FGU INSURANCE vs ROXAS

G.R. No. 189656 August 9, 2017

FACTS:

In order to finish their housing project, the spouses Roxas and Rosendo P.
Dominguez, Jr. entered into a Contract of Building Construction, with Philtrust Bank paying
the cost of supplies and materials and Dominguez performing the construction work for
P300,000. A performance bond with a P450,000.00 face amount was obtained by
Dominguez from FGU on May 24th, 1979. Due to increasing costs, he asked the Spouses
Roxas to raise the contract fee, but they turned him down. Dominguez filed a complaint
against the Spouses Roxas and the Philtrust Bank, asking for the voiding of the "Whereas
Clause," the cancellation or annulment of the contract for the construction of the building,
and the determination that the FGU Surety Bond is ineffective. The Roxas spouses claimed
that the non-completion of the home project and unrealized rental income were caused by
the Philtrust Bank's release of money. FGU maintained that since only Floro and Philtrust
Bank were the beneficiaries of the Surety Bond, Floro could only be compensated for up to
half of its face value.

ISSUE:
Whether or not FGU Construction is liable for the full amount of Php 450,000 of its
Surety Bond?

HELD:
YES, the said entity is liable for the full amount of the surety bond. Under Section 175
of Presidential Decree No. 612 or the Insurance Code, a contract of suretyship is defined as
an agreement where "a party called the surety guarantees the performance by another
party called the principal or obligor of an obligation or undertaking in favor of a third party
called the obligee."
A performance bond is a kind of suretyship agreement. It is "designed to afford the
project owner security that the contractor, will faithfully comply with the requirements of
the contract and make good on the damages sustained by the project owner in case of the
contractor's failure to so perform."
A surety's liability is joint and several with the principal. "Article 2047 of the Civil
Code provides that suretyship arises upon the solidary binding of a person deemed the
surety with the principal debtor for the purpose of fulfilling an obligation."
Although the surety's obligation is merely secondary or collateral to the obligation
contracted by the principal, this Court has nevertheless characterized the surety's liability to
the creditor of the principal as "direct, primary, and absolute; in other words, the surety is
directly and equally bound with the principal.

Kenneth Mar R. Agripa

Commercial Laws I
USTL Law 2C
SOLOMON and LACHICA vs DANTES
G.R. No. 43824 September 30, 1936

FACTS:
The appellants filed an action against the appellee seeking the recovery of a quantity
of money in the Court of First Instance of Cavite, which started this case. The complaint
claimed, among other things, that the appellee had borrowed from the appellant Leocadia
Salomon the amount of P800 and 100 cavans of palay, as shown by a specific document that
was affixed to the complaint, designated as Exhibit A, and became a part of it. Furthermore,
it was claimed that even though Exhibit A was labeled as a "Escritura de Hipoteca," this
simply constituted a loan agreement because it was not documented due to a number of
flaws. On the grounds that the court lacked jurisdiction over the case's issues, the appellee
demurred to the complaint. The lower court upheld the demurrer and threw out the case
for lack of jurisdiction. This appeal was filed based on the ensuing order.

ISSUE:
Whether or not the unrecorded contract of mortgage is valid?

HELD:
YES. The contract of mortgage is still valid. The court held that a contract of
mortgage, even if unrecorded, is valid and binding as between the parties thereto and that
registration is only necessary for the validity of the mortgage as against third parties. The
court further held that as the property involved in the contract Exhibit A is located in the
Province of Zambales, the Court of First Instance of Cavite had no jurisdiction in the
premises. 

Kenneth Mar R. Agripa

Commercial Laws I
USTL Law 2C
PRUDENTIAL BANK (now BPI) vs RAPARO
G.R. No. 191636 January 16, 2017

FACTS:
Wack-Wack Twin Towers Condominium in Mandaluyong City is an initiative of Golden
Dragon. In order to purchase a 41.1050-square-meter condo apartment, Rapanot gave
Golden Dragon P453,329.64 on May 9, 1995. The Bank provided Golden Dragon with a
P50,000,000.00 loan on September 13th, 1995. A Mortgage Agreement in favor of the Bank
was signed by Golden Dragon to guarantee the loan. A Contract to Sell for Unit 2308-B2 was
made on May 21st, 1996, between Rapanot and Golden Dragon.
The full purchase price of such unit, which came to P1,511,098.97, was paid in full by
Rapanot on April 23, 1997. Rapanot thereafter wrote multiple letters of demand to Golden
Dragon and the Bank requesting the handover of Unit 2308-B2 and its related CCT No. 2383
free from all liens and encumbrances.

ISSUE:
Whether or not Prudential Bank is a mortgagee in good faith?

HELD:
NO, the Prudential Bank is not a mortgagee in good faith. The Bank failed to
ascertain whether Golden Dragon secured HLURB's prior written approval as required by PD
957 before it accepted Golden Dragon's properties as collateral. It also failed to ascertain
whether any of the properties offered as collateral already had corresponding buyers at the
time the Mortgage Agreement was executed.
The Bank cannot harp on the fact that the Mortgage Agreement was executed before
the Contract to Sell and Deed of Absolute Sale between Rapanot and Golden Dragon were
executed, such that no amount of verification could have revealed Rapanot's right over Unit
2308-B2. The Court particularly notes that Rapanot made his initial payment for Unit 2308-
B2 as early as May 9, 1995, four (4) months prior to the execution of the Mortgage
Agreement. Surely, the Bank could have easily verified such fact if it had simply requested
Golden Dragon to confirm if Unit 2308-B2 already had a buyer, given that the nature of the
latter's business inherently involves the sale of condominium units on a commercial scale.
It bears stressing that banks are required to exercise the highest degree of diligence
in the conduct of their affairs
The Bank's failure to exercise the diligence required of it constitutes negligence, and
negates its assertion that it is a mortgagee in good faith.
The Court can surely take judicial notice of the fact that commercial banks extend
credit accommodations to real estate developers on a regular basis. In the course of its
everyday dealings, the Bank has surely been made aware of the approval and notice
requirements under Section 18 of PD 957. At this juncture, this Court deems it necessary to
stress that a person who deliberately ignores a significant fact that could create suspicion in
an otherwise reasonable person cannot be deemed a mortgagee in good faith.

Kenneth Mar R. Agripa

Commercial Laws I
USTL Law 2C
PARADIGM DEVELOPMENT CORP OF THE PHIL vs. BPI
G.R. No. 191174 June 07, 2017

FACTS:
A loan was received from Far East Bank and Trust Company in February 1996 by
Sengkon Trading, a sole proprietorship owned by Anita Go. Sengkon was given another loan
facility by FEBTC on April 19, 1996, for a total of P60 million, known as a "Credit Line."
Anthony L. Go, President of PDCP, negotiated two mortgage agreements on real estate to
secure Sengkon's obligations under this Credit Line in part. For claimed Credit Line and Trust
Receipt availments with a principal balance of P244,277,199.68 plus interest and other fees,
which Sengkon failed to pay, FEBTC demanded payment from PDCP. Thereafter, negotiations
took place, and PDCP offered to pay roughly P50 million for the release of its properties.
However, FEBTC pushed for a thorough repayment plan for all of Sengkon's liabilities. The
rights and obligations of FEBTC were acquired by BPI. BPI, the successor-in-interest of FEBTC,
was sued by PDCP for the alleged voidness of the REMs and their foreclosure in a complaint
for annulment of mortgage, foreclosure, certificate of sale, and damages filed with the RTC
of Quezon City. PDCP claimed that FEBTC had guaranteed it that the mortgaged properties
would only secure the Credit Line sub-facility of the Omnibus Line and that FEBTC had asked
it to sign a document extending the responsibility of the mortgaged properties beyond the
Credit Line.

ISSUE:
Whether or not the registration of the REMs, even if contrary to the supposed intent
of the parties, did not affect the validity of the mortgage contracts?

HELD:
YES, the registratio did not affect the validity of the mortgage contracts. Even
assuming that the parties indeed agreed to register only one of the two REMs, the
subsequent registration of both REMs did not affect an already validly executed REM if there
was no other basis for the declaration of its nullity. That the REMs were intended merely as
"partial security" does not make PDCP's argument more plausible because as aptly observed
by the CA, the PDCP's act of surrendering all the titles to the properties to FEBTC clearly
establishes PDCP's intent to mortgage all of the four properties in favor of FEBTC to secure
Sengkon's obligation under the Credit Line. The Court notes that the principal debtor,
Sengkon, has several obligations under its Omnibus Line corresponding to the several credit
sub-facilities made available to it by FEBTC. As found by the trial court, PDCP intended to be
bound only for Sengkon's availments under the Credit Line sub-facility and not for just any of
Sengkon's availments. Hence, it is in this sense that the phrase "partial security" should be
logically understood.
In this regard, PDCP argued that what its President signed is a pro-forma REM whose
important details were still left in blank at the time of its execution. But notably, nowhere in
PDCP's Amended Complaint did it anchor its cause of action for the nullity of the REMs on
this ground. While it indeed alleged this circumstance, PDCP's Amended Complaint is

Kenneth Mar R. Agripa

Commercial Laws I
USTL Law 2C
essentially premised on the supposed fraud employed on it by FEBTC consisting of the
latter's assurances that the REMs it already signed would not be registered.

Kenneth Mar R. Agripa

Commercial Laws I
USTL Law 2C