PHILIPPINE NATIONAL BANK vs.

HEIRS OF BENEDICTO AND AZUCENA

ALONDAY
G.R. No. 171865, O!o"#$ 1%, %&16, '. B#$s()*+

In order for the all-embracing or dragnet clauses to secure future and

other loans, the loans thereby secured must be suciently described in the
mortgage contract.

F(!s

In 1974, the Sps. Alonday obtained an agricultural loan by mortgaging

their property in Davao covered by O! "o. #$%&99. 'ater, the Sps. Alonday
obtained a commercial loan by mortgaging their residential lot covered by
!!
! ! "o. !$((1%9. "otably, the mortgage contracts both contained a dragnet
clause, )hich state that the *mortgage shall also stand as security +or said
obli
ob liga
gati
tion
onss an
and
d an
anyy an
andd al
alll ot
othe
herr ob
obli
liga
gati
tion
ons
s o+ th
the
e o
ort
rtga
gago
gorr to th
the
e
ortgagee o+ )hatever -ind and nature, )hether such obligations have been
contracted be+ore, during or a+ter the constitution o+ this mortgage.

!he second loan )as +ully paid. !he /rst loan, ho)ever, )as not.
0ence, petitioner +oreclosed the property mortgaged as a security +or the /rst
loan. ut since the proceeds o+ the sale )ere not su2cient to cover the
balance o+ the /rst loan, petitioner also +oreclosed
+oreclosed the property mortgaged to
secure the second loan.

!he Sps. Alonday /led a complaint against petitioner recover damages

and attorneys +ees, averring that the +oreclosure )as illegal. !he 3! and A
ruled in +avor o+ the Sps Alonday.

Iss-#s

1 5heteth
her the
the drag
agne
nett cla
laus
use
e in the
the /rs
rstt mo
morrtga
gage
ge con
contr
traact +or the
the
security o+ the /rst loan could authori6e the +oreclosure o+ the property
under the mortgage to secure a second loan despite the +ull payment
o+ the second loan.
 5het
5h ethe
herr the
the a)
a)ar
ard
d o+ da
dama
mage
gess and
and at
atto
torn
rney
eys
s +ee
+ees
s is
is pro
prope
perr.

R-*+/

1 !he
!he drag
dragnenett clau
clause
se con
conta
tain
ined
ed iin
n the
the /rst
/rst mor
mortg
tgag
age
e cont
contra
ract
ct e8
e8ec
ecut
uted
ed
bet)een the parties +or the security o+ the /rst loan could not authori6e the
+oreclosure o+ the property under the mortgage to secure the second loan.

In order +or the all$embracing or dragnet clauses to secure +uture and

other loans, the loans thereby secured must be su2ciently described in the
mortga
mor tgage
ge con
contra
tract.
ct. on
onsid
sideri
ering
ng tha
thatt the agr
agricu
icultu
ltura
rall loa
loan
n had bee
been
n pr
pre$
e$
e8isting )hen the mortgage )as constituted on the property covered by !!
"o. !$((1%9, it )ould have been easy +or the petitioner to have e8pressly
incorporated the re+erence to such agricultural loan in the mortgage contract
covering the commercial loan. ut the petitioner did not. eing the party that
had prepared the contract o+ mortgage, its +ailure to do so should be
construed that it did not at all contemplate the earlier loan )hen it entered
into the subseuent mortgage.
oreover, the mortgage contracts e8ecuted by the Spouses Alonday
)ere contracts o+ adhesion e8clusively prepared by the petitioner. A contract
o+ adhesion, albeit valid, becomes ob:ectionable only )hen it ta-es undue
advantage o+ one o+ the parties the )ea-er party$ by having such party :ust
adhere to the terms o+ the contract. 0ence, the mortgage contracts in this
case should be construed strictly against the petitioner as the party )ho had
dra+ted the same.

 !he a)ard o+ damages is not proper. !he amount o+ actual damages

a)arded must be reduced because the amount upon )hich the initial a)ard
)as based is merely an assertion that is not supported by evidence.

#etitioner should also be made liable +or compensatory interest, )hich

is imposed by la) or by courts as penalty or indemnity +or damages.
#etitioner is liable +or interest on the actual damage, representing the value
o+ the property that )as lost to the Sps. Alonday through the un)arranted
+oreclosure, the same to be rec-oned +rom the date o+ :udicial demand ;i.e.,
the /ling o+ the action by the Spouses Alonday. At the time thereo+, the rate
)as 1< per annum, and such rate shall run until =une %>, >1%. !herea+ter,
or starting on =uly 1, >1%, the rate o+ interest shall be (< per annum until
+ull payment o+ the obligation.

In addition, Article 1 o+ the ivil ode reuires that interest due
shall earn legal interest +rom the time it is :udicially demanded, although the
obligation may be silent upon this point. Accordingly, the interest due shall
itsel+ earn legal interest o+ (< per annum +rom the date o+ /nality o+ the
:udgment until its +ull satis+action, the interim period being deemed to be an
euivalent to a +orbearance o+ credit.

E0ELYN 0. RUIZ vs. BERNARDO F. DIAILIG

G.R. No. %&2%8&, Nov#)"#$ 3, %&16, '. D#4C(s!*o

The doctrine of mortgagee in good faith assumes that the title to the
subject property had already been transferred or registered in the name of
the impostor who thereafter transacts with a mortgagee who acted in good
faith.

F(!s

3espondent ernardo ?. Dimailig ;ernardo )as the registered o)ner

o+ a parcel o+ land in avite. 0e entrusted the o)ner@s copy o+ the !! to his
brother, )ho, in turn, gave it to ditha Sanggalang, a bro-er +or the
property@s intended sale. 0o)ever, the property )as mortgaged by ditha to
velyn B. 3ui6 ;velyn as evidenced by a Deed o+ 3 )ithout ernardoCs
-no)ledge and consent. 0ence, ernardo instituted this suit +or annulment o+
the Deed o+ 3.
 In her Ans)er, velyn claimed that he is a mortgagee in good +aith and
+or value. 0ence, the 3 cannot be annulled and she had the right to -eep
the o)nerCs copy o+ the !! until the loan )as +ully paid to her.

!he 3! dismissed the omplaint and held that velyn is a mortgagee
in good +aith. !he A, ho)ever, reversed the ruling o+ the 3!.

Iss-#

5hether petitioner is a mortgagee in good +aith.

R-*+/

#etitioner is not a mortgagee in good +aith.

"o valid mortgage )ill arise unless the mortgagor has a valid title or
o)nership over the mortgaged property. y )ay o+ e8ception, a mortgagee
can invo-e that he or she derived title even i+ the mortgagorCs title on the
property is de+ective, i+ he or she acted in good +aith. In such instance, the
mortgagee must prove that no circumstance that should have aroused her
suspicion on the veracity o+ the mortgagorCs title on the property )as
disregarded.

!he doctrine o+ mortgagee in good +aith assumes that the title to the
sub:ect property had already been trans+erred or registered in the name o+
the impostor )ho therea+ter transacts )ith a mortgagee )ho acted in good
+aith. In this case, the title remained to be registered in the name o+
ernardo, the right+ul and real o)ner, and not in the name o+ the impostor.

!he burden o+ proo+ that one is a mortgagee in good +aith and +or value
lies )ith the person )ho claims such status. ood +aith entails an honest
intention to re+rain +rom ta-ing unconscientious advantage o+ another.

In this case, velyn insists that she is a mortgagee in good +aith and +or
value. !hus, she has the burden to prove such claim and must provide
necessary evidence to support the same. En+ortunately, velyn +ailed to
discharge her burden. ?irst, the Deed o+ 3 )as established to be a +orged
instrument. Second, the sub:ect property remained registered in the name o+
ernardo. !hird, even assuming that the impostor has caused the property to
be titled in his name, velyn )ould still not be deemed a mortgagee in good
+aith because she did not ta-e the necessary steps to determine any de+ect in
the title o+ the alleged o)ner o+ the mortgaged property.

GILAT SATELLITE NETORKS, LTD. vs. UNITED COCONUT PLANTERS

BANK GENERAL INSURANCE CO., INC.
G.R. No. 18356, D##)"#$ 7, %&16, C.'. S#$#+o
 Although the contract of a surety is in essence secondary only to a
valid principal obligation, the surety's liability to the creditor or the promise''
of the principal is direct, primary and absolute.

F(!s

One Birtual, a domestic corporation, and ilat Satellite "et)or-s, 'td.

;*ilat, an Israeli ompany, entered into a #urchase Agreement. !he
#urchase Agreement contains an Arbitration lause )herein in case o+
disputes, the parties obliged themselves to submit the dispute to arbitration
in accordance )ith the la)s o+ the Enited States.

#ursuant to the #urchase Agreement, One Birtual placed )ith ilat a

purchase order +or various telecommunications euipment, accessories,
services and so+t)are. ilat shipped and delivered to One Birtual the said
products and euipments as evidenced by air)ay bills and bill o+ lading.
In order to secure payment o+ its orders, One Birtual caused E# "
to issue a surety bond in +avor o+ ilat.

One Birtual +ailed to pay +or One Birtual@s orders prompting ilat to
demand payment +rom E# ". Due to the +ailure o+ both One Birtual and
E# " to pay, ilat /led a collection complaint against E# ".

A Decision )as rendered by the trial court ordering E# " to pay
ilat the the principal debt under the surety bond, )ith legal interest o+ 1<
per annum +rom the time the :udgment becomes /nal and e8ecutory until the
obligation is +ully settled. !he trial court@s ruling )as reversed by the ourt o+
Appeals but )as reinstated by the Supreme ourt.
3espondent /led a otion +or 3econsideration, claiming that )hile the
liability o+ a surety is principal and direct, such liability presupposes the
e8istence o+ a valid principal obligation. 3espondent claims that since the
obligations in the #urchase Agreement )ere not complied )ith, petitioner
cannot validly demand payment.
#etitioner li-e)ise /led a otion +or #artial 3econsideration andFor +or
lari/cation )ith respect to the legal interest due. #etitioner points out that
)hatever interest is due shall itsel+ earn legal interest +rom the time it is
:udicially demanded

Iss-#sG

!" 5hether respondent may be held liable +or the payment o+ One
Birtual@s purchases +rom ilatH
#" 5hether the trial court has :urisdiction over the sub:ect matter +or
+ailure o+ ilat and One Birtual to submit the dispute arising +rom the
#urchase Agreement to arbitration.
% 5hether interest on legal interest is due and demandable.

R-*+/
!" 3espondent, as surety, may be held liable +or the payment o+ One Birtual@s
purchases +rom ilat.

Although the contract o+ a surety is in essence secondary only to a

valid principal obligation, the suretyCs liability to the creditor or the promiseCC
o+ the principal is direct, primary and absolute. !he surety becomes liable +or
the debt and duty o+ the principal obligor, even )ithout possessing a direct or
personal interest in the obligations constituted by the latter.

 !he trial court has :urisdiction over the sub:ect matter. 3espondent cannot
invo-e the arbitration clause, because it is not a party to the principal
contractG the #urchase Agreement. An arbitration agreement, being
contractual in nature, is binding only on the parties thereto, as )ell as their
assigns and heirs.

!he acceptance does not give the surety the right to intervene in the
principal contract. !he suretyCs role arises only upon the debtorCs de+ault, at
)hich time, it can be directly held liable by the creditor +or payment as a
solidary obligor.

% Interest on legal interest is due and demandable, pursuant to Article 1 o+

the ivil ode and the case o+ $astern %hipping &ines, Inc. v. ourt of
Appeals, )hich state thatG

!O!A' AOE"! DE J Kprincipal $ partial payments madeL M

Kinterest M interest on interestL, )here

Interest J remaining balance 8 1< per annum 8 no. o+ years

+rom due date ;N December 199N )hen demand )as made until
date o+ sale to a third party

Interest on interest J interest computed as o+ the /ling o+ the

complaint on 7 ay 1999 8 1< 8 no. o+ years until date o+ sale
to a third party.

5hile ang-o Sentral$onetary oard ircular "o. 799 ;Series o+ >1%

modi/ed the legal interest rate +rom 1< to (< per annum, the interest must
be applied prospectively.

ARCELINO REPUELA AND CIPRIANO REPUELA, SUBSTITUTED BY

CARELA REPUELA, ET AL. vs. ESTATE OF SPOUSES OTILLO LARAAN
AND 'ULIANA BACUS, REPRESENTED BY NANCY LARAAN, ET AL.
G.R. No. %1368, D##)"#$ 7, %&16, '. #+o(

(or a presumption of an e)uitable mortgage to arise, two re)uisites

must *rst be satis*ed, namely+ that the parties entered into a contract
denominated as a contract of sale and that their intention was to secure an
eisting debt by way of mortgage.
 F(!s

ipriano and arcelino ; epuela brothers borro) #>>.>> +rom Otillo

'ara)an ;tillo. !o secure the loan, the spouses Otillo and =uliana 'ara)an
;%pouses &arawan reuired them to turn over the certi/cate o+ title +or 'ot
"o. %%&7 and sign an 8ta:udicial Declaration o+ 0eirs and Sale, )hich )as
purportedly a mortgage contract. 0o)ever, they )ere not given a copy o+ the
said document. ipriano a28ed his signature )hile arcelino, being illiterate,
:ust placed his thumb mar- thereon. !he 3epuela brothers remained in
possession o+ the land despite the mortgage and had been planting bamboos,
corn, bananas, and papayas thereon and sharing the produce bet)een them.
!hey also paid the ta8es due on the property.

'ater, the 3epuela brothers learned that the Spouses 'ara)an have
already caused the trans+er o+ title over the property to their name by virtue
o+ the 8ta:udicial Declaration o+ 0eirs and Sale. 0ence, they /led a
complaint be+ore the 3! +or the annulment o+ the 8tra:udicial Declaration o+
0eirs and Sale and the cancellation o+ title under the name o+ the Spouses
'ara)an.

!he 3! decided in +avor o+ the 3epuela brothers, holding that the
transaction bet)een the parties )as not a sale but an euitable mortgage.
0o)ever, the A reversed and set aside the Decision o+ the 3!.

Iss-#sG

1 5hether the 8tra:udicial Declaration o+ 0eirsand Sale amounted to an

euitable mortgage.
 5hether there is prescription or laches.
% 5hat rate o+ interest should apply.

R-*+/

1 !he 8tra:udicial Declaration o+ 0eirsand Sale amounted to an

euitable mortgage. An euitable mortgage is one )hich, although lac-ing in
some +ormality, or +orm, or )ords, or other reuisites demanded by a statute,
reveals the intention o+ the parties to charge real property as security +or a
debt, and contains nothing impossible or contrary to la). ?or a presumption
o+ an euitable mortgage to arise, t)o reuisites must /rst be satis/ed,
namelyG that the parties entered into a contract denominated as a contract o+
sale and that their intention )as to secure an e8isting debt by )ay o+
mortgage.

Article 1(>, in relation to Article 1(>4 o+ the ivil ode enumerates

several instances )hen a contract, purporting to be, and in +act styled as, an
absolute sale, is presumed to be an euitable mortgage.

In this case,  instances enumerated in Article 1(> applyG a possession

o+ the sub:ect property and b in+erence that the transaction )as in +act a
mortgage attended the assailed transaction. ?irst, the 3epuela brothers
remained in possession o+ the sub:ect property a+ter the transaction. Second,
it can be in+erred +rom the attending circumstances that the real intention o+
the 3epuela brothers )as to secure their indebtedness +rom Spouses
'ara)an. It )as never their intention to sell the sub:ect property.

!he decisive +actor in evaluating such agreement is the intention o+ the

parties, as sho)n not necessarily by the terminology used in the contract but
by all the surrounding circumstances.

ranting that the 3epuela brothers, signed and thumbmar-ed,

respectively, the 8tra:udicial Declaration o+ 0eirs and Sale, they did so
)ithout understanding the real nature, ePects and conseuences o+ )hat
they did as they )ere never e8plained to them. ipriano, )ho only /nished
rade One, and arcelino, an illiterate, )ere in dire need o+ money.

!he burden to sho) that the other party +ully understood the contents o+
the document rests upon the party )ho see-s to en+orce the contract. I+ he
+ails to discharge this burden, the presumption o+ mista-e, i+ not, +raud,
stands unrebutted and controlling. 3espondent +ailed to overcome this
burden. ?urthermore, the la) accords the euitable mortgage presumption in
situations )hen doubt e8ists as to the true intent o+ the parties to the
contract, as in this case.

 !here )as no prescription or laches. 5here there is no consent given

by one party in a purported contract, such contract )as not per+ected
there+ore, there is no contract to spea- o+. !he deed o+ sale relied upon by
petitioner is deemed a void contract. !his being so, the action based on said
deed o+ sale shall not prescribe in accordance )ith Article 141> o+ the ivil
ode.

% S# ircular "o. 799, series o+ >1% provides that ePective =uly 1,
>1%, the rate o+ interest +or the loan or +orbearance o+ any money, goods or
credits and the rate allo)ed in :udgments, in the absence o+ an e8press
contract as to such rate o+ interest, shall be (< per annum. Applying the
+oregoing, the rate o+ interest o+ 1< per annum on the obligation o+ the
3epuela brothers shall apply +rom the date o+ the /ling o+ the complaint on
=anuary 17, >>% until =une %>, >1% only. ?rom =uly 1, >1% until +ully paid,
the legal rate o+ (< per annum shall be applied to their unpaid obligation.