more than one signatory to the trust receipt, the solidary
liability would exist between the guarantors. Here, Tupaz is
23. Tupaz v. CA, 475 SCRA 398
FACTS:
Jose Tupaz and Petronila Tupaz were Vice-President for
Operations and Vice President/Treasurer, respectively, of El
Oro Engraver Corporation. El Oro Corporation had a contract
with the Philippine Army to supply the latter with survival
bolos. To finance the purchase of raw materials for the bolos,
petitioners, on behalf of El Oro Corporation, applied with BPI
for two commercial letters of credit. Simultaneous with the
issuance of the letters of credit, petitioners issued trust receipts
in favor of BPI.
Petitioners did not comply with their undertaking under the
trust receipts. BPI made several demands for payment but El
Oro Corporation made partial payments only.
ISSUE: Whether petitioners bound themselves personally
liable for El Oro Corporation’s debts under the trust receipts
RULING: Yes. For the trust receipts dated September 30,
1981, the dorsal portion of petitioner Jose Tupaz signed along,
the Court finds that he did so in his personal capacity. He did
not indicate the he was signing as El Oro’s Vice-President for
Operations. Furthermore, the fact that there was a stipulation
“we jointly and severally agree and undertake” means that
Tupaz is solidarily liable with the corporation. Had there been
liable as guarantor only.
24. American Home Insurance v. FF. Cruz & Co., G.R. No.
174926
FACTS:
FF. Cruz and G. Reyes executed a sub-contract agreement
whereby the latter agreed to undertake the performance of 50%
of the dredging project of Cebu International Port. FF. Cruz
gave Reyes an advance payment of P2.2 million guaranteed by
a surety bond for the same amount issued by petitioner.
Later, Reyes informed FF Cruz that the equipment used for the
project had been encountering difficulties and admitted that
continuing the project was no longer a wise investment. Hence,
FF. Cruz took over.
FF. Cruz demanded from American Home the payment of the
2.2 million bond. American Home instituted a complaint for
sum of money against Reyes for the payment of the bond.
ISSUE: Whether American Home is liable to FF Cruz the
amount of the bond
RULING: Yes. A contract of suretyship is an agreement
whereby a party called a surety, guarantees the performance by
another party, called the principal or obligor. of an obligation
1
or undertaking in favor of another party called the oblige. By
its very nature, under the laws regulating suretyship, the
liability of the surety is solidary but is limited to the amount of
the bond, and its terms are determined strictly by the terms of
the surety contract in relation to the principal contract between
the obligor and the obligee.
25. Bitanga v. Pyramid Construction Engineering Corp.,
563 SCRA 544
FACTS:
Pyramid Contruction entered into an agreement with Macrogen
Realty where petitioner is the president. Macrogen failed to
settle respondent’s progress billings. Hence, respondent
suspended the work on the construction and filed a case for
arbitration with CIAC against Macrogen.
Before the trial, both parties entered into a compromised
agreement with Bitanga as signatory in behalf of Macrogen.
Bitanga guaranteed the obligation of Macrogen under the
compromise agreement by executing a contract of guaranty in
favor of Pyramid. Macrogen failed and refused to pay all the
installments. Hence, Pyramid demanded Bitanga, as
Macrogen’s guarantor, to pay the liability or to point out
available properties of Macrogen within the Philippines
sufficient to cover the obligation. Yet, respondent’s demands
were left unheeded.
Bitanga argued that the benefit of excussion was still available
to him as a guarantor since he had set it up prior to any
judgment against him, and since respondent failed to exhaust
all remedies to collect from Macrogen the amount due, Bitanga
could not be held liable as a guarantor.
ISSUE: Whether Bitanga can avail of the benefit of excussion
RULING: No. Under the contract of guarantee, the guarantor
binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so. The
guarantor who pays for a debtor, in turn, must be indemnified
by the latter. However, the guarantor cannot be compelled to
pay the creditor unless the latter has exhausted all the property
of the debtor and resorted to all the legal remedies against the
debtor. This is known as the benefit of excussion.
In this case, however, despite having been served a demand
letter at his office, Bitanga still failed to point out to Pyramid
properties of Macrogen sufficient to cover its debt as required
in the Civil Code. Such failure on petitioner’s part forecloses
his right to set up the defense of excussion.
26. JN Development Corporation v. Philippine Export and
Foreign Loan Guarantee Corp., 468 SCRA 555
FACTS:
JN Development Corp. contracted a loan with Traders Royal
Bank. The loan was covered by several securities which
included a letter of guarantee from respondent. Upon the
maturity of the loan, petitioner failed to pay the loan to TRB,
hence, TRB requested respondent to make good its guarantee.
2
Petitioner paid TRB. Subsequently, respondent made several
demands on petitioner but the latter refused to pay. Hence,
respondent instituted a complaint for collection of money
against petitioner.
Petitioner argued that it is not liable to reimburse respondent
because the latter paid after the expiration of the contract of
guarantee and that respondent did not consent to the extensions
granted by TRB in favor of petitioner.
ISSUE: Whether respondent should be reimbursed as guarantor
RULING: Yes. While a guarantor enjoys a benefit of
excussion, nothing prevents him from paying the obligation
once demand has been made on him. Excussion is a right
granted to him by law and as such he may opt to make use of it
or waive it. Respondent’s waiver of the right of excussion
cannot prevent it from demanding reimbursement from
petitioner. The law clearly requires the debtor to indemnify the
guarantor what the latter has paid.
27. Gateway Electronics Corp. v. Asianbank Corp., G.R.
No. 172041
FACTS:
Gateway Electronics Corp. is a domestic corporation that used
to be engaged in the semi-conductor business. During the
period material, petitioner Geronimo delos Reyes was its
president and Andrew delos Reyes its executive vice-president.
In 1996, Geronimo and Andrew executed separate deeds of
suretyship for petitioner in favor of respondent. Petitioner
initially made payments on its loan obligations, but eventually
defaulted. Upon Gateway’s request, Asianbank extended the
maturity dates of the loan several times. These extensions bore
the conformity of three of Gateway’s officers, among them is
Andrew.
Asianbank’s demands for payment made upon Gateway and its
sureties went unheeded. Thus, it filed a complaint against
Gateway, Geronimo, and Andrew.
ISSUE: Whether Geronimo is discharged from liability
because of Gateway’s insolvency
RULING: No. A surety is an insurer of the debt, whereas a
guarantor is an insurer of the insolvency of the debtor. A
suretyship is an undertaking that the debt shall be paid. Stated
differently, a surety promises to pay the principal’s debt if the
principal will not pay, while a guarantor agrees that the
creditor, after proceeding against the principal, may proceed
against the guarantor if the principal is unable to pay. A surety
binds himself to perform if the principal does not, without
regard to his ability to do so. In other words, a surety
undertakes directly for the payment and is so responsible at
once if the principal debtor makes default.
A creditor’s right to proceed against the surety exists
independently of his right to proceed against the principal. If
the obligation is solidary, the creditor has the right to proceed
3
even against the surety alone. A suretyship contract refers to an
agreement wherein one person, the surety, engages to be
answerable for the debt, default, or miscarriage of another
known as the principal.
28. Spouses Toh v. Solid Bank Corporation, 408 SCRA 544
FACTS:
Solid Bank Corporation agreed to extend a credit line facility
in favor of First Business Paper Corporation. Spouses Toh
signed the required Continuing Guaranty. The Continuing
Guaranty waived right of the sureties against delay or absence
of notice or demand on the part of the Bank and gave future
consent to the Bank’s action to extend or change the time
payment, and/or the manner, place, or terms of payment,
including renewal of the credit facility.
Several letters of credit were irrevocably extended for 90 days
with alarmingly flawed and inadequate consideration. Later on,
Solid Bank received information that respondent spouses Li
had fraudulently departed from their conjugal home. Hence,
the Bank sent a demand letter upon FBTC and petitioner
spouses to claim payment.
ISSUE: Whether spouses Toh are relieved of their obligations
as sureties
RULING: Yes. Even though the parties stipulated in the
Continuing Guaranty that the Bank “may at any time, or from
time to time, in its discretion, extend or change the time
payment,” this provision even if understood as a waiver is
confined to the grant of an extension and does not surrender the
prerequisites therefor as mandated in the “letter-advise.” In
other words, the Bank’s authority to defer collection
contemplates only authorized extensions, that is, those that
meet the terms of the “letter-advise.”
Certainly, while the Bank may extend the due date at its
discretion pursuant to the Continuing Guaranty, it should
comply with the requirements that domestic letters of credit be
supported by 15% marginal deposit extendible three times for a
period of 30 days for each extension, subject to 25% partial
payment per extension.
However, in this case, the Bank irrevocably extended several
letters of credit for 90 days with alarmingly flawed and
inadequate consideration. Evidently, these extensions
constitute illicit extensions prohibited under Art. 2079 of the
Civil Code. As a result of these illicit extensions, spouses Toh
are relieved of their obligation as sureties of FBPC.
29. Security Bank and Trust Company v. Cuenca, 341
SCRA 781
FACTS:
Security Bank and Trust Company granted Sta. Ines Melale
Corp. a credit line which was secured by a chattel mortgage
over the latter’s logging trucks and an indemnity agreement
executed by Cuneca whereby he solidarily bounds himself for
the payment of the loan. Four years after the expiration of the
4
credit line, Cuenca resigned as President and Chairman of the
Board of Directors of Sta. Ines.
Later on, Sta. Ines contracted another loan with Security Bank
which was lumped together with the loan covered by the
indemnity agreement executed by Cuenca. Pursuant to this
loan, Sta. Ines and petitioner executed a new loan agreement
which was inconsistent with the first loan agreement.
However, Sta. Ines defaulted in the payment of its restructured
loan obligations to Security Bank despite demands made upon
it and Cuenca. Thus, Security Bank filed a complaint for
collection of sum of money.
ISSUE: Whether Cuenca is liable as surety under the indemnity
agreement for the payment of the loan
RULING: No. The new loan agreement executed between Sta.
Ines and Security Bank extinguished the obligation obtained
under the first loan agreement. Several incompatibilities
between the two loan agreements demonstrate that the two
cannot co-exist. Since the new loan agreement had
extinguished the old one, the indemnity agreement, an
accessory obligation, was necessarily extinguished pursuant to
Art. 1296 of the Civil Code. Thus, Cuenca is not liable as
surety under the indemnity agreement for the payment of the
loan.
30. Ang v. Associated Bank, G.R. No. 146511
FACTS:
Associated Bank filed a collection suit against Antonio Ang
and petitioner Tomas Ang for the two promissory notes they
executed as principal debtor and co-maker, respectively. The
Bank alleged that Ang obtained a loan of P50,000.00
evidenced by a promissory note and P30,000.00 evidenced by
another promissory note. They agreed that the loan would be
payable, solidarily, on specified dates. Despite repeated
demands for payment on Ang, the Bank claimed that they
failed and refused to settle their obligation.
Ang interposed the affirmative defenses that the bank is not the
real party in interest as it is not the holder of the promissory
notes, much less a holder for value or a holder in due course
and that the bank knew that they did not receive any valuable
consideration for affixing their signatures on the notes but
merely lent their name as an accommodation party.
ISSUE: Whether Ang is liable to the obligation despite being
merely a co-maker and accommodation party
RULING: Yes. Section 29 of the NIL defines an
accommodation party as a person who has signed the
instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his
name to some other person. An accommodation party is one
who meet all three requisites: (1) he must be a party to the
instrument, signing as maker, drawer, acceptor, or indorser; (2)
he must not receive value therefor; and (3) he must sign for the
purpose of lending his name or credit to some other person.
The accommodation party is liable on the instrument to a
5
holder for value even though the holder, at the time of taking
the instrument, knew him/her to be merely an accommodation
party.
The relation between an accommodation party and the
accommodate party is one of principal and surety. As such, he
is deemed an original promisor and debtor from the beginning;
he is considered in law as the same party as the debtor in
relation to whatever is adjudged touching the obligation of the
latter since their liabilities are interwoven as to be inseparable.
Although a contract of suretyship is accessory or collateral to a
valid principal obligation, the surety’s liability to the creditor is
immediate, primary, and absolute; he is directly and equally
bound with the principal. A surety becomes liable to the debt
and duty of the principal obligor even without possessing a
direct or personal interest in the obligations nor does he receive
any benefit therefrom.
31. Stronghold Insurance Company, Inc. v. Republic Asahi
Glass Corp., 492 SCRA 179
FACTS:
Republic Asahi entered into a contract of roadway construction
and drainage system with Jose D. Santos, Jr. In order to
guarantee the faithful and satisfactory performance of its
undertakings, JDS posted a performance bond in which it is
solidarily liable with Stronghold. Dissatisfied with the progress
of the work undertaken by JDS, Republic Asahi extrajudicially
rescinded the contract. Such rescission, according to the
contract, shall not be construed as a waiver of Republic Asahi’s
right to recover damages from JDS and the latter’s sureties.
During trial, petitioner alleged that respondent’s money claims
have already been extinguished by the death of Jose D. Santos,
Jr.
ISSUE: Whether the claim of sureties has been extinguished by
the death of Jose D. Santos, Jr.
RULING: No. Whatever monetary liabilities or obligations
Santos had under his contract with respondent were not
intransmissible by their nature, by stipulation, or by provision
of law. Hence, his death did not result in the extinguishment of
those obligations or liabilities, which merely passed on to his
estate. Death is not a defense that he or his estate can set up to
wipe out the obligations under the performance bond.
Consequently, petitioner as surety cannot use his death to
escape its monetary obligation under its performance bond.
32. Palmares v. CA and M.B. Lending Corp., 282 SCRA
422
FACTS:
Pursuant to a promissory note, MB Lending Corp. extended a
loan to spouses Azarraga and Estrella Palmares. In the
promissory note, Palmares signed as a co-maker and
acknowledged her solidarily liability with the principal.
Palmares and spouses Azarraga failed to pay in full, thus MB
Lending filed a complaint against Palmares because of the
6
spouses’ insolvency. Palmares alleged that she is to be held primarily responsible wirh him, and without reference to the
liable only upon the default of the principal. solvency of the principal.

ISSUE: Whether Palmares is primarily liable

RULING: Yes. The undertaking to pay upon default of the

principal debtor does not automatically remove it from the
ambit of a contract of suretyship. The promissory note does not
contain any other condition for the enforcement of MB
Lending’s right against Palmares. A contract of suretyship is
that wherein one lends his credit by joining in the principal
debtor’s obligation, so as to render himself directly and

LEGAL AND JUDICIAL BONDS
33. People v. Otiak Omal and Luzon Surety Co., Inc., G.R.
L-14457
FACTS:
In 1954, Otiak Omal was charged with robbery in band. The
preliminary investigation having been waived, the case was
elevated to the CFI where the bail bond fixed for Omal’s
provisional liberty was reduced from P24,000 to P10,000.
Upon the filing by Luzon Surety Company of the bail bond and
its approval by the court, Omal was released.
1956, the governor of the province ordered one of his men and
the Chief of Police to bring Omal home because he was
causing trouble in a certain place. Omal was last seen walking
towards the governor’s place with the latter’s emissaries and
thereafter he disappeared. It was only on December 20, 1957
that Luzon Surety Company filed an ex-parte motion for the
withdrawal of the bail bond, praying that it be relieved of the
same alleging that it had exerted efforts to find Omal but was
unable to locate and apprehend him.

Two years later, Omal was arrested anew because he was

charged with rape. On August 23 of the same year, he was
placed under the custody of the governor. On December 12,

7
The State opposed the motion on the ground that Luzon Surety
Company did not ask for the cancellation of the bond when
Omal was rearrested in connection with the charge of rape
against him, but did so only after he had disappeared. The State
also argued that Luzon Surety Company had chosen to
continue with its liability under the bond and should be held
accountable for the accused who escaped after his rearrest.
ISSUE: Whether, while the accused was out on bail, was
picked up by the governor’s emissaries and thereafter escaped
from their custody, will excuse the surety, the Luzon Surety
Company from the non-performance of its obligations under
the bond
the irregular conduct of the warden and the provincial governor
to go on for a considerable time until it ended in the escape of
the prisoner. Therefore, it is equally chargeable with
negligence.
Even when a surety’s performance of the bond is rendered
impossible by the act of God, or of the oblige, or of the law, it
is the surety’s duty to inform the court of the happening of the
event so that it may take action or decree the discharge of the
surety. In this case, the surety took no steps when Omal was
rearrested, nor did it ask for the cancellation of the bail bond
until after Omal’s escape or disappearance.

RULING: No. The surety’s right, duties, and liabilities after

the prisoner is, for another offense, arrested and then escapes
and/or absconds, must be controlled by statutory provisions or
by the general principles of contract. In jurisprudence it was
held that bail will be exonerated where the performance of its
condition is rendered impossible by act of God, the act of the
oblige, or the act of law.

It is well settled that a surety is the jailer of the accused and is

responsible for the latter’s custody. Therefore, it is not merely
his right but his obligation to keep the accused at all times
under his surveillance, considering that his authority emanating
from his character as surety is no more nor less than the
government’s authority to hold the accused under preventive
imprisonment. In this case, Luzon Surety Company, as the
surety and the jailer of the accused, should not have allowed

8
 REAL ESTATE MORTGAGE
34. Soriano v. Spouses Galit, 411 SCRA 631
FACTS:
Respondent Ricardo Galit contracted a loan from petitioner
Marcelo Soriano. The loan was secured by a real estate
mortgage. After Galit failed to pay his obligation, Soriano filed
a complaint for sum of money against him with the trial court.
Respondents failed to file an answer; hence they were declared
in default. The trial court ruled in favor of Soriano and
subsequently issued a writ of execution which covered the
following real properties of the Galit spouses: (1) a parcel of
land, (2) storehouse, and (3) bodega. The properties were sold
to Soriano.
Ten months from the time the Certificate of Sale was registered
with the Registry of Deeds, Soriano filed a motion for the
issuance of a writ of possession which was granted. The writ of
possession which was issued in Soriano’s favor includes the
land on which the sold storehouse and bodega are constructed.
ISSUE: Whether the land on which the storehouse and bodega
are constructed is necessarily included in the said sale on
execution
RULING: No. Art. 415 enumerates land and buildings
separately. This can only mean that a building is, by itself,
considered immovable. While it is true that a mortgage of land
necessarily includes, in the absence of stipulation of the
improvements thereof, still a building by itself may be
mortgaged apart from the land on which it has been built. Such
mortgage would still be a real estate mortgage for the building
would still be considered immovable property even if dealt
with separately and apart from the land.”
35. Mojica v. CA, G.R. No. 94247
FACTS:
Spouses Mojica obtained a loan from the Rural Bank of Yawit
secured by a real estate mortgage over a loan located in Cavite.
The real estate mortgage has a stipulation: “…agreement for
the payment of the loan of P20,000.00 and such other loans or
other advances already obtained or still to be obtained by the
mortgagors.”
The spouses paid their obligation. Thereafter, they obtained
another loan which they failed to pay. This led to the
foreclosure of the real estate mortgage in 1979. One year later,
the son of the spouses paid partially for the second debt.
Thereafter, an affidavit of consolidation of ownership was
executed by the bank with the Register of Deeds. A public
9
auction was supposed to be held but it did not commence,
hence the land was still in the possession of the bank. The bank
did not accept Mojica’s further payments. Hence, the Mojica
filed a complaint against the bank.
ISSUE: Whether the foreclosure sale held in 1979 is valid
RULING: Yes. It is a rule that mortgages given to secure
future advancements are valid and legal contracts. Moreover,
the stipulations of a mortgage document serve as the law
between the parties and such shall be complied. Furthermore, a
mortgage given to secure advancements is a continuing
security and is not discharged by repayment of the amount
named in the mortgage until the full amount of the
advancements are paid.
36. People’s Bank and Trust Co. v. Dahican Lumber
Company, 20 SCRA 84
FACTS:
In 1948, Atlantic sold and assigned all its right in the Dahican
Lumber concession to Dahican Lumber Company. To fully pay
and develop the concession, respondent obtained a loan from
petitioner evidenced by five promissory notes. As security for
the payment of the loans, respondent mortgaged five lands
together with the buildings existing thereon and other personal
properties located in its place of business. Upon respondent’s
failure to pay the fifth promissory note upon its maturity,
petitioner paid the same to a bank in Washington, D.C.
Subsequently, petitioner gave respondent up to a certain date to
pay the overdue promissory note. Respondent purchased
various machineries, equipment, spare parts, and supplies.
Petitioner requested respondent to submit a complete list of the
said properties but the latter failed to do so.
In 1952, the Board of Directors of respondent passed a
resolution rescinding the alleged sales of equipment, spare
parts, and supplies. Thereafter, the lower court ordered the sale
of all equipment, machineries, and supplies of respondent.
ISSUE: Whether the machineries, equipment, and supplies are
covered by the subject of deeds of mortgage subject of
foreclosure
RULING: Yes. The mortgage contract provides that all
property of every nature and description taken in exchange or
replacement, as well as all buildings, machineries, fixtures,
tools, equipment, and other property that the mortgagor may
acquire, construct, install, attach, or use in, to upon, or in
connection with the premises shall immediately be and become
subject to the lien of both mortgages in the same manner and to
the same extent as if already included therein at the time of
their execution.
Article 415 does not define real property but enumerates what
are considered as such, among them being machinery,
receptacles, instruments, or replacements intended by owner of
the tenement for an industry or works which may be carried on
in a building or on a piece of land, and shall tend directly to
meet the needs of the said industry or works.
10
37. Hechanova v. Adil, 144 SCRA 450
FACTS:
The case involves the annulment of a deed of sale executed by
Jose Servando in favor of Gemma Hechanova. Claiming that
the subject parcel of lands was mortgaged to him by Jose, Pio
Servando impugned the validity of the sale as being fraudulent.
Attach to Pio’s complaint was a copy of a private document of
the alleged mortgage.
ISSUE: Whether there was a valid mortgage in favor of Pio
RULING: No. No valid mortgage has been constituted in Pio’s
favor, the alleged deed of mortgage being a mere private
document and not registered; moreover, it contains a pactum
commissorium stipulation which is null and void under the
Civil Code.
38. Bank of Commerce v. Spouses San Pablo, 522 SCRA
713
FACTS:
Santos obtained a loan from Direct Funders Management and
Consultancy Inc. As a security for the loan, Natividad executed
a SPA in favor of Santos, authorizing the latter to mortgage to
Direct Funders a real property. In the real estate mortgage
contract executed in favor of Direct Funders, Natividad and her
husband Prudencio signed as the co-mortgagors of Santos. It
was clear between the parties that the loan obligation was for
the sole benefit of Santos and the spouses San Pedro merely
signed the deed in order to accommodate the former.
In 1995, the spouses received a letter from Direct Funders
informing them that Santos failed to pay the loan. When
confronted with the matter, Santos promised to promptly settle
the loan, which he actually did. Upon learning that Santos’
debt with Direct Funders had been fully settled, the spouses
demanded from him to turn over to them the TCT of the
subject property but the latter failed to do so despite repeated
demands. The spouses then inquired as to the status of their
property with the Register of Deeds and discovered that Santos
used their property as a collateral for another loan obligation he
secured from petitioner.
Stamped at the bank of the title is an annotation stating that the
spouses purportedly authorized Santos to mortgage the
property to the Bank of Commerce, as evidenced by a SPA. It
was further shown from the annotation at the back of the title
that the spouses signed a Deed of Real Estate Mortgage over
the property in favor of petitioner, which they never did.
ISSUE: Whether petitioner is a mortgagee in good faith
RULING: No. All persons dealing with property covered by
the Torrens Certificate of Title, as buyers or mortgages, are not
required to go beyond what appears on the face of the title. In
cases where the mortgagor is not the rightful owner of the
property, the mortgagee is expected to examine not only the
certificate of title but all the factual circumstances for one to
11
determine if there are any flaws in the title of the transferor, or
in the capacity to transfer the land.
Here, since Santos was not the registered owner as he merely
represented himself to be the attorney-in-fact of the spouses
San Pablo, the Bank of Commerce is expected to examine not
only the certificate of title but all the factual circumstances
necessary for one to determine if there are any flaws in the title
of the transferor, or in the capacity to transfer the land.
39. Premiere Development Bank v. CA, 453 SCRA 630
FACTS:
Two persons with exactly the same name, i.e., Vicente T.
Garaygay, claimed exclusive ownership of the subject
property. Each had possession of the property during the period
material covering the said lot. One held TCT No. 9780 and the
other, TCT No. 9780. Both TCTs have the same technical
description of the land and the date “June 14, 1944.” However,
one contained certain features, markings, and/or entries not
found in the other and vice versa.
In 1979, Garaygay of Cebu executed a deed of sale in favor of
his nephew, Joselito. In another transaction, Garaygay of Rizal
sold to Liberto Yambao and Jesus Rodriguez the same
property. Buyers Yambao and Rodriguez would later sell a
protion of their undivided interests on the land to Jesus
Moralez.
Then came the 1988 fire that gutted a portion of the Quezon
City hall and destroyed the document of Garaygay of Cebu but
it was later reconstituted. It was later subdivided into three lots.
One of the lots was sold to Lilian Toundjis and the other two
lots were assigned to Century Realty which mortgaged the
same to Premiere Bank to secure a loan.
Yambao, Rodriguez, and Morales filed with the RTC a suit
against Joselito, Century, and Premiere Bank for quieting of
title and annulment of the defendants’ fake titles with prayer
for damages.
ISSUE: Whether Tounjis and Premiere Bank are buyers in
good faith
RULING: No. A study of the record shows that the TCT lot
that Toundjis contracted to buy from Joselito carried an
annotation that it was administratively reconstituted. Records
also indicate that Toundjis knew at the time of the sale that
Joselito did not have possession of the lot inasmuch as she
agreed to pay the balance of the purchase price as soon as the
seller can fence off the property and surrender physical
possession thereof to her.
Furthermore, a purchaser of a property cannot be in good faith
where the title thereof shows that it was reconstituted. The
contract to sell is also unregistered and not annotated at the
back of the title of the property for the reason that under PD
1529, the act of registration shall be the operative act to convey
or affect the land insofar as third parties are concerned.
12
Premiere Bank cannot also be accorded the status of an
innocent mortgagee for value vis-à-vis the mortgage of the lots
constituted in its favor by Century Realty. Apart from the
annotations that said titles are only administratively
reconstituted, Premiere is aware of the existence of these
structures as can be seen in its real estate report. But despite the
existence of these structures, Premiere proceeded in the
execution of the mortgage contract.
If the land mortgaged is in the possession of a person other
than the mortgagor, the mortgagee is required to go beyond the
certificate of title and make inquiries as to the rights of the
actual possessors. Failure to do so would make him a
mortgagee in bad faith.
40. Asuncion v. Evangelista, 316 SCRA 848
FACTS:
For 10 years, Eduardo Evangelista has been operating a
piggery under the trade name Embassy Farms. In 1981,
Eduardo, his wife, and three others organized Embassy Farms,
Inc. and registered it with the Securities and Exchange
Commission.
Eduardo obtained a loan from Paluwagan ng Bayan Savings
and Loan Association as working capital for Embassy Farms.
As security for the loan, he executed a real estate mortgage on
three of his properties. Thereafter, he mortgaged 10 titles more
in favor of PAIC Savings and Mortgage Bank, as security for a
loan he obtained from it. He obtained another loan from
Mercator Finance Corporation which was secured by a real
estate mortgage on five lands.
Eduardo defaulted in his loan payments. Hence, petitioner
Asuncion and Eduardo executed a Memorandum of Agreement
which stated that petitioner will pay all of the loans of Eduardo
provided that the latter will transfer the title of the farm and
properties, which were mortgaged in favor of Asuncion.
Asuncion was able to pay partially the loans of Eduardo from
the three creditors as compliance to the MOA. Eduardo was
obligated under the MOA to sign and delivery any and all
documents necessary for the transfer and conveyance of the
mortgaged properties. However, more than a year after signing
the MOA, the properties of Eduardo remained titled in his
name. Hence, Asuncion filed a complaint for rescission of the
MOA with a prayer for damages.
ISSUE: Whether the MOA was in the nature of a contract of
sale
RULING: Yes. Under the MOA, it was the obligation of
Eduardo to cede and convey, in a manner absolute and
irrevocable, his real properties and stockholdings in the farm in
favor of Asuncion in exchange for the outright payment by
Asuncion of all the financial obligations of Evangelista. While
Asuncion paid Evangelista the stipulated lump sum,
Evangelista never executed a deed of sale with assumption of
mortgage over his landholdings.
41. Quintanilla v. CA, 279 SCRA 397
13
FACTS:
Perfecta Quintanilla executed a Real Estate Mortgage on a
parcel of land in favor of Rizal Commercial Banking
Corporation, to secure a credit line in the amount of
P45,000.00. From this credit line, Quintanilla availed the
amount of P25,000.00, secured and evidenced by a promissory
note. In addition, Quintanilla secured from RCBC two loans
against her advance export credit line, secured by a promissory
note.
Then, Quintanilla shipped stocks of her cane products to her
buyer, under the export bill. RCBC received the proceeds of
this export shipment. However, the issuing bank, Brussels
Lambert-Belgium refused payment on the export bill and
demanded reimbursement from RCBC. RCBC paid the
amount. RCBC then proceeded to demand payment from
Quintanilla the whole amount. Yet, Quintanilla failed to pay.
Hence, RCBC foreclosed the real estate mortgage executed by
Quintanilla.
ISSUE: Whether the Real Estate Mortgage secures future
indebtedness exceeding P45,000.00
RULING: Yes. The provisions of the real estate mortgage
provides: “that for and in consideration of certain loans
overdrafts and other credit accommodations obtained from the
mortgagee by the same and those that hereafter be obtained, the
principal of all of which is hereby fixed at P45,000.00, as well
as those that the mortgage may extend to the mortgagor
including interest, and expenses of any other obligation owing
to the mortgagee, whether direct or indirect, principal or
secondary, the mortgagor does hereby transfer and convey by
way of mortgage unto the mortgagee…”
The amount stated in the mortgage contract between
Quintanilla and RCBC does not limit the amount for which it
may stand as security considering that under the terms of that
contract, the intent to secure future indebtedness is apparent.
42. Republic v. Lim, 482 SCRA 265
FACTS:
The Republic instituted expropriation proceedings involving
two lots owned by the Denzons for the purpose of establishing
a military reservation for the Philippine Army. Republic took
possession of the lots. Thereafter, the CFI rendered a decision
ordering Republic to pay the Denzons the sum of P4,062.10 as
just compensation. The Denzons appealed to the CA but it was
dismissed. Hence, the entry of judgment was made.
For failure of the Republic to pay for the lots, the Denzons’
successors-in-interest, Valdehueza and Panerio, filed with the
CFI an action for recovery of possession with damages against
the Republic. The CFI held that they are the owners and have
retained their right as such over the lots because of the
Republic’s failure to pay just compensation. However, they
were ordered to execute a deed of sale in favor of the Republic.
14
They appealed the CFI’s decision to the SC. The SC held that
Valdehueza and Panerio are still the registered owners of the
lots, but ruled that they are not entitled to recover possession of
the lots but may only demand the payment of their fair market
value.
Meanwhile, Valdehueza and Panerio mortgaged one of the lots
to Vicente Lim. For their failure to pay the latter despite
demand, he had the mortgaged foreclosed. The lot title was
issued in his name. Hence, Lim filed a complaint for quieting
of title against the Republic.
ISSUE: Whether Lim acted in bad faith in entering into a
contract of mortgage with Valdehueza and Panerio despite the
clear annotation in the TCT
RULING: No. Such issue is immaterial considering that the
Republic did not complete the expropriation process. It failed
to perfect its title over the lot by its failure to pay just
compensation. Assuming that Lim was in bad faith, such fact
cannot vest upon the Republic a better title over the lot because
in the first place, the Republic has no title to speak of.
Assuming that Lim had indeed knowledge of the annotation,
still nothing would have prevented him from entering into a
mortgage contract while the expropriation proceeding was
pending. Here, the annotation merely served as a caveat that
the Republic had a preferential right to acquire the land upon
its payment of just compensation. It did not proscribe
Valdehueza and Panerio from exercising their rights of
ownership including their right to mortgage or even to dispose
of their property.
The owner has absolute right over the property pending
completion of the expropriation proceeding. Until the action
for expropriation has been completed and terminated,
ownership over the property being expropriated remains with
the registered owner. Consequently, the latter can exercise all
rights pertaining to an owner, including the right to dispose of
the property subject to the power of the State ultimately to
acquire it through expropriation.
43. Litonjua v. L&R Corporation, 320 SCRA 269
FACTS:
Spouses Litonjua obtained a loan of P40,000.00 from L&R
Corporation. The loan was secured by a mortgage of two
parcels of land. The Deed of Real Estate Mortgage between the
spouses and L&R contained the following provisions:
Section 8. That the mortgagors shall not sell, dispose of,
mortgage, nor in any other manner encumber the real
property/properties subject of this mortgage without the
prior written consent of the mortgagee;
Section 9. That should the mortgagors decide to sell the
real property/properties subject of this mortgage, the
mortgagee shall be duly notified thereof by the
mortgagors and should the mortgagee be interested to
15
 purchase the same, the latter shall be given priority over
all the other prospective buyers.
Later, the spouses sold the land to Philippine White House
Auto Supply Inc. (PWHAS). The sale was annotated at the
back of the certificates of sale.
When the spouses defaulted in the payment of their obligations
to L&R, the latter initiated an extrajudicial foreclosure. The
properties were successfully foreclosed and sold at a public
auction wherein the company was the only bidder. Seven
months after the foreclosure sale, PWHAS tendered payment
of the full redemption price to the company. The latter was
about to register the sale, but it learned for the first time of the
Litonjua’s sale of the lands to PWHAS.
The spouses filed a complaint for Quieting of Title, Annulment
of Title and Damages with preliminary injunction against
L&R.
ISSUES:
1. Whether Sections 8 and 9 of the Real Estate Mortgage are
valid and enforceable
2. Whether the redemption effected by PWHAS on the account
of the spouses Litonjua is valid
3. Whether the stipulation granting the right of first refusal is
valid and enforceable
RULING:
1. Section 8 is invalid but Section 9 is valid. Section 8 violates
Art. 21330 of the Civil Code providing that stipulations
forbidding the owner from alienating the real property shall be
void. While it is true that the provisions do not absolutely
prohibit the mortgagor from selling his property, what it does
not outrightly prohibit, it nevertheless achieves. For all intents
and purposes, the stipulation practically gives the mortgagee
the sole prerogative to prevent any sale of the mortgaged
property to a third party. Since Section 8 is invalid, it is not
binding upon the parties. Hence, the sale made by the spouses
Litonjua to PWHAS, notwithstanding the lack of prior written
consent of L&R Corporation, is valid.
2. Yes. The sale made by the spouses Litonjua of the
mortgaged property to PWHAS is valid. Hence, PWHAS
stepped into the shoes of the spouses Litonjua on account of
such sale and was in effect, their successor-in-interest. As such,
it had the right to redeem the property foreclosed by L&R
Corporation.
The redemption of PWHAS to redeem the real property finds
support in Section 6 of Act 3135 which gives not only the
mortgagor-debtor the right to redeem, but also his successors-
in-interest. As purchaser of the subject property, PWHAS
qualifies as a successor-in-interest of the spouses Litonjua.
3. Yes. PWHAS cannot claim ignorance of the right of first
refusal granted to L&R Corporation over the real property
16
since the Deed of Real Estate Mortgage containing such
provision was duly registered with the Register of Deeds. As
such, PWHAS is presumed to have been notified thereof by
registration, which equates to notice to the whole world.
The sale between the spouses Litonjua and PWHAS is valid,
notwithstanding the absence of L&R Corporations’ prior
written consent thereto. Inasmuch as the sale to PWHAS is
valid, its offer to redeem and its tender of the redemption price,
as successor-in-interest of the spouses Litonjua, within the one-
year period should have been accepted as valid by L&R. While
the sale is indeed valid, it is rescissible because it disregarded
L&R’s right of first refusal.
44. Borromeo v. CA, G.R. No 169846
FACTS:
Spouses Borromeo were client-depositors of Equitable PCI
Bank (EPCIB) from more than 12 years. They alleged that
sometime in mid-1999 the branch manager of EPCIB offered a
loan to the spouses under its “Own-a-Home Loan Program.”
The spouses applied for a loan and were informed of the
approval of their loan application. In 2000, the spouses signed
blank loan documents consisting of the Loan Agreement,
Promissory Notes, a Real Estate Mortgage (REM) and
Disclosure Statements.
To secure the payment of the loan, the spouses executed a
REM over their land in favor of EPCIB. They made repeated
verbal requests to EPCIB to furnish them their copies of the
loan documents but to no avail. The Vice President of EPCIB
sent the spouses a letter explaining that as a matter of practice,
their clients were given original copies of the loan documents
only upon full release of the amount loaned. He clarified that
since the spouses’ loan had not been fully released, the original
documents were not yet sent to them.
Finally, the spouses received copies of the loan documents.
They were surprised to find out that the Loan Agreement and
REM designated Equitable Savings Bank (ESB) as lender and
mortgagor, instead of EPCIB with whom they allegedly
entered into the agreement.
When the spouses failed to pay for the loan in full, EPCIB
sought to extrajudicially foreclose the REM. The Office of the
Ex-Officio Sheriff issued a notice of extrajudicial sale in which
it was stated that the extrajudicial sale was set to take place on
November 26, 2003. On November 14, 2003, the spouses
received the notice. Thereafter, the spouses filed a complaint
for injunction, annulment of mortgage, damages and with
prayer for temporary restraining order and preliminary and
mandatory injunction against EPCIB and ESB, alleging that the
loan documents failed to reflect the true agreement of the
parties.
The extrajudicial foreclosure did not push through, hence ESB
re-filed its petition for extrajudicial foreclosure of the REM.
Meanwhile, the RTC granted the spouses’ Motion for
Reconsideration and found that the spouses were bound to
suffer grave injustice if they were deprived of their property
17
before the RTC could rule on the validity of the REM
constituted on the same.
ISSUE: Whether a writ of preliminary injunction should be
issued to enjoin the foreclosure and public auction of
petitioners’ property during the proceedings and pending
determination of the main cause of action for annulment of the
REM of said property
RULING: Yes. The determination of who is the creditor-
mortgagee is only for purposes of determining the propriety of
issuing a writ of preliminary injunction, based on the evidence
presented before the hearing for the issuance of a preliminary
injunction. It will not bar the RTC from making its
determination as to who is the true creditor-mortgagee after
trial and presentation of evidence on the main case. To
establish the essential requisites for a preliminary injunction,
the evidence submitted by the plaintiff need not be conclusive
and complete. The plaintiffs are only required to show that they
have an ostensible right to the final relief prayed for in their
complaint.
Here, the extrajudicial foreclosure of the petitioners’ property
pending the final determination by the RTC of their complaint
for annulment of the REM and claim for damages would result
in an injustice to the petitioners. If the RTC would
subsequently declare that ESB was entitled to have petitioners’
property foreclosed, it may still foreclose the subject property.
On the other hand, if the RTC later finds that ESB is not the
creditor-mortgagee and therefore the foreclosure of the
property is invalid, petitioners would be placed in an
oppressively unjust situation where they will be tied up in
litigation for the recovery of their property while their debt to
the real creditor-mortgagee, EPCIB, would remain unpaid and
continue to accrue interest and other charges.
45. Spouses Agbada v. Inter-Urban Developers, 389 SCRA
430
FACTS:
Petitioners obtained a P1.5 million loan from Inter-Urban with
a term of six months and 3% monthly interest, secured by a
real estate mortgage on a parcel of land and the improvements
thereon. When the spouses defaulted, Inter-Urban filed a
complaint for foreclosure of the mortgage which the spouses
opposed alleging that the loan is not yet due since when they
obtained the loan, the term agreed upon is five years with rate
at legal interest and that the terms appearing in the documents
are only simulated and for formality purposes only.
The trial court ruled in favor of Inter-Urban. The spouses did
not appeal; thus, the property was foreclosed with Inter-Urban
as the highest bidder.
ISSUE: Whether the foreclosure by Inter-Urban is valid
RULING: Yes. The defense of failure of the writing to express
the true intent and agreement of the parties can be obtained
only when the written contract is so ambiguous or obscure in
terms that the contractual intention of the parties cannot be
18
understood from a mere reading of the instrument, thus
necessitating the reception of relevant extrinsic evidence of the
contractual provision in dispute to enable the court to make a
proper interpretation of the instrument. However, in this case,
the loan and mortgage deed are clear and without ambiguity,
mistake or imperfection in specifying the maturity of the loan
exactly after six months from date of execution thereof at the
interest rate of 3% per month.
46. Sayson v. Luna, 433 SCRA 502
FACTS:
Petitioners charged Luna, Sheriff III, MeTC, Branch 37,
Quezon City, with grave misconduct and/or conduct prejudicial
to the best interest of the service relative to a civil case.
Petitioners alleged that one weekend, one Gregorio Rellorosa
informed them that his car would be levied upon pursuant to a
writ of execution issued by the MeTC of Quezon City and that
it was scheduled to be sold at public auction at 10 am on July
15, 1999. Rellorosa requested them to participate in the
bidding, to which they agreed, subject to the condition that in
case one of them would win the bid, they would allow
Rellorosa to redeem the car within one year at the bid price
plus accrued interest.
Petitioners alleged that at 9 am of July 15, 1999, they met
Rellorosa and agreed to pool their resources so that they would
come out as the highest bidder. They also met Luna the same
morning. Upon being told that the scheduled auction sale had
been postponed to July 19, 1999, the complainants left.
However, later they learned from Rellorosa that Luna
conducted the suction sale of the car at 2 pm that same day.
Luna explained that he levied the car pursuant to a writ of
execution issued by the court. The auction sale was set at 10
am of July 15, 1999 with due notice to Rellorosa.
Three days prior to the scheduled auction sale, Rellorosa filed a
petition for relief from judgment with urgent prayer for
preliminary injunction and temporary restraining order to stop
the sale. Luna alleged that he came to see Rellorosa alone and
informed the latter that his motion was denied. He also told the
latter that the auction sale would not push through as scheduled
but would proceed any time of the day once the order was
signed. He advised Rellorosa to wait for Serrano to ask if the
latter would postpone the auction sale, but Rellorosa
immediately left.
ISSUE: Whether there was misconduct on the part of Luna
RULING: No. Sheriff Luna acted in accordance with the Writ
of Execution as issued by the MeTC Judge. A sheriff’s duty in
the execution of a writ is purely ministerial. He is to execute
the order of the court strictly to the letter and he has no
discretion whether to execute the judgment or not.
A perusal of the notice of levy and sale will show that the sale
at public auction was to take place on July 15, 1999 at 10 am or
soon thereafter at the front of the Hall of Justice Building in
QC. Such notice was served on July 8, 1999 or more than five
19
days before the scheduled auction sale. Furthermore, a sheriff’s
report, in this case the minutes of the auction sale, as a
document, is clothed with the presumption of regularity, and
since it was not objected to by the complainant, it must be
upheld.
The petitioners failed to substantiate the charges against Luna.
As against the bare allegations of misconduct with no cogent
proof thereon, and the presumption of regularity in the
performance of official functions, the latter shall prevail.
47. Paguyo v. Gatbunton, 523 SCRA 156
FACTS:
Spouses Paguyo, by way of security for a loan of P20,000.00
which they obtained from Jeanlyn’s Lending Investor,
executed in favor of the latter a Deed of Real Estate Mortgage
over their residential property. In 2003, an application for the
extrajudicial foreclosure of the said mortgage was filed with
the RTC by the spouses Garcia, owners and operators of
Jeanlyn’s Lending Investor, alleging that the spouses Paguyo
defaulted in the payment of their loan obligation and the
interests thereon.
Thereafter, a notice of sheriff’s sale was issued by Gatbunton
setting the public auction sale of the mortgaged property on
April 2003. The notice was posted 12 days after the application
for foreclosure and was subsequently published in Sierra
Pacific News in its issues of March 12, 15, and 19, 2003.
However, instead of the auction sale being held as announced,
the same was actually conducted by Gatbunton on December 1,
2003 with Garcia as the highest bidder.
Spouses Paguyo filed a complaint with the Office of the Court
Administrator charging Gatbunton with grave abuse of
authority and/or gross ignorance of the law, claiming that the
conduct of Gatbunton of the extrajudicial foreclosure
proceedings against their property was highly irregular and
patently illegal.
ISSUE: Whether Gatbunton may be held administratively
liable for proceeding with the extrajudicial foreclosure
RULING: No. It is provided for in Administrative Order No. 3
series of 1984 that it is the sheriff’s duty to examine if the
application for extrajudicial foreclosure of real estate mortgage
has complied with the requirements under Section 4 of Act
3135. However, amendments had already been introduced to
such administrative order by making it the specific duty of the
Clerk of Court to examine applications for extrajudicial
foreclosure of mortgages.
In this case, the application for extrajudicial foreclosure was
filed on Feb. 11, 2003, after the amendment of the said
administrative order. Hence, the duty to examine said
application to determine whether the deed of mortgage
contains or incorporates a special power authorizing the
spouses Garcia to extrajudicially foreclosure the mortgage in
the event of nonpayment of the loan by the spouses Paguyo
devolved upon the Clerk of Court, not on Sheriff Gatbunton.
20
However, for his having conducted the auction sale of the
mortgaged property on Dec. 1, 2003 without causing the
republication of the notice of sheriff’s sale with the new
auction sale, Gatbunton was held liable not for gross ignorance
of the law, but for inefficiency and incompetence in the
performance of his official duties. Publication is required to
give the foreclosure sale a reasonably wide publicity such that
those interested might attend the public sale. To allow the
parties to waive this jurisdictional requirement would result in
converting into a private sale what ought to be a public auction.
48. Spouses Tamayo v. Heirs of Gavino Dominguez, 498
SCRA 342
FACTS:
Gavino Dominguez executed a real estate mortgage on one-
half of his commercial property in favor of the Community
Savings and Loan Association (CSLA) as mortgagee. The loan
agreement was signed by Ricardo Dominguez as co-maker and
specified Nov. 26, 1976 as due date. Gavino died without
settling his obligation. On the maturity of the loan, CSLA filed
a petition for extrajudicial foreclosure. In the auction sale, the
property was awarded to it as the highest bidder and the
certificate of sale registered in its name. When the one-year
redemption period had already lapsed, title and ownership of
half of the property were consolidated in its favor. A tax
declaration was issued, with CSLA and Gavino as registered
co-owners.
In 1980, CSLA allegedly gave the heirs of Gavino the option to
repurchase within 30 days the half of the property. When they
failed to avail of the offer, CSLA sold the property to spouses
Tamayo. A tax declaration was subsequently issued, naming
Virgilio Tamayo and Gavino as co-owners of the property.
In 1984, spouses Tamayo filed an action for partition against
respondents who opposes it on the ground that, since CSLA
committed a violated of the mortgage deed when it failed to
send Gavino or his heirs a notice of the extrajudicial
foreclosure and sale, the proceeding was null and void.
ISSUE: Whether the extrajudicial foreclosure proceedings
were null and void
RULING: Yes. There is no evidence to show that the CSLA
properly sent notice of the foreclosure proceedings to Gavino
or to his heirs, pursuant to Section 10 of the Real Estate
Mortgage Contract. In extrajudicial foreclosure proceedings,
personal notice to the mortgagor is actually unnecessary unless
stipulated. In this case, the parties agreed on an additional
stipulation embodied in Section 10 of the mortgage contract.
Not being contrary to law, morals, good customs, and public
policy, CSLA should have complied with it faithfully.
49. LCK Industries v. Planters Development Bank, 538
SCRA 634
FACTS:
21
LCK Industries obtained a P3 million loan from Planters
Development Bank, as evidenced by two promissory notes. As
security for the loan, spouses Lim executed two Real Estate
Mortgages for two parcels of land. Petitioner defaulted in its
payment; hence respondent caused the extrajudicial foreclosure
of the property. Prior to the auction sale, LCK and spouses Lim
filed an action for the annulment of foreclosure of mortgage
and auction sale of the second property, alleging non-
compliance with posting and publication requirements and
non-filing of petition for extrajudicial foreclosure before the
Clerk of Court as required by Act No. 3135.
In its memorandum, LCK claimed overpayment amounting to
P1.8 million.
ISSUE: Whether the excess amount of P1.8 million which the
bank acquired from the auction sale of the spouses Lim’s
property should be returned to them
RULING: Yes. Section 21 of Rule 39 of the Rules of Court
provides “when the purchaser is the judgment obligee, and no
third-party claim has been filed, he need not pay the amount of
the bid if it does not exceed the amount of the judgment. If it
does, he shall only pay the excess.” Section 24 of Rule 68
provides “the amount realized from the foreclosure sale of the
mortgaged property shall, after deducting the costs of the sale,
be paid to the person foreclosing the mortgage, and when there
shall be any balance or residue, after paying off the mortgage
debt due, the same shall be paid to junior encumbrancers in the
order of their priority, to be ascertained by the court, or if there
be no such encumbrances or there be a balance or residue after
payment to them, then to the mortgagor or his duty authorized
agent, or to the person entitled to it.”
In Sulit v. CA, the Court held that it is the mortgagee’s duty to
return any surplus in the selling price to the mortgagor.
Perforce, a mortgagee who exercises the power of sale
contained in a mortgage is considered a custodian of the fund
and being bound to apply it properly, is liable to the persons
entitled thereto if he fails to do so.
Here, LCK’s obligation with the bank was already fully
satisfied after the mortgaged properties were sold at the public
auction for more than the amount of LCK’s remaining debt
with the bank. As the custodian of the proceeds from the
foreclosure sale, the bank has no legal right whatsoever to
retain the excess of the bid price and is under clear obligation
to return the same to LCK.
50. Development Bank of the Philippines v. Spouses
Licuanan, 516 SCRA 644
FACTS:
Respondents obtained several loans from petitioner bank on
different dates evidenced by promissory notes and secured by
real estate mortgages over several properties. When the
respondent spouses failed to settle with their obligations,
petitioner bank informed them that their properties shall be
sold by the sheriff. Eventually, the properties were sold in a
public auction with petitioner bank as the highest bidder. After
22
one year, the bank consolidated its ownership over the
properties and announced that it will sell its properties via
public bidding. When no bidders came, it informed the spouses
Licuanan that the properties could be reacquired by negotiated
sale for cash or installment. Thereafter the properties were sold
to Emelita Peralta. Then respondents offered to repurchase the
properties from the bank but such properties had already been
sold to Peralta. Hence, they filed a complaint for the recovery
of real properties.
ISSUE: Whether prior demand is a precondition before an
extrajudicial foreclosure can be made
RULING: Yes. Unless demand is proven, one cannot be held
in default. DBP’s cause of action did not accrue on the
maturity dates stated in the promissory notes. It is only when
demand to pay is made and subsequently refused that
respondents can be considered in default and petitioner obtains
the right to file an action to collect the debt or foreclose the
mortgage.
51. GSIS v. CA, 266 SCRA 187
FACTS:
Philippine Village Hotel, Inc. (PVHI) obtained a P22 million
loan from GSIS for the construction of a hotel on a land leased
to PVHI by the Nayong Pilipino Foundation. To guarantee
payment of said loan, PVHU hypothecated the hotel and its
contents to the GSIS. Thereafter, GSIS granted to PVHI two
additional loan accommodations. PVHI entered into a lease-
purchase agreement with GSIS over a building annexed to the
hotel. Under the agreement, PVHI has to pay monthly
installments to GSIS until the costs of the building is fully
paid.
Over the period from December 15, 1972 to June 30, 1986,
PVHI paid to the GSIS the sum of P98.9 million. The loan
obligation covered by the mortgage was still not fully paid.
Thereafter, GSIS instituted foreclosure proceedings of real
estate and chattel mortgages. GSIs scheduled a foreclosure
sale. The hotel was sold in a public auction with GSIS as the
highest bidder.
PVHI filed a petition to set aside the foreclosure sale claiming
that such foreclosure sale was illegal.
ISSUE: Whether the remedy of a party aggrieved by
foreclosure is to have the sale set aside
RULING: Yes. PVHI’s remedy was to nullify the sale where
petitioner had sought an issuance of a writ of possession of the
property as confirmed by Section 8 of Act No. 3135. However,
PVHI wrongly elevated the order of Judge Sayo dismissing the
petition to nullify the foreclosure sale via a petition for
certiorari instead of an ordinary appeal. Nevertheless, certiorari
may in meritorious case be allowed, particularly when the
petition is filed while the period for appeal has not yet expired.
In this case, certiorari could be justified in order to prevent any
possible irreparable damage to PVHI as against an ordinary
appeal which may prove to be tedious and inadequate.
23
52. Maglaque v. Planters Development Bank, 307 SCRA
156
FACTS:
Spouses Maglaque and Payawal were the owners of a parcel of
land and a residential house of strong materials erected thereon.
The spouses obtained a loan from Bulacan Development Bank
evidenced by a promissory note, payable on or before March
19, 1975, in two installments. To secure the loan, the spouses
executed a deed of real estate mortgage on the parcel of land,
including its improvements.
Payawal died. In 1977, Egmidio Maglaque paid the bank the
amount of P2,000.00 which the bank accepted. In 1979,
Egmidio died. For non-payment of the loan in full, the bank
extrajudicially foreclosed on the real estate mortgage through
the sheriff who conducted a public auction sale of the property
pursuant to the authority provided for in the deed of real estate
mortgage. The bank was the highest bidder.
After the lapse of the redemption period, the bank consolidated
its title to the property and became its registered owner. David
Maglaque, as heir of the deceased spouses Maglaque and
Payawal, filed a complaint for annulment of the sale conducted
by the sheriff. In 1980, the bank sold the property to spouses
Beltran.
ISSUE: Whether the bank should have filed its claim in the
settlement of estate of the deceased mortgagors
RULING: No. A secured creditor holding a real estate
mortgage has three options in case of death of the debtor:
1. to waive the mortgage and claim the entire debt from
the estate of the mortgagor as an ordinary claim;
2. to foreclose the mortgage judicially and prove any
deficiency as an ordinary claim; and
3. to rely on the mortgage exclusively, foreclosing the
same at any time before it is barred by prescription,
without right to file a claim for any deficiency
The bank availed itself of the third option.
53. Raymundo v. Sunico, 25 Phil. 365
FACTS:
Valeriana Raymundo was the owner of three parcels of land.
She mortgaged this land to a company to secure the payment of
P5,915.56. Thereafter, an action was filed to foreclose the
mortgage and an order was issued by the lower court directing
Raymundo to pay the amount within the time prescribed by
law, and in case of failure to do so, the property will be sold.
The judgment of the lower court was affirmed by the SC.
Hence, the lower court directed that the three parcels of land be
sold to satisfy the judgment. The land was sold at public action
to Sunico. Such sale was approved by the court without any
notice to the plaintiffs.
24
ISSUE: If the sale of mortgaged property is approved without
giving the mortgagor an opportunity to be heard, is such
approval valid and sufficient to pass title?
RULING: No. The last part of section 257 of the Code of Civil
Procedure reads: “Should the court decline to confirm the sale,
for good cause shown, and should set it aside, it shall order a
resale in accordance with law.” This part of the section clearly
shows that there must be a hearing for the confirmation of the
sale. Such hearing is an essential part of the foreclosure
proceedings because it gives the interested parties an
opportunity to lay before the court their reasons why the sale
should or should not be confirmed.
In this case, Valeriana Raymundo was not a party to the
foreclosure, but she was the party most interested in the
confirmation of the sale. She was the owner of the land and
remains the owner until the sale is regularly confirmed. She
loses all of her right, title, and interest in the property upon the
confirmation. To deprive Valeriana of the property by
confirming the sale without giving her an opportunity to be
heard would be contrary to the plain principles of justice. She
may have good reasons why the sale should not have been
confirmed, such as irregularities in the conduct of the sale,
misconduct on the part of the sheriff or any of the parties,
misrepresentations, etc.
54. Phil. Veterans Bank v. Molinas, 550 SCRA 251
FACTS:
Benjamin Molinas and his brother, Ireneo, inherited a parcel of
land from their father. In 1973, Benjamin executed a deed of
sale of his share over the property to his brother under the
latter’s representation that he would use the deed to procure a
loan with the Development Bank of the Philippines for a
planned housing project on the land. Then, Ireneo caused the
transfer of title of the property in his name. The property was
later subdivided into 308 lots and individual titles for the
subdivided lots were issued. Ireneo mortgaged 22 lots to
petitioner.
Three years after, Benjamin filed a case for the nullification of
the deed of sale, the recovery of the property, and the payment
of damages. While the case was pending, petitioner foreclosed
the mortgage and emerged as the highest bidder in the
foreclosure sale. In 1985, Benjamin caused the annotation of
notices of lis pendens relating to this case on the titles of the
subdivided lots. Two years later, the deed of sale was declared
null and void hence cancelling the subsequent titles issued.
This attained finality in 1991.
Thereafter, Benjamin filed an action against petitioner for the
cancellation of the mortgage, the invalidation of the
foreclosure, and the declaration of the nullity of the titles
issued in petitioner’s name.
ISSUE: Whether petitioner is an innocent mortgagee for value
RULING: Yes. Petitioner is an innocent mortgagee for value.
When the lots were mortgaged to it by Ireneo, the titles thereto
25
were in the latter’s name, and they showed neither vice nor
infirmity. In accepting the mortgage, petitioner was not
required to make any further investigation of the titles to the
properties being given as security, and could rely entirely on
what is stated in the aforesaid titles. The public interest in
upholding the indefeasibility of a certificate of title, as
evidenced of the lawful ownership of the land or of any
encumbrance thereon, protects a buyer or mortgagee who, in
good faith, relied upon what appears on the face of the
certificate of title.
55. Limpin v. IAC, 166 SCRA 1987
FACTS:
Spouses Aquino obtained a loan from Guillermo Ponce which
was covered with a security consisting of four lots. The
mortgages were registered. In 1980, the lots were used to
satisfy the money judgment against Butuan Bay Wood Export
Corporation. Said lots were sold to Limpin who then sold the
lots to Rogelio Sarmiento. However, the day before Limpin’s
levy on the two lots, Ponce filed a suit against Spouses Aquino
for judicial foreclosure of the mortgage over the lots.
The trial court ruled in favor of Ponce. The IAC reversed the
ruling of the trial court and ruled in favor of Limpin.
ISSUE: Whether Ponce holds a prior and superior lien
RULING: Yes. The IAC is correct in ruling in favor of Ponce
because the latter holds a prior and superior lien. The
registration of the lots in favor of Limpin and Sarmiento is
premature because they are only entitled to their registration of
their equity of redemption. The mortgagee’s lien is superior
over the subsequent judgment creditor’s. A recorded judgment
is a right in rem, a lien over the property whoever its owner
may be. Registration has an effect of constructive notice which
the petitioners in this case, in effect, is already notified. The
subsequent purchase of Limpin and Sarmiento, all of them
were subject to the mortgage in favor of Ponce. The latter’s
right is not in any way affected or prejudiced by a subsequent
or junior lien.
56. Aclon v. CA, 387 SCRA 415
FACTS:
Pedro Aclon secured a loan from PNB which was secured by a
mortgage over two parcels of land. When the loan became due,
it was extended after Aclon partially paid. However, despite
demands from PNB, Aclon failed to pay, hence PNB
constituted extrajudicial foreclosure proceedings. After
publication and notice, the sheriff conducted the sale at public
auction of the mortgaged properties. The properties were then
awarded to PNB being the sole and highest bidder. A
certificate of sale was issued to PNB. The redemption period
lapsed without Aclon redeeming the property. Thus, PNB sold
one of the parcels of land to Spouses Opimo. However, Aclon
remained in possession of the property. When the spouses
Opimo attempted to take possession of the property, Aclon
refused to vacate the same and instead filed a complaint against
26
PNB and the spouses Opimo alleging that the sale of the
property was null and void.
ISSUE: Whether the sale of the property by PNB to Spouses
Opimo is null and void
RULING: No. An attempt to redeem from an execution sale
has been construed as a waiver of defects or irregularities
therein, precluding him from relying upon them for the purpose
of challenging its validity. In this case, when Aclon sought to
redeem the property from PNB, he never made any reservation
with respect to his right to question the validity of the auction
sale and to seek alternative relief before the courts. In other
words, there was no indication whatsoever that he does not
recognize the validity of the sale.
If Aclon indeed felt that the foreclosure proceedings were
attended with any irregularity, he should have filed the
appropriate action with the court. Furthermore, it was only
more than five years after the said properties were foreclosed
and after four years after the same were sold to the spouses
Opimo that Aclon filed for redeeming the subject properties
proving his own fault and negligence. Therefore, with Aclon’s
implied admission of the validity of the extrajudicial
foreclosure proceedings, he is likewise estopped from
questioning the venue of the public auction.
57. Metropolitan Bank and Trust Company v. Tan, 555
SCRA 502
FACTS:
Respondent Rey John Tan is the owner and actual possessor of
a parcel of land while Jose Tan is the owner of another
commercial land. Metrobank alleged that Jose had been duly
authorized pursuant to a SPA given by Tan to mortgage the
commercial properties of the latter in favor of Metrobank.
Subsequently, a petition for the extrajudicial foreclosure of the
four subject properties was filed by Metrobank with the sheriff.
Public auction was conducted in order to satisfy an alleged
obligation of P48,311,003.39 that were all secured by a real
estate mortgage over the lots.
Prior to the auction sale, Jose and his wife filed an action to
remove doubt on title and injunction in connection with the lot
mortgaged by Jose. In such case, the trial court ruled that the
real estate mortgage executed by Jose was null and void on the
ground of lack of consent of his wife, and consequently, the
extrajudicial foreclosure proceedings are null and void.
Notwithstanding, Metrobank filed an ex parte petition for a
writ of possession involving the subject property. The trial
court ordered issuance in favor of Metrobank of a writ of
possession, and a subsequent writ was issued. In an attempt to
forestall the implementation of the writ, Rey John, Jose, and
Ariel moved for reconsideration to quash the writ, presenting
in evidence the earlier decision of the trial court declaring the
real estate mortgage and extrajudicial foreclosure as null and
void ab initio.
27
ISSUE: Whether a writ of possession shall issue in favor of
Metrobank notwithstanding a previous decision declaring the
real estate mortgage null and void
RULING: Yes. Notwithstanding respondents’ theory, no
discretion is left to the trial court in the issuance of a writ of
possession. This is provided for in Sections 7 and 8 of Act
3135. The applicable law states that it is the court’s ministerial
duty to issue a writ of possession in favor of the purchaser of
the mortgaged real property during the period of redemption. It
is ministerial upon the court to issue a writ of possession in
favor of a purchaser, provided that a proper motion is filed, a
bond is approved, and no third person is involved. The
pendency of an action to annul the mortgage is not a ground for
the non-enforcement of a writ of possession. The ministerial
duty of the court does not become discretionary upon the filing
of a complaint assailing the mortgage.
58. Mendoza v. Salinas, 514 SCRA 414
FACTS:
RTC rendered a favorable judgment on respondent’s
application for registration. Thus, an Original Certificate of
Title was issued in respondent’s name covering a parcel of land
in Olongapo, Zambales. Petitioners opposed respondent’s
application for the issuance of a writ of possession claiming
that they were not oppositors/parties to the registration case
and they have been in actual physical possession of the
property since 1964. However, the RTC rejected their
arguments and granted respondent’s application for the
issuance of a writ of possession.
In this case, petitioners contended that RTC erred in issuing the
writ of possession and acted with grave abuse of discretion
amounting to lack and excess of jurisdiction and reiterated their
argument that they cannot be ousted of their possession of the
property, having been in actual possession of the property since
1964.
ISSUE: Whether RTC erred in issuing the writ of possession
against petitioners
RULING: Yes. A writ of possession may be issued under the
following instances: (1) land registration proceedings under
Section 17 of Act No. 496; (2) judicial foreclosure, provided
the debtor is in possession of the mortgaged real property and
no third person not a party to the foreclosure suit, had
intervened; and (3) extrajudicial foreclosure of a real estate
mortgage under Section 7 of Act 3135 as amended by Act
4118.
Based on the foregoing, the issuance of a writ of possession is
clearly a ministerial duty of the land registration court. Such
ministerial duty, however, ceases to be so with particular
regard to petitioners who are the actual possessors of the
property under a claim of ownership. Actual possession under
claim of ownership raises a disputable presumption of
ownership. This conclusion is supported by Art. 433 of the
Civil Code. Under said provision one who claims to be the
28
owner of a property possessed by another must bring the
appropriate judicial action for its physical recovery. The term
“judicial process” could mean no less than an ejectment suit or
reinvindicatory action, in which the ownership claims of the
contending parties may be properly heard and adjudicated.
59. Spouses Maliwat v. Metropolitan Bank and Trust
Company, 532 SCRA 124
FACTS:
Spouses Maliwat obtained a loan from the Metropolitan Bank
and Trust Company as evidenced by a promissory note. To
secure the loan, the spouses executed three real estate
mortgages over the land in Valenzuela City. The spouses failed
to pay the loan hence Metrobank instituted extrajudicial
foreclosure proceedings. The mortgaged land was sold at a
public auction where Metrobank was the highest bidder.
Eventually, a certificate of sale was issued in its favor.
Later, Metrobank filed with the RTC a petition for the issuance
of a writ of possession which was granted. Meanwhile, spouses
Maliwat filed with the trial court a complaint for annulment of
mortgages, foreclosure proceedings, and auction sale with
prayer for a temporary restraining order and preliminary
injunction against Metrobank. Then, RTC issued an order
directing the issuance of a writ of preliminary injunction
enjoining Metrobank and its representatives or any person
acting for and its behalf from enforcing the writ of possession
against the spouses.
ISSUE: Whether the issuance of a writ of possession by the
trial court may be enjoined by a writ of preliminary injunction
also issued by the same court
RULING: Yes. A writ of possession is a writ of execution
commanding the sheriff to enter the land and give possession
thereof to the person entitled under the judgment. It issues
under the following circumstances: (1) land registration
proceedings under Sec. 17 of Act 496; (2) judicial foreclosure
provided the debtor is in possession of the mortgaged property
and no third person, not a party to the foreclosure suit, had
intervened; and (3) extrajudicial foreclosure of a real estate
mortgage under Sec. 7 of Act. 3135, as amended. This case
falls under the second instance.
Thus, after the period of redemption, the purchaser at a
foreclosure sale is entitled as of the right to a writ of
possession. The Court ruled in Kho v. CA that an injunction to
prohibit the issuance of a writ of possession is utterly out of
place. And once the writ of possession has been issued, the
court has no alternative but to enforce the said writ without
delay.
29
 ANTICHRESIS
60. Trillana v. Manansala, 96 Phil. 865
FACTS:
In 1950, a reinvindicatory complaint was filed by Nazario
Trillana over a parcel of land in Hagnoy, Bulacan. The
defendant Faustino Manansala set up title through sale and
prescription. Both parties alleged that they derived ownership
from Marcos Bernardo, the registered owner. As evidence,
Trillana presented the contract of absolute sale executed in his
favor in 1948 by Vicenta Bernardo, daughter and the only
surviving heir of Marcos Bernardo. Meanwhile, defendants
presented a document presented a document showing that
Marcos Bernardo mortgaged his property to Faustino
Manansala and his wife. It was also stated in the document that
if he cannot pay the amount for the mortgage, the property is
paid to Manansala.
The CFI rendered judgment in favor of the plaintiff, ruling that
even if defendants had possessed the land since 1934, they
could not acquire the same by prescription because they had no
just title. The CA ruled in the contrary and held that since the
defendants took possession of the property in July 1934
pursuant to the subject document and retained it thereafter, the
action filed in 1950 was late.
ISSUE: Whether the document may give rise to acquisitive
prescription
RULING: No. The written document represented a contract of
antichresis, which may not give rise to acquisitive prescription.
The document, having used the words “isinangla,” “sinangla,”
and “matubos” indicated a mortgage, which, coupled with
delivery of possession of the land to the creditor, amounted to
antichresis. Several decisions have consistently held that the
antichretic creditor cannot ordinarily acquire by prescription
the land surrendered to him by the debtor.
The CA declared the agreement as a “kaliwaan” or exchange,
which according to defendants meant, “after the execution of
the document we delivered the money, and plaintiff delivers
possession of the land.” However, the arrangement
contemplated a subsequent “re-exchange” when the owner
redeems on or before April 1944. Such exchange and re-
exchange agreed in the document, dovetail with an antichretic
relationship, was the true agreement of the parties.
Since the document did not divest Marcos Bernardo of
ownership of the property, his heir Vicenta Bernardo could
validly convey such ownership to Trillana in 1948.
30
 CLASSIFICATIONS OF CREDIT
61. DBP v. NLRC, 229 SCRA 350
FACTS:
Leonor Ang started employment as Executive Secretary with
Tropical Philippines Wood Industries, Inc (TPWII). In 1982,
Ang was promoted to the position of Personnel Officer.
Meanwhile, Development Bank of the Philippines, as
mortgagee of TPWII, foreclosed its plant facilities and
equipment. Nevertheless, TPWII continued its business
operations interrupted only by brief shutdowns for the purpose
of servicing its plant facilities and equipment. In January 1986,
DBP took possession of the foreclosed property. From then on,
the company ceased its operations. As a result, Ang was
verbally terminated from the service.
Ang filed a complaint for separation pay, 13 th month pay,
vacation and sick leave pay, salaries and allowances against
TPWII, its General Manager, and DBP. The Labor Arbiter
found TPWII primarily liable to Ang but only for her
separation pay and vacation and sick leave pay because her
claims for unpaid wages and 13th month pay were later paid
31
after the complaint was filed. DBP was held subsidiarily liable
in the event the company failed to satisfy the judgment.
ISSUE: Whether DBP is subsidiarily liable on the ground that
benefits due to an employee from the properties of his
employer is superior to the right of the former’s mortgage
RULING: No. Art. 110 of the Labor Code states that in the
event of bankruptcy or liquidation of an employer’s business,
his workers shall enjoy first preference as regards wages due
them for services rendered during the period prior to the
bankruptcy or liquidation, any provision to the contrary
notwithstanding. Unpaid wages shall be paid in full before
other creditors may establish any claim to a share in the assets
of the employer. The concept of “worker preference” cover not
only unpaid wages but also monetary claims to which even
claims of the government must be deemed subordinate.
In the event of solvency, a principal objective should be to
effect an equitable distribution of the insolvent’s property
among his creditors. To accomplish this, there must first be
some proceeding where notice to all of the insolvent’s creditors
may be given and where the claims of preferred creditors may
be blindingly adjudicated.
In the case at bar, there is yet no declaration of bankruptcy nor
judicial declaration of TPWII. Hence, it would be premature to
enforce the worker’s preference. Furthermore, a preference
applies only to claims which do not attach to specific
properties. A lien creates a charge on a particular property. The
right of first preference as regards unpaid wages in Art. 110
does not constitute a lien on the property of the insolvent
debtor in favor of his workers. It is a preference of credit in
their favor, a preference of application. It is a method adopted
to determine and specify the order in which credits should be
paid in the final distribution of the proceeds of the insolvent’s
assets. It is a right to a first preference in the discharge of the
funds of the judgment creditor.
62. Central Bank v. dela Cruz, 191 SCRA 346
FACTS:
Rural Bank of Libmanan started operations in 1965 under and
by virtue of RA 720 (Rural Banks’ Act). In 1979, the
Department of Rural Banks and Savings and Loan
Associations (DRBSLA) of the Central Bank conducted
examinations of the books and affairs of the Rural Bank of
Libmanan.
Odra, the director of DRBSLA, found serious irregularities in
its lending and deposit operations, including false entries and
statements in the bank’s records. As a consequence, the bank
became insolvent. Director Odra recommended to the
Monetary Board that (1) the Rural Bank of Libmanan be
prohibited from doing business; (2) that it be placed under
receivership; and (3) that the Director of DRBSLA be
designated as receiver. The Monetary Board placed the bank
under statutory receivership and designated Director Odra as
receiver. The bank was informed of such decision and was
32
advised to submit to the MB an acceptable reorganization and
rehabilitation program. Meanwhile, Director Odra took
possession and control of the assets and records of the bank.
However, the bank failed to submit the required acceptable
reorganization and rehabilitation plan hence the MB ordered its
liquidation. The Solicitor General filed for the liquidation of
the bank. Judge dela Cruz issued the questioned order,
restraining the Central Bank from “closing the bank and from
performing its customary banking business; to restore and
control the management of the bank to its Board of Directors;
and to desist from liquidation its assets until ordered otherwise
by the Court.”
ISSUE: Whether regular courts can issue a restraining order
against Central Bank in placing a bank under insolvency
RULING: No. No restraining order or injunction shall be
issued by the court enjoining the Central Bank from
implementing its actions unless there is convincing proof that
the action of the Monetary Board is plainly arbitrary and made
in bad faith and the petitioner or plaintiff files with the clerk or
judge of the court in which the action is pending a bond
executed in favor of the Central Bank, in an amount to be fixed
by the Court.
The restraining order or injunctions shall be refused or, if
granted, shall be dissolved upon filing by the Central Bank of a
bond, which shall be in the form of cash or Central Bank
cashier’s check, in an amount twice the amount of the bond of
the petitioner or plaintiff conditioned that it will pay the
damages which the petitioner or plaintiff may suffer by the
refusal or the dissolution of the injunction.
Here, Judge dela Cruz acted in plain disregard of the Central
Bank Act when he restrained the Central Bank from closing
and liquidating the Rural Bank of Libmanan, prevented them
from performing their functions, and ordered them to return the
management and control of the rural bank to its board of
directors without receiving convincing proof that the action of
the Central Bank was plainly arbitrary and made in bad faith.
63. Central Bank v. Morfe, 96 Phil. 96
FACTS:
In 1969, the Monetary Board found the Fidelity Savings Bank
to be insolvent. the MB directed the Superintendent of Bank to
take care of its assets, forbade it to do business, and instructed
the Central Bank Legal Counsel to take appropriate legal
actions. Later, the MB resolved to seek the court’s assistance
and supervision in the liquidation of the bank.
Prior to the institution of the liquidation proceeding but after
the declaration of insolvency, spouses Elizes filed a complaint
against Fidelity Savings Bank for the recovery of the sum of
P50,584 as the balance of their time deposits. The trial court
ruled in favor of the spouses and ordered the bank to pay the
spouses the aforesaid sum plus the accumulated interest.
33
In another case, the spouses Padilla secured a judgment against
Fidelity Savings Bank for the sum of P80,000 as the balance of
their time deposits, plus interests, P70,000 as moral and
exemplary damages, and P9,600 as attorney’s fees. Thus, the
lower court directed the Central Bank, as liquidator, to pay the
time deposits of the spouses Padilla and Elizes as preferred
credits, evidenced by final judgments, within the meaning of
Art. 2244(14)(b) of the Civil Code. Hence, the Central Bank
appealed to the SC by certiorari.
ISSUE: Whether a final judgment for the payment of a time
deposit in a savings bank, which judgment was obtained after
the bank was declared insolvent, is a preferred claim against
the bank
RULING: No. Fixed, savings, and current deposits of money in
banks and similar institutions are not true deposits. They are
considered simple loans and, as such, are not preferred credits.
Furthermore, Section 29 of the Central Bank’s charter
explicitly provides that when a bank is found to be insolvent,
the Monetary Board shall forbid it to do business and shall take
care of its assets.
Here, the MB in its resolution banned the Fidelity Savings
Bank from doing business. It took charge of the bank’s assets.
Evidently, one purpose in prohibiting the insolvent bank from
ASSIGNMENT OF CREDIT
64. Sison v. Yap Tico, 37 Phil. 534
doing business is to prevent some depositors from having an
undue or fraudulent preference over other creditors and
depositors. Such purpose would be nullified if, as in this case,
after the bank is declared insolvent, suits by some depositors
could be maintained and judgments would be rendered for the
payment of their deposits and then such judgments would be
considered preferred credits under Art. 2244(14)(b) of the Civil
Code. Such judgments cannot be considered preferred and that
Art. 2244(14)(b) does not apply to judgments for the payment
of the deposits in an insolvent savings bank which were
obtained after the declaration of insolvency.
A contrary rule or practice would be productive of injustice,
mischief and confusion. To recognize such judgments as
entitled to priority would mean that depositors in insolvent
banks, after learning that the bank is insolvent as shown by the
fact that it can no longer pay withdrawals or that it has closed
its doors or has been enjoined by the Monetary Board from
doing business, would rush to the courts to secure judgments
for the payment of their deposits.
FACTS:
Petitioners borrowed from Eugenio Kilayko some money. As a
condition thereto, they executed and delivered to Kilayko a
34
chattel mortgage covering machinery, crops, and a number of
carabaos. Said debt was due and payable on or before the 30 th
day of May 1913. It was agreed that the mortgagors had to
deliver to Kilayko (mortgagee) their entire crop of sugar for the
years 1912-1913. In doing so, they are to deliver such to the
bodego of Yap Tico. Thereafter, a liquidation was made and its
was found that petitioners still owed the sum of P650 which
they paid. Thus, on May 14, 1914, Kilayko executed and
delivered a cancellation of the aforesaid mortgage and the same
was duly registered on December 19, 1914.
However, it was discovered that in May 1912, Kilayko
assigned and transferred said mortgage to Yap Tico. Neither
Kilayko and Yap Tico gave any notice whatever to the
petitioners that said mortgage had been transferred and that the
petitioners had no notice that the mortgage had been
transferred nor said transfer had been registered.
Subsequently, Yap Tico, as the assignee of the mortgagee,
proceeded to foreclose the mortgage, and the sheriff attached
and took possession of all the property which said mortgage
covered.
ISSUE: Whether the mortgagor of a chattel mortgage is
relieved from liability in paying the mortgagee after the
mortgage has been assigned to a third person, when he has no
actual notice of said transfer
RULING: Yes. Under the recording of the assignment operated
as notice to the mortgagors their payment of the same, without
actual notice of said transfer, relieved them from all liability
under said mortgage. Art. 1527 of the Civil Code provides that
a debtor who, before having been informed of the assignment,
pays the creditor, shall be free from the obligation.
The registration of the assignment did not, ipso facto, operated
as a notice. While such assignment may be recorded, the law is
permissive and not mandatory. The filing and recording of an
instrument in the office of the registrar, when the law does not
require such filing, does not constitute notice to the parties.
The debtor or party liable on contracts like the one in question
is not affected by the assignment until he has notice thereof,
and consequently he may set up against the claim of the
assignee any defense acquired before notice that would avail
him against the assignor had there been no assignment, and
payment by the debtor to the assignor, or any compromise or
release of the assigned claim by the latter before notice will be
valid against the assignee and discharge against the debtor.
65. South City Homes, Inc., Fortune Motors, Palawan
Lumber Manufacturing v. BA Finance Corp., G.R. No.
135462
FACTS:
Fortune Motors Corp. has been availing of the credit facilities
of BA Finance Corp. In 1983, Chua, President of Fortune
Motors, Palawan Lumber Manufacturing, and South City
Homes represented by Rodrigueza and Tablante executed a
Continuing Suretyship Agreement in which said corporations
35
jointly and severally unconditionally guaranteed the full,
faithful, and prompt payment and discharge of any and all
indebtedness of Fortune Motors Corp. to BA Finance Corp.
Subsequently, Canlubang Automotive Resources Corp.
(CARCO) drew sis drafts in its own favor, payable 30 days
after sight, charged to the account of Fortune Motors.
Thereafter, Fortune Motors executed trust receipts covering the
motor vehicles delivered to its by CARCO under which it
agreed to remit to CARCO the proceeds of any sale and
immediately surrender the remaining unsold vehicles. The
drafts and trust receipts were assigned to BA Finance Corp.,
under Deeds of Assignment executed by CARCO.
Upon failure of the Fortune Motors to pay the amounts due
under the drafts and to remit the proceeds of the motor vehicles
sold or to return those remaining unsold in accordance with the
terms of the trust receipt agreements, BA Finance Corp. sent
demand letters to Chua, Palawan Lumber, South City Homes,
Rodrigueza, and Tablante. The latter failed to settle their
outstanding account with BA Finance. Hence, BA Finance
instituted a complaint for a sum of money for preliminary
attachment.
Petitioners argue that a novation, as a result of the assignment
of the drafts and trust receipts by the creditor, CARCO in favor
of BA Finance without the consent of the principal debtor,
Fortune Motors extinguished their liabilities.
ISSUE: Whether there was a novation of the obligation so as to
extinguish the liability of the sureties
RULING: No. An assignment of credit is an agreement by
virtue of which the owner of a credit, known as the assignor,
by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his
credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor. As a result, the
third party steps into the shoes of the original creditor as
subrogee of the latter. Here, plaintiff’s obligations were not
extinguished.
In assignment, the debtor’s consent is not essential for the
validity of the assignment, his knowledge thereof affecting
only the validity of the payment he might make. Art. 1626 also
shows that payment of an obligation which is already existing
does not depend on the consent of the debtor. In effect, it
mandates that such payment of the existing obligation shall
already be made to the new creditor from the time the debtor
acquires knowledge of the assignment of the obligation.
36