Title: Naguiat v.

CA
Source, Date: 412 SCRA 591, 29 October 2003

Facts:
Queano applied for a P200,000.00 loan from Naguiat. Naguiat issued two
checks in the amount of P95,000.00 each. To secure the loan, Queano executed a
Deed of Real Estate Mortgage. Thereafter, Queano issued a post-dated check worth
P200,000.00 in favor of Naguiat. When Naguiat brought the check for encashment in
Security Bank, the check was dishonored by reason of insufficiency of funds.
Queano received a letter demanding settlement of loan. Along with Ruby
Ruebenfeldt, Queano explained to Naguiat that she did not receive the proceeds of
the loan, as Ruebenfeldt, being Naguiat’s agent, retained said checks. Naguiat
applied for extrajudicial foreclosure of the mortgaged land. This was granted by the
RTC. Queano filed a case of annulment of the mortgage deed.
Issue: Whether or not the fact that Queano did not receive the loan warranted
maturity of the foreclosure of the mortgage.
Held: No. Petition denied.
Ruling:
A loan contract is a real contract, not consensual, and as such, is perfected
only upon the delivery of the object of the contract. In this case, the objects of the
contract are the loan proceeds which Queano would enjoy only upon the
encashment of the checks signed or indorsed by Naguiat. If indeed the checks were
encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks the pertinent bank records.
Since Naguiat presented no such proof, it follows that the checks were not encashed
or credited to Queano’s account. Therefore, no perfected contract between Queano
and Naguiat.
Law Cited: Article 1953, in relation to Article 1933, Articles 1169
and
561 of The Civil Code.
Title: DBP vs Guariña Agricultural & Realty Dev. Corp.
Source, Date: G.R. No. 160758, 15 January 2014
Nature: Petition for review on certiorari
Ponente: Bersamin, J.

Facts:

In July 1976, Guariña Agricultural and Realty Development Corporation

(Guariña) applied for a loan from DBP to finance the development of its resort
complex situated in Trapiche, Oton, Iloilo. The loan in the amount of P3,387,000
was approved on 05 August 1976. Guariña executed a promissory note that would
be due on 03 November 1988. Thereafter, Guariña executed a real estate mortgage
and chattel mortgage over its several real properties and personal properties existing
at the resort complex to secure the performance of the obligation. Guariñ was
required to put up a cash equity of P1,470,951 for the construction of the buildings
and improvements on the resort complex. The loan was released in several
instalments amounting to P3,003,617 from which DBP withheld P148,103 as interest.
Guariña demanded the release of the balance of the loan but DBP refused, and
instead directly paid some suppliers of Guariña over the latter’s objection. DBP found
upon inspection of the resort project that it was not yet completed thus DBP
demanded that Guariña expedite completion of the project and warned that it would
initiate foreclosure proceedings.
DBP initiated extrajudicial foreclosure proceedings. In 1979, Guariña
sued DBP to demand specific performance under the loan agreement and stop the
foreclosure of the mortgages. In the meantime, DBP applied for the issuance of writ
of possession which was granted by the RTC. Aggrieved, Guariña assailed the
granting before the CA on certiorari but was dismissed. In 1982, the RTC issued the
writ of possession in favour of DBP.
In 1998, in the case filed by Guariña during 1979, the RTC rendered its
judgement that the foreclosure proceedings were null and void, and that DBP should
return the actual possession of the properties foreclosed. On appeal, the CA
sustained the judgement of the RTC deleting the award for attorney’s fees.

Issue: 1. Whether the agreement between DBP and Guariña was a loan.
2. Whether Guariña was in default of its principal obligation, and that
foreclosure proceedings were proper.

Held: 1. Yes. The agreement between DBP and Guariña was a loan.
2. No. Petition denied.

Ruling: Guariña was not yet in default rendering the foreclosure

proceedings premature and improper. The Supreme Court (SC) ruled that the failure
to release the proceeds of the loan in its entirety, DBP had no right yet to exact on
Guariña the latter’s compliance with its own obligation under the loan. In a
reciprocal contract like a loan, the other party cannot be obliged to perform what is
expected of it while the other’s obligation remains unfulfilled. The latter does not
incur delay. Guariña would not incur in delay before DBP fully performed its
reciprocal obligation.
DBP’s actuations were legally unfounded. While it is true that loans are often
secured by a mortgage, by its nature however, a mortgage remains an accessory
contract dependent on the principal obligation. Considering that it had yet to release
the entire proceeds of the loan, DBP, could not make an effective demand for
payment upon Guariña to perform its obligation under the loan. Guariña would not
be in default without the demand. Under the circumstances, DBP’s foreclosure of the
mortgage and the sale of the mortgaged properties at its instance were premature,
and therefore, void and ineffectual. DBP as a banking institution, owed it to Guariña
to exercise the highest degree of diligence and to observe the high standards of
integrity and performance in all its transactions because its business was imbued
with public interest.
The SC affirms the order for the restoration of possession to Guariña and the
payment of reasonable rentals for the use of the resort in accordance with Article
561 of the Civil Code.
Provision Cited: Art. 1932 of the New Civil Code
Title: Saura Import & Export Co., Inc. Vs Development Bank of
the
Philippines
Source, Date: GR L-24968, April 27, 1972

Facts:

Saura applied to the Rehabilitation Finance Corporation (RFC), before its conversion
into DBP, for an industrial loan of Php500,000.00 for the construction of a factory
building, payment for machine and equipment and additional working capital.

RFC passed resolution approving the said loan application to be secured by a first
mortgage on the factory buildings to be constructed. Saura asked RFC for
modification of the terms laid down by RFC. RFC and Saura undergone negotiations.
Despite formal execution of loan agreement and the re-examination contemplated in
the resolution proceeded. In a meeting of RFC, it was decided to reduce the loan to
Php300,000.00 which thereafter restored upon negotiation.

When the negotiation came to a standstill, Saura did not pursue the loan and
requested RFC for cancellation of the mortgage. RFC executed the corresponding
deed of cancellation and delivered it so Saura. It appears that the cancellation was
requested to make way for the registration of a mortgage contract over the same
property in favor of Prudential Bank.

Almost 9 years after the mortgage in favor of RFC was cancelled, Saura institued suit
for damages on the ground that RFC(as predecessor of DBP) failed to comply with
its obligation to release the proceeds of the loan applied thereby preventing Saura
from paying contractual commitments it had entered into

Issue: Whether there is a perfected contract between Saura and RFC.

Held: Yes.

Ruling:
Trial Court rendered its judgment by ruling that there was a perfected contract as
recognized in Article 1934 of the Civil Code which provides that “An accepted
promise to deliver something by way of commodatum or simple loan is binding upon
the parties, but the commodatum or simple loan itself shall not be perfected until
the delivery of the object of the contract.”

However, the action taken by both parties by cancelling the mortgage was in nature
of mutual desistance or “mutuo disenso”. Mutual desistance 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. Also, Suara did not protest against any alleged breach of
contract by RFC instead requested for cancellation with no reservation of whatever
rights against FRC for non compliance.

Supreme Court (SC) found it unnecessary to consider the damages alleged by

Saura. Thus, the appealed judgment was reversed and the complaint was dismissed
with cost against Suara.
Name: Manalo, Maria Anna S.
Topic: Contract of Loan
Provision Cited: Article 1934
Title: BPI Investment Corporation vs. Court of Appeals and
ALS
Management & Development Corporation
Source, Date: GR No. 133632, 15 February 2002
NATURE: Petition for Review on Certiorari
PONENTE: J. Quisumbing

FACTS:
Frank Roa obtained a loan at an interest rate of 16¼% per annum from
Ayala Investment & Development Corporation (AIDC), for construction of
his house. The said house and lot were mortgaged to AIDC to secure the
loan.
Roa sold the properties to respondents ALS and Litonjua, the latter paid in
cash and assumed the balance of Roa’s indebtedness to AIDC, who was
not willing to extend the old interest and instead proposed a grant of new
loan of P500,000.00 with a higher interest. Respondents executed a
mortgage deed containing the stipulation.
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.
Respondents maintained that they should not be made to pay
amortization before the actual release of the P500,000.00 loan.
RTC declared that private respondents were not in default, and
foreclosure by BPIIC was premature.
CA affirmed the decision.

ISSUE: Whether a contract of loan is a consensual contract.

HELD: No.

RULING The Court held that a loan contract is not a consensual contract but a real
: contract. It is perfected only upon the delivery of the object of the
contract.
A contract, as declared by the Court in Bonnevie vs. CA, as a perfected
 consensual contract falls under the first clause of Art. 1934. It is an
accepted promise to deliver something by way of simple loan.
A loan contract between BPI and ALS and Litonjua was perfected when
the full loan was delivered. Following the intentions of the parties on
commencement of monthly amortization, respondents’ obligation to pay
commenced only after the perfection of the loan contract.
It is basic principle in reciprocal obligations that neither party incurs in
delay if other arty does not comply or is not ready to comply with what is
incumbent upon him.

Name: Vanya Klarika E. Nuque

Topic: Contract of Loan
Law or Provision Cited: Credit Line Facility
Title: SPOUSES PIO DATO, et al. vs. BPI
Source, Date: G.R. No. 181873; 27 November 2013

Facts:
Petitioners applied for a P240K loan which was granted with a term of six months
and secured by a real estate mortgage over a parcel of land owned by Spouses Sia.
Subsequently, Spouses Sia availed of a P4M Revolving Promissory Note Line with a
term of one year, secured by the same real estate mortgage. Spouses Sia alleged
that their loan will be indorsed to [Industrial Guarantee and Loan Fund] (IGLF) to be
able to avail of a much lower interest rate and longer payment terms.
Before the P240K and P4M loans matured, Spouses Sia approached BPI for
additional loans. After discussion, Spouses Sia agreed to obtain a Credit Facility of
P5.7M using the same collaterals offered in their previous loans and four additional
parcels of land. Spouses Sia then obtained P800K from their Credit Facility which
was credited to their account after executing a Promissory Note for the same
amount. They paid some of the interest on their loans but this was still insufficient to
cover the principal amount. BPI sent numerous reminders to Spouses Sia to settle
their balance but they only paid the P800K borrowed from the Credit Facility. Since
the original loans remain unpaid, BPI cancelled the Credit Facility and asked them to
sell the lots mortgaged to pay the loans; they did not sell and still didn’t pay the
loans. Since Sps. Sia still failed to pay, the lots mortgaged were foreclosed; the sole
bidder in the auction was BPI. Sps. Sia in their amended complaint (original was that
BPI failed to indorse the loan to IGLF) claimed that the bank inserted and annotated
a falsified/illegal Real Estate Mortgage of P5.7M. They also claimed that they did not
execute a Promissory Note. They also alleged that since BPI credited the payment of
P5.7M to their account, which is more than the amount of their principal loan, their
obligation is now extinguished and that the foreclosure is illegal. RTC ruled in favor
of BPI. CA affirmed the decision.

Issue: Whether the cancellation of the Credit Facility raises a legal issue

Held: NO. Petition is Denied.

Ruling:
[C]ontrary to the belief and understanding of Spouses Sia, BPI does not have to
require the execution of promissory note of the entire P5.7 Million since a credit line
as stated above, is merely a fixed limit of credit. Furthermore, still applying the
above quoted definition, a credit line usually presupposes a series of transactions
until the credit line is nearly exhausted. BPI is not obliged to release the amount of
P5.7 Million to Spouses Sia all at once, in a single transaction. BPI allowed the
release only of P800K since Spouses Sia have not yet satisfied their obligation to pay
their loans of P4M and P240K.

Name: Richard Paolo Alarilla

Topic: Commodatum
Provision Cited: Act. 627 Court of Land Registration
Title: Republic of the Philippines vs. Court of Appeals
and Heirs
of Domingo P. Baloy
Source, Date: G.R. No. L-46145, 26 November 1986

Facts:
The case involves a disputed title land belonging to the Heirs of Domingo P.
Baloy. The applicants’ (Heirs of Domingo P. Baloy) claim is anchored on their
possessory information title and tax declaration title on said land.
The Director of Lands opposed the registration and stated that the said land
became a public land by virtue of Act 627 of the Philippine Commission. Pursuant to
the Act, the said area was declared within the U.S. Naval Reservation and a period
of 6 months was granted to persons affected who could file their application
otherwise the said lands will be adjudged to be public lands and claims to such lands
by private individuals will be forever barred.
Petitioners (Bureau of Lands) argue that since the respondent applicants fail
to file the claim for such land, it became irrevocable public and not subject to
registration of ownership.
According to the Clerk of Court of Land Registration, there was no formal
order or decision of the said Court of Land Registration declaring the land public.
Thus it can be said that there was no judicial declaration to that effect. Being said
that, the title of the applicants was only in a state of suspended animation and did
not die. Since the U.S. Navy abandoned the area, applicants came in and asserted
title once again.
Issue:
Whether or not there is a need for a judicial declaration for the land to be deemed
as public land
Whether or not the possessory information title was lost by prescription

Held:
Yes, a judicial declaration is needed for the land to be deemed as a public land
No, the possessory information title was not lost by prescription

Ruling:
Private land could be deemed to have become public land only by virtue of a judicial
declaration after due notice and hearing. It runs contrary to the contention of the
petitioners that failure to present claims set forth under Sec. 2 of Act 627 made the
land ipso facto public without any need of judicial pronouncement. Act. 627 by its
terms is not self-executory and required the implementation by the Court of Land
Registration. Since there was no order rendered by the Land Registration Court, it
necessarily follows that it never became public land through the operation of Act
627.

When the U.S. Navy possessed the area, the possessory rights of the Heirs of Baloy
were merely suspended and not lost by prescription. The disputed property is private
land and this possession was interrupted only by the occupation of the land by the
U.S. Navy. The Heirs of Baloy are now in actual possession since the abandonment
by the U.S. Navy. The occupany of the U.S. Navy was not in the concept of owner
but it partakes of the character of a commodatum. It cannot therefore have an
effect against the title of the Heirs of Baloy. One’s ownership of a thing may be lost
by prescription by reason of another’s possession if such possession be under claim
of ownership and not merely actual possession.
Name: Jillian Ira L. Bagaoisan
Topic: Commodatum
Provision Cited: Articles 1933, 1935, 1936 Civil Code
Title: Producers Bank of the Philippines v. Court of Appeals, et
al.
Source, Date: GR No. 115324, 19 February 2013

Facts:
Private respondent Vives was approached by his friend, Angeles Sanchez to help one
Col. Arturo Doronilla in incorporating his business, Sterela Marketing and Services
(Sterela) by depositing money in its bank account. Vives issued a check in the
amount of P200,000.00 in favor of Sterela with the assurance that the same will be
returned in a month.
Subsequently, upon learning that Sterela was no longer holding office in the
address previously given to him, Vives and his wife went to the bank and found out
that only P90,000 remained in the account. They were also informed that they could
not withdraw said amount because it had to answer for some post-dated checks
issued by Doronilla. When Vives demanded Doronilla to return his money, the latter
issued three different checks, one after the other, for P212, 000.00, all of which
were dishonored for insufficiency of funds.
Private respondent instituted an action for recovery of sum of money in the
RTC of Pasig. The RTC ruled in his favor and on appeal, the CA affirmed the decision
of the RTC. Petitioner elevated the case to the SC, contending that the transaction
between Doronilla and Vives was one of a simple loan and not accommodation as
manifested by the additional P12, 000 in payment for interest.

Issue: Whether the transaction between Doronilla and Vives was one of a simple
loan

Held: No. Petition denied.

Ruling:
The transaction was a commodatum and not a mutuum. Article 1933 of the
Civil Code 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.
Under Article 1936 of the Civil Code, if consumable goods are loaned only for
the purposes of exhibition, or when the intention of the parties is to lend the
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. Here, Vives
agreed to deposit his money in Sterela’s savings account for the purpose of making
it appear that said firm had sufficient capitalization for incorporation with the
promise that the same will be returned in 30 days.
As to the additional P12,000, the same represents the fruits of the lending of
P200,000. Article 1935 of the Civil Code expressly states that the bailee in
commodatum acquires the use of the thing loaned but not its fruits.

Name: Glenn Anne Marie G. Berdin

Topic: Commodatum
Provision Cited: Article 1933, 1946, 1947 of the Civil Code
Title: Colito Pajuyo v Court of Appeals and Edie Guevara
Source, Date: G.R. No. 146364, 3 June 2004

Facts:
Petitioner Pajuyo paid P400 to a certain Pedro Perez for the rights a 250
square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house
made of light materials on the lot. Pajuyo and private respondent Eddie Guevarra
executed a Kasunduan or agreement. Pajuyo allowed Guevarra to live in the house
for free provided Guevarra would maintain the cleanliness and orderliness of the
house. Guevarra promised he would voluntarily vacate the premises on Pajuyo’s
demand. Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused. Pajuyo filed an ejectment case with
the MTC to which Guevarra claimed that Pajuyo had no valid title or right of
possession over the lot where the house stands because the lot is within the 150
hectares set aside by Proclamation No. 137 for socialized housing. MTC ruled in
favor of Pajuyo since the subject of the agreement between the two is the house
and not the lot. Pajuyo is the owner of the house and he allowed Guevarra to use
the house only by tolerance. Guevarra appealed to RTC where it affirmed the MTC
decision. The RTC ruled that the Kasunduan bound Guevarra to return possession of
the house on demand. The RTC declared that in an ejectment case, the only issue
for resolution is material or physical possession, not ownership. The CA reversed the
RTC decision stating that both Pajuyo and Guevarra illegally occupied the contested
lot which the government owned. Perez, the person from Pajuyo acquired his rights,
was also a squatter and had no right over the lot because it is public land. The
Kasunduan between Pajuyo and Guevarra did not have any legal effect. The CA
ruled that the Kasunduan is not a lease contract but a commodatum because the
agreement is not for a price certain. The CA held that Guevarra has a better right
over the property under Proclamation No. 137 stating that the actual occupant or
caretaker of the lot shall have first priority as beneficiary of the project. Pajuyo filed
for a motion for reconsideration. Hence, this appeal.

Issue:
Whether or not the contractual relationship between Pajuyo and Guevarra was that
of a commodatum.

Held:
No.

Ruling:
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 the use of the thing belonging to another is for a certain
period. The bailor cannot demand the return of the thing loaned until after the
expiration of the period stipulated or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent eed 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, in which case the contractural
relation is called precarium, a kind of commodatum. The effects of the Kasunduan
are also different from that of a commodatum. Case law onejectment 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.
Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as baileewould still have the duty to turn over possession of
the property to Pajuyo, the bailor. The obligation to deliveror to return the thing
received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum. These contracts certainly involve the obligation to
deliver or return thething received.
Guevarra turned his back on the Kasunduan on the sole ground that, like him,
Pajuyo is also a squatter. Guevarra should know that there must be honor even
between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot
now impugn the Kasunduan after he had benefited from it. The Kasunduan binds
Guevarra.

Name: Cabrera, Ramon N.

Topic: Commodatum
Provision Cited: Article 1134 and 1129 of the Civil Code
Title: Catholic Vicar Apostolic of Mountain Province v. Court of
Appeals & Heirs of Valdez and Heirs of Octaviano
Source, Date: Nos. L-80294-95 21 September 1988

Facts:
The Catholic Vicar Apostolic of Mountain Province (Vicar) filed with the Court of First
Instance in Benguet an application for registration of titles over Lots 1,2,3, and 4 in
La Trinidad Benguet. Catholic buildings, convents, school structures were built over
the said properties. The Heirs of Juan Valdez and Heirs of Egmedio Octaviano filed
their opposition on Lots 2 and 3 respectively asserting ownership over the same. The
CFI ruled in favor of the Vicar, confirming the registerable title of the Vicar over the
four lots. Upon appeal, the Court of Appeals reversed the decision of the land
registration court and dismissed the Vicar’s registration to Lots 2 and 3.
Subsequently, the Heirs of Ocatviano filed a motion for reconsideration with the CA
praying that Lot 3 be registered under their name. The Heirs of Valdez also sought
the same action from the CA for Lot 2 and 3. After unsuccessful appeals with the CA,
the Heirs of Valdez filed a petition for review of certiorari with the SC, which was
subsequently denied for lack of merit. Upon finality of the SC decision, the Heirs of
Octaviano filed with the CFI in Baguio a motion for execution of judgement praying
that Lot 3 be placed under their possession of Lot 3. The CFI dismissed the petition
on the ground of the previous CA decision denying the petition for affirmative relief.
The Heirs of Valdez and Heirs of Octaviano filed the instant petition.

Issue: Whether the petitioners can raise the issue of ownership because the CA
decision merely dismissed their application for registration?

Held: No. Petition denied.

Ruling:
The CA decision did not positively declare the private respondents as owners
of the land, neither did it declare that they were not the owners of the property.
Findings of the trial court established the fact that the Vicar was a bailee in a
commodatum, with the private respondents as bailors. Private respondent’s
properties were borrowed by petitioner. The bailee’s failure to return the subject
matter of the commodatum did not mean adverse possession on the part of the
borrower. The adverse claim came when the bailee when it declared the lots for the
purpose of taxation. The action of petitioner Vicar by such adverse claim could not
ripen into title by way of ordinary acquisitive prescription because the absence of a
just title.
Name: Golden de Lunas
Topic: Commodatum
Provision Cited: Civil Code
Title: Margarita Quintos, et al. v. Beck
Source, Date: GR No. 46240, 9 November 1939

Facts:
Beck was a tenant of Quintos. The plaintiff granted the defendant use of furniture
subject to the condition that the latter would return them to the former upon his
demand.
Subsequently, Quintos sold the property to one Maria and Rosario Lopez. Beck was
notified and asked to vacate the premises within sixty days. He was also required to
return all the furniture transferred to him for use. The defendant however wrote to
the plaintiff that he could not give up 3 gas heaters and 4 electric lamps because he
will use them until the lease is due to expire. Quintos refused to get the furniture in
view of the fact that Beck declined to deliver all of them. Before vacating the house,
defendant deposited with the Sheriff all of Quintos’ furniture.

Issue: Whether the defendant complied with his obligation to return the furniture
upon demand

Held: No. Appealed judgment is modified.

Ruling:
The contract entered into between the parties is one of commodatum 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 upon demand.
The obligation voluntarily assumed by the defendant to return the furniture
upon demand, means that he should return all of them to the plaintiff at the latter’s
residence. Beck breached the contract of commodatum and it is just and equitable
that he pays the legal expenses and other judicial costs which the plaintiff would not
have otherwise defrayed.
Name: Gabriel Angel V. de Vera
Topic: Simple Loan or Mutuum
Provision Cited: Articles 1933 and 1953 or the New Civil Code
Title: Chee Kiong Yam et al. vs. Hon. Nabdar Malik et al.
Nature: Original Petition for certiorari, prohibition and
mandamus with
preliminary injunction.
Source, Date: No. L-50550-52, October 31, 1979.

Facts:
In Criminal Case No. M-111, respondent Rosalinda M. Amin charges
petitioners Yam Chee Kiong and Yam Yap Kieng with estafa through
misappropriation of the amount of P50,000.00. But the complaint states on its face
that said petitioners received the amount from respondent Rosalinda M. Amin as a
loan. The same facts are present for the independent civil case filed.
Respondent Tan Chu Kao charges petitioners Yam Chee Kiong, Jose Y.C. Yam,
Ampang Mah, and Anita Yam, alias Yong Tay, with estafa through misappropriation
of the amount of P30,000.00. Likewise, the complaint states on its face that the
P30,000.00 was a simple loan. Again, the same facts for the independent civil case.
In Criminal Case No. M-208, respondent Augusto Sajor charges petitioners
Jose Y.C. Yam, Anita Yam alias Yong Tai Mah, Chee Kiong Yam and Richard Yam,
with estafa through misappropriation of the amount of P20,000.00. Unlike the
complaints in the other two cases, the complaint in Criminal Case No. M-208 does
not state that the amount was received as loan. However, in a sworn statement
dated September 29, 1976, submitted to respondent judge to support the complaint,
respondent Augusto Sajor states that the amount was a loan.
Petitioners allege that respondent Municipal Judge Nabdar J. Malik of Jolo, Sulu,
acted without jurisdiction, in excess of jurisdiction and with grave abuse of discretion
when:
(a)  he held in the preliminary investigation of the charges of estafa filed by
respondents Rosalinda Amin, Tan Chu Kao and Augusto Sajor against petitioners
that there was a prima facie case against the latter;
(b)  he issued warrants of arrest against petitioners after making the above
determination; and
(c)  he undertook to conduct trial on the merits of the charges which were docketed
in his court as Criminal Cases No. M-111, M-183 and M-208.
Issue: Whether Petitioners are liable for estafa.

Held:
No. Petition Granted.
Ruling:
The facts alleged do not constitute estafa, but are instead a simple loan or mutuum.
The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.
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.
It can be readily noted from the above-quoted provisions that in simple loan
(mutuum), as contrasted to commodatum, the borrower acquires ownership of the
money, goods or personal property borrowed. Being the owner, the borrower can
dispose of the thing borrowed (Article 248, Civil Code) and his act will not be
considered misappropriation thereof.
Name: Dulay, Nicole Bernadette M.
Topic: Simple Loan or Mutuum
Provision Cited: Art. 1445 & 1456, CC; Corporation Code; Trust Receipts
Law
Title: Republic v Sandiganbayan
Source, Date: GR No 166859, 12 April 2011
Facts:
On July 31, 1987, the Republic commenced Civil Case No. 0033 in the
Sandiganbayan by complaint, impleading as defendants respondent Eduardo M.
Cojuangco, Jr. (Cojuangco) and 59 individual defendants. In addition to Cojuangco,
President Marcos, and First Lady Imelda R. Marcos nine other individuals, namely:
Edgardo J. Angara, Jose C. Concepcion, Avelino V. Cruz, Eduardo U. Escueta, Paraja
G. Hayudini, Juan Ponce Enrile, Teodoro D. Regala, and Rogelio Vinluan, collectively,
the ACCRA lawyers, and Danilo Ursua, and 71 corporations. Allegedly, Cojuangco
purchased a block of 33,000,000 shares of SMC stock through the 14 holding
companies owned by the CIIF Oil Mills. For this reason, the block of 33,133,266
shares of SMC stock shall be referred to as the CIIF block of shares. That Eduardo
Cojuangco, Jr., served as a public officer during the Marcos administration.  During
the period of his incumbency as a public officer, he acquired assets, funds, and other
property grossly and manifestly disproportionate to his salaries, lawful income and
income from legitimately acquired property.
Having fully established himself as the undisputed “coconut king” with unlimited
powers to deal with the coconut levy funds, the stage was now set for Defendant
Eduardo M. Cojuangco, Jr. to launch his predatory forays into almost all aspects of
Philippine economic activity namely: softdrinks, agribusiness, oil mills, shipping,
cement manufacturing, textile taking undue advantage of his association, influence
and connection, acting in unlawful concert with Defendants Ferdinand E. Marcos and
Imelda R. Marcos, and the individual defendants, embarked upon devices, schemes
and stratagems, including the use of defendant corporations as fronts, to unjustly
enrich themselves at the expense of Plaintiff and the Filipino people, such as when
he – misused coconut levy funds to buy out majority of the outstanding shares of
stock of San Miguel Corporation in order to control the largest agri-business, foods
and beverage company in the Philippines
He entered SMC in early 1983 when he bought most of the 20 million shares
Enrique Zobel owned in the Company.  The shares, worth $49 million, represented
20% of SMC. Later that year, Cojuangco also acquired the Soriano stocks through a
series of complicated and secret agreements, a key feature of which was a “voting
trust agreement” that stipulated that Andres, Jr. or his heir would proxy over the
vote of the shares owned by Soriano and Cojuangco.  This agreement, which
accounted for 30% of the outstanding shares of SMC and which lasted for five (5)
years, enabled the Sorianos to retain management control of SMC for the same
period.
Consequently, Cojuangco enjoyed the privilege of appointing his nominees to the
SMC Board, to which he appointed key members of the ACCRA Law Firm (herein
Defendants) instead of coconut farmers whose money really funded the sale. They
plotted, devised, schemed, conspired and confederated with each other in setting
up, through the use of coconut levy funds, the financial and corporate framework
and structures that led to the establishment of UCPB, UNICOM, COCOLIFE,
COCOMARK.  CIC, and more than twenty other coconut levy-funded corporations,
including the acquisition of San Miguel Corporation shares and its institutionalization
through presidential directives of the coconut monopoly.
For over two decades, the issue of whether the sequestered sizable block of
shares representing 20% of the outstanding capital stock of San Miguel Corporation
(SMC) at the time of acquisition belonged to their registered owners or to the
coconut farmers has remained unresolved.
REPUBLIC is assailing the decision of SANDIGANBAYAN nullifying of the writs of
sequestration issued against properties of Cojuangco.

Issue: Did Cojuangco violate any fiduciary duties?

Held: No, he did not violate any fiduciary duties.

Issue: Did his acquisition and holding of the contested SMC shares come under a
constructive trust in favor of the Republic?
Held: No, his acquisition and holding of the contested SMC shares did not come
under constructive trust in favor of the Republic.

Ruling:

The conditions for the application of Articles 1455 and 1456 of the Civil Code (like
the trustee using trust funds to purchase, or a person acquiring property through
mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee
willfully and knowingly voting for or assenting to patently unlawful acts of the
corporation, among others) require factual foundations to be first laid out in
appropriate judicial proceedings. Hence, concluding that Cojuangco breached
fiduciary duties as an officer and member of the Board of Directors of the UCPB
without competent evidence thereon would be unwarranted and unreasonable.
For one, the Amended Complaint contained no clear factual allegation on which
to predicate the application of Articles 1455 and 1456 of the Civil Code, and Section
31 of the Corporation Code. Although the trust relationship supposedly arose from
Cojuangco’s being an officer and member of the Board of Directors of the UCPB, the
link between this alleged fact and the borrowings or advances was not established. 
Nor was there evidence on the loans or borrowings, their amounts, the approving
authority, etc. As trial court, the Sandiganbayan could not presume his breach of
fiduciary duties without evidence showing so, for fraud or breach of trust is never
presumed, but must be alleged and proved.
To say that a relationship is fiduciary when existing laws do not provide for such
requires evidence that confidence is reposed by one party in another who exercises
dominion and influence. Absent any special facts and circumstances proving a higher
degree of responsibility, any dealings between a lender and borrower are not
fiduciary in nature. This explains why, for example, a trust receipt transaction is not
classified as a simple loan and is characterized as fiduciary, because the Trust
Receipts Law (P.D. No. 115) punishes the dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of another regardless of whether the
latter is the owner.
A debtor can appropriate the thing loaned without any responsibility or duty to
his creditor to return the very thing that was loaned or to report how the proceeds
were used. Nor can he be compelled to return the proceeds and fruits of the loan,
for there is nothing under our laws that compel a debtor in a contract of loan to do
so. As owner, the debtor can dispose of the thing borrowed and his act will not be
considered misappropriation of the thing. The only liability on his part is to pay the
loan together with the interest that is either stipulated or provided under existing
laws.

Name: Jason Edric T. Dy

Topic: Simple Loan or Mutuum
Law Cited: Art 1157 and 1953
Title: Metrobank vs. Ana Rosales and Yo Yuk To
Source, Date: GR No. 183204, 13 January 2014

Facts:
In 2000, respondents opened a joint peso account with Metrobank amounting
to P2,515,693.52. In 2002, Rosales accompanied her client Liu to open a savings
account in Metrobank. In 2003, respondents opened a joint dollar account
amounting to $14,000. In July of the same year Metrobank issued a hold out order
against respondent’s account. Metrobank filed a case against Rosales for Estafa
accusing her of fraudulently withdrawing $75,000 from Liu’s account and depositing
$11,800 of the same dollar notes to her account.
It appeared that a certain Richard So who had an SPA acquired a withdrawal
clearance. The case against Rosales was later dismissed for lack of probable cause
but Metrobank moved for reconsideration. Respondents later filed a complaint
against Metrobank for breach of obligation and contract alleging that the hold out
order prevented them from withdrawing their deposits. The dismissal of the
complaint for estafa was reversed.
RTC found Metrobank liable for breach of contract stating that its recourse is
against its negligent employees. CA affirmed the decision.
Issue:
Whether Metrobank breached its contract by preventing respondents from
withdrawing their deposits.

Held:
Yes. Petition denied.

Ruling:
The hold out clause included in the application for deposit account only
applies to obligations arising from either law, contract, quasi-contract, delict, or
quasi-delict. Bank deposits, which are in the nature of a simple loan or mutuum,
must be paid upon demand by the depositor. The issuance of the hold out was even
before the filing of the criminal case and pending judgment Metrobank may not
prevent respondents from withdrawing their deposit.

Name: Gomez, Jan-Derrick Royce A.

Topic: Simple Loan or Mutuum
Provision Cited: Arts. 1933 and 1955 of the NCC
Title: Guingona, Jr. v. City Fiscal of Manila
Source, Date: 128 SCRA 577, 4 April 1984

Facts:
David Clement invested with the National Savings and Loan Association
(NSLA) the sum of P1,145,546.20 on time deposits, P13,351.94 on savings account
deposits, $10,000.00 on time deposit, $15,000.00 under a receipt and guarantee of
payment and $50,000.00 under a receipt dated 8 June 1980. David was induced into
making these investments by Robert Marshall, an Australian national who was a
close associate of petitioner Guingona, Jr., then NSLA President, petitioner Martin,
then NSLA Executive VP of NSLA, and petitioner Santos, then NSLA General
Manager.
Subsequently, the NSLA was placed under receivership by the Central Bank,
which made David file claims for his investments. David received a report from the
Central Bank that only P305,821.92 of those investments made were entered in the
records of NSLA. Despite demands, Guingona, Jr. paid only P200,000.00
David then charged the petitioners with estafa, as well as violations of the
Central Bank Circular No. 364 and regulations on foreign exchange transactions.
 Martin and Santos countered that the NSLA’s liability to David is civil in
nature. David’s investments were treated as special accounts as NSLA was urgently
in need of funds. As such, his investments had interests above the legal rate and
were recorded in separate confidential documents, of which a portion was only to be
reported because David did not want the Australian government to tax his total
earnings. Also, some of the investments were personal loans, and were personally
transacted through Guingona, Jr.’s dollar account because the NSLA did not have
one. Further, upon receivership of NSLA, the Philippine Deposit Insurance
Corporation had already reimbursed David and Martin executed a promissory note in
David’s favor and caused him to transfer a diamond ring.
On the other hand, Guingona, Jr. countered that he had no hand in the
transactions between David and NSLA since he had resigned as President of the
NSLA and that he also assumed a portion of the liabilites of NSLA to David because
the latter insisted that he do so. In doing so, Guingona secured payment to David
with mortgages over two parcels of land, in which it was provided that the mortgage
over one parcel shall be cancelled upon payment of the half of Guingona’s obligation
to David. When Guingona, Jr. tendered payment, David refused. Thus, he filed a
case before the CFI to effect the release of the mortgage.
The petitioners moved to dismiss the charges against them for lack of
jurisdiction because David’s claims allegedly comprised a purely civil obligation.
However, Fiscal Lota denied the motion to dismiss. After the presentation of David’s
principal witness, petitioners filed this instant petition because the production of the
Promissory Notes, Banker’s Acceptance, Certificates of Time Deposts and Savings
Account allegedly showed that the transactions between David and NSLA were
simple loans.
Issue: Whether the transactions between David and NSLA were purely civil in
nature.
Held: Yes. Petition was granted.
Ruling:
As to the relationship between David and NSLA, it is that of creditor and
debtor. Consequently, the ownership of the amount deposited was transmitted to
the Bank upon perfection of the contract and it can make use of the amount
deposited for its baking operations, such as to pay interests on deposits and to pay
withdrawals. While the bank has the obligation to return the amount deposited, it
has, however, no obligation to return or deliver the same money that was deposited.
And, failure of the Bank to return the amount deposited will not constitute estafa
through misappropriation punishable under Article 315 par. 1(b) of the RPC, but it
will only give rise to the civil liability over which the public respondents have no
jurisdiction.
In order that a person can be convicted under Art. 315 of the RPC, it must be
proven that he has obligation to deliver or to return the same money, goods, or
personal property that he received.
As to the nature of the transactions, all kinds of bank deposits, whether fixed
savings, or current, are to be treated as loans and are to be recovered by law on
loans. Current and saving deposits are loans to a bank because it can use the same.
In a simple loan, as contrasted to commodatum, the borrower acquires
ownership of the money, goods, or personal property borrowed. Being the owner,
the borrower can dispose of the thing borrowed and his act will not be considered
misappropriation thereof.
Thus, the petitioners had no such obligation to return the same money. This
is so because as clearly stated in criminal complaints, the related civil complaints and
the supporting sworn statements, the sums of money that petitioners received were
loans.

Name: Ho, Nelson Conrad C.

Topic: Simple Loan or Mutuum
Law Cited: Articles 1980, 1278, 1279 of the Civil Code.
Title: Bank of Philippine Island vs Court of Appeals, et al.
Source, Date: G.R. No. 136202, 25 January 2007
Nature: Petition for review on certiorari under Rule 45 of Rules
of Court
Ponente: Azcuña, J.
Facts: A.A. Salazar Construction and Engineering Services (Salazar
Construction), later on was substituted by Annabelle A. Salazar
(Salazar), filed an action for a sum of money with damages against the
petitioner Bank of Philippine Island (BPI) on 05 December 1991.
Respondent Salazar prayed for the recovery of the amount of P267,707
debited by BPI from her account. She likewise prayed for damages and
attorney’s fees. BPI alleged that on 31 August 1991, Julio R.
Templonuevo (Templonuevo), demanded from BPI the amount of
P267,293 representing the aggregate value of three checks, which
were allegedly payable to him, but which were deposited with Salazar’s
account without his knowledge and corresponding endorsement.
Accepting that Templonuevo’s claim was valid, BPI froze the account of
Salazar Construction instead of Salazar, as it was already closed
account. As it appeared the Salazar was not entitled to the funds
represented by the checks, BPI debited the amount of P267,707 from
her account Salazar Construction, and the sum of P267,293 was paid
to Templonuevo by means of cashier’s check. The difference was
considered bank charges. After trial, RTC ordered BPI to pay Salazar
the amount of P267,707 with 12% interest from 16 September 1991
until fully paid. Also, P30,000 for actual damages, P50,000 for moral
damages, P50,000 for exemplary damages, P30,000 for attorney’s
fees, and cost of suit. In 1998, CA affirmed the RTC’s decision and held
that Salazar was entitled to the proceeds of the three checks
notwithstanding the lack of endorsement thereon by the payee.

Issue: Whether BPI has the authority to withdraw unilaterally from Salazar’s
account the amount it had previously paid upon certain unendorsed
order instruments.

Held: No. Petition partially granted.

Ruling: The Supreme Court (SC) held that BPI, as the collecting bank, had the
right to debit Salazar’s account for the value of the checks it previously
credited in her favour. A bank has generally a right of set-off over
deposits therein. Article 1980 of the Civil Code provides that “[f]ixed,
savings, and current deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan.” Hence,
the relationship between banks and depositors has been held to be
that of creditor and debtor. Thus, legal compensation under Article
1278 of the Civil Code may take place when all the requisites
mentioned therein are present. While, however, it is conceded that BPI
had the right of set-off over the amount it paid to Templonuevo
against the deposit of Salazar, the issue of whether it acted judiciously
is an entirely different matter. Despite the obvious lack of endorsement
thereon, BPI permitted the encashment of the said three checks, three
times on three separate occasions. The taking and collection of a check
without the proper endorsement amount to a conversion of the check
by the bank. Under the circumstances, Salazar was clearly not given
the opportunity to protect her interest when BPI unilaterally withdrew
the above amount from her account without informing her that it had
already done so. SC sustained the award of actual, moral, and
exemplary damages, and attorney’s fees granted by the CA against
BPI. This whole incident would have been avoided had BPI adhered to
the standard of diligence expected of one engaged in the banking
business.
Name: Alyssa Anne Bernadette J. Limboc
Topic: Simple Loan or Mutuum
Provision Cited: Article 1169 of the Civil Code.
Title: Dario Nacar vs Gallery Frams and/or Felipe Bordey, Jr.
Source, Date: GR no. 189871, August 13, 2013

Facts:
Nacar filed a complaint for constructive dismissal against Gallery Frame (GF). Nacar
won the illegal termination case with Labor Arbiter and NLRC. It was stated in its
decision that the computation shall be only up to the promulgation of the decision.
GF appealed to NLRC but such was dismissed for lack of merit. GF filed a petition for
review on Certiorari before CA. CA dismissed such petition.
An Enrty of Jugment was then issued certifying that the resolution became final and
executory on 27 May 2002. The case was referred back to Labor Arbiter. Nacar filed
a motion for correct computation of his back wages. NLRC arrived with an updated
amount in the sum of Php471,320.31. On 2 December 2002, Writ of execution was
issued ordering the sheriff to collect from GF. GF filed Motion to Quash the Writ of
execution alleging that re-computation is not required. GF claimed that after the
decision becomes final and executory, the same cannot be altered or amended
anymore.
Issue: Whether a recomputation in the course of execution of the labor arbiter’s
original computation of the awards made is legal
Held: Yes
Ruling:
Supreme Court found no error in CA’s decision of confirmining that a recomputation
is necessary as it essentially considered the labor arbiter’s originial decision.
By the nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of
the consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being implemented. The
Court laid down the guidelines regarding the manner of computing legal interest, to
wit:

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:
a. Interest due should be that which may have been stipulated in writing.
b.The interest due shall itself earn legal interest from the time it is judicially
demanded.
c. 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:
 a. Interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum.
b. No interest, however, shall be adjudged on unliquidated claims or
damages,except when or until the demand can be established with
reasonable certainty.
i. 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 CC)
ii. 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).
c. 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 6% per annum from such finality until its satisfaction,
this interim period being deemed to be equivalent to a forbearance of credit.

Labor Arbiter was being ordered to make another recomputation of the total
monetary benefits awarded and due to petitioner in accordance with SC’s ruling.
Name: Manalo, Maria Anna S.
Topic: Simple Loan or Mutuum
Provision Cited: Republic Act No. 3765 and Central Bank Circular No.
905, as
amended by P.D. 1684

Title: SPOUSES EDUARDO and LYDIA SILOS vs. PHILIPPINE

NATIONAL BANK
Source, Date: G.R. No. 181045, 2 JULY 2014
NATURE: Petition for Review on Certiorari
PONENTE: J. Del Castillo

FACTS: Petitioner spouses Silos secured a revolving credit line with respondent
Philippine National Bank (PNB) through a real estate mortgage as a
security. Their credit line was increased in the succeeding 2 years. In
addition to the mortgage petitioners signed a Credit Agreement and 8
Promissory Notes (PN).
The Credit Agreement contained the stipulation that the said loan shall
have the annual interest rate of 19.5% and that the respondents may
modify the interest rates without need of notice to the petitioners. While
the 8 PNs contained a stipulation granting the respondent the right to
increase or reduce interest rates. Petitioners religiously paid the interest,
which ranged from 19.5% to 32%.
An Amendment to Credit Agreement was executed by the parties, which
stipulated that petitioners agree to pay interest determined by the
respondent on each availment. Petitioners also issued additional 18 PNs
under the amendment, which they settled except the note covering the
principal. They regularly renewed the line and made good on their PNs,
and paid the interests without objection or fail.
However, petitioners faltered when the interest rates soared during the
Asian Financial Crisis. The 26th PN became past due, and despite
repeated demands, petitioners failed to make good on the note.
Respondent foreclosed and auctioned the mortgaged properties. After a
year petitioners filed an action to annul the foreclosure and sale on the
 ground that the succeeding interest rates were left to the sole will of
respondent.
RTC ruled that such stipulation authorizing both the increase and
decrease of interest rates as may be applicable is valid.
CA affirmed the RTC decision

ISSUE: Whether a party, in a loan contract, can unilaterally increase the rate of
interest.

HELD: No.

RULING The Court held that in loan agreements, the rate of interest is a principal
: condition and any modification thereof must be mutually agreed upon;
otherwise it has no binding effect. It found that the respondent, through
its acts, violated RA 3765 or Truth in Lending Act, which gives a detailed
enumeration of the specific information required to be disclosed to
citizens. To reiterate further, the Court upheld their previous decisions
stating that any medication in the contract must be made with the
consent of the contracting parties, especially when it affects an important
aspect of the agreement.

Name: Vanya Klarika Nuque

Topic: Simple Loan or Mutuum
Law or Provision Cited: Circular No. 799, series of 2013
Title: SPOUSES BAYANI and GRACIA ANDAL vs. PNB, ET
AL.
Source, Date: G.R. No. 194201; 27 November 2013

Facts:
Sps. Andal obtained a loan from PNB worth P21,805,000. They executed 12
promissory notes to pay PNB the principal loan with varying interest rates of 17.5%
to 27% per interest period. To secure the payment of the said loan, Sps. Andal
executed in favor of PNB a real estate mortgage using as collateral 5 parcels of land.
Subsequently, PNB advised Sps. Andal to pay their loan, otherwise the former will
declare the latter’s loan due and demandable. However, despite payment, PNB
proceeded to foreclose 3 real estate mortgage. Sps. Andal filed a complaint
regarding the sale alleging that they tried to religiously pay their loan obligation to
PNB, but the exorbitant rate of interest unilaterally determined and imposed by the
latter prevented the former from paying their obligation. Sps. Andal also alleged that
they signed the promissory notes in blank, relying on the representation of PNB that
they were merely proforma bank requirements. Further, Sps. Andal alleged that the
unilateral increase of interest rates and exorbitant penalty charges are akin to unjust
enrichment at their expense, giving PNB no right to foreclose their mortgaged
properties. RTC ruled in favor of Sps. Andal and gave the interest rate of 6% per
annum on their loan. CA affirmed the RTC ruling but modified the interest rate to
12% per annum. Sps. Andal is now reiterating that no interest should be imposed on
their loan, following the respective pronouncements of the CA in the Caraig and
Mercado cases.

Issue:

1) Whether interest should be imposed on the said loan.

2) Whether Sps. Andal should pay 6% or 12% on their loans.

Held: Petition is Denied.

Ruling:

1) YES. It is clear from the contract of loan between petitioners-spouses and

respondent bank that petitioners- spouses, as borrowers, agreed to the
payment of interest on their loan obligation. That the rate of interest was
subsequently declared illegal and unconscionable does not entitle petitioners-
spouses to stop payment of interest. It should be emphasized that only the
rate of interest was declared void. The stipulation requiring petitioners-
spouses to pay interest on their loan remains valid and binding. They are,
therefore, liable to pay interest from the time they defaulted in payment until
their loan is fully paid.
2) Pursuant to Circular No. 799, series of 2013, issued by the Office of the
Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in
accordance with the ruling of the Supreme Court in the recent case of Dario
Nacar v. Gallery Frames and/or Felipe Bordey, Jr., 703 SCRA 439 (2013),
effective 1 July 2013, 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. Accordingly, the rate of interest of 12% per annum on petitioners-
spousesÊ obligation shall apply from 20 May 2011 · the date of default · until
30 June 2013 only. From 1 July 2013 until fully paid, the legal rate of 6% per
annum shall be applied to petitioners-spousesÊ unpaid obligation.
Name: Pajara, Jarryd Anthony B.
Topic: Credit Card
Provision Cited: Art. 1170
Title: Pantaleon v. AMEX
Source, Date: G.R. No. 174269 ; May 8, 2009

Facts:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda and their children
joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe,
Ltd., in October of 1991. Mrs. Pantaleon also selected for purchase a pendant and a
chain, all of which totaled U.S. $13,826.00. Mrs. Pantaleon presented his American
Express credit card together with his passport to the Coster sales clerk. The store
clerk informed Pantaleon that his AmexCard had not yet been approved. Mr.
Pantaleon’s son returned to Coster and informed the other members of the family
that the entire tour group was waiting for them. The petitioner sought to cancel the
sale but Coster decided to release the items even without respondent’s approval of
the purchase. It later emerged that Pantaleon’s purchase was first transmitted for
approval to respondent’s Amsterdam office at 9:20 a.m., Amsterdam time, then
referred to respondent’s Manila office at 9:33 a.m., then finally approved at 10:19
a.m., Amsterdam time.6 The Approval
Code was transmitted to respondent’s Amsterdam office at 10:38 a.m., several
minutes after petitioner had already left Coster, and 78 minutes from the time the
purchases were electronically transmitted by the jewelry store to respondent’s
Amsterdam office. Two more incidents regarding the credit card happened during
the family’s stay in the United States. Pantaleon sent a letter to the respondent
demanding an apology for the inconvenience, humiliation and embarrassment he
and his family thereby suffered for refusal to provide credit authorization for the
aforementioned purchases.

Issue: Whether or not the respondent is liable for damages due to delay.

Held: Yes. Petition is granted.

Ruling:
The Court held that the respondent is liable for delay. The Court stated that
even if there is no strict, legally determinative point of demarcation on how long it
must take for a credit card company to approve or disapprove a customer’s
purchase; this particular case appears to be an awfully long to approve or
disapprove a credit card purchase. The culpable failure of respondent is to timely act
on the same, whether favorably or unfavorably.

Name: PARTIBLE, JANINE DEZZA L.

Provision Cited: ARTICLE 2022 of the Civil Code
Topic: Credit Card
Title: FAR EAST BANK AND TRUST COMPANY vs. CA
Source, Date: VOL. 241, February 23, 1995.

Facts:
Private respondent Luis A. Luna applied for and was accorded a
FAREASTCARD issued by petitioner FEBTC and a supplemental card to respondent
Clarita S. Luna. In August 1988, Clarita lost her credit card. Under the bank’s internal
security procedures and policy FEBTC recorded the lost card along with the principal
card as “Hot Card” or “Cancelled Card” in its master file.
On October 6, 1988, Luis presented his FAREASTCARD to pay the despida
lunch he tendered for his close friend in Bahia Rooftop Restaurant. The card was not
honoured and he paid in cash the bill amounting to P588.13. Naturally, he felt
embarrassed by the incident.

In a letter, Luis demanded from FEBTC payment for damages. FEBTC vice-
president expressed the bank’s apologies to Luis in a letter explaining that through
investigation FAREASTCARD failed to inform him (Luis) about its security policy. And
that their Credit Card Department employee did not consider the possibility that it
may have been him who was presenting the card at the time. FEBTC also sent a
letter to the restaurant manager to assure that respondents were “Very valued
clients”.

Private respondents filed a complaint for damages with the RTC. The RTC
ordered FEBTC to pay private respondents moral damages, exemplary damages and
attorney’s fees. The CA affirmed the decision of the RTC.

Issue:
Whether or not the respondents are entitled to recovery moral damages for
breach of contract by FEBTC. – NO.

Ruling:
There is merit in this appeal.
In culpa contractual, moral damages may be recovered where the defendant
is shown to have acted in bad faith or with malice in the breach of the contract. The
Civil Code provides:
“Art. 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are
justly due.” The same rule applies to breaches of contract where the defendant
acted fraudulently or in bad faith.

Bad faith, in this context, includes gross, but not simple, negligence. Exceptionally,
in a contract of carriage, moral damages are also allowed in case of death of a
passenger attributable to the fault (which is presumed) of the common carrier.

Nothing in the findings of the trial court and the appellate court, however, can
sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to
private respondents. Neither could FEBTC’s negligence in failing to give personal
notice to Luis be considered so gross as to amount to malice or bad faith.
Here, private respondents' damage claim is predicated solely on their
contractual relationship; without such agreement, the act or omission complained of
cannot by itself be held to stand as a separate cause of action or as an independent
actionable tort.

The Court finds, therefore, the award of the moral damages made by the
RTC, affirmed by the CA, to be inordinate and substantially devoid of legal basis.
Nevertheless, the bank’s failure to honor its credit card issued to Luis should entitle
him to recover a measure of damages sanctioned under Article 2221 of the Civil
Code.
“Art. 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.”

The appealed decision is MODIFIED by deleting the award of moral and

exemplary damages to private respondents; in its stead, petitioner is ordered to pay
private respondent Luis A. Luna an amount of P5,000.00 by way of nominal
damages. In all other respects, the appealed decision is AFFIRMED.

Name: Prado-Lopez, Laura R.

Title: Equitable Banking Corporation v Jose T. Calderon
Source, Date: G.R. No. 156168, December 14, 2004
Topic: Credit Card
Nature: Petition for review on certiorari of a decision of the
Court of
Appeals
Ponente: GARCIA, J.

Facts:
In September 1984, Jose Calderon, a businessman, applied with the Equitable
Bank Corporation (EBC), and was granted, an Equitable Visa Card that can be used
for both peso and dollar transactions within and outside the Philippines whose credit
limit was P20,000 for peso transactions, and $3,000.00 as a maintaining balance and
which shall serve as the credit limit for dollar transactions.

In April 1986, Calderon together with other reputable business friends and
associates went to Hong Kong for business and pleasure trips. On April 30, 1986,
Calderon went to the Gucci Department Store and purchased several Gucci items
amounting to HK$4,030.00 or equivalent to US$523.00 and paid using his Visa card
to effect payment thereof on credit. Shortly after presentation and verification, and
in front of his friend and other shoppers, Calderon was informed that his Visa card
was blacklisted and was later threatened to cut the card into pieces. Thereafter,
Calderon paid the Gucci goods in cash.

Upon his return to the Philippines, claiming that he had suffered torment and
embarrassment, Calderon filed a complaint for damages against EBC with the RTC in
Makati. In its answer, EBC denied liability to Calderon alleging that his credit card
privileges for dollar transactions were earlier placed under suspension due to
Calderon’s prior use in excess of his credit limit, in addition to Calderon failing to
settle said prior credit purchase on due date thereby causing his obligation to
become past due leading to the suspension or ‘blacklisting’ of his credit card. The
RTC granted the petition declaring that the bank was negligent in suspending or
‘blacklisting’ Calderon’s credit card without basis and was awarded the following in
damages:

1. the sum of US$150.00 as actual damages;

2. the sum of P200,000.00 as and by way of moral damages;
3. the amount of P100,000.00 as exemplary damages;
4. the sum of P100,000.00 as attorney’s fees plus P500.00 per court hearing
and
5. costs of suit.

EBC appealed the decision to the CA who affirmed the decision of the RTC insofar as
the awards of the moral damages which was reduced to P100,000.00 and the costs
of suit, all other awards were deleted. Hence, this appeal.

Issue: Whether or not the automatic cancellation or suspension or ‘blacklisting’ done

by EBC was valid.
Held: Yes, the automatic suspension on the credit card done by EBC was valid.
Hence, petition is granted and the decision of the CA was reversed and set
aside.

Ruling:

Under the paragraph 3 of EBC’s Credit Card Agreement with Calderon states
that:
x x x the CARDHOLDER agrees not to exceed his/her approved credit
limit, otherwise, all charges incurred including charges incurred through
the use of the extension CARD/S, if any in excess of credit limit shall
become due and demandable and the credit privileges shall be
automatically suspended without notice to the CARDHOLDER in
accordance with Section 11 hereof.

That despite the payments and deposits done by Calderon on his overdue
credit card limit prior to his departure to Hong Kong, EBC has the option to decide
whether to reinstate or altogether terminate a credit card previously suspended on
consideration that petitioner deemed proper.

Further, while a credit card agreement is generally a contract of adhesion in

which one of the contracting parties imposes a ready-made form of contract which
the other party may accept or reject, but cannot modify, and is as binding as
ordinary contracts, the reason being that the party who adheres to the contract is
free to reject it entirely.

Furthermore, the provision on automatic suspension without notice embodied

in the same Credit Card Agreement is clear and unambiguous hence, EBC’s
automatic suspension was valid and therefore the petition is granted and the
decision of the CA was reversed and set aside.
Name: Realin, Reuel Angelo
Topic: Burden of Proof; Augmentation of Credit Limit; Damage
without injury
Title: Emmanuel Aznar v. Citibank N.A.
Source, date: GR No. 164273, 28 March 2007

Facts:
Petitioner was a holder of a credit card with a credit limit of Php 150k issued by
Citibank. In preparation of a trip abroad, he deposited Php 485k with Citibank with
the intention of increasing the credit limit of his card to Php 635k. After doing so, he
used the card to purchase plane tickets worth Php 237k.

During their trip, the petitioner used his credit card. However, in some
establishments, his card was dishonored. Notably, his card was dishonored by a
travel agency when he purchased plane tickets to Bali since his card was “blacklisted
by Citibank”. The agency issued a computer print-out entitled, “Online Authorizations
Foreign Account Activity Report” which shows that the card was declined for being
declared over limit.

Upon his return to the country, the petitioner filed a case for damages against
respondent, citing the black-listing of his card despite the augmentation of his
account, resulting in mental anguish and humiliation, as his cause of action.

RTC: Dismissed the case for lack of merit. The RTC rules that the evidence
presented by Aznar, a computer print-out, as compared to that presented by
Citibank, a Warning Cancellation bulletin, the latter had more weight and its
authenticity established by the bank. Furthermore, dishonoring of the card by a
merchant establishment does not show that Citibank had acted with malice or bad
faith.
RTC-MR: Granted. Awarded damages.
CA: Granted appeal of Citibank. Reversed decision of RTC and reinstated decision
prior the MR.

Issue: Whether an unauthenticated computer-print out whose due execution could

not be established satisfy the preponderance of evidence required by law in civil
cases
Held: No, it does not.
Ratio:
In civil cases, the burden of proof rests upon the plaintiff to establish his case based
on a preponderance of evidence. He also has the burden of proving his allegation of
a fact. Under Sec. 20 of Rule 132 of the Rules of Court, it is provided that whenever
a private offered as authentic is received in evidence, its due execution and
authenticity must be proved either by (a) anyone who saw the document executed
or written; or (b) by evidence of the genuineness of the signature or handwriting of
the maker.

The petitioner’s cause of action is hinged on the allegation that his card was black-
listed by respondent company. He presents in evidence a copy of a computer print-
out given by the travel agency which informed him that his card was declined.
However, he fails to establish that he personally witnessed the execution of the
document, the same only given to him by the agency, nor was he able to show that
it was indeed signed by a person authorized by the agency.

On the other hand, Citibank submitted a document entitled, “Warning Cancellation

Bulletin” which show the list of cards blacklisted by the company. The petitioner’s
card was not placed on the said list. The execution of the said document was
established by the bank officers competent to testify on the matter.

Issue: Whether an advance deposit may augment a credit line beyond the credit
limit granted by the issuing bank.
Held: Yes it may.
Ratio:
At the outset, Citibank never denied that it received additional deposit from the
petitioner. Furthermore, despite the credit limit of the petitioner being at Php 150k,
he was able to purchase tickets amounting to Php 237k after he had made such
advance deposit. Hence, this would show that the petitioner did have more than
sufficient funds at the time of the trip and that the respondents did not blacklist the
card prior to the trip.

Issue: Whether a credit card company has a legal duty to ensure the approval of a
credit card transaction.
Held: No it does not have such duty.
Ratio:
Contracts between cardholders and the issuing banks of credit cards are considered
as contracts of adhesion. Hence, any vagueness or ambiguity in its provisions must
be construed against the party who prepared the contract. Nevertheless, damages
may only be awarded in cases where one of the parties committed a breach in the
contract which resulted in an injury suffered by the other. Injury as basis for such
damages is the illegal invasion of a legal right (which implies that the other party has
the legal duty to observe that right) while damage pertains to the loss, hurt, or harm
resulting from the injury. There can be damage without injury to those instances in
which the loss or harm was not the result of a violation of a legal duty and the law
affords no remedy for such damages. (Damnum absque injuria)
In this case, while the provisions of the contract between the petitioner and
respondents may be deemed invalid for being unconscionable, the petitioner failed
to show that there was gross negligence amounting to bad faith on the part of
Citibank when the card was dishonored by the establishments. Based on the
evidence submitted, there was no proof that Citibank had the legal duty to ensure
that every transaction would be honored by all merchants that the petitioner
transacted with. Hence, Citibank cannot be held liable for damages allegedly
suffered by the petitioner.

Petition denied.

Name: Franco Antonio F. Regalado

Topic: Credit Card
Provision Cited: Civil Code Art. 2220
Title: Bankard, Inc. v. Dr. Antonio Novak Feliciano
Source, Date: G.R. No. 141761, 28 July 2006

Facts:

While he was attempting to pay for several expenses in Canada, Dr. Antonio Novak
Feliciano's PCIBank Mastercard was dishonored several times, leading to his
embarrassment in front of several guests. Feliciano inquired with the credit card
company Bankard, Inc., and was told that he failed to pay his last billing statement,
which he denied. Feliciano filed a complaint against Bankard for damages due to
breach of contract, alleging he has been a holder in good standing for over ten
years. Bankard claimed due diligence, having blocked the card due to suspicions of
counterfeit transactions. Bankard claimed to have attempted to contact Feliciano
several times, but received only once a vague reply from a woman who answered
the phone, and no reply in the other attempts.

Issue:

Whether or not Bankard was in breach for being negligent in its blocking of
Feliciano's credit card.
Held:

Yes.

Ruling:

Bankard's efforts at personally contacting Feliciano fall short of the degree of

diligence required by the circumstances. Apart from calling Feliciano's clinic and
home, no further attempts were made to contact him, Bankard's fraud analyst
having been content with leaving a message to an unidentified woman who
answered one of the calls. Credit card issuers should not only guard against
fraudulent uses of credit cards, but should also be protective of genuine uses thereof
by their true cardholders.

Name: MUARIP, Jermone Muctar

Topic: Credit Cards
Provision Cited: Article 1306 of the Civil Code
Title: Acol v. Philippine Commercial Credit Card, Incorporated
Source, Date: SCRA 469, 25 July 2006

Facts:
Manuel Acol applied for credit card on 20 August 1982 with respondent. He regularly
used the said credit card to make purchases and paid the corresponding charges.
However, the petitioner discovered he lost his card on 18 April 1987 and
immediately reported such incident the next day. But such report was not sufficient
and the bank representative required him to put into writing the notice of loss. Such
notice was received on 22 April 1987. Unfortunately, there were purchases made
using the credit card on dates April 19 and 20, 1987 worth P 76,067.28. Upon
receiving the bill for April, the petitioner informed the bank that he would not pay for
the said amount because purchases were made after he notified the bank. At first
the responded agreed to reverse the disputed billings. However, it reversed its
earlier position to delete the disputed billing and cited provision no. 1 of the Terms
and Conditions Governing The Issuance and Use of the Bankard.
Respondent brought the case before the Regional Trial Court (RTC) and lost. The
Court of Appeals reversed the RTC decision and denied petitioner’s motion for
reconsideration.

Issue:
Whether or not the stipulation in question was valid and binding given that the
contract was one of adhesion

Held:
Yes. Petition granted, assailed decision of RTC reinstated.

Ruling:
Prompt notice by the cardholder to the credit card company of the loss or theft of
his card should be enough to relieve the former of any liability occasioned by the
unauthorized use of his lost or stolen card.
In this case, the stipulation in question is just as repugnant to public policy as that in
Ermitaño. As petitioner points out, the effectivity of the cancellation of the lost card
rests on an act entirely beyond the control of the cardholder. Worse, the phrase
„after a reasonable time‰ gives the issuer the opportunity to actually profit from
unauthorized charges despite receipt of immediate written notice from the
cardholder. Under such a stipulation, petitioner could have theoretically done
everything in his power to give respondent the required written notice. But if
respondent took a reasonable time (which could be indefinite) to include the card in
its cancellation bulletin, it could still hold the cardholder liable for whatever
unauthorized charges were incurred within that span of time. This would have been
truly iniquitous, considering the amount respondent wanted to hold petitioner liable
for.
Article 1306 of the Civil Code prohibits contracting parties from establishing
stipulations contrary to public policy. The assailed provision was just such a
stipulation. It is without any hesitation therefore that we strike it down.

Name: Rentoza, Michael Leandro F.

Topic: Contract of Deposit
Provision Cited: Article 1292 and 1962 of the New Civil Code
Title: RCJ Bus Lines, Inc. vs. Master Tours and Travel Corp.
Source, Date: GR No. 177232; 11 October 2012

Facts:

On 9 February 1993, respondent Master Tours and Travel Corporation (Master

Tours) entered into a five-year lease agreement with petitioner RCJ Bus Lines,
Incorporated (RCJ) covering four buses, described as “presently junked and not
operational” for the lease amount of P600,000.00, with P400,000.00 payable upon
the signing of the agreement and P200,000.00 “payable upon completion of
rehabilitation of the four buses by the lessee.”

More than 4 years in to the lease agreement, Master Tours wrote RCJ a letter,
demanding the return of the buses to it and the payment of the lease fee of that
had remained unpaid since 1993. However, RCJ alleged that it had no use for the
buses, they being non-operational, and that the lease agreement had been modified
into a contract of deposit of the buses for which Master Tours agreed to pay RCJ
storage fees of P4,000.00 a month. To prove the new agreement, RCJ cited Master
Tours’ letter of June 16, 1997 which acknowledged that the buses were brought to
RCJ’s garage for “safekeeping.”

This prompted Master Tours to file a collection suit against RCJ before the
Regional Trial Court (RTC) of Manila, Branch 49. Subsequently, the RTC rendered
judgment in favor of Master Tours and rejected RCJ’s defense of novation from a
contract of lease to a contract of deposit, given the absence of proof that Master
Tours gave its consent to such a novation. On appeal, the CA affirmed in toto the
judgment of the lower court. Thus, this petition.

Issue:
Whether or not the Contract of Lease has been validly novated and converted
into a Contract of Deposit.

Held:
No, there was no novation between the agreement of the parties.

Ruling:
The Supreme Court held that Article 1292 of the Civil Code provides that in
novation, “it is imperative that it be so declared in unequivocal terms, or that the old
and the new obligations be on every point incompatible with each other.” And the
obligations are incompatible if they cannot stand together. In such a case, the
subsequent obligation supersedes or novates the first.
In this case, RCJ failed to present any clear proof that it agreed with Master
Tours to abandon the lease of the buses and in its place constitute RCJ as depositary
of the same, providing storage service to Master Tours for a fee. The only evidence
RCJ relied on is Master Tours’ letter of June 16, 1997 in which it demanded the
return of the four buses which were placed in RCJ’s garage for “safekeeping.”
Accordingly, The Supreme Court pointed out that the idea of RCJ safekeeping the
buses for Master Tours is consistent with their lease agreement. The lessee of a
movable property has an obligation to “return the thing leased, upon the termination
of the lease, just as he received it.” This means that RCJ must, as an incident of the
lease, keep the buses safe from injury or harm while these were in its possession.

Lastly, it must be noted that, the cause in a contract of lease is the enjoyment
of the thing; in a contract of deposit, it is the safekeeping of the thing. They thus
create essentially distinct obligations that would result in a novation only if the
parties entered into one after the other concerning the same subject matter.
Name: Rem Joshua T. Serrano
Topic: Deposit
Provision: Art. 1962, NCC
Title: Triple-V Food Services, Inc. v. Filipino Merchants
Insurance
Source, Date: GR No. 160544, 21 February 2005
Facts:

Mary Jo-Anne De Asis (De Asis) dined at petitioner's Kamayan Restaurant. On said
date, De Asis availed of the valet parking service of petitioner and entrusted her car
key to petitioner's valet counter. A corresponding parking ticket was issued as
receipt for the car. Petitioner’s valet attendant, a certain Madridano, at the
designated parking area, then parked the car. Few minutes later, Madridano noticed
that the car was not in its parking slot and its key no longer in the box where valet
attendants usually keep the keys of cars entrusted to them. The car was never
recovered. Thereafter, Crispa filed a claim against its insurer, herein respondent
Filipino Merchants Insurance Company, Inc. (FMICI). Having indemnified Crispa for
the loss of the subject vehicle, FMICI, as subrogee to Crispa's rights, filed with the
RTC at Makati City an action for damages against petitioner.
In its answer, petitioner claimed that it and its employees wasted no time in
ascertaining the loss of the car and in informing De Asis of the discovery of the loss.
Petitioner further argued that in accepting the complimentary valet parking service,
De Asis received a parking ticket where under it is so provided that "[Management
and staff will not be responsible for any loss of or damage incurred on the vehicle
nor of valuables contained therein", a provision which, to petitioner's mind, is an
explicit waiver of any right to claim indemnity for the loss of the car; and that De
Asis knowingly assumed the risk of loss when she allowed petitioner to park her
vehicle, adding that its valet parking service did not include extending a contract of
insurance or warranty for the loss of the vehicle.
Issue:

1. Whether petitioner was the depositary of the subject vehicle.

2. Whether petitioner is liable for the loss of the subject vehicle.

Held:

1. YES
2. YES

Ruling:

In a contract of deposit, a person receives an object belonging to another with the

obligation of safely keeping it and returning the same. A deposit may be constituted
even without any consideration. It is not necessary that the depositary receives a fee
before it becomes obligated to keep the item entrusted for safekeeping and to
return it later to the depositor.
When De Asis entrusted the car in question to petitioners valet attendant while
eating at petitioner's Kamayan Restaurant, the former expected the car's safe return
at the end of her meal. Thus, petitioner was constituted as a depositary of the same
car. Petitioner cannot evade liability by arguing that neither a contract of deposit nor
that of insurance, guaranty or surety for the loss of the car was constituted when De
Asis availed of its free valet parking service.
Name: Charelle Mei Sy
Topic: Deposit / Liability of Depositary
Provisions Cited: Art. 1768 of the Civil Code
Title: SILVESTRA BARON vs. PABLO DAVID
Source, Date: Nos. 26948 and 26949. October 8, 1927

Facts:
This action consists of two cases heard together in the trial court and
determined in a single opinion. Defendant Pablo David had been engaged in running
a rice mill in the municipality of Magalang, in the Province of Pampanga. On January
17,1921, a fire destroyed the contents and it was some time before it was rebuilt
and put in the operation again. In the months of March, April, and May 1920,
plaintiff of the first case Silvestra Baron placed a quantity of palay in the defendant's
mill; and this, in connection with some that she took over from the plaintiff of the
second case Guillermo Baron, amounted to 1,012 cavans and 24 kilos. In the same
period, Guillermo Baron placed other 1,865 cavans and 43 kilos of palay in the mill.
Neither plaintiff received compensation. David claims that the palay was deposited
subject to future withdrawal by the depositors or subject to future withdrawal by the
depositors or subject to some future sale which was never effected. He therefore
supposes himself to be relieved from all responsibility by virtue of the fire of January
17, 1921. The plaintiffs also say that David promised to pay for the palay at the
highest price per cavan at which palay would sell during the year 1920. The trial
court gave judgment for Silvestra to recover from the defendant P5,238.51 and
Guillermo to recover P5,734.60. Hence, this appeal.

Issue:
Whether or not David must account for the palay to the owner at the price
prevailing at the time demand is made.

Held:
Yes. Judgment in the first case modified. Silvestra Baron will recover from
Pablo David P6,227.24 with interest

Ruling:
The palay was placed by the plaintiffs in the defendant’s mill with the
understanding that David was at liberty to convert it into rice and dispose of it at his
pleasure. All of the plaintiffs' palay, which was put in before June 1, 1920, had been
milled and disposed of long prior to the fire. Since this is the case, it results that he
is bound to account for its value, and his liability was not extinguished by the
occurrence of the fire. Supposing that the palay may have been delivered in the
character of deposit, subject to future sale or withdrawal at plaintiffs' election,
nevertheless if it was understood that the defendant might mill the palay and he has
in fact appropriated it to his own use, he is of course bound to account for its value.

Under article 1768 of the Civil Code, when the depositary has permission to
make use of the thing deposited, the contract loses the character of mere deposit
and becomes a loan or a commodatum; and of course by appropriating the thing,
the bailee becomes responsible for its value. In this connection we wholly reject the
defendant's pretense that the palay delivered by the plaintiffs or any part of it was
actually consumed in the fire of January, 1921. Nor is the liability of the defendant in
any wise affected by the circumstance that, by a custom prevailing among rice
millers in this country, persons placing palay with them without special agreement as
to price are at liberty to withdraw it later, proper allowance being made for storage
and shrinkage, a thing that is sometimes done, though rarely.

With regard to the price accounted for, the price of P6.15 per cavan, fixed by
the trial court, is about the price at which the defendant should be required to settle
as of that date. It was the date of the demand of the plaintiffs for settlement that
determined the price, regardless if the palay was delivered in character of sale with
price undetermined or in the character of deposit subject to use by the defendant.
The plaintiffs are respectively entitled to recover the value of the palay which they
had placed with the defendant during the period referred to, with interest from the
date of the filing of their several complaints.
Name: Cris Angeli V. Tacuboy
Topic: Deposit
Provision: Article 1962 and Article 1998
Title: Durban Apartments Corporation vs Pioneer Insurance and
Surety Corporation
Source, Date: GR No. 179419, 12 January 2011

Facts:
Respondent, by right of subrogation, filed a Complaint for Recovery of
Damages against petitioner, doing business under name and style of City Garden
Hotel, and Vicente Justimbaste. Respondent averred that it is the insurer for loss and
damage of Jeffrey See’s Suzuki Grand Vitara.
See arrived and checked in at the City Garden Hotel, and its parking
attendant got the key to the Vitara from See to park it. See was then informed that
his Vitara was carnapped and lost due to the negligence of petitioner.
A claims evaluator of respondent evaluated the case upon receipt of the
subrogation documents and the adjuster’s report, and eventually recommended for
its settlement for the sum of P1,163,250, which was accepted by See.
RTC rendered judgment ordering petitioner to pay the sum with legal interest
from July 22, 2003 until obligation is fully paid and attorney’s fees and litigation
expenses. The appellate court affirmed.

Issue:
Whether petitioner is liable to respondent for the loss of See’s vehicle.

Held:
Yes

Ruling:
Article 1962, in relation to Art 1998 of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns.
Art 1998 provides that 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 a 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.
See deposited his vehicle for safekeeping with petitioner, who issued a claim
stub. Thus the contract of deposited was perfected from See’s delivery, when he
handed over the keys to his vehicle, which the employee received with obligation of
safely keeping and returning it. The petitioner is liable for the loss of See’s vehicle

Name: Neil Villalon

Topic: Deposit
Provision Cited: Article 2002-2003 of the Civil Code
Title: YHT Realty Corporation vs. Court of Appeals
Source, Date: G.R. No. 126780, 17 February 2005

Facts:
McLoughlin, an Australian businessman-philanthropist and private respondent,
was befriended by Brunhilda Mata-Tan (Tan) through touring him around,
introducing him to important people, and supporting impoverished street children as
well as charitable institutions for the poor. By gaining McLoughlin’s trust, Tan
persuaded him to transfer from his current hotel (Sheraton) to Tropicana Hotel
where Lainez, Payam, and Danilo Lopez were employed. After transferring to
Tropicana, McLoughlin rented a safety deposit box for the deposit of his money and
other valuables. McLoughlin was aware of the Tropicana’s procedure with regard to
its safety deposit boxes, wherein one of two of its keys would be with him while the
other was with the hotel management.

For the first incident, he placed the following amounts, currencies, and
valuables in his safety deposit box: Fifteen Thousand US Dollars (US$15,000) which
he placed in two envelopes, one envelope containing Ten Thousand US Dollars
(US$10,000) and the other envelope Five Thousand US Dollars (US$5,000); Ten
Thousand Australian Dollars (AUS$10,000) which he also placed in another
envelope; two (2) other envelopes containing letters and credit cards; two (2)
bankbooks; and a checkbook, arranged side by side inside the safety deposit box.
When he went to Hong Kong, he took the envelope that contained US$5,000 and
upon arrival in Hong Kong, McLoughlin only found US$3000 but he dismissed it as
bad accounting.

When he returned to Manila and checked out from Tropicana to leave for
Australia, he noticed that the envelope that contained US$10,000 was only US$5000
as well as missing jewelry that he bought from Hong Kong. McLoughlin returned to
the Philippines after a year and asked the Tropicana employee Lainez, who was in
charge of the key of his safety deposit box, if there was money returned or found to
which the answer was in the negative.
 For the second incident, McLoughlin again rented a safety deposit box in
Tropicana this time placing the following in it: one envelope containing Fifteen
Thousand US Dollars (US$15,000), another envelope containing Ten Thousand
Australian Dollars (AUS$10,000) and other envelopes containing his traveling
papers/documents. Around twelve days later, he asked the employees Lainez and
Payam to open the safety deposit box and immediately noticed that in the envelope
that was supposed to contain US$15,000 was missing US$2,000 while the envelope
that contained AUS$10,000 was AUS$4,500 short of the original amount.

McLoughlin confronted the two employees who squealed that it was Tan who
opened his safety deposit box with the key assigned to him which brought
McLoughlin to confront Tan in her room. When confronted, Tan confessed that stole
his key and opened the safety deposit box with the aid of the Tropicana employees
(Lopez, Payam, and Lainez). Lopez also added that Tan stole the key assigned to
McLoughlin while the latter was sleeping.

McLoughlin immediately demanded that the Tropicana management

investigate the incident. Lopez then arranged a meeting with the police, McLoughlin,
and Tan. But the police did not arrive, so instead, Lopez and Tan went to
McLoughlin’s room in Tropicana wherein Lopez wrote a promissory note (to pay
AUS$4000 and US$2000) which Tan signed. However, McLoughlin also asked Lopez
to sign it since he believed that the hotel should also be held responsible.
Nevertheless, Lopez refused to sign the promissory note on the hotel’s behalf and
reasoned that McLoughlin signed an “Undertaking for the Use of Safety Deposit Box”
(par. 2 and 4) which frees the hotel from any liability of the lost things in the box.

McLoughlin then returned to Australia to consult his lawyers. The Australian

lawyers told him that the hotel’s stipulations are void since they violate the universal
hotel practices and customs. His lawyers then prepared a letter addressed to
President Aquino which was then forwarded to the DOJ and then to the Western
Police District. Since McLoughlin was often in Australia, his case was often forgotten
and neglected. It was only in 3 December 1990 that he was able to personally file
and follow up the case against YHT Realty Corporation, Lopez, Lainez, Payam, and
Tan. The Regional Trial Court rendered a judgement that was in favor of McLoughlin
but the trial only proceeded against YHT Realty Corporation, Lainez, and Payam
while Lopez and Tan were not served with summons.

Issue:
Whether a hotel may evade liability for the loss of items left with it for
safekeeping by its guests by having the guests execute written waivers that hold the
establishment or its employees free from blame for such loss in light of Article 2003
of the Civil Code which voids such waivers.

Held: No. Petition denied.

Ruling:
 The Court held that the petition is devoid of merit since the Court adhered to
the findings of the trial court which was affirmed by the appellate court that the
facts presented by McLoughlin are factual and beyond the range of the petition.
With regard to the “Undertaking For the Use of Safety Deposit Box”, the Court
held that they found no reason to reverse the findings of the trial court and
appellate court since hotels are imbued with public interest and are bound to provide
not only lodging for guests but also security to their persons and belongings. The
Court further stated that “the law in turn does not allow such a 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” and “the New Civil Code is explicit that the responsibility of the hotel-
keeper shall extend to the 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 wells as
by strangers, except as it may proceed from any force majeure.”

Name: Richard Paolo Alarilla

Topic: Personal Security
Provision Cited: Article 2047 of the Civil Code
Title: Madrigal v. Department of Justice, et al
Source, Date: G.R. No. 168903, 18 June 2014

Facts:
Respondent alleged that MTI applied for a loan from FEBTC in the amount of
11 million USD. Respondent maintains that FEBTC considered the immediate release
of the proceeds of the loan provided that the petitioner together with Lorenzo Jr.
would execute personal undertakings as sureties for the loan of the MTI. To secure
the immediate release of the proceeds of the loan, petitioner and Lorenzo Jr. agreed
to this condition and consequently executed a Comprehensive Surety Agreement as
security for the release of the loan to MTI. Respondent alleged that the institution of
the criminal complaint was merely a ploy resorted to by petitioner to question the
due execution of the Comprehensive Surety Agreement to evade her personal
liability for MTI’s loan.
Meanwhile, according to the Petitioner, as president of MTI, she applied for a
loan from FEBTC in the amount of 10.5 million USD to finance the acquisition of a
feeder vessel. FEBTC sent her various loan documents. Petitioner was advised by
respondent Palma that FEBTC could only grant MTI a loan in the amount of 10
million USD because of a lower valuation of the vessel. Thus, Petitioner reapplied for
a loan in the amount of 10 million USD for this reduced amount and signed a second
set of loan documents. Petitioner noticed that respondent Palma was imposing
additional obligations not originally contemplated. Respondent Palma insisted that
petitioner was personally liable under the first Comprehensive surety agreement
covering the 10.5 million USD despite the fact that all the documents were torn and
abandoned. She was then compelled to disburse an amount of 5.9 million pesos to
protect her reputation.

Issue:
Whether or not there exist two sets of loan documents that show
respondents’ ruse to deceive petitioner by ignoring unmistakable evidence which
ended petitioner’s property rights.

Held:
No.

Ruling:
Considering that the loan of 10 million USD was approved and released to
petitioner prior to the execution of the second set of documents, it is more sensible
to believe that the bank approved the loan upon her personal guarantee and
execution of the first Comprehensive Surety Agreement. Any intent to deceive
through concealment was also negated when FEBTC is willing to present the
documents pertaining to the loan upon the request of petitioner.
The existence of two (2) documents is irrelevant in this case as the original
intention of the parties is evident that petitioner and Lorenzo Jr. in their personal
capacities are co-sureties of MTI’s loan. It would be absurd to conclude that
petitioner signed the Comprehensive Surety Agreement in her capacity as president
of MTI considered that the principle behind suretyship will be negated. According to
the Supreme Court, the borrower cannot at the same time be a guarantor/ surety to
assure the fulfillment of its own loan application. The Comprehensive Surety
Agreement is a continuing guarantee that petitioner bound herself to the contract
“until the full and due payment and performance of all the obligations of the
borrower”. In conclusion, there was only one load transaction, and FEBTC does not
intend to collect from both loan documents.
The type of this contract is called an unsecured transaction or contracts of
personal security wherein the fulfillment of which by the principal debtor is secured
or supported only by a promise to pay or the personal commitment of another such
as a guarantor or surety.
Name: Jillian Ira L. Bagaoisan
Topic: Personal Security
Law or Provision Cited:
Title: Philippine Export and Foreign Loan Guarantee
Corporation v. VP Eusebio Construction, Inc., et al.
Source, Date: GR No. 140047, 13 July 2004

Facts:
The State Organization of Buildings (SOB), Ministry of Housing and
Construction, Baghdad, Iraq, awarded the construction of a rehabilitation center
(project) to Ajyal Trading and Contracting Company (Ajyal). Respondents 3-Plex and
VPECI entered into an agreement that the project would be under their joint
managements. SOB required respondent contractors to submit a performance bond
and an advanced payment bond to be released upon signing of the contract. To
comply with said requirements, respondents 3-plex and VPECI applied for the
issuance of a guarantee with petitioner Philguarantee. SOB required three layers of
guarantees to be arranged – a letter guarantee from Philguarantee to Rafidain Bank
(government bank of Iraq), performance bond issued by Rafidain bank in favor of
SOB, and a counter-guarantee from Al Ahli Bank of Kuwait. These letters of
guarantee were secured by 1) a deed of undertaking executed by respondents and
2) a surety bond.
SOB and the joint venture VPECI and Ayjal executed the service contract
wherein the contractor undertook to complete the project within 18 months. Due to
setbacks and delays, the deadline was not met. A month before the deadline, the
contractor worked for an extension of the Performance Bond and Advance Payment
Guarantees, the former was extended twelve times while the latter was extended
three times. The surety bond was likewise extended.
On October 1986, Al Ahli Bank of Kuwait sent a telex call to petitioner
demanding full payment of its performance and bond counter-guarantee.
Respondent VPECI advised petitioner Philguarantee not to pay yet because efforts
were being exerted for the amicable settlement of the Project. On April 1987,
petitioner received another telex message from Al Ahli stating that it had already
paid Rafidain Bank and demanded reimbursement plus interest and other related
expenses. On August 1987, petitioner informed VPECI that it would remit the
payment to Al Ahli Bank and reiterated the joint and solidary obligation of the
respondents to reimburse the petitioner for the advances made on its counter-
guarantee. Petitioner also paid the interest and penalty charges.
On June 1991, petitioner demanded full payment from respondents. When
respondents failed to pay, petitioner filed with the RTC a civil case for collection of
sum of money. The RTC ruled against petitioner and held that Philguarantee had no
valid cause of action against respondents. On appeal, the CA affirmed the decision of
the RTC. Petitioner asserts that since the guarantee it issued was absolute,
unconditional and irrevocable, the nature and extent of its liability are analogous to
those of suretyship.

Issue: Whether Philguarantee is entitled to reimbursement of what it paid based on

the deed of undertaking and surety bond from the respondents

Held: No. Petition denied for lack of merit.

Ruling:
By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so. If a
person binds himself solidarily with the principal debtor, the contract is called
suretyship. Here, the petitioner is a guarantor and not a surety. That the guarantee
issued by the petitioner is unconditional and irrevocable does not make the
petitioner a surety. As a guaranty, it is still characterized by its subsidiary and
conditional quality because it does not take effect until the fulfillments of the
condition – that the principal debtor should default in his obligation. (Here, VPECI
was not considered in default)
 As a rule, a guarantor who pays for a debtor should be indemnified by the
latter and would be legally subrogated to the rights, which the creditor has against
the debtor. However, a person who makes payment without the knowledge or
against the will of the debtor has the right to recover only insofar as the payment
has been beneficial to the debtor. In this case, it is clear that the payment made by
petitioner did not in any way benefit the principal debtor.

Name: Glenn Anne Marie G. Berdin

Topic: Personal Security: Guaranty and Suretyship
Provision Cited: Article 2047 of the Civil Code
Title: Diamond Builders Conglomeration v Country Bankers
Insurance Corp.
Source, Date: G.R. No. 171820. 13 December 2007

Facts:

Marceliano Borja filed against Rogelio Acidre for the latter’s breach of his
obligation to construct a residential and commercial building. Rogelio is the sole
proprietor of petitioner DBC. To end the litigation, the parties entered into a
Compromise Agreement to which the RTC of Caloocan approved and rendered a
decision in accordance with the terms and conditions contained therein. The
agreement provides that Rogelio admits full payment of plaintiff to him the amount
of 1.5M leaving the balance of 570,000 of the contractual price of 2.1M for the
construction of the building. In the event that Rogelio shall fail to fully complete the
construction of the within 75 days he shall not be entitled to any further payments
and the performance of a surety bond shall be fully implemented by way of
penalizing Rogelio or as award for damages in favor of plaintiff.
DBC obtained a surety bond from Country Bankers in favor of the spouses
Borja. Rogelio together with DBC employees signed an indemnity agreement
consenting their joint and several liability to Country Bankers should the surety bond
be executed upon. Country Bankers received a Motion for Execution of the surety
bond filed by Borja with the RTC Caloocan for Rogelio’s alleged violation of the
Compromise Agreement. Rogelio filed an Omnibus Motion to suspend the Writ of
Execution but was not immediately acted upon and so DBP was constrained to pay
the amount of the surety bond.
After the Country Bankers was compelled to pay the amount of the surety
bond, it demanded reimbursement from the petitioners under the indemnity
agreement but petitioners refused to reimburse Country Bankers. Petitioners wrote
Country Bankers and informed the latter that the voluntary payment of the bond
effectively prevented them from contesting the validity of the issuance of the Writ of
Execution. Therefore, Country Bankers filed a complaint for sum of money against
the petitioners which the RTC dismissed.
CA reversed and stated that Country Bankers did not effect voluntary
payment of the bond. What Country Bankers paid was an obligation due and
demandable. It declared that Country Bankers acted upon compulsion of a writ of
execution which is validly issued. Hence, this appeal.

Issue:
Whether or not the petitioners should indemnify Country Bankers for the payment of
the surety bond.

Held:
Yes.

Ruling:

The Compromise Agreement between Borja and Rogelio explicitly provided

that the latters failure to complete construction of the building within the stipulated
period shall cause the full implementation of the surety bond as a penalty for the
default, and as an award of damages to Borja. Furthermore, the Compromise
Agreement contained a default executory clause in case of a violation or avoidance
of the terms and conditions thereof. Therefore, the payment made by Country
Bankers to Borja was proper, as failure to pay would have amounted to
contumacious disobedience of a valid court order.

Article 2047 of the Civil Code specifically calls for the application of the provisions on
solidary obligations to suretyship contracts. In particular, Article 1217 of the Civil
Code recognizes the right of reimbursement from a co-debtor (the principal co-
debtor, in case of suretyship) in favor of the one who paid (i.e., the surety).

In contrast, Article 1218 of the Civil Code is definitive on when reimbursement is

unavailing, such that only those payments made after the obligation has prescribed
or became illegal shall not entitle a solidary debtor to reimbursement. Nowhere in
the invoked CA Decision does it declare that a surety who pays, by virtue of a writ of
execution, is not entitled to reimbursement from the principal co-debtor.
Name: Cabrera, Ramon N.
Topic: Personal Security: Chattel Mortgage
Provision Cited: Article 2503 of the Civil Code
Title: Servicewide Specialists Inc. v. Court of Appeals
Source, Date: G.R. No. 110048 19 November 1999

Facts:

Leticia Laus purchased on credit a Colt Gallant from Fortune Motors

Corporation. She executed a promissory note for the amount of Php 56,028,
inclusive of 12% interest per annum, payable within a period of 48 months starting
August, 1976 at a monthly installment of Php 1,167.25. The promissory note
indicated that in case of default in the payment of the monthly installment, the total
principal sum and interest shall be due and demandable.

As security to the promissory note, a chattel mortgage was constituted over

the said motor vehicle. Mortgage rights were assigned the credit in favor of
Statewide Specialists Inc. transferring unto the latter all its rights under the
promissory note and chattel mortgage. Laus failed to pay monthly installments for
18 months. Despite demand from Statewide to pay the full amount of Php 86,613,
Laus failed to pay. Statewide instituted a complaint for replevin against Hilda Tee
and John Dee in whose custody the vehicle was believed to be at the time of the
filling. Alberto Villarica filed a third party claim contending he is the absolute owner
of the vehicle. Upon motion of the plaintiff, Villarica substituted as defendant. The
RTC dismissed the complaint for insufficiency of evidence. Upon appeal, the CA
dismissed the complaint.

Issue: Whether a case for replevin may be pursued against defendant Villarica
without impleading the absconding debtor mortgagor Laus?

Held: Yes. Petition denied.

Ruling:
“In a suit for replevin, a clear right of possession must be established…The
replevin in this case may be resulted to in order to pave way for the foreclosure of
what is covered by the chattel mortgage. The conditions essential for such
foreclosure would be to show, firstly, the existence of the chattel mortgage, and
secondly the default of the mortgagor. “

“Since the mortagagee’s right of possession is conditioned upon the actual

fact of default which itself may be controverted, the inclusion of other parties, like
the debtor or mortgagor himself, may be required in order to allow full and
conclusive determination of the case…An adverse possessor, who is not a
mortgagor, cannot be deprived of his possession, let alone be bound by the terms of
the chattel mortgage contract, simply because the mortgagee brings up an action for
replevin.”

“An indispensable party is one whose interest will be affected by the court’s
action in litigation, and without whom no final determination of the case can be had.
The party’s interest in the subject matter of the suit and in the relief sought are so
inextricably intertwined with other parties that his legal presence as party to the
proceeding in an absolute necessity”

Name: Golden de Lunas

Topic: Personal Security
Provision Cited: Articles 2058, 2062 Civil Code
Title: Pacionaria C. Baylon v. Court of Appeals, et al.
Source, Date: GR No. 109941, 17 August 1999

Facts:
Petitioner Baylon introduced private respondent Tomacruz to one Rosita
Luanzon. She informed private respondent that Luanzon has been engaged in
business as a contractor for 20 years and she invited respondent to lend Luanzon
money at a monthly interest rate of 5%, to be used as capital for the latter’s
business.
Private respondent, upon the assurance that said business was stable, lent
Luanzon P150,000. Luanzon signed a promissory note and petitioner signed the
same, affixing her signature under the word “guarantor”. Thereafter, Luanzon issued
a postdated check.
Private respondent made a written demand upon petitioner for payment,
which petitioner did not heed, prompting her to file a case with the RTC for
collection of a sum of money. The lower court ruled in favor of private respondent
and on appeal the trial court’s decision was affirmed by the Court of Appeals.
Petitioner denied having guaranteed the payment of the promissory note
issued by Luanzon and granting arguendo that she guaranteed the same, private
respondent has not exhausted the property of the principal debtor as required by
law.

Issue: Whether petitioner is liable as a guarantor

Held: No. Petition granted.

Ruling:
The liability of the guarantor is only subsidiary. All the properties of the
principal debtor must first be exhausted before his own is levied upon. Thus, the
creditor may hold the guarantor liable only after judgment has been obtained
against the principal debtor and the latter is unable to pay, “for obviously the
exhaustion of the principal’s property – the benefit of which the guarantor claims –
cannot even begin to take place before judgment has been obtained” – This rule is
embodied in Article 2062 of the Civil Code which provides that the action brought by
the creditor must be filed against the principal debtor alone, except in some
instances when the action may be brought against both the guarantor and the
principal debtor.

Name: Gabriel Angel V. de Vera

Topic: Real Security, Pactum Commissorium
Provision Cited: Article 2088 of the Civil Code
Title: Sps. Ong vs. Roban Lending Corporation
Nature: Petition for Review on Certiorari
Source, Date: G.R. No. 172592, July 9, 2008

Facts:

On different dates from July 14, 1999 to March 20, 2000,

petitioner-spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong obtained several
loans from Roban Lending Corporation (respondent) in the total amount of
P4,000,000.00. These loans were secured by a real estate mortgage on petitioners’
parcels of land located in Binauganan, Tarlac City.

On February 12, 2001, petitioners and respondent executed an

Amendment to Amended Real Estate Mortgage consolidating their loans inclusive of
charges thereon which totaled P5,916,117.50. On even date, the parties executed a
Dacion in Payment Agreement wherein petitioners assigned the properties covered
by TCT No. 297840 to respondent in settlement of their total obligation, and a
Memorandum of Agreement.

In April 2002 petitioners filed a complaint before the Regional Trial

Court (RTC) of Tarlac City, for declaration of mortgage contract as abandoned,
annulment of deeds, illegal exaction, unjust enrichment, accounting, and damages,
alleging that the Memorandum of Agreement and the Dacion in Payment executed
are void for being pactum commissorium.

Petitioners alleged that the loans extended to them from July 14, 1999
to March 20, 2000 were founded on several uniform promissory notes, which
provided for 3.5% monthly interest rates, 5% penalty per month on the total
amount due and demandable, and a further sum of 25% attorney’s fees thereon,
and in addition, respondent exacted certain sums denominated as EVAT/AR.
Petitioners decried these additional charges as illegal, iniquitous, unconscionable,
and revolting to the conscience as they hardly allow any borrower any chance of
survival in case of default.

The petitioners prayed for a declaration of the “Memorandum of

Agreement” and “Dacion in Payment” as null and void for being pactum
commissorium, among other things.

The RTC dismissed the complaint on the basis of the pleadings that
there was no pactum commissorium. The Court of Appeals upheld the decision of
the RTC.

Issue: Whether the Memorandum of Agreement and Dacion in Payment was pactum
commissorium
Held: Yes. Petition Granted. Court of Appeals decision is reversed and set aside, with
modifications.

Ruling: This Court finds that the Memorandum of Agreement and Dation in Payment
constitute pactum commissorium, which is prohibited under Article 2088 of the Civil
Code which provides:
“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 creditor
of the thing mortgaged in case of non- payment of the principal obligation within the
stipulated period.

In the case at bar, the Memorandum of Agreement and the Dation 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 Dation in Payment
transferring to it ownership of the properties covered by TCT No. 297840.
Respondent, in effect, automatically acquires ownership of the properties upon
petitionersÊ failure to pay their debt within the stipulated period.
Dulay, Nicole Bernadette M.
Topic: Real Security
Law cited: Sec. 3, Chattel Mortgage Act
Title: Bachrach Motor Co., Inc. v Esteva
Source, Date: No 40233, 14 February 1934

Facts:

Esteva bought trucks from Teal Motor Co., Inc through promissory notes,
secured by a chattel mortgage. Teal Motor Co., Inc endorsed the notes to Bachrach
Motor Co., Inc. Esteva failed to make payments of certain notes. Teal Motor Co., Inc
initiated foreclosure proceedings. Subsequently, Bachrach Motor Co., Inc began to
secure payments from Esteva and Teal.

Issue:

Was the foreclosure of the mortgage by Teal Motor Co., Inc illegal?

Held:

Yes, the foreclosure of the mortgage was illegal.

Ruling:

In the law of chattel mortgages, the debt is the principal thing, while the
mortgage is but an incident to the debt. Thus, when it is separated from the
principal, as in this case where the notes were endorsed without the mortgage, it
has no determinate value. Therefore, the separation of the notes from the mortgage
and both the foreclosure of the mortgage and a suit of the notes can’t be
countenanced.
Name: Jason Edric T.Dy
Topic: Real Security
Law Cited: Art. 1306 and 2088
Title: Natalia Bustamante vs. Sps. Rodito and Norma Rosel
Source, Date: GR No. 126800, 29 November 1999

Facts:
In 1987, Rosel entered into a loan agreement with Bustamante for P100,000
and placed a 70sqm lot as collateral. In the agreement the lender has the option to
buy the collateral for P200,000 if the borrowers failed to pay. When the loan was
about to mature respondents proposed to buy the lot but petitioner refused and
requested for extension and offered to another lot. Respondents refused to extend
and to accept the lot. When petitioner tendered payment respondents refused to
accept insisting on petitioners signing a deed of absolute sale of the collateral.
Respondents filed with the RTC a complaint for specific performance with
consignation against petitioner and also sent a demand letter asking petitioners to
sell. Petitions on the other hand filed in the RTC a petition for consignation and
deposited with the City Treasurer P153,000. When petitioner refused to sell
respondents consigned P47,500 with the trial court.
 The RTC denied the prayer for execution of the Deed of Sale and ordered
petitioners to pay the loan. The CA reversed the RTC decision and ordered
petitioners to accept the P47,500 and to execute the Deed of Sale.

Issue:

1) Whether petitioners failed to pay the loan.

2) Whether the stipulation giving respondents right to purchase the collateral
was valid and enforceable.

Held:

1) No.
2) No.

Ruling:

1) Petitioners tendered payment on the due date which respondents refused.

Petitioner then consigned the amount with the trial court.
2) The stipulation is within the concept of pactum commissorium which is
prohibited by law. The intent to appropriate the collateral is evident, for the
debtor is obliged to dispose of it at the pre-agreed consideration amounting
to practically the same amount as the loan. The creditor acquires the
collateral in the event of non-payment of the loan.

Name: Gomez, Jan-Derrick Royce A.

Topic: Real Security
Provision Cited: Art. 2126 of the NCC
Title: PNB v. Mallorca
Source, Date: 21 SCRA 694, 31 October 1967

Facts:
In 1950, Ruperta Lavilles mortgaged her own 48,965 sq. m. parcel of land
situated in Passi, Iloilo to the Philippine National Bank as security for a loan of
P1,800.00. This mortgage was duly recorded.
In 1958, while this lot was still mortgaged, Lavilles sold to Mallorca 20,000 sq.
m. of the land, without knowledge and consent from PNB. Mallorca moved the court
to have the sale duly annotated on the title, as well as to require PNB to surrender
the owner’s copy of the title to the Register of Deeds. The court directed PNB to do
so, and warned that the mortgage in favor of PNB is duly registered in the Register
of Deeds and that to whom the land is sold, the buyer will assume responsibility of
the mortgage. The Register cancelled the surrendered title, issued a new one,
making two co-owner copies – one each for Lavilles and for Mallorca. Here, PNB’s
mortgage lien was annotated.
Lavilles failed to pay her debt. PNB then, foreclosed the mortgage
extrajudicially. PNB became the rightful owner through auction. The certificate of
sale was registered with the Register of Deeds.
Mallorca sued PNB to enforce her right of redemption, which the court
granted that she may exercise such right within the limits specified by law. However,
she failed to exercise this right.
Final deed of sale named to PNB, was presented to the Register of Deeds for
registation. However, the latter refused to register without Mallorca’s co-owner’s
copy. By letter, she was required by the Register to surrender said copy. She did not
comply.
Case was filed for her to be required to surrender the same, and was granted
by the court. She was ordered to surrender the co-owner’s copy. But she positioned
that her undivided interest in the 20,000 sq. m. of the mortgaged lot remained
unaffected by the foreclosure and subsequent sale to PNB as she was not a party to
the real estate mortgage, and that she neither secured or contracted a loan with the
said bank.
Issue: Whether or not Mallorca’s stand is valid.
Held: No. Order affirmed.
Ruling: Her stand clahes with the well-entrenched precepts of law – “a mortgage
directly and immediately subjects the property upon which it is imposed, whoever
the possessor may be, to the fulfillment of the obligation for whose security it was
constituted. Sale or transfer cannot affect or release the mortgage. A purchases is
bound to acknowledge and respect the encumbrance to which is subjected the
purchased thing and which is at the disposal of the creditor to recover the amount of
his credits.
A recorded real estate is a right in rem. The personality of the owner is
disregarded and the mortgage subsists notwithstanding the changes of ownership.
So it is, that a mortgage lien is inseparable from the property mortgaged. Mortgage,
until discharge, follows the property. Also, a real estate mortgage is indivisible. Each
and every parcel of land under mortgage answers for the totality of the debt.

Name: Ho, Nelson Conrad C.

Topic: Real Security
Law Cited: Presidential Decree No. 27, Section 80 of RA No. 3844, and PD
No. 251.
Title: Philippine National Bank vs Hon. Augusto M. Amores, et al.
Source, Date: G.R. No. L-54551, 09 November 1987
Nature: Petition to review decision of CFI Manila
Ponente: Sarmiento, J.

Facts: Maximo Kalaw Investment Corporation (Kalaw) is the registered owner

of lot located in Oriental Mindoro with the area of 3,132,122 square
 meters more or less. Kalaw obtained a loan from PNB in the amount of
P150,000 where the aforesaid lot was mortgaged. 45.186 hectares of
the said lot were subjected to Operations Land Transfer in favour of
tenants-beneficiaries in accordance with PD No. 27 and Agrarian
Reform Code or RA 3844, as amended by PD No. 251. In 1977, LBP
paid PNB for the account of Kalaw P14,588.50 in cash and LBP Bonds
with a total face value of P130,000. However, PNB applied the LBP
Bonds on a one-to-one basis or only a total of P90,400, on a
discounted basis. Kalaw contested PNB on its manner of application of
LBP Bonds to the payment of his obligation but was denied thereby
seeking judicial relief. The Court of First Instance of Manila granted the
declaratory relief prayed for by Kalaw where it ordered PNB to accept
the LBP Bonds on its face value, the entire amount of P130,000
without any discount.

Issue: Whether the PNB may affirm that lands not subject to PD 27 are also
not subject to Section 80 of RA 3844, as amended by PD 251.

Held: No. Petition denied.

Ruling: The Supreme Court (SC) held that PNB’s interpretation not only unduly
stretches the scope of PD 251 but is also antithetical to the objectives
of the land reform program. Explicit is the law that a mortgage
obligation is one and indivisible. Every portion of the property
mortgaged is answerable for the whole obligation as soon as the latter
falls due. The mortgagor cannot opt much less compel the mortgagee,
to apply any payment made by him on a specific portion of the
mortgaged property to effect release. Neither may the mortgagee
apply payments to it on, and consequently release a portion of the
mortgaged property and effect foreclosure on the rest. It is clear that
PNB cannot be allowed to de precisely what it had done in the case at
bar. PNB’s method evidently contravenes the principle of indivisibility of
mortgage for it applied the LBP Bonds as payment on a one-to-one
basis pro tanto of the mortgage debt secured by the land acquired by
LBP. There is nothing in the said law which can be construed to mean
that when the area actually land reformed is just a portion of the
property encumbrance, only that portion of the loan value
corresponding to the area actually taken will be paid with LBP Bonds at
their face value. PNB is obliged to accept LBP Bonds at their par or
face value as payment by Kalaw, and may not discount said payment
but must apply the full face value of the bonds on the outstanding
balance.

Name: Alyssa Anne Bernadette J. Limboc

Topic: Pledge
Provision Cited: Art. 559 of Civil Code.
Title: Dominador Dizon (Pawnshop of Dominador Dizon) vs
Lourdes
Suntay
Source, Date: GR no. L-30817, September 29, 1972.

Facts:

A diamond ring was turned over to a certain Clarita R. Sison, close friend of Suntay’s
cousin, for sale on commission, along with other pieces of jewelry of respondent
Suntay. It was then pledged, under pawnshop receipt serial -B no. 65606 dated 15
June 1962, to Dizon who owns and operates a pawnshop. Since what was done was
violative of the terms of the agency, there was an attempt on Suntay’s part to
recover possession thereof from Dizon, who refused. Due to Dizon’s refusal, Suntay
filed an action for recovery. Suntay asked for the provisional remedy of replevin by
the delivery of the ring. Lower court rendered decision sustaining the right to
possession of Suntay by issuing a writ of replevin. CA affirmed lower court’s
judgment. Dizon elevated the matter to Supreme Court.

Issue: Whether Suntay has right to recover possession of the ring from pawnshop
where third person had pledge it without authority.

Held: Yes.

Ruling:

Supreme Court (SC) held that the owner of a diamond ring may recover the
possession of the same from a pawnshop where another person had pledged it
without authority to do so.

Article 559 of the Civil Code of the Philippines applies, to wit:

“The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or
has been unlawfully deprived thereof, may recover it from the
person in possession of the same.

If the possessor of a movable lost or which the owner has been

unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid
therefor. “

Also,the defense that the pawnshop acquired possession of the ring without notice
of any defect in the title of the pledgor is unavailing.

Where the owner delivered the diamond ring to another solely for sale on
commission but the latter instead pawned the same without authority to do so, the
owner is not estopped from pursuing an action against the pawnshop for the
recovery of the possession of the said ring.
NAME: Manalo, Maria Anna S.
TOPIC: Pledge
LAW/PROVISION: Article 2093
TITLE: INVOLUNTARY INSOLVENCY OF THE GULF
PLANTATION CO. PACIFIC COMMERCIAL
COMPANY, PHILIPPINE-AMERICAN DRUG
COMPANY and STANDARD OIL
COMPANY vs. PHILIPPINE NATIONAL BANK
SOURCE, DATE: G.R. No. L-24893 23 AUGUST 1926

FACTS: 24 August 1918 – Gulf Plantation Co. executed to respondent PNB an

instrument (Exhibit A), where the former was designated as the “pledgor”
and the latter as the “pledgee.” The instrument stated the pledging of
several items and authorizing respondent/pledgee to dispose them in
accordance with the Chattel Mortgage Law.
25 March 1922 – Pledgor filed a petition to be declared insolvent and was
declared as such on 16 September 1922. The court ordered the sheriff to
take possession of all the assets of the insolvent estate.
23 October 1922 – An assignee was appointed with the consent and
approval of all creditors, including PNB. The assignee filed an inventory of
all the properties of the pledgor and also the petition for authority to sell
at public auction the same.
3 November 1922 – Respondent/pledgee filed a petition for the execution
of the instrument (Exhibit A) and a breach of its conditions.
RTC rendered a judgment in favor of respondent/pledgee.

ISSUE: Whether there is a perfected contract of pledge

HELD: Yes.

RULING The Court held that it was apparent from the language used in the
: instrument (Exhibit A) that it was prepared on the customary blank form
of a pledge for the taking of properties under a pledge. The said
instrument was never received or filed for any purpose until 24 February
1921, i.e. there is no evidence that supports that it was received, filed or
recorded anywhere or by anyone, either as a chattel mortgage or a
pledge of personal property.
Article 1863 of the Civil Code (Article 2093 NCC) provides that “in order to
constitute the contract of pledge, the pledge must be placed in the
possession of the creditor or of a third person appointed by common
 consent.”

Name: Vanya Klarika E. Nuque

Topic: Pledge
Law or Provision Cited: Articles 2085 and 2093 of the Civil Code
Title: Fort Bonifacio Dev. Co. vs. Yllas Lending Co., et al.
Source, Date: G.R. No. 158997; 6 October 2008.

Facts:
FBDC executed a lease contract in favor of Tirreno, Inc. (Tirreno). Two provisions in
the lease contract are pertinent: Section 20, which is about the consequences in
case of default of the lessee, and Section 22, which is about the lien on the
properties of the lease. Tirreno began to be in default. FBDC and Tirreno entered
into a settlement agreement on 8 Aug. 2000. Tirreno still failed to settle his
obligations. FBDC then entered and occupied the leased premises. FBDC also
appropriated the equipment and properties left by Tirreno pursuant to Sec. 22 of
their Contract of Lease as partial payment.
On 4 March 2002, Yllas Lending Corporation and its President asked for the seizure
of items of Tirreno. In their complaint, respondents alleged that they lent a total of
P1.5M to Tirreno and two others (they executed a Deed of Chattel Mortgage in favor
of respondents as security for the loan). On the same day, FBDC gave an affidavit of
title and third party claim. The sheriff proceeded with the seizure of certain items
from FBDC’s premises. The trial court stated that the case raises the questions of
who has a better right over the properties of Tirreno and whether FBDC has a right
to intervene in respondent’s complaint for foreclosure of chattel mortgage. RTC
declared that Sec. 22 of the lease contract between FBDC and Tirreno void.
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.

Issue: Whether pledge exist in this case.

Held: NO. Petition is Granted

Ruling:
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. 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. Dacion en pago is
governed by the law on sales. Philippine National Bank v. Pineda, 197 SCRA 1
(1991), 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.

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 trial court concluded that Section 22
constitutes a pledge because of the presence of the first three requisites of a pledge:
Tirreno’s properties in the leased premises secure Tirreno’s lease payments; Tirreno
is the absolute owner of the said properties; and the persons representing Tirreno
have legal authority to constitute the pledge. However, 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.
Name: Pajara, Jarryd Anthony B.

Topic: Pledge

Provision Cited: Art. 1371

Title: INTEGRATED REALTY CORPORATION v. PNB

Source, Date: G.R. No. 60907; June 28, 1989

Facts:
Raul L. Santos made two time deposits with defendant OBM in the amount of
P500, 000 and P200, 000 at separate dates. IRC, thru its president Raul L. Santos,
applied for a loan and/or credit line in the amount of P700,000.00 with plaintiff bank.
To secure the said loan, defendant Raul L. Santos executed on August 11, 1967 a
Deed of Assignment of the two time deposits in favor of plaintiff. The defendant
OBM did not pay plaintiff PNB. Plaintiff demanded payment from defendants IRC and
Raul L. Santos and from defendant OBM. Defendants IRC and Raul L. Santos replied
that the obligation (loan) of defendant IRC was deemed paid with the irrevocable
assignment of the time deposit certificates. PNB filed a complaint to collect from IRC
and Santos the loan of P700, 000.00 with interest.

Issue: Whether the liability of IRC and Santos with PNB should be deemed to have
been paid by virtue of the deed of assignment.
Held: No. Petition is denied.

Ruling:
The Court held that for all intents and purposes, the deed of assignment in
this case is actually a pledge since the intention of the petitioners was only to secure
the payment of money. The deed of assignment has satisfied the requirements of a
contract of pledge (1) that it be constituted to secure the fulfillment of a principal
obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that
the persons constituting the pledge have the free disposal of their property, and in
the absence thereof, that they be legally authorized for the purpose. The further
requirement that the thing pledged be placed in the possession of the creditor, or of
a third person by common agreement the deed of assignment in favor of PNB. It
must also be emphasized that Santos, as assignor, made an express undertaking
that he would remain liable for any outstanding balance of his obligation should PNB
be unable to actually receive or collect the assigned sums was complied with by the
execution of resulting from any agreements, orders or decisions of them court or for
any other cause whatsoever. The term “for any cause whatsoever” is broad enough
to include the situation involved in the present case.

Name: PARTIBLE, JANINE DEZZA L.

Topic: PLEDGE
Provision Cited: Article 2096 of the Civil Code
Title: UNION BANK OF THE PHILIPPINES, vs. JUNIAT, et. al.
Source, Date: G.R. No. 171569, August 1, 2011.

Facts:
Petitioner Union Bank is a universal banking corporation organized and
existing under Philippine Laws. Respondents Winwood and Wingyan are domestic
corporations engaged in the business of apparel manufacturing, which are owned
and operated by respondent Juniat.

On September 3, 1992, petitioner filed with RTC a complaint for the issuance
of ex-parte writs of preliminary attachment and replevin against respondents, and
Nonwoven, the person in possession of the mortgaged motorized sewing machines
and equipment. Petitioner alleged that Juniat, acting for and in behalf of Winwood
and Wingyan, executed a promissory note date April 11, 1992 and a chattle
mortgage date March 27, 2992 over several motorized sewing machines and other
allied equipment and other equipment to secure their obligation arising from expert
bills transactions to petitioner in the amount of P1,131,134.35; that as additional
security for the obligation, Juniat executed a Continuing Surety Agreement dated
April 11, 1992 in favor of the petitioner; that the loan remains unpaid; and that the
mortgaged motorized sewing machines are insufficient to answer for the obligation.

Nonwoven contends that the unnotarized chattel mortgage executed in favor

of the petitioner has no binding effect on Nonwoven and that it has a better title
over the motorized sewing machines and equipment because there were assigned to
it by Juniat pursuant to their Agreement date May 9, 1992.

On May 18, 1993, petitioner sold the attached properties, before the RTC
could act on it, for the amount of P1,350,000.00.

RTC rendered decision in favor of petitioner and the Agreement dated May 9,
1992 in favor of Nonwoven have no obligatory effect on third person because those
documents were not notarized. However, since the chattel mortgage in favor of the
petitioner was executed earlier, petitioner has a better right over the motorized
sewing machines and equipment.

CA reversed the RTC ruling and ruled that the contract of pledge entered into
between Juniat and Nonwoven is valid and binding, and that the motorized sewing
machines and equipment were ceded to Nonwoven by Juniat by virtue of dacion en
pago. Declaring Nonwoven entitled to the proceeds of the sale of the attached
properties.

Issue:
Whether or not the Agreement dated May 9, 1992 binds the petitioner. – NO.
Ruling:
A perusal of the said Agreement 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 does not appear in public instrument.” Hence, the pledge executed by Juniat
in favor of Nonwoven cannot bind petitioner.
No evidence was presented by Nonwoven to show that the attached
properties were subsequently sold to it by way of dacion en pago. Also, there is
nothing in the Agreement to indicate that the sewing machines, snap machines and
boilers were ceded to Nonwoven as payment for the Wingyan’s and Winwood’s
obligation.
There can be no transfer of ownership if the delivery of the property to the
creditor is by way of security. In case of doubt, whether a transaction is a pledge or
dacion en pago, the presumption is that it is a pledge as this involves a lesser
transmission of rights and interests.

The CA ruling is reversed. Nonwoven is not entitled to the proceeds of the

sale of the attached properties because it failed to show that it has a better title over
the same.
Name: Prado-Lopez, Laura R.
Title: Estate of George Litton v Ciriaco B. Mendoza
Source, Date: No. L-49120, June 30, 1988
Topic: Pledge

Facts:
The Bernal spouses are engaged in the manufacture of embroidery, garments
and cotton materials. Sometime in September 1963, C.B.M. Products, with Mendoza
as president, offered to sell to the Bernals textile cotton materials, for this purpose,
Mendoza introduced the Bernals to Alfonso Tan. The Bernals purchased on credit
from Tan some cotton materials worth P80,796.62 whose payment was guaranteed
by Mendoza. Tan delivered the cotton materials to the Bernals and in view of the
arrangement, Mendoza, on November 1963, received from the Bernals a check
worth P80,796.62 dated 20 February 1964 with the understanding that he said
check will remain with Mendoza until after the cotton materials are manufactured
into garments and will be sold by Mendoza for the Bernals. The check later on
matured without having been encashed and Mendoza demanded that another
undated check of the same amount be issued. On the other hand, Mendoza issued 2
checks in favor of Tan covering the whole amount and informed the Bernals of the
same and told them they were indebted to him and asked them to sign an
instrument whereby Mendoza assigned the said amount to Insular Products Inc. Tan
had the 2 checks discounted in a bank however such were returned stamped "stop
payment" which appears to have been ordered by Mendoza due to the failure of the
Bernals to deposit sufficient funds.

Tan brought an action against Mendoza for the collection of sum of money by way of
guaranty (pledge) with a commission while the Bernals brought an action for not
knowing whom to pay. While both actions were pending resolution, Tan assigned in
favor of George Litton, Sr. his litigatous credit in the civil case against Mendoza, duly
submitted to the court, with notice to the parties.

Issue: Whether or not a subsequent pledge is valid.

Held: No, a subsequent pledge is not valid. Hence, petition is denied.

Ruling:

The deed of assignment done by Tan on his litigatous credit shows that it
fulfills the requisites of a pledge hence is valid however the alienation of a litigatous
credit under Article 1634 should be read in consonance with Article 2097 of the NCC
where "with the consent of the pledgee, the thing pledged may be alienated by the
pledgor or owner, subject to the pledge. The ownership of the thing pledged is
transmitted to the vendee or transferee as soon as the pledgee consents to the
alienation, but the latter shall continue in possession."

Although the pledgee or the assignee, Litton, Sr. did not ipso facto become the
creditor of private respondent Mendoza, the pledge being valid, the right assigned
by Tan in favor of Litton,Sr. can only be alienated by Tan 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.

Name: Realin, Reuel Angelo

Topic: Pledge; Foreclosure and Sale
Title: Lim Tay v. Court of Appeals, Go Fay and Co. Inc., Sy
Guiok and
the estate of Alfonso Lim
Source, Date: GR No. 126891, 05 August 1998
Facts:
Respondent Sy Guiok secured a loan from petitioner, Lim Tay, in the amount of Php
40k. As security, Guiok executed a Contract of Pledge wherein he pledged his 300
shares of stock in respondent company, Go Fay & Co. Inc.

The contract provides that in case the respondent fails to pay the amount, the
petitioner is authorized to foreclose the pledge upon the shares of stock to be sold at
a private or public sale with or without notice to the respondent.

Respondents failed to pay their respective loans causing the petitioner to file a
petition for mandamus before the SEC in order to compel the corporate secretary of
Go Fay & Co., Inc to register the stock transfers and issue new certificates in favor
of the petitioner.

SEC: Dismissed the action. Mandamus can only be issued upon a clear showing of
ownership over the assailed shares of stock which is within the jurisdiction of regular
courts and not with SEC.
CA: Denied

Issue: Whether conducting a foreclosure or sale of shares through a private or

public auction is indispensable in order to pass ownership from the pledgor to the
pledgee in accordance with Article 2103 and Article 2112 of the Civil Code.
Held: Yes, it is indispensable.

Article 2103 provides that unless the things is expropriated, the debtor continues to
be the owner thereof. In addition, Article 2112 provides that if a credit has not been
satisfied in due time, the creditor may proceed to the sale of the thing pledged. If at
the first auction the thing is not sold, a second one shall be held, and if there is no
sale at the second auction, it is only then that the creditor may appropriate the thing
pledged.

In this case, the petitioner failed to show that he has attempted to foreclose or sell
the shares through a public or private auction as required in their stipulation and
under the said provisions of the code. In such case, the respondent as the pledgor,
remains the owner of the shares during the pendency of the pledge and prior its
foreclosure and sale.

Name: Franco Antonio F. Regalado

Topic: Pledge
Provision Cited: Insurance Law, Civil Code Art. 2087
Title: Gidwani v. Domestic Insurance Co. of the Phils.
Source, Date: G.R. No. L-31142, 24 June 1983

Facts:

Manufacturers Bank and Trust Company granted Plastic Era Manufacturing Co. a
discounting line of P20,000. Plastic Era issued a surety bond issued by the Domestic
Insurance Company of the Philippines to secure payment of any loans. Plastic Era,
Bhagwandas Gidwani and Kishu Gidwani executed an indemnity agreement, binding
themselves solidarily to pay Domestic Insurance for all damages and losses because
of the surety bond. Plastic Era executed a promissory note in favor of Manufacturers.
Domestic Insurance required additional security, so Sati Gidwani, wife of
Bhagwandas, pledged her shares in Marinduque Iron Mines and several other
corporations, to secure Plastic Era's fulfillment to indemnify Domestic Insurance.

Plastic Era failed to pay the promissory note. Manufacturers Bank filed a claim
against Domestic Insurance, which paid by virtue of the surety bond. Domestic
Insurance filed a case against Plastic Era, Kishu and Bhagwandas for recovery. CFI
rendered judgment based on a compromise agreement where defendants would
pay, but anything in excess of P20,000 would be due one year later.

Domestic Insurance requested the sale at public auction of the Marinduque shares
pledged by Sati. Shares were sold to Domestic Insurance, the highest bidder. New
certificates of stock were issued in Domestic Insurance's name. Sps. Gidwani later
wrote to Marinduque, stating that they have assigned their shares to Samuel
Sharuff. Marinduque refused, saying that the shares were pledged to Domestic
Insurance, the pledge was foreclosed, and the same acquired them at the auction
sale. Sps. Gidwani and Samuel Sharuff sued Domestic Insurance for extinguishment
of Sati Gidwani's shares, nullification of auction sale to Domestic Insurance, and
issuance of stock certificates over said shares to Sharuff.

Issue:

Whether or not Domestic Insurance’s action, based on counter-guaranty, released its

lien on the pledged shares.

Held:

No.

Ruling:

Had Domestic Insurance sued only Plastic Era under its subrogation to the rights of
Manufacturers Bank to collect, it would be barred from enforcing its claim against
the shares pledged as security. However, as Domestic Insurance filed a claim
against the counter-guarantors Plastic Era, Kishu, and Bhagwandas, it could enforce
such against both securities. Foreclosure of pledged shares needed no action, while
the counter-guaranty suit needed such. The pledge, being additional security for
indemnification for damages and losses Domestic Insurance suffered under its surety
bond for Plastic Era, did not release the obligation of the indemnitors.
Name: MUARIP, Jermone Muctar
Topic: Real Estate Mortgage
Provision Cited: Article 2053 of the Civil Code
Title: PCSO v. NDMG
Source, Date: GR No. 173171, 11 July 2012

Facts:
Respondent Purita E. Peralta (Peralta) is the registered owner of a parcel of land
located at Bonuan Blue Beach Subdivision, Dagupan City under TCT No. 52135. On
March 8, 1989, a real estate mortgage was constituted over such property in favor
of PCSO to secure the payment of the sweepstakes tickets purchased by one of its
provincial distributors, Patricia P. Galang (Galang). The salient provisions of the Deed
of Undertaking with First Real Estate Mortgage,where Galang, PCSO and Peralta
were respectively designated as principal, mortgagee and mortgagor.
On July 31, 1990, Peralta sold, under a conditional sale, the subject property to New
Dagupan, the conveyance to be absolute upon the latter’s full payment of the price
of P800,000.00 to New Dagupan but failed to give the title.
On May 20, 1992, during the pendency of New Dagupan’s complaint against Peralta,
PCSO caused the registration of the mortgage. On February 10, 1993, PCSO filed an
application for the extrajudicial foreclosure sale of the subject property in view of
Galang’s failure to fully pay the sweepstakes she purchased in 1992. A public auction
took place on June 15, 1993 where PCSO was the highest bidder. A certificate of
sale was correspondingly issued to PCSO.
Issue:
Whether or not the provision in the Deed of Undertaking with First Real Estate
Mortgage prohibiting the sale of the subject property is void under Article 2130 of
the Civil Code

Held:
Yes. Petition dismissed.

Ruling:

A mortgage that provides for a dragnet clause is in the nature of a continuing

guaranty and constitutes an exception to the rule than an action to foreclose a
mortgage must be limited to the amount mentioned in the mortgage contract. Its
validity is anchored on Article 2053 of the Civil Code and 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. In this case, PCSO claims the subject
mortgage is a continuing guaranty. According to PCSO, the intent was to secure
Galang’s ticket purchases other than those outstanding at the time of the execution
of the Deed of Undertaking with First Real Estate Mortgage on March 8, 1989 such
that it can foreclose the subject mortgage for Galang’s nonpayment of her ticket
purchases in 1992. PCSO does not deny and even admits that Galang had already
settled the amount of P450,000.00. However, PCSO refuses to concede that the
subject mortgage had already been discharged, claiming that Galang had unpaid
ticket purchases in 1992 and these are likewise secured as evidenced by the
following clause in the Deed of Undertaking with First Real Estate Mortgage:
WHEREAS, the PRINCIPAL agrees to liquidate or pay said account ten (10) days
after each draw with interest at the rate of 14% per annum:
This Court has to disagree with PCSO in view of the principles quoted above. A
reading of the other pertinent clauses of the subject mortgage, not only of the
provision invoked by PCSO, does not show that the security provided in the subject
mortgage is continuing in nature. That the subject mortgage shall only secure
Galang’s liability in the amount of P450,000.00 is evident from the following:
In this case, the subject mortgage had already been cancelled or terminated upon
GalangÊs full payment before PCSO availed of registration in 1992. As the subject
mortgage was not annotated on TCT No. 52135 at the time it was terminated, there
was no need for Peralta to secure a deed of cancellation in order for such discharge
to be fully effective and duly reflected on the face of her title.
Therefore, since the subject mortgage is not in the nature of a continuing guaranty
and given the automatic termination thereof, PCSO cannot claim that Galang’s ticket
purchases in 1992 are also secured. From the time the amount of P450,000.00 was
fully settled, the subject mortgage had already been cancelled such that Galang’s
subsequent ticket purchases are unsecured. Simply put, PCSO had nothing to
register, much less, foreclose.
Name: Rentoza, Michael Leandro F.
Topic: Real Estate Mortgage
Provision Cited: Article 2124 of the New Civil Code
Title: LandBank of the Philippines vs. Barbara Poblete
Source, Date: G.R. No. 196577. February 25, 2013

Facts:
Respondent Poblete obtained a loan from Kabalikat ng Pamayanan ng
Nagnanais Tumulong at Yumaman Multi- Purpose Cooperative (Kapantay). She then
mortgaged her Lot No. 29 located in Occidental Mindoro, under OCT No. P-12026.
Kapantay, in turn, used OCT No. P-12026 as collateral under its Loan Account No.
97-OC-013 with Land Bank-Sablayan Branch.

A year after, Poblete decided to sell the said lot to Angelito Maniego
(Maniego) to pay her loan. Maniego agreed to buy the said lot and Poblete executed
the Deed of Absolute Sale where she described herself as a widow and with
P300,000.00 as consideration. Poblete, then, asked Domingo Balen to deliver the
Deed to Maniego and to receive the payment in her behalf. However, Balen stated
that he did not receive payment from Maniego, instead he told him that he would
pay the amount upon his return from the United States. In an Affidavit, Poblete
stated that she agreed to have the payment deposited in her Land Bank Savings
Account, but Maniego failed to do so.

Afterwards, Maniego paid Kapantay’s Loan Account for P448,202.08 and on

subsequent year he applied for a loan worth P1 Million from Land Bank using OCT
No. P-12026 as a collateral with a condition that the title must be first transferred on
his name. On August 14, 2000, the Registry of Deeds issued TCT No. T-20151 in
Maniego’s name pursuant to a Deed of Absolute Sale with the signatures of Mrs.
Poblete and her husband dated August 11, 2000 and Maniego successfully availed
the Credit Line Agreement for P1M and a Real Estate Mortgage over TCT No. T-
20151 on August 15, 2000. On November 2002, Land Bank filed an Application for
an Extra-Judicial Foreclosure against the said Mortgage stating that Maniego failed
to pay his loan.
 Poblete filed a complaint for nullification of the Deed of Sale dated August 11,
2000 and TCT No. T-20151, Reconveyance of the Title and Damages with a Prayer
for Temporary Restraining Order and/or Issuance of Writ of Preliminary Injunction
against Maniego, Landbank and the Register of Deeds. The judgment of RTC,
affirmed by the CA upon appeal, favors the plaintiff Poblete. Hence, this petition.

Issue:
Whether or not the Real Estate Mortgage over TCT No. T-20151 is valid.

Held:
No, the real estate mortgage is not valid.
Ruling:
The Supreme Court reiterated that it is a well-entrenched rule, as aptly
applied by the CA, that a forged or fraudulent deed is a nullity and conveys no title.
Moreover, where the deed of sale states that the purchase price has been paid but
in fact has never been paid, the deed of sale is void ab initio for lack of
consideration. Since the Deed is void, the corresponding TCT No. T-20151 issued
pursuant to the same deed is likewise void.

Also, in this case, it was found that the signature of Poblete’s husband was
forged since her husband has been long deceased and acquiring his signature is
impossible. Thus, in Ereña v. Querrer-Kauffman, the Court held that when the
instrument presented for registration is forged, even if accompanied by the owner’s
duplicate certificate of title, the registered owner does not thereby lose his title, and
neither does the mortgagee acquire any right or title to the property. In such a case,
the mortgagee under the forged instrument is not a mortgagee protected by law.
Since TCT No. T-20151 has been declared void by final judgment, the Real Estate
Mortgage constituted over it is also void. In a real estate mortgage contract, it is
essential that the mortgagor be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is void.

Notably, there is indeed a situation where, despite the fact that the
mortgagor is not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising therefrom are given effect by
reason of public policy. This is the doctrine of “the mortgagee in good faith”
based on the rule that buyers or mortgagees dealing with property covered by a
Torrens Certificate of Title are not required to go beyond what appears on the face
of the title. However, it has been consistently held that this rule does not apply to
banks, which are required to observe a higher standard of diligence. A bank whose
business is impressed with public interest is expected to exercise more care and
prudence in its dealings than a private individual, even in cases involving registered
lands. A bank cannot assume that, simply because the title offered as security is on
its face free of any encumbrances or lien, it is relieved of the responsibility of taking
further steps to verify the title and inspect the properties to be mortgaged.

Applying the same principles, the Court held that Land Bank is not a
mortgagee in good faith. Based on the evidence, Land Bank processed Maniego’s
loan application upon his presentation of OCT No. P-12026, which was still under the
name of Poblete. Land Bank even ignored the fact that Kapantay previously used
Poblete’s title as collateral in its loan account with Land Bank. The records do not
even show that Land Bank investigated and inspected the property to ascertain its
actual occupants. Where the mortgagee acted with haste in granting the mortgage
loan and did not ascertain the ownership of the land being mortgaged, as well as the
authority of the supposed agent executing the mortgage, it cannot be considered an
innocent mortgagee.

Name: Rem Joshua T. Serrano

Topic: Real Estate Mortgage
Provision Cited: Section 2, Rule 68, Rules of Court
Title: Rolando Robles. v. Fernando Yapcinco et al.
Source, Date: GR No. 169568, 22 October 2014

Facts:

The property in litis was originally registered in the name of Fernando F. Yapcinco.
In May 4, 1944, Yapcinco constituted a mortgage on the property in favor of Jose C.
Marcelo to secure the performance of his obligation. In turn, Marcelo transferred his
rights as the mortgagee to Apolinario Cruz. When Yapcinco did not pay the
obligation, Apolinario Cruz brought an action for judicial foreclosure of the mortgage
in the Court of First Instance (CFI) of Tarlac, and the property was sold at a public
auction. Apolinario Cruz was adjudged the highest bidder in the public auction. In his
favor was then issued the certificate of absolute sale, and he took possession of the
property in due course. However, he did not register the certificate of sale; nor was
a judicial confirmation of sale issued.
In 1972, Apolinario Cruz donated the property to his grandchildren, which includes
Apolinario Bernabe. In 2000, the respondents, all heirs of the Spouses Yapcinco,
instituted an action against one of the grandchildren, Apolinario Bernabe and his co-
vendees in the Regional Trial Court (RTC) in Tarlac City for the annulment of TCT
No. 243719, document restoration, reconveyance and damages. They claimed that
although the property had been mortgaged, the mortgage had not been foreclosed,
judicially or extra judicially; that the property was released from the mortgage per
Entry No. 32-2182 in the Memorandum of Incumbrances; and that the deed of
absolute sale between Fernando Yapcinco and Bernabe, et al. was void and
ineffectual because the Spouses Yapcinco had already been dead as of the date of
the sale.
Issue:

Whether the respondents (Heirs of Yapcinco) have a valid right over the subject
property.

Held:

NO

Ruling:

The registration of the sale is required only in extrajudicial foreclosure sale because
the date of the registration is the reckoning point for the exercise of the right of
redemption. In contrast, the registration of the sale is superfluous in judicial
foreclosure because only the equity of redemption is granted to the mortgagor,
except in mortgages with banking institutions. The equity of redemption is the right
of the defendant mortgagor to extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90-day period after the judgment
becomes final, or even after the foreclosure sale but prior to the confirmation of the
sale.
Consequently, the late Fernando F. Yapcinco and the respondents as his successors-
in-interest were divested of their right in the property, for they did not duly exercise
the equity of redemption decreed in the decision of the trial court. With Yapcinco
having thereby effectively ceased to be the owner of the property sold, the property
was taken out of the mass of the assets of Yapcinco upon the expiration of the
equity of redemption.
Name: Charelle Mei Sy
Topic: Real Estate Mortgage
Provisions Cited: Art. 2085 of the Civil Code of the Philippines
Title: LEONARDO CASTILLO vs. SECURITY BANK
CORPORATION, et.al
Source, Date: G.R. No. 196118. 30 July 2014

Facts:
In 1994, the Spouses Castillo obtained a loan from respondent SBC in the
amount of P45,000,000.00. To secure said loan, they executed a real estate
mortgage on August 5, 1994 over eleven (11) parcels of land belonging to different
members of the Castillo family and which are all located in San Pablo City. They also
procured a second loan amounting to P2,500,000.00, which was covered by a
mortgage on a land in Pasay City. The Spouses Castillo failed to settle the loan,
prompting SBC to proceed with the foreclosure of the properties. SBC was then
adjudged as the winning bidder in the foreclosure sale. On January 30, 2002,
Leonardo Castillo filed a complaint for the partial annulment of the real estate
mortgage alleging that he owns one of the properties and that the Spouses Castillo
used it as one of the collaterals for a loan without his consent. He said the date of
issuance of his Community Tax Certificate (CTC) is January 11, 1993, when he only
secured the same on May 17, 1993. He also assailed the foreclosure of the lots
which were still registered in the name of their deceased father. Spouses Castillo
meanwhile insisted on the validity of Leonardo’s Special Power of Attorney (SPA).
They alleged that they incurred the loan not only for themselves, but also for the
other members of the Castillo family who needed money at that time. However,
when the loan became due, their relatives failed to pay their respective shares such
that Leon was forced to use his own money until SBC had to finally foreclose the
mortgage over the lots. The trial court ruled in Leonardo’s favor, and the Court of
Appeals affirmed the decision. Hence, this petition.

Issue:
Whether or not the real estate mortgage constituted over the property is valid
and binding

Held:
Yes. Petition denied.

Ruling:
Art. 2085 of the Civil Code states that the following are the legal requisites for
a mortgage to be valid: (1) It must be constituted to secure the fulfillment of a
principal obligation; (2) The mortgagor must be the absolute owner of the thing
mortgaged; (3) The persons constituting the mortgage must have the free disposal
of their property, and in the absence thereof, they should be legally authorized for
the purpose.

Leonardo asserts that his signature in the SPA authorizing his brother Leon to
mortgage his property was falsified, claiming that he was in America when this
happened. But there was no corroborative evidence that supports this. There is
reasonable ground to believe that, as the CA correctly observed, the CTC could have
been issued with the space for the date left blank and Leonardo merely filled it up to
accommodate his assertions. Also, upon careful examination, the handwriting
appearing on the space for the date of issuance is different from that on the
computation of fees, which in turn was consistent with the rest of the writings on
the document. Even if assuming Leonardo was right in that he secured his CTC only
on May 17, 1993, the SPA is not automatically invalid. Defective notarization will
simply strip the document of its public character and reduce it to a private
instrument, but nonetheless, binding, provided its validity is established by
preponderance of evidence (Art. 1358 of the CC)

Leonardo was aware of the mortgage and he indeed executed the SPA to
entrust Leon with the mortgage of his property. Leon had in his possession all the
titles covering the eleven (11) properties mortgaged, including that of Leonardo.
Leonardo and the rest of their relatives could not have just blindly ceded their
respective TCTs to Leon, and it is likewise ridiculous that Leonardo would have been
oblivious to the status of his property for eight (8) years and would only find out
about the foreclosure from his nephew who also consented to the mortgage.
Leonardo himself admitted on cross-examination that he granted Leon authority to
mortgage, only that, according to him, he thought it was going to be with China
Bank, and not SBC but no specific bank was mentioned in the SPA.

Name: Cris Angeli V. Tacuboy

Topic: Antichresis
Provision: Article 2132
Title: Cecilio Diego vs Segundo Fernando
Source, Date: GR No. L-15128, 25 August 1960

Facts:
Fernando executed a deed of mortgage in favor of Diego over two parcels of
land registered in his name, to secure a loan of P2000, without interest, payable
within four years from the date of the mortgage. After the execution of the deed,
possession of mortgaged properties were turned over to the mortgagee.
Fernando failed to pay the loan after four years, despite several demands by
Diego. Diego filed an action for foreclosure of mortgage. Fernando’s defense was
that the true transaction between him and Fernando was one of antichresis and not
of mortgage.

Issue:
Whether or not the contract between the parties is one of mortgage.

Held:
Yes.

Ruling:
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.
The true position of Diego under his contract with Fernando is a mortgage in
possession. Such refers to one who has lawfully acquired actual or constructive
possession of the premises mortgaged to him, standing upon his rights as
mortgagee and not claiming under another title, for the purpose of enforcing his
security upon such property or making its income help to pay his debt.
The parties having agreed that the loan was to be without interest, and that
Fernando not having expressly waived his right to the fruits of the properties
mortgaged during the time they were in Diego’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 Fernando.

Name: Neil Villalon

Topic: Antichresis
Provision Cited: Articles 2132-2134 of the Civil Code
Title: Valencia vs. Acala
Source, Date: G.R. No. 16256, 28 September 1921

Facts:
Dionisia Valencia and Daniel Ade-pueng (deceased) conveyed to Severino
Agbagala and Francisca Cadapan the land they wanted to redeem. Around nine
years later, Francisca Cadapan, Agbagala’s wife, conveyed the same property to
Juan Cagayat and Josefa Galendis. The same land was then passed to the
possession of Pedro Acala and sold the land without conditions to the defendant
Bagayanan for P70. Dionisia Valencia wanted to redeem the said land for P6.75 since
she loaned it for the same price from Severino Agbagala and Francisca Cadapan who
mortgaged it to spouses Juan Cagayat and Josefa Galendis after nine years.
The judge held that the contract was one of sale with the right of repurchase
and then decided that: (1) the defendants must be absolved from the complaint; (2)
that the contract (Exhibit A) and those that were successively executed involving the
lot are contracts of sale and not of mortgage or of loan with security; (3) that the
action for the redemption and annulment of the sale of the lot in question has
prescribed; (4) that the defendant Apolinario Bagayanan is at present the lawful
owner of the said lot; and (5) that that the costs of the suit should be paid by the
plaintiffs (Valencia).

Issue:
Whether Valencia can redeem the certain land from Bagayanan that was
initially given to Severino Agbagala and Francisca Cadapan to hold for Valencia’s
payment of loan.

Held: No. Petition denied.

Ruling:
The Court held that the contract that was thought to be a contract of sale
with right of repurchase was actually a contract of antichresis and affirmed the
judge’s decision since the creditor has possession of the property.
The Court then cited the case of De la Vega vs. Ballilos (34 Phil., 683) which
said: “When money is loaned and the debtor places the creditor in possession of a
piece of real property as security for the sum loaned in order that he may hold it in
usufruct, in consideration for the said loan, the contract is not one of mortgage,
notwithstanding the terms thereof, inasmuch as it is not of the nature of a public
instrument, and even though it were, it does not appear to have been recorded in
the property registry. Neither can such a contract be classified as one of sale under
pacto de retro, notwithstanding that it is set forth therein that the debtor cedes and
conveys to the creditor the ownership and possession of the said real property.
Therefore, such a contract should be classified as one of antichresis, by means of
which the creditor acquires the right to collect the fruits of the real property turned
over to him by his debtor, but with the obligation to apply them to the payment of
whatever interest is due and the contracting parties may stipulate that the interest
of the debt be paid by the fruits of the property given in antichresis.”
Name: Richard Paolo M. Alarilla
Topic: Antichresis
Provisions: Articles 2132-2139 of the civil code, Section 377 of the
Administrative Code
Title: Marcelo Enriquez v. Philippine National Bank, et al
Source: G.R. No. 33584, 15 December 1930

Facts:
Marcelo Enriquez was indebted to the Philippine National Bank of Cebu in the
amount of P4,512.21, one of the sureties being the defendant, Laureano Abella.
Through a complaint filed by the said bank against Marcelo Enriquez, Laureno Abella
and Andress Abellana was obliged to pay said amount with interest at nine per cent
per annum. On March 26, 1927, a writ of execution would be issued first against the
defendant Marcelo Enriquez and in case of his insolvency, against the defendants
Andres Abellana and Laureano Abella. Afterwards, the two parcels of land attached
by Marcelo Enriquez were sold to the Respondent bank through public auction as the
highest bidder. Later on Marcelo Enriquez’s right of redemption was likewise sold.
For nonpayment of the land tax, the two lots were forfeited by the Government. The
bank thereafter redeemed said lands from the Government by paying the land taxes.
Court of First Instance declared the public auction sale null and void.

Issue:
Whether the plaintiff is entitled to damages for the possession by the
Philippine National Bank of the lands in question from the time they were redeemed
from the government.

Held:
Yes.

Ruling:
The Supreme Court declared the judicial sale null and void. When the PNB
redeemed the said lots from the Government, the former was acting as judgment
creditor. Under section 377 of the Administrative Code, the bank acquired a lien on
them by virtue of said redemption and the Government was divested of the
ownership thereof which was reverted in the original owner, Marcelo Enriquez. PNB
cannot be said to have held the property by virtue of the redemption in behalf of the
Government but as a creditor with a lien thereon.
Since the PNB took possession of the 2 parcels of land with the consent of the
debtor, Marcelo Enriquez, it held the land as an antichretic creditor with the right to
collect the credit with interest from the fruits, returning to the antichretic debtor the
balance after deducting the expenses. The fact that Marcelo Enriquez consented and
asked the bank to take charge of managing said property does not entitle the latter
to appropriate to itself the fruits thereof unless the former has expressly waived his
right thereto.
 Antichresis, under civil law and Roman law, is a contract whereby a debtor
pledges real property to a creditor, allowing the use and occupation of the pledged
property, in lieu of interest on the loan

Name: Jillian Ira L. Bagaoisan

Topic: Chattel Mortgage
Provision Cited: Section 17, Rule 39, Revised Rules of Court
Title: Northern Motors, Inc., v. Hon. Judge Jorge Coquia,
et al.
Source, Date: GR No. L-40018, 21 March 1975

Facts:
Petitioner Northern Motors, Inc. sold 200 units of Holden Torana cars to
Manila Yellow Taxicab Co., Inc. on installment basis with corresponding chattel
mortgages thereon. Of the 200 units, the mortgage on 172 units was assigned to
Filinvest Credit Corporation (Filinvest). In December 1974, 20 of the aforesaid 200
units were levied to satisfy a judgment in a civil case entitled “Tropical Commercial
Co., Inc. v. Manila Yellow Taxicab Co., Inc, et al.” Of the 20, 8 were mortgaged to
petitioner and 12 to Filinvest prompting both to file their corresponding third-party
claims. The sale was, however, consummated.
Thereafter, respondent judge issued a resolution cancelling indemnity bonds
for the auction sale on two grounds. First, the absence of opposition and second,
that the court ruled in a similar case that “the third party claimant is, if at all, merely
a mortgage and not a claimant of ownership.
Meanwhile, 35 more Taxicab units mortgaged to petitioner and to Filinvest
were levied. Both filed third-party claims. Petitioner also filed an Urgent Motion to
Stop the Execution sale of 7 out of the 35 units but respondent judge denied the
same.

Issue: Whether respondent judge acted with grave abuse of discretion in denying
the third-party claims

Held: No. Petition denied.

Ruling:
Under Sec 17, Rule 39 of the Revised Rules of Court, a third-party claimant
has two remedies, such as, an action for damages against the sheriff to be brought
within 120 days from the filing of the bond, and a separate and independent action
to vindicate his claim to the property. Here, petitioner and intervenor’s remedy
against the bond proved to be unavailing because of the disputed order of
respondent judge cancelling the indemnity bond.
At any rate, even if petitioner and intervenor failed in their respective third
party claims, their right to these motor vehicles subject to execution sale is not
completely lost for the rule reserves to them the right to vindicate their claim in a
proper action.
The chattel mortgage lien attaches to the property wherever it may be. The
buyer acquires the property subject to such liens and encumbrances as existed
thereon at the time of the execution.

Name: Glenn Anne Marie G. Berdin

Topic: Chattel Mortgage
Provision Cited: Article 2085, 2087, 2093, 2125, 2126, 2132, and 2140 of
the Civil Code

Title: Acme Shoe, Rubber and Plastic Corp v Court of Appeals

and Producers Bank of the Philippines
Source, Date: G.R. No. 103576. 22 August 1996

Facts:

Petitioner Chua Pac, the president and general manager of Acme executed a
chattel mortgage in favor of private respondent Producers Bank of the Philippines.
The mortgage stood by way of security for petitioner’s corporate loan of 3M. in due
time, the loan of 3M was paid by petitioner corporation. Subsequently, it obtained
from respondent bank additional financial accommodations of 2.7 M. These
borrowings were on due date also fully paid. Another loan of 1M was extended
covered by four promissory notes for 250,000 each but went unsettled prompting
the bank to apply for an extrajudicial foreclosure with the sheriff.

Issue:
Whether or not it is 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

Ruling:
In contracts of real security, such as a pledge, a mortgage or an antichresis,
that fulfillment is secured by an encumbrance of property ·in pledge, the placing of
movable property in the possession of the creditor; in chattel mortgage, by the
execution of the corresponding deed substantially in the form prescribed by law; in
real estate mortgage, by the execution of a public instrument encumbering the real
property covered thereby; and in antichresis, by a written instrument granting to the
creditor the right to receive the fruits of an immovable property with the obligation
to apply such fruits to the payment of interest, if owing, and hereafter to the
principal of his credit·upon the essential condition that if the principal obligation
becomes due and the debtor defaults, then the property encumbered can be
alienated for the payment of the obligation, but that should the obligation be duly
paid, then the contract is automatically extinguished proceeding from the accessory
character of the agreement. As the law so puts it, once the obligation is complied
with, then the contract of security becomes, ipso facto, null and void.
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.
Name: Golden de Lunas
Topic: Chattel Mortgage
Provision Cited: Sections 13 and 14 of the Chattel Mortgage Law
Title: Rizal Commercial Banking Corporation v. Royal
Cargo
Corporation
Source, Date: GR No. 179756, 2 October 2009

Facts:
Terrymanila, Inc. filed a petition for voluntary insolvency with the RTC and
one of its creditors was petitioner RCBC with which it had an obligation of P3Million,
secured by a chattel mortgage.
Respondent Royal Cargo Corporation (Royal Cargo), another creditor of
Terrymanila, filed an action before the RTC of Manila for collection of sum of money
and attached “some” of Terrymanila’s personal properties to secure satisfaction of a
judgment award. The RTC rendered judgment in favor of respondent.
Thereafter, petitioner sought permission from the RTC to foreclose the chattel
mortgage and the same was granted. Respondent moved to have the order
reconsidered but it was denied.
The Sheriff of Bataan scheduled the public auction sale of the mortgaged
properties in which the petitioner was the sole bidder and subsequently sold them.
Respondent sought for annulment of the sale citing Sec. 14 of the Chattel Mortgage
law. Petitioner filed a motion to dismiss stating no cause of action however it was
denied by the RTC. The CA partly granted respondent’s appeal and ruled that
respondent had a right to be timely informed of the foreclosure sale.
Issue: Whether respondent should have been given a 10-day prior notice of the
foreclosure sale

Held: No. Petition granted.

Ruling:
The redemption cited in Sec 13 of the Chattel Mortgage Law 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 the right of the mortgagor to redeem
the mortgaged property after registration of the foreclosure sale, and even after
confirmation of the sale. What respondent attached was Terrymanila’s equity of
redemption. Having thus attached Terrymanila’s equity of redemption, respondent
had to be informed of the date of the sale of the mortgaged assets for it to exercise
such equity of redemption over some of those foreclosed properties.
Here, even prior to receiving, through counsel, a mailed notice of the auction
sale, respondent was already put on notice of the impending foreclosure sale of the
mortgaged chattels. It could thus have expediently exercised its equity of
redemption, at the earliest when it received the insolvency court’s order but it did
not.

Name: Gabriel Angel V. de Vera

Topic: Chattel Mortgage
Provision Cited: Section 14 of the Chattel Mortgage Law and Articles
1484 and
2115 of the Civil Code
Title: Pameca Wood Treatment Plant et al. vs. Hon. Court of
Appeals
and DBP
Source, Date: G.R. No. 106435, July 14, 1999

Facts:

On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc.

(PAMECA) obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00
from respondent Bank. By virtue of this loan, petitioner PAMECA, through its
President, petitioner Herminio C. Teves, executed a promissory note for the said
amount, promising to pay the loan by installment. As security for the said loan, a
chattel mortgage was also executed over PAMECA’s properties in Dumaguete City,
consisting of inventories, furniture and equipment, to cover the whole value of the
loan.
 On January 18, 1984, and upon petitioner PAMECA’s failure to pay,
respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole bidder
in the public auction, purchased the foreclosed properties for a sum of P322,350.00.

On June 29, 1984, respondent bank filed a complaint for the collection
of the balance of P4,366,332.46 with Branch 132 of the Regional Trial Court of
Makati City against petitioner PAMECA and private petitioners herein, as solidary
debtors with PAMECA under the promissory note. The RTC ruled in favor of DBP,
and the Court of Appeals upheld the decision of the RTC.

Petitioner argues inter alia that respondent appellate court gravely

erred in not applying by analogy Article 1484 and Article 2115 of the Civil Code by
reading the spirit of the law, and taking into consideration the fact that the contract
of loan was a contract of adhesion.

Issue: Whether Articles 1484 and 2115 of the Civil Code can be applied by analogy
in the instant case.

Held: No. Petition Denied, Court of Appeals decision affirmed.

Ruling: In the leading case of Ablaza vs. Ignacio, the lower court dismissed the
complaint for collection of deficiency judgment in view of Article 2141 of the Civil
Code, which provides that the provisions of the Civil Code on pledge shall also apply
to chattel mortgages, insofar as they are not in conflict with the Chattel Mortgage
Law. It was the lower court’s opinion that, by virtue of Article 2141, the provisions of
Article 2115 which deny the creditor-pledgee the right to recover deficiency in case
the proceeds of the foreclosure sale are less than the amount of the principal
obligation, will apply.
This Court reversed the ruling of the lower court and held that the provisions of the
Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage, being
contrary to the provisions of Article 2115, Article 2115 in relation to Article 2141,
may not be applied to the case.

Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:

“x x xThe officer making the sale shall, within thirty 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 Numbered One Hundred and Ninety,
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, first, of the costs and expenses of keeping and
sale, and then to the payment of the demand or obligation secured by such
mortgage, and the residue shall be paid to persons holding subsequent mortgages
in their order, and the balance, after paying the mortgage, shall be paid to the
mortgagor or persons holding under him on demand.”

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

Name: Dulay, Nicole Bernadette M.

Topic: Financial Lease
Law cited: Article 1599, CC
Title: Beltran v PAIC Finance Corporation
Source, Date: GR No 83113, 19 May 1992

Facts:

The Beltran spouses purchased equipment from SESCO, the purchase price of
which was placed under a financing agreement entered into with PAIC. Upon
delivery, an older unit was returned to SESCO, along with payments made thereon
plus two other checks as down payment on the new unit.
 The Beltrans issued another check in favor of SESCO who assigned the sales
invoice to PAIC with documentation stating that the new unit was delivered to the
same. PAIC executed a contract of lease over the unit to be paid until the principal
is fully satisfied; then, ownership transfers to the Beltrans..
After the unit malfunctioned, and the repairs made by SESCO were found to
be unsatisfactory, the Beltrans discontinued monthly rental payments. After 4
months, PAIC sent them a letter demanding payments and later on filed a complaint
for a sum of money. The RTC dismissed the complaint and held that since the
transaction was one of lease, PAIC is obliged to ensure that the object is in a
condition fit for the use intended. Since the unit malfunctioned, the lease must be
deemed extinguished. The CA affirmed the RTC decision but held that the contract
was one of sale and the contract of lease was only used to simulate the real
financing agreement where PAIC shoulders the purchasing price and the Beltrans
will pay the unpaid balance.

Issue:

Is the agreement a financial lease?

Held:

Yes, the contract in consideration is a financial lease.

Ruling:

Although financial leases are complex arrangements, they are not “simulated
contracts.” They are recognized under RA 5980, the Financing Company Act.
Financial leases enable the prospective buyers, who are unable to pay in one lump
sum in cash, to lease the equipment at a fixed price enough to amortize at least
70% of the acquisition cost, with the expectation that at the end of the lease period,
the financial lease shoulders any remaining balance of the purchase price.
In a financial lease, the legal title to the equipment is with the financial lessor,
while the financial lessee is entitled to possession. Therefore, the Beltrans are
therefore bound to pay PAIC all the rental payments which accrued and are due and
payable.

Name: Jason Edric T. Dy

Topic: Financial Lease
Law Cited: RA 8556
Title: PCI Leasing and Finance, Inc. vs. Trojan Metal, Sps.
Walfrido
and Elizabeth Dizon, and John Doe
Source, Date: GR No. 176381, 15 December 2010

Facts:
In 1997 Trojan came to PCI to seek a loan. Instead, PCI offered to buy
Trojan’s equipment which Trojan agreed. A deed of sale for P2,865,070 was
executed. They then entered into a lease agreement wherein Trojan would lease the
equipment it previously owned and give as security P1,030,350 which would be
forfeited should Trojan return the equipment before the expiration of the agreement.
Sps. Dizon as Trojan’s President and Vice-President also agreed to immediately pay
in case Trojan failed. Trojan however obtained another loan and used the equipment
as collateral. This was deemed a violation by PCI and sent a demand letter to Trojan
for payment.
PCI filed with the RTC a complaint for recovery of sum of money and personal
property and issuance of a writ of replevin. The RTC issued the writ of replevin so
PCI was able to take hold and sell the equipment which amounted to P1,025,000.
Respondents claimed that it was only a simulated financial lease wherein the
equipment would be sold to PCI but at the end of the lease it would revert back to
Trojan.
The RTC ruled that the lease agreement is valid. CA set aside the RTC
decision and ordered PCI to refund Trojan P1,166,826.52 as it has the security
deposit and the proceeds of the sale of the equipment.

Issue:

1) Whether the sale with lease agreement was a financial lease.

Held:
No. Petition denied.

Ruling:
In a financial lease under RA 5980 or 8556, a finance company purchases on
behalf of a cash-strapped lessee the equipment and then leases the equipment to
the lessee in exchange for periodic payment of a fixed amount of rental. However, in
this case the equipment is already owned by Trojan and is therefore not in the
nature of a financial lease.
Where the client already owned the equipment but needed additional capital
and the finance company purchases the 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 or mortgage. The intention of the parties was not to enable
the client to acquire and use the equipment but to extend a loan.
Being a simple loan secured by a chattel mortgage PCI was entitled to seize
the equipment as creditor-mortgagee and the sale of the equipment is deemed in
the exercise of its right to foreclose the chattel mortgage.
Trojan’s right to refund accrued from the time PCI received the proceeds of
the sale of the mortgaged equipment. However, since Trojan never demanded for
refund due on the resulting overpayment after offsetting the proceeds of the sale
against the remaining balance on the principal loan plus applicable interest, no
interest applies on the refund due. But in accord with prevailing jurisprudence the
excess amount PCI must refund to Trojan is subject to 12% interest from finality of
this decision.