conditions.
2. Three stockholder officers of the Falcon assumed solidary liability, in
their individual capacity, with Falcon for the due and punctual payment
of the loan.
3. Two years later, control of Falcon was ceded to Escaño, Silos and
Matti, and the shares of deceased Scholey, through his heirs Ortigas,
Scholey and Inductivo, were assigned to the three new stock-holders,
as well as all of their guaranteed to PDCP and PAIC.
4. On April 28, 1989, PDCP filed a complaint for sum of money with the
RTC of Makati. A counterclaim was filed by Ortigas.
5. The other parties entered into compromise agreement with PDCP.
Ortigas pursued his claim against Escaño, Silos and Matti, and filing a
motion for Summary Judgement in his favor against Escaño, Silos and
Matti.
6. The RTC ruled in favor of Ortigas, ordering the three to pay jointly and
severally the amount of P1,300,000.00 as well as P20,000.00 in
attorney’s fees.
7. On appeal, the Court of Appeals affirmed the Summary Judgement.
Hence, the present petition for review.
Issue: Whether or not there was solidary obligation.
Ruling:
No. The obligation was joint.
In this case, there is a concurrence of two or more creditors or of two
or more debtors in one and the same obligation. Article 1207 of the Civil
Code states that among them, there is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity. Article 1210 supplies further caution
against the broad interpretation of solidarity by providing that the
indivisibility of an obligation does not necessarily give rise to solidarity.
Nor does solidarity of itself imply indivisibility.
These Civil Code provisions establish that in case of concurrence of
two or more creditors or of two or more debtors in one and the same
obligation, and in the absence of express and indubitable terms
characterizing the obligation as solidary, the presumption is that the
obligation is only joint. It thus becomes incumbent upon the party
alleging that the obligation is indeed solidary in character to prove such
fact with a preponderance of evidence.
The Undertaking does not contain any express stipulation that the
petitioners agreed to bind themselves jointly and severally in their
obligations to the Ortigas group, or any such terms to that effect. Hence,
such obligation established in the Undertaking is presumed only to be
joint. Ortigas, as the party alleging that the obligation is in fact solidary,
bears the burden to overcome the presumption of jointness of
obligations. The SC ruled that he failed to discharge such burden.
50. Nilo and ramos v obispo digest (SCRIBD digest. Di kop o
madowload huhuhu paupdate nito pls )
51. Pnb v reblando digest (SCRIBD digest. Di kop o madowload
huhuhu paupdate nito pls )
52. UNION BANK OF THE PHILIPPINES VS. LAIN⃰ JUNIAT,
WINWOOD APPAREL, INC., WINGYAN APPAREL, INC.,
NONWOVEN FABRIC PHILIPPINES (G.R. NO. 171569, 01 AUGUST
2011, DEL CASTILLO, J.) SUBJECTS: MORTGAGE; PLEDGE;
DACION EN PAGO. (BRIEF TITLE: UNION BANK VS. JUNIAT).
========================================
DIGEST/SUBJECT/DOCTRINE
JUNIAT EXECUTED A CHATTEL MORTGAGE IN FAVOR OF UNION
BANK COVERING SEWING MACHINES AND OTHER EQUIPMENT
FOR AND ON BEHALF OF WINWOOD AND WINGYAN. JUNIAT ET
AL DID NOT PAY SUBJECT LOAN. UNION BANK SUED THEM FOR
SUM OF MONEY AND MOVED TO ATTACH THE SEWING
MACHINES AND EQUIPMENT. THE MACHINES AND EQUIPMENT
WERE IN THE POSSESSION OF NONWOVEN. COURT ISSUED
SUMMONS TO NONWOVEN. NONWOVEN ARGUED THAT IT HAS
A BETTER RIGHT TO THE MACHINES AND EQUIPMENT BECAUSE
JUNIAT EXECUTED DACION EN PAGO IN THEIR FAVOR. THEY
THEFORE HOLD THE MACHINES AS OWNER WHILE PETITIONER
HOLDS THE MACHINES ONLY AS MORTGAGEE. NONWOVEN
PRESENTED A DOCUMENT WHERE JUNIAT PLEGED THE
MACHINES TO NONWOVEN TO SECURE AN OBLIGATION.
WHO HAS A BETTER RIGHT TO THE MACHINES AND EQUPMENT?
UNION BANK HAS A BETTER RIGHT. NONWOVEN FAILED TO
PROVE THAT THERE WAS DACION EN PAGO. THE DOCUMENT
EXECUTED BY JUNIAT APPEARS TO BE AN UNNOTARIZED
PLEDGE. IN CASE OF DOUBT WHETHER A DEED IS A SALE OR A
PLEDGE, THE DEED IS DEEMED A PLEDGE. SINCE THE PLEDGE
WAS NOT NOTARIZED IT CANNOT BIND THIRD PARTIES.
A perusal of the Agreement dated May 9, 1992 clearly shows that the
sewing machines, snap machines and boilers were pledged to
Nonwoven by Juniat to guarantee his obligation. However, under
Article 2096 of the Civil Code, “[a] pledge shall not take effect against
third persons if a description of the thing pledged and the date of the
pledge do not appear in a public instrument.” Hence, just like the chattel
mortgage executed in favor of petitioner, the pledge executed by Juniat
in favor of Nonwoven cannot bind petitioner.
Neither can we sustain the finding of the CA that: “The machineries
were ceded to THIRD PARTY NONWOVEN by way of dacion en pago,
a contract later entered into by WINWOOD/WINGYAN and THIRD
PARTY NONWOVEN.”[1][53] As aptly pointed out by petitioner, no
evidence was presented by Nonwoven to show that the attached
properties were subsequently sold to it by way of a dacion en pago.
Also, there is nothing in the Agreement dated May 9, 1992 to indicate
that the motorized sewing machines, snap machines and boilers were
ceded to Nonwoven as payment for the Wingyan’s and Winwood’s
obligation. It bears stressing that there can be no transfer of ownership
if the delivery of the property to the creditor is by way of security.[2][54]
In fact, in case of doubt as to whether a transaction is one of pledge or
dacion en pago, the presumption is that it is a pledge as this involves a
lesser transmission of rights and interests.[3][55]
53. Nestor borromeo v ca digest No digest found
54. martelino v national home digest (SCRIBD digest. Di kop o
madowload huhuhu paupdate nito pls )
55. DBP V. CA (1998)
G.R.No. 118367 January 5, 1998
Lessons Applicable: Certainty (Torts and Damages)
Laws Applicable: Article 1245, Article 1255, Article 2087, Art. 2088 of
the Civil Code
FACTS:
 Lydia P. Cuba is a grantee of a Fishpond Lease Agreement from
the Government
 Cuba obtained loans from DBP stated
under promissory notes dated September 6, 1974; August 11,
1975; and April 4, 1977 executing 2 Deeds of Assignment of her
Leasehold Rights as security
 Upon failure to pay, without foreclosure proceedings it was
appropriated and DBP executed in turn a Deed of Conditional
Sale of the Leasehold Rights in her favor
 Her offer to repurchase was accepted and a new Fishpond Lease
Agreement was issued by the Ministry of Agriculture and Food in
her favor alone excluding her husband
 Failing to pay her amortizations, she entered into a temporary
agreement with DBP
 Soon, she was sent a Notice of Rescission and DBP took
possession of the Leasehold Rights of the fishpond
 After the public bidding, DBP executed a Deed of Conditional Sale
in favor of defendant Agripina Caperal
 Cuba filed against DBP since no foreclosure proceedings was
done thus, contrary to Article 2088 of the Civil Code
 RTC: favored Cuba, it being a pactum commissorium
 return leasehold rights to Cuba
 entitling P1,067,500 actual damages, P100,000 moral
and P50,000 exemplary damages and P100,000 attorney’s fees
 CA: leasehold rights to Caperal as valid but same damages
ISSUE: W/N Cuba should be awarded with actual and compensatory
damages
HELD: NO. CA reversed except the P50,000 as moral
damages. REMANDED to the trial court for the reception of the
income statement of DBP, as well as the statement of the account of
Lydia P. Cuba, and for the determination of each party’s financial
obligation to one another
 assignment of leasehold rights was a mortgage contract (Article
2087)
 not novated, cession (Article 1255 of the Civil Code), dation in
payment (Article 1245 of the civil Code), pactum commissorium
 condition no. 12 did not provide that CUBA’s default would
operate to vest in DBP ownership of the said rights
 The fact that CUBA offered and agreed to repurchase her
leasehold rights from DBP did not estop her from questioning
DBP’s act of appropriation.
 estoppel cannot give validity to an act that is prohibited by law or
against public policy
 alleged loss of personal belongings and equipment was not
proved by clear evidence. Other than the testimony of CUBA and
her caretaker, there was no proof as to the existence of those
items before DBP took over the fishpond in question. Neither was
a single receipt or record of acquisition presented.
 dated 17 May 1985, CUBA included “losses of property” as among
the damages resulting from DBP’s take-over of the fishpond. Yet,
it was only in September 1985 when her son and a caretaker went
to the fishpond and the adjoining house that she came to know of
the alleged loss of several articles
 bangus which died also not duly proved nor was it expressed in
her later 7 months after DBP took over
 The award of actual damages should, therefore, be struck down
for lack of sufficient basis
 Exemplary or corrective damages in the amount of P25,000
should likewise be awarded by way of example or correction for
the public good. There being an award of exemplary damages,
attorney’s fees are also recoverable
Labels: 1998, art 1245, art 1255, art 2087, Case
Digest, certainty, DBP v CA, G.R.No. 118367, January 5, Juris
Doctor, torts and damages, torts and damages case digest
56. Natalia Bustamante vs Rodito and Norma
Rosel [G. R. No. 126800. November 29, 1999]
319 SCRA 413 Case Digest
Natalia Bustamante vs Rodito and Norma Rosel
Concept:
Article 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money,
shall be governed by the law on sales.
Facts:
 March 8, 1987. Norma Rosel entered in a loan agreement with
Natalia Bustamante with the conditions:
1. That the borrowers are the registered owners of a parcel of
land, evidenced by TRANSFER CERTIFICATE OF TITLE No. 80667,
containing an area of FOUR HUNDRED TWENTY THREE (423)
SQUARE Meters, more or less, situated along Congressional
Avenue.
2. That the borrowers were desirous to borrow the sum of
ONE HUNDRED THOUSAND (P100,000.00) PESOS from the
LENDER, for a period of two (2) years, counted from March 1, 1987,
with an interest of EIGHTEEN (18%) PERCENT per annum, and to
guaranty the payment thereof, they are putting as a collateral
SEVENTY (70) SQUARE METERS portion, inclusive of the apartment
therein, of the aforestated parcel of land, however, in the event the
borrowers fail to pay, the lender has the option to buy or purchase the
collateral for a total consideration of TWO HUNDRED THOUSAND
(P200,000.00) PESOS, inclusive of the borrowed amount and interest
therein;
3. That the lender do hereby manifest her agreement and
conformity to the preceding paragraph, while the borrowers do hereby
confess receipt of the borrowed amount.”
 When the loan was about to mature the respondent proposed to buy
the land for P200,000 but the petitioner refused and offered another
residential lot at road. 20 project 8, quezon city. Respondent accepted
the lot. The Respondents were not the owner but entitled as Land
developers
 March 1, 1989. Petitioner tendered payment for the loan but the
respondent refused insisting that the former sign the document as
deed of absolute sale of the collateral
 Respondent filed a complaint and sent a letter asking the petitioner
to sell the collateral pursuant to the loan agreement
 March 5, 1990. Petitioner filed a petition for consignation and
deposited the amount of P153,000 with the City Treasurer of Quezon
City. Petitioner refused the sell the collateral and the respondent
cosigned the amount of P47,500 with the trial court. In arriving at the
 amount deposited, respondents considered the principal loan of
P100,000.00 and 18% interest per annum thereon, which amounted
to P52,500.00. The principal loan and the interest taken together
amounted to P152,500.00, leaving a balance of P47,500.00
 The trial court ruled in favor of the petitioner and denied the prayer of
the respondents in the execution of the deed of sale
 Court of Appeals reversed the decision of the trial court
 The SC found no error in the decision of the trial court, petitioner
asked for a reconsideration. Respondent filed an opposition against
petitioner’s motion for reconsideration. They contend that the
agreement between the parties was not a sale with right of re-
purchase, but a loan with interest at 18% per annum for a period of
two years and if petitioner fails to pay, the respondent was given the
right to purchase the property or apartment for P200,000.00, which is
not contrary to law, morals, good customs, public order or public
policy.
Issue: W/ON the petitioner failed to pay the loan at its maturity and is
the stipulation in the loan contract valid
Held: No. The respondents refused to accept payment, petitioner
consigned the amount with the trial court. We note the eagerness of
respondents to acquire the property given as collateral to guarantee
the loan. The sale of the collateral is an obligation with a suspensive
condition. It is dependent upon the happening of an event, without
which the obligation to sell does not arise. Since the event did not
occur, respondents do not have the right to demand fulfillment of
petitioner’s obligation, especially where the same would not only be
disadvantageous to petitioner but would also unjustly enrich
respondents considering the inadequate consideration (P200,000.00)
for a 70 square meter property situated at Congressional Avenue,
Quezon City.
No, The SC said that the stipulation is void. the intent of the creditor
appears to be evident,for the debtor is obliged to dispose of the
collateral at the preagreed consideration amounting to practically the
same amount
as the loan. In effect, the creditor acquires the collateral in the event
of non-payment of the loan. This is within the concept of pactum
commissorium. Such stipulation is void.
57. SPOUSES WILFREDO N. ONG AND EDNA SHEILA
PAGUIO-ONG v. ROBAN LENDING CORPORATION
557 SCRA 516 (2008)
In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.
On various dates, petitioner Spouses Wilfredo N. Ong
and Edna Sheila Paguio-Ong obtained several loans from
respondent Roban Lending Corporation in the total amount of
P4, 000,000. These loans were secured by real estate mortgage
on Spouses Ong‘s parcel of lands.
Later Spouses Ong and Roban executed several agreements – an
amendment to the amended Real Estate Mortgage which
consolidated their loans amounting to P5, 916,117.50; dacion in
payment wherein spouses Ong assigned their mortgaged
properties to Roban to settle their total obligation and
Memorandum of Agreement (MOA) in which the dacion in
payment agreement will be automatically enforced in case
spouses Ong fail to pay within one year from the execution of the
agreement.
Spouses Ong filed a complaint before Regional Trial Court of
Tarlac City to declare the mortgage contract, dacion in payment
agreement, and MOA void. Spouses Ong allege that the dacion in
payment agreement is pactum commissorium, and therefore
void. In its Answer with counterclaim, Roban alleged that the
dacion in payment agreement is valid because it is a special form
of payment recognized under Article 1245 of the Civil Code. RTC
ruled in favor of Roban, finding that there was no pactum
commissorium. The Court of Appeals upheld the RTC decision.
ISSUE:
Whether or not the dacion in payment agreement entered into by
Spouses Ong and Roban constitutes pactum commissorium
HELD:
The Court finds that the Memorandum of Agreement and Dacion
in Payment constitute pactum commissorium, which is
prohibited under Article 2088 of the Civil Code which provides
that the creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the
contrary is null and void
The elements of pactum commissorium, which enables the
mortgagee to acquire ownership of the mortgaged property
without the need of any foreclosure proceedings, are: (1) there
should be a property mortgaged by way of security for the
payment of the principal obligation, and (2) there should be a
stipulation for automatic appropriation by the creditorof the
thing mortgaged in case of non-payment of the principal
obligation within the stipulated period.
Here, Memorandum of Agreement and the Dacion in Payment
contain no provisions for foreclosure proceedings nor
redemption. Under the Memorandum of Agreement, the failure
by the
petitioners to pay their debt within the one-year period gives
respondent the right to enforce the Dacion in Payment
transferring to it ownership of the properties covered by TCT No.
297840. Respondent, in effect, automatically acquires ownership
of the properties upon Spouses Ong’s failure to pay their debt
within the stipulated period.
In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.
Here, the alienation of the properties was by way of security, and
not by way of satisfying the debt. The Dacion in Payment did not
extinguish Spouses Ong’s obligation to Roban. On the contrary,
under the Memorandum of Agreement executed on the same day
as the Dacion in Payment, petitioners had to execute a promissory
note for P5, 916, 117.50 which they were to pay within one year
EDMUNDO T.
58. SPS. LEHNER AND LUDY MARTIRES v. MENELIA
CHUA, GR No. 174240, 2013-03-20
Facts:
twenty-four memorial lots located at the Holy Cross Memorial Park
Respondent, together with her mother, Florencia R. Calagos, own...
respondent borrowed from petitioner spouses
The loan was secured by a real estate mortgage over the
abovementioned property
Respondent failed to fully settle her obligation.
Subsequently, without foreclosure of the mortgage, ownership of the
subject lots were transferred in the name of petitioners... respondent
filed... against petitioners... praying for the annulment of the... contract
of mortgage between her and petitioners on the ground that the
interest rates imposed are unjust and exorbitant.
She likewise prayed that the Register of Deeds of Quezon City and
Manila Memorial
Park, Inc. be directed to reconvey the disputed property to her.
After trial, the RTC of Quezon City rendered a Decision in favor of
petitioners
On appeal, the CA affirmed
The CA ruled that respondent voluntarily entered into a contract of loan
and that the execution of the Deed of Transfer is sufficient evidence of
petitioners' acquisition of ownership of the subject property.
The CA reconsidered its findings and concluded that the Deed of
Transfer which, on its face, transfers ownership of the subject property
to petitioners, is, in fact, an equitable mortgage.
The CA held that the true intention of respondent was merely to provide
security for her... loan and not to transfer ownership of the property to
petitioners.
Issues:
THE COURT OF APPEALS PATENTLY ERRED IN NOT UPHOLDING THE
DEED OF TRANSFER EXECUTED BY THE RESPONDENT IN FAVOR OF
THE PETITIONERS
BY RULING THAT
The Deed of Transfer executed by respondent in favor of petitioners
over the subject property was not entered in the Notarial Book
Ruling:
The petition lacks merit.
the presumptions that attach to notarized documents can be affirmed
only so long as it is beyond dispute that the notarization was regular.
A defective... notarization will strip the document of its public character
and reduce it to a private instrument... when there is a defect in the
notarization of a document, the clear and convincing evidentiary
standard normally attached to a... duly-notarized document is
dispensed with... the CA has clearly pointed out the dubious
circumstances and irregularities attendant in the alleged notarization of
the subject Deed of Transfer
While indeed a notarized document enjoys the presumption of
regularity, the fact that a deed is notarized is not a guarantee of the
validity of its contents.
The presumption is not absolute and may be rebutted by clear and
convincing evidence to the... contrary.
An equitable mortgage has been defined as one which... reveals the
intention of the parties to charge real property as security for a debt
Since the original transaction between the parties was a mortgage, the
subsequent assignment of ownership of the subject lots to petitioners
without the benefit of foreclosure proceedings, partakes of the nature of
a pactum commissorium
Pactum commissorium is a stipulation empowering the creditor to
appropriate the thing given as guaranty for the fulfillment of the
obligation in the event the obligor fails to live up to his undertakings,
without further formality... the instant petition is DENIED
59.
60. FBDC vs. YLLAS LENDING CORP
G.R. No. 158997
October 6, 2008
FACTS: FORT BONIFACIO DEVELOPMENT CORP. (
FBDC) executed a lease contract in favor of Tirreno, Inc.
over a unit at the Bonifacio Global City in Taguig, Metro
Manila. The parties had the lease contract notarized on
the day of its execution. Tirreno used the leased premises
for Savoia Ristorante and La Strega Bar.
Due to Tirreno’s alleged failure to settle its outstanding
obligations, FBDC entered and occupied the leased
premises. FBDC also appropriated the equipment and
properties left by Tirreno pursuant to Section 22 of their
Contract of Lease as partial payment for Tirreno’s
outstanding obligations.
In 2002, Yllas Lending Corporation caused the sheriff of
the trial court to serve an alias writ of seizure against
FBDC. FBDC found out that in 2001, respondents filed a
complaint for Foreclosure of Chattel Mortgage with
Replevin, against Tirreno, et al. In their complaint, Yllas
alleged that they lent a sum of money to Tirreno et al and
in 2000 executed a Deed of Chattel Mortgage in favor of
Yllas as security for the loan. The Chattel Mortgage
covered properties of the Tirreno’s restaurant and bar.
On the same day, FBDC served on the sheriff an affidavit
of title and third party claim.
Despite FBDC’s service upon him of an affidavit of title
and third party claim, the sheriff proceeded with the
seizure of certain items from FBDC’s premises. The
sheriff delivered the seized properties to Yllas.
FBDC questioned the propriety of the seizure and
delivery of the properties to respondents without an
indemnity bond before the trial court, which decided
against FBDC. It stated that:
1. Section 22 of the lease contract between FBDC and
Tirreno is void under Article 2088 of the Civil Code.
2. FBDC should have filed a separate complaint against
respondents instead of filing a motion to intervene. (The
trial court quoted Bayer Phils. v. Agana )
FBDC filed a MR, which was denied. Hence this petition
to review pure questions of law.
ISSUE:
1. WON FBDC has no right of ownership over the subject
properties because Section 22 of the contract of lease is
void for being a pledge and a pactum commissorium;
2. WON the proper remedy of FBDC as third party
claimant over the subject properties is to file a separate
action; and
3. WON the trial court is should have required
respondents to file an indemnity bond for FBDC’s
protection
4. WON FBDC can terminate the lease contract without
judicial intervention
HELD: Petition granted
1.NO. Respondents, as well as the trial court, contend
that Section 22 constitutes a pactum commissorium, a void
stipulation in a pledge contract. FBDC, on the other
hand, states that Section 22 is merely a dacion en pago.
Section 22 of the Lease Contract between FBDC and
Terrano states:
Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the expiration
of the Lease Period without the rentals, charges and/or
damages, if any, being fully paid or settled, the LESSOR
shall have the right to retain possession of the properties
of the LESSEE used or situated in the Leased Premises
and the LESSEE hereby authorizes the LESSOR to offset
the prevailing value thereof as appraised by the LESSOR
against any unpaid rentals, charges and/or damages. If
the LESSOR does not want to use said properties, it may
instead sell the same to third parties and apply the
proceeds thereof against any unpaid rentals, charges
and/or damages.
Articles 2085 and 2093 of the Civil Code enumerate the
requisites essential to a contract of pledge:
(1) the pledge is constituted to secure the fulfillment of a
principal obligation;
(2) the pledgor is the absolute owner of the thing
pledged;
(3) the persons constituting the pledge have the free
disposal of their property or have legal authorization for
the purpose; and
(4) the thing pledged is placed in the possession of the
creditor, or of a third person by common agreement.
Article 2088 of the Civil Code prohibits the creditor from
appropriating or disposing the things pledged, and any
contrary stipulation is void.
Section 22, as worded, gives FBDC a means to collect
payment from Tirreno in case of termination of the lease
contract or the expiration of the lease period and there
are unpaid rentals, charges, or damages. The existence of
a contract of pledge, however, does not arise just because
FBDC has means of collecting past due rent from Tirreno
other than direct payment.
The fourth requisite, that the thing pledged is placed in the
possession of the creditor, is absent. There is non-
compliance with the fourth requisite even if Tirreno’s
personal properties are found in FBDC’s real property.
Tirreno’s personal properties are in FBDC’s real property
because of the Contract of Lease, which gives Tirreno
possession of the personal properties. Since Section 22 is
not a contract of pledge, there is no pactum commissorium.
On the other hand, Article 1245 of the Civil Code
defines dacion en pago, or dation in payment, as the
alienation of property to the creditor in satisfaction of a
debt in money. Philippine National Bank v. Pineda held that
dation in payment requires delivery and transmission of
ownership of a thing owned by the debtor to the creditor
as an accepted equivalent of the performance of the
obligation. There is no dation in payment when there is
no transfer of ownership in the creditor’s favor, as when
the possession of the thing is merely given to the creditor
by way of security.
2. NO. The Bayer ruling is inapplicable to the present
case. The third party in Bayer filed his claim during
execution; in the present case, FBDC filed for
intervention during the trial.
The timing of the filing of the third party claim is
important because the timing determines the remedies
that a third party is allowed to file. A third party claimant
under Section 16 of Rule 39 (Execution, Satisfaction and
Effect of Judgments)17 of the 1997 Rules of Civil
Procedure may vindicate his claim to the property in a
separate action, because intervention is no longer
allowed as judgment has already been rendered. We allow
FBDC’s intervention in the present case because FBDC
satisfied the requirements of Section 1, Rule 19
(Intervention) of the 1997 Rules of Civil Procedure,
which reads as follows:
Section 1. Who may intervene. — A person who has a legal
interest in the matter in litigation, or in the success of
either of the parties, or an interest against both, or is so
situated as to be adversely affected by a distribution or
other disposition of property in the custody of the court
or of an officer thereof may, with leave of court, be
allowed to intervene in the action. The court shall
consider whether or not the intervention will unduly
delay or prejudice the adjudication of the rights of the
original parties, and whether or not the intervenor’s
rights may be fully protected in a separate proceeding.
Although intervention is not mandatory, nothing in the
Rules proscribes intervention.
3. YES. Pursuant to Section 14 of Rule 57, the sheriff is
not obligated to turn over to respondents the properties
subject of this case in view of respondents’ failure to file a
bond.
The bond in Section 14 of Rule 57 (proceedings where
property is claimed by third person) is different from the
bond in Section 3 of the same rule (affidavit and bond).
Under Section 14 of Rule 57, the purpose of the bond is to
indemnify the sheriff against any claim by the intervenor
to the property seized or for damages arising from such
seizure, which the sheriff was making and for which the
sheriff was directly responsible to the third party.
Section 3, Rule 57, on the other hand, refers to the
attachment bond to assure the return of defendant’s
personal property or the payment of damages to the
defendant if the plaintiff’s action to recover possession of
the same property fails, in order to protect the plaintiff’s
right of possession of said property, or prevent the
defendant from destroying the same during the pendency
of the suit.
Because of the absence of the indemnity bond in the
present case, FBDC may also hold the sheriff for damages
for the taking or keeping of the properties seized from
FBDC.
4. YES. A lease contract may be terminated without
judicial intervention. Consing v. Jamandre upheld the
validity of a contractually-stipulated termination clause:
This stipulation is in the nature of a resolutory condition,
for upon the exercise by the [lessor] of his right to take
possession of the leased property, the contract is deemed
terminated. This kind of contractual stipulation is not
illegal, there being nothing in the law proscribing such
kind of agreement.
61. Union Bank vs. Juniat
JUNIAT EXECUTED A CHATTEL MORTGAGE IN FAVOR
OF UNION BANK COVERING SEWING MACHINES AND
OTHER EQUIPMENT FOR AND ON BEHALF OF WINWOOD
AND WINGYAN. JUNIAT ET AL DID NOT PAY SUBJECT
LOAN. UNION BANK SUED THEM FOR SUM OF MONEY
AND MOVED TO ATTACH THE SEWING MACHINES AND
EQUIPMENT. THE MACHINES AND EQUIPMENT WERE IN
THE POSSESSION OF NONWOVEN. COURT ISSUED
SUMMONS TO NONWOVEN. NONWOVEN ARGUED THAT
IT HAS A BETTER RIGHT TO THE MACHINES AND
EQUIPMENT BECAUSE JUNIAT EXECUTED DACION EN
PAGO IN THEIR FAVOR. THEY THEFORE HOLD THE
MACHINES AS OWNER WHILE PETITIONER HOLDS THE
MACHINES ONLY AS MORTGAGEE. NONWOVEN
PRESENTED A DOCUMENT WHERE JUNIAT PLEGED THE
MACHINES TO NONWOVEN TO SECURE AN OBLIGATION.
WHO HAS A BETTER RIGHT TO THE MACHINES AND
EQUPMENT?
UNION BANK HAS A BETTER RIGHT. NONWOVEN FAILED TO
PROVE THAT THERE WAS DACION EN PAGO. THE DOCUMENT
EXECUTED BY JUNIAT APPEARS TO BE AN
UNNOTARIZED PLEDGE. IN CASE OF DOUBT WHETHER A
DEED IS A SALE OR A PLEDGE, THE DEED IS DEEMED A
PLEDGE. SINCE THE PLEDGE WAS NOT NOTARIZED IT
CANNOT BIND THIRD PARTIES.
A perusal of the Agreement dated May 9, 1992 clearly shows that the
sewing machines, snap machines and boilers were pledged to
Nonwoven by Juniat to guarantee his obligation. However, under
Article 2096 of the Civil Code, “[a] pledge shall not take effect against
third persons if a description of the thing pledged and the date of the
pledge do not appear in a public instrument.” Hence, just like the
chattel mortgage executed in favor of petitioner, the pledge executed
by Juniat in favor of Nonwoven cannot bind petitioner.
Neither can we sustain the finding of the CA that: “The machineries
were ceded to THIRD PARTY NONWOVEN by way of dacion en
pago, a contract later entered into by WINWOOD/WINGYAN and
THIRD PARTY NONWOVEN.”[1][53] As aptly pointed out by
petitioner, no evidence was presented by Nonwoven to show that the
attached properties were subsequently sold to it by way of a dacion en
pago. Also, there is nothing in the Agreement dated May 9, 1992 to
indicate that the motorized sewing machines, snap machines and
boilers were ceded to Nonwoven as payment for the Wingyan’s and
Winwood’s obligation. It bears stressing that there can be no transfer
of ownership if the delivery of the property to the creditor is by way of
security.[2][54] In fact, in case of doubt as to whether a transaction is
one of pledge or dacion en pago, the presumption is that it is a pledge
as this involves a lesser transmission of rights and interests.[3][55]
62. ESTATE OF LITTON V. MENDOZA & CA, (1988)
Pledge: Ownership of Collateral, Art. 2103, Art. 2102, Art. 2101, Art.
1951, Art. 2108, Art. 2112, Art. 2097
(see full text for the facts)
The fact that the deed of assignment was done by way of securing or
guaranteeing Tan's obligation in favor of George Litton, Sr., as observed
by the appellate court, will not in any way alter the resolution on the
matter. The validity of the guaranty or pledge in favor of Litton has not
been questioned. Our examination of the deed of assignment shows
that it fulfills the requisites of a valid pledge or mortgage.
Rule
Although it is true that Tan may validly alienate the litigatious credit as
ruled by the appellate court, citing Article 1634 of the Civil Code, said
provision should not be taken to mean as a grant of an absolute right
on the part of the assignor Tan to indiscriminately dispose of the thing
or the right given as security. The Court rules that the said provision
should be read in consonance with Article 2097 of the same
code. Although the pledgee or the assignee, Litton, Sr. did not ipso
factobecome the creditor of private respondent Mendoza, the pledge
being valid, the incorporeal right assigned by Tan in favor of the former
can only be alienated by the latter with due notice to and consent of
Litton, Sr. or his duly authorized representative. To allow the assignor
to dispose of or alienate the security without notice and consent of the
assignee will render nugatory the very purpose of a pledge or an
assignment of credit.
Moreover, under Article 1634, the debtor has a corresponding
obligation to reimburse the assignee, Litton, Sr. for the price he paid or
for the value given as consideration for the deed of assignment. Failing
in this, the alienation of the litigated credit made by Tan in favor of
private respondent by way of a compromise agreement does not bind
the assignee, petitioner herein.
Note: Private respondent has, from the very beginning, been fully
aware of the deed of assignment executed by Tan in favor of Litton, Sr.
Having such knowledge thereof, private respondent is estopped from
entering into a compromise agreement involving the same litigated
credit without notice to and consent of the assignee,petitioner herein.
More so, in the light of the fact that no reimbursement has ever been
made in favor of the assignee as required under Article 1634. Private
respondent acted in bad faith and in connivance with assignor Tan so
as to defraud the petitioner in entering into the compromise agreement.
63. MANILA BANKING CORPORATION V. TEODORO, JR.
AND TEODORO, (1989). (INCLUDE CONCURRING
OPINION)
Pledge: Right to Payment, Art. 2102, Art. 2118
(see full text for the facts)
The assignment of receivables executed by appellants did not transfer
the ownership of the receivables to appellee bank and release appellants
from their loans with the bank incurred under promissory notes.
The Deed of Assignment provided that it was for and in consideration
of certain credits, loans, overdrafts, and their credit accommodations
extended to appellants by appellee bank, and as security for the
payment of said sum and the interest thereon; that appellants as
assignors, remise, release, and quitclaim to assignee bank all their
rights, title and interest in and to the accounts receivable assigned. It
was further stipulated that the assignment will also stand as
a continuing guaranty for future loans of appellants to appellee
bank and correspondingly the assignment shall also extend to all the
accounts receivable; appellants shall also obtain in the future, until the
consideration on the loans secured by appellants from appellee bank
shall have been fully paid by them.
The position of appellants, however, is that the deed of assignment is a
quitclaim in consideration of their indebtedness to appellee bank, not
mere guaranty, in view of the following provisions of the deed of
assignment:
... the Assignor do hereby remise, release and quit-claim unto said
assignee all its rights, title and interest in the accounts receivable
described hereunder. (Emphasis supplied by appellants, first par., Deed
of Assignment).
... that the title and right of possession to said account receivable is to
remain in said assignee and it shall have the right to collect directly
from the debtor, and whatever the Assignor does in connection with the
collection of said accounts, it agrees to do so as agent and
representative of the Assignee and it trust for said Assignee.
The character of the transactions between the parties is not, however,
determined by the language used in the document but by their
intention. Definitely, the assignment of the receivables did not result
from a sale transaction. It cannot be said to have been constituted by
virtue of a dation in payment for appellants' loans with the bank
evidenced by promissory note which are the subject of the suit for
collection in a Civil Case. At the time the deed of assignment was
executed, said loans were non-existent yet. Obviously, the deed of
assignment was intended as collateral security for the bank loans of
appellants, as a continuing guaranty for whatever sums would be owing
by defendants to plaintiff, as stated in stipulation No. 9 of the deed.
Assignment of credit is an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause, such as sale, dation
in payment, exchange or donation, and without the need of the consent
of the debtor, transfers his credit and its accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could have enforced it against the debtor.
64. CHU V. COURT OF APPEALS ET AL., 1989
Pledge: Right to Payment, Art. 2102, Art. 2118
As the collateral was also money or an exchange of "peso for peso," the
provision in Article 2112 of the Civil Code for the sale of the thing
pledged at public auction to convert it into money to satisfy the
pledgor's obligation, did not have to be followed. All that had to be done
to convert the pledgor's time deposit certificates into cash was to
present them to the bank for encashment after due notice to the debtor.
65.CITIBANK, N.A. & INVESTOR FINANCE CORPORATION
V. SABENIANO, (2006)
Pledge: Right to Payment, Art. 2102, Art. 2118
Facts:
Modesta Sabeniano is a client of Citibank and FNCB Finance. On
February 1978, Sabeniano obtained a loan of Php 200,000 from
Citibank. This loan was followed with several other loans – some were
paid, while some were not. Those that were not paid upon maturity were
rolled over, reflecting a total unpaid loan of Php 1,069,847.40 as of
September 1979.
These loans were secured by Sabeniano’s money market placements
with FNCB Finance through a Deed of Assignment plus a Declaration
of Pledge which states that all present and future fiduciary placements
held in her personal and/or joint name with Citibank Switzerland, will
secure all claims that Citibank may have or, in the future, acquire
against her.
The Deeds of Assignment were duly notarized, while the Declaration of
Pledge was not notarized and Citibank’s copy was undated, while that
of Sabeniano bore the date, September 24, 1979.
Since Sabeniano failed to pay her obligations to Citibank, the latter sent
demand letters to request payment. Her total unpaid loan initially
amounted to Php 2,123,843.20 (inclusive of interests).
Still failing to pay, Citibank executed the Deeds of Assignment and used
the proceeds of Sabeniano’s money market placement from FNCB
Finance which totaled Php 1,022,916.66 and her deposits with Citibank
which totaled Php 31,079.14 to set-off her loan.
This reduced the unpaid balance to Php 1,069,847.40 as previously
mentioned. Since the loan remains unpaid, Citibank proceeded to
execute the Declaration of Pledge and remitted a total of $149,632.99
from Sabeniano’s Citibank-Geneva accounts to off-set the loan.
Sabeniano then filed a complaint against Citibank for damages and
specific performance (for proper accounting and return of the remitted
proceeds from her personal accounts). She also contended that the
proceeds of 2 promissory notes (PN) from her money market
placements with Citibank were rolled over or reinvested into the
petitioner bank, and these should also be returned to her.
Regarding the execution of the pledge, the RTC declared this illegal,
null and void. Citibank was ordered to return the $149,632.99 to
Sabeniano’s Citibank-Geneva account with a legal interest of 12% per
annum. The RTC also ordered Sabeniano to pay her outstanding loan
to Citibank without interests and penalty charges.
Both parties appealed to the CA which affirmed the RTC’s decision, but
further ruled entirely in favor of Sabeniano – holding that Citibank failed
to establish her indebtedness and that all the executed deeds should
be returned to her account. The case has now reached the Supreme
Court.
The liquidation of respondent’s outstanding loans were valid in so far
as petitioner Citibank used respondent’s savings account with the bank
and her money market placements with petitioner FNCB Finance; but
illegal and void in so far as petitioner Citibank used respondent’s dollar
accounts with Citibank-Geneva.
Without the Declaration of Pledge, petitioner Citibank had no authority
to demand the remittance of respondent’s dollar accounts with Citibank-
Geneva and to apply them to her outstanding loans. It cannot effect
legal compensation under Article 1278 of the Civil Code since,
petitioner Citibank itself admitted that Citibank-Geneva is a distinct and
separate entity. As for the dollar accounts, respondent was the creditor
and Citibank-Geneva is the debtor; and as for the outstanding loans,
petitioner Citibank was the creditor and respondent was the
debtor. The parties in these transactions were evidently not the
principal creditor of each other.
Therefore, this Court declares that the remittance of respondent’s dollar
accounts from Citibank-Geneva and the application thereof to her
outstanding loans with petitioner Citibank was illegal, and null and void.
66.PARAY & ESPELETA V. RODRIGUEZ, ET AL.,
(2006)
Right of Redemption
Respondents were the owners, in their respective personal capacities,
of shares of stock in a corporation known as the Quirino-Leonor-
Rodriguez Realty Inc.[1] Sometime during the years 1979 to 1980,
respondents secured by way of pledge of some of their... shares of
stock to petitioners Bonifacio and Faustina Paray ("Parays") the
payment of certain loan obligations.
When the Parays attempted to foreclose the pledges on account of
respondents' failure to pay their loans, respondents filed complaints
with the Regional Trial Court (RTC) of Cebu City.
The actions, which were consolidated and tried before RTC Branch 14,
Cebu City, sought the... declaration of nullity of the pledge
agreements, among others.
Petitioners now argue before this Court that they were authorized to
refuse as they did the tender of payment since they were undertaking
the auction sale pursuant to the final and executory decision in Civil
Cases Nos. R-20120 and 20131, which did not authorize the payment
of... the principal obligation by respondents.
Issue: WON the pledged shares of stock auctioned off in a notarial sale
could still be redeemed by their owners.
The right of redemption as affirmed under Rule 39 of the Rules of
Court applies only to execution sales, more precisely execution sales
of real property.
Does the right of redemption exist over personal
property? No law or jurisprudence establishes or affirms such right.
Indeed, no such right exists.
The right to redeem property is a bare statutory privilege to be exercised
only by the persons named in the statute.
The right of redemption over mortgaged real property sold
extrajudicially is established by Act No. 3135, as amended. The said
law does not extend the same benefit to personal property. In fact, there
is no law in our statute books which vests the right of redemption over
personal property. Act No. 1508, or the Chattel Mortgage Law,
ostensibly could have served as the vehicle for any legislative intent to
bestow a right of redemption over personal property, since that law
governs the extrajudicial sale of mortgaged personal property, but the
statute is definitely silent on the point. And Section 39 of the 1997
Rules of Civil Procedure, extensively relied upon by the Court of
Appeals, starkly utters that the right of redemption applies to real
properties, not personal properties, sold on execution.
Obviously, since there is no right to redeem personal property, the
rights of ownership vested unto the purchaser at the foreclosure sale
are not entangled in any suspensive condition that is implicit in a
redemptive period.
Issue #2: The Court of Appeals also found fault with the apparent sale
in bulk of the pledged shares, notwithstanding the fact that these shares
were owned by several people, on the premise the pledgors would be
denied the opportunity to know exactly how much they would need to
shoulder to exercise the right to redemption.
Held: Rule 39 of the Rules of Court does provide for instances when
properties foreclosed at the same time must be sold separately, such as
in the case of lot sales for real property under Section 19. However,
these instances again pertain to execution sales and not extrajudicial
sales. No provision in the Rules of Court or in any law requires that
pledged properties sold at auction be sold separately.
On the other hand, under the Civil Code, it is the pledgee, and not the
pledgor, who is given the right to choose which of the items should be
sold if two or more things are pledged. No similar option is given to
pledgors under the Civil Code. Moreover, there is nothing in the Civil
Code provisions governing the extrajudicial sale of pledged properties
that prohibits the pledgee of several different pledge contracts from
auctioning all of the pledged properties on a single occasion, or from
the buyer at the auction sale in purchasing all the pledged properties
with a single purchase price. The relative insignificance of ascertaining
the definite apportionments of the sale price to the individual shares
lies in the fact that once a pledged item is sold at auction, neither the
pledgee nor the pledgor can recover whatever deficiency or excess there
may be between the purchase price and the amount of the principal
obligation.
A different ruling though would obtain if at the auction, a bidder
expressed the desire to bid on a determinate number or portion of the
pledged shares. In such a case, there may lie the need to ascertain with
particularity which of the shares are covered by the bid price, since not
all of the shares may be sold at the auction and correspondingly not all
of the pledge contracts extinguished. The same situation also would lie
if one or some of the owners of the pledged shares participated in the
auction, bidding only on their respective pledged shares.
Issue #3: Whether the consignations made by respondents
extinguished their respective pledge contracts in favor of the Parays so
as to enjoin the latter from auctioning the pledged shares.
Held: There is no doubt that if the principal obligation is satisfied, the
pledges should be terminated as well. Article 2098 of the Civil Code
provides that the right of the creditor to retain possession of the pledged
item exists only until the debt is paid. Article 2105 of the Civil Code
further clarifies that the debtor cannot ask for the return of the thing
pledged against the will of the creditor, unless and until he has paid the
debt and its interest. At the same time, the right of the pledgee to
foreclose the pledge is also established under the Civil Code. When the
credit has not been satisfied in due time, the creditor may proceed with
the sale by public auction under the procedure provided under Article
2112 of the Code.
Section 18, Rule 39 provides that the judgment obligor may prevent
the sale by paying the amount required by the execution and the costs
that have been incurred therein. However, the provision applies only to
execution sales, and not extra-judicial sales, as evidenced by the use of
the phrases “sale of property on execution” and “judgment obligor.”
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. vs.
LULU V. JORGE and CESAR JORGE, respondents.
[G.R. No. 159617; August 8, 2007]
FACTS:
Lulu V. Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to secure
a loan in the total amount of P59,500. In 1987, two armed men entered the
pawnshop and took away whatever cash and jewelry were found inside the
pawnshop vault. Spouses Jorge, filed a complaint against petitioner Sicam for
indemnification for the loss of pawned jewelry.
Sicam filed his Answer contending that he is not the real party-in-interest as the
pawnshop was incorporated on 1987 and known as Agencia de R.C. Sicam, Inc; that
petitioner corporation had exercised due care and diligence in the safekeeping of
the articles pledged with it and could not be made liable for an event that is
fortuitous.
RTC ruled that petitioner corp. could not be held liable for the loss of the pawned
jewelry since the loss of the pledged pieces of jewelry was occasioned by armed
robbery; that robbery is a fortuitous event which exempts the victim from liability
for the loss. On appeal, CA reversed the RTC. The CA held that the corresponding
diligence required of a pawnshop is that it should take steps to secure and protect
the pledged items and should take steps to insure itself against the loss of articles;
and that robberies and hold-ups are foreseeable risks in that those engaged in the
pawnshop business are expected to foresee.
ISSUE:
Whether petitioners are liable for the loss of the pawned articles in their
possession.
HELD:
Under Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not
be foreseen or which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be one impossible to foresee or
to avoid. The mere difficulty to foresee the happening is not impossibility to foresee
the same.
To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the failure of the
debtor to comply with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso fortuito or,
if it can be foreseen, it must be impossible to avoid;
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose
the possibility of negligence on the part of herein petitioners.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that
the creditor shall take care of the thing pledged with the diligence of a good father
of a family. This means that petitioners must take care of the pawns the way a
prudent person would as to his own property. That it was revealed that there were
no security measures adopted by petitioners in the operation of the pawnshop.
Evidently, no sufficient precaution and vigilance were adopted by petitioners to
protect the pawnshop from unlawful intrusion.
The preponderance of evidence shows that petitioners failed to exercise the
diligence required of them under the Civil Code.
Lim Tay Vs. CA G.R. No. 126891
Date: August 5, 1998
Facts:
On 8 January 1980, Sy Guiok secured a loan from Lim Tay in the amount of P40,000
payable within 6 months. To secure the payment of the aforesaid loan and interest
thereon, Guiok executed a Contract of Pledge in favor of Lim Tay. He pledged his
300 shares of stock in the Go Fay & Company Inc. Guiok obliged himself to pay
interest on said loan at the rate of 10% per annum from the date of said contract of
pledge.
On the same date, Alfonso Sy Lim secured a loan, from Lim Tay in the amount of
P40,000 payable in 6 months. To secure the payment of his loan, Sy Lim executed a
"Contract of Pledge" covering his 300 shares of stock in Go Fay & Co. Under said
contract, Sy Lim obliged himself to pay interest on his loan at the rate of 10% per
annum from the date of the execution of said contract.
The contract provided that Lim Tay was merely authorized to foreclose the pledge
upon maturity of the loans, not to own them. The foreclosure is not automatic, for
it must be done in a public or private sale.
Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered
the same to Lim Tay. However, Guiok and Sy Lim failed to pay their respective loans
and the accrued interests thereon to Lim Tay.
In October 1990, Lim Tay filed a "Petition for Mandamus" against Go Fay & Co., with
SEC praying that an order be issued directing the corporate secretary to register the
stock transfers and issue new certificates in favor of Lim Tay; and ordering the
corporation to pay all dividends due and unclaimed on the said certificates to Lim
Tay. In the interim, Sy Lim died. Guiok and the Intestate Estate of Alfonso Sy Lim,
represented by Conchita Lim, filed their Answer-In-Intervention with the SEC.
The SEC hearing officer dismissed Lim Tay's Complaint on the ground that although
the SEC had jurisdiction over the action, he failed to prove the legal basis for the
secretary of the Corporation to be compelled to register stock transfers in favor of
Lim Tay and to issue new certificates of stock under his name. His appeal was
denied by SEC. He appealed with CA.
The CA debunked Lim Tay's claim that he had acquired ownership over the shares
by virtue of novation, holding that Guiok's and Sy Lim's endorsement and delivery
of the shares were pursuant to Articles 2093 and 2095 of the Civil Code and that
Lim Tay's receipt of dividends was in compliance with Article 2102 of the same
Code.
Arguments of Lim Tay: He contends that it has acquired ownership of the shares
"through extraordinary prescription," pursuant to Article 1132 of the Civil Code, and
through respondents' subsequent acts, which amounted to a novation of the
contracts of pledge. Petitioner also claims that there was dacion en pago, in which
the shares of stock were deemed sold to petitioner, the consideration for which
was the extinguishment of the loans and the interests thereon. Petitioner likewise
claims that laches bars respondents from recovering the subject shares.
Issue: WON Lim Tay is the owner of the shares previously subjected to pledge, for
him to cause the registration of said shares in his own name.
Held: NO.
Lim Tay's ownership over the shares was not yet perfected when the Complaint was
filed. The contract of pledge certainly does not make him the owner of the shares
pledged.
Further, whether prescription effectively transferred ownership of the shares,
whether there was a novation of the contracts of pledge, and whether laches had
set in were difficult legal issues, which were unpleaded and unresolved when Lim
Tay asked the corporate secretary of Go Fay to effect the transfer, in his favor, of
the shares pledged to him. Lim Tay has failed to establish a clear legal right.
Lim Tay's contention that he is the owner of the said shares is completely without
merit. Lim Tay does not have any ownership rights at all. At the time Lim Tay
instituted his suit at the SEC, his ownership claim had no prima facie leg to stand on.
At best, his contention was disputable and uncertain.
Lim Tay cannot claim to have acquired ownership over the certificates of stock
through extraordinary prescription, as provided for in Article 1132 of the Civil Code.
What is required by Article 1132 is possession in the concept of an owner. Herein,
Lim Tay's possession of the stock certificates came about because they were
delivered to him pursuant to the contracts of pledge. His possession as a pledgee
cannot ripen into ownership by prescription. Lim Tay expressly repudiated the
pledge, only when he filed his Complaint and claimed that he was not a mere
pledgee, but that he was already the owner of the shares.
Based on the foregoing, Lim Tay has not acquired the certificates of stock through
extraordinary prescription. Neither did Lim Tay acquire the shares by virtue of a
novation of the contract of pledge. Novation cannot be presumed by Guiok's and Sy
Lim's indorsement and delivery of the certificates of stock covering the 600 shares,
nor Lim Tay's receipt of dividends from 1980 to 1983, nor the fact that Guiok and Sy
Lim have not instituted any action to recover the shares since 1980. Novation is
never presumed inferred.
Notes: There is a contract of pledge between Guiok (respondent) and Lim Tay
(petitioner) & Sy Lim (respondent) and Lim Tay (petitioner). What was mortgaged?
300 shares of stock in the Go Fay & Company Inc. by Guiok and 300 shares of stock
in the Go Fay & Company Inc. by Sy Lim. Date - January 8, 1980.
CLEMENTINO IMPERIAL, petitioner, vs. MARIANO F. SANTIAGO, JR., Sheriff IV,
RTC, Branch 139, Makati City, respondent.
NO CASE DIGEST FOUND.
INSULAR ASSURANCE COMPANY vs. ROBERTO YOUNG
No case digest found.
PRUDENTIAL BANK VS ALVIAR
Doctrine:
The “dragnet clause” in the first security instrument constituted a continuing offer
by the borrower to secure further loans under the security of the first security
instrument, and that when the lender accepted a different security he did not
accept the first offer.
Facts:
 Spouses Alviar are the registered owners of a parcel of land in San Juan,
Metro Manila
 They executed a deed of real estate mortgage of the said property in favor
of petitioner Prudential Bank to secure the payment of a loan
worth P250,000.00. (PN BD#75/C-252) was then issued covering the said
loan, which provides that the loan matured on 4 August 1976 at an interest
rate of 12% per annum with a 2% service charge, and that the note is secured
by a real estate mortgage as aforementioned with a “blanket mortgage
clause” or the “dragnet clause”.
 The spouses thereafter issued other promissory notes (PN):
o PN BD#76/C-345 for P2,640,000.00, secured by D/A SFDX #129,
signifying that the loan was secured by a “hold-out” on the
mortgagor’s foreign currency savings account with the bank under
Account No. 129
o In the name of Donalco Trading, Inc., PN BD#76/C-430
covering P545,000.000 to be secured by “Clean-Phase out TOD CA
3923. Bank also mentioned in their approval letter that additional
securities for the loan were the deed of assignment on two PNs
executed by Bancom Realty and the chattel mortgage on various
heavy and transportation equipment.
 Spoused Alviar paid petitioner P2,000,000.00, to be applied to the
obligations of G.B. Alviar Realty and Development, Inc. and for the release
of the real estate mortgage for the P450,000.00 loan covering the two (2)
lots in San Juan, Metro Manila. The payment was acknowledged by
petitioner who accordingly released the mortgage over the two properties
 Prudential Bank moved for the extrajudicial foreclosure of the mortgage on
the property since respondents had the total obligation of P1,608,256.68,
covering the three (3) promissory notes.
 Respondents then filed a complaint for damages with a prayer for the
issuance of a writ of preliminary injunction with the RTC of Pasig,[11] claiming
that they have paid their principal loan secured by the mortgaged property,
and thus the mortgage should not be foreclosed
 RTC, on its final decision, favored respondents saying that the extrajudicial
foreclosure was improper for the mortgage only covers the first loan of
P250,000
 CA affirmed the decision of the RTC
Issue: WON real estate mortgage secures only the first loan of P250,000.
Held: Yes. While the existence and validity of the “dragnet clause” cannot be
denied, there is a need to respect the existence of the other securities given for the
two other promissory notes. The foreclosure of the mortgaged property should
only then be for theP250,000.00 loan covered by PN BD#75/C-252, and for any
amount not covered by the security for the second promissory note.
Petitioner and respondents intended the real estate mortgage to secure not only
the P250,000.00 loan from the petitioner, but also future credit facilities
and advancements that may be obtained by the respondents. However, the
subsequent loans obtained by respondents were secured by other securities.
When the mortgagor takes another loan for which another security was given it could
not be inferred that such loan was made in reliance solely on the original security
with the “dragnet clause,” but rather, on the new security given. This is the “reliance
on the security test.”
If the parties intended that the “blanket mortgage clause” shall cover subsequent
advancement secured by separate securities, then the same should have been
indicated in the mortgage contract. This ambiguity shall be interpreted strictly against
petitioner for having drafted the same.
Petitioner, however, is not without recourse. Both the lower courts found that
respondents have not yet paid the P250,000.00. Thus, the mortgaged property could
still be properly subjected to foreclosure proceedings for the unpaid P250,000.00
loan, and as mentioned earlier, for any deficiency after D/A SFDX#129, security for
PN BD#76/C-345, has been exhausted, subject of course to defenses which are
available to respondents.
Petition is DENIED. CA affirmed.
People's Bank and Trust Co. v. Dahican Lumber Co., G.R. No. L-17500 (May 16, STAR TWO (SPV-AMC), INC., V PAPER CITY CORPORATION OF THE PHILIPPINES
1967) Case Digest
FACTS
For review is a Petition for Review on Certiorari filed by Rizal Commercial Banking
Facts: Corporation now substituted by Star Two (SPV-AMC), Inc.

Dahican Lumber Co. (DALCO) obtained a loan from People's Bank and Trust Co.
(Bank) secured by a deed of mortgage covering 5 parcels of land together with all
the buildings and other improvements existing thereon and all the personal
properties of DALCO located in its place of business.
After the day of the execution of the mortgage, DALCO purchased various
machinery, equipment, spare parts and supplies.
Pursuant to the provision of the mortgage deeds regarding "after acquired
properties", the Bank requested DALCO to submit complete list of the said
properties but DALCO refused to do so.
Issue:
Whether or not the "after acquired properties" were subject to the deed of
mortgage.
 Respondent Paper City is a domestic corporation engaged in the
manufacture of paper products. Paper City applied for and was granted loans and
credit accommodations in peso and dollar denominations by RCBC secured by 4
Deeds of Continuing Chattel Mortgages on its machineries and equipments found
inside its paper plants.
 However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage
on Inventory of Merchandise/Stocks-in-Trade was executed by RCBC over the
merchandise and stocks-in-trade covered by the continuing chattel mortgages.
 RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as
the trustee bank) entered into a Mortgage Trust Indenture (MTI) with Paper City. In
the said MTI, Paper City acquired an additional P170, 000,000.00 from the creditor
banks in addition to the previous loan from RCBC amounting to P110, 000,000.00.
 The old loan of P110,000,000.00 was partly secured by various parcels of
land situated in Valenzuela City. The new loan obligation of P170,000,000.00 would
be secured by the same five (5) Deeds of Real Estate Mortgage and additional real
and personal properties described in an annex to MTI, Annex "B" which covered the
machineries and equipments of Paper City.

Held:
Annex "A"
A. Office Building
Yes, they are subject to the deeds of mortgage.
Building 1, 2, 3, 4, and 5
Boiler House
Article 415 of the Civil Code does not define real property but enumerates what are Workers’ Quarter/Restroom
considered as such, among them being machinery, receptacles, instruments or Canteen
replacements intended by owner of the tenement for an industry or works which Guardhouse, Parking Shed, Elevated Guard
may be carried on in a building or on a piece of land, and shall tend directly to meet Post and other amenities
the needs of the said industry or works. B. Pollution Tank Nos. 1 and 2.
Reserve Water Tank and Swimming Pool
The chattels or the "after acquired properties" were placed in the real properties Waste Water Treatment Tank
mortgaged to the Bank. They came within the operation of Article 145. Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
Hence, the "after acquired properties" were subject to the deed of mortgage. C. Power Plants Nos. 1 and 2
Fabrication Building
 Various Fuel, Water Tanks and Pumps
Transformers
Annex "B"
D. D. Material Handling Equipment
Paper Plant No. 3
 The MTI was later amended to increase the contributions of the RCBC and
Union Bank. As a consequence, they executed a Deed of Amendment to MTI but
still included as part of the mortgaged properties by way of a first mortgage the
various machineries and equipments located in and bolted to and/or forming part
of buildings.
 A Second Supplemental Indenture to the MTI was executed to increase the
amount of the loan secured against the existing properties composed of land,
building, machineries and equipments and inventories described in Annexes "A"
and "B."
 Finally, a Third Supplemental Indenture to the MTI was executed to
increase the existing loan obligation with an additional security composed of a
newly constructed two-storey building and other improvements, machineries and
equipments located in the existing plant site.
 Paper City was able to comply with its loan obligations but economic crisis
ensued which made it difficult for Paper City to meet the terms of its obligations
leading to payment defaults. Consequently, RCBC filed a Petition for Extrajudicial
Foreclosure.
 The petition was for the extra-judicial foreclosure of eight parcels of land
including all improvements thereon which were sold in favor of the creditor banks
RCBC, Union Bank and Metrobank as the highest bidders.
This foreclosure sale prompted Paper City to file a Complaint against the creditor
banks alleging that the extra-judicial sale of the properties and plants was null and
void due to lack of prior notice and attendance of gross and evident bad faith on the
part of the creditor banks.
Acting on the said motion, the trial court issued an Order denying the prayer and
ruled that the machineries and equipments were included in the annexes and form
part of the MTI.
Paper City filed its Motion for Reconsideration which was favorably granted by the
trial court with justification that the disputed machineries and equipments are
chattels by agreement of the parties through their inclusion in the four Deeds of
Chattel Mortgage and the deed of cancellation executed by RCBC was not valid
because it was done unilaterally and without the consent of Paper City.
The CA affirmed the Order.
ISSUE
Whether the subject machineries and equipments were included in the mortgage,
extrajudicial foreclosure and in the consequent sale.
RULING
Yes. By contracts, all uncontested in this case, machineries and equipments are
included in the mortgage in favor of RCBC, in the foreclosure of the mortgage and in
the consequent sale on foreclosure also in favor of petitioner.
Repeatedly, the parties stipulated that the properties mortgaged by Paper City to
RCBC are various parcels of land including the buildings and existing improvements
thereon as well as the machineries and equipments, which as stated in the granting
clause of the original mortgage, are "more particularly described and listed that is to
say, the real and personal properties listed in Annexes ‘A’ and ‘B’.”
The plain language and literal interpretation of the MTIs must be applied. The
petitioner, other creditor banks and Paper City intended from the very first execution
of the indentures that the machineries and equipments enumerated in Annexes "A"
and "B" are included. Obviously, with the continued increase in the amount of the
loan, totaling hundreds of millions of pesos, Paper City had to offer all valuable
properties acceptable to the creditor banks.
The MTIs did not describe the equipments and machineries as personal
property. Notably, while "personal" appeared in the granting clause of the original
MTI, the subsequent Deed of Amendment specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the
improvements listed above and located on the parcels of land subject of the
Mortgage Trust Indenture and the Real Estate Mortgage.
Considering that the Indenture which is the instrument of the mortgage that was
foreclosed exactly states through the Deed of Amendment that the machineries and
equipments listed in Annexes "A" and "B" form part of the improvements listed and
located on the parcels of land subject of the mortgage, such machineries and
equipments are surely part of the foreclosure of the "real estate properties, including
all improvements thereon" as prayed for in the petition.
The real estate mortgage over the machineries and equipments is even in full accord
with the classification of such properties by the Civil Code of the Philippines as
immovable property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
(5) Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece
of land, and which tend directly to meet the needs of the said industry or works;
CONCLUSION
The petition is GRANTED.
G.R. No. 158891 June 27, 2012
PABLO P. GARCIA, Petitioner, vs. YOLANDA VALDEZ VILLAR, Respondent.
Facts:
Lourdes V. Galas (Galas) was the original owner of a piece of property
(subject property), which she mortgaged to Yolanda Valdez Villar (Villar) as security
for a loan.
Galas subsequently mortgaged the same subject property to Pablo P. Garcia
(Garcia) to secure another loan. Both mortgages were annotated on the subject
property’s TCT.
Galas thereafter sold the subject property to Villar. The Deed of Sale was
registered and, consequently, a new TCT was issued in the name of Villar. Both
Villar’s and Garcia’s mortgages were carried over and annotated on Villar’s new TCT.
Garcia filed a Petition for Mandamus with Damages against Villar before the
RTC. Garcia subsequently amended his petition to a Complaint for Foreclosure of Real
Estate Mortgage with Damages and alleged that when Villar purchased the subject
property, she acted in bad faith as she knowingly and willfully disregarded the laws
on judicial and extrajudicial foreclosure of mortgaged property.
The RTC ruled in favor of Garcia and ordered Villar to pay the former the
sum of P1.8M (the amount of the loan secured by the mortgage) plus legal interest.
The RTC declared that the direct sale of the subject property to Villar, the first
mortgagee, could not operate to deprive Garcia of his right as a second
mortgagee. The RTC further explained that upon Galas’s failure to pay her obligation,
Villar should have foreclosed the subject property to provide junior mortgagees like
Garcia the opportunity to satisfy their claims from the residue, if any, of the
foreclosure sale proceeds.
Villar appealed and contended that the second mortgage is a void and
inexistent contract. The Court of Appeals reversed the RTC’s decision and declared
that Galas was free to mortgage the subject property even without Villar’s consent
as the restriction that the mortgagees consent was necessary in case of a subsequent
encumbrance was absent in the Deed of Real Estate Mortgage. However, the Court
of Appeals held that the sale of the subject property to Villar was valid as it found
nothing in the records that would show that Galas violated the Deed of Real Estate
Mortgage prior to the sale.
Garcia appealed to the Supreme Court, with the same arguments he posited
before the lower courts, but added that the Deed of Real Estate Mortgage contained
a stipulation, which is violative of the prohibition on pactum commissorium.
Issue (relating to pactum commissorium):
Whether or not the sale of the subject property to Villar was in violation of
the prohibition on pactum commissorium
Ruling:
No. The sale of the subject property does not violate the prohibition on
pactum commissorium.
Ratio:
Garcia claims that the stipulation appointing Villar, the mortgagee,
as the mortgagor’s attorney-in-fact, to sell the property in case of default in
the payment of the loan, is in violation of the prohibition on pactum
commissorium, as stated under Article 2088 of the Civil Code.
The following are the elements of pactum commissorium:
(1) There should be a property mortgaged by way of security for the payment of the 2. Executed nine (9) trust receipt but failed to turn over the proceeds of
principal obligation; and the goods or the goods themselves; and

3. Negotiated the proceeds of seventeen (17) letters of credit, which

were all dishonored because of discrepancies.
(2) There should be a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation within the To secure payment for these obligations respondent FILKOR executed a Real
stipulated period. Estate Mortgage. It mortgaged to the bank the improvements it constructed on the
lot it was leasing in Cavite Export Processing Zone Authority. Respondents Kim Eung
Villar’s purchase of the subject property did not violate the prohibition Joe and Lee Han Sang on their part executed a Continuing Suretyship binding
on pactum commissorium. The power of attorney provision above did not provide themselves jointly and severally with FILKOR to pay the obligations to the bank.
that the ownership over the subject property would automatically pass to Villar upon When FILKOR breached all its obligations, petitioner KOREA EXCHANGE
Galas’s failure to pay the loan on time. What it granted was the mere appointment BANK filed a civil case with the RTC of CAVITE. The petitioner sought to be paid for
of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject 27 causes of action and that the mortgaged property be foreclosed and sold at a
property, and to apply the proceeds to the payment of the loan. This provision is public auction in case the respondent fails to pay within ninety days from the entry
customary in mortgage contracts, and is in conformity with Article 2087 of the Civil of judgment.
Code, which reads: The trial court rendered a judgment in favor of the petitioner for all 27
actions but failed to order the foreclosure and public auction of the mortgaged
Art. 2087. It is also of the essence of these contracts that
property in the event that FILKOR fails to pay its obligation. Petitioner filed a motion
when the principal obligation becomes due, the things in which the
for partial reconsideration seeking that the relief of foreclosure be granted but such
pledge or mortgage consists may be alienated for the payment to
motion was denied saying that the petitioner in opting to file a civil action for the
the creditor.
collection of the defendant’s obligation, has abandoned its mortgaged lien on the
Galas’s decision to eventually sell the subject property to Villar was well within the property subject of the real estate mortgage.
scope of her rights as the owner of the subject property. The subject property was
BASIS of TC’s DECISION: Danao vs. Court of Appeals, 154 SCRA 446, citing Manila
transferred to Villar by virtue of another and separate contract, which is the Deed
Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448
of Sale. Garcia never alleged that the transfer of the subject property to Villar was
“The rule is now settled that a mortgage creditor may elect to waive his security and
automatic upon Galas’s failure to discharge her debt, or that the sale was simulated
bring, instead, an ordinary action to recover the indebtedness with the right to
to cover up such automatic transfer.
execute a judgment thereon on all the properties of the debtor including the subject
matter of the mortgage, subject to the qualification that if he fails in the remedy by
him elected, he cannot pursue further the remedy he has waived.”
KOREA EXCHANGE BANK, petitioner, vs.
FILKOR BUSINESS INTEGRATED, INC., KIM EUNG JOE, and LEE HAN
SANG, respondents. ISSUE: (Assigned by petitioner) Whether or not the petitioner had abandoned the
G.R. No. 138292. April 10, 2002 real estate mortgage in its favor, because it filed a simple collection case. NO

(Resultant Issue) Whether or not petitioner’s complaint before the trial

FACTS: Respondent FILKOR had three transactions with the respondent KOREA
court was an action for foreclosure of a real estate mortgage, or an action for
EXCHANGE BANK:
collection of a sum of money.
1. Borrowed US$ 40,000.00, of which only US$ 40,000.00 was paid;
HELD: It was an action for foreclosure of a real estate mortgage. Petitioner’s
allegations in its complaint, and its prayer that the mortgaged property be
foreclosed and sold at public auction, indicate that petitioner’s action was one for
foreclosure of real estate mortgage.
 In petitioner’s complaint before the trial court, petitioner alleges:
To secure payment of the obligations of defendant Corporation
under the First to the Twenty-Seventh Cause of Action, on February
9, 1996, defendant Corporation executed a Real Estate Mortgage
by virtue of which it mortgaged to plaintiff the improvements
standing on Block 13, Lot 1, Cavite Export Processing Zone,
Rosario, Cavite, belonging to defendant Corporation covered by
Tax Declaration No. 5906-1 and consisting of a one-story building
called warehouse and spooling area, the guardhouse, the
cutting/sewing area building and the packing area building. (A
copy of the Real Estate Mortgage is attached hereto as Annex “SS”
and made an integral part hereof.)
 This allegation satisfies in part the requirements of Section 1, Rule 68 of the
1997 Rules of Civil Procedure on foreclosure of real estate mortgage, which
provides:
SECTION 1. Complaint in action for foreclosure. – In an action for
the foreclosure of a mortgage or other encumbrance upon real
estate, the complaint shall set forth the date and due execution
of the mortgage; its assignments, if any; the names and
residences of the mortgagor and the mortgagee; a description of
the mortgaged property; a statement of the date of the note or
other documentary evidence of the obligation secured by the
mortgage, the amount claimed to be unpaid thereon; and the
names and residences of all persons having or claiming an
interest in the property subordinate in right to that of the holder
of the mortgage, all of whom shall be made defendants in the
action.
 Prayer of the complaint before the trial court reads as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered:
x xx
2. Ordering that the property mortgaged be foreclosed and sold
at public auction in case defendants fail to pay plaintiff within
ninety (90) days from entry of judgment.
 Petitioner’s action being one for foreclosure of real estate mortgage the trial
should have ordered the foreclosure and public auction of the mortgaged
property in the event that respondent Filkor fails to pay its outstanding
obligations. This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil
Procedure, which provides:
SEC. 2. Judgment on foreclosure for payment or sale.- If upon the
trial in such action the court shall find the facts set forth in the
complaint to be true, it shall ascertain the amount due to the
plaintiff upon the mortgage debt or obligation, including interest
and other charges as approved by the court, and costs, and shall
render judgment for the sum so found due and order that the same
be paid to the court or to the judgment obligee within a period of
not less than ninety (90) days nor more than one hundred twenty
(120) days from entry of judgment, and that in default of such
payment the property shall be sold at public auction to satisfy the
judgment.
DISPOSITION: WHEREFORE, the petition is GRANTED The Order dated
March 12, 1999, of the Regional Trial Court of Cavite City, Branch 88, in Civil
Case No. N-6689 is hereby MODIFIED, to state that the mortgaged property
of respondent Filkor be ordered foreclosed and sold at public auction in the
event said respondent fails to pay its obligations to petitioner within ninety
(90) days from entry of judgment.
Huerta Alba Resort Inc, v. CA and Syndicated Management Grp, Inc.
Date: Sep. 1, 2000
Ponente: Purisima
This is a fairly long case with two main discussion points. The first main point is the
difference between equity of redemption and right of redemption, which we took
up in Credit Transactions. Second, and more related to our topic, would be the
nature of a counterclaim.
At bar is a petition assailing the Court of Appeals decision, setting aside the RTC
Makati decision that held that Huerta had the right to redeem property within a
one year period prescribed by Sec. 78 of RA 337, the General Banking Act.
This section provides -- “in case of a foreclosure of a mortgage in favor of a bank,
banking or credit institution, whether judicially or extrajudicially, the mortgagor
shall have the right, within one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem the property.”
Facts
 SMGI (“Respondents”) filed a complaint for judicial foreclosure of
mortgage on Oct 19, 1989
o They sought to foreclose 4 parcels of land mortgaged by Huerta
(“petitioner”) to Intercon Fund Resource Inc (Intercon)
o Respondent instituted this as mortgagee-assignee (Intercon
assigned their rights at some point.)
o The loan was P8.5M, secured by the subject parcels of land.
 In its answer, petitioner questioned
o Assignment of Intercon of the mortgage right (they said it was
ultra vires)
o The correctness of charges.
 Petitioner lost and was ordered to pay the loan, plus interest and charges,
within 150 days from receipt of the order, else the properties would be
sold to satisfy the debt.
 Petitioner appealed to the CA, which dismissed the case (late payment of
docket fees).
 Petitioner then went to the SC, which also dismissed their complaint.
 After these rulings, respondent filed with the original RTC a motion of
execution, which was granted.
o Thus, a notice of levy and execution was issued by the Sheriff
o He issued a notice of Sheriff’s sale for the auction of subject
properties.
 Petitioner then filed a motion to quash and set aside the writ of execution,
saying that the trial court acted with GAD.
 It argued that the record of the case was still with the CA, and thus the writ
was premature
o The 150 days period had not yet lapsed
o There was no default because respondent had not yet demanded
for payment.
 RTC denied this, saying that the judgment had become final and executor
o Execution thereof was a matter of right
o Writ of execution thus was its ministerial duty
 Guess what? Petitioner appealed to the CA.
 While the appeal was pending, the auction sale proceeded and
Respondent won the bidding.
o The certificate of sale was issued to it, and registered with the
RoD.
 After this, petitioner presented a “motion for clarification,” asking the trial
court if the 12 month period for redemption would apply
o RTC ruled that the period of redemption would have to follow the
rule on judicially foreclosed property (see Rule 68)
o [The sale] shall operate to divest the rights in the property of all
the parties to the action and to vest their rights in the purchaser,
subject to such rights of redemption as may be allowed by law.
 Thus, petitioner filed a motion to set aside this order, saying that it altered
the earlier decision
o First decision declared that satisfaction of judgment would be
governed by the sale of real estate under execution (not Rule 68).
 Remember the CA? All this happened while the case was pending there,
diba? They held that the 150 day period of redemption should be
computed from the date of notification of entry of judgment – thus, it had
expired on Sept. 11, 1994.
o The appeal was dismissed because the subject was already moot
and academic.
 They also dismissed the MR
o Even if it is true that Sec 78 of RA 337 (mentioned above)
prescribes a period of one year from the auction sale to redeem
the property, petitioner never averred in its pleadings that it was
entitled to this provision
 Issue of whether SMGI was a credit institution was never
brought squarely before the court.
 SMGI then filed a petition for writ of possession – it was here that Huerta
first claimed the right to redeem under the General Banking Act
o Original mortgagee, they said, was a credit institution, and the
assignment to SMGI did not remove the transaction from the
coverage of Sec 78 of RA 337.
o Thus, they should have one year to redeem from registration of
the auction sale.
o Thus, they said, the issuance of titles to SMGI was premature.
  RTC denied the petition for writ of possession – they agreed (for the first
time EVER) with Huerta, saying that they had until Oct 21, 1995 to redeem
said parcels of land.
o SMGI challenged the order, and the CA overturned it
 Hence, this petition.
Issue
 w/n Huerta has the one year right of redemption under Sec 78 of RA 337 –
No.
Held
 Various decisions show that Huerta has been adjudged to have only the
Equity of Redemption, not the Right of Redemption (Court cited Limpin v.
IAC)
o Right of Redemption – exists only in extrajudicial mortgage.
 No right recognized in judicial foreclosure unless
mortgagee is PNB or a banking institution
 Mortgagor has one year from registration of sheriff’s
certificate of sale to redeem the property.
o This does not exist in judicial foreclosure of the mortgagee is not a
banking institution
 The case here is mentioned above (Rule 68).
 What exists only now is the Equity of Redemption – right
of the mortgagor to extinguish the mortgage and retain
ownership by paying the debt within the 90 day period
after judgment becomes final.
 Rule 68, Sec 2 – [court] shall render judgment
for the sum so found due and order the same to
be paid into court within a period of not less
than ninety (90) days from the date of the
service of such order, and that in default of such
payment the property be sold to realize the
mortgage debt and costs.'
 This is the equity of redemption – it may even be
exercised beyond the 90 day period from date of service
of the order, as long as its before the order of
confirmation of the sale. (After such order of
confirmation, there is no more redemption possible)
 Petitioner did not seasonably invoke its purported right under Sec 78 of RA
337
o Earliest opportunity – when it submitted its answer to the
complaint for foreclosure (essentially, they should have filed a
counterclaim).
 What is a Counterclaim? (in case he asks)
o A cause of action existing in favor of the defendant against the
plaintiff.
o It will, if established, defeat/qualify the judgment or relief to
which the plaintiff is entitled.
o Distinct/independent cause of action
o Defendant, in respect to the counterclaim, becomes an actor
 There exist 2 simultaneous actions, each party is at the
same time a plaintiff and a defendant
 Represents the right of the defendant to have the claims
of the parties counterbalanced
 Counterclaim is essentially an independent action, and
should be treated as such. (tested by the same rules,
etc.)
 The point? – Huerta should have asserted their right under Sec 78 of RA
337 as a counterclaim in its answer.
o Counterclaims allow the whole controversy between parties to be
disposed of in one action
o The applicability of Sec 78 hinged on a factual question
 Was Intercon a credit institution? – this was never
squarely brought before the court.
 The claim of benefits under Sec 78 is in the nature of a
compulsory counterclaim that should have been in the
answer to the complaint.
 Failure of Huerta to assert this alleged right precludes it from doing so at
the late stage of litigation
o Estoppel may successfully be invoked.
o A party who failed to invoke his claim in the main case, while
having opportunity to do so, will be precluded from invoking this
claim subsequently.
o Huerta should have alleged at the very start that Intercon was a
credit institution, in order for Sec 78 to apply.

GRAND FARMS, INC. v. CA, (1991)
(Extrajudicial Foreclosure: Requirement of Notice)
There has been no denial by private respondent that no personal
notice of the extrajudicial foreclosure was ever sent to petitioners
prior thereto. This omission, by itself, rendered the foreclosure
defective and irregular for being contrary to the express
provisions of the mortgage contract. While private respondent
was constituted as their attorney-in-fact by petitioners, the
inclusion of the aforequoted paragraph (k) in the mortgage
contract nonetheless rendered personal notice to the latter
indispensable. An additional stipulation between the parties is
the law between them and as it not contrary to law, morals, good
customs and public policy, the same should be complied with
faithfully (Article 1306, New Civil Code of the Philippines). Thus,
while publication of the foreclosure proceedings in the newspaper
of general circulation was complied with, personal notice is still
required, as in the case at bar, when the same was mutually
agreed upon by the parties as additional condition of the
mortgage contract. The extrajudicial foreclosure proceedings on
the property in question are fatally defective and are not binding
on the deceased debtor-mortgagor or to his heirs.
Purpose: intended for the mortgagors so that they may take
the necessary legal steps for the protection of their interests
such as the payment of the loan to prevent foreclosure or to
subsequently arrange for redemption of the property foreclosed.
MEDIDA, ET. AL V. CA, (1992)
(Who may Redeem)
Issue: WON a mortgagor, whose property has been
extrajudicially foreclosed and sold at the corresponding
foreclosure sale, may validly execute a mortgage contract over
the same property in favor of a third party during the period of
redemption. YES.
Rules:
· If the purchaser at the foreclosure sale merely acquired an
inchoate right to the property which could ripen into ownership
only upon the lapse of the redemption period without his credit
having been discharged.
· during that same period of twelve months the mortgagor is
NOT "divested" of his ownership, otherwise the absurd result
would be that the land will consequently be without an owner
although it remains registered in the name of the mortgagor.
· what is divested from the mortgagor is only his "full right as
owner thereof to dispose (of) and sell the lands," - merely
clarifying that the mortgagor does not have the unconditional
power to absolutely sell the land since the same is encumbered by
a lien of a third person which, if unsatisfied, could result in a
consolidation of ownership in the lienholder but only after the
lapse of the period of redemption. Even on that score, it may
plausibly be argued that what is delimited is not the
mortgagor's jus dispodendi, as an attribute of ownership, but
merely the rights conferred by such act of disposal which may
correspondingly be restricted.
· A redemptioner is defined as a creditor having a lien by
attachment, judgment or mortgage on the property sold, or on
some part thereof, subsequent to the judgment under which the
property was sold.
· A property sold at a public auction, while within the period
of redemption, may still be subsequently mortgaged by the
mortgagor: Since the mortgagor remains as the absolute owner
of the property during the redemption period and has the free
disposal of his property, there would be compliance with the
requisites of Article 2085 of the Civil Code for the constitution
of another mortgage on the property. To hold otherwise would
create the inequitable situation wherein the mortgagor would be
deprived of the opportunity, which may be his last recourse, to
raise funds wherewith to timely redeem his property through
another mortgage thereon.
· Effect: The proceeding pursuant to which the mortgaged
property was sold, a subsequent mortgage could nevertheless be
legally constituted thereafter with the subsequent mortgagee
becoming and acquiring the rights of a redemptioner, aside from
his right against the mortgagor.
Held: In the case at bar what is presently involved is a
mortgage, not a sale, to petitioner bank. Such mortgage does not
involve a transfer, cession or conveyance of the property but
only constitutes a lien thereon. There is no obstacle to the legal
creation of such a lien even after the auction sale of the property
but during the redemption period.
SPOUSES YAP v. SPOUSES DY (2011)
(How to redeem)
Issue: To whom payment of the redemption money should be
made?
1. purchaser or redemptioner, or
2. for him to the officer who made the sale.
Section 31, Rule 39 of the Rules of Court:
SEC. 31. Effect of redemption by judgment debtor, and a
certificate to be delivered and recorded thereupon. To whom
payments on redemption made.—If the judgment debtor
redeem:
1. he must make the same payments as are required to effect
a redemption by a redemptioner,
2. whereupon the effect of the sale is terminated and
3. he is restored to his estate, and
4. the person to whom the payment is made must execute and
deliver to him a certificate of redemption acknowledged or
approved before a notary public or other officer authorized to take
acknowledgments of conveyances of real property.
Ø Such certificate must be filed and recorded in the office of the
registrar of deeds of the province in which the property is
situated, and the registrar of deeds must note the record thereof
on the margin of the record of the certificate of sale.
Litonjua v. L & R Corporation:
This Court declared valid the sale by the mortgagor of mortgaged
property to a third person notwithstanding the lack of written
consent by the mortgagee, and likewise recognized the third
person’s right to redeem the foreclosed property (for having
assumed the obligation to pay the mortgage debt after buying the
mortgaged property), to wit:
Therefore, such third person stepped into the shoes of the
mortgagor (seller) on account of such sale and was in effect, their
successor-in-interest. As such, it had the right to redeem the
property foreclosed by the mortgagee
Tambunting, clarifies that –
· The third persons, by stepping into the mortgagor’s shoes as
assignees, had the obligation to pay the mortgage debts,
otherwise, these debts would and could be enforced against the
property subject of the assignment.
· Stated otherwise, the Hernandezes, by the assignment,
obtained the right to remove the burdens on the property subject
thereof by paying the obligations thereby secured; that is to say:
a) they had the right of redemption as regards the first
mortgage, to be exercised within the time and in the manner
prescribed by law and the mortgage deed; and
b) as regards the second mortgage, sought to be judicially
foreclosed but yet unforeclosed, they had the so-called equity of
redemption.”
The requisites for a valid redemption:
1. the redemption must be made within 12 months from the
time of the registration of the sale in the Office of the Register of
Deeds;
2. payment of the:
a) purchase price of the property involved,
b) plus 1% interest per month thereon in addition, up to the
time of redemption,
c) together with the amount of any assessments or taxes which
the purchaser may have paid thereon after the purchase,
d) also with 1% interest on such last named amount; and

3. written notice of the redemption must be served on the
officer who made the sale and a duplicate filed with the Register
of Deeds of the province.
Doctrine of indivisibility of the mortgage
does not apply once the mortgage is extinguished by a complete
foreclosure thereof as in the instant case.
General Rule: Art. 2089, Civil Code
Art. 2089. A pledge or mortgage is indivisible, even though the
debt may be divided among the successors in interest of the
debtor or of the creditor.
· Therefore, the debtor’s heir who has paid a part of the debt
cannot ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
· Neither can the creditor’s heir who received his share of the
debt return the pledge or cancel the mortgage, to the prejudice of
the other heirs who have not been paid.
Exception: The case in which, there being several things given
in mortgage or pledge, each one of these guarantees only a
determinate portion of the credit.
· The debtor, in this case, shall have a right to the
extinguishment of the pledge or mortgage as the portion of the
debt for which each thing is specially answerable is satisfied.
What the law (Art. 2089) proscribes:
ü is the foreclosure of only a portion of the property or a number
of the several properties mortgaged corresponding to the unpaid
portion of the debt where before foreclosure proceedings partial
payment was made by the debtor on his total outstanding loan or
obligation.
ü This also means that the debtor cannot ask for the release of
any portion of the mortgaged property or of one or some of the
several lots mortgaged unless and until the loan thus, secured has
been fully paid, notwithstanding the fact that there has been a
partial fulfillment of the obligation.
ü Hence, it is provided that the debtor who has paid a part of the
debt cannot ask for the proportionate extinguishment of the
mortgage as long as the debt is not completely satisfied.
Once the mortgage is extinguished by a complete foreclosure
thereof, said doctrine of indivisibility ceases to apply since, with
the full payment of the debt, there is nothing more to secure.
Piecemeal redemption, allowed.
Nothing in the law prohibits the piecemeal redemption of
properties sold at one foreclosure proceeding. In fact, in several
early cases decided by this Court, the right of the mortgagor or
redemptioner to redeem one or some of the foreclosed properties
was recognized:
Castillo v. Nagtalon: ten parcels of land were sold at public
auction. Nagtalon, who owned three of the ten parcels of land
sold, wanted to redeem her properties. Though the amount she
tendered was found as insufficient to effectively release her
properties, the Court held that the tender of payment was made
timely and in good faith and thus, in the interest of justice,
Nagtalon was given the opportunity to complete the redemption
purchase of three of the ten parcels of land foreclosed.
Held: Clearly, the Dys and Maxinos can effect the redemption
of even only two of the five properties foreclosed. And since they
can effect a partial redemption, they are not required to pay
the P216,040.93 considering that it is the purchase price for all
the five properties foreclosed.
SUICO v. PNB (2007)
Right to Surplus
Notice of Sheriff’s Sale
Purpose: Notices are given for the purpose of securing bidders
and to prevent a sacrifice of the property. If these objects are
attained, immaterial errors and mistakes will not affect the
sufficiency of the notice; but if mistakes or omissions occur in
the notices of sale, which are calculated to deter or mislead
bidders, to depreciate the value of the property, or to prevent it
from bringing a fair price, such mistakes or omissions will be
fatal to the validity of the notice, and also to the sale made
pursuant thereto.
Effect of the non-delivery of the bid price or the surplus
to the mortgagor
Rule 39 of the Rules of Court on extrajudicial foreclosure sale
provide:
SEC. 21. Judgment obligee as purchaser. – When the
purchaser is the judgment obligee, and no third-party claim has
been filed, he need not pay the amount of the bid if it does
not exceed the amount of his judgment. If it does, he
shall pay only the excess.
SEC. 39. Obligor may pay execution against obligee. – After a
writ of execution against property has been issued, a person
indebted to the judgment obligor may pay to the sheriff holding
the writ of execution the amount of his debt or so much thereof
as may be necessary to satisfy the judgment, in the manner
prescribed in section 9 of this Rule, and the sheriff’s receipt shall
be a sufficient discharge for the amount so paid or directed to be
credited by the judgment obligee on the execution.
Issue: Considering the amount of PNB’s bid of P8,511,000.00
as against the amount of the petitioners’ obligation
ofP1,991,770.38 in the Notice of Sale, is the PNB obliged to
deliver the excess? YES.
Rule 68, Section 4 of the Rules of Court provides:
SEC. 4. Disposition of proceeds of sale.- The amount
realized from the foreclosure sale of the mortgaged property
shall, after deducting the costs of the sale, be paid to the person
foreclosing the mortgage, and when there shall be any balance or
residue, after paying off the mortgage debt due, the same shall be
paid to junior encumbrancers in the order of their priority, to be
ascertained by the court, or if there be no such encumbrancers or
there be a balance or residue after payment to them, then to the
mortgagor or his duly authorized agent, or to the person entitled
to it.
Under the above rule, the disposition of the proceeds of the sale
in foreclosure shall be as follows:
1. first, pay the costs
2. secondly, pay off the mortgage debt
3. thirdly, pay the junior encumbrancers, if any in the order of
priority
4. fourthly, give the balance to the mortgagor, his agent or the
person entitled to it.
Based on the foregoing, after payment of the costs of suit and
satisfaction of the claim of the first mortgagee/senior mortgagee,
the claim of the second mortgagee/junior mortgagee may be
satisfied from the surplus proceeds.
· The application of the proceeds from the sale of the
mortgaged property to the mortgagor’s obligation is an act of
payment, not payment by dacion; hence, it is the mortgagee’s
duty to return any surplus in the selling price to the
mortgagor.
· A mortgagee who exercises the power of sale contained in a
mortgage is considered a custodian of the fund and, being bound
to apply it properly, is liable to the persons entitled thereto if he
fails to do so. And even though the mortgagee is not strictly
considered a trustee in a purely equitable sense, but as far as
concerns the unconsumed balance, the mortgagee is deemed a
trustee for the mortgagor or owner of the equity of redemption.
Effect: Thus it has been held that if the mortgagee is retaining
more of the proceeds of the sale than he is entitled to, this fact
alone will not affect the validity of the sale but simply give the
mortgagor a cause of action to recover such surplus.
CUA LAICHU, ET AL., v. LAQUI & PBCOMM., (2010)
After Consolidation of Ownership, Rules of Court, Rule 39, Sec.
33
Issue: Whether the writ of possession was properly issued
despite the pendency of a case questioning the validity of the
extrajudicial foreclosure sale and despite the fact that
petitioners were declared in default in the proceeding for the
issuance of a writ of possession. YES.
Ø Petitioners point out that the issuance of a writ of possession
will deprive them not only of the use and possession of their
property, but also of its ownership.
Ø Private respondent argues that the issuance of a writ of
possession may not be stayed by a pending case questioning the
validity of the extrajudicial foreclosure sale.
Banco Filipino Savings and Mortgage Bank v. Pardo
Ruled on the right to possession of a purchaser at an extrajudicial
foreclosure of a mortgage. This case involved a REM as security
for a loan obtained from a bank. Upon the mortgagor’s default,
the bank extrajudicially foreclosed the mortgage. At the auction
sale, the bank was the highest bidder. A certificate of sale was duly
issued and registered. The bank then applied for the issuance of a
writ of possession, which the lower court dismissed. The Court
reversed the lower court and held that the purchaser at the
auction sale was entitled to a writ of possession pending the lapse
of the redemption period upon a simple motion and upon the
posting of a bond.
Navarra v. CA
the purchaser at an extrajudicial foreclosure sale applied for a
writ of possession after the lapse of the one-year redemption
period. The Court ruled that the purchaser at an extrajudicial
foreclosure sale has a right to the possession of the property even
during the one-year redemption period provided the purchaser
files an indemnity bond. After the lapse of the said period with
no redemption having been made, that right becomes absolute
and may be demanded by the purchaser even without the posting
of a bond. Possession may then be obtained under a writ which
may be applied for ex parte pursuant to Section 7 of Act No. 3135,
as amended by Act No. 4118, thus:
SEC. 7. In any sale made under the provisions of this Act,
the purchaser may petition the RTC of the province or place
where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing
bond in an amount equivalent to the use of the property for a
period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or
without complying with the requirements of this
Act. Such petition:
1. shall be made under oath and filed in form of an ex
parte motion and
2. the court shall, upon approval of the bond, order that a writ
of possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
immediately.
Facts: The certificate of sale of the foreclosed property was
annotated on the TCT on 7 June 2002. The redemption period
thus lapsed on 7 June 2003, one year from the registration of
the sale. When private respondent applied for the issuance of a
writ of possession on 18 August 2004, the redemption period
had long lapsed.
Held: Since the foreclosed property was not redeemed within
one year from the registration of the extrajudicial foreclosure
sale, private respondent had acquired an absolute right, as
purchaser, to the writ of possession. It had become the
ministerial duty of the lower court to issue the writ of possession
upon mere motion pursuant to Section 7 of Act No. 3135, as
amended. Moreover, once ownership has been consolidated,
the issuance of the writ of possession becomes a ministerial duty
of the court, upon proper application and proof of title. In the
present case, when private respondent applied for the issuance
of a writ of possession, it presented a new TCT issued in its
name. The right of private respondent to the possession of the
property was thus founded on its right of ownership. As the
purchaser of the property at the foreclosure sale, in whose name
title over the property was already issued, the right of private
respondent over the property had become absolute, vesting in it
the corollary right of possession.

Questioning the validity of the extrajudicial foreclosure sale,

remedy:
not later than 30 days after the purchaser was given
possession, petition to:
1. to have the sale set aside and
2. the writ of possession cancelled
3. specifying the damages suffered by him, because the
mortgage was not violated or the sale was not made in
accordance with the provisions hereof. (Section 8 of Act No.
3135)

· Such question should not be raised as a justification for

opposing the issuance of a writ of possession since under Act No.
3135, as amended, the proceeding for this is ex parte.
Petitioners cannot oppose or appeal the court’s order granting the
writ of possession in an ex parte proceeding.
· Further, the right to possession of a purchaser at an
extrajudicial foreclosure sale is not affected by a pending case
questioning the validity of the foreclosure proceeding. The latter
is not a bar to the former. Even pending such latter proceeding,
the purchaser at a foreclosure sale is entitled to the possession of
the foreclosed property.

BPI FAMILY SAVINGS BANK, INC. v. GOLDEN POWER
DIESEL SALES CENTER (2011)
When Held by a Third Party, Rules of Court, Rule 39, Sec. 33,
Sec. 16
BPI Family argues that respondents cannot be considered “a
third party who is claiming a right adverse to that of the debtor
or mortgagor” because respondents, as vendee, merely stepped
into the shoes of CEDEC, the vendor and judgment obligor.
According to BPI Family, respondents are mere extensions or
successors-in-interest of CEDEC. BPI Family also argues that
the pendency of an action questioning the validity of a mortgage
or auction sale cannot be a ground to oppose the
implementation of a writ of possession.
On the other hand, respondents insist that they are third
persons who claim rights over the properties adverse to CEDEC.
Respondents argue that the obligation of the court to issue an ex
parte writ of possession in favor of the purchaser in an
extrajudicial foreclosure sale ceases to be ministerial once it
appears that there is a third party in possession of the property
who is claiming a right adverse to that of the judgment obligor.
In extrajudicial foreclosures of real estate mortgages, the issuance
of a writ of possession is governed by Sec. 7 of Act No. 3135, as
amended, which provides:
SEC. 7. In any sale made under the provisions of this Act, the
purchaser may
1. petition the RTC of the province or place where the
property or any part thereof is situated, to give him possession
thereof during the redemption period,
2. furnishing bond in an amount equivalent to the use of the
property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was:
a) made without violating the mortgage or
b) without complying with the requirements of this Act.
3. Such petition shall be made under oath and
4. filed in form of an ex parte motion
a) in the registration or cadastral proceedings if the property
is registered, or
b) in special proceedings in the case of property registered
under the Mortgage Law or under Sec. 194 of the Administrative
Code, or
c) of any other real property encumbered with a mortgage
duly registered in the office of any register of deeds in
accordance with any existing law,
d) and in each case the clerk of the court shall, upon the filing
of such petition, collect the fees specified in paragraph 11 of Sec.
114 of Act No. 496, as amended by Act No. 2866, and
5. the court shall, upon approval of the bond, order that a
writ of possession issue, addressed to the sheriff of the province
in which the property is situated, who shall execute said order
immediately.
Note: This procedure may also be availed of by the purchaser
seeking possession of the foreclosed property bought at the
public auction sale after the redemption period has expired
without redemption having been made.
China Banking Corporation v. Lozada
· It is thus settled that the buyer in a foreclosure sale becomes
the absolute owner of the property purchased if it is not redeemed
during the period of one year after the registration of the sale. As
such, he is entitled to the possession of the said property and can
demand it at any time following the consolidation of ownership
in his name and the issuance to him of a new transfer certificate
of title.
· The buyer can in fact demand possession of the land even
during the redemption period except that he has to post a bond
in accordance with Section 7 of Act No. 3135, as amended.
· No such bond is required after the redemption period if the
property is not redeemed. Possession of the land then becomes
an absolute right of the purchaser as confirmed owner. Upon
proper application and proof of title, the issuance of the writ of
possession becomes a ministerial duty of the court.
Writ of Posession
GR: A purchaser in a public auction sale of a foreclosed
property is entitled to a writ of possession and, upon an ex
parte petition of the purchaser, it is ministerial upon the trial
court to issue the writ of possession in favor of the purchaser.
E: Section 33, Rule 39 of the Rules of Court provides:
Section 33. Deed and possession to be given at expiration of
redemption period; by whom executed or given.
Upon the expiration of the right of redemption, the purchaser
or redemptioner shall be substituted to and acquire all the
rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy. The possession of the
property shall be given to the purchaser or last redemptioner by
the same officer unless a third party is actually holding
the property adversely to the judgment obligor.
Foreclosed property held by the third party adversely to
the judgment obligor
· Therefore, in an extrajudicial foreclosure of real property,
when the foreclosed property is in the possession of a third party
holding the same adversely to the judgment obligor, the issuance
by the trial court of a writ of possession in favor of the purchaser
of said real property ceases to be ministerial and may no longer
be done ex parte.
· Procedure: is for the trial court to order a hearing to
determine the nature of the adverse possession. For the exception
to apply, however, the property need not only be possessed by a
third party, but also held by the third party adversely to the
judgment obligor.
Facts: BPI Family invokes the general rule that they are
entitled to a writ of possession because respondents are mere
successors-in-interest of CEDEC and do not possess the
properties adversely to CEDEC. Respondents, on the other
hand, assert the exception and insist that they hold the
properties adversely to CEDEC and that their possession is a
sufficient obstacle to the ex parte issuance of a writ of
possession in favor of BPI Family.
Issue: WON respondents are third party adversely to the
judgment obligor so that the issuance of a writ of execution may
be stayed and a hearing shall be conducted to determine their
ownership.
Respondentsʼ argument fails to persuade the Court. It is clear that
respondents acquired possession over the properties pursuant to
the Deed of Sale which provides that for P15,000,000 CEDEC will
“sell, transfer and convey” to respondents the properties “free
from all liens and encumbrances excepting the mortgage as may
be subsisting in favor of the BPI FAMILY SAVINGS BANK.”
Moreover, the Deed of Sale provides that respondents bind
themselves to assume “the payment of the unpaid balance of the
mortgage indebtedness of the VENDOR (CEDEC) amounting
to P7,889,472.48, as of July 31, 1998, in favor of the
aforementioned mortgagee (BPI Family) by the mortgage
instruments and does hereby further agree to be bound by the
precise terms and conditions therein contained.”
Roxas v. Buan
It will be recalled that Roxasʼ possession of the property was
premised on its alleged sale to him by Valentin for the amount
of P100,000.00. Assuming this to be true, it is readily apparent
that Roxas holds title to and possesses the property
as Valentinʼs transferee. Any right he has to the property is
necessarily derived from that of Valentin. As transferee, he steps
into the latterʼs shoes. Thus, in the instant case, considering that
the property had already been sold at public auction pursuant to
an extrajudicial foreclosure, the only interest that may be
transferred by Valentin to Roxas is the right to redeem it within
the period prescribed by law. Roxas is therefore the successor-in-
interest of Valentin, to whom the latter had conveyed his interest
in the property for the purpose of redemption.
Consequently, Roxasʼ occupancy of the property cannot be Question of validity of foreclosure sale
considered adverse to Valentin. Furthermore, it is settled that a pending action for annulment of
mortgage or foreclosure sale does not stay the issuance of the writ
Held: In this case, respondentsʼ possession of the properties was of possession. The trial court, where the application for a writ of
premised on the sale to them by CEDEC for the amount possession is filed, does not need to look into the validity of the
of P15,000,000. Therefore, respondents hold title to and possess mortgage or the manner of its foreclosure. The purchaser is
the properties as CEDECʼs transferees and any right they have
over the properties is derived from CEDEC. As transferees of
CEDEC, respondents merely stepped into CEDEC’s shoes and are
necessarily bound to acknowledge and respect the mortgage
CEDEC had earlier executed in favor of BPI Family. Respondents
are the successors-in-interest of CEDEC and thus,
respondentsʼ occupancy over the properties cannot be
considered adverse to CEDEC.

China Bank v. Lozada

We discussed the meaning of “a third party who is actually
holding the property adversely to the judgment
obligor.” We stated:
The exception provided under Section 33 of Rule 39 of the
Revised Rules of Court contemplates a situation in which a third
party holds the property by adverse title or right, such as that of a
co-owner, tenant or usufructuary. The co-owner,
agricultural tenant, and usufructuary possess the property in
their own right, and they are not merely the successor or
transferee of the right of possession of another co-owner or the
owner of the property.

In this case, respondents cannot claim that their right to

possession over the properties is analogous to any of these.
Respondents cannot assert that their right of possession is
adverse to that of CEDEC when they have no independent right
of possession other than what they acquired from CEDEC. Since
respondents are not holding the properties adversely to CEDEC,
being the latterʼs successors-in-interest, there was no reason for
the trial court to order the suspension of the implementation of
the writ of possession.
entitled to a writ of possession without prejudice to the outcome
of the pending annulment case.

STAR TWO (SPV-AMC), INC. V. PAPER CITY CORP. OF
THE PHIL., 2013
Effect and Extent, Art. 2126, Art. 2127, Art. 2129
Law and jurisprudence provide and guide that even if not
expressly so stated, the mortgage extends to the improvements.
Article 2127 of the Civil Code provides:
Art. 2127. The mortgage extends:
1. to the natural accessions,
2. to the improvements,
3. growing fruits, and
4. the rents or income not yet received when the obligation
becomes due, and
5. to the amount of the indemnity granted or owing to the
proprietor from the insurers of the property mortgaged, or
6. in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or
it passes into the hands of a third person.
In the early case of Bischoff v. Pomar and Cia. General de
Tabacos, the Court ruled that even if the machinery in question
was not included in the mortgage expressly, Article 111 of the
old Mortgage Law provides that chattels permanently located
in a building, either useful or ornamental, or for the service of
some industry even though they were placed there after the
creation of the mortgage shall be considered as mortgaged with
the estate, provided they belong to the owner of said estate.
The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co. relied on
this provision. The issue was whether the machineries and
accessories were included in the mortgage and the subsequent
sale during public auction. This was answered in the affirmative
by the Court when it ruled that the machineries were integral
parts of said sugar central hence included following the principle
of law that the accessory follows the principal.
Further, in the case of Manahan v. Hon. Cruz, this Court denied
the prayer of Manahan to nullify the order of the trial court
including the building in question in the writ of possession
following the public auction of the parcels of land mortgaged to
the bank. It upheld the inclusion by relying on the principles laid
upon in Bischoff v. Pomar and Cia. General de Tabacos and Cu
Unjieng e Hijos v. Mabalacat Sugar Co.

Held: Contrary to the finding of the CA, the Extra-Judicial
Foreclosure of Mortgage includes the machineries and
equipments of respondent. While captioned as a "Petition for
Extra-Judicial Foreclosure of Real Estate Mortgage Under Act
No. 3135 As Amended," the averments state that the petition is
based on the Indenture duly notarized and entered. The petition
for foreclosure prayed that a foreclosure proceedings on the
aforesaid real properties, including all improvements thereon
covered by the real estate mortgage be undertaken and the
appropriate auction sale be conducted. Considering that the
Indenture which is the instrument of the mortgage that was
foreclosed exactly states through the Deed of Amendment that
the machineries and equipments listed in Annexes "A" and "B"
form part of the improvements listed and located on the parcels
of land subject of the mortgage, such machineries and
equipments are surely part of the foreclosure of the "real estate
properties, including all improvements thereon" as prayed for in
the petition.
1âwphi1
The real estate mortgage over the machineries and equipments is
even in full accord with the classification of such properties by the
Civil Code of the Philippines as immovable property. Thus:
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered
to the soil;
xxxx
(5) Machinery, receptacles, instruments or implements intended
by the owner of the tenement for an industry or works which may
be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works;
CASE DIGEST:
SPS. ANTONIO vs. SSS
FACTS:
Magdalena V. Reyes (Reyes) owned a piece of titled land1 in Pilar
Village, Las Piñas City. On August 17, 1979 she got a housing loan from
respondent Social Security System (SSS) for which she mortgaged her land.
In late 1979, however, she asked the petitioner spouses Antonio and Leticia
Vega (the Vegas) to assume the loan and buy her house and lot since she
wanted to emigrate.
Upon inquiry with the SSS, an employee there told the Vegas that the
SSS did not approve of members transferring their mortgaged homes. The
Vegas could, however, simply make a private arrangement with Reyes
provided they paid the monthly amortizations on time. This practice, said the
SSS employee, was commonplace. Armed with this information, the Vegas
agreed for Reyes to execute in their favor a deed of assignment of real property
with assumption of mortgage and paid Reyes P20,000.00 after she undertook
to update the amortizations before leaving the country. The Vegas then took
possession of the house in January 1981.
But Reyes did not readily execute the deed of assignment. She left the
country and gave her sister, Julieta Reyes Ofilada (Ofilada), a special power
of attorney to convey ownership of the property. Sometime between 1983 and
1984, Ofilada finally executed the deed promised by her sister to the Vegas.
Ofilada kept the original and gave the Vegas two copies. The latter gave one
copy to the Home Development Mortgage Fund and kept the other.
Unfortunately, a storm in 1984 resulted in a flood that destroyed the copy left
with them.
In 1992, the Vegas learned that Reyes did not update the
amortizations for they received a notice to Reyes from the SSS concerning
it. They told the SSS that they already gave the payment to Reyes but, since
it appeared indifferent, on January 6, 1992 the Vegas updated the amortization
themselves and paid P115,738.48 to the SSS, through Antonio Vega’s
personal check. They negotiated seven additional remittances and the SSS
acceptedP8,681.00 more from the Vegas.
Meanwhile, on April 16, 1993 respondent Pilar Development
Corporation (PDC) filed an action for sum of money against Reyes before the
Regional Trial Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that
Reyes borrowed from Apex Mortgage and Loans Corporation
(Apex) P46,500.00 to buy the lot and construct a house on it. Apex then
assigned Reyes’ credit to the PDC on December 29, 1992, hence, the suit by
PDC for the recovery of the unpaid debt. On August 26, 1993 the RTC
rendered judgment, ordering Reyes to pay the PDC the loan of P46,398.00
plus interest and penalties beginning April 11, 1979 as well as attorney’s fees
and the costs. Unable to do so, on January 5, 1994 the RTC issued a writ of
execution against Reyes and its Sheriff levied on the property in Pilar Village.
 On February 16, 1994 the Vegas requested the SSS to acknowledge
their status as subrogees and to give them an update of the account so they
could settle it in full. The SSS did not reply. Meantime, the RTC sheriff
published a notice for the auction sale of the property on February 24, March
3 and 10, 1994. He also served on the Vegas notice of that sale on or about
March 20, 1994. On April 5, 1994, the Vegas filed an affidavit of third party
claimant and a motion for leave to admit a motion in intervention to quash the
levy on the property.
Still, stating that Vegas’ remedy lay elsewhere, the RTC directed the
sheriff to proceed with the execution. Meantime, the Vegas got a telegram
dated August 29, 1994, informing them that the SSS intended to foreclose on
the property to satisfy the unpaid housing debt of P38,789.58. On October 19,
1994 the Vegas requested the SSS in writing for the exact computation of the
indebtedness and for assurance that they would be entitled to the discharge
of the mortgage and delivery of the proper subrogation documents upon
payment. They also sent aP37,521.95 manager’s check that the SSS refused
to accept.
On November 8, 1994 the Vegas filed an action for consignation,
damages, and injunction with application for preliminary injunction and
temporary restraining order against the SSS, the PDC, the sheriff of RTC
Branch 19, and the Register of Deeds before the RTC of Las Piñas. Still, while
the case was pending, the SSS released the mortgage to the PDC. And on
August 22, 1996 the Register of Deeds issued TCT T-56657 to the PDC. A writ
of possession subsequently evicted the Vegas from the property.
On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the
Vegas. It ruled that the SSS was barred from rejecting the Vegas’ final payment
of P37, 521.95 and denying their assumption of Reyes’ debt, given the SSS’
previous acceptance of payments directly from them. The Vegas were
subrogated to the rights of Reyes and substituted her in the SSS housing loan
and mortgage contract. That the Vegas had the receipts show that they were
the ones who made those payments. The RTC ordered the PDC to deliver to
the Vegas the certificate of title covering the property. It also held the SSS and
PDC solidarily liable to the Vegas for P300, 000.00 in moral damages, P30,
000.00 in exemplary damages, and P50, 000.00 in attorney’s fees and for
costs of the suit.
The SSS appealed to the Court of Appeals. The CA ruled that, under
Article 1237 of the Civil Code, the Vegas who paid the SSS amortizations
except the last on behalf of Reyes, without the latter’s knowledge or against
her consent, cannot compel the SSS to subrogate them in her rights arising
from the mortgage. Further, said the CA, the Vegas’ claim of subrogation was
invalid because it was done without the knowledge and consent of the SSS as
required under the mortgage agreement.
ISSUE:
Whether or not Article 1237 of the Civil Code is applicable in the case
at bar.
HELD:
No.
Article 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the creditor to
subrogate him in his rights, such as those arising from a mortgage, guaranty,
or penalty. (1159a)
But Article 1237 cannot apply in this case since Reyes consented to
the transfer of ownership of the mortgaged property to the Vegas. Reyes also
agreed for the Vegas to assume the mortgage and pay the balance of her
obligation to SSS. Of course, paragraph 4 of the mortgage contract covering
the property required Reyes to secure SSS’ consent before selling the
property. But, although such a stipulation is valid and binding, in the sense that
the SSS cannot be compelled while the loan was unpaid to recognize the sale,
it cannot be interpreted as absolutely forbidding her, as owner of the
mortgaged property, from selling the same while her loan remained unpaid.
Such stipulation contravenes public policy, being an undue impediment or
interference on the transmission of property.30
Besides, when a mortgagor sells the mortgaged property to a third
person, the creditor may demand from such third person the payment of the
principal obligation. The reason for this is that the mortgage credit is a real
right, which follows the property wherever it goes, even if its ownership
changes. Article 2129 of the Civil Code gives the mortgagee, here the SSS,
the option of collecting from the third person in possession of the mortgaged
property in the concept of owner. More, the mortgagor-owner’s sale of the
property does not affect the right of the registered mortgagee to foreclose on
the same even if its ownership had been transferred to another person. The
latter is bound by the registered mortgage on the title he acquired.
After the mortgage debt to SSS had been paid, however, the latter
had no further justification for withholding the release of the collateral and the
registered title to the party to whom Reyes had transferred her right as owner.
Under the circumstance, the Vegas had the right to sue for the conveyance to
them of that title, having been validly subrogated to Reyes’ rights.
SPS. FELINO S. SAMATRA and CHARLITA ISIDRO, petitioners, vs.
RITA S. VDA. DE PARIAS, respondent.
and Macaria Sana, to the Rural Bank of Sto. Domingo, Nueva Ecija to secure
their loans. While the mortgages were still subsisting, mortgagor Donato
executed a "Kasunduang Buwisan sa Sakahan" constituting his daughter,
respondent Rita, as agricultural lessee over the mortgaged lots, without the
consent of the mortgagee bank.
When the mortgagors-spouses failed to pay their loans upon maturity, the
mortgagee bank extrajudicially foreclosed the mortgages over the subject lots. At
a public auction, the lots were sold to the mortgagee bank. Respondent
continued in possession of the lands. Thereafter, it was agreed that respondent
would buy back the lots but she failed to do so. Consequently, the bank sold the
lots to petitioners. Respondent filed an agrarian case with the RTC against the
mortgagee bank and the petitioners. The trial court decided in favor of
petitioners. On appeal, the Court of Appeals ruled that respondent is a bonafide
lessee, but denied her the right of pre-emption as she was already given by the
bank sufficient opportunity to exercise it but she failed to avail of it. Petitioners'
motion for reconsideration was denied. Hence, this petition.
HELD: In setting aside the decision of the Court of Appeals, the Supreme Court
held that: (a) a real estate mortgage does not extinguish the title of the debtor;
(b) the legal question of agricultural leasehold relationship cannot be made to
depend on mere certifications issued by the president or officers of associations
and organizations; and (c) respondent is not a bonafide agricultural lessee of the
subject lands for failure to prove the important element of personal cultivation.
The Supreme Court affirmed the award of actual damages to petitioners and the
deletion of the award of attorney's fees and litigation expenses.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; REAL ESTATE MORTGAGE; A
STIPULATION FORBIDDING THE OWNER FROM ALIENATING THE IMMOVABLE
MORTGAGED PROPERTY IS VOID. — The Court of Appeals correctly applied Article
2130 of the Civil Code which renders void any stipulation forbidding the owner
from alienating the immovable mortgaged (pacto de non aliendo) property. It is
settled that a real estate mortgage does not extinguish the title of the debtor. He
does not lose his right to use or dispose of the mortgaged property (jus
disponendi) which is one of the principal attributes of ownership. Thus, in the
case at bar, the mortgagor-spouses were well within their rights when they
constituted respondent as an agricultural lessee and the legality of the leasehold
contract cannot be validly assailed on this ground.
CASE DIGEST:
PCI LEASING v.TROJAN METAL INDUSTRIES
FACTS: TMI came to PCI to seek a loan. Instead of extending a loan, PCI offered
to buy various equipment TMI owned, in exchange for P2.8M. Deeds of sale were
executed.
PCI and TMI then entered into a lease agreement:
- lease the equipment it previously owned
- postdated checks for 24 monthly installments
- guaranty deposit of P1.03M (security for timely performance of TMI's
obligations under the lease agreement, to be automatically forfeited should TMI
return the leased equipment before expiration of the lease agreement)
- Sps. Dizon (President and Vice-President of TMI) also executed in favor
of PCI a Continuing Guaranty of Lease Obligations (agreed to immediately pay
obligations in case TMI failed, under the lease agreement)
However, to obtain additional loan from another financing company, TMI used
the leased equipment as temporary collateral.
PCI considered the 2nd mortgage a violation of the lease agreement. PCI sent
TMI a demand letter for payment of the latter's outstanding obligation, which was
unheeded.
PCI filed in the RTC a complaint against TMI and sps. Dizon for recovery of sum of
money and personal property, with prayer for the issuance of a writ of replevin.
RTC issued the writ of replevin. PCI sold the leased equipment to a third party
and collected the proceeds amounting to P1.025M
Respondent claimed that the sale with lease agreement was a mere scheme to
facilitate the financial lease between PCI and TMI, and that the true agreement
between them was a loan secured by a chattel mortgage.
RTC: Lease agreement is valid; judgment in favor of PCI
CA: Set aside the decision of the RTC; sale with lease was a loan secured by
chattel mortgage
Directed PCI to refund P1.1M to TMI
ISSUE/HELD: WON the sale with lease agreement the parties entered into was a
financial lease or a loan secured y the chattel mortgage -
Petitioner (PCI): transaction between the parties was a sale and leaseback
financing arrangement, which is not contrary to law, morals, good customs,
public order or public policy; guaranty deposit should be forfeited in its favor, as
provided in the lease agreement
Respondents (TMI): transfer of ownership to PCI was never the intention of the
parties; guaranty deposit will only be forfeited if TMI returned the leased
equipment to PCI before expiration of the lease agreement. Since TMI never
returned the lease property voluntarily, but through writ of replevin, the guaranty
deposit should not be forfeited.
SC: In a true financial leasing, a finance company purchases on behalf of a cash-
strapped lessee the equipment the latter wants to buy, but, due to financial
limitations, is incapable of doing so. The finance company then leases the
equipment to the lessee in exchange for the latter's periodic payment of a fixed
amount of rental.
HERE, TMI already owned the subject equipment before it transacted with PCI.
Therefore the transaction between the parties cannot be deemed to be in the
nature of a financial leasing as defined in law.
* "Where the client already owned the equipment, but needed additional working
capital and the finance company purchased such equipment with the intention of
leasing it back to him, the lease agreement was simulated to disguise the true
transaction that was a loan with security."
* "The intention of the parties was not to enable the client to acquire and use the
equipment, but to extend to him a loan."
* Financial leasing contemplates the extension of credit to assist a buyer in
acquiring movable property which he can use and eventually own.
The transaction between the parties was simply a loan secured by chattel
mortgage. Thus upon TMI's default, PCI was entitled to seize the mortgaged
equipment, not as owner but as creditor-mortgagee for the purpose of
foreclosing the chattel mortgage.
PCI's sale to a third party of the mortgaged equipment and collection of the
proceeds of the sale can be deemed in the exercise of its right to foreclose the
chattel mortgage as creditor-mortgagee.
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs. HON. COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and
REGIONAL SHERIFF OF CALOOCAN CITY, respondents
CASE DIGEST:
FACTS:
Petitioner Chua Pac, the president and general manager of co-petitioner Acme
executed a chattel mortgage in favor of private respondent Producers Bank as a
security for a loan of P3,000,000. A provision in the chattel mortgage agreement
was to this effect:
"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."
In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained
additional loan totalling P2,700,000.00 which was also duly paid.
Another loan was again extended (P1,000,000.00) covered by four promissory
notes for P250,000.00 each, but went unsettled prompting the bank to apply for
an extrajudicial foreclosure with the Sheriff.
ISSUE:
Would it be valid and effective to have a clause in a chattel mortgage that
purports to likewise extend its coverage to obligations yet to be contracted or
incurred?
HELD:
No. 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.
CASE DIGEST:
Makati Leasing and Finance Corp. vs Wearever Textile Mills Inc.,
G.R. No. 58469
May 16, 1983
Facts:
Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor of
Makati Leasing and Finance Corporation covering certain raw materials and
machinery. Upon default, Makati Leasing filed a petition for judicial foreclosure of
the properties mortgaged. Acting on Makati Leasing’s application for replevin,
the lower court issued a writ of seizure. Pursuant thereto, the sheriff enforcing
the seizure order and removed the main motor of the subject machinery. In a
petition for certiorari and prohibition, the Court of Appeals ordered the return of
the machinery on the ground that the same cannot be the subject of replevin
because it is a real property pursuant to Article 415 of the new Civil Code, the
same being attached to the ground by means of bolts and the only way to
remove it from Wearever textile’s plant would be to drill out or destroy the
concrete floor. When the motion for reconsideration of Makati Leasing was
denied by the Court of Appeals, Makati Leasing elevated the matter to the
Supreme Court.
Issue:
Whether or not the machinery in suit is real or personal property from the point of
view of the parties.
Held:
The said machinery is a personal property. Like what was involved in
the Tumalad case, if a house of strong materials, may be considered as personal
property for purposes of executing a chattel mortgage thereon, as long as the
parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which
is movable in its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really because one who has
so agreed is estopped from the denying the existence of the chattel mortgage.
The decision of the Court of Appeals was set aside and the order of the lower
court was reinstated.
CASE DIGEST:
SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE
HON.
COURT OF APPEALS, JESUS PONCE, and ELIZABETH PONCE,
respondents.
G.R. No. 116363. December 10, 1999
Doctrine:
In case of assignment of credit, only notice to but not the consent of
the debtor-mortgagor is necessary to bind the latter.
The assignee’s consent is necessary in order to bind him of the
alienation of the mortgaged thing by the debtor- mortgagor.
Article Applicable:
Article 2141 states that the provisions concerning a contract of pledge
shall be applicable to a chattel mortgage, such as the one at bar,
insofar as there is no conflict with Act No. 1508, the Chattel Mortgage
Law
Facts:
- Respondent spouses Atty. Jesus and Elizabeth Ponce bought on
installment a Holden Torana vehicle from C. R. Tecson Enterprises.
- They executed a promissory note and a chattel mortgage on the
vehicle dated in favor of the C. R. Tecson Enterprises to secure
payment of the note
- The mortgage was registered both in the Registry of Deeds and
the Land Transportation Office
- C. R. Tecson Enterprises, in turn, executed a deed of assignment
of said promissory note and chattel mortgage in favor of Filinvest
Credit Corporation with the conformity of respondent spouses
- In 1976, respondent spouses transferred and delivered the
vehicle to Conrado R. Tecson by way of sale with assumption of
mortgage
- Subsequently, in 1978, Filinvest assigned all its rights and interest
over the same promissory note and chattel mortgage to
petitioner Servicewide Specialists Inc. without notice to
respondent spouses
- Due to the failure of respondent spouses to pay the installments
under the promissory note from October 1977 to March 1978,
and despite demands to pay the same or to return the vehicle,
petitioner was constrained to file before the Regional Trial Court
of Manila on May 22, 1978 a complaint for replevin with damages
against them.
Contention of the RESPONDENT/DEFENDANT (SPS. PONCE)
- Respondent spouses denied any liability claiming they had
already returned the car to Conrado Tecson pursuant to the
Deed of Sale with Assumption of Mortgage
- They filed a third party complaint against Conrado Tecson
praying that in case they are adjudged liable to petitioner,
Conrado Tecson should reimburse them.
Ruling of Lower Court: Found respondent spouses jointly and solidarily
liable to petitioner, however, the third party defendant Conrado Tecson
was ordered to reimburse the respondent spouses for the sum that they
would pay to petitioners.
Ruling of CA: The CA reversed and set aside the RTC’s decision on the
principal ground that respondent spouses were not notified of the
assignment of the promissory note and chattel mortgage to petitioner.
Issue/s:
Whether the assignment of a credit requires notice to the debtor in order
to bind him? –YES
Whether the consent of the creditor- mortgagee necessary when the
debtor-mortgagor alienates the property to a third person? – YES
Ruling:
In case of assignment of credit, only notice to but not the consent of
the debtor-mortgagor is necessary to bind the latter
When the credit was assigned to petitioner, only notice to but not the
consent of the debtor-mortgagor was necessary to bind the latter.
CASE DIGEST:
RCBC v. ROYAL CARGO
Right of Redemption
Issue: WON petitioner, as mortgagee, had the duty to notify the respondent of the
public auction sale.
Section 13 of the Chattel Mortgage Law allows the would-be redemptioner
thereunder to redeem the mortgaged property only before its sale. Consider the
following pronouncement in Paray:
· [T]here is no law in our statute books which vests the right of redemption
over personal property. Act No. 1508, or the Chattel Mortgage Law, ostensibly
could have served as the vehicle for any legislative intent to bestow a right of
redemption over personal property, since that law governs the extrajudicial sale
of mortgaged personal property, but the statute is definitely silent on the point.
· the right of redemption applies to real properties, not personal properties,
sold on execution.
Unmistakably, the redemption cited in Section 13 partakes of an equity of
redemption, which is the right of the mortgagor to redeem the mortgaged
property after his default in the performance of the conditions of the mortgage
but before the sale of the property to clear it from the encumbrance of the
mortgage. It is not the same as right of redemption which is the right of the
mortgagor to redeem the mortgaged property after registration of the foreclosure
sale, and even after confirmation of the sale.
While respondent had attached some of Terrymanila’s assets to secure the
satisfaction of a P296,662.16 judgment rendered in another case, what it
effectively attached was Terrymanila’s equity of redemption. That respondent’s
claim is much lower than the P1.5 million actual bid of petitioner at the auction
sale does not defeat respondent’s equity of redemption. Top Rate International
Services, Inc. v. IAC enlightens:
We, therefore, hold that the appellate court did not commit any error in ruling
that there was no over-levy on the disputed properties. What was actually
attached by respondents was Consolidated Mines’ right or equity of
redemption, an incorporeal and intangible right, the value of which can neither
be quantified nor equated with the actual value of the properties upon which it
may be exercised.
Held: Having thus attached Terrymanila’s equity of redemption, respondent had
to be informed of the date of sale of the mortgaged assets for it to exercise such
equity of redemption over some of those foreclosed properties, as provided for in
Section 13.
However, even prior to receiving, through counsel, a mailed notice of the auction
sale on the date of the auction sale itself on June 16, 1992, respondent was
already put on notice of the impending foreclosure sale of the mortgaged
chattels. Despite its window of opportunity to exercise its equity of redemption,
however, respondent chose to be technically shrewd about its chances,
preferring instead to seek annulment of the auction sale, which was the result of
the foreclosure of the mortgage, permission to conduct which it had early on
opposed before the insolvency court. Its negligence or omission to exercise its
equity of redemption within a reasonable time, or even on the day of the auction
sale, warrants a presumption that it had either abandoned it or opted not to
assert it. Equitable considerations thus sway against it. To now allow respondent
have its way in annulling the auction sale and at the same time let it proceed
with its claims before the insolvency court would neither rhyme with reason nor
with justice.

In any event, even if respondent would have participated in the auction sale and
matched petitioner’s bid, the superiority of petitioner’s (mortgagee) lien over the
mortgaged assets would preclude respondent from recovering the chattels.
It has long been settled by this Court that “the right of those who acquire said
properties should not and can not be superior to that of the creditor who has in
his favor an instrument of mortgage executed with the formalities of the law, in
good faith, and without the least indication of fraud. In purchasing it, with full
knowledge that such circumstances existed, it should be presumed that he did
so, very much willing to respect the lien existing thereon, since he should not
have expected that with the purchase, he would acquire a better right than that
which the vendor then had.
It bears noting that the chattel mortgage in favor of petitioner was registered
more than two years before the issuance of a writ of attachment over some of
Terrymanila’s chattels in favor of respondent. This is significant in determining
who between petitioner and respondent should be given preference over the
subject properties. Since the registration of a chattel mortgage is an effective
and binding notice to other creditors of its existence and creates a real right or
lien that follows the property wherever it may be, the right of respondent, as an
attaching creditor or as purchaser, had it purchased the mortgaged chattel at the
auction sale, is subordinate to the lien of the mortgagee who has in his favor a
valid chattel mortgage.
Held: Petitioner is not liable for constructive fraud for proceeding with the auction
sale. Nor for subsequently selling the chattel. For foreclosure suits may be
initiated even during insolvency proceedings, as long as leave must first be
obtained from the insolvency court as what petitioner did.
CASE DIGEST:
SERVICEWIDE SPECIALISTS, INC. V. CA, (1999)
Right to Possession
Rule 60 of the Revised Rules of Court requires that an applicant for
replevin must show that he:
1. “is the owner of the property claimed, particularly describing it, or
2. is entitled to the possession thereof.”
Northern Motors, Inc. vs. Herrera
“There can be no question that persons having a special right of property in the
goods the recovery of which is sought, such as a chattel mortgagee, may
maintain an action for replevin therefor. Where the mortgage authorizes the
mortgagee to take possession of the property on default, he may maintain an
action to recover possession of the mortgaged chattels from the mortgagor or
from any person in whose hands he may find them.”
Thus, in default of the mortgagor, the mortgagee is thereby constituted
as attorney-in-fact of the mortgagor, enabling such mortgagee to act for and in
behalf of the owner. That the defendant is not privy to the chattel mortgage
should be inconsequential. By the fact that the object of replevin is traced to his
possession, one properly can be a defendant in an action for replevin.
However, in case the right of possession on the part of the plaintiff, or his
authority to claim such possession or that of his principal, is put to great doubt, it
could become essential to have other persons involved and impleaded for a
complete determination and resolution of the controversy. In this case, it is not
disputed that there is an adverse and independent claim of ownership by the
respondent as evinced by the existence of a pending case before the CA
involving subject motor vehicle between the same parties herein.
CASE DIGEST:
PAMECA v. CA
Right to Surplus or Deficiency, Act. No 1508, Sec. 14
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:
The officer making the sale shall, within 30 days thereafter, make in writing a
return of his doings and file the same in the office of the Registry of Deeds where
the mortgage is recorded, and the Register of Deeds shall record the same. The
fees of the officer for selling the property shall be the same as the case of sale
on execution as provided in Act 190, and the amendments thereto, and the fees
of the Register of Deeds for registering the officer’s return shall be taxed as a
part of the costs of sale, which the officer shall pay to the Register of Deeds. The
return shall particularly describe the articles sold, and state the amount received
for each article, and shall operate as a discharge of the lien thereon created by
the mortgage. The proceeds of such sale shall be applied to the payment:
1. first, of the costs and expenses of keeping and sale, and then
2. to the payment of the demand or obligation secured by such mortgage,
and
3. the residue shall be paid to persons holding subsequent mortgages in their
order, and
4. the balance, after paying the mortgage, shall be paid to the mortgagor or
persons holding under him on demand.
Pledge Chattel Mortgage
Article 2115 Act No. 1508
the sale of the thing pledged entitles the mortgagor to the balance
extinguishes the entire principal of the proceeds, upon satisfaction of
obligation, such that the pledgor may the principal obligation and costs
no longer recover proceeds of the
sale in excess of the amount of the
principal obligation
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the
excess of the sale proceeds there is a corollary obligation on the part of the
debtor-mortgagee to pay the deficiency in case of a reduction in the price at
public auction.
The theory of the lower court would lead to the absurd conclusion that if the
chattels mentioned in the mortgage, given as security, should sell for more than
the amount of the indebtedness secured, that the creditor would be entitled to
the full amount for which it might be sold, even though that amount was greatly
in excess of the indebtedness. Such a result certainly was not contemplated by
the legislature when it adopted Act No. 1508. There seems to be no reason
supporting that theory under the provision of the law. The value of the chattels
changes greatly from time to time, and sometimes very rapidly. If, for example,
the chattels should greatly increase in value and a sale under that condition
should result in largely overpaying the indebtedness, and if the creditor is not
permitted to retain the excess, then the same token would require the debtor to
pay the deficiency in case of a reduction in the price of the chattels between the
date of the contract and a breach of the condition.
And the fact that Act No. 1508 permits a private sale, such sale is not, in fact, a
satisfaction of the debt, to any greater extent than the value of the property at
the time of the sale. The amount received at the time of the sale, of course,
always requiring good faith and honesty in the sale, is only a payment, pro tanto,
and an action may be maintained for a deficiency in the debt.”
CASE DIGEST:
DIEGO v. FERNANDO
Issue: Whether the contract between the parties is one of mortgage or of
antichresis. MORTGAGE.
Appellant, while admitting that the contract Exhibit "A" shows a deed of mortgage,
contends that the admitted fact that the loan was without interest, coupled with
the transfer of the possession of the properties mortgaged to the mortgagee,
reveals that the true transaction between him and appellee was one of antichresis.
Held: It is not an essential requisite of a mortgage that possession of the
mortgaged premises be retained by the mortagagor. To be antichresis, it must be
expressly agreed between creditor and debtor that the former, having been given
possession of the properties given as security, is to apply their fruits to the
payment of the interest, if owing, and thereafter to the principal of his credit (Art.
2132, Civil Code); so that if a contract of loan with security does not stipulate the
payment of interest but provides for the delivery to the creditor by the debtor of
the property given as security, in order that the latter may gather its fruits, without
stating that said fruits are to be applied to the payment of interest, if any, and
afterwards that of the principal, the contract is a mortgage and not antichresis.
As such mortgagee in possession, his rights and obligations are similar to those of
an antichretic creditor:
1. If the mortgagee acquires possession in any lawful manner, he is entitled to
retain such possession until the indebtedness is satisfied and the property
redeemed;
2. that the non-payment of the debt within the term agreed does not vest the
ownership of the property in the creditor;
3. that the general duty of the mortgagee in possession towards the premises is
that of the ordinary prudent owner;
4. that the mortgagee must account for the rents and profits of the land, or its value
for purposes of use and occupation, any amount thus realized going towards
the discharge on the mortgage debt;
5. that if the mortgage remains in possession after the mortgage debt has been
satisfied, he becomes a trustee for the mortgagor as to the excess of the rents and
profits over such debt; and lastly,
6. that the mortgagor can only enforce his rights to the land by an equitable action
for an account and to redeem.
A creditor with a lien on real property who took possession thereof with the
consent of the debtor, held it as an "antichretic creditor with the right to collect the
credit with interest from the fruits, returning to the antichretic creditor the balance,
if any, after deducting the expenses," because the fact that the debtor consented
and asked the creditor to take charge of managing his property "does not entitle
the latter to appropriate to itself the fruits thereof unless the former has expressly
waived his right thereto."
In the present case, the parties having agreed that the loan was to be without
interest, and the appellant not having expressly waived his right to the fruits of the
properties mortgaged during the time they were in appellee's possession, the
latter, like an antichretic creditor, must account for the value of the fruits received
by him, and deduct it from the loan obtained by appellant. The appellee should be
made to account for the fruits he received from the properties mortgaged from the
time of the filing of this action until full payment by appellant, which fruits should
be deducted from the total amount due him from appellant under this judgment.
(deficiency should be recovered)

CONTRACTS; MORTGAGE NOT ANTICHRESIS; LOAN WITHOUT INTEREST;

POSSESSION TRANSFERRED TO MORTGAGEE; CASE AT BAR. — If a contract of
loan with security does not stipulate the payment of interest like in the case at
bar, and possession of the mortgaged property is delivered to the mortgagee in
order that the latter may gather its fruits, but without stating that said fruits are
to be applied to the payment of interest, if any, and afterwards that of the
principal, the contract is a mortgage and not antichresis (Legaspi and Salcedo vs.
Celestial, 66 Phil., 372).