Simple Loan or Mutuum

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SECTRANS 2010/ ATTY. AGUINALDO 1

SIMPLE LOAN OR MUTUUM

G.R. No. L-20240 December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.

JOSE GRIJALDO, defendant-appellant.

FACTS:

In the year 1943 appellant Jose Grijaldo obtained five loans

from the branch office of the Bank of Taiwan, Ltd. in

Bacolod City, in the total sum of P1,281.97 with interest at

the rate of 6% per annum, compounded quarterly. These

loans are evidenced by five promissory notes executed by

the appellant in favor of the Bank of Taiwan, Ltd., as

follows: On June 1, 1943, P600.00; on June 3, 1943,

P159.11; on June 18, 1943, P22.86; on August 9,

1943,P300.00; on August 13, 1943, P200.00, all notes

without due dates, but because the loans were due oneyear after they were incurred. To secure the payment of

the loans the appellant executed a chattel mortgage on the

standing crops on his land, Lot No. 1494 known as

Hacienda Campugas in Hinigiran, Negros Occidental.

By virtue of Vesting Order No. P-4, dated January 21, 1946,

and under the authority provided for in the Trading with

the Enemy Act, as amended, the assets in the Philippines of

the Bank of Taiwan, Ltd. were vested in the Government of

the United States. Pursuant to the Philippine Property Act

of 1946 of the United States, these assets, including the

loans in question, were subsequently transferred to theRepublic of the Philippines by the Government of the

United States under Transfer Agreement dated July 20,

1954. These assets were among the properties that were

placed under the administration of the Board of

Liquidators created under Executive Order No. 372, dated

November 24, 1950, and in accordance with Republic Acts

Nos. 8 and 477 and other pertinent laws.

On September 29, 1954 the appellee, Republic of the

Philippines, represented by the Chairman of the Board of

Liquidators, made a written extrajudicial demand upon the

appellant for the payment of the account in question. The

record shows that the appellant had actually received the

written demand for payment, but he failed to pay.

On January 17, 1961 the appellee filed a complaint in the

Justice of the Peace Court of Hinigaran, Negros Occidental,

to collect from the appellant the unpaid account in

question. The Justice of the Peace Of Hinigaran, after

hearing, dismissed the case on the ground that the action

had prescribed. The appellee appealed to the Court of First

Instance of Negros Occidental and on March 26, 1962 the

court a quo rendered a decision ordering the appellant to

pay the appellee the sum of P2,377.23 as of December 31

1959, plus interest at the rate of 6% per annum

compounded quarterly from the date of the filing of the

complaint until full payment was made. The appellant was

also ordered to pay the sum equivalent to 10% of the

amount due as attorney's fees and costs.

The appellant appealed directly to this Court. During the

pendency of this appeal the appellant Jose Grijaldo died

Upon motion by the Solicitor General this Court, in a

resolution of May 13, 1963, required Manuel Lagtapon

Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar

who are the legal heirs of Jose Grijaldo to appear and be

substituted as appellants in accordance with Section 17 o

Rule 3 of the Rules of Court.

ISSUE:

Whether or not the obligation to pay is extinguished.

The appellant likewise maintains, in support of his

contention that the appellee has no cause of action, that

because the loans were secured by a chattel mortgage on

the standing crops on a land owned by him and these

crops were lost or destroyed through enemy action his

obligation to pay the loans was thereby extinguished.

HELD:

This argument is untenable. The terms of the promissory

notes and the chattel mortgage that the appellant executed

in favor of the Bank of Taiwan, Ltd. do not support the

claim of appellant. The obligation of the appellant under

the five promissory notes was not to deliver a determinate

thing namely, the crops to be harvested from his land, or

the value of the crops that would be harvested from his

land. Rather, his obligation was to pay a generic thing —

the amount of money representing the total sum of the five

loans, with interest. The transaction between the appellant

and the Bank of Taiwan, Ltd. was a series of five contracts

of simple loan of sums of money. "By a contract of (simple)

loan, one of the parties delivers to another ... money or

other consumable thing upon the condition that the same

amount of the same kind and quality shall be paid."

(Article 1933, Civil Code) The obligation of the appellant

under the five promissory notes evidencing the loans in

questions is to pay the value thereof; that is, to deliver a

sum of money — a clear case of an obligation to deliver, a

generic thing. Article 1263 of the Civil Code provides:




In an obligation to deliver a generic thing, the loss

or destruction of anything of the same kind does

not extinguish the obligation.

The chattel mortgage on the crops growing on appellant's

land simply stood as a security for the fulfillment of

appellant's obligation covered by the five promissory

notes, and the loss of the crops did not extinguish his

obligation to pay, because the account could still be paid

from other sources aside from the mortgaged crops.

Frias vs San Diego-Sison

G.R. No. 155223 April 4, 2007

Facts

1. Petitioner is the owner of a house and lot in Ayala

Alabang.

2. Petitioner and Dra. Flora San Diego-Sison

(Respondent) entered into a Memorandum of Agreement (MOA) over the cited property with

the following terms:

1. The land is to be sold for P 6.4 million.

2. Petitioner will receive P3 million from

respondent as downpayment.

3. In light of the downpayment, respondent

had 6 months (1st ) to notify the Petitioner

of her intention to purchase the land.

However, the balance is to be paid within

another 6 months.

4.

Prior to the first six months, thePetitioner may still offer the cited land to

other persons provided that the P3

million downpayment shall be returned

to the Respondent including interest

based on prevailing compounded bank

interest.

5. Nevertheless, in case there are no other

buyers within the first 6 months, no

interest shall be charged on the P3

million.

6. However, in the event that on the 6th

month the Respondent does not purchase

the land, the Petitioner has a period of

another 6 months (2nd) within which to

pay the sum of P3 million with interest for

the last six months only. The

downpayment shall be treated as loan

granted by the Respondent.

1. Petitioner received from Respondent P2 million in

cash and P1 million in a post-dated check which

was subsequently considered as stale. Therefore,

only P2 million was received as downpayment.

2. Before the check became stale, Petitioner gave

Respondent the TCT and the Deed of Absolute Sale

of the land.

3. Subsequently, Respondent decided not to

purchase the property and notified Petitioner of this reminding the latter that the amount of P2

million should be considered as a loan payable

within six months as stipulated in the MOA with

interest computed from such notification.

4. Petitioner subsequently failed to return the P2

million pesos.

5. CA ruled that the P2 million downpayment shall

include interest computed at the time the disputed

amount was considered a loan. Thus, this petition.

Issue:

Whether or not the interest should be limited to the 1st six

months as contained in the MOA?

Ruling:

No. SC ruled in favour of Respondent.

1. The SC opined that if the terms of an agreement

are clear and leave no doubt as to the intention of

the contracting parties, the literal meaning of its

stipulations shall prevail.

2. It is further required that the various stipulations

of a contract shall be interpreted together.

3. In this case, the phrase "for the last six months

only" should be taken in the context of the entire

agreement.

4. The MOA speaks of 2 periods of six months each.

1. The 1st six-months was given to

Respondent to make up her mind

whether or not to purchase Petitioner's

property.

2. The 2nd six-months was given toPetitioner to pay the P2 million loan

(downpayment) in the event that

Respondent decided not to buy the

property in which case interest will be

charged " for the last six months only",

referring to the 2nd six-month period .

3. This means that no interest will be

charged for the 1st six-months while

Respondent contemplating on whether to




buy the property, but only for the 2nd six-

months after Respondent had decided not

to buy the property. This is the meaning

of the phrase "for the last six months

only".

4. Certainly, there is nothing in their

agreement that suggests that interest will

be charged for 6 months only even if it

takes defendant-appellant an eternity topay the loan

5. This does NOT mean that interest will no longer

be charged after the 2nd six-month period since

such stipulation was made on the logical and

reasonable expectation that such amount would

be paid within the date stipulated. Therefore, the

monetary interest for the last 6 months continued

to accrue until actual payment of the loaned

amount.

6. It has been held that for a debtor to continue in

possession of the principal of the loan and to

continue to use the same after maturity of the loan

without payment of the monetary interest, would

constitute unjust enrichment on the part of the

debtor at the expense of the creditor.

Art. 1956. No interest shall be due when not expressly

stipulated in writing.

ARWOOD INDUSTRIES, INC. vs. D.M. Consunji, Inc.

FACTS: Petitioner and respondent, as owner and

contractor, respectively entered into an Agreement for theconstruction of petitioner’s condominium. Despite the

completion of the project, petitioner was not able to pay

respondent the full amount and left a balance. Repeated

demands were left unheeded prompting respondent to file

a civil case against petitioner, with a prayer among others

that the full amount be paid with interest of 2% per month,

from Nov. 1990 up to the time of payment. RTC ruled in

favor of respondent. Petitioner appealed to the CA,

particularly opposing the imposition of the 2% interest.

The CA ruled in favor of the 2% interest.

Petitioner’s contention- The imposition of the interest iswithout basis because (1) although it was written in the

Agreement, it was not mentioned by the RTC in the

dispositive portion and (2) the interest does not apply to

the respondent’s claim but to the “monthly progress

billing”.

ISSUE: WON the RTC and Ca is correct in imposing a 2%

per month interest on the monetary award or the balance

of the contract price.

HELD: Yes. The Agreement between the parties is the

formal expression of the parties’ rights, duties and

obligations. It is the best evidence of the intention of the

parties. Consequently, upon the fulfillment by respondent

of its obligation to complete the construction project,

petitioner had the correlative duty to pay for respondent’s

services. However, petitioner refused to pay the balance of

the contract price. From the moment respondent

completed the construction of the condominium project and petitioner refused to pay in full, there was delay on the

part of petitioner.

Delay in the performance of an obligation is looked upon

with disfavor because, when a party to a contract incurs

delay, the other party who performs his part of the

contract suffers damages thereby. Obviously, respondent

suffered damages brought about by the failure of

petitioner to comply with its obligation on time. And, sans

elaboration of the matter at hand, damages take the form

of interest. Accordingly, the appropriate measure of

damages in this case is the payment of interest at the rate

agreed upon, which is 2% interest for every month of

delay.

It must be noted that the Agreement provided the

contractor, respondent in this case, two options in case of

delay in monthly payments, to wit: a) suspend work on the

project until payment is remitted by the owner or b)

continue the work but the owner shall be required to pay

interest at a rate of two percent (2%) per month or a

fraction thereof. Evidently, respondent chose the latter

option, as the condominium project was in fact alreadycompleted. The payment of the 2% monthly interest,

therefore, cannot be jettisoned overboard.

Since the Agreement stands as the law between the

parties, this Court cannot ignore the existence of such

provision providing for a penalty for every month’s

delay. Facta legem facunt inter partes. Neither can

petitioner impugn the Agreement to which it willingly gave

its consent. From the moment petitioner gave its consent,

it was bound not only to fulfill what was expressly

stipulated in the Agreement but also all the consequences

which, according to their nature, may be in keeping withgood faith, usage and law. Petitioner’s attempt to mitigate

its liability to respondent should thus fail.

As a last-ditch effort to evade liability, petitioner argues

that the amount of P962,434.78 claimed by respondent

and later awarded by the lower courts does not refer to

“monthly progress billings,” the delayed payment of which

would earn interest at 2% per month.




Petitioner appears confused by a semantics

problem. “Monthly progress billings” certainly form part

of the contract price. If the amount claimed by respondent

is not the “monthly progress billings” provided in the

contract, what then does such amount represent?

Petitioner has not in point of fact convincingly supplied an

answer to this query. Neither has petitioner shown any

effort to clarify the meaning of “monthly progress billings”

to support its position. This leaves us no choice but toagree with respondent that the phrase “monthly progress

billings” refers to a portion of the contract price payable by

the owner (petitioner) of the project to the contractor

(respondent) based on the percentage of completion of the

project or on work accomplished at a particular stage. It

refers to that portion of the contract price still to be paid as

work progresses, after the downpayment is made.”

This definition is, indeed, not without basis. Articles 6.02

and 6.03 of the Agreement, which respectively provides

that the “(b)alance shall be paid in monthly progress

payments based on actual value of the work accomplished”

and that “the progress payments shall be reduced by a

portion of the downpayment made by the OWNER

corresponding to the value of the work completed” give

sense to respondent’s interpretation of “monthly progress

billings.”

SONCUYA V. AZARRAGA

ROYAL SHIRT FACTORY, INC. v CO

FACTS:

1. The parties entered into a contract wherein it is

stipulated that 350 pairs of ballet shoes will be

sold by Co and that Co had 9 days from delivery of

the shoes to make his choice of 2 alternatives: a)

consider the sale for the shoes closed at a flat rate,

or b) return the remaining unsold ones to Royal.

2. Co failed to return the unsold pairs after 9 days

and actually began making partial payments on

account of the purchase price agreed upon.

3. Co then contended that there was merely a

consignment of the goods and he wanted to return

the unsold shoes. Royal refused contending that it

was an outright sale.

ISSUE: WoN the sale was an outright sale / WoN Co is

bound by the interest stipulated in the invoice.

SC: YES! / NO!

4. OUTRIGHT SALE

1. Co accepted the invoice of the ballet shoes

and he even noted down in his own

handwriting the partial payments that he

made.

2. If the sale has been on consignment, a

stipulation as to the period of time for the

return of the unsold shoes should have

been made, however, this was not done

5. NOT BOUND BY THE INTEREST

1. He did not sign the invoice slip the

stipulated interest was 20%, hence, not

binding

2. However, he is bound by the legal interest

of 6%

6. Hence, Co was ordered to pay the balance of thepurchase price for the ballet shoes + legal interest

EMERITO M. RAMOS, et al., petitioners,

vs.

CENTRAL BANK OF THE PHILIPPINES, respondents;

COMMERCIAL BANK OF MANILA, intervenor.

Facts: This involves question as to applicability of Tapia

ruling wherein the Court held that "the obligation to pay

interest on the deposit ceases the moment the operation ofthe bank is completely suspended by the duly constituted

authority, the Central Bank," to loans and advances by the

Central Bank

Held: Respondents have failed to adduce any cogent

argument to persuade the Court to reconsider its

Resolution at bar that the Tapia ruling is fully applicable to

the non-payment of interest, during the period of the

bank's forcible closure, on loans and advances made by

respondent Central Bank.

Respondent Central Bank itself when it was then managingthe Overseas Bank of Manila (now Commercial Bank of

Manila) under a holding trust agreement, held the same

position in Idelfonso D. Yap vs. OBM wherein it argued that

"(I)n a suit against the receiver of a national bank for

money loaned to the Bank while it was a going concern, it

was error to permit plaintiff to recover interest on the loan

after the bank's suspension"




A significant development of the case, the Government

Service Insurance System (GSIS) has acquired ownership

of 99.93% of the outstanding capital stock of COMBANK.

The Court's Resolution manifestly redounds to the benefit

of another government institution, the GSIS, and to the

preservation of the banking system.

LIRAG TEXTILE MILLS, INC. VS. SSS

153 SCRA 338

Facts:

. SSS (respondent) and Lirag Textile Mills (Petitioner)

entered into a Purchased Agreement which

Respondent agreed to purchase preferred stocks of

Petitioner worth P1 million subject to conditions:

1. For Petitioner to repurchase the shares of

stocks at a regular interval of one year

and to pay dividends.

2. Failure to redeem and pay the dividend,

the entire obligation shall become due

and demandable and it shall be liable for

an amount equivalent to 12% of the

amount then outstanding as liquidated

damages.

. Basilio Lirag (Basilio) as President of Lirag Textile

Mills signed the Agreement as a surety to guarantee

the redemption of the stocks, the payment of

dividends and other obligations.

. Pursuant to the Agreement, Respondent paid

Petitioner P500,000 on two occasions and the latter

issued 5,000 preferred stocks with a par value of P100as evidenced by Stock Certificate Nos. 128 and 139.

. After sending Respondent sent demand letters,

Petitioner and Basilio still made no redemption nor

made dividend payments.

. Respondent filed an action for specific performance

and damages against Petitioner:

1. Petitioner contends that there is no obligation on

their part to redeem the stock certificates since

Respondent is still a preferred stock holder of the

company and such redemption is dependent upon

the financial ability of the company.2. On the part of Basilio, he contends that his liability

only arises only if the company is liable and does

not perform its obligations under the Agreement.

Issue:

1. Whether or not the Purchase Agreement entered

into by the Parties is a debt instrument?

2. If so, Is Basilio liable as surety?

3. Whether or not Lirag is liable for the interest as

liquidated damages?

Held:

1. YES, the Purchase Agreement is a debt instrument

The terms and conditions of the Agreement show

that parties intended the repurchase of preferred

shares on the respective scheduled dates to be an

absolute obligation, which does not depend on the

financial ability of the corporation.

1. This absolute obligation on the part of the

Petitioner corporation is made manifest by the

fact that a surety was required to see to it that the

obligation is fulfilled in the event the principal

debtor’s inability to do so.

1. It cannot be said that SSS is a preferred

stockholder. The rights given by the Purchase

Agreement to SSS are not rights enjoyed byordinary stockholders. Since there was a condition

that failure to repurchase the stocks on the

scheduled dates renders the entire obligation due

and demandable with interest. These features

clearly show that intent of the parties to be bound

therein as debtor and creditor and not as a

corporation and stockholder.

2. YES, Basilio is liable as surety. Thus it follows that

he cannot deny liability for Lirag’s default. As

surety, he is bound immediately to pay SSS the

amount then outstanding.

3. The award of liquidated damages represented by

12% of the amount then outstanding is correct,

considering that the petitioners in the stipulation

of facts admitted having failed to fulfill their

obligations under the Agreement. The grant of

liquidated damages is expressly provided for the

Purchase Agreement in case of contractual breach.

Since Lirag did not deny its failure to redeem the

preferred shares and the non-payment of dividends

which are overdue, they are bound to earn legal

interest from the time of demand, in this case, judicial

i.e. the time of filing the action.

ANGEL WAREHOUSING vs CHELDA




Facts: Angel Warehousing sued Chelda for the

recovery of unpaid loans amounting to P20,880 because

the post dated checks issued by Chelda were dishonored.

Chelda said that Angel Warehousing charged usurious

interests, thus they have no cause of action against them &

can’t recover the remaining balance.

Issue: W/N illegal terms as to payment of interest likewise renders a nullity the legal terms as to the

payment of the principal debt?

Ruling: No. The contract of loan with usurious interest

consists of principal and accessory stipulations and the

two stipulations are divisible in the sense that the

principal debt can stand without the usurious interest

(accessory). These are divisible contracts. In divisible

contracts, if the illegal terms can be separated from legal

ones, the latter may be enforced. Illegality lies only as to

the prestation to pay interest, being separable, thus should

be rendered void. If the principal will be forfeited this

would unjustly enrich the borrower at the expense of the

lender.

CU-UNJIENG V. MABALACAT

Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for

security, Mabalacat mortgaged its property.

Mabalacat failed to pay, but Cu Unjieng extended the

payment. Cu Unjieng filed a case against Mabalacat for

foreclosure of property and payment of attorney's fees. It

also claims interest over interest. Mabalacat insisted that the agreement for the extension of the time of payment

had the effect of abrogating the stipulation of the original

contract with respect to the acceleration of the maturity of

the debt by non-compliance with the terms of the

mortgage. The issue related on this case is the interest

over interest.

Issue: WoN Cu-Unjieng is entitled to interest over interest.

Ruling: It is well settled that, under article 1109 of the Civil

Code, as well as under section 5 of the Usury Law (Act No.2655), the parties may stipulate that interest shall be

compounded; and rests for the computation of compound

interest can certainly be made monthly, as well as

quarterly, semiannually, or annually. But in the absence of

express stipulation for the accumulation of compound

interest, no interest can be collected upon interest until the

debt is judicially claimed, and then the rate at which

interest upon accrued interest must be computed is fixed

at 6 per cent per annum. In this case, there was no

compound interest in the agreement.

DAVID vs. CA

G.R.No. 115821, October 13, 1999

Facts:

A writ of attachment over the real propertiesowned by Valentin Afable, Jr.. RTC ordered Afable, Jr. To

pay David P66,500 plus interest from July 24, 1974, until

fully paid. RTC amended its decison and ruled that legal

rate of interest should be computed from January 4, 1966,

instead of from July 24, 1974.

Afable appealed to the Court of Appeals and then

to the Supreme Court. In both instances, the decision of

the lower court was affirmed. Entries of judgment were

made and the record of the case was remanded to Branch

27 for the final execution.

An Alias Writ of Execution was issued by virtue of

which respondent Sheriff Melchor P. Peña conducted a

public auction. Sheriff Peña informed the petitioner that

the total amount of the judgment is P270,940.52. The

amount included a computation of simple interest. Afable,

however, claimed that the judgment award should be

P3,027,238.50, because the amount due ought to be based

on compounded interest.

Although the auctioned properties were sold to

the petitioner, Sheriff Peña did not issue the Certificate of

Sale because there was an excess in the bid price in theamount of P2,941,524.47, which the petitioner failed to

pay despite notice. David filed a Motion praying that

respondent Judge Cruz issue an order directing

respondent Sheriff Peña to prepare and execute a

certificate of sale in his favor. His reason is that compound

interest, which is allowed by Article 2212 of the Civil Code,

should apply in this case.

David claim that in computing the interest due of

the P66,500.00, interest should be computed at 6% on the

principal sum of P66,500.00 pursuant to Article 2209 and

then “interest on the legal interest” should also becomputed in accordance with the language of Article 2212

of the Civil Code.

Issue: Whether or not the amount due should be subject to

a simple interest or compounded interest.

Ruling:




In cases where no interest stipulated, no compounded

interest could be further earned

The Court ruled that Article 2212 contemplates

the presence of stipulated or conventional interest which

has accrued when demand was judicially made. In cases

where no interest had been stipulated by the parties, as in

the case of Philippine American Accident Insurance, no

accrued conventional interest could further earn interest

upon judicial demand.

In this case, no interest was stipulated by the

parties. In the promissory note denominated “Compromise

Agreement” signed by the Afable, Jr. which was duly

accepted by the David no interest was mentioned. That

being the case, the interest should only be subject to a

simple interest.

Topic: Simple Loan or Mutuum; Article 1960

Velez v. Balzarra

FACTS:

1. Plaintiff Velez filed a complaint for the return of

parcels of land sold by Defendant to Plaintiff’s

husband. She further alleged that defendants had

remained in possession of said land under

Contract of Lease but for over 2 years defendants

had not paid the agreed rentals.

2. Defendant alleged that the real agreement was a

loan secured by a mortgage of those lands.

3. Trial court found that the payments made by

defendants were not made by way of interest but

as payments for the principal. Defendant overpaid

therefore Plaintiff should return excess.

ISSUE: Whether payments were intended to be applied tothe principal OR were considered as rents, interests?

HELD:

1. Payments were NOT rents, interests

2. Neri took possession of land and collected fruits.

The creditor having enjoyed the beneficial use of

the lands delivered as security for the loan, it

appears to have been the intention of the parties

that the creditor should be compensated thereby.

3. Though receipts, payments are called rents, they

were prepared by Neri (P’s husband) and Plaintiff

and defendants in their ignorance did not look

into the wording, being merely satisfied that they

were proofs of payment.

4. The liability of plaintiff to return the excess

payments is in keeping with Article 1895 (Old

Civil Code) which provides that, “when something

is received which there is no right to collect, and

which by mistake has been unduly delivered, the

obligation to restore it arises.”

5. The 2 requisites are present: 1) There is no right

to collect these excess sums; and 2) the amounts

have been paid through mistake by defendants

Such mistake is shown by the fact that theircontracts never intended that either rents or

interest should be paid, and by the further fact

that when these payments were made, they were

intended by defendants to be applied to the

principal, but they overpaid the amounts loaned to

them.

USURY LAW

G.R. No. 128990 September 21, 2000

INVESTORS FINANCE CORPORATION, petitioner,

vs.

AUTOWORLD SALES CORPORATION, and PIO

BARRETTO REALTY DEVELOPMENT

CORPORATION,respondents.

FACTS:

Petitioner Investors Finance Corporation, then known also

as FNCB Finance (now doing business under the name of

Citytrust Finance Corporation), is a financing company

doing business with private respondent Autoworld Sales

Corporation (AUTOWORLD) since 1975. Anthony Que

president of AUTOWORLD, also held the same position at

its affiliate corporation, private respondent Pio Barretto

Realty Corporation (BARRETTO).

Sometime in August 1980 Anthony Que, in behalf of

AUTOWORLD, applied for a direct loan with FNCB

However, since the Usury Law imposed an interest rate

ceiling at that time, FNCB informed Anthony Que that it




was not engaged in direct lending; consequently,

AUTOWORLD's request for loan was denied.

But sometime thereafter, FNCB's Assistant Vice President,

Mr. Leoncio Araullo, informed Anthony Que that although

it could not grant direct loans it could extend funds to

AUTOWORLD by purchasing any of its outstanding

receivables at a discount. After a series of negotiations the

parties agreed to execute an Installment Paper Purchase

("IPP") transaction to enable AUTOWORLD to acquire the

additional capital it needed. The mechanics of the

proposed "IPP" transaction was —

(1) First, Pio Barretto (BARRETTO) would execute

a Contract to Sell a parcel of land in favor of

AUTOWORLD for P12,999,999.60 payable in sixty

(60) equal monthly installments of P216,666.66.

Consequently, BARRETTO would acquire

P12,999,999.60 worth of receivables from

AUTOWORLD;

(2) FNCB would then purchase the receivables

worth P12,999,999.60 from BARRETTO at a

discounted value of P6,980,000.00 subject to the

condition that such amount would be "flowed

back" to AUTOWORLD;

(3) BARRETTO, would in turn, execute a Deed of

Assignment (in favor of FNCB) obliging

AUTOWORLD to pay the installments of the

P12,999,999.60 purchase price directly to

FNCB; and

(4) Lastly, to secure the payment of the

receivables under the Deed of Assignment,

BARRETTO would mortgage the property subject

of the sale to FNCB.

On 17 November 1980 FNCB informed AUTOWORLD that

its Executive Committee approved the proposed "IPP"

transaction. The lawyers of FNCB then drafted the

contracts needed and furnished Anthony Que with copies

thereof.

On 9 February 1981 the parties signed three (3) contractsto implement the "IPP" transaction:

(1) Contract to Sell whereby BARRETTO sold a

parcel of land to AUTOWORLD, situated in San

Miguel, Manila, together with the improvements

thereon, covered by TCT No. 129763 for the price

of P12,999,999.60 payable in sixty (60)

consecutive and equal monthly installments of

P216,666.66.

(2) Deed of Assignment whereby BARRETTO

assigned and sold in favor of FNCB all its rights,

title and interest to all the money and other

receivables due from AUTOWORLD under the

Contract to Sell, subject to the condition that the

assignee (FNCB) has the right of recourse against

the assignor (BARRETTO) in the event that the

payor (AUTOWORLD) defaulted in the payment o

its obligations.

(3) Real Estate Mortgage whereby BARRETTO, as

assignor, mortgaged the property subject of the

Contract to Sell to FNCB as security for payment of

its obligation under the Deed of Assignment.

After the three (3) contracts were concluded AUTOWORLD

started paying the monthly installments to FNCB.

On 18 June 1982 AUTOWORLD transacted with FNCB for

the second time obtaining a loan of P3,000,000.00 with an

effective interest rate of 28% per annum. AUTOWORLDand BARRETTO, as co-makers, then signed a promissory

note in favor of FNCB worth P5,604,480.00 payable in sixty

(60) consecutive monthly installments of P93,408.00. To

secure the promissory note, AUTOWORLD mortgaged a

parcel of land located in Sampaloc, Manila, to

FNCB. Thereafter, AUTOWORLD began paying the

installments.

In December 1982, after paying nineteen (19) monthly

installments of P216,666.66 on the first transaction ("IPP"

worth P6,980,000.00) and three (3) monthly installments

of P93,408.00 on the second transaction (loan worthP3,000,000.00), AUTOWORLD advised FNCB that it

intended to preterminate the two (2) transactions by

paying their outstanding balances in full. It then requested

FNCB to provide a computation of the remaining balances

FNCB sent AUTOWORLD its computation requiring it to

pay a total amount of P10,026,736.78, where

P6,784,551.24 was the amount to settle the first

transaction while P3,242,165.54 was the amount to settle

the second transaction.

On 20 December 1982 AUTOWORLD wrote FNCB that it

disagreed with the latter's computation of its outstanding

balances. On 27 December 1982 FNCB replied that it

would only be willing to reconcile its accounting records

with AUTOWORLD upon payment of the amounts

demanded. Thus, despite its objections, AUTOWORLD

reluctantly paid FNCB P10,026,736.78 through its UCPB

account.




On 5 January 1983 AUTOWORLD asked FNCB for a refund

of its overpayments in the total amount of

P3,082,021.84. According to AUTOWORLD, it overpaid

P2,586,035.44 to settle the first transaction and

P418,262.00 to settle the second transaction.

The parties attempted to reconcile their accounting figures

but the subsequent negotiations broke down prompting

AUTOWORLD to file an action before the Regional Trial

Court of Makati to annul the Contract to Sell, the Deed of

Assignment and the Real Estate Mortgage all dated 9

February 1981. It likewise prayed for the nullification of

thePromissory Note dated 18 June 1982 and the Real Estate

Mortgage dated 24 June 1982.

In its complaint, AUTOWORLD alleged that the

aforementioned contracts were only perfected to facilitate

a usurious loan and therefore should be annulled

FNCB argued that the contracts dated 9 February 1981

were not executed to hide a usurious loan. Instead, theparties entered into a legitimate Installment Paper

Purchase ("IPP") transaction, or purchase of receivables at

a discount, which FNCB could legally engage in as a

financing company. With regard to the second transaction,

the existence of a usurious interest rate had no bearing on

the P3,000,000.00 loan since at the time it was perfected

on 18 January 1982 Central Bank Circular No. 871 dated

21 July 1981 had effectively lifted the ceiling rates for

loans having a period of more than three hundred sixty-

five (365) days.

On 11 July 1988 the Regional Trial Court of Makati ruled infavor of FNCB declaring that the parties voluntarily and

knowingly executed a legitimate "IPP" transaction or the

discounting of receivables. AUTOWORLD was not entitled

to any reimbursement since it was unable to prove the

existence of a usurious loan.

The Court of Appeals modified the decision of the trial

court and concluded that the "IPP" transaction, comprising

of the three (3) contracts perfected on 9 February 1981,

was merely a scheme employed by the parties to disguise a

usurious loan. It ordered the annulment of the contracts

and required FNCB to reimburse AUTOWORLD

P2,586,035.44 as excess interest payments over the 12%

ceiling rate. However, with regard to the second

transaction, the appellate court ruled that at the time it

was executed the ceiling rates imposed by the Usury Law

had already been lifted thus allowing the parties to

stipulate any rate of interest.

ISSUE:

We stress at the outset that this petition concerns itself

only with the first transaction involving the alleged' "IPP"

worth P6,980,000.00, which was implemented through the

three (3) contracts of 9 February 1981. As to the second

transaction, which involves the P3,000,000.00 loan, we

agree with the appellate court that it was executed when

the ceiling rates of interest had already been removed

hence the parties were free to fix any interest rate.

The pivotal issue therefore is whether the three (3)

contracts all dated 9 February 1981 were executed to

implement a legitimate Installment Paper Purchase ("IPP")

transaction or merely to conceal a usurious loan.

HELD:

The three (3) contracts were executed to conceal a

usurious loan.

Generally, the courts only need to rely on the face o

written contracts to determine the intention of the parties

"However, the law will not permit a usurious loan to hide

itself behind a legal form. Parol evidence is admissible to

show that a written document though legal in form was in

fact a device to cover usury. If from a construction of the

whole transaction it becomes apparent that there exists a

corrupt intention to violate the Usury Law, the courts

should and will permit no scheme, however ingenious, to

becloud the crime of usury." The following circumstances

show that such scheme was indeed employed:

First , petitioner claims that it was never a party to

the Contract to Sell between AUTOWORLD and BARRETTOAs far as it was concerned, it merely purchased receivables

at a discount from BARRETTO as evidenced by the Deed of

Assignment dated 9 February 1981. Whether the Contrac

to Sell was fictitious or not would have no effect on its right

to claim the receivables of BARRETTO from AUTOWORLD

since the two contracts were entirely separate and distinct

from each other.

Curiously however, petitioner admitted that its lawyers

were the ones who drafted all the three (3) contracts

involved which were executed on the same day. Also

petitioner was the one who procured the services of the

Asian Appraisal Company to determine the fair market

value of the land to be sold way back in September of 1980

or six (6) months prior to the sale. If it were true that

petitioner was never privy to the Contract to Sell , then why

was it interested in appraising the lot six (6) months prior

to the sale? And why did petitioner's own lawyers prepare

the Contract to Sell? Obviously, petitioner actively

participated in the sale to ensure that the appraised lot




would serve as adequate collateral for the usurious loan it

gave to AUTOWORLD.

Second , petitioner insists that the 9 February 1981

transaction was a legitimate "IPP" transaction where it

only bought the receivables of BARRETTO from

AUTOWORLD amounting to P12,999,999.60 at a

discounted price of P6,980,000.00. However, per

instruction of petitioner in its letter to BARRETTO dated

17 November 1980 the whole purchase price of the

receivables was to be "flowed back" to AUTOWORLD. And

in its subsequent letter of 24 February 1981 petitioner

also gave instructions on how BARRETTO should apply the

proceeds worth P6,980,000.00.

It can be seen that out of the nine (9) items of

appropriation stated (in the letter), Item Nos. 2-8 had to be

returned to petitioner. Thus, in compliance with the

aforesaid letter, BARRETTO had to yield P4,058,468.47 of

the P6,980,000.00 to petitioner to settle some of

AUTOWORLD's previous debts to it. Any remainingamount after the application of the proceeds would then

be surrendered to AUTOWORLD in compliance with the

letter of 17 November 1980; none went to BARRETTO.

The foregoing circumstances confirm that the

P6,980,000.00 was really an indirect loan extended to

AUTOWORLD so that it could settle its previous debts to

petitioner. Had petitioner entered into a legitimate

purchase of receivables, then BARRETTO, as seller, would

have received the whole purchase price, and free to

dispose of such proceeds in any manner it wanted. It

would not have been obliged to follow the "Application of

Proceeds" stated in petitioner's letter.

Third , in its 17 November 1980 letter to BARRETTO,

petitioner itself designated the proceeds of the "IPP"

transaction as a "loan." In that letter, petitioner stated that

the "loan proceeds" amounting to P6,980,000.00 would be

released to BARRETTO only upon submission of the

documents it required. And as previously mentioned, one

of the required documents was a letter agreement

between BARRETTO and AUTOWORLD stipulating that the

P6,980,000.00 should be "flowed back" to AUTOWORLD. If it were a genuine "IPP" transaction then petitioner would

not have designated the money to be released as "loan

proceeds" and BARRETTO would have been the end

recipient of such proceeds with no obligation to turn them

over to AUTOWORLD.

Fourth, after the interest rate ceilings were lifted on 21 July

1981 petitioner extended on 18 June 1982 a direct loan of

P3,000,000.00 to AUTOWORLD. This time however, with

no more ceiling rates to hinder it, petitioner imposed a

28% effective interest rate on the loan. And no longer

having a need to cloak the exorbitant interest rate, the

promissory note evidencing the second transaction

glaringly bore the 28% interest rate on its face. We are

therefore of the impression that had there been no interest

rate ceilings in 1981, petitioner would not have resorted to

the fictitious "IPP" transaction; instead, it would have

directly loaned the money to AUTOWORLD with aninterest rate higher than 12%.

Thus, although the three (3) contracts seemingly show at

face value that petitioner only entered into a legitimate

discounting of receivables, the circumstances cited prove

that the P6,980,000.00 was really a usurious loan extended

to AUTOWORLD.

Petitioner anchors its defense on Sec. 7 of the Usury Law

which states —

Provided, finally, That nothing herein containedshall be construed to prevent the purchase by an

innocent purchaser of a negotiable mercantile

paper, usurious or otherwise, for valuable

consideration before maturity, when there has

been no intention on the part of said purchaser to

evade the provisions of the Act and said purchase

was not a part of the original usurious transaction

In any case however, the maker of said note shal

have the right to recover from said original holder

the whole interest paid by him thereon and, in any

case of litigation, also the costs and such

attorney's fees as may be allowed by the court.

Indeed, the Usury Law recognizes the legitimate purchase

of negotiable mercantile paper by innocent purchasers

But even the law has anticipated the potential abuse of

such transactions to conceal usurious loans. Thus, the law

itself made a qualification. It would recognize legitimate

purchase of negotiable mercantile paper, whether

usurious or otherwise, only if the purchaser had no

intention of evading the provisions of the Usury Law and

that the purchase was not a part of the original usurious

transaction. Otherwise, the law would not hesitate to annusuch contracts. Thus, Art. 1957 of the Civil Code provides

—

Contracts and stipulations, under any cloak or

device whatever, intended to circumvent the laws

on usury shall be void. The borrower may recover

in accordance with the laws on usury.




In the case at bar, the attending factors surrounding the

execution of the three (3) contracts on 9 February 1981

clearly establish that the parties intended to transact a

usurious loan. These contracts should therefore be

declared void. Having declared the transaction between

the parties as void, we are now tasked to determine how

much reimbursement AUTOWORLD is entitled to. The

Court of Appeals, adopting the computation of

AUTOWORLD in its plaintiff-appellant's brief, ruled —

According to plaintiff-appellant, defendant-

appellee was able to collect P3,921,217.78 in

interests from appellant. This is not denied by the

appellee. Computed at 12% the effective interest

should have been P1,545,400.00. Hence, appellant

may recover P2,586,035.44, representing

overpayment arising from usurious interest rate

charged by appellee.

While we do not dispute the appellate court's finding that

the first transaction was a usurious loan, we do not agreewith the amount of reimbursement awarded to

AUTOWORLD. Indeed, it erred in awarding only the

interest paid in excess of the 12% ceiling. In usurious

loans, the creditor can always recover the principal

debt. However, the stipulation on the interest is

considered void thus allowing the debtor to claim the

whole interest paid. In a loan of P1,000.00 with interest at

20% per annum or P200.00 per year, if the borrower pays

P200.00, the whole P200.00 would be considered usurious

interest, not just the portion thereof in excess of the

interest allowed by law.

In the instant case, AUTOWORLD obtained a loan of

P6,980,000.00. Thereafter, it paid nineteen (19)

consecutive installments of P216,666.66 amounting to a

total of P4,116,666.54, and further paid a balance of

P6,784,551.24 to settle it. All in all, it paid the aggregate

amount of P10,901,217.78 for a debt of P6,980,000.00. For

the 23-month period of the existence of the loan covering

the period February 1981 to January 1982, AUTOWORLD

paid a total of P3,921,217.78 in interests. Applying the

12% interest ceiling rate mandated by the Usury Law,

AUTOWORLD should have only paid a total of P1,605,400.00 in interests. Hence, AUTOWORLD is entitled

to recover the whole usurious interest amounting to

P3,921,217.78.

Solangon vs Salazar

G.R. No. 125944 June 29, 2001

Facts:

1. Petitioner-spouses executed 3 real estate mortgages

on a parcel of land situated in Bulacan, in favor of the

same Respondent Salazar to secure payment of loans

of P60 K, P136 K and P230 K payable within 4 months,

1 year, and 4 months in that order, with 6% monthly

interest on the first loan, and legal interests on the

others.2. This action was initiated by the Petitioner-spouses to

prevent the foreclosure of the mortgaged property.

3. They alleged that they obtained only one loan from the

Respondent which was the P60 K secured by the first

mortgage. Also, Petitioner-spouses opined that the 6%

monthly interest was unconscionable.

4. The subsequent mortgages were merely continuations

of the first one, which is null and void.

5. Moreover, the Respondent assured them that he will

not foreclose the mortgage as long as they pay the

stipulated interest upon maturity or within a

reasonable time thereafter. Petitioner-spouses

substantially paid the loans with interest but were

unable to pay it in full.

6. On the other hand, the Respondent claimed that the

mortgages were executed to secure 3 separate loans of

and that the first two loans were paid, but the last one

was not.

7. He denied having represented that he will not

foreclose the mortgage as long as the Petitioner-

spouses pay interest.

8. Lower courts ruled in favour of Respondent. Thus, this

petition.

Issue:

Whether or not the 6% monthly interest is

unconscionable?

Ruling:

Yes. The SC ruled that this is unconscionable.

1. While the Usury Law ceiling on interest rates waslifted by C.B. Circular No. 905, nothing in the said

circular grants lenders carte blanche authority to

raise interest rates to levels which will either

enslave their borrowers or lead to a hemorrhaging

of their assets.

2. In Medel v. Court of Appeals, the Court decreed that

the 5.5% interest or 66% per annum was not

usurious but held that the same must be equitably

reduced for being iniquitous, unconscionable and




exorbitant , and hence, contrary to morals (‘contra

bonos mores’), if not against the law.

3. In the case at bench, Petitioner-spouses stand on a

worse situation. They are required to pay the

stipulated interest rate of 6% per month or 72%

per annum which is definitely outrageous and

inordinate.

4. Hence, the interest rate must be reduced

equitably. An interest of 12% per annum isdeemed fair and reasonable.

SPOUSES PASCUAL VS. RAMOS

FACTS: Petitioners executed a Deed of Absolute Sale with

Right to Repurchase with respondent, in consideration of

Php 150,000. The petitioners did not exercise their right to

repurchase the property within the stipulated one-year

period; hence, respondent prayed that the title over theparcels of land be consolidated in his favor. Petitioners

aver that what was really executed between them and the

respondent is a real estate mortgage and that there was no

agreement limiting the period within which to exercise the

right to repurchase and that they have even overpaid

respondent.

Respondent offered in evidence a document denominated

as Sinumpaang Salaysay which had a provision of an

interest of 7% per month on the principal loan of Php

150,000. RTC ruled that the transaction was actually a loan

and the payment was secured by a mortgage of the

property, and that the petitioners had made payments

which resulted in overpayment as the interest was at 7%

per annum. Respondent filed an MR alleging that the

interest stipulated in the Sinumpaang Salaysay was 7% per

month. The RTC ruled in favor of the respondent

acknowledging that the correct interest rate stipulated

was 7% per month. However, the RTC declared that the

7% per month interest is too burdensome and onerous

and so the court unilaterally reduced the interest rate from

7% per month to 5% per month. Petitioners filed an MR

alleging that either 5% or 7% per month is exorbitant,unconscionable, unreasonable, usurious and inequitable.

ISSUE: WON the interest of 5% month is exorbitant,

unconscionable, unreasonable, usurious and inequitable.

HELD: NO. It is a basic principle in civil law that parties are

bound by the stipulations in the contracts voluntarily

entered into by them. Parties are free to stipulate terms

and conditions which they deem convenient provided they

are not contrary to law, morals, good customs, public

order, or public policy.

The interest rate of 7% per month was voluntarily agreed

upon by RAMOS and the PASCUALs. There is nothing from

the records and, in fact, there is no allegation showing that

petitioners were victims of fraud when they entered into

the agreement with RAMOS. Neither is there a showing

that in their contractual relations with RAMOS, the

PASCUALs were at a disadvantage on account of their

moral dependence, ignorance, mental weakness, tender

age or other handicap, which would entitle them to the

vigilant protection of the courts as mandated by Article 24

of the Civil Code.

With the suspension of the Usury Law and the removal o

interest ceiling, the parties are free to stipulate the interest

to be imposed on loans. Absent any evidence of fraud,

undue influence, or any vice of consent exercised by

RAMOS on the PASCUALs, the interest agreed upon is

binding upon them. This Court is not in a position toimpose upon parties contractual stipulations different

from what they have agreed upon

REFORMINA V. TOMOL

EASTERN SHIPPING v CA

FACTS:

5. 2 Fiber drums of Riboflavin were shipped from

Japan for delivery vessel owned by Eastern

Shipping (P) and that the shipment was insured

by Mercantile Insurance (R)

6. Upon arrival in Manila, it was discharged unto the

custody of Metro Port, which it stated in its survey

that 1 drum was in bad order.

7. It was then received by Allied Brokerage wherein

it stated in its survey that one drum was opened

and without seal

8. Allied then delivered it to the consignee’s W/H,

which it excepted that 1 drum contained spillages

while the rest was adulterated/fake

9. R then filed claims against P for the losses

sustained by the consignee (which R subrogated).

10. LC ruled in favor of R and ordered P to pay

damages, however, it failed to state when the

interest rate should commence – from date of

filing of complaint at 12% or from date of

judgment of TC at 6%




ISSUE: When should the interest rate commence and at

what rate

SC: 6% from the date of decision and 12% from date of

finality of judgment until payment

11. This case laid down the rules on the interest rates:

12. A) when an obligation regardless of its source, is

breached, the contravenor can be held liable fordamages

13. B) with regard particularly to an award of interest

in the concept of actual and compensatory

damages, the rate of interest, as well as the accrual

thereof, shall be as follows:

14. If it consists of payment of money

(loan/forbearance)

1. Interest due imposed = as stipulated in

writing and the

2. Interest due = earn legal interest from the

time it is judicially demanded

3. No stipulation = 12% per annum from

date of default (judicial/extra judicial)

15. If it is not loan/forbearance

1. Interest on amount of damages = imposed

by discretion of court at 6%

2. No interest shall be ordered on

unliquidated claims/damages until

demand can be established with

reasonable certainty

3. When demand is established with

reasonable certainty, interest shall begin

to run from the time the claim is made

(judicially/extrajudicially)

4. But if it cannot be reasonably established

at the time demand was made = interest

to run from date of judgment of the court

16. If judgment becomes Final and Executory

1. Rate of legal interest = 12%

2. From finality to satisfaction

3. Why? It is already considered as

forbearance

EASTERN ASSURANCE AND SURETY CORPORATION

(EASCO), vs. Court of Appeals

Facts:

1. On April 9, 1981, private respondent Vicente Tan

insured his building in Dumaguete City against fire

with petitioner Eastern Assurance and Surety

Corporation (EASCO) for P250,000.00.

2. On June 26, 1981, the building was destroyed by

fire. As his claim for indemnity was refused,

private respondent filed a complaint for breach of

contract with damages against petitioner. The RTC

Court, decided in favour of Vicente Tan. In its

ruling, the RTC court imposed the rate of interest

at 12% per annum, and decided that EASCO to pay

immediately to Vicente Tan the unpaid balance of

interest of the principal amount of P250,000.00equivalent to 6% per annum from June 26, 1981 to

September 30,1994.

3. Petitioner EASCO appealed to the Court of

Appeals, which, on July 30, 1993, affirmed the

decision of the trial court. The CA, on the authority

of prior case, Eastern Shipping Lines, Inc. v . Court

of Appeals, that the interest rate on the amount

due should be 6% per annum from June 26, 1981

to August 24, 1993, and 12% per annum beginning

August 25, 1993 until the money judgment is paid.

4. Thereafter, petitioner EASCO tendered payment

of the money judgment in the amount of

P250,000.00 plus interest of 6% per annum from

June 26, 1981 to July 30, 1993.

5. However, private respondent refused to accept

payment on the ground that the applicable legal

rate of interest was 12% per annum.

Subsequently, private respondent brought the

matter to the Insurance Commission.

6. Then in, 1995, the parties agreed before thehearing officer of the commission that the interest

should be computed from June 26, 1981 to

September 30, 1994. Petitioner would file with the

trial court a motion to fix the legal rate of interest

attaching thereto a check in the amount of

P250,000.00 with 6% interest per annum.

7. In its appeal EASCO to the SC, it contended that

the CA wrongfully applied the aforecited




paragraph 3 of the suggested rules of thumb for

future guidance [as formulated in Eastern

Shipping Lines, Inc. v. Court of Appeals, and

unlawfully ignored or disregarded the agreed cut-

off date for the payment of the legal rate.

Issue: When the judgment of the court awarding a

sum of money becomes final and executory what is

the rate to be imposed?

Held: Petitioner's contentions are without merit.

The prior Eastern Shipping Lines, Inc. v . Court of Appeals,

was held:

I. When an obligation, regardless of its source, i.e.,

law, contracts, quasi-contracts, delicts or quasi-

delicts, is breached, the contravener can be held

liable for damages. The provisions under

"Damages" of the Civil Code govern in determining

the measure of recoverable damages.

II. With regard particularly to an award of interest

in the concept of actual and compensatory

damages, the rate of interest, as well as the accrual

thereof, is imposed, as follows:

Par. 3: When the judgment of the court awarding a sum of

money becomes final and executory, the rate of legal

interest, whether the case falls under paragraph 1 or

paragraph 2, above, shall be 12% per annum from such

finality until its satisfaction, this interim period being

deemed to be by then an equivalent to a forbearance of

credit.

Unquestionably, this case falls under the rule stated in

paragraph 3. The question is whether this rule can be

applied to this case.

The prior Eastern Shipping Lines, case. did not lay down

any new rules because it was just a a comprehensive

summary of existing rules on the computation of legal

interest.

As to the "cut-off date" for the payment of legal interest:

The trial court's finding on this point is binding. Hence, the

payment of 12% legal interest per annum should

commence from August 25, 1993, the date the decision of

the trial court became final, up to September 30, 1994, the

agreed "cut-off-date" for the payment of legal interest. The

decision of the CA is affirmed.

PILIPINAS BANK, petitioner,

vs.

THE HONORABLE COURT OF APPEALS, and LILIA R.

ECHAUS, respondents.

Facts: private respondent filed a complaint against

petitioner and its president, Constantino Bautista, for

collection of a sum of money. The complaint alleged: (1)

that petitioner and Greatland executed a "Dacion en Pago,"

wherein Greatland conveyed to petitioner several parcels

of land in consideration of the sum of P7,776,335.69; (2)

that Greatland assigned P2,300,000.00 out of the total

consideration in favor of private respondent; and (3) that

notwithstanding her demand for payment, petitioner

refused and failed to pay the said amount assigned to her.

Petitioner claimed: (1) that its former president had no

authority (2) that it never ratified the same; and (3) that

assuming arguendo that the agreement was binding, the

conditions stipulated therein were never fulfilled.

The trial court ruled in favor of private respondent.

Court of Appeals modified the Order dated April 3, 1985,

by limiting the execution pending appeal against petitioner

to P5,517.707.00

Trial court granted the new motion for execution pending

appeal. Petitioner complied with the writ of execution

pending appeal by issuing two manager's checks in the

total amount of P5,517,707.00

The Court of Appeals rendered a decision in CA-G.R. No.

CV-06017, which modified the judgment of the trial court

Petitioner filed a motion in the trial court praying that

private respondent to refund to her the excess payment of

P1,898,623.67 with interests at 6%. It must be recalled

that while private respondent was able to collect

P5,517,707.00 from petitioner pursuant to the writ of

advance execution, the final judgment in the main case

awarded to private respondent damages in the total

amount of P3,619,083.33

ISSUE: What interest rate applicable?

HELD: Note that Circular No. 416, fixing the rate of interest

at 12% per annum, deals with (1) loans; (2) forbearance of

any money, goods or credit; and

(3) judgments.

(1) the amount of P2,300,000.00 adjudged to be paid by

petitioner to private respondent shall earn interest of 6%

per annum - The said obligation arose from a contract of

purchase and sale and not from a contract of loan or




mutuum. Hence, what is applicable is the rate of 6% per

annum as provided in Article 2209 of the Civil Code of the

Philippines and not the rate of 12% per annum as

provided in Circular No. 416.

(2) the amount of P1,898,623.67 to be refunded by private

respondent to petitioner shall earn interest of 12% per

annum. - where money is transferred from one person to

another and the obligation to return the same or a portion

thereof is subsequently adjudged.

PNB v CA

FACTS:

8. Province of Isabela issued several checks drawn

against its account with PNB (P) in favor of

Ibarrola (R), as payments for the purchase of

medicines.

9. The checks were delivered to R’s agents who

turned them over to R, except 23 checks

amounting to P98k.

10. Due to failure to receive full amount, R filed case

against P

11. LC, CA and SC ordered PNB to pay however, all 3

courts failed to specify the legal rate of interest –

6% or 12%

ISSUE: WoN the rate to be used is 6%

SC: YES!

12. This case does not involve a loan, forbearance of

money or judgment involving a loan or

forbearance of money as it arose from a contract

of sale whereby R did not receive full payment for

her merchandise.

13. When an obligation arises “from a contract of

purchase and sale and not from a contract of loan

or mutuum,” the applicable rate is 6% per annumas provided in Art. 2209 of the NCC

14. 6% from filing of complaint until full payment

before finality of judgment

15. 12% from finality of judgment

PLANTILLA vs. BALIWAG

358 SCRA 396

Facts:

1. In a civil case, lower court rendered a decision

ordering:

1. Spouses Orga and Plantilla to reinstate

Suiza as share tenant

2. That they pay Suiza unrealized shares

from the harvests of coconut fruits from

August until reinstated the amount of

P1,000 with legal interest until fully paid.

2. The decision, however, did not state the interest to

be charged.

3. A writ of execution was issued addressed to

Sheriff Baliwag.

4. Baliwag demanded payment from the spouses

representing the share of Suiza the amount of

480k, representing the coconut harvest from Aug1979 to Jan 1998 at P1,000 with 8 harvests per

year with an interest rate of 12% per annum or a

total of 222% plus attorney’s fees.

5. Col. Plantilla, administrator of the spouses, filed an

administrative complaint against Baliwag

charging him of serious irregularities in

implementation of the writ of execution alleging

that dispositive portion of the decision did not

contain 8 harvest per year and Baliwag took it

upon himself to specify the number of harvests.

Issue: Whether or not Sheriff is guilty of irregularities?

Held:

Yes, Baliwag is guilty of malfeasance, not irregularities.

The determination of the amount due under the writ

properly pertained to the Judge. Yet, respondent assumed

the task. For doing so instead of pointing out to the court

the deficiency of the writ, he should be sanctioned. He

should not have arrogated unto himself judicial functions

that were to be performed only by the judge.

The computation of the amount due under the writ is not

the duty of the sheriff. Such amount should have already

been specifically stated in the writ if execution issued by

the court under Section 3 Rule 39 of the 1997 Rules of

Court. All that the sheriff should do upon receipt of that

writ is the ministerial duty of enforcing it.




RCBC vs ALFA

Facts: Alfa on separate instances was granted by

RCBC 4 letters of credit to facilitate the purchase of raw

materials for their garments business. Alfa executed 4

trust receipts and made comprehensive surety agreements

wherein the signatory officers of Alfa agreed in

joint/several capacity to pay RCBC in case the company

defaulted. RCBC filed a case versus Alfa for a sum of

money. The CA awarded only P3M (minimum amount) to

RCBC instead of P18M as stipulated in their contract.

Issue: W/N the CA can deviate from the

provisions of the contract between the parties?

Ruling: No. Contracting parties may establish agreements

terms, deemed advisable provided they are not contrary to

law/public policy. A contract is a law between the parties.

In this case it’s valid because it was not excessive under

the Usury Law.

*Atty. Aguinaldo assigned this case because he just wanted

to show us how to compute for the interest in long term

deals. He even made a diagram on the board. Di ko na

ilalagay un sa digest because I assume that my industrious

& responsible classmates took down notes... = p

RODZSSEN SUPPLY V. FAR EAST

Facts: On January 15, 1979, defendant Rodzssen Supply,

Inc. opened with plaintiff Far East Bank and Trust Co. a 30-

day domestic letter of credit, in the amount of P190,000.00

in favor of Ekman and Company, Inc. (Ekman) for the

purchase from the latter of five units of hydraulic loaders,

to expire on February 15, 1979. The three loaders were

delivered to defendant for which plaintiff paid Ekman and

which defendant paid plaintiff before expiry date of LC.

The remaining two loaders were delivered to defendant

but the latter refused to pay. Ekman pressed payment to

plaintiff. Plaintiff paid Ekman for the two loaders and later

demanded from defendant such amount as it paid Ekman.

Defendant refused payment contending that there was a

breach of contract by plaintiff who in bad faith paid

Ekman, knowing that the two units of hydraulic loaders

had been delivered to defendant after the expiry date of

subject LC.

Issue: WON petitioner is liable to respondent.

Ruling: The SC agrees with the CA that petitioner should

pay respondent bank the amount the latter expended for

the equipment belatedly delivered by Ekman and

voluntarily received and kept by petitioner. Equitable

considerations behoove us to allow recovery by

respondent. True, it erred in paying Ekman, but petitioner

itself was not without fault in the transaction. It must be

noted that the latter had voluntarily received and kept theloaders since October 1979. When both parties to a

transaction are mutually negligent in the performance of

their obligations, the fault of one cancels the negligence of

the other and, as in this case, their rights and obligations

may be determined equitably under the law proscribing

unjust enrichment.

MENDOZA vs CA

G.R.No. 116710, June 25,2001

Facts:

PNB extended P500,000 credit line and P1 million

letter of credit infavor of Mendoza. As security for the

credit accomodations, he mortgaged real and personal

properties to PNB. The real estate mortgage provided for

an escalation clause.

He also executed 3 promissory notes covering the

P500,000 credit line in 1979. The said notes also provided

for an interest at the rate of 12% per annum until paid ,

and that PNB may raise the interest without further notice.

He also executed 11 Application and Agreement

for the commercial letter of credit providing for 9%

interest per annum from the date of drafts until the arrival

of payment in New York and that the bank may increase

the interest without further notice. The bank sent a letter

to Mendoza, informing him that the interest rates

increased to 14% per annum.

Mendoza made some proposals for the

restructuring of his past due accounts into 5 year term

loan and for an additional P2 million letter of credit.However, PNB did not approve his proposal and reduced

the letter of credit to P 1 million only.

Mendoza claimed that he was forced to sign 2

blank promissory notes and claimed that his proposal for 5

year restructuring of his past due accounts was approved .

He also alleged taht PNB violated their agreement because

PNB inserted 21% instead of 18% in the first promissory

note and 18% instead of 12% in the second promissory




note. The 2 promissory notes also provided escalation

clauses.

The 2 newly executed promissory notes novated

the three 1979 promissory notes and 11 Application and

Agreement for Commercial Letter of Credit executed by

Mendoza earlier.

After sometime, pursuant to the escalation clause,

the interests in the two promissory notes were again

increased. Due to Mendoza’s failure to pay the 2

promissory notes, PNB foreclosed the real and personal

mortgages. Mendoza filed for specific performance,

nullification of foreclosure and damages.

Issue: Whether or not the interest rates imposed on the 2

newly executed promissory notes were valid.

Ruling:

The Court upheld the validity of the 2 newly

executed promissory notes on the ground that private

transactions are presumed to be fair and regular.

However, it ruled that interest rates imposed on

the 2 newly executed promissory notes are not valid on

the ground that Mendoza was not informed beforehand by

PNB of the change in the stipulated interest rates.

It held that unilateral determination and

imposition of increased interest rates by PNB is violative of

the principle of mutuality of contract. Contract changesmust be made with the consent of the contractiong parties.

The minds of all parties must meet as to the proposed

modification, especially wwhen it affects an important

aspect of the agreement. No one receiving a proposal to

change a contract to which the party is obliged to answer

the proposal, and his silence per se cannot be construed as

acceptance.

DEPOSIT

Topic: Deposit; Article 1962

Calibo v. CA

FACTS:

1. Respondent Abella’s son Mike rented for

residential purposes the house of Petitioner

Calibo.

2. Respondent left a tractor in his son’s garage for

safekeeping

3. Petitioner – Mike had not paid rentals, electric and

water bills

4. Mike reassured Calibo that the tractor would

stand as guarantee for its payment

5. Respondent wanted to take possession of histractor but Petitioner said that the Mike had left

the tractor with him as security for the payment o

Mike’s obligation to him.

6. Respondent issued postdated checks but

Petitioner will only accept check if Respondent

executes Promissory Note to cover payment for

unpaid electric and water bills.

7. Petitioner instituted an action for replevin

claiming ownership of the tractor and seeking to

recover possession thereof from petitionerLikewise, he asserts that the tractor was left with

him, in the concept of an innkeeper, on deposit

and that he may validly hold on thereto until Mike

Abella pays his obligations.

8. TC and CA – Mike could not have validly pledged

the tractor because he was not the owner. NO

DEPOSIT

ISSUE: WON there was a valid deposit?

HELD: NO

1. In a contract of deposit, a person receives an

object belonging to another with the obligation o

safely keeping it and of returning the same

Petitioner himself stated that he received the

tractor not to safely keep it but as a form o

security for the payment of Mike Abella’s

obligations. There is no deposit where theprincipal purpose for receiving the object is not

safekeeping.

2. Consequently, petitioner had no right to refuse

delivery of the tractor to its lawful owner. On the

other hand, private respondent, as owner, had

every right to seek to repossess the tractor

including the institution of the instant action for

replevin.




BISHOP OF JARO V. DELA PENA

CA Agro-Industrial vs CA

G.R. No. 90027 March 3, 1993

Facts

1. Petitioner (through its President) purchased 2parcels of land from spouses Pugao for P350 K

with a downpayment of P75 K.

2. Per agreement, the land titles will be transferred

upon full payment and will be placed in a safety

deposit box (SBDB) of any bank. Moreover, the

same could be withdrawn only upon the joint

signatures of a representative of the Petitioner

and the Pugaos upon full payment of the purchase

price.

3. Thereafter, Petitioner and spouses placed thetitles in SDB of Respondent Security Bank and

signed a lease contract which substantially states

that the Bank will not assume liability for the

contents of the SDB.

4. Subsequently, 2 renter's keys were given to the

renters — one to the Petitioner and the other to

the Pugaos. A guard key remained in the

possession of the Respondent Bank. The SDB can

only be opened using these 2 keys simultaneously.

5. Afterwards, a certain Mrs. Ramos offered to buyfrom the Petitioner the 2 lots that would yield a

profit of P285K.

6. Mrs. Ramos demanded the execution of a deed of

sale which necessarily entailed the production of

the certificates of title. Thus, Petitioner with the

spouses went to Respondent Bank to retrieve the

titles.

7. However, when opened in the presence of the

Bank's representative, the SDB yielded no such

certificates.

8. Because of the delay in the reconstitution of the

title, Mrs. Ramos withdrew her earlier offer to

purchase the lots; as a consequence, the Petitioner

allegedly failed to realize the expected profit of

P285K.

9. Hence, Petitioner filed a complaint for damages

against Respondent Bank.

10. Lower courts ruled in favour of Respondent Bank.

Thus, this petition.

Issues:

1. Whether or not the disputed contract is an

ordinary contract of lease?

2. Whether or not the provisions of the cited

contract are valid?

3. Whether or not Respondent Bank is liable for

damages?

Ruling:

1. No. SC ruled that it is a special kind of deposit

because:

1. the full and absolute possession and control of the

SDB was not given to the joint renters — the

Petitioner and the Pugaos.

2. The guard key of the box remained with the

Respondent Bank; without this key, neither of the

renters could open the box and vice versa.

3. In this case, the said key had a duplicate which was

made so that both renters could have access to the

box.

4. Moreover, the renting out of the SDBs is not

independent from, but related to or in conjunction

with, the principal function of a contract of deposit

the receiving in custody of funds, documents and

other valuable objects for safekeeping.

2. NO. SC opined that it is void.

1. Generally, the Civil Code provides that the

depositary (Respondent Bank) would be liable if,

in performing its obligation, it is found guilty of

fraud, negligence, delay or contravention of the

tenor of the agreement.

2. In the absence of any stipulation, the diligence of a

good father of a family is to be observed.

3. Hence, any stipulation exempting the depositary

from any liability arising from the loss of the thing

deposited on account of fraud, negligence or delay

would be void for being contrary to law and public

policy (which is present in the disputed contract)




4. Said provisions are inconsistent with the

Respondent Bank's responsibility as a depositary

under Section 72(a) of the General Banking Act.

5. NO. SC ruled that:

1. no competent proof was presented to show that

Respondent Bank was aware of the private

agreement between the Petitioner and the Pugaos

that the Land titles were withdrawable from the

SDB only upon both parties' joint signatures,

2. and that no evidence was submitted to reveal that

the loss of the certificates of title was due to the

fraud or negligence of the Respondent Bank.

ART. 1977. OBLIGATION NOT TO MAKE USE OF THING

DEPOSITED UNLESS AUTHORIZED.

JAVELLANA VS. LIM

FACTS: Defendants executed a document in favor of

plaintiff-appellee wherein it states that they have received,

as a deposit, without interest, money from plaintiff-

appellee and agreed upon a date when they will return the

money. Upon the stipulated due date, defendants asked for

an extension to pay and binding themselves to pay 15%

interest per annum on the amount of their indebtedness,

to which the plaintiff-appellee acceded. The defendants

were not able to pay the full amount of their indebtedness

notwithstanding the request made by plaintiff-appellee.

The lower court ruled in favor of plaintiff-appellee for the

recovery of the amount due.

ISSUE: Whether the agreement entered into by the parties

is one of loan or of deposit?

HELD: The document executed was a contract of loan.

Where money, consisting of coins of legal tender, is

deposited with a person and the latter is authorized by the

depositor to use and dispose of the same, the agreement is

not a contract of deposit, but a loan. A subsequent

agreement between the parties as to interest on theamount said to have been deposited, because the same

could not be returned at the time fixed therefor, does not

constitute a renewal of an agreement of deposit, but it is

the best evidence that the original contract entered into

between therein was for a loan under the guise of a

deposit.

G.R. Nos. L-26948 and L-26949 October 8, 1927

SILVESTRA BARON, plaintiff-appellant,

vs.

PABLO DAVID, defendant-appellant.

And

GUILLERMO BARON, plaintiff-appellant,

vs.

PABLO DAVID, defendant-appellant.FACTS:

1. The defendant owns a rice mill, which was well

patronized by the rice growers of the vicinity.

2. On January 17, 1921, a fire occurred that

destroyed the mill and its contents, and it was

some time before the mill could be rebuilt and put

in operation again.

3. Silvestra Baron (P1) and Guillermo Baron (P2)

each filed an action for the recovery of the value of

palay from the defendant (D), alleged that:

1. The palay have been sold by bothplaintiffs to the D in the year 1920

2. Palay was delivered to D at his special

request, with a promise of compensation

at the highest price per cavan

4. D claims that the palay was deposited subject to

future withdrawal by the depositors or to some

future sale, which was never effected. D also

contended that in order for the plaintiffs to

recover, it is necessary that they should be able to

establish that the plaintiffs' palay was delivered in

the character of a sale, and that if, on the contrary,the defendant should prove that the delivery was

made in the character of deposit, the defendant

should be absolved.

ISSUE: WoN there was deposit

SC: NO

5. Art. 1978. When the depositary has permission to

use the thing deposited, the contract loses the

concept of a deposit and becomes a loan or

commodatum, except where safekeeping is stil

the principal purpose of the contract. The

permission shall not be presumed, and itsexistence must be proved.

6. The case does not depend precisely upon this

explicit alternative; for even supposing that the

palay may have been delivered in the character of

deposit, subject to future sale or withdrawal at

plaintiffs' election, nevertheless if it was

understood that the defendant might mill the

palay and he has in fact appropriated it to his own

use, he is of course bound to account for its value.




7. In this connection we wholly reject the

defendant's pretense that the palay delivered by

the plaintiffs or any part of it was actually

consumed in the fire of January, 1921. Nor is the

liability of the defendant in any wise affected by

the circumstance that, by a custom prevailing

among rice millers in this country, persons placing

palay with them without special agreement as to

price are at liberty to withdraw it later, properallowance being made for storage and shrinkage, a

thing that is sometimes done, though rarely.

UNITED STATES, vs. IGPUARA

Facts: The defendant Jose igpuara was entrusted with the

amount of P2,498 by Montilla and Veraguth. Without the

consent of Montilla and Veraguth however, Igpuara used

the said amount for his own ends. Thus, igpuara was

charged and convicted with estafa, for having swindled

Juana Montilla and Eugenio Veraguth out of P2,498 whichhe had taken as deposit from the former to be at the his

disposal. Igpuara was sentenced to pay Juana Montilla

P2,498 . The instrument for the deposit reads:

We hold at the disposal of Eugenio Veraguth the sum of two

thousand four hundred and ninety-eight pesos (P2,498), the

balance from Juana Montilla's sugar. — Iloilo, June 26, 1911,

— Jose Igpuara, for Ramirez and Co

Igpuara contended that the amount was not deposit for

there was no certificate of deposit, there was no transfer

or delivery of the P2,498 and what transpired was a loan.If assuming that it was deposit, this is negotiable.

Issues: Whether or not it is necessary that there be

transfer or delivery in order to constitute a deposit.

Held: No.

“A deposit is constituted from the time a person

receives a thing belonging to another with the

obligation of keeping and returning it. (Art. 1758,

Civil Code.) “

His contention is without merit because firstly, the

defendant drew up a document declaring that they

remained in his possession. With the understanding that

he would, for it has no other purpose.

The certificate of deposit in question is not negotiable

because only instruments payable to order are negotiable.

Hence, this instrument not being to order but to bearer, it

is not negotiable.

As for the argument that the depositary may use or

dispose oft he things deposited, the depositor's consent is

required thus, the rights and obligations of the depositary

and of the depositor shall cease and the rules and

provisions applicable to commercial loans, commission, or

contract which took the place of the deposit shall be

observed. Igpuara however has shown no authorization

whatsoever or the consent of the depositary for using or

disposing of the P2,498.

That there was not demand on the same or the next day

after the certificate was signed, does not operate against

the depositor, or signify anything except the intention not

to press it. Failure to claim at once or delay for sometime

in demanding restitution of the things deposited, which

was immediately due, does not imply such permission to

use the thing deposited as would convert the deposit into a

loan.

Judgment appealed from is affirmed

ANICETA PALACIO, plaintiff-appellee,

vs.

DIONISIO SUDARIO, defendant-appellant.

FACTS: The plaintiff made an arrangement for the

pasturing of eighty-one head of cattle, in return for which

she has to give one-half of the calves that might be born

and was to pay the defendant one-half peso for each calf

branded. On demand for the whole, forty-eight head of

cattle were afterwards returned to her and this action isbrought to recover the remaining thirty-three.

Defendant in reply to the demand for the cattle, in which

he seeks to excuse himself for the loss of the missing

animals.

As a second defense it is claimed that the thirty-three cows

either died of disease or were drowned in a flood. The

defendant's witnesses swore that of the cows that

perished, six died from overfeeding, and they failed to

make clear the happening of any flood sufficient to destroy

the others.

HELD: If we consider the contract as one of deposit, then

under article 1183 of the Civil Code, the burden of

explanation of the loss rested upon the depositary and

under article 1769 the fault is presumed to be his. The

defendant has not succeeded in showing that the loss

occurred either without fault on his part or by reason of

caso fortuito.




If, however, the contract be not one strictly of deposit but

one according to a local custom for the pasturing of cattle,

the obligations of the parties remain the same.

GULLAS vs. NATIONAL BANK

62 PHIL 519

Facts:

1. Atty. Gullas has a current account with PNB.

2. The treasury of the US issued a warrant in the

amount of $361 payable to the order of Bacos.

Gullas and Lopez signed as indorsers of this

warrant. Thereupon it was cashed by PNB.

3. The warrant was subsequently dishonored by the

Insular treasurer.

4. At that time, Gullas had a balance of P500 in PNB.

From this balance, he also issued some checks

which eventually could not be paid when it wassequestered by the Bank.

5. When it learned of the dishonor, PNB sent notice

to Gullas stating that it applied the outstanding

balances from his current account as payment of

the dishonored warrant. Such notice could not be

delivered to him since he was out of town.

6. Without any action from Gullas, PNB applied the

dishonored warrant against his account.

7. Because of this, Gullas was unable to pay for the

checks he issued before the application.

8. Gullas filed a complaint against PNB.

Issue:

Whether or not PNB has a right to apply a deposit to the

debt of a depositor to the bank?

Held:

Yes, PNB has a right to apply the payment against the

account of the depositor.

The relation between a depositor and a bank is that if creditor and debtor. The general rule is that a bank has a

right to set off of the deposit in its hands for the payment

of any indebtedness to it on the part of the depositor.

However, prior to the mailing of the notice of dishonor and

without waiting for any action by Gullas, the bank made

use of the money standing in his account to make good for

the treasury warrant. At this point recall that Gullas was

merely an indorser. Notice should have been given to him

in order that he might protect his interest. He should be

awarded with nominal damages because of the premature

action of the Bank.

SERRANO vs CENTRAL BANK

Facts: Serrano had P350K worth of time

deposits in Overseas Bank of Manila. He made a series of

encashment but was not successful. He filed a case against

Overseas Bank & he also included the Central Bank so that

the latter may also be jointly and severally liable. Serrano

argued that the CB failed to supervise the acts of Overseas

Bank and protect the interests of its depositors by virtue of

constructive trust.

Issue: W/N the Central Bank is liable?

Ruling: No. There is no breach of trust from a bank’s

failure to return the subject matter of the deposit. Bank

deposits are in the nature of irregular deposits. All kinds of

bank deposits are to be treated as loans and are to be

covered by the law on loans Art.1980. In reality the

depositor is the creditor while the bank is the debtor.

Failure of the respondent bank to honor the time deposit is

failure to pay its obligation as a debtor.

SESBRENO V. CA

Facts: Sesbreno entered into a money market, giving 300k

to Philfinance. As an exchange, Philfinance gave checks and

confirmation of sale of Delta Motor Corp certificates.

Checks bounced. Sesbreno is running after Philipinas Bank

(payee) (Holder of security of primissory note) and Delta

(maker). Delta contends that it is not liable because there

was "reconstruction" of debt of Delta to Philfinance, the

promissory note is not valid anymore. It also contends that

the document cannot be assigned because its non

negotiable. RTC ruled that Philfinance is liable because

Philfinance already knows that the liability was already

waived and it still issued the certificate. However, since

Philfinance was not impleaded, judgment cannot be made

against Philfinance. The issue related in this case is

regarding trasferrability and assignability.




Issue: WoN the non-negotiable instrument is non

transferrable/assignable

Ruling: Assignable is different from tranferrability.

Negotiable instruments can be indorsed. Non negotiable

instrumets can be assigned. Therefore, non negotiable

instrument can be assigned.

DE LOS SANTOS vs TAN KHEY

O.G.No.26695-R, July 30, 1962

Facts:

Tan Khey was the owner of International Hotel

located in Iloilo city. Romeo de los Santos lodged in Tna

Khey’s hotel. After arrival, he left the hotel, depositing his

revolver and his bag with the person in charge in the hotel.

When he returned to the hotel, he took his revolver and his

bag from the person in charge in the hotel and proceeded

to his room. He locked the door before sleeping.

When he woke up, he discovered that the door in

his room was opened and his bag and pants, wherein he

placed his revolver , was missing. He reported the matter

to the Assistant Manager of the hotel, who in turn

informed Tan Khey.

A secret service agent was sent to investigate and

it was found that the wall of the room occupied by De los

Santos was only seven feet high with an open space above

through which one could enter from outside. De los Santos

told the detective that he lost his revolver.

Tan Khey disclaimed liability because De los

Santos did not deposit his properties with the manager

despite a notice to that effect was posted in the hotel.

Tan Khey contended that to be liable under

Article 1998 of the Civil Code, the following conditions

must concur:

1. Deposit of effects by travellers in hotel or inn

2. Notice given to hotel keepers or employees of the

effects brought by guests

3. Guest or travellers take the precautions which

said hotel keepers or their substitutes advised

relative to the care and vigilance of their effects.

Issue: Whether the hotel owner should be held liable for

the loss of the effects of the guest?

Rulng:

The Court ruled that the hotel owner should be

liable for the loss of the revolver, pants and bag of the

guest.

Deposit

While the law speaks of “deposit” of effects by

travellers in hotels or inns, personal receipt by the

innkeeper for safe keeping of effects is not necessaily

meant thereby. The reason therefor is the fact that it is the

nature of business of an innkeeper to provide not only

lodging for travellers but also to security to their persons

and effects. The secuity mentioned is not confined to the

effects actually delivered to the innkeeper but also to all

effects placed within the premises of the hotel. This is

because innkeepers by the neture of their business, have

supervision and controlof their inns and the premises

threof.

It is not necessary that the effect was actually

delivered but it is enough that they are within the inn. If aguest and goods are within the inn, that is sufficient to

charge him.

The owner of a hotel may exonerate himself from

liability by showing that the guest has taken exclusive

control of his own goods, but this must be exclusive

custody and control of a guest, and must not be held under

the supervision and care of the innkeeper,ey are kept in a

room assigned to a guest or the other proper depository in

the house.

In this case, the guest deposited his effects in thehotel because they are in his room and within the premises

of the hotel, and therefore, within the supervision and

control of the hotel owner.

Notice

The Court ruled that there was no doubt that the

person in charge had knowledge of his revolver, the bag,

and pants of the guest, De los Santos.

The requirement of notice being evidently for the

purpose of closing the door to fraudulent claims for non-

existent articles, the lack thereof was fatal to De los Santos’

claim for reparation for the loss of his eyeglass, ring, and

cash.

Precautions

While an innkeeper cannot free himself from

responsibility by posting notices, there can be no doubt of




the innkeeper’s right to make such regulations in the

management of his inn as will more effectually secure the

property of his guest and operate as protection to himself,

and that it is incumbent upon the guest, if he means to hold

the inkeeper ho his responsibility, to comply with any

regulation that is just and reasonable, when he is

requested to do so.

However, in this case, the notice requiring actual

deposit of the effects with the manager was an

unreasonable regulation. It was unreasonable to require

the guest to deposit his bag ,pants and revolver to the

manager. De los Santos had exercised the necessary

diligence with respect to the care and vigilance of his

effects.

Topic: Deposit; Article 2003

YHT Realty v. CA

FACTS:

1. Respondent McLoughlin would stay at Tropicana

Hotel every time he is here in the Philippines and

would rent a safety deposit box.

2. The safety deposit box could only be opened

through the use of 2 keys, one of which is given to

the registered guest, and the other remaining in

the possession of the management of the hotel.

3. McLoughlin allegedly placed the following in his

safety deposit box – 2 envelopes containing US

Dollars, one envelope containing Australian

Dollars, Letters, credit cards, bankbooks and a

checkbook.

4. When he went abroad, a few dollars were missing

and the jewelry he bought was likewise missing.

5. Eventually, he confronted Lainez and Paiyam who

admitted that Tan opened the safety deposit box

with the key assigned to him. McLoughlin went up

to his room where Tan was staying and

confronted her. Tan admitted that she had stolen

McLouglin’s key and was able to open the safety

deposit box with the assistance of Lopez, Paiyam

and Lainez. Lopez alsto told McLoughlin that Tan

stole the key assigned to McLouglin while the

latter was asleep.

6. McLoughlin insisted that it must be the hotel who

must assume responsibility for the loss he

suffered.

7. Lopez refused to accept responsibility relying on

the conditions for renting the safety deposit box

entitled “Undertaking For the Use of Safety

Deposit Box”

ISSUE: Whether the hotel’s Undertaking is valid?

HELD: NO

1. Article 2003 was incorporated in the New Civi

Code as an expression of public policy precisely to

apply to situations such as that presented in this

case. The hotel business like the common carrier’s

business is imbued with public interest. Cateringto the public, hotelkeepers are bound to provide

not only lodging for hotel guests and security to

their persons and belongings. The twin duty

constitutes the essence of the business. The law in

turn does not allow such duty to the public to be

negated or diluted by any contrary stipulation in

so-called “undertakings” that ordinarily appear in

prepared forms imposed by hotel keepers on

guests for their signature.

2. In an early case (De Los Santos v. Tan Khey), CA

ruled that to hold hotelkeepers or innkeeper liable

for the effects of their guests, it is not necessary

that they be actually delivered to the innkeepers

or their employees. It is enough that such effects

are within the hotel or inn. With greater reason

should the liability of the hotelkeeper be enforced

when the missing items are taken without the

guest’s knowledge and consent from a safety

deposit box provided by the hotel itself, as in this

case.

3.

Paragraphs (2) and (4) of the “undertaking”manifestly contravene Article 2003, CC for they

allow Tropicana to be released from liability

arising from any loss in the contents and/or use of

the safety deposit box for any cause whatsoever

Evidently, the undertaking was intended to bar

any claim against Tropicana for any loss of the

contents of the safety deposit box whether or not

negligence was incurred by Tropicana or its

employees.




THE WAREHOUSE RECEIPTS LAW

G.R. No. L-16315 May 30, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.

HAWAIIAN-PHILIPPINE COMPANY, respondent.

FACTS:

The petitioner, a corporation duly organized in accordance

with law, is operating a sugar central in the City of Silay,

Occidental Negros. It produces centrifugal sugar from

sugarcane supplied by planters. The processed sugar is

divided between the planters and the petitioner in the

proportion stipulated in the milling contracts, and

thereafter is deposited in the warehouses of the latter. (Pp.4-5, t.s.n.) For the sugar deposited by the planters, the

petitioner issues the corresponding warehouse receipts of

"quedans". It does not collect storage charges on the sugar

deposited in its warehouse during the first 90 days period

counted from the time it is extracted from the sugarcane.

Upon the lapse of the first ninety days and up to the

beginning of the next milling season, it collects a fee of

P0.30 per picul a month. Henceforth, if the sugar is not yet

withdrawn, a penalty of P0.25 per picul or fraction thereof

a month is imposed. (Exhibits "B-1", "C-1", "D-1", "B-2", "C-

2", p. 10, t.s.n.)

The storage of sugar is carried in the books of the company

under Account No. 5000, denominated "Manufacturing

Cost Ledger Control"; the storage fees under Account No.

521620; the expense accounts of the factory under

Account No. 5200; and the so-called "Sugar Bodega

Operations" under Account No. 5216, under which is a

Sub-Account No. 20, captioned, "Credits". (Pp. 16-17, t.s.n.,

Exhibit "F".) The collections from storage after the lapse of

the first 90 days period are entered in the company's

books as debit to CASH, and credit to Expense Account No.

2516-20 (p. 18, t.s.n.).

The credit for storage charges decreased the deductible

expense resulting in the corresponding increase of the

taxable income of the petitioner. This is reflected by the

entries enclosed in parenthesis in Exhibit "G", under the

heading "Storage Charges". (P. 18, t.s.n.) The alleged

reason for this accounting operation is that, inasmuch as

the "Sugar Bodega Operations" is considered as an expense

account, entries under it are "debits". Similarly, since

"Storage Charges" constitute "credit", the corresponding

figures (see Exhibit "C") are enclosed in parenthesis as

they decrease the expenses of maintaining the sugar

warehouses.

Upon investigation conducted by the Bureau, it was found

that during the years 1949 to 1957, the petitioner realized

from collected storage fees a total gross receipts o

P212,853.00, on the basis of which the respondent

determined the petitioner's liability for fixed and

percentage taxes, 25% surcharge, and administrative

penalty in the aggregate amount of P8,411.99 (Exhibit "5"

p. 11, BIR rec.)

After due hearing the Court of Tax Appeals ordered the CIR

to refund to respondent Hawaiian-Philippine Company the

amount of P8,411.99 representing fixed and percentage

taxes assessed against it and which the latter had

deposited with the City Treasurer of Silay, Occidenta

Negros

ISSUE:

Whether or notpetitioner is a warehouseman liable for the

payment of the fixed and percentage taxes prescribed in

Sections 182 and 191 of the National Internal Revenue

Code

HELD:

YES.

Respondent disclaims liability under the provisions quoted

above, alleging that it is not engaged the business o

storing its planters' sugar for profit; that the maintenance

of its warehouses is merely incidental to its business of

manufacturing sugar and in compliance with its obligation

to its planters. We find this to be without merit.

It is clear from the facts of the case that, after

manufacturing the sugar of its planters, respondent stores

it in its warehouses and issues the corresponding

"quedans" to the planters who own the sugar; that while

the sugar is stored free during the first ninety days from

the date the it "quedans" are issued, the undisputed fact isthat, upon the expiration of said period, respondent

charger, and collects storage fees; that for the period

beginning 1949 to 1957, respondent's total gross receipts

from this particular enterprise amounted to P212,853.00.

A warehouseman has been defined as one who receives

and stores goods of another for compensation (44 Words

and Phrases, p. 635). For one to be considered engaged in

the warehousing business, therefore, it is sufficient that he




receives goods owned by another for storage, and collects

fees in connection with the same. In fact, Section 2 of the

General Bonded Warehouse Act, as amended, defines a

warehouseman as "a person engaged in the business of

receiving commodity for storage."

That respondent stores its planters' sugar free of charge

for the first ninety days does not exempt it from liability

under the legal provisions under consideration. Were such

fact sufficient for that purpose, the law imposing the tax

would be rendered ineffectual.

Gonzalez vs Go Tiong

Facts:

1. Go Tiong (respondent) owned a rice mill and

warehouse, located in Pangasinan. Thereafter, he

obtained a license to engage in the business of a

bonded warehouseman.

2. Subsequently, respondent Tiong executed a

Guaranty Bond with the Luzon Surety Co to secure

the performance of his obligations as such bonded

warehouseman, in the sum of P18,334, in case he

was unable to return the same.

3. Afterwards, respondent Tiong insured the

warehouse and the palay deposited therein with

the Alliance Surety and Insurance Company.

4. But prior to the issuance of the license to

Respondent, he had on several occasions received

palay for deposit from Plaintiff Gonzales, totaling

368 sacks, for which he issued receipts.

5. After he was licensed as a bonded warehouseman,

Go Tiong again received various deliveries of

palay from Plaintiff, totaling 492 sacks, for which

he issued the corresponding receipts, all the grand

total of 860 sacks, valued at P8,600 at the rate of

P10 per sack.

6. Noteworthy is that the receipts issued by Go Tiong

to the Plaintiff were ordinary receipts, not the

"warehouse receipts" defined by the Warehouse

Receipts Act (Act No. 2137).

7. On or about March 15, 1953, Plaintiff demanded

from Go Tiong the value of his deposits in the

amount of P8,600, but he was told to return after

two days, which he did, but Go Tiong again told

him to come back.

8. A few days later, the warehouse burned to the

ground.

9. Before the fire, Go Tiong had been accepting

deliveries of palay from other depositors and at

the time of the fire, there were 5,847 sacks of

palay in the warehouse, in excess of the 5,000

sacks authorized under his license.

10. After the burning of the warehouse, the depositors

of palay, including Plaintiff, filed their claims with

the Bureau of Commerce.

11. However, according to the decision of the trial

court, nothing came from Plaintiff's efforts to have

his claim paid.

12. Thereafter, Gonzales filed the present action

against Go Tiong and the Luzon Surety for the sum

of P8,600, the value of his palay, with legal

interest, damages in the sum of P5,000 and P1,500

as attorney's fees.

13. While the case was pending in court, Gonzales and

Go Tiong entered into a contract of amicable

settlement to the effect that upon the settlement

of all accounts due to him by Go Tiong, he,

Gonzales, would have all actions pending against

Go Tiong dismissed.

14. Inasmuch as Go Tiong failed to settle the accounts,

Gonzales prosecuted his court action

ISSUE:

Whet her or not Plaintiff’s claim is governed by the Bonded

Warehouse Act due to Go Tiong’s act of issuing to the

former ordinary receipts, not warehouse receipts?

RULING:

YES. SC ruled in favor Plaintiff.

1. Act No. 3893 provides that any deposit made with

Respondent Tiong as a bonded warehouseman

must necessarily be governed by the provisions of Act No. 3893.

2. The kind or nature of the receipts issued by him

for the deposits is not very material much less

decisive since said provisions are not mandatory

and indispensable

3. Under Section 1 of the Warehouse Receipts Act,

the issuance of a warehouse receipt in the form






institutions doing business in Manila at that time, among

them the Hongkong & Shanghai Banking Corporation, the

Bank of the Philippine Islands, the Asia Banking

Corporation, the Chartered Bank of India, Australia and

China, and the American Foreign Banking Corporation.

De Poli opened a current account credit with the bank

against which he drew his checks in payment of the

products bought by him for exportation.

Upon the purchase, the products were stored in one of his

warehouses and warehouse receipts issued therefor which

were endorsed by him to the bank as security for the

payment of his credit in the account current.

When the goods stored by the warehouse receipts were

sold and shipped, the warehouse receipt was exchanged

for shipping papers, a draft was drawn in favor of the bank

and against the foreign purchaser, with bill of landing

attached, and the entire proceeds of the export sale were

received by the bank and credited to the current account of De Poli.chanroble

De Poli was declared insolvent by the Court of First

Instance of Manila with liabilities to the amount of several

million pesos over and above his assets. An assignee was

elected by the creditors and the election was confirmed by

the court

Among the property taken over the assignee was the

merchandise stored in the various warehouses of the

insolvent. This merchandise consisted principally of hemp,

maguey and tobacco.

The various banks holding warehouse receipts issued by

De Poli claim ownership of this merchandise under their

respective receipts, whereas the other creditors of the

insolvent maintain that the warehouse receipts are not

negotiable, that their endorsement to the present holders

conveyed no title to the property, that they cannot be

regarded as pledges of the merchandise inasmuch as they

are not public documents and the possession of the

merchandise was not delivered to the claimants and that

the claims of the holders of the receipts have no preference

over those of the ordinary unsecured creditors.law lib

ISSSUE:

Whether or not the warehouse receipts issued are

negotiable?

HELD:

Yes, a warehouseman who deposited merchandise in his

own warehouse, issued a warehouse receipts therefore

and thereafter negotiated the receipts by endorsement.

The receipt recites that the goods were deposited “por

orden” of the depositor, the warehouseman, but contained

no statement that the goods were to be delivered to the

bearer of the receipts or to a specified person. It is in the

form of a warehouse receipts and was not mark

“nonnegotiable”.

Therefore the receipts was negotiable warehouse receipts

and the words “por orden” must be construed to mean “to

the order”.

PNB v PRODUCER’S WAREHOUSE ASSOCIATION

FACTS:

1. PNB (P) is a bank in PH, Producer’s Warehouse

Association (D) is a domestic corporation doinggeneral warehouse business and Phil. Fiber and

Produce Company (Fiber) is another domestic

corporation.

2. D and Fiber entered into a written contract,

wherein Fiber would act as the general manager

of the business of D and that Fiber would exercise

a general and complete supervision over the

management of the business of D.

3. Nov and Dec 1918 – D issued negotiable quedans

to Fiber for 15k++ piculs of Copra, which the

terms states that

1. D agreed to deliver that amount of copra

to Fiber or its order

2. D will deliver the packages noted therein

upon the surrender of the warrant to D

3. No transfer of interest/ownership will be

recognized unless registered in the books

of D

4. The words “negotiable warrant” were

printed in red ink in the quedan

4. Fiber then arranged for overdraft with P for P1M

and to secure it, the subject quedans were

endorsed in blank and delivered by Fiber to P,

which became the owner and holder thereof.




5. P later on requested D the delivery of copra

described in the quedans, however, D refused to

comply despite repeated requests of P, stating that

it could not be delivered since the goods

mentioned are not in the warehouse.

6. D stated that the quedans were invalid and

wrongfully issued and that the copra was not in its

warehouse

7. LC ruled in favor of D

ISSUE: WoN the quedans were validly negotiated to P

SC: YES!

8. The quedans have legal force and effect

1. They were duly executed by Wicks, as

treasurer and Torres as warehouseman,

for and in behalf of D.

2. The said quedans were endorsed in blank

and physical possession was delivered to

P as collateral security for the overdraft of

Fiber Company and

3. That the quedans were in negotiable

form.

9. D cannot now deny the existence of the quedans

CRUZ vs. VALERO

Facts:

Valero is president of the Luzon Sugar Co. while appellant

Cruz had a share amounting to 1,544.38 piculs export

centrifugal sugar, which was exchanged for an equal

amount of domestic centrifugal sugar. Cruz deposited in

the Luzon Sugar Company's warehouse within its

compound, with the obligation on its part to deliver it to

the appellant on demand, that the appellant was entitled

to 238.20 piculs of domestic centrifugal sugar as his share

in the 1940-1941 crop. On different dates, the appellant

had withdrawn several piculs of sugar, reducing reducingthe number of gallons of molasses.

Cruz claims that on December 1941, the Luzon Sugar

Company (LSC) did not have in its warehouse the sugar he

had stored in its warehouse for safekeeping and the

number of gallons of molasses he had left in its possession

contained in cylindrical tanks, because the Valero had

disposed of the same without the knowledge and consent

of appellant and that when the appellant wanted to

withdraw his sugar from the warehouse of LSC, the

amount of sugar stored in the warehouse was not

manufactured by the Luzon Sugar Company but by a

different company.

This was denied by LSC, contending that it had sufficient

amount of sugar manufactured by it and was in a position

to deliver sugar. Its warehouse was however bombed by

Japanese and the warehouse damaged by shrapnel and

some piculs of centrifugal sugar were looted, some taken

by the Japanese after the occupation and the remaining

brought by the Japanese Army to Northern Luzon. Thus it

became impossible the deliver the centrifugal sugar and

molasses belonging of Cruz.

Issue: Whether or not the LSC still has the obligation to

deliver the same amount and kind of sugar stored in its

warehouse.

HELD: Since there was enough sugar to cover and deliver

1,081.79 piculs of domestic, reserve and additional sugarbelonging to the Cruz who, according to the milling

contract, was in duty bound to take delivery thereof at the

warehouse, since it was established that the LSC

compound was bombed on December 1941 by the

Japanese who also occupied it from 1 January to 20

February 1942, the loss was due to the war or to a

fortuitous event and therefore, the obligation of the

depositary to deliver what has been deposited in him has

been extinguished by the happening of a fortuitous event,

which in this case, is the pacific war. The judgment

appealed from is affirmed.

This is an appeal from a decision of the Court of First

Instance of Nueva Ecija which orders the defendant to pay

to the plaintiff the sum of P3,000, with interest thereon at

the rate of 6% per annum from June 26, 1940, and the

costs of action.

ESTRADA V. CAR

DMG INC. vs CONSOLIDATED TERMINALS INC.

63 OG 10

Facts:

1. DMG ordered replacement parts for diesel

conversion engine from Germany.

2. Upon arrival in Manila, the shipment was placed in

the warehouse of Consolidated Terminals.

3. When DMG demanded for the delivery of the

goods, Consolidated stated that it was already

released and delivered to DMG through a delivery




permit which was presented by a certain Sandoval

authorized by Alteza.

4. DMG contends that it has no such employees. It

demanded for the payment of such goods.

Issue:

Whether or not Consolidated is liable to DMG?

Held:

Yes, Consolidated is liable to DMG.

Consolidated did not faithfully comply with its duties and

obligations. Section 9 of the Warehouse Receipts Law does

not deem it sufficient as prerequisite for delivery the mere

presentment of the receipt. It further requires that the

person to whom the goods should be delivered is “one who

is either himself entitled to the property…or who has

written authority from the person so entitled.”

Presentment of the receipt must be couple withascertainment that the person so presenting it is rightfully

entitled to take delivery of the goods covered by the

receipt.

Consolidated did not ascertain the identity of Sandoval and

Alteza. They have not called up DMG first and ascertained

the genuineness of the authority in writing before

delivering the articles considering that they did not know

either Sandoval or Alteza.

Consolidated becomes liable under Section 10 of the WRL

for misdelivery. On the contention that DMG was negligent

for allowing such permits to fall into the hands of

unauthorized persons, contributory negligence is not one

of the defenses specified in its answer. In order to for it to

be a defense, it must previously show to have been

committed. The burden of proof is in himself who alleges it

as a defense. It cannot be inferred from the fact that

persons other than the consignee or owner were able to

take possession of the shipping documents or the permit

papers which were supposed to be in the latter’s custody.

CONSOLIDATED vs ARTEX

Facts: Consolidated Terminals Inc (CTI)

operated a customs warehouse in Manila. It received 193

bales of high density compressed raw cotton worth P99k.

It was understood that CTI would keep the cotton on

behalf of Luzon Brokerage until the consignee Paramount

Textile had opened the corresponding letter of credit in

favor of Adolph Hanslik Cotton. By virtue of forged

permits, Artex was able to obtain the bales of cotton and

paid P15k.

Issue: W/N CTI as warehouseman was entitled

to the possession of the bales of cotton?

Ruling: No. CTI had no cause of action. It was not the

owner of the cotton. It was not a real party of interest inthe case. CTI was not sued for damages by the real party in

interest.

LUA KIAN VS. MANILA RAILROAD

Facts: Manila Railroad received into its custody a shipment

of cases of milk, of which 3.171 wwere marked for Cebu

and 1,829 for Lua Kia but according to the bills of lading in

Manila Railroad's possession, Lua Kia was entitled to 2000cases and Cebu was entitled to 3000 cases. Manila Railroad

delivered 1,913 cases to Lua Kia, which is 87 cases short in

the bill of lading.

Issue: WoN manila RailRoad is liable to Lua Kia for the

underlivered cases of milk

Ruling. Yes. The legal relationship between an arrastre

operator and the consignee is akin to that of a depositor

and warehouseman. As custodian of the goods discharged

from the vessel, it was A's duty like that of nay otherdepositary to take good care of the goods and turn them

over to the party entitled to their possession. Under this

particular set of circumstances, A should have held

delivery because of the discrepancy between the bill of

lading and the markings and conducted its own

investigation not unlike that under Sectopm 18 of the

Warehouse Receipts law, or called upon the parties to

interplead such ias in case under Section 17 of the same

law, in order to determint the rightful owner of the goods.

AMERICAN FOREIGN BANKING CORPORATION vs

HERRIDGE

G.R.No.21005, December 20, 1924

Facts:

U. de Poli was a debtor of American Foreign

Banking Corporation. He issued a warehouse receipt,

commonly known as quedan. The warehouse receipt of the




mercahndise covered thereby was described as Cagayan

tabacco en rama. It was indorsed in blank by U. De Poli to

American Foreign Banking Corporation

As security for an overdraft. U. De Poli became insolvent

and the bank presented its claim for the delivery of the

tobacco covered in the warehouse receipt.

However, it was found that the tobacco had come

from Isabela and not from Cagayan, and the bank’s claim

was disputed by other creditors of the insolvent on the

ground that, among others, that the tobacco claimed, being

Isabela tobacco, was not correctly described in the

warehouse receipt and that, therefore, the receipt was

ineffective as against the general creditors.

Issue: Whether the use of the word “Cagayan” instead of

“Isabela” in describing the tobacco in the quedan renders

the quedan null and void as negotiable warehouse receipt

for the tobacco intended to be covered by it.

Ruling:

The identity of the tobacco was sufficiently

established by the evidence. In the warehouse, there was

no other tobacco stored nut only the Isabela tobacco. The

debtor also said that Isabela tobacco was the tobacco

which he transsfered to American Foreign Banking

Corporation. Aside from that, when the subaccountant of

the bank went to the warehouse to check which tobacco

was covered by the warehouse receipt, the assignee and

one of his accountants pointed to him the Isabela tobacco.

The intention of the parties to the transaction

must prevail against such a technical objection to the

sufficiency of the description of the tobacco. It might be

different if there had been Cagayan tobacco in the

warehouse at the time of the issuance of the quedan, or if

there were any doubt as to the identity of the tobacco

intended to be covered by the quedan.

The quedan was a negotiable warehouse receipt

which was duly issued and delivered by the debtor U. de

Poli to American Foreign Banking Corporation and it

divested him of his title to said tobacco and transferred theposition and the title thereof the American Foreign

Banking Corporation.

Topic: Warehouse Receipts Law; sec. 38

PNB v. Atendido

FACTS:

1. Laureano Atendido obtained from PNB a loan of

P3k and pledged 2000 cavans of palay to

guarantee payment which were then deposited in

the warehouse of Cheng Siong Lam & Co and to

that effect the borrower endorsed in favour of the

bank the corresponding warehouse receipt.

2. Before the maturity of the loan, the 2000 cavans of

palay disappeared for unknown reasons in the

warehouse. When the loan matured, the borrower

failed to pay obligation

3. Defendant claimed that the warehouse receipt

covering the palay which was given as security

having been endorsed in blank in favour of the

bank and the palay having been lost or

disappeared, he thereby became relieved of

liability.

ISSUE: Whether the surrender of the warehouse receipt

covering 2000 cavans of palay given as security, endorsed

in blank, to PNB, has the effect of transferring their title or

ownership OR it should be considered merely as a

guarantee to secure the payment of the obligation of

Defendant?

HELD:

1. Nature of contract is Pledge supported by the

stipulations embodied in the contract signed by

Defendant when he secured the loan from PNB.

2. The 2000 cavans of palay covered by the

warehouse receipt were given to PNB only as a

guarantee to secure the fulfilment by Defendant in

his obligation. This clearly appears in the contract

wherein it is expressly stated that said 2000

cavanes of palay were given as collateral security.

3. It follows that by the very nature of the

transaction its ownership remains with the

pledgor subject only to foreclosure in case of non

fulfillment of the obligation.

4. By this we mean that if the obligation is not paid

upon maturity the most that the pledge can do is

to sell the property and apply the proceeds to the

payment of the obligation and to return the

balance, if any, to the pledgor. This is the essence

of the contract, for, according to law, a pledge




cannot become the owner of, nor appropriate to

himself the thing given in pledge.

5. If by the contract of pledge, the pledgor continues

to be the owner of the thing pledged during the

pendency of the obligation, it stands to reason that

in case of loss of the property, the loss should be

borne by the pledgor.

6. The fact that the warehouse receipt covering the

palay was delivered, endorsed in blank, to the

bank does not alter the situation, the purpose of

such endorsement being merely to transfer the

juridical possession of the property to the pledge

and to forestall any possible disposition thereof on

the part of the pledgor.

7. Where a warehouse receipt or quedan is

transferred or endorsed to a creditor only to

secure the payment of a loan or debt, the

transferee or endorsee does not automaticallybecome the owner of the goods covered by the

warehouse receipt or quedan but he merely

retains the right to keep and with the consent of

the owner to sell them so as to satisfy the

obligation from the proceeds of the sale. This is for

the simple reason that the transaction involved is

not a sale but only a mortgage or pledge, and that

if the property covered by the quedans or

warehouse receipts is lost without fault or

negligence of the mortgagee or pledge or the

transferee or endorsee of the warehouse receipt

or quedan, then said goods are to be regarded as

lost on account of the real owner, mortgagor or

pledgor.

MARTINEZ V. PNB

Siy Cong Bien vs HSBC

FACTS

1. Plaintiff is a corporation engaged in business

generally, and that the Defendant HSBC is a

foreign bank authorized to engage in the banking

business in the Philippines.

2. On June 25, 1926, Otto Ranft called the office of

the Plaintiff to purchase hemp (abaca), and he was

offered the bales of hemp as described in the

contested negotiable quedans.

3. The parties agreed to the aforesaid price, and on

the same date the quedans, together with the

covering invoice, were sent to Ranft by the

Plaintiff, without having been paid for the hemp,

but the Plaintiff's understanding was

1. that the payment would be made against

the same quedans,

2. and it appear that in previous transaction

of the same kind between the bank andthe Plaintiff, quedans were paid one or

two days after their delivery to them.

4. Immediately these Quedans were pledged by Otto

Ranft to the Defendant HSBC to secure the

payment of his preexisting debts to the latter.

5. The baled hemp covered by these warehouse

receipts was worth P31,635; 6 receipts were

endorsed in blank by the Plaintiff and Otto Ranft,

and 2 were endorsed in blank, by Otto Ranft alone

6. On the evening of the said delivery date, Otto

Ranft died suddenly at his house in the City of

Manila.

7. When the Plaintiff found out, it immediately

demanded the return of the quedans, or the

payment of the value, but was told that the

quedans had been sent to the herein Defendant as

soon as they were received by Ranft.

8. Shortly thereafter the Plaintiff filed a claim for the

aforesaid sum of P31,645 in the intestate

proceedings of the estate of the deceased Otto

Ranft, which on an appeal from the decision of the

committee on claims, was allowed by the CFI

Manila.9. In the meantime, demand had been made by the

Plaintiff on the Defendant bank for the return of

the quedans, or their value, which demand was

refused by the bank on the ground that it was a

holder of the quedans in due course.

ISSUE

Whether or not the Quedans endorsed in blank gave the

HSBC rightful and valid title to the goods?

HELD






merchandising firms or by the fact that the owner (Noah's

Ark) was deprived of the possession of the same by fraud,

mistake or conversion of the person to whom the

warehouse receipt/quedan was subsequently negotiated if

(PNB) paid value therefor in good faith without notice of

such breach of duty, fraud, mistake or conversion. (See

Article 1518, New Civil Code). And the creditor (PNB)

whose debtor was the owner of the negotiable document

of title (warehouse receipt) shall be entitled to such aidfrom the court of appropriate jurisdiction attaching such

document or in satisfying the claim by means as is allowed

by law or in equity in regard to property which cannot be

readily attached or levied upon by ordinary process. (See

Art. 1520, New Civil Code). If the quedans were negotiable

in form and duly indorsed to PNB (the creditor), the

delivery of the quedans to PNB makes the PNB the owner

of the property covered by said quedans and on deposit

with Noah's Ark, the warehouseman. (See Sy Cong Bieng &

Co. vs. Hongkong & Shanghai Bank Corp., 56 Phil. 598).

In the case at bar, PNB's right to enforce the obligation of

Noah's Ark as a warehouseman, to deliver the sugar stock

to PNB as holder of the quedans, does not depend on the

outcome of the third-party complaint because the validity

of the negotiation transferring title to the goods to PNB as

holder of the quedans is not affected by an act of RNS

Merchandising and St. Therese Merchandising, in breach of

trust, fraud or conversion against Noah's Ark.

PNB v SAYO, JR.

FACTS

3. Noah’s Ark Sugar Refinery (Noah’s) issued several

warehouse receipts (quedans), which were

negotiated to Rosa, RNS and St. Therese

(vendees), which were again negotiated to Luis

and Cresencia, which they (Luis and Cresencia)

endorsed to PNB as security for 2 loan

agreements.

1. Transfer of quedans – Noah’s Rosa,

RNS and St. Therese Luis and Cresencia

PNB

4. Luis and Cresencia failed to pay their loans hence

PNB demanded delivery of sugar stocks, however,

Noah’s Ark refused, alleging ownership thereof.

5. Noah’s Ark contended that the agreement made

by them with the vendees was stopped since the

bank dishonored the payments made by the

vendees to Noah’s Ark. As such, the vendees and

the endorsers of the quedans never acquired

ownership thereof.

6. Noah’s Ark claimed for warehouseman’s lien for

the storage of the goods.

7. LC granted lien

8. PNB appealed

ISSUE: WoN PNB is entitled to the stocks of sugar as the

endorsee of the quedans, without paying the lien

SC: YES

9. While PNB is entitled to the stocks of sugar as the

endorsee of the quedans, delivery to it shall be

effected only upon payment of the storage fees.

10. The warehouseman is entitled to the

warehouseman’s lien that attaches to the goods

invokable against anyone who claims a right of possession thereon.

11. However, in this case, the lien was lost when R

refused to deliver the goods, which were not

anchored to a valid excuse (i.e. non satisfaction of

W/Hman Lien) but on an adverse claim of

ownership.

12. The loss of W/H Man’s lien does not necessarily

mean the extinguishment of the obligation to pay

the W/H fees and charges which continues to be a

personal liability of the owners, PNB in this case.However, such fees and charges have ceased to

accrue from the date of the rejection by Noah’s

Ark to heed the lawful demand for the release of

the goods.




GUARANTY AND SURETYSHIP

MACHETTI v HOSPICIO DE SAN JOSE

FACTS:

1) In 1916, Romulo Machetti, agreed to construct a

building in Manila for the Hospicio de San Jose, for

P64,000. One of the conditions of the agreement was that

the contractor should obtain the "guarantee" of the Fidelity

and Surety Company of the Philippine Islands to theamount of P128,800. Said contract read:

“For value received we hereby guarantee

compliance with the terms and conditions as

outlined in the above contract. “

2) Thereafter Machetti constructed the building and, as the

work progressed, payments were made to him from time

to time, until the entire contract price, except the sum of

P4,978.08, was paid.

3) Later on it was found that the work had not beencarried out in accordance with the specifications which

formed part of the contract and that the workmanship was

not of the standard required, and thus the Hospicio

presented a counterclaim for damages for the partial

noncompliance with the terms of the agreement

abovementioned, in the total sum of P71,350.

4) During the duration of the trial however, Machetti,

declared insolvent and an order was entered suspending

the proceeding in the present case. Thus, the Hospicio

filed a motion asking that the Fidelity and Surety Company

be made cross-defendant to the exclusion of Machetti and

that the proceedings be continued as to said company,

which motion was granted and subsequently, the Hospicio

filed a complaint against the Fidelity and Surety Company

for a judgement against the company upon its guaranty.

The CFI rendered judgment against Fidelity.

ISSUE: Whether or not Fidelity is answerable to the

Hospicio as guaranty of Machetti.

HELD:

A) Guarantor implies an undertaking of guaranty, as

distinguished from suretyship and in this case, it appears

that the contract is the guarantor's separate undertaking

in which the principal does not join, that its rests on a

separate consideration moving from the principal and that

although it is written in continuation of the contract for the

construction of the building, it is a collateral undertakingseparate and distinct from the latter. All of these

circumstances are distinguishing features of contracts of

guaranty.

B) On the other hand, a surety undertakes to pay if the

principal does not pay, the guarantor only binds himself to

pay if the principal cannot pay. The one is the insurer of

the debt, the other an insurer of the solvency of the debtor.

This latter liability is what the Fidelity Company assumed

in this case. Thus, Fidelity having bound itself to pay only

the event its principal, cannot pay it follows that it cannot

be compelled to pay until it is shown that Machetti isunable to pay. The judgment appealed from is therefore

reversed.

PHIL EXPORT v VP EUSEBIO

FACTS: Respondent entered into contract with SOB for

construction of Therapy Bldg. SOB demanded bonds to

secure performance. Project was delayed

DOCTRINE: By guaranty a person, called the

guarantor, binds himself to the creditor to fulfill the

obligation of the principal debtor in case the latter should

fail to do so; if the person binds himself solidarily with the

principal debtor, the contract is called suretyship.

That the guarantee issued by the petitioner is

unconditional and irrevocable does not make the

petitioner a surety. As a guaranty, it is still characterized

by its subsidiary and conditional quality because it does

not take effect until the fulfillment of the condition.




Unconditional guarantee is still subject to the condition

that the principal debtor should default in his obligation

first before resort to the guarantor could be had.

MANILA RAILROAD v ALVENDIA

Facts:

1. CFI sentenced Manila Railroad Co. (MRC) and

Manila Port Service (MPS) to pay Bataan Refining

Corp.

2. MPS filed a notice of appeal accompanied by an

appeal bond.

3. Noticing that the appeal bond was only executed

by MPS signed by the manager and Standard

Insurance (as surety) signed by the vice-president,

the trial court rejected the record on appeal.

4. It is contended by MRC that the MPS, being a mere

subsidiary or department of MRC, without legal

personality of its own, the bond filed by the

former should be a bond for the MRC and that theappeal of the latter should have been given due

course.

Issue: Whether or not the notice of appeal should be

accepted?

Held:

No, the notice of appeal should be rejected.

Where there is no principal debtor in the appeal bond,

it is void and unenforceable. The mere recital in thebody of the instrument, “We, MRC et. al, as principal and

the Standard Insurance Co. Inc xxx as surety” does not

suffice to make contract binding on the MRC unless it is

shown that the same was authorized by it. Neither the

signature nor the acknowledgment indicates that the act of

that of the MRC or that the latter had empowered MPS to

execute the bond in its behalf. The result would be that the

appeal bond is void and unenforceable for lack of principal

debtor or obligation.

While the surety bound itself to pay jointly and severally,

such an undertaking presupposes that the obligation is to

be enforceable against someone else besides the surety

and the latter could always claim that it was never its

intention to be the sole person obliged thereby.

IFC v IMPERIAL TEXTILE

Facts: IFC extended to PPIC a loan of

US$7,000,000.00, payable in sixteen (16) semi-

annual installments of US$437,500.00 each,

beginning June 1, 1977 to December 1, 1984. On

December 17, 1974, a “Guarantee Agreement” was

executed with Imperial Textile Mills, Inc. (ITM).

ITM agreed to guarantee PPIC's obligations under

the loan agreement. PPIC paid the installments

due on June 1, 1977, December 1, 1977 and June 1,

1978. Despite the rescheduling of the installment

payments, however, PPIC defaulted. IFCdemanded ITM and Grandtex, as guarantors of

PPIC, to pay the outstanding balance. However,

the outstanding balance remained unpaid.

Issue: The issue is whether ITM is a surety, and thus

solidarily liable with PPIC for the payment of the loan.

Ruling: Yes. The Agreement uses “guarantee and

guarantors”, prompting ITM to base its argument on those

words. This Court is not convinced that the use of the two

words limits the Contract to a mere guaranty. The specific

stipulations in the Contract show otherwise.

While referring to ITM as a guarantor, the Agreement

specifically stated that the corporation was 'jointly and

severally liable. To put emphasis on the nature of that

liability, the Contract further stated that ITM was a

primary obligor, not a mere surety. Those stipulations

meant only one thing: that at bottom, and to all legal

intents and purposes, it was a surety.

Indubitably therefore, ITM bound itself to be solidarily.

SEVERINO v SEVERINO

F: upon the death of x, who left considerable property, a

litigation ensued between c, x’s widow, and other heirs of

x. a compromise was effected by which d, a son of x, took

over the property pertaining to the estate of x at the same

time agreeing to pay P100k to c, payable, first in P40k cash

upon the execution of the document of compromise and

the balance, in three equal installments. G. affixed his name

as guarantor

Upon d’s failure to pay the balance, c instituted an action

against d and g, the latter contending that he received

nothing for affixing his signature as guarantor to the

contract and that in effect the contract was lacking in

consideration as to him.

Issue: is there a consideration for the guaranty?




Ruling: a guarantor or surety is bound by the same

consideration that makes the contract effective between

the principal parties thereto. The compromise and

dismissal of lawsuit is recognized in law as a valuable

consideration; and the dismissal of the action which c

instituted against d was an adequate consideration to

support the promise on the part of d to pay the sums

stipulated in the contract subject of the action

It is neither necessary that the guarantor or surety should

receive any part of the benefit, if such there be accruing to

his principal. The true consideration of this contract was

the detriment suffered by c in the former action in

dismissing the proceeding and it is immaterial that no

benefit may have accrued either to the principal or his

guarantor

LEE v CA

FACTS: PBCOM was furnished by a board resolution

stating that they authorize President, Mr. Charles Lee, andthe Vice-President and General Manager, Mr. Mariano A.

Sio to apply for, negotiate and secure the approval of

commercial loans and other banking facilities and

accommodations, from the Philippine Bank of

Communications, in such sums as they shall deem

advantageous, the principal of all of which shall not exceed

the total amount of TEN MILLION PESOS

(P10,000,000.00), Philippine Currency, plus any interests.

Mico availed of the loans and as security for the loans,

MICO through its Vice-President and General Manager,

Mariano Sio, executed on May 16, 1979 a Deed of Real

Estate Mortgage over its properties situated in Pasig,

Metro Manila.

On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano

Sio, Alfonso Yap and Richard Velasco, in their personal

capacities executed a Surety Agreement in favor of PBCom

whereby the petitioners jointly and severally, guaranteed

the prompt payment on due dates of overdrafts,

promissory notes, discounts, drafts, letters of credit, bills

of exchange, trust receipts, and other obligations of every

kind and nature, for which MICO may be held accountable

by PBCom. It was provided, however, that the liability of the sureties shall not at any one time exceed the principal

amount of Three Million Pesos plus interest, costs, losses,

charges and expenses including attorney’s .

On July 14, 1980, petitioner Charles Lee, in his capacity as

president of MICO, wrote PBCom and applied for an

additional loan in the sum of Four Million Pesos). The loan

was intended for the expansion and modernization of the

company’s machineries. Upon approval of the said

application for loan, MICO availed of the additional loan of

Four Million Pesos (as evidenced by Promissory Note TA

No. 094.

As per agreement, the proceeds of all the loan availments

were credited to MICO’s current checking account with

PBCom. To induce the PBCom to increase the credit line of

MICO, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso

Yap, Richard Velasco and Alfonso Co (hereinafter referred

to as petitioners-sureties), executed another surety

agreement in favor of PBCom on July 28, 1980, whereby

they jointly and severally guaranteed the prompt payment

on due of overdrafts, promissory notes, discounts, drafts

letters of credit, bills of exchange, trust receipts and al

other obligations of any kind and nature for which MICO

may be held accountable by PBCom. It was provided

however, that their liability shall not at any one time

exceed the sum of Seven Million Five Hundred Thousand

Pesos including interest, costs, charges, expenses and

attorney’s fees incurred by MICO in connection therewith.

Upon maturity of all credit availments obtained by MICO

from PBCom, the latter made a demand for payment. For

failure of petitioner MICO to pay the obligations incurred

despite repeated demands, private respondent PBCom

extrajudicially foreclosed MICO’s real estate mortgage and

sold the said mortgaged properties in a public auction sale

held on November 23, 1982 and PBCom won and applied

the proceeds of the purchase price at public auction of

Three Million Pesos to the expenses of the foreclosure

interest and charges and part of the principal of the loans,

leaving an unpaid balance of Five Million Four HundredForty-One Thousand Six Hundred Sixty-Three Pesos and

Ninety Centavos exclusive of penalty and interest charges.

Aside from the unpaid balance, MICO likewise had another

standing obligation and PBCom then demanded the

settlement of the aforesaid obligations from herein

petitioners-sureties who, however, refused to

acknowledge their obligations to PBCom under the surety

agreements.

Hence, PBCom filed a complaint with prayer for writ o

preliminary attachment, alleging that MICO was no longerin operation and had no properties to answer for its

obligations. PBCom further alleged that petitioner Charles

Lee has disposed or concealed his properties with intent to

defraud his creditors. Except for MICO and Charles Lee, the

sheriff of the RTC failed to serve the summons on herein

petitioners-sureties since they were all reportedly abroad

at the time. An alias summons was later issued but the

sheriff was not able to serve the same to petitioners




Alfonso Co and Chua Siok Suy who was already sickly at

the time and reportedly in Taiwan where he later died.

Petitioners contend that there was no proof that the

proceeds of the loans or the goods under the trust receipts

were ever delivered to and received by MICO. But the

record shows otherwise. Petitioners-sureties further

contend that assuming that there was delivery by PBCom

of the proceeds of the loans and the goods, the contracts

were executed by an unauthorized person, more

specifically Chua Siok Suy who acted fraudulently and in

collusion with PBCom to defraud MICO.

ISSUE: Whether or not the individual petitioners, as

sureties, may be held liable under the two (2) Surety

Agreements executed on March 26, 1979 and July 28,

1980.

RULING: Yes.

The court ruled that it is proven that MICO received theproceeds of the loan and that PBCom has the right to to

believe that Chua Siok Suy based on the Certificate issued

by the Sectretary of MICO.

The court ruled that as regards petitioners-sureties

contention that they obtained no consideration

whatsoever on the surety agreements, the court pointed

that the consideration for the sureties is the very

consideration for the principal obligor, MICO, in the

contracts of loan.

In the case of Willex Plastic Industries Corporation vs. Court

of Appeals, we ruled that the consideration necessary to

support a surety obligation need not pass directly to

the surety, a consideration moving to the principal

alone being sufficient. For a guarantor or surety is

bound by the same consideration that makes the

contract effective between the parties thereto.

It is not necessary that a guarantor or surety should

receive any part or benefit, if such there be, accruing

to his principal.

DE GUZMAN v SANTOSFACTS:

1. Jerry O. Toole, Antonio Abad and Anastacio Santos

formed a general mercantile partnership –

Philippine American Construction Company with a

capital of P14k.

2. P10k of which were taken by way of loan from

Paulino Candelaria. The partnership and the co-

partners undertook and bound themselves to pay

jointly and severally the indebtedness.

3. Upon default, Paulino filed civil case against Phil

Am Construction Company and co-partners for the

recovery of loan

4. TC – ordered all Defendants to pay jointly and

severally; CA affirmed

5. Upon filing of complaint, Paulino obtained a writ

of attachment against Defendants. The Sheriff

attached properties of 3 partners. Partnership

offered to post a bond of P10k.

6. Phil-Am Construction Company as principal then

represented by the partner Antonio Abad

Santiago Lucero and Meliton Carlos as guarantors

executed a bond of P10k in favour of Paulino for

the lifting of the attachment.

7. After issuance of writ of execution, Sheriff foundno property of the judgment debtors. Paulino

moved for the issuance of writ of execution

against the guarantors of Defendants.

8. Guarantor-Plaintiff and co-guarantor Meliton

Carlos later paid the creditor and were able to

recover from Antonio Abad a sum of P3800, which

they divided equally.

9. It appeared that the payment made by the plaintif

to Paulino was reduced to the sum of P3665

Plaintiff now demands from Anastacio Santos the

return of the aforesaid sum but Anastacio refused.

ISSUE: Whether or not Defendant is bound to pay Plaintiff

what he had advanced to Paulino?

HELD: YES

1.

Article 1838 provides that any guarantor whopays for the debtor shall be indemnified by the

latter even should the guaranty have been

undertaken without the knowledge of the debtor.

2. IN THIS CASE: The guarantor was the deceased

Santiago Lucero, now represented by the plaintiff

in her capacity as judicial administratrix, and the

debtor is the defendant-appellant. Applying the

provision cited, it is obvious that the Defendant is




legally bound to pay what the Plaintiff had

advanced to the creditor upon the judgment,

notwithstanding the fact that the bond had been

given without his knowledge.

3. Any person who makes a payment for the

account of another may recover from the

debtor the amount of the payment, unless it

was made against the express will of the latter.

In the latter case, he can only recover from the

debtor in so far as the payment has been

beneficial to the latter.

4. It is evident that Defendant is bound to pay to the

plaintiff what the latter had advanced to the

creditor upon the judgment, and this is more so

because it appears that although Lucero executed

the bond without his knowledge, nevertheless he

did not object thereto or repudiate the same at

any time.

MUNICIPALITY OF GASAN v MARASIGAN

FACTS:

The plaintiff-appellee municipality, on December 9, 1930,

put up at auction the privilege of gathering whitefish

spawn in its jurisdictional waters for the period of one

year from January 1, 1931. Two bidders, Graciano Napa

and Miguel Marasigan, appeared at the auction. Graciano

Napa proposed to accept the privilege by paying P5,000

therefor, Miguel Marasigan proposed to do likewise, but bypaying only P4,200.

The council of the plaintiff-appellee municipality, in its

resolution No. 161 (Exhibit 1) of December 11, 1930

rejected Graciano Napa's bid and accepted that of the

appellant Miguel Marasigan.

To secure his compliance with the terms of the contract

which was immediately formalized by him and the

plaintiff, and pursuant to the provisions of section 8 of

resolution No. 128, series of 1925, of the council of said

plaintiff, Miguel Marasigan filed the bond, Exhibit B,

subscribed on December 15, 1930, by the defendants-

appellants Angel R. Sevilla and Gonzalo L. Luna, who

bound themselves in said document to pay to the plaintiff

the sum of P8,400, if Miguel Marasigan failed to deposit

one-fourth of P4,200 quarterly in advance in the municipal

treasury of Gasan.

Graciano Napa forwarded a protest (Exhibit 4) to the

provincial board, which protest was later indorsed by said

provincial board to the Chief of the Executive Bureau,

alleging that the plaintiff municipality violated the

provisions of section 2323 of the Administrative Code in

rejecting his bid.

The provincial board, passing upon Graciano Napa's

protest and acting under the authority which, in its

opinion, was granted to it by section 2233 of the

Administrative Code, held that resolution No. 161, series o

1930, by virtue of which the municipal council of Gasan

rejected Graciano Napa's bid and accepted that of Migue

Marasigan, notwithstanding the fact that the latter offered

to pay less, was invalid, and suggested that the privilege

should be, awarded to Graciano Napa who, in its opinion

appeared to be the highest bidder in accordance with the

provisions of sections 2323 and 2319 of the

Administrative Code (Exhibit 9). The Executive Bureau

concurring with the provincial board's points of view

declared, in turn, that the concession made to Marasigan

was illegal in view of the fact that Graciano Napa was the

highest bidder (Exhibit 13).

The plaintiff municipality decided to award the privilege of

gathering whitefish spawn within its waters to Graciano

Napa, giving him a period of seven days, from January 8

1931 (Exhibit 19-A), to deposit the sum of P500.

Graciano Napa not only failed to make the deposit required

by the plaintiff but he formally declared, through his duly

authorized representative, that he yielded the privilege

granted him to Miguel Marasigan or to any other person

selected by the municipal authorities.

One day later plaintiff-appellee municipality sent the letter

Exhibit 21 to Miguel Marasigan informing him that the

contract between them becomes effective on January 14,

1931.

Prior to this, plaintiff informed Marasigan that the contract

granting Marasigan the privilege is suspended &

considered ineffective while the protest is pending.

Plaintiff filed an action to recover from Marasigan, Sevilla

and Luana the sum of P 3,780 as part of license fees which

they failed to pay.

ISSUE: w/n respondents are liable

HELD:

No. The contract was not only considered not

consummated but cancelled.

It ceased to be valid when it was cancelled




Neither the appellant nor his sureties were bound to

comply with the terms of their respective contracts of

fishing privilege and suretyship.

This is so particularly with respect to the sureties, because

suretyship cannot exist without a valid obligation.

Guaranty is not presumed.

The elimination of the obligation for which said suretiesdesired to answer with their bond also rendered the bond

also eliminated.

SMITH BELL v PNB

FACTS

1. On April 1918, Fred M. Harden applied to Smith, to

buy 8 Anderson expellers end drive, latest model,

for the price of P80,000, to be paid on delivery.

This would be used for the extraction of coconut

oil.

2. It was understood that these expellers would be

manufactured in the US and delivery would be in

the month of February or March of the ensuing

year.

3. In order to assure the prompt payment of the

price upon delivery, an arrangement was made

between Harden and the Philippine National Bank

(PNB) whereby the latter bound itself to Smith,

Bell & Co. for the payment of the contract price,

but provided that the expellers would delivered to

them and must be new and in first class working

order.

4. Shortly after the contract was made, Harden

appeared in the office of Smith, Bell & Co. and

requested them to change the order for the

expellers from "end-drive" to "side-drive;" and in

obedience to this instruction, the house cabled to

its agent in New York to change the order

accordingly, which was done.

5. On July 1919, Smith, Bell & Co. informed both

Harden and PNB that the expellers had arrived.

6. Shortly thereafter Harden, having examined the

machinery in the Plaintiff's bodega, advised the

Bank that the expellers were not as ordered.

7. Consequently, the Bank naturally refused to

accept and pay for the machinery, and the Plaintiff

disposed of them to the best advantage in the

Manila market at a price which was below the

price at which Harden had agreed to take them.

8. The ground upon which the defense is chiefly

rested is that the expellers tendered by the

Plaintiff were "side-drive" instead of "end-drive"

expellers, and in support of this contention

Harden was produced by the Defendant as a

witness, and he denied that the order for expellers

had been changed upon his instructions.

Issue:

Whether or not PNB is subsidiary liable?

Rulings:

1. NO. The SC ruled that PNB’s liability is primary in

nature.

2. The contract by which the Bank obligated itself is

both in form and effect an independent undertaking on the part of the Bank directly to the

Plaintiff; and inasmuch as the Plaintiff had

compiled, or offered to comply, with the terms of

said contract, the Bank is bound by its promise to

pay the purchase price.

3. Its obligation to the Plaintiff is direct and

independent. The debt must be considered a

liquidated debt, in the sense intended in article

1825 of the Civil Code; and the action is now

maintainable by the Plaintiff directly against the

Bank without regard to the position of Harden.

4. The Bank is to be considered strictly in the light of

an independent promisor, a consequence would

be that Harden had no authority to change the

order from end-drive to side-drive expellers; in

other words, that the Bank should be held to be

obligated according to the terms of the order as it

stood when the Bank entered into the undertaking

which is the subject of the suit.

WISE & CO. v KELLY

FACTS: Kelly bought goods and merchandise on credit

from Wise and Co., with the agreement that Kelly will

apply the proceeds of its sale to the discharge of his

indebtedness. Lim, as surety for Kelly, guaranteed unto

Wise & Co. the payment of a sum of money which Kelly

owes to Wise for goods and merchandise received and

purchased by Kelly, to be sold in his establishment, upon




the condition that Kelly will pay over to Wise at the end of

each month all sums which he may receive from the sale of

said goods and merchandise, and that in the contrary

event, the surety undertakes to pay Wise such sums as

Kelly may fail to turn in.

As alleged by Wise, Kelly has not paid any money and thus

filed a collection case against Kelly and Lim. Lim

interposed the defense that the obligation was conditional

as to him, and that the fact constituting the condition had

not occurred. Lower court dismissed the case against Lim

on the ground that wise has not proven that Kelly had

failed to turn over any money and established the

conclusion that Lim had incurred no liability.

ISSUE: WON Lim should be held liable.

HELD: NO. Lim is not liable for the difference between the

amount realized from the sale of the merchandise and the

purchase price of the same. Lim as surety did not

undertake to pay the principal amount due. His agreement was limited to respond for the performance by Kelly of one

of the accessory pacts, namely, the undertaking to deliver

to Wise the total proceeds of the sales of the merchandise

for the invoice value of which the promissory note was

given. Wise has not proved that it has NOT in fact received

all the money derived from the sale of the merchandise

mentioned in the note, it follows that there is no evidence

of the existence of the condition to which the obligation

assumed by Lim was subordinated. In obligations subject

to a suspensive condition the acquisitions of the right on

the part of the creditor depends upon the occurrence of

the event constituting the conditions.

RCBC v ARRO

FACTS:

1. Residoro Chua and Enrique Go, Sr. executed a

comprehensive surety agreements to guaranty

among others, any existing indebtedness of Davao

Agricultural Industries Corporation provided that

the liability shall not exceed at any one time the

aggregate principal sum of P100,000.00.

2. A promissory note in the amount of P100,000.00

was issued in favor of petitioner. Said note was

signed by Enrique Go, Sr. in his personal capacity

and in behalf of Daicor. The promissory note was

not fully paid despite repeated demands; hence

petitioner filed a complaint for a sum of money

against Daicor, Enrique Go, Sr. and Residoro Chua

3. Petitioner alleged that by virtue of the execution

of the comprehensive surety agreement, private

respondent is liable because said agreement

covers not merely the promissory note subject of

the complaint, but is continuing; and it

encompasses every other indebtedness the

Borrower may, from time to time incur with

petitioner bank.

4. The sole issue resolved by respondent court was

the interpretation of the comprehensive surety

agreement, particularly in reference to the

indebtedness evidenced by the promissory note

involved in the instant case, said comprehensive

surety agreement having been signed by Enrique

Go, Sr. and private respondent, binding

themselves as solidary debtors of said corporation

not only to existing obligations but to future ones.

5. Respondent court said that corollary to that agreement must be another instrument

evidencing the obligation in a form of a

promissory note or any other evidence of

indebtedness without which the said agreement

serves no purpose; that since the promissory

notes, which is primarily the basis of the cause of

action of petitioner, is not signed by private

respondent, the latter can not be liable thereon.

ISSUE: whether private respondent is liable to pay the

obligation evidence by the promissory note?

HELD:

1. YES, The comprehensive surety agreement was

jointly executed by Residoro Chua and Enrique Go

Sr., President and General Manager, respectively

of Daicor, 1976 to cover existing as well as future

obligations which Daicor may incur with the

petitioner bank, subject only to the proviso that

their liability shall not exceed at any one time the

aggregate principal sum of P100,000.00

2. The agreement was executed obviously to induce

petitioner to grant any application for a loan

Daicor may desire to obtain from petitioner bank.

The guaranty is a continuing one which shall

remain in full force and effect until the bank is

notified of its termination.

3. The surety agreement which was earlier signed by

Enrique Go, Sr. and private respondent, is an

accessory obligation, it being dependent upon a




principal one which, in this case is the loan

obtained by Daicor as evidenced by a promissory

note.

4. What obviously induced petitioner bank to grant

the loan was the surety agreement whereby Go

and Chua bound themselves solidarily to guaranty

the punctual payment of the loan at maturity. By

terms that are unequivocal, it can be clearly seen

that the surety agreement was executed toguarantee future debts which Daicor may incur

with petitioner, as is legally allowable under the

Civil Code

WILLEX PLASTICS v CA

FACTS:

5. Inter Resin opened a Letter of Credit with Manila

Banking Corp. with security of “Continuing Surety

Agreement signed by Inter Resin and Investment

and Underwriting Corp (IUCP) wherein they

bound themselves solidarily for the.

6. Later Inter Resin together with Willex (P)

executed a continuing guaranty in favor of IUCP,

stating that Inter Resin and P are solidarily liable.

Due to this, IUCP paid Manila Bank P4M (Letter of

Credit)

7. IUCP then demanded payment of the amount,

however, Inter Resin and P failed to do so. Hence,

this case

8. P contends that it should not be liable since P is

merely a guarantor

ISSUE: WoN P ma be held jointly and severally liable with

Inter Resin for the amount paid by Interbank to Manila

Bank

SC: YES

9. The amount had been paid by InterBank to Manila

bank

10. The intention of the parties is to secure the

payment of the obligation.

1. CA held-to secure the guaranteeundertaken by Interbank of the credit

accommodation granted to Inter Resin by

Manila Bank, Interbank required P to sign

a Continuing Guaranty

DOCTRINE: Although a contract of suretyship is ordinarily

not be construed retrospective, in the end the intention of

the parties as revealed by the evidence is controlling

TRADERS INSURANCE v DY

FACTS:

1) For several years Destilleria Lim Tuaco & Co., Inc. had

one Dy Eng Giok as its provincial sales agent who has the

duty of turning over the proceeds of his sales to the

distillery company. In 1951, Dy’s outstanding running

account was in the sum of P12,898.61. Thereafter, a surety

bond was executed by Dy as principal and Traders

Insurance as solidary guarantor, whereby they bound

themselves, jointly and severally,

“WHEREAS, the contract requires the above

bounden principal to give a good and sufficient

bond in the above stated sum to secure the full and

faithful fulfillment on its part of said contract;

namely, to guarantee the full payment of the

Principal's obligation not to exceed the above

stated sum.”

2) On the same date, by Eng Giok, as principal, with PedroLopez Dee and Pedro Dy-Liacco, as counterboundsmen,

subscribed an indemnity agreement in favor of appellant

Surety Company, where, in consideration of its surety

bond, the three agreed to be obligated to the surety

company. Thereafter, Dy contracted obligations in favor of

the Destilleria in the amount of P41,449.93; and Dy made

remittances of the same amount

3) The distillary, however, applied said remittances first

to Dy Eng Giok's outstanding balance prior to August 4,

1951, before the suretyship agreement was executed, in

the sum of P12,898.61; and the balance of P28,965.88 toDy's obligations between August 4, 1951 and August 3,

1952.

4) Then demanded payment of the remainder from Dy, and

later, from the appellant Surety Company. The latter paid

P10,000.00 (the maximum of its bond) on July 17, 1953,

apparently, without questioning the demand; and then

sought reimbursement from Dy Eng Giok and his counter

guarantors, who however failed to pay. Because of this the

company brought an action to enforce collection.

5) The CFI absolved the counter-guarantors on the theory

that in so far as they are concerned, the payments made by

Dy from August 4, 1951 to August 3, 1952, should have

been applied to his obligations during that period, which

were the ones covered by the surety bond and the counter-

guaranty; and since these obligations only amounted to

P41,449.93, the payments exceeding the obligations, the

CFI concluded that the Surety Company incurred no




liability and the counterbondsmen in turn had nothing to

answer for.

HELD:

A) The CFI is correct. There are two reasons why the

remittances by Dy Eng Giok in the sum of P41,864.49

should be applied to the obligation of P41,449.93

contracted by him during the period covered by the

suretyship agreement:

a.. In the absence of express stipulation, a

guaranty or suretyship operates prospectively and

not retroactively; that is to say, it secures only the

debts contracted after the guaranty takes effect

because a guaranty is not presumed, but must be

express, and can not extend to more than what is

stipulated.

b.. Since the obligations of Dy between August 4,

1951 to August 4, 1952, were guaranteed, while

his indebtedness prior to that period was not

secured, then in the absence of express

application by the debtor, any partial payments

made by him should be imputed or applied to the

debts that were guaranteed, since they are

regarded as the more onerous debts from the

standpoint of the debtor.

B) In essence therefore debts covered by a guaranty are

deemed more onerous to the debtor than the simple

obligations because, in their case, the debtor may be

subjected to action not only by the creditor, but also by theguarantor, and this even before the guaranteed debt is

paid by the guarantor; hence, the payment of the

guaranteed debt liberates the debtor from liability to the

creditor as well as to the guarantor, while payment of the

unsecured obligation only discharges him from possible

action by only one party, the unsecured creditor.

C) Thus, payment voluntarily made by appellant was

improper since it was not liable under its bond;

consequently, it can not demand reimbursement from the

counterbondsmen but only from Dy.

D) Ultimately, the application by a creditor depends upon

the debtor acquiescence thereto. In the present case, as

already noted, there is no evidence that the receipts for

payment expressed any imputation, or that the debtor

agreed to the same. Judgment is affirmed.

SOCONY v CHO SIONG

FACTS: Cho Siong entered into contract of agency for

distribution of petroleum products, assumed liability of

former agent Tong Kuan. His agency bond was secured by

Ong Guan Can. Defaulted in the amount of P64.00

DOCTRINE: Under the terms of the bond signed by the

surety, he did not answer for the principal obligor save for

the Latter’s acts by virtue of the contract of agency. He

cannot be held liable for the debt of a former agent, which

the principal obligor assumed by virtue of another

contract, of which said surety was not even aware. A

contract of suretyship is to be strictly interpreted and is

not to be extended beyond its terms.

GARON v PROJECT MOVERS

Facts:

1. Project Movers Realty and Devt Corp (PMRDC)

obtained a loan from Garon. The loan was coveredby a Promissory note to mature on December 19.

The stipulated interest rate was 36% per annum.

2. To secure the payment of the loan, PMRDC

undertook to assign to Garon its leasehold rights

over a space at the Monumento Plaza Commercial

Complex.

3. The parties stipulated that failure to pay the note

or any portion thereof, or any interest thereon,

shall constitute as default and the entire

obligation shall become due and demandable

without need of demand.

4. PMRDC obtained another loan from Garon at 17%

per annum to mature on December 31. It is

covered by another promissory note and secure a

leasehold rights over another space in

Monumento Plaza.

5. To secure its obligations to assign the leasehold

rights to Garon, PMRDC procured a surety bond

from Stronghold Insurance, which the liability of

the surety will not exceed the sum of P12M and

will expire on Nov 7.

6. When PMRDC defaulted in the payment of its

obligations, Garon sent a demand letter dated Nov3 requiring PMRDC to execute and deliver a

unilateral Deed of Assignment of its leasehold

rights over the commercial spaces.

7. Garon also sent a demand letter to the surety on

Nov 6.

8. For failure to comply with the demand, Garon filed

a complaint for collection of the principal

obligation against PMRDC and the surety.




9. The surety contends that the complaint stated no

cause of action and was prematurely filed. At the

time Garon sent the demand letter, the obligation

guaranteed by the bond had not yet matured.

10. On the part of PMRDC, it denied that it executed

the promissory noted and alleged instead that

they were mere roll-overs. It also alleged that it

already complied with its undertaking under the

promissory notes when it put up a surety bond.And that when Garon chose to demand from the

surety, she effectively waived the right to claim for

it.

Issue: Whether or not the surety is liable to Garon under

its surety bond.

Held:

Yes, the surety is liable in general. The principal obligation

guaranteed by the surety bond is the assignment of

leasehold rights of PMRDC to Garon over the subject spaces. Garon made a formal demand but PMRDC

defaulted. As such, PMRDC’s liability arose. Consequently,

the surety’s liability likewise arose.

Suretyship arises upon the solidary binding of a person

with the principal debtor, for the purpose of fulfilling an

obligation. A surety is considered in law as being the same

party as the debtor in relation to whatever is adjudged as

touching the obligation of the latter and their liabilities are

interwoven as to be inseparable. Although a surety

contract is secondary to the principal obligation, the

liability of the surety is direct, primary and absolute or

equivalent to that of a regular party to the

undertaking.

Note:

Surety in this case was not held liable since its undertaking

under the surety bond was merely to guarantee the

assignment of PMRDC’s leasehold rights and not the

payment of the entire obligation and Garon is seeking to

enforce her right to collect the principal debt rather than

enforce the security.

REPUBLIC v PAL-FOX LUMBER

Facts: Pal-Fox Lumber Co., Inc. was indebted to the

Bureau of Internal Revenue for forest charges and

surcharges amounting to P11,851.56, and that the Far

Eastern Surety & Insurance Co., Inc. was jointly and

severally liable with the lumber company for the payment

of said forest charges up to P5,000.00. Republic moved for

reconsideration, pointing out that the surety company's

correct liability under the appealed decision was

P5,000.00 plus legal interest from the filing of the

complaint. In other words, the Republic would want the

surety company to pay the legal interest adjudged by the

trial court before the case may finally be considered

dismissed. Far Eastern's denial of liability for such interest

is based on the stipulation in the bond that it was bound tothe plaintiff "in the sum of P5,000.00."

Issue: W/N Far Eastern should also pay interest?

Ruling: Yes. Article 2055, paragraph 2, of the Civil Code of

the Philippines is clearly applicable.

If it (the guaranty) be simple or indefinite, it shall comprise

not only the principal obligation but also all its accessories,

including judicial costs.

COMMONWEALTH v CA

This case is about SIGS and ELBA borrowing money from

RCBC worth P4m. Commonwealth being the surety. SIGS

and ELBA defaulted so RCBC went after Commonwealth.

Commonwealth insists on not paying. Lower Court ruled in

favor of RCBC and ordered Commonwealth to pay the

principal debt plus interest. Commonwealth refused.

Commonwealth appealed to CA and questions the ruling of

the lower court awarding interest. (focus on interest)

Issue: WoN Commonwealth whould pay principal and

interest

Ruling: Obviously, Commonwealth is obliged to pay the

principal being the surety. Regarding the interest,

generally no. However because Commonwealth refused to

pay the principal when the lower court ordered it to do so,

it is now bound to pay the interest.

NAMARCO v MARQUEZ

FACTS: Properties, rights, obligations, and contracts of the

Philippine Relief and Trade Rehabilitation Administration

(PRATRA) had been transferred to the Price Stabilization

Corporation (PRISCO) and subsequently all rights and

contracts of the PRISCO involving real estate, fixed assets

and stock in trade had been assumed by herein plaintiff,

the NAMARCO.

Marquez secured from the PRATRA one tractor and one

rice thresher, with a total value of P20,000.00 for which

the said defendant paid thereon the sum of P8,000.00 as




down payment, thereby leaving a balance of P12,000.00.

Marquez executed a promissory note in the amount of

P12,000.00 payable in installments commencing from June

24, 1951 to June 25, 1952, with interest thereon at the rate

of 7% per annum from June 24, 1950 until finally paid.

To guarantee full compliance with the aforementioned

obligation, defendant Marquez, as principal, and defendant

Plaridel Surety & Insurance Company, as surety, executedGuaranty Bond P. S. & I. No. 4220 in favor of the PRATRA,

wherein they bound themselves, jointly and severally, to

pay the said amount of P12,000.00 (Exhibit C).

In this guaranty bond, the surety expressly waives its right

to demand payment and notice of non-payment and agrees

that the liabilities of this guaranty shall be direct and

immediate and not contingent upon the exhaustion by the

PRATRA of whatever remedies it may have against the

principal, and that the same shall be valid and continuous

until the obligation so guaranteed is paid in full.

After making partial payment, Marquez defaulted in the

payment of the other installments. Plaintiff demanded

from defendants Marquez and Plaridel Surety & Insurance

Company, payment of their outstanding obligation. The

claim, therefore, of defendant Plaridel Surety & Insurance

Company that they never received a demand for payment

from plaintiff must necessarily fail, considering that it is

clearly shown in registry return receipts that the same had

been received by the addressee.

ISSUES: Whether the surety's liability can exceed the sum

of P12,000.00.

RULING: Yes

While the guarantee was for the original amount of the

debt of Gabino Marquez, the amount of the judgment by

the trial court in no way violates the rights of the surety.

The judgment on the principal was only for P10,000.00,

while the remaining P9,990.91 represent the moratory

interest due on account of the failure to pay the principal

obligation from and after the same had fallen due, anddefault had taken place. Appellant surety was fully aware

that the obligation earned interest, since the note was

annexed to its contract, Exhibit "C".

The contract of guaranty executed by the appellant

Company nowhere excludes this interest, and Article

2055, paragraph 2, of the Civil Code of the Philippines is

clearly applicable.

If it (the guaranty) be simple or

indefinite, it shall comprise not only the

principal obligation but also all its accessories,

including judicial costs, provided with respect

to the latter, that the guarantor shall only be

liable for those costs incurred after he has

been judicially required to pay.

Compensated sureties are not entitled to have their

contracts interrupted strictissimi juris in their favor

VIZCONDE v IAC

FACTS:

1. Perlas called Vizconde and asked her to sell an 8

carat diamond ring on a commission for P85k

2. Vizconde later returned the ring. Afterwards

Vizconde called on Perlas and claimed that there

was a “sure buyer” for the ring, Pilar Pagulayan

3. Pagulayan gave a post-dated check; Perlas andVizconde signed a receipt (Exh. A)

4. The check was dishonoured. After 9 days

Pagulayan paid Perlas P5k against the value of the

ring and gave 3 Certificates of Title to guarantee

delivery of the balance of such value (Exh D)

5. Perlas filed a complaint against Pagulayan and

Vizconde for estafa.

6. TC and CA – Vizconde and Pagulayan had assumed

a joint agency in favour of Perlas for the sale of thelatter’s ring, which rendered them criminally

liable, upon failure to return the ring or deliver its

agreed value, under Art 315, par 1(b) of the

Revised Penal Code

7. SOL GEN – disagreed; Vizconde can’t be convicted

of estafa based on the Exhibits presented

ISSUE: Whether Vizconde was considered as agent of

Perlas or mere guarantor of obligation of Pagulayan?

HELD: Mere guarantor

1. Nothing in the language of the receipt, Exh A, or in

the proven circumstances attending its execution

can logically be considered as evidencing the

creation of an agency between Perlas, as principal




and Vizconde as agent, for the sale of the former’s

ring.

2. If any agency was established, it was one between

Perlas and Pagulayan only, this being the logical

conclusion from the use of the singular “I” in said

clause, in conjunction with the fact that the part of

the receipt in which the clause appears bears only

the signature of Pagulayan.

3. To warrant anything more than a mere conjecture

that the receipt also constituted Vizconde the

agent of Perlas for the same purpose of selling the

ring, the cited clause should at least have used the

plural “we,” or the text of the receipt containing

that clause should also have carried Vizconde’s

signature.

4. The joint and several undertaking assumed by

Vizconde in a separate writing below the main

body of the receipt, Exhibit “A,” merely guaranteedthe civil obligation Pagulayan to pay Perlas the

value of the ring in the event of her (Pagulayan’s)

failure to return said article.

5. What is clear from Exh A is that the ring was

entrusted to Pagulayan to be sold on commission;

there is no mention therein that it was

simultaneously delivered to and received by

Vizconde for the same purpose or, therefore, that

Vizconde was constituted, or agreed to act as,

agent jointly with Pagulayan for the sale of the

ring.

6. What Vizconde solely undertook was to guarantee

the obligation of Pagulayan to return the ring or

deliver its value; and that guarantee created only

a civil obligation, without more, upon default of

the principal.

7. Upon the evidence, Vizconde was a mere

guarantor, a solidary one to be sure, of the

obligation assumed by Pagulayan to complainant

Perlas for the return of the latter’s ring or the

delivery of its value. Whatever liability was

incurred by Pagulayan for defaulting on such

obligation – and this is not inquired into – that of

Vizconde consequent upon such default was

merely civil, not criminal.

ESTATE OF HEMADY v LUZON SURETY

FACTS:

The Luzon Surety Co. had filed a claim against the Estate

based on twenty different indemnity agreements, or

counter bonds, each subscribed by a distinct principal and

by the deceased K. H. Hemady, a surety solidary guarantor)

in all of them, in consideration of the Luzon Surety Co.’s of

having guaranteed, the various principals in favor of

different creditors.

The Luzon Surety Co., prayed for allowance, as a

contingent claim, of the value of the twenty bonds it had

executed in consideration of the counterbonds, and further

asked for judgment for the unpaid premiums and

documentary stamps affixed to the bonds, with 12 per cent

interest thereon.

The lower court, by order of September 23, 1953,

dismissed the claims of Luzon Surety Co., on the ground

that “whatever losses may occur after Hemady’s death, are

not chargeable to his estate, because upon his death he

ceased to be guarantor.”

The reasoning of the court below ran as follows:

“The administratrix further contends that upon the death

of Hemady, his liability as a guarantor terminated, and

therefore, in the absence of a showing that a loss or

damage was suffered, the claim cannot be considered

contingent. This Court believes that there is merit in this

contention and finds support in Article 2046 of the new

Civil Code. It should be noted that a new requirement has

been added for a person to qualify as a guarantor, that is:

integrity. As correctly pointed out by the Administratrix,

integrity is something purely personal and is not

transmissible. Upon the death of Hemady, his integrity wasnot transmitted to his estate or successors. Whatever loss

therefore, may occur after Hemady’s death, are not

chargeable to his estate because upon his death he ceased

to be a guarantor.

Another clear and strong indication that the surety

company has exclusively relied on the personality,

character, honesty and integrity of the now deceased K. H.

Hemady, was the fact that in the printed form of the

indemnity agreement there is a paragraph entitled

‘Security by way of first mortgage, which was expressly

waived and renounced by the security company. Thesecurity company has not demanded from K. H. Hemady to

comply with this requirement of giving security by way of

first mortgage. In the supporting papers of the claim

presented by Luzon Surety Company, no real property was

mentioned in the list of properties mortgaged which

appears at the back of the indemnity agreement.” (Rec.

App., pp. 407-408).




ISSUE: W/N the liability of the guarantor was terminated

upon his death

HELD: NO.

Under the present Civil Code (Article 1311), as well as

under the Civil Code of 1889 (Article 1257), the rule is that

—

“Contracts take effect only as between the parties, their

assigns and heirs, except in the case where the rights andobligations arising from the contract are not transmissible

by their nature, or by stipulation or by provision of

law.”

Under our law, therefore, the general rule is that a party’s

contractual rights and obligations are transmissible to the

successors.

Of the three exceptions fixed by Article 1311, the nature of

the obligation of the surety or guarantor does not warrant

the conclusion that his peculiar individual qualities are

contemplated as a principal inducement for the contract.What did the creditor Luzon Surety Co. expect of K. H.

Hemady when it accepted the latter as surety in the

counterbonds? Nothing but the reimbursement of the

moneys that the Luzon Surety Co. might have to disburse

on account of the obligations of the principal debtors. This

reimbursement is a payment of a sum of money, resulting

from an obligation to give; and to the Luzon Surety Co., it

was indifferent that the reimbursement should be made by

Hemady himself or by some one else in his behalf, so long

as the money was paid to it.

The second exception of Article 1311, p. 1, isintransmissibility by stipulation of the parties. Being

exceptional and contrary to the general rule, this

intransmissibility should not be easily implied, but must be

expressly established, or at the very least, clearly inferable

from the provisions of the contract itself, and the text of

the agreements sued upon nowhere indicate that they are

non-transferable.

Because under the law (Article 1311), a person who enters

into a contract is deemed to have contracted for himself

and his heirs and assigns, it is unnecessary for him to

expressly stipulate to that effect; hence, his failure to do sois no sign that he intended his bargain to terminate upon

his death. Similarly, that the Luzon Surety Co., did not

require bondsman Hemady to execute a mortgage

indicates nothing more than the company’s faith and

confidence in the financial stability of the surety, but not

that his obligation was strictly personal.

The third exception to the transmissibility of obligations

under Article 1311 exists when they are “not transmissible

by operation of law”. The provision makes reference to

those cases where the law expresses that the rights or

obligations are extinguished by death, as is the case in

legal support (Article 300), parental authority (Article

327), usufruct (Article 603), contracts for a piece of work

(Article 1726), partnership (Article 1830 and agency

(Article 1919). By contract, the articles of the Civil Code

that regulate guaranty or suretyship (Articles 2047 to

2084) contain no provision that the guaranty isextinguished upon the death of the guarantor or the

surety.

WISE & CO. v TANGLAO

FACTS

1. In the CFI of Manila, Wise & Co filed a civil case

against Cornelio C. David for the recovery of a

certain sum of money.

2. David was an agent of Wise & Co. and the amount

claimed from him was the result of a liquidation ofaccounts showing that he was indebted in said

amount.

3. In said case Wise & Co. asked and obtained a

preliminary attachment of David's property.

4. To avoid the execution of said attachment, David

succeeded in having the defendant Attorney

Tanglao sign a power of attorney in his favor,

with a clause (considered a special POA to David) “

To sign as guarantor for himself in his

indebtedness to Wise & Company of Manila, and tomortgage the Att orney’s lot”

5. Subsequently, David made a compromise with the

petitioner by paying P340 leaving an unpaid

balance of P296 and pledged the lot owned by the

Atty as a guaranty for the balance.

6. Wise & Co. now institutes this case against

Tanglao for the recovery of said unpaid amount.

7. There is no doubt that under POA, Tanglao

empowered David, in his name, to enter into acontract of suretyship and a contract of mortgage

of the property described in the document, with

Wise & Co.

8. However, David used said power of attorney only

to mortgage the property and did not enter into

contract of suretyship.

ISSUE




Whether or not Atty. Tanglao is liable?

RULING

1. NO.

2. The SC ruled that there is nothing stated in the

Compromise Agreement to the effect that Tanglao

became David's surety for the payment of the sum

in question. Neither is this inferable from any of the clauses thereof, and even if this inference

might be made, it would be insufficient to create

an obligation of suretyship which, under the law,

must be express and cannot be presumed.

3. The only obligation which the Compromise

Agreement, in connection with POA, has created

on the part of Tanglao, is that resulting from the

mortgage of a property belonging to him to secure

the payment of said P640. However, a foreclosure

suit is not instituted in this case against Tanglao,

but a purely personal action for the recovery of

the amount still owed by David.

4. At any rate, even granting that Defendant Tanglao

may be considered as a surety under the cited

Compromise the action does not yet lie against

him on the ground that all the legal remedies

against the debtor have not previously been

exhausted (art. 1830 of the Civil Code, and

decision of the Supreme Court of Spain of March 2,

1891).

5. The Plaintiff has in its favor a judgment against

debtor David for the payment of debt. It does not

appear that the execution of this judgment has

been asked for and the Compromise, on the other

hand, shows that David has two pieces of property

the value of which is in excess of the balance of the

debt the payment of which is sought of Tanglao in

his alleged capacity as surety.

SOUTHERN MOTORS v BARBOSA

FACTS: Defendant Barbosa executed a real estate mortgage

for the only purpose of guaranteeing – as surety and/or

guarantor – the payment of the debt of one Alfredo

Brillantes in favor of Southern Motors, Inc. due to the

failure of Brillantes to settle his obligation; plaintiff filed an

action against defendant to foreclose the real estate

mortgage. Defendant filed an answer alleging that the

plaintiff has no right of action against him because the

plaintiff did not intent to exhaust all recourses to collect

from the true debtor (Brillantes), notwithstanding the fact

that the latter is solvent and has many properties within

the Province of Iloilo.

ISSUE: WHETHER THE MORTGAGE IN QUESTION COULD

BE FORECLOSED ALTHOUGH PLAINTIFF HAD NOT

EXHAUSTED, AND DID NOT INTEND TO EXHAUST, THE

PROPERTIES OF HIS PRINCIPAL DEBTOR.

HELD: NO. The right of guarantors, under Art. 2058 of the

Civil Code, to demand exhaustion of the property of the

principal debtor, exists only when a pledge or a mortgage

has not been given as special security for the payment of

the principal obligation.

Although an ordinary personal guarantor – not a

mortgagor or pledgor – may demand exhaustion of the

properties of the principal debtor, the creditor may,

prior thereto, secure judgment against said guarantor,

who shall be entitled, however, to a deferment of the

execution of said judgment against him until after theproperties of the principal debtor shall have been

exhausted to satisfy the obligation involved in the

case.

SAAVEDRA v PRICE

FACTS:

1. This is a proceeding instituted by the petitioner to

annul the order of May 8, 1939, entered by the

Court of First Instance of Leyte, which providedfor the sale at public auction of the real property

described in Transfer Certificate of Title No. 395

issued in favor of the petitioner, so that the

proceeds thereof may be applied to the payment

of the credit of the respondent W.S. Price in the

sum of P15,000

2. In civil case No. 3707 of the Court of First Instance

of Leyte, W.S. Price, plaintiff vs. Ceferino Ibañez et

al., defendants, said court rendered judgment

ordering the defendants to pay the plaintiff within

ninety days the sum of P15,000, with the legal

interest thereon from January 16, 1934, and in

case of default on their part, that the real property

subject matter of the mortgage be sold at public

auction so that the proceeds thereof may be

applied to the payment of the sum in question and

the interest thereon.




3. After the period of ninety days has elapsed and

Rafael Martinez and Ceferino Ibañez failed to pay

the sum in question with the interest thereon, the

respondent Price filed a motion praying that the

real property mortgaged be sold at public auction

for the payment of his mortgage credit and its

interest.

4. This was denied.

5. The petitioner now claims that the respondent Judge acted with abuse of his discretion in not

transferring the hearing of the motion for the sale

of the mortgaged realty and that he exceeded his

jurisdiction in ordering the sale of said property.

ISSUE: Whether or not the order of sale of such property

was proper?

HELD:

1. It is contended that since the petitioner is not the

debtor and as she, on the other hand is the ownerof the mortgaged realty, she merely acted as

surety to Rafael Martinez, the principal debtor,

and as such she entitled to the benefit of the

exhaustion of the property of the principal debtor,

in accordance with the provision of article 1830 of

the Civil Code.

2. We are of the opinion that this last contention is

likewise unfounded and untenable.

1. In the first place, this alleged defense should have

been interposed before the judgment was

rendered in this case and it is too late to raise it

for the first time as a ground for opposing the

motion to sell the real property in question.

2. In the second place, the contention that the

mortgaged real property belonging to the

petitioner cannot be sold to pay the debt for the

reason that she is a mere surety of Rafael

Martinez, finds no support in the law.

1. It is true that the petitioner is a surety with regardto Rafael Martinez and as such surety she is

entitled to resort to the actions and remedies

against him which the law affords her, but we

should not lose sight of the fact that she was sued

not as a surety but as a mortgage debtor for being

the owner of the mortgaged property

ARROYO v JUNGSAY

FACTS:

2. Arroyo (P) is an appointed guardian of an

imbecile, while Jungsay et al (D) are the previous

guardian and bondsmen who absconded.

3. D, the former guardian of the ward, absconded

with the funds of his ward.

4. LC ordered D to pay P, which the bondsmen

appealed. D also pointed out properties of the

previous guardian which are now being adverselyclaimed by 3rd parties

ISSUE: WoN the bondsmen are liable

SC: YES

5. For the surety to be not liable, he must be able to

point out property of the principal debtor which

are realizable and is situated within the

Philippines – to insure the fulfillment of the

obligation and furnish the creditor with the means

of obtaining its fulfillment without delay

6. The property pointed out by the sureties is not

sufficient to pay the indebtedness; it is not salable;

it is encumbered to 3rd parties

BITANGA v PYRAMID

FACTS:

1) On March 26 1997, Pyramid entered into an agreement

with Macrogen Realty, of which Bitanga is the President, to

construct for the latter a building, located in Sucat,

Parañaque. Pyramid then commenced civil, structural, and

architectural works on the construction project. However,Macrogen Realty failed to settle respondent’s progress

billings. Bitanga, assured Pyramid that the outstanding

account of Macrogen Realty would be paid.Thus, Pyramid

continued the construction project.

2) In August 1998, Pyramid suspended work on the

construction project since the conditions that it imposed

for the continuation thereof, including payment of

unsettled accounts, had not been complied with by

Macrogen Realty and eventually, on 1 September 1999,

respondent instituted with the Construction Industry

Arbitration Commission (CIAC) a case for arbitration

against Macrogen Realty seeking payment by the latter of

its unpaid billings and project costs. Macrogen, chose to

amicably settle the arbitration case and both parties

entered into a Compromise Agreement, with Bitanga

acting as signatory for and in behalf of Macrogen Realty.

3) Under the Agreement, Macrogen Realty agreed to pay

Pyramid the total amount in six equal monthly

installments, that if it would default in the payment of two




successive monthly installments, immediate execution

could issue against it for the unpaid balance, without need

of judgment from any court or tribunal. Bitanga

guaranteed the obligations of Macrogen Realty under the

Compromise Agreement by executing a Contract of

Guaranty in favor of respondent, by virtue of which he

irrevocably and unconditionally guaranteed the full and

complete payment of the principal amount of liability of

Macrogen Realty.

4) However, despite this, Macrogen Realty failed and

refused to pay all the monthly installments agreed upon in

the Compromise Agreement. Thus, on 7 September 2000,

respondent moved for the issuance of a writ of execution

against Macrogen Realty, which was granted.

5) The sheriff however filed a return stating that he was

unable to locate any property of Macrogen Realty, except

its bank deposit of P20,242.33, with the Planters Bank,

Buendia Branch. Respondent then made, on January 3,

2001, a written demand on petitioner, as guarantor of Macrogen Realty, to pay the P6,000,000.00, or to have

properties of the Macrogen Realty sufficient to cover the

obligation guaranteed. Said demands met no reply.

6) As to Marilyn’s (bitanga’s wife) liability, Pyramid

contended that Macrogen Realty was owned and

controlled by bitanga and Marilyn and/or by corporations

owned and controlled by them. On the theory that since

the completion of the construction project would have

redounded to the benefit of both petitioner and Marilyn

and/or their corporations; and considering, Marilyn’s

interest in a corporation which controls Macrogen Realty,

Marilyn cannot be unaware of the obligations incurred by

Macrogen Realty and/or petitioner in the course of the

business operations of the said corporation.

7) Pyramid filed suit that a judgment be rendered

ordering petitioner and Marilyn to comply with their

obligation under the Contract of Guaranty by paying

respondent the amount of P6,000,000.000.

8) Marilyn contended that, since she did not co-sign the

Contract of Guaranty with her husband; nor was she a

party to the Compromise Agreement between respondent

and Macrogen Realty. She had no part at all in the

execution of the said contracts. This was denied

ISSUES:

(1) whether the defendants were liable under the contract

of guarantee dated April 17, 2000 entered into between

Benjamin Bitanga and the plaintiff;

(2) whether defendant wife Marilyn Bitanga is liable in this

action;

HELD:

A) Under a contract of guarantee, the guarantor binds

himself to the creditor to fulfill the obligation of the

principal debtor in case the latter should fail to do so. The

guarantor who pays for a debtor, in turn, must be

indemnified by the latter. However, the guarantor cannot

be compelled to pay the creditor unless the latter has

exhausted all the property of the debtor and resorted to all

the legal remedies against the debtor. This is what is

otherwise known as the benefit of excussion.

Article 2060 of the Civil Code reads:

In order that the guarantor may make use of the

benefit of excussion, he must set it up against the

creditor upon the latter’s demand for payment from

him, and point out to the creditor available

property of the debtor within Philippine territory,

sufficient to cover the amount of the debt.

B) Said provision imposes a condition for the invocation of

the defense of excussion. Article 2060 of the Civil Code

clearly requires that in order for the guarantor to make

use of the benefit of excussion, he must set it up against the

creditor upon the latter’s demand for payment and point

out to the creditor available property of the debtor within

the Philippines sufficient to cover the amount of the debt.

C) In this case, despite having been served a demand letter

at his office, petitioner still failed to point out to the

respondent properties of Macrogen Realty sufficient to

cover its debt. Such failure on petitioner’s part forecloses

his right to set up the defense of excussion.

D) Article 2059(5) of the Civil Code thus finds application

and precludes petitioner from interposing the defense of

excussion. We quote:

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

property of the principal debtor would not result in

the satisfaction of the obligation.

E) Petition is DENIED.

ONG v PCIB

FACTS: Cho Siong entered into contract of agency for

distribution of petroleum products, assumed liability of

former agent Tong Kuan. His agency bond was secured by

Ong Guan Can. Defaulted in the amount of P64.00




DOCTRINE: Under the terms of the bond signed by the

surety, he did not answer for the principal obligor save for

the Latter’s acts by virtue of the contract of agency. He

cannot be held liable for the debt of a former agent, which

the principal obligor assumed by virtue of another

contract, of which said surety was not even aware. A

contract of suretyship is to be strictly interpreted and is

not to be extended beyond its terms.

MIRA HERMANOS v MANILA TOBACCONISTS

Facts:

1. By virtue of a written contract, Mira Hermanos

(MH) agreed to deliver to Manila Tobacconists

(MT) merchandise for sale on consignment under

certain specified terms and MT agreed to pay MH

on or before the 20th day of each month the

invoice value of all the merchandise sold during

the preceding month.2. MH required MT a bond of 3,000 which was

executed by Provident Insurance (PI).

3. The volume of the business of MT increased so

that the merchandise received by way of

consignment from MH exceeded 3,000 in value.

4. MH required MT to post an additional bond of

2,000 which MT complied, executing a bond with

same conditions with the Manila Compania de

Seguros (MCS) for the excess of 3,000 up to 5,000.

5. After liquidation of the transaction, a balance was

due from MT to MH for the amount of 2,200 whichMT is unable to pay.

6. PI, as surety, only paid 1,300, alleging that the

remaining 40% should be paid by the other

surety, MCS.

Issue: Whether or not MCS should be held liable for the

remaining 40% of the balance due?

Held:

No, the bond of 3,000 filed by PI responded for the

obligation of MT up to the some of 3,000, inasmuch as thebond of 2,000 filed by MCS responded for the obligation of

MT only insofar as it might exceed 3,000 and up to 5,000.

The provision in the NCC with regard to several sureties of

only one debtor for the same debt does not apply in this

case. Although the two bonds on their face appear to

guarantee the same debt coextensively up to 2,000 – that

of PI alone extending beyond that sum up to 3,000 – it was

pleaded and conclusively proven that in reality said bonds,

or the two sureties, do not guarantee the same debt

because PI guarantees only the first 3,000 while MCS only

the excess up to 5,000.

CACHO v VALLES

Facts: On October 29, 1920, the National Sporting Club, of

Manila, obligated itself by a promissory note payable at

four months to pay to Jose Ma. Cacho. Below the signature

of said National Sporting Club, as signed by the proper

officers of the Club, the following personal guaranty was

written: "We guarantee this obligation." (Sgd.) J. A. Valles, J

L. Mateu, G. J. Heffting, Ed. Chesley, Baldomero Roxas. This

note was not paid at maturity. An action was instituted

thereon against the National Sporting Club and the

guarantors. Baldomero Roxas interposed a defence

claiming the right of division as among the co-sureties, and

asking that in case he should be found liable that he should

be held responsible only for his aliquot part of the debt.

Issue: W/N in case of the insolvency of one or more of

several simple sureties, those who remain solvent can be

made to pay the entire debt?

Ruling: None of the sureties, so far as this record shows,

has been declared bankrupt. The benefit of division

therefore has not been lost, and the rule declaring each

surety liable only for his aliquot part of the guaranteed

debt, must hold. The obligation of the surety cannot be

extended beyond its specified limits. A co-surety is entitled

to the benefit of division from the very moment that he

contracts the obligation, except where there is stipulationto the contrary.

TUASON v MACHUCA

F: Universal Trading Company was going to withdraw

goods from the Bureau of Customs to be delivered to BPI.

To withdraw, they gave a bond executed by Manila

Compania de Seguros. That bond was secured solidarily by

Tuason Co. and Machuca of Universal Trading. It was to be

paid whether or not Manila Compania already paid CIR.

Manila Compania demanded payment from Tuason. Manila

Compania filed a case against tuason. Tuason later payed

but incurred litigation expenses. Tuason now demands

payment from Machuca. Tuason filed a case for collection

of money from Machuca. The lower court ruled that

Machuca should pay the debt and the expenses incurred by

Tuason in the case for collection of money.

Issue: Won Machuca should pay the expenses incurred by

Tuason in its case vs. Manila Compania




Ruling: NO! it was not Machuca’s fault why tuason incurred

expenses in the litigation of Manila Compania and Tuason.

If tuason paid Manila compania, no litigation expenses will

be paid.

AUTOCORP v INTRA STRATA

FACTS: Autocorp Group, represented by its President,

petitioner Peter Y. Rodriguez, secured two ordinary re-

export bond from private respondent Intra Strata

Assurance Corporation (ISAC) in favor of public

respondent Bureau of Customs (BOC) to guarantee the re-

export of one unit of Hyundai Excel 4-door 1.5 LS and

Hyundai Sonata 2.4 GLS, and/or to pay the taxes and duties

thereon.

Petitioners executed and signed two Indemnity

Agreements with identical stipulations in favor of ISAC,

agreeing to act as surety of the subject bonds. Petitioner

Rodriguez signed the Indemnity Agreements both as

President of the Autocorp Group and in his personal

capacity.

In sum, ISAC issued the subject bonds to guarantee

compliance by petitioners with their undertaking with the

BOC to re-export the imported vehicles within the given

period and pay the taxes and/or duties due thereon. In

turn, petitioners agreed, as surety, to indemnify ISAC for

the liability the latter may incur on the said bonds.

Petitioner Autocorp Group failed to re-export the itemsguaranteed by the bonds and/or liquidate the entries or

cancel the bonds, and pay the taxes and duties pertaining

to the said items despite repeated demands made by the

BOC, as well as by ISAC. By reason thereof, the BOC

considered the two bonds, with a total face value of

P1,034,649.00, forfeited.

Failing to secure from petitioners the payment of the face

value of the two bonds, despite several demands sent to

each of them as surety under the Indemnity Agreements,

ISAC filed with the RTC on 24 October 1995 an action

against petitioners.

Petitioners contend that their obligation to ISAC is not yet

due and demandable. They cannot be made liable by ISAC

in the absence of an actual forfeiture of the subject bonds

by the BOC and/or an explicit pronouncement by the same

bureau that ISAC is already liable on the said bonds.

ISSUES: Whether actual forfeiture of the subject bonds is

necessary for the petitioners to be liable to ISAC under the

Indemnity Agreements?

RULING: The liability of the guarantor already triggers

the liability of the debtor.

Autocrop’s liability

Actual forfeiture of the subject bonds is not necessary forpetitioners to be liable thereon to ISAC as surety under the

Indemnity Agreements.

Petitioners' obligation to indemnify ISAC became due and

demandable the moment the bonds issued by ISAC became

answerable for petitioners' non-compliance with its

undertaking with the BOC. Stated differently, petitioners

became liable to indemnify ISAC at the same time the

bonds issued by ISAC were placed at the risk of forfeiture

by the BOC for non-compliance by petitioners with its

undertaking.

It is worthy to note that petitioners did not impugn the

validity of the stipulation in the Indemnity Agreements

allowing ISAC to proceed against petitioners the moment

the subject bonds become due and demandable, even prior

to actual forfeiture or payment thereof. Even if they did so,

the Court would be constrained to uphold the validity of

such a stipulation for it is but a slightly expanded

contractual expression of Article 2071 of the Civil Code

which provides, inter alia, that the guarantor may

proceed against the principal debtor the moment the

debt becomes due and demandable.

Art. 2071. The guarantor, even before having paid, may

proceed against the principal debtor:

(1) When he is sued for the payment;

(2) In case of insolvency of the principal debtor;

(3) When the debtor has bound himself to relieve him from

the guaranty within a specified period, and this period has

expired;

(4) When the debt has become demandable, by reason

of the expiration of the period for payment;

(5) After the lapse of ten years, when the principal

obligation has no fixed period for its maturity, unless it be

of such nature that it cannot be extinguished except within

a period longer than ten years;




(6) If there are reasonable grounds to fear that the

principal debtor intends to abscond;

(7) If the principal debtor is in imminent danger of

becoming insolvent.

In all these cases, the action of the guarantor is to obtain

release from the guaranty, or to demand a security that

shall protect him from any proceedings by the creditor andfrom the danger of insolvency of the debtor.

Rodriguez’s liability

Petitioner Rodriguez posits that he is merely a guarantor,

and that his liability arises only when the person with

whom he guarantees the credit, Autocorp Group in this

case, fails to pay the obligation. Petitioner Rodriguez

invokes Article 2079 of the Civil Code on Extinguishment

of Guaranty, which states:

Art. 2079. An extension granted to the debtor by the

creditor without the consent of the guarantor extinguishes

the guaranty. The mere failure on the part of the creditor

to demand payment after the debt has become due does

not of itself constitute any extension of time referred to

herein.

The use of the term guarantee in a contract does not ipso

facto mean that the contract is one of guaranty. It thus

ruled that both petitioners assumed liability as a regular

party and obligated themselves as original promissors, i.e.,

sureties.

The provisions of the Civil Code on Guarantee, other thanthe benefit of excussion, are applicable and available to the

surety.[22] The Court finds no reason why the provisions of

Article 2079 would not apply to a surety.

This, however, would not cause a reversal of the Decision

of the Court of Appeals. The Court of Appeals was correct

that even granting arguendo that there was a modification

as to the effectivity of the bonds, petitioners would still not

be absolved from liability since they had authorized ISAC

to consent to the granting of any extension, modification,

alteration and/or renewal of the subject bonds

SAENZ v YAP CHUAN

FACTS:

1. Engracio Palanca – a judicial administrator gave

bond to guarantee his administration of the estate

of Margarita Jose

2. The bond was executed by Engracio, Plaintif

Saenz and two others in favour of the government

for the sum of P60k

3. On the same date, Engracio and 5 others executed

a bond in favour of Saenz; Yap Chuan P20k and the

other 4 P5k each

4. TC ordered Saenz, as surety in solidum of the ex

administrator Engracio to pay the estate the sum

of P41k

5. Saenz paid to the administrator of the estate P8k;

He filed sut against 5 sureties who executed the

bond

6. TC acquitted Defendant from the P20k claim and

ordered the other 4 to pay P2k each.

7. Both parties appealed. Defendants were claiming

that they are only liable for P1k each only

according to the terms of the contract. Plaintifwas claiming that he is entitled to maximum sum

of P5k for which each one had bound himself in

the contract.

ISSUE: Whether or not Vizmanos is entitled to P20k, a

reimbursement of P5k each from the Defendants?

HELD: NO

1. The bond of a debtor to protect his surety is not a

sub bond nor a second bond with respect to the

original creditor. It is nothing but a substitution o

the obligation of the debtor with respect to his

surety, and is necessarily governed by the legal

provisions which regulate the right of action of the

surety against the party for whom he gave the

bond, that is, an action of subrogation which lies

with the surety to compel the debtor to comply

with the obligation to reimburse.

2. This action arising out of subrogation is the

remedy for securing reimbursement of the

amount that another has paid, and cannot exceed

except there is an express agreement to the

contrary, the amount actually paid by the surety in

place of the debtor.

3. IN THIS CASE: The following terms of an

obligation cannot be considered as an express




agreement to the contrary: “ x x x bind themselves

as such conjointly to reimburse or pay whatever

amounts the latter (the surety) may have to pay or

shall have paid by reason of the judicial bond,”

inasmuch as this manner of expressing the

intention of the obligated parties does not

constitute a true disjunctive proposition, but is

merely explanatory of the obligation as if

contracted by the debtor himself, the only naturaland logical interpretation.

1. To ask an indemnity of P20k, when the loss to be

indemnified is only P8k is contrary to law.

2. Vizmanos only entitled to an action against 4

Defendants for recovery of maximum P5k. He

cannot collect more than the sum which he

himself was actually compelled to pay.

MANILA SURETY v BATU CONSTRUCTION

FACTS:

On July 8, 1950, the defendant Batu Construction &

Company, as principal, and the plaintiff Manila Surety &

Fidelity Co. Inc., as surety, executed a surety bond for the

sum of P8,812.00 to insure faithful performance of the

former's obligation as contractor for the construction of

the Bacarra Bridge, Project PR-72 (No. 3) Ilocos Norte

Province. On the same date, July 8,1950, the Batu

Construction & Company and the defendants Carlos N.

Baquiran and Gonzales P. Amboy executed an indemnity

agreement to protect the Manila Surety & Fidelity Co. Inc..,

against damage, loss or expenses which it may sustain as a

consequence of the surety bond executed by it jointly with

Batu Construction & Company.

On or about May 30, 1951, the plaintiff received a notice

from the Director of Public Works (Exhibit B) annulling its

contract with the Government for the construction of the

Bacarra Bridge because of its failure to make satisfactory

progress in the execution of the works, with the warningthat ,any amount spent by the Government in the

continuation of the work, in excess of the contract price,

will be charged against the surety bond furnished by the

plaintiff. It also appears that a complaint by the laborers in

said project of the Batu Construction & Company was filed

against it and the Manila Surety and Fidelity Co., Inc., for

unpaid wages amounting to P5,960.10.

Trial Court dismissed the case holding that provisions of

article 2071 of the new Civil Code may be availed of by a

guarantor only and not by a surety the complaint, with

costs against the plaintiff.

ISSUE: The main question to determine is whether the last

paragraph of article 2071 of the new Civil Code taken from

article 1843 of the old Civil Code may be availed of by a

surety.

HELD:

A guarantor is the insurer of the solvency of the debtor; a

surety is an insurer of the debt. A guarantor binds himself

to pay if the principal is unable to pay; a surety undertakes

to pay if the principal does not pay.1 The reason which

could be invoked for the non-availability to a surety of the

provisions of the last paragraph of article 2071 of the new

Civil Code would be the fact that guaranty like

commodatum2 is gratuitous. But guaranty could also be for

a price or consideration as provided for in article 2048. So,

even if there should be a consideration or price paid to a

guarantor for him to insure the performance of an

obligation by the principal debtor, the provisions of article

2071 would still be available to the guarantor. In

suretyship the surety becomes liable to the creditor

without the benefit of the principal debtor's exclusion of

his properties, for he (the surety) maybe sued

independently. So, he is an insurer of the debt and as such

he has assumed or undertaken a responsibility or

obligation greater or more onerous than that of guarantor.

Such being the case, the provisions of article 2071, under

guaranty, are applicable and available to a surety. The

reference in article 2047 to, the provisions of Section 4,

Chapter 3, Title 1, Book IV of the new Civil Code, on

solidary or several obligations, does not mean that

suretyship which is a solidary obligation is withdrawn

from the applicable provisions governing guaranty.

The plaintiff's cause of action does not fall under

paragraph 2 of article 2071 of the new Civil Code, because

there is no proof of the defendants' insolvency. The fact

that the contract was annulled because of lack of progressin the construction of the bridge is no proof of such

insolvency. It does not fall under paragraph 3, because the

defendants have not bound themselves to relieve the

plaintiff from the guaranty within a specified period which

already has expired, because the surety bond does not fix

any period of time and the indemnity agreement stipulates

one year extendible or renewable until the bond be

completely cancelled by the person or entity in whose

behalf the bond was executed or by a Court of competent




jurisdiction. It does not come under paragraph 4, because

the debt has not become demandable by reason of the

expiration of the period for payment. It does not come

under paragraph 5 because of the lapse of 10 years, when

the principal obligation has no period for its maturity, etc.,

for 10 years have not yet elapsed. It does not fall under

paragraph 6, because there is no proof that "there are

reasonable grounds to fear that the principal debtor

intends to abscond." It does not come under paragraph 7,because the defendants, as principal debtors, are not in

imminent danger of becoming insolvent, there being no

proof to that effect.

But the plaintiff's cause of action comes under paragraph 1

of article 2071 of the new Civil Code, because the action

brought by Ricardo Fernandez and 105 persons in the

Justice of the Peace Court of Laoag, province of Ilocos

Norte, for the collection of unpaid wages amounting to

P5,960.10, is in connection with the construction of the

Bacarra Bridge, Project PR-72 (3), undertaken by the Batu

Construction & Company, and one of the defendants

therein is the herein plaintiff, the Manila Surety and

Fidelity Co., Inc., and paragraph 1 of article 2071 of the

new Civil Code provides that the guarantor, even before

having paid, may proceed against the principal debtor "to

obtain release from the guaranty, or to demand a security

that shall protect him from any proceedings by the

creditor or from the danger of insolvency of the debtor,

when he (the guarantor) is sued for payment. It does not

provide that the guarantor be sued by the creditor for the

payment of the debt. It simply provides that the guarantor

of surety be sued for the payment of an amount for whichthe surety bond was put up to secure the fulfillment of the

obligation undertaken by the principal debtor. So, the suit

filed by Ricardo Fernandez and 105 persons in the Justice

of the Peace Court of Laoag, province of Ilocos Norte, for

the collection of unpaid wages earned in connection with

the work done by them in the construction of the Bacarra

Bridge, Project PR-72(3), is a suit for the payment of an

amount for which the surety bond was put up or posted to

secure the faithful performance of the obligation

undertaken by the principal debtors (the defendants) in

favor of the creditor, the Government of the Philippines.

The order appealed from dismissing the complaint is

reversed and set aside.

GEN. INDEMNITY v ALVAREZ

FACTS:

1. On February 1954, Appellee General Indemnity

Co., Inc., filed a complaint in the CFI Manila against

Appellant Estanislao Alvarez for the recovery of

the sum of P2,000 representing the amount of a

loan allegedly taken by the Appellant from the

PNB, which the Appellee guaranteed with an

indemnity bond, and for which Appellant, as

counter-guaranty, executed in Plaintiff's favor a

mortgage on his share of land in a parcel of land .

2. The complaint further alleged that the Appellant

failed to pay said loan, together with interest, to

PNB as a result of which the bank deducted the

amount thereof Plaintiff's deposit.

3. Thereafter, Appellant averred that the loan in

question was secured by him only in

accommodation of one Hao Lam, and that Plaintiff

agreed not to take any steps against Appellant and

the mortgage executed by him in Plaintiff's favor

until the latter had failed to obtain payment from

said Hao Lam.

4. Eight months later, Plaintiff filed a motion for

summary judgment saying that Appellang

presented no real and meritorious defense and

that it was entitled to a summary judgment in its

favor, based on the affidavit of its comptroller

Pedro R. Mendiola essentially saying that:

1. That he has personal knowledge of the

indebtedness of the Defendant.

2. Notwithstanding said several demands by

Plaintiff, Defendant has failed and refused and stillfails and refuses to pay the same.

5. The lower courts ruled in favour of Plaintiff. Thus

this petition.

Issue:

Whether or not Defendant Alvarez is liable?

Ruling:

1. NO. The SC ruled that there exists a controversy in

the complaint and answer as to whether or not

Appellee had actually paid Appellant's obligation

to the Philippine National Bank, a matter which

should be decided in the affirmative before

Appellant, as surety, can claim reimbursement

from Appellant, the principal debtor.

2. However, Appellee is correct in saying that said

defense is immaterial to its right to recovery, since

the mortgage deed executed by Appellant in its




favor (the genuineness and due execution of

which Appellant admitted in his answer) shows

Appellant to be the actual and only debtor, and

Appellant is precluded from varying this

representation by parol evidence.

3. In ruling for the Appellant, the SC opined that the

last paragraph of Art. 2071 of the New Civil Code,

provides that the only action the guarantor can file

against the debtor "to obtain release from the

guaranty, or to demand a security that shall

protect him from any proceeding by the creditor

and from the danger of insolvency of the debtor."

4. An action by the guarantor against the principal

debtor for payment, before the former has paid

the creditor, is premature.

INTRA STRATA v REPUBLIC

FACTS: Grand Textile imported materials from other

countries which, upon arrival, were transferred toCustoms Bonded Warehouse. Grand Textile was obliged to

pay customs charges. To secure payment of these

obligations, petitioners issued general warehousing bonds

in favor of the Bureau of Customs (BOC). Without payment

of any of the obligations due, Grand Textile withdrew the

imported goods from storage. BOC demanded payment

from Grand Textile as importer and from the petitioners as

sureties. All three failed to pay. The government filed a

collection suit against the parties.

Lower Court ruled against petitioners, CA affirmed.

Petitioners allege that: (1) they were released from their

obligations under their bonds when Grand Textile

withdrew the imported goods without payment of taxes,

duties, and other charges; and (2) that their non-

involvement in the active handling of the warehoused

items from the time they were stored up to their

withdrawals substantially increased the risks they

assumed under the bonds they issued, thereby releasing

them from liabilities under these bonds.

ISSUE: Whether the withdrawal of the stored goods, wares,

and merchandise – without notice to them as sureties –

released them from any liability for the duties, taxes, andcharges they committed to pay under the bonds they

issued?

HELD: NO. By its very nature under the terms of the laws

regulating suretyship, the liability of the surety is joint and

several but limited to the amount of the bond, and its

terms are determined strictly by the terms of the contract

of suretyship in relation to the principal contract between

the obligor and the obligee. The definition and

characteristics of a suretyship bring into focus the fact that

a surety agreement is an accessory contract that

introduces a third party element in the fulfillment of the

principal obligation that an obligor owes an obligee. In

short, there are effectively two (2) contracts involved

when a surety agreement comes into play – a principal

contract and an accessory contract of suretyship. Under

the accessory contract, the surety becomes directly,

primarily, and equally bound with the principal as theoriginal promissor although he possesses no direct or

personal interest over the latter’s obligations and does not

receive any benefit therefrom.

Considered in relation with the underlying laws that are

deemed read into these bonds, it is at once clear that the

bonds shall subsist – that is, “shall remain in full force and

effect” – unless the imported articles are “regularly and

lawfully withdrawn. . .on payment of the legal customs

duties, internal revenue taxes, and other charges to which

they shall be subject….” Fully fleshed out, the obligation to

pay the duties, taxes, and other charges primarily rested

on the principal Grand Textile; it was allowed to

warehouse the imported articles without need for prior

payment of the amounts due, conditioned on the filing of a

bond that shall remain in full force and effect until the

payment of the duties, taxes, and charges due. Under these

terms, the fact that a withdrawal has been made and its

circumstances are not material to the sureties’ liability,

except to signal both the principal’s default and the

elevation to a due and demandable status of the sureties’

solidary obligation to pay . Under the bonds’ plain terms,

this solidary obligation subsists for as long as the amountsdue on the importations have not been paid. Thus, it is

completely erroneous for the petitioners to say that they

were released from their obligations under their bond

when Grand Textile withdrew the imported goods without

payment of taxes, duties, and charges. From a

commonsensical perspective, it may well be asked: why

else would the law require a surety when such surety

would be bound only if the withdrawal would be regular

due to the payment of the required duties, taxes, and other

charges?

We note in this regard the rule that a surety is released

from its obligation when there is a material alteration of

the contract in connection with which the bond is given,

such as a change which imposes a new obligation on the

promising party, or which takes away some obligation

already imposed, or one which changes the legal effect of

the original contract and not merely its form. A surety,

however, is not released by a change in the contract which




does not have the effect of making its obligation more

onerous.

We find under the facts of this case no significant or

material alteration in the principal contract between the

government and the importer, nor in the obligation that

the petitioners assumed as sureties. Specifically, the

petitioners never assumed, nor were any additional

obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The

obligation, and one that never varied, is – on the part of the

importer, to pay the customs duties, taxes, and charges due

on the importation, and on the part of the sureties, to be

solidarily bound to the payment of the amounts due on the

imported goods upon their withdrawal or upon expiration

of the given terms. The petitioners’ lack of consent to the

withdrawal of the goods, if this is their complaint, is a

matter between them and the principal Grand Textile; it is

a matter outside the concern of government whose

interest as creditor-obligee in the importation transaction

is the payment by the importer-obligor of the duties, taxes,

and charges due before the importation process is

concluded. With respect to the sureties who are there as

third parties to ensure that the amounts due are paid, the

creditor-obligee's active concern is to enforce the sureties’

solidary obligation that has become due and demandable.

With regard to the issue on the notice, the surety does not,

by reason of the surety agreement, earn the right to

intervene in the principal creditor-debtor relationship; its

role becomes alive only upon the debtor’s default, at which

time it can be directly held liable by the creditor for

payment as a solidary obligor. A surety contract is made

principally for the benefit of the creditor-obligee and this

is ensured by the solidary nature of the sureties’

undertaking. Under these terms, the surety is not entitled

as a rule to a separate notice of default, nor to the benefit

of excussion, and may be sued separately or together with

the principal debtor. Significantly, nowhere in the

petitioners’ bonds does it state that prior notice is

required to fix the sureties’

liabilities. Without such express requirement, the

creditor’s right to enforce payment cannot be denied as thepetitioners

became bound as soon as Grand Textile, the principal

debtor, defaulted. Thus, the filing of the collection suit was

sufficient notice to the sureties of their principal’s default.

RADIO CORP. OF THE PHILS. v ROA

FACTS:

5. The defendant Jesus R. Roa became indebted to

the Philippine Theatrical Enterprises, Inc., in the

sum of P28,400 payable in seventy-one equal

monthly installments at the rate of P400 a month

commencing thirty days after December 11, 1931,

with five days grace monthly until complete

payment of said sum. On that same date the

Philippine Theatrical Enterprises, Inc., assigned all

its right and interest in that contract to the RadioCorporation of the Philippines.

6. In the said contract there was an accelerating

clause that in case the vendee-mortgagor fails to

make any of the payments as hereinbefore

provided, the whole amount remaining unpaid

under this mortgage shall immediately become

due and payable and this mortgage on the

property herein mentioned as well as the Luzon

Surety Bond may be foreclosed by the vendor-

mortgagee

7. Roa failed to pay the monthly installment and the

whole amount fell due.

8. The defendant asked for an extension which was

granted.

9. After the extension given, the surety now argued

that they already release from their obligation.

ISSUE:

10. Whether or not the extension granted in the above

copied letter by the plaintiff, without the consent

of the guarantors, the herein appellants,

extinguishes the latter's liability not only as to the

installments due at that time, as held by the trial

court, but also as to the whole amount of their

obligation?

HELD:

11. NO, The rule that an extension of time granted to

the debtor by the creditor, without the consent of

the sureties, extinguishes the latter's liability iscommon both to Spanish jurisprudence and the

common law; and it is well settled in English and

American jurisprudence that where a surety is

liable for different payments, such as installments

of rent, or upon a series of promissory notes, an

extension of time as to one or more will not affect

the liability of the surety for the others




VILLA v GARCIA BOSQUE

FACTS:

A sale of property was made by the attorney in fact for a

stated consideration, part of which was paid in cash and

the balance made payable in deferred instalments. The

attorney in fact then executed a substituted power of

attorney in favor of a third person to enable the latter to

collect the deferred instalments.

SC:

12. Extension of time by Creditor to Principal Debtor;

Effect on liability of sureties

13. Where the purchase price of property is payable

in various installments, an extension of time

granted by the creditor to the debtor with respect

to one instalment will discharge the sureties,

whether simple or solidary, from ALL liability as

to such instalment bit it DOES NOT AFFECT their

liability for other instalments unconnected with

the extension of time.

HOSPICIO DE SAN JOSE v FIDELITY

SECURITY BANK v CUENCA

DOCTRINE: An extension granted to the debtor by the

creditor without the consent of the guarantor extinguishes

the guaranty. The 1989 Loan Agreement expressly

stipulated that its purpose was to “liquidate,” not to renew

or extend, the outstanding indebtedness. Moreover,

respondent did not sign or consent to the 1989 Loan

Agreeement, which had alledgedly extended the originalP8 million credit facility. Hence, his obligation as a surety

should be deemed extinguished, pursuant to Article 2079

of the Civil Code, which specifically states that “[a]n

extension granted to the debtor by the creditor without

the consent of the guarantor extinguishes the guaranty.

An essential alteration in the terms of a Loan

Agreement without the consent of the surety extinguishes

the latter’s obligation. The submission that only the

borrower, not the surety, is entitled to be notified of any

modification in the original loan accommodation is

untenable-such theory is contrary to the to the principle

that a surety cannot assume an obligation more onerous

than that of the principal. That the Indemnity Agreement is

a continuing surety does not authorize the lender to

extend the scope of the principal obligation inordinately; A

continuing guaranty is one which covers all transaction,

including those arising in the future, which are within the

description or contemplation of the contract of guaranty,

until the expiration or termination thereof.

PNB v MANILA SURETY

Facts:

1. PNB had opened a letter of credit and advanced

thereon $120K to Edgingtom Oil Refinery for

8,000 tons of hot asphalt. Of this amount, 2,000

tons were released and delivered to Adams &

Taguba Corp (ATACO) under a trust receipt

guaranteed by Manila Surety & Fidelity Co. (MSFC)

up to the amount of 75K.

2. To pay for the asphalt, ATACo constituted PNB its

assignee and atty-in-fact to receive and collect

from the Bureau of Public Works (BPW) the

amount aforesaid out of funds payable to the

assignor under a purchase order.

3. ATACO delivered to BPW and the latter accepted

the asphalt to the total value of 400K.

4. After this, PNB regularly collected for 8 months.

Thereafter, it ceased to collect until after 4 years,

its investigators found that more money were

payable to ATACO from BPW, because the latter

allowed other creditors to collect funds due to

ATACO under the same purchase order.

5. PNB demanded from ATACO and MSFC for

payment but both refused.

6. PNB filed a complaint against ATACO and MSFC to

recover the balance with interests and costs.

7. PNB contends that the power of attorney obtained

from ATACO was merely an additional security in

its favor and that it was the duty of the surety not that of the creditor to see to it that the obligor

fulfills his obligations and that the creditor owed

the surety no duty of active diligence to collect any

sum from the principal debtor.

Issue: Whether or not MFSC should be held liable for the

unpaid balance?

Held: No, MFSC is not liable.

PNB is not negligent in failing to collect from the principaldebtor but is negligent for its failure in collecting the sums

due to the debtor from the Bureau of Public Works,

contrary to its duty as holder of an exclusive and

irrevocable power of attorney to make such collections,

since an agent is required to act with care of a good father

of the family and becomes liable for damages which the

principal may suffer through non-performance.




Even if the assignment with power of attorney from the

principal debtor were considered as mere additional

security, still by allowing the assigned funds to be

exhausted without notifying the surety, PNB deprived the

former of any possibility of recoursing against that

security. Article 2080 of the Civil Code provides that

guarantors even though they are solidary, are released

from their obligation whenever some act of the

creditor they cannot be subrogated to the rights,mortgages and preferences of the latter.

PROVISIONS COMMON TO PLEDGE AND MORTGAGE

ARENAS v RAYMUNDO

Facts: Estanislaua Arenas and Julian La O, brought suit

against Fausto O. Raymundo (pawnshop owner). The

plaintiffs alleged that the said jewelry, during the last part

of April or the beginning of May, 1908, was delivered to

Elena de Vega to sell on commission, and that the latter, in

turn, delivered it to Conception Perello, likewise to sell on

commission, but that Perello, instead of fulfilling her trust,

pledged the jewelry in the defendant's pawnshop. The said

jewelry was then under the control and in the possession

of the defendant, as a result of the pledge by Perello, and

that the former refused to deliver it to the plaintiffs.

Issue: W/N the pawnshop should return the jewelry to the

plaintiffs?

Ruling: Yes. In the present suit, it was not proven that Estanislaua Arenas authorized Perello to pawn the jewelry

given to her by Arenas to sell on commission. Conception

Perello was not the legitimate owner of the jewelry which

she pledged to the defendant Raymundo, for a certain sum

that she received from the latter as a loan, the contract of

pledge entered the jewelry so pawned cannot serve as

security for the payment of the sum loaned, nor can the

latter be collected out of the value of the said jewelry. The

Civil Code prescribes as one of the essential requisites of

the contracts of pledge and of mortgage, that the thing

pledged or mortgaged must belong to the person who

pledges or mortgages it. This essential requisite for the

contract of pledge between Perello and the defendant

being absent as the former was not the owner of the

jewelry given in pledge.

UNION MOTOR CORP. v CA

This case is about the spouses respondents who bought a

jeepney worth 30k. to finance the purchase, the spouses

entered into a chattel mortgage with Union Motors

wherein the security will be the jeepney. Union motors

then transferred the mortgage to a financing company.

Receipts and other documents of ownership were issued

however, the jeep is still not in the possession of the

spouses. The spouses tried to have possession of the jeep

but failed. Frustrated, they did not continue the payment.

LC ruled in favor of the spouses saying that they are not

liable because there is still no delivery. Finance Co. claimedthere was constructive delivery because how can the

spouses mortgage the property if they do not own the it.

Issue: WoN there was delivery

Ruling: Non! Chattel mortgage do not prove delivery.

DBP v PRUDENTIAL

CAVITE DEVELOPMENT v SPOUSES LIM

FACTS:

1. Rodolfo Guansing obtained a loan in the amount of

P90k from Cavite Devt Bank (CDB) and mortgaged

a parcel of land covered by TCT in his name to

secure the loan.

2. When Guansing defaulted in the payment of his

loan, CDB foreclosed the mortgage and

consolidated the title to the property in its name

3. R Lim offered to purchase the property from CDB

and paid P30k as option money. She later on

discovered that the subject property was

originally registered in the name of Perfecto

Guansing, father of Rodolfo Guansing.

4. R filed an action for specific performance and

damages against CDB for serious

misrepresentation

5. CDB denied that a contract of sale was ever

perfected between them and R. R’s letter offer

clearly states that the sum of P30k was given as

option money NOT earnest money; therefore only

an option contract

ISSUE: WON there was a valid foreclosure of the mortgage

and subsequently a contract of sale?




HELD: NO

1. NEMO DAT QUOD NON HABET

2. The sale by CDB to Lim of the property mortgaged

by Rodolfo Guansing is deemed a nullity for CDB

did not have a valid title to the said property.

3. CDB never acquired a valid title to the property

because the foreclosure sale, by virtue of which,the property had been awarded to CDB as highest

bidder, is likewise void since the mortgagor was

not the owner of the property foreclosed.

DE LEON v CALALO

FACTS:

This case was brought below by respondent Eduardo

Calalo for the annulment of the mortgage executed by his

brother, Augorio Calalo, in favor of petitioner Roberto de

Leon covering a piece of land and the improvements

thereon, consisting of a residential house and a

commercial building located at 45/4th Street, East

Tapinac, Olongapo City. Respondent Eduardo alleged that

he was the owner of the property mortgaged, having

bought it for P306,000.00 from the spouses Federico and

Marietta Malit on September 13, 1984. He claimed that, as

he was then a member of the merchant marines and stayed

abroad, the Deed of Absolute Sale covering the land was

made in favor of his brother, Augorio Calalo; that on April

8, 1985, Augorio executed a Deed of Donation in favor of the minor Julsunthie Calalo, herein respondent’s son, who,

from the time the property was purchased until the filing

of the complaint, had been receiving the fruits of the

property; that on September 14, 1988, Augorio mortgaged

the said property to petitioner Roberto de Leon without

his [respondent’s] knowledge and consent; that the

mortgage was amended on September 30, 1988; that

Augorio did not have any right to mortgage the property

because he was not the owner thereof; and that he

(respondent Eduardo) learned only in June 1992 that the

property was the subject of an extrajudicial foreclosure.Named defendants in the action were petitioner Roberto

de Leon, Augorio Calalo and Benjamin Gonzales, the sheriff

conducting the foreclosure proceeding.

In due time, petitioner De Leon filed an answer in which he

claimed to be a mortgagee in good faith, having previously

ascertained the ownership of Augorio who occupied and

possessed the land in question and in whose name the land

was registered in the Register of Deeds and in various

other documents. He pointed out that even the deed of sale

attached to respondent’s complaint showed that the land

was in Augorio’s name, clearly proving that the latter

owned the property. Petitioner De Leon averred that the

mortgage in his favor was registered with the Register of

Deeds and that it had been amended four times.

ISSUE: W/N the mortgage executed by Augorio Calalo in

favor of petitioner De Leon is valid.

HELD:

There is no dispute that the land subject of the mortgage is

titled in the name of Augorio Calalo. Nor is there any

question that petitioner De Leon did not know of the claim

of ownership of respondent Eduardo Calalo until after the

present action was instituted. As the trial court found,

petitioner De Leon examined the relevant documents

pertaining to the land, consisting of the transfer certificate

of title, the tax declarations in the City Assessor’s Office

and information on the records in the barangay, and found

that the land was registered in the name of Augorio Calalo.

Upon due inspection of the property, he also found it to be

occupied by Augorio Calalo. Petitioner had no reason to

believe that the land did not belong to Augorio. Persons

dealing with property covered by a torrens certificate of

title, as buyers or mortgagees, are not required to go

beyond what appears on the face of the title. The public

interest in upholding the indefeasibility of torrens titles, as

evidence of the lawful ownership of the land or of any

encumbrance thereon, protects buyers or mortgagees who

in good faith, rely upon what appears on the face of the

certificate of title.4 Petitioner De Leon is a mortgagee in

good faith.

Whether the money used in acquiring the property from

the original owners came from respondent Eduardo Calalo

and the title to the property was placed in the name of his

brother Augurio Calalo only because respondent thought

he was not qualified to acquire lands in the Philippines

because he had become an American citizen, and that the

land was subsequently donated to respondent Eduardo’s

son, Julsunthie, are matters not known to petitioner.Hence, whether Augorio Calalo committed a breach of

trust and whether the property was validly donated to

petitioner’s son Julsunthie are questions which must be

resolved in a separate proceeding.

CEBU INTERNATIONAL v CA

ERENA v QUERRA-KAUFFMAN




FACTS: Respondent is the owner of a lot with house, with

the TCT kept in a safety deposit box. She left the key of the

box to her husband as she was leaving for the US. Later on,

the daughter of respondent as well as her husband left for

the US, and the key was entrusted to the sister of her

husband, Mira Bernal. After a few months, respondent

asked her sister to get the TCT in the safety deposit box to

be able to sell the property. When the safe was broken, the

items inside were missing, including the title to the lot andtax declarations, as well as jewelry.

Respondent discovered from Bernal that she and Jennifer

Ramirez, Victor’s daughter took the title and mortgaged it

to petitioner. There was a woman who pretended to be the

owner of the lot, showing the TCT in her name as “Vida

Dana Querrer and identification card. Petitioner verified

with the Office of the Register of Deeds that the property

was in the name of Vida Dana Querrer and that it was free

of any lien or encumbrance. Subsequently, petitioner wasconvinced to enter into a Real Estate Mortgage Contract

which was later on notarized and filed with the Office of

the Register of Deeds and annotated on the TCT.

Respondent filed a complaint against petitioner, Bernal

and Ramirez for Nullification of Deed of Real Estate

Mortgage.

The RTC ruled in favor of petitioner and declared the Deed

of Real Estate Mortgage valid. The CA rendered judgment

in favor of defendant on the ground that in a Real Estate

Mortgage contract, it is essential that the mortgagor be the

absolute owner of the property to be mortgaged;

otherwise the mortgage is void.

ISSUE: WON THE REAL ESTATE MORTGAGE CONTRACT IS

VALID?

HELD: NO. One of the essential requisites of a mortgage

contract is that the mortgagor must be the absolute owner

of the thing mortgaged. A mortgage is, thus, invalid if the

mortgagor is not the property owner. In this case, the trial

court and the CA are one in finding that based on the

evidence on record the owner of the property is

respondent who was not the one who mortgaged the same

to the petitioner.

Petitioner cannot be considered an innocent purchaser for

value, relying on the Torrents title. While a Torrens title

serves as evidence of an indefeasible title to the property

in favor of the person whose name appears therein, when

the instrument presented for registration is forged, even if

accompanied by the owner’s duplicate certificate of title,

the registered owner does not thereby lose his title, and

neither does the assignee of the mortgagee, for that matter

acquire any right or title to the property. In such a case, the

transferee or the mortgagee, based on a forged instrument,

is not even a purchaser or a mortgagee for value protected

by law.

Petitioner cannot also invoke the doctrine of a mortgagee

on good faith. Said doctrine speaks of a situation where,

despite the fact that the mortgagor is not the owner of the

mortgaged property, his title being fraudulent, themortgage contract or any foreclosure sale arising

therefrom are given effect by reason of public policy. The

doctrine of mortgagee in good faith presupposes that the

mortgagor, who is not the rightful owner of the property,

has already succeeded in obtaining a Torrens title over the

property in his name and that, after obtaining the said title,

he succeeds in mortgaging the property to another who

relies on what appears on the said title- it does not apply

to a situation where the title is still in the name of the

rightful owner and the mortgagor is a different person

pretending to be the owner.

PNB v AGUDELO

Vda. DE JAYME v CA

FACTS:

4. Spouses Jayme (P) are the registered owners of a

parcel of land. They entered into a contract of

lease with Asian Cars (R) covering half of the lot

for 20 years

5. The contract allows R to mortgage the property as

long as the proceeds will be for the construction of

a building on the land.6. R mortgaged the property for P6M to MetroBank,

covering the whole lot, and in which P signed the

documents. R also executed an undertaking

wherein the officers of R are liable personally to

the mortgage

7. R defaulted and MetroBank foreclosed the

property.

8. P filed for annulment of mortgage as it was

acquired through fraud




9. RTC and CA declared the mortgage and

undertaking valid

ISSUE: WON Mortgage allowing R to mortgage the

property was valid

SC: YES

10. It has long been settled that it is valid so long as

valid consent was given. In consenting theretoeven granting that petitioner may not be assuming

personal liability for the debt, her property shall

nevertheless secure and respond for the

performance of the principal obligation

11. The law recognizes instances when persons not

directly parties to a loan agreement may give as

security their own properties for the principal

transaction.

12. In this case, the spouses should not be allowed to

disclaim the validity of a transaction they

voluntarily and knowingly entered into for the

simple reason that such transaction turned out

prejudicial to them later on.

13. Records show that P voluntarily agreed to use

their property as collateral for R’s loan, hence, no

fraud

14. The undertaking made by R and its officers are

valid, hence they are liable to reimburse P for the

damages they suffered by reason of the mortgage

SPOUSES BELO v PNB

FACTS:

1) Eduarda Belo owned an agricultural land with an area of

661,288 square meters in Panitan, Capiz, which she leased

a portion to respondents spouses Eslabon, for a period of 7

years at the rate of P7,000.00 per year.

2) Respondents spouses Eslabon obtained a loan from PNB

secured by a real estate mortgage on their own 4

residential houses located in Roxas City, as well as on the

agricultural land owned by Eduarda Belo. The assent of

Eduarda Belo to the mortgage was acquired through aspecial power of attorney which was executed in favor of

respondent Marcos Eslabon on June 15, 1982.

3) The spouses Eslabon failed to pay their loan obligation,

and so extrajudicial foreclosure proceedings against the

mortgaged properties were instituted by PNB and was the

highest bidder of the foreclosed properties at P447,632.00.

4) Meanwhile, Eduarda Belo sold her right of redemption

to petitioners spouses Enrique and Florencia Belo under a

deed of absolute sale of proprietary and redemption rights

Before the expiration of the redemption period, petitioners

spouses Belo tendered payment for the redemption of the

agricultural land which includes the bid price of

respondent PNB, plus interest and expenses.

5) However, PNB rejected the tender of payment of petitioners spouses Belo contending that the redemption

price should be the total claim of the bank on the date of the

auction sale and custody of property plus charges accrued

and interests amounting to P2,779,978.72 to which the

spouses disagreed and refused to pay the said total claim

of respondent PNB. Thereafter the\ spouses Belo filed in

the RTC an action for declaration of nullity of mortgage,

with an alternative cause of action, in the event that the

accommodation mortgage be held to be valid, to compel

respondent PNB to accept the redemption price tendered

by petitioners spouses Belo which is based on the winning

bid price of respondent PNB in the extrajudicial

foreclosure. The RTC ruled in favour of the spouses belo.

6) On appeal, the CA ruled that the petitioners spouses

Belo should pay the entire amount due to PNB under the

mortgage deed at the time of the foreclosure sale plus

interest, costs and expenses.

ISSUE: whether or not the SPA the real estate mortgage

contract, the foreclosure proceedings and the subsequent

auction sale involving Eduarda Belo's property are valid.

And assuming they are valid, whether or not the

petitioners are required to pay, as redemption price, the

entire claim of respondent PNB in the amount of

P2,779,978.72 as of the date of the public auction sale on

June 10, 1991.

HELD:

A) The validity of the SPA and the mortgage contract

cannot anymore be assailed due to petitioners Belo failure

to appeal the same after the trial court rendered its

decision affirming their validity.

B) Also, the SPA executed by Eduarda Belo in favor of the

respondents spouses Eslabon and the Real Estate

Mortgage executed by the respondents spouses in favor of

respondent PNB are valid. It is stipulated in paragraph

three (3) of the SPA that Eduarda Belo appointed the

Eslabon spouses "to make, sign, execute and deliver any

contract of mortgage or any other documents of whatever

nature or kind . . . which may be necessary or proper in




connection with the loan herein mentioned, or with any loan

which my attorney-in-fact may contract personally in his

own name”

C) ThisSPA was not meant to make her a co-obligor to the

principal contract of loan between respondent PNB, as

lender, and the spouses Eslabon, as borrowers. Eduarda

Belo consented to be an accommodation mortgagor in the

sense that she signed the SPA to authorize respondentsspouses Eslabons to execute a mortgage on her land.

D) An accommodation mortgage isn’t void simply because

the accommodation mortgagor did not benefit from the

same. The validity of an accommodation mortgage is

allowed under Article 2085 of the New Civil Code which

provides that "(t)hird persons who are not parties to the

principal obligation may secure the latter by pledging or

mortgaging their own property."

E) An accommodation mortgagor, ordinarily, is not himself

a recipient of the loan.

F) There is no doubt that Eduarda Belo, assignor of the

petitioners, is an accommodation mortgagor. Section 25 of

P.D. No. 694 provides that "the mortgagor shall have the

right to redeem the property by paying all claims of the

Bank against him". From said provision can be deduced

that the mortgagor referred to by that law is one from

whom the bank has a claim in the form of outstanding or

unpaid loan; he is also called a borrower or debtor-

mortgagor.

G) PNB has no claim against accommodation mortgagor

Eduarda Belo inasmuch as she only mortgaged her

property to accommodate the Eslabon spouses who are

the loan borrowers of the PNB. The principal contract is

the contract of loan between the Eslabon spouses, as

borrowers/debtors, and the PNB as lender. The

accommodation real estate mortgage which secures the

loan is only an accessory contract. Thus, the term

"mortgagor" in Section 25 of P.D. No. 694 pertains only to a

debtor-mortgagor and not to an accommodation

mortgagor.

H) Moreover, the mortgage contract provides that ". . . the

mortgagee may immediately foreclose this mortgage

judicially in accordance with the Rules of Court or

extrajudicially in accordance with Act No. 3135, as amended

and Presidential Decree No. 385 “ Thus, since the mortgage

contract in this case is in the nature of a contract of

adhesion as it was prepared solely by respondent, it has to

be interpreted in favor of petitioners.

J) While the petitioners, as assignees of Eduarda Belo, are

not required to pay the entire claim of respondent PNB

against the principal debtors, they can only exercise their

right of redemption with respect to the parcel of land

belonging to Eduarda Belo, the accommodation mortgagor

Thus, they have to pay the bid price less the corresponding

loan value of the foreclosed 4 residential lots of the

spouses Eslabon. Thus, petitioners are allowed to redeem

only the property registered in the name of Eduarda Belo,by paying only the bid price less the corresponding loan

value of the foreclosed (4) residential lots of the

respondents spouses Eslabon.

BUSTAMANTE v ROSEL

ALCANTARA v ALINEA

Facts:

1. Alinea and Belarmino loaned P480 from

Alcantara.

2. According to the loan agreement, if the period has

expired without payment of the loan, the house

and lot of Alinea and Belarmino will be considered

sold to Alcantara.

3. Alinea and Belarmino failed to pay.

4. They refused to deliver the property to Alcantara.

5. Alcantara filed an action against them.

6. The defendants contend that the amount claimed

by Alcantara included the interest and that the

principal borrowed was only 200 and that the

interest was 280.7. They also alleged as their special defense that they

offered to pay Alcantara the sum of 480 but the

latter had refused to accept the same.

Issue:

1. WON there was a valid mortgage?

2. WON the defendants should deliver the property

to Alcantara?

Held:

1. No. The property, the sale of which was agreed to by

the debtors does not appear mortgaged in favor of the

creditor because in order to constitute a valid

mortgage it is indispensable that the instrument be

registered in the Register of Property and the

document contract does not constitute a mortgage nor

it could possibly be a mortgage, for the reason that the




said document is not vested with the character and

conditions of a public instrument.

The contract is not a pledge since the said property is

not personal property and the debtor continued in

possession thereof and was never been occupied by

the creditor.

It is also not an antichresis by reason that as the

creditor has never been in possession of the property

nor has enjoyed the said property nor for one moment

received its rents.

. Yes. The will of the parties are controlling, In this case,

a contract of loan and a promise of sale of a house and

lot, the price of which should be the amount loaned, if

within a fixed period of time such amount should not

be paid by the debtor-vendor of the property to the

creditor-vendee of same. The fact that the parties have

agreed at the same time, in such a manner that the

fulfillment of the promise of sale would depend uponthe nonpayment or return of the amount loaned, has

not produced any change in the nature and legal

conditions of either contract, or any essential defect

which would tend to nullify the same.

MAHONEY v TUASON

Facts: P. Blanc, the owner of the jewels, entered into a

contract of pledge, delivering to the creditor Mariano

Tuason several jewels and other merchandise for thepurpose of securing the fulfillment of the obligation which

he (Blanc) had contracted in favor of the latter who had

guaranteed the payment of a considerable amount of

money which Blanc owed to the Chartered Bank. Creditor

Tuason paid to the Chartered Bank the sum of sixteen

thousand pesos (P16,000) which the debtor Blanc owed

and failed to pay, and that the latter did not reimburse

Tuason the amount paid to the bank together with

interests thereon.

Issue: W/N Tuason can appropriate the things given by

way of pledge?

Ruling: No. Tuason is entitled to retain and appropriate to

himself the merchandise received in pledge is null and

indefensible, because he can only recover his credit,

according to law, from the proceeds of the sale of the same.

Art. 2088.

LANUZA v DE LEON

Spouses lanuza executed a deed of sale with a right to

repurchase to Reyes. Upon expiration of term to

repurchase, the time was extended without the wife of

lanuza signing the document. A stipulation to the effect

that the ownership will only be passed to the vendee if the

vendor fails to repurchase the property was included. The

spouses then mortgage the property to respondent tosecure a debt. The debt was unpaid and respondent filed a

case to foreclose the mortgage which was granted. Reyes

filed a case for consolidation, claiming she has the right to

the property. Reyes claims the ownership in the property

automatically passes immediately to him after the sale and

not after the end of the period to repurchase.

Issue: won reyes contention valid

Ruling: yes. a stipulation in a purported pacto de retro sale

that the ownership over the property sold would

automatically pass to the vendee in case no redemptionwas effected within the stipulated period is contrary to the

nature of a true pacto de retro sale, under which the

vendee acquires ownership of the thing sold immediately

upon the execution of the sale, subject only to the vendors

rights of redemption. The said stipulation is a pactum

commissorium which enables the mortgagee to acquire

ownership of the mortgaged property without need of

forclosure. It is void. Its insertion in the contract is an

avowal of the intention to mortgage rather than to sell the

property.

DAYRIT v CA

FACTS: Dayrit, Sumbillo and Angeles entered into a

contract with Mobil Oil Phil, entitled LOAN & MORTGAGE

AGREEMENT. Defendants violated the LOAN & MORTGAGE

AGREEMENT because they only paid one installment. They

also failed to buy the quantities required in the Sales

Agreement.

The plaintiff made a demand, Dayrit answered

acknowledging his liability. Trial Court ruled in favor of

plaintiff and also ruled that each of the three defendants

shall pay 1/3 of the cost. No appeal had been taken so the

decision became final and executor.

Mobil filed for the execution of the judgment. Dayrit

opposed alleging that they had an agreement with Mobil,

that he would not appeal anymore but Mobil would release

the mortgage upon payment of his 1/3 share.




Mobil claimed that the agreement was that it would only

release the mortgage if the whole principal mortgaged

debt plus the whole accrued interest were fully paid.

ISSUE: Whether or not the CFI erred in ordering the sale

at public auction of the mortgaged properties to answer

for the entire principal obligation of Dayrit, Sumbillo and

Angeles.

RULING:

While it is true that the obligation is merely joint and each

of the defendant is obliged to pay his 1/3 share of the joint

obligation, the undisputed fact remains that the intent and

purpose of the LOAN & MORTGAGE AGREEMENT was to

secure the entire loan.

The court ruled that a mortgage directly and

immediately subjects the property upon which it is

imposed, the same being indivisible even though the

debt may be divided, and such indivisibility likewiseunaffected by the fact that the debtors are not

solidarily liable.

YU v PCIB

FACTS:

1. P mortgaged their title, interest, and participation

over several parcels of land located in Dagupan

City and Quezon City in favour of PCIB (R) as

security for the payment of a loan in the amount of

P9mill

2. P failed to pay the loan; R filed a Petition for

Extrajudicial Foreclosure of Real Estate Mortgage

on the Dagupan City properties. A Certificate of

Sale was issued in favour of R. Subsequently, R

filed an Ex-Parte Petition for Writ of Possession

before RTC Dagupan

3. P filed a Motion to Dismiss. They argued that the

Certificate of Sale is void because the real estate

mortgage is indivisible, the mortgaged properties

in Dagupan City and Quezon City cannot be

separately foreclosed.

4. R – the filing of two separate foreclosure

proceedings did not violate Article 2089 of the

Civil Code on the indivisibility of a real estate

mortgage since Section 2 of Act No. 3135

expressly provides that extra-judicial foreclosure

may only be made in the province or municipality

where the property is situated. R further submits

that the filing of separate applications for extra-

judicial foreclosure of mortgage involving severa

properties in different locations is allowed by A.M

No. 99-10-05-0, the Procedure on Extra-Judicia

Foreclosure of Mortgage, as further amended on

August 7, 2001.

5. TC denied Motion

ISSUE: WON a real estate mortgage over several properties

located in different localities can be separately foreclosed

in different places?

HELD: YES

1. What the law proscribes is the foreclosure of only

a portion of the property or a number of the

several properties mortgaged corresponding to

the unpaid portion of the debt where, beforeforeclosure proceedings, partial payment was

made by the debtor on his total outstanding loan

or obligation.

2. This also means that the debtor cannot ask for the

release of any portion of the mortgaged property

or of one or some of the several lots mortgaged

unless and until the loan thus secured has been

fully paid, notwithstanding the fact that there has

been partial fulfillment of the obligation. Hence, it

is provided that the debtor who has paid a part of

the debt cannot ask for the proportionate

extinguishment of the mortgage as long as the

debt is not completely satisfied. In essence

indivisibility means that the mortgage obligation

cannot be divided among the different lots, that is

each and every parcel under mortgage answers

for the totality of the debt

3. A.M. No. 99-10-05-0,the Procedure on Extra

Judicial Foreclosure of Mortgage, lays down the

guidelines for extra-judicial foreclosure

proceedings on mortgaged properties located indifferent provinces. It provides that the venue of

the extra-judicial foreclosure proceedings is the

place where each of the mortgaged property is

located. Relevant portion provides:

Where the application concerns the

extrajudicial foreclosure of mortgages of real

estates and/or chattels in different locations

covering one indebtedness, only one filing fee




corresponding to such indebtedness shall be

collected. The collecting Clerk of Court shall,

apart from the official receipt of the fees, issue

a certificate of payment indicating the amount

of indebtedness, the filing fees collected, the

mortgages sought to be foreclosed, the real

estates and/or chattels mortgaged and their

respective locations, which certificate shall

serve the purpose of having theapplication docketed with the Clerks of

Court of the places where the other

properties are located and of allowing the

extrajudicial foreclosures to proceed

thereat . (Emphasis supplied)

4. The indivisibility of the real estate mortgage is not

violated by conducting two separate foreclosure

proceedings on mortgaged properties located in

different provinces as long as each parcel of land

is answerable for the entire debt

METROBANK v SLGT

FACTS:

On October 25, 1995, Dylanco and SLGT each entered into

a contract to sell with ASB for the purchase of a unit (Unit

1106 for Dylanco and Unit 1211 for SLGT) at BSA Towers

then being developed by the latter. As stipulated, ASB will

deliver the units thus sold upon completion of theconstruction or before December 1999. Relying on this and

other undertakings, Dylanco and SLGT each paid in full the

contract price of their respective units. The promised

completion date came and went, but ASB failed to deliver,

as the Project remained unfinished at that time. To make

matters worse, they learned that the lots on which the BSA

Towers were to be erected had been mortgaged6 to

Metrobank, as the lead bank, and UCPB7 without the prior

written approval of the Housing and Land Use Regulatory

Board (HLURB).

Alarmed by this foregoing turn of events, Dylanco, on

August 10, 2004, filed with the HLURB a complaint for

delivery of property and title and for the declaration of

nullity of mortgage. A similar complaint filed by SLGT

followed three (3) days later. At this time, it appears that

the ASB Group of Companies, which included ASB, had

already filed with the Securities and Exchange Commission

a petition for rehabilitation and a rehabilitation receiver

had in fact been appointed.

What happened next are laid out in the OP decision

adverted to above, thus:

In response to the above complaints, ASB alleged

… that it encountered liquidity problems

sometime in … 2000 after its creditors [UCPB and

Metrobank] simultaneously demanded payments

of their loans…; that on May 4, 2000, the …

Commission (SEC) granted its petition forrehabilitation; that it negotiated with UCPB and

Metrobank … but nothing came out positive from

their negotiation ….

On the other hand, Metrobank claims that

complainants [Dylanco and SLGT] have no

personality to ask for the nullification of the

mortgage because they are not parties to the

mortgage transaction …; that the complaints must

be dismissed because of the ongoing rehabilitation

of ASB; xxx that its claim against ASB, including

the mortgage to the [Project] have already been

transferred to Asia Recovery Corporation; xxx.

UCPB, for its part, denies its liability to SLGT [for

lack of privity of contract] … [and] questioned the

personality of SLGT to challenge the validity of the

mortgage reasoning that the latter is not party to

the mortgage contract … [and] maintains that the

mortgage transaction was done in good faith….

Finally, it prays for the suspension of the

proceedings because of the on-going

rehabilitation of ASB.

In resolving the complaint in favor of Dylanco and

SLGT, the Housing Arbiter ruled that the mortgage

constituted over the lots is invalid for lack of

mortgage clearance from the HLURB.

ISSUE: W/N The declaration of nullity of the entire

mortgage constituted on the project land site and the

improvements was valid. and

HELD:

Both petitioners do not dispute executing the mortgage in

question without the HLURB’s prior written approval and

notice to both individual respondents. Section 18 of

Presidential Decree No. (PD) 957 – The Subdivision and

Condominium Buyers’ Protective Decree – provides:

SEC. 18. Mortgages. - No mortgage of any unit or

lot shall be made by the owner or developer

http://www.lawphil.net/judjuris/juri2007/sep2007/gr_175181_2007.html#fnt6









without prior written approval of the [HLURB ].

Such approval shall not be granted unless it is

shown that the proceeds of the mortgage loan

shall be used for the development of the

condominium or subdivision project …. The loan

value of each lot or unit covered by the mortgage

shall be determined and the buyer thereof, if

any, shall be notified before the release of the

loan. The buyer may, at his option, pay hisinstallment for the lot or unit directly to the

mortgagee who shall apply the payments to the

corresponding mortgage indebtedness secured by

the particular lot or unit being paid for ….

(Emphasis and word in bracket added)

There can thus be no quibbling that the project lot/s and

the improvements introduced or be introduced thereon

were mortgaged in clear violation of the aforequoted

provision of PD 957. And to be sure, Dylanco and SLGT, as

Project unit buyers, were not notified of the mortgage

before the release of the loan proceeds by petitioner

banks.

As it were, PD 957 aims to protect innocent subdivision lot

and condominium unit buyers against fraudulent real

estate practices. Its preambulatory clauses say so and the

Court need not belabor the matter presently. Section

18, supra, of the decree directly addresses the problem of

fraud and other manipulative practices perpetrated

against buyers when the lot or unit they have contracted to

acquire, and which they religiously paid for, is mortgaged

without their knowledge, let alone their consent. The

avowed purpose of PD 957 compels, as the OP correctly

stated, the reading of Section 18 as prohibitory and acts

committed contrary to it are void. Any less stringent

construal would only accord unscrupulous developers and

their financiers unbridled discretion to follow or not to

follow PD 957 and thus defeat the very lofty purpose of

that decree. It thus stands to reason that a mortgage

contract executed in breach of Section 18 of the decree is

null and void.

The next question to be addressed turns on whether or not the nullity extends to the entire mortgage contract.

The poser should be resolved, as the CA and OP did resolve

it, in the affirmative. This disposition stems from the basic

postulate that a mortgage contract is, by nature,

indivisible. Consequent to this feature, a debtor cannot ask

for the release of any portion of the mortgaged property or

of one or some of the several properties mortgaged unless

and until the loan thus secured has been fully paid,

notwithstanding the fact that there has been partial

fulfillment of the obligation. Hence, it is provided that the

debtor who has paid a part of the debt cannot ask for the

proportionate extinguishments of the mortgage as long as

the debt is not completely satisfied.

The situation obtaining in the case at bench is within the

purview of the aforesaid rule on the indivisibility of

mortgage. It may be that Section 18 of PD 957 allowspartial redemption of the mortgage in the sense that the

buyer is entitled to pay his installment for the lot or unit

directly to the mortgagee so as to enable him - the said

buyer - to obtain title over the lot or unit after full payment

thereof. Such accommodation statutorily given to a

unit/lot buyer does not, however, render the mortgage

contract also divisible. Generally, the divisibility of the

principal obligation is not affected by the indivisibility of

the mortgage. The real estate mortgage voluntarily

constituted by the debtor (ASB) on the lots or units is one

and indivisible. In this case, the mortgage contract

executed between ASB and the petitioner banks is

considered indivisible, that is, it cannot be divided among

the different buildings or units of the Project. Necessarily,

partial extinguishment of the mortgage cannot be allowed.

In the same token, the annulment of the mortgage is an all

or nothing proposition. It cannot be divided into valid or

invalid parts. The mortgage is either valid in its entirety or

not valid at all. In the present case, there is doubtless only

one mortgage to speak of. Ergo, a declaration of nullity for

violation of Section 18 of PD 957 should result to the

mortgage being nullified wholly.

It will not avail the petitioners any to feign ignorance of PD

957 requiring prior written approval of the HLURB, they

being charged with knowledge of such requirement since

granting loans secured by a real estate mortgage is an

ordinary part of their business.

CENTRAL BANK v CA

PLEDGE

YULIONGSIU v PNBFACTS: Yulongsiu owned 2 vessels and equity in FS-203,

which were purchased by him from the Philippine

Shipping Commission, by installment. Plaintiff obtained a

loan from defendant and to guarantee payment, plaintiff

pledged the 2 vessels and the equity on FS-203, as

evidenced by a pledge contract. Plaintiff made a partial

payment and the remaining balance was renewed by the

execution of 2 promissory notes in the bank’s favor. These




two notes were never paid at all by plaintiff on their

respective due dates.

Defendant bank filed a criminal case against plaintiff

charging the latter with estafa through falsification of

commercial documents, and the trial court convicted the

plaintiff and was sentenced to indemnify the defendant.

The corresponding writ of execution issued to implement

the order for indemnification was returned unsatisfied as

plaintiff was totally insolvent.

Meanwhile, together with the institution of the criminal

action, defendant took physical possession of the 2 vessels

and transferred the equity on FS-203 to the defendant.

Later on, the 2 vessels were sold by defendant to third

parties.

Plaintiff commenced an action for recovery on the pledged

items, and alleges, among others, that the contract

executed was a chattel mortgage so the creditor defendant

could not take possession of the chattel object thereof until

after there has been default.

ISSUE: Whether the contract entered into between plaintiff

and defendant is a chattel mortgage or a valid contract of

pledge?

HELD: It’s a contract of pledge. The contract itself provides

that it is a contract of pledge and the judicial admission

that it is a pledge contract cannot be offset without

showing of palpable mistake.

The pledgee defendant was therefore entitled to the actual

possession of the vessels. The plaintiff’s continuedoperation of the vessels after the pledge contract was

entered into places his possession subject to the order of

the pledge. The pledge can temporarily entrust the

physical possession of the chattels pledged to the pledgor

without invalidating the pledge. In this case, the pledgor is

regarded as holding the pledge merely as a trustee for the

pledge.

As to the validity of the pledge contract with regard to

delivery, plaintiff alleges that constructive delivery is

insufficient to make pledge effective. The Court ruled that

type of delivery will depend on the nature and peculiar

circumstances of each case. Since the defendant bank was,

pursuant to the pledge contract, in full control of the

vessels through plaintiff, the former could take actual

possession at any time during the life of the pledge to

make more effective its security.

FBDC v YLLAS LENDING

FACTS:

5. FBDC executed a lease contract in favor of Tirreno,

Inc. (Tirreno) over a unit at the Entertainment

Center - Phase 1 of the Bonifacio Global City in

Taguig, Metro Manila

6. Two provisions in the lease contract are pertinent

to the present case: Section 20, which is about theconsequences in case of default of the lessee, and

Section 22, which is about the lien on the

properties of the lease.

1. Tirreno began to default in its lease payments in

1999. By July 2000, Tirreno was already in arrears

by P5,027,337.91. FBDC and Tirreno entered into

a settlement agreement on 8 August 2000. Despite

the execution of the settlement agreement, FBDC

found need to send Tirreno a written notice of

termination dated 19 September 2000 due to

Tirreno's alleged failure to settle its outstandingobligations

2. FBDC entered and occupied the leased premises.

FBDC also appropriated the equipment and

properties left by Tirreno pursuant to Section 22

of their Contract of Lease as partial payment for

Tirreno's outstanding obligations.

3. Yllas Lending Corporation and Jose S. Lauraya, in

his official capacity as President, (respondents)

caused the sheriff of Branch 59 of the trial court to

serve an alias writ of seizure against FBDC. On the

same day, FBDC served on the sheriff an affidavit

of title and third party claim

4. Despite FBDC's service upon him of an affidavit of

title and third party claim, the sheriff proceeded

with the seizure of certain items from FBDC's

premises




5. The sheriff delivered the seized properties to

respondents. FBDC questioned the propriety of

the seizure and delivery of the properties to

respondents without an indemnity bond before

the trial court. FBDC argued that when

respondents and Tirreno entered into the chattel

mortgage agreement on 9 November 2000,

Tirreno no longer owned the mortgaged

properties as FBDC already enforced its lien on 29September 2000.

ISSUE: Whether or not the dismissal of FBDC's third party

claim upon the trial court's erroneous interpretation that

FBDC has no right of ownership over the subject

properties because Section 22 of the contract of lease is

void for being a pledge and a pactum commissorium?

HELD:

1. No, This stipulation is in the nature of a resolutory

condition, for upon the exercise by the [lessor] of his right to take possession of the leased property,

the contract is deemed terminated. This kind of

contractual stipulation is not illegal, there being

nothing in the law proscribing such kind of

agreement.

2. Judicial permission to cancel the agreement was

not, therefore necessary because of the express

stipulation in the contract of [lease] that the

[lessor], in case of failure of the [lessee] to comply

with the terms and conditions thereof, can take-

over the possession of the leased premises,thereby cancelling the contract of sub-lease.

Resort to judicial action is necessary only in the

absence of a special provision granting the power

of cancellation.

3. We allow FBDC's forfeiture of Tirreno's properties

in the leased premises. By agreement between

FBDC and Tirreno, the properties are answerable

for any unpaid rent or charges at any termination

of the lease. Such agreement is not contrary to

law, morals, good customs, or public policy.

Forfeiture of the properties is the only security

that FBDC may apply in case of Tirreno's default in

its obligations

PNB v ATENDIDO

(Re Incorporeal Rights)

FACTS:

Laureano Atendido (LA) obtained from PNB (P) a loan

payable in 120 days with interest. To guarantee its

payment LA pledge to the bank 2,000 cavans of palay

which were deposited in a warehouse and to that effect

endorsed in favor of the bank the corresponding WH

receipt. Before the maturity of the loan, the cavans of rice

dissappeared from the WH. LA failed to pay the loan upon

matrity and so the present action was instituted. LA set up

the defense that the quedan covering the palay which was

given as security having been endorsed in blank in favor of

the bank and the palay having been lost or disappeared, hethereby became relieved of liability.

ISSUE: WoN LA is relieved from liability

SC: NO!

The surrender of the warehouse receipt fiven as security,

endorsed in blank was NOT that of a final transfer or that

WH receipt but merely as a guaranty to the fulfillment of

the obligation of P3k. This being so, the ownership remains

with the pledgor subject only to foreclosure in case of

nonfulfillment of obligation. The pledgor, continuing to be

the owner of the goods pledged during the pendency of the

obligation in case of the loss of the property, the loss is

borne by him.

OCEJO PEREZ v INTERNATIONAL BANK

FACTS:

1) On March 7, 1914, Chua Teng Chong, executed to the

International Banking Corporation a promissory note,

payable one month after date, for the sum of P20,000

which note was also attached to another private document

signed by Chua, which stated that he had deposited withthe bank, as security for the said note, 5,000 piculs of

sugar, which were said stored in a warehouse in Binondo,

Manila.

2) The bank made no effort to exercise any active

ownership over said merchandise until the April 16, when

it discovered that the amount of sugar stored in the said

warehouse was much less than what was mentioned in the

contract. The agreement between the bank and Chua Teng

Chong with respect to the alleged pledge of the sugar was

never recorded in a public instrument.

3) On March 24, 1914, the plaintiff partnership Ocejo,

Perez and Co., entered into contract with Chua for the sale

to him of sugar where the delivery should be made in

April. The delivery was completed April 16, 1914, and the

sugar was stored in the buyer's warehouse situated at

Muelle de la Industria. On this same date, the bank sent an

employee to inspect the sugar described in the pledge

agreement, which should have been stored in the Calle

Toneleros warehouse. It was discovered that the amount




of sugar in that warehouse did not exceed 1,800 piculs, it

was supposed to have 5,000 piculs of sugar. Eventually, the

employee was informed that the rest of the sugar covered

by the pledge agreement was stored in the warehouse at

No. 119, Muelle de la Industria. The bank's representative

immediately went to this warehouse, found 3,200 piculs of

sugar, of which he took immediate possession, closing the

warehouse with the bank's padlocks.

4) On April 17, 1914, partnership Ocejo presented, for

collection, its account for the purchase price of the sugar,

but chua refused to make payment, and up to the present

time the sellers have been unable to collect the purchase

price of the merchandise in question.

5) The partnership Ocejo made a demand on the bank for

the delivery of the sugar, to which demand the bank

refused to accede. A suit was filed by Ocejo alleging that

said defendant was unlawfully holding the seized sugar,

the property of the plaintiff firm Ocejo, which the bank had

received from Chua Teng Chong, and prayed for thejudgment for the possession of said sugar.

6) Subsequently, by agreement of the parties, the sugar

was sold and the proceeds of the deposited in the bank.

Afterwards, a complaint in intervention was filed by Chua

Seco, the assignee of the insolvency of Chua Teng Chong,

asserting a preferential right to the sugar, or to the

proceeds of its sale contending that the sugar is the

property of the insolvent estate represented by him. The

lower court rendered judgment in favor of the Oceja

ISSUES:

(a) Did title to the sugar pass to the buyer upon its delivery

to him (chua seco)?

(b) Assuming to pay that the title passed to the buyer, did

his failure to pay the purchase price authorize the seller to

rescind the sale?

(c) Can the pledge of the sugar to the bank be sustained

upon the evidence as to the circumstances under which it

obtained physical possession thereof?

HELD:

A) The SC agreed with Chua’s contention that he was

entitled to demand payment of the sugar at any time after

the delivery. No term having been stipulated within which

the payment should be made, payment was demandable at

the time and place of the delivery of the thing sold. The

seller did not avail himself of his right to demand payment

as soon as the right to such payment arose, but as no term

for payment was stipulated, he was entitled, to require

payment to be made at any time after delivery, and it was

the duty of the buyer to pay the price immediately upon

demand. In essence, the delivery had the effect of

transmitting the title of the sugar to the buyer.

B) Failure on the part of the buyer to pay the price on

demand: Article 1506 of the Civil Code provides that the

contract of sale may be rescinded for the same causes as al

other obligations, in addition to the special causes

enumerated in the preceding articles. It is also observed

that the article does not distinguish the consummated sale

from the merely perfected sale. In the contract of the sale

the obligation to pay the price is correlative to the

obligation to deliver the thing sold. Nonperformance by

one of the parties authorizes the other to exercise the

right, conferred upon him by the law, to elect to demand

the performance of the obligation or its rescission.

C) The sugar here in question could not be possibly have

been the subject matter of the contract of pledge which theparties undertook to create by the private document,

inasmuch as it was not at the time the property of the

bank, and this constitutes an indispensable requisite for

the creation of a pledge.

D) It is not shown that an effort was made to pledge the

sugar, the subject matter of this case. Though it happened

that the day the sugar was delivered, the Chua gave the

bank's representative the keys of the warehouse on the

Muelle de la Industria in which the sugar was stored, it was

not because of an agreement concerning the pledge of the

sugar. From the facts, no attempt was made to enter into

any agreement for the pledge of the sugar here in question

The bank took possession of that sugar under the

erroneous belief, based upon the false statement of Chua

Teng Chong, that it was a part of the lot mentioned in the

private document. Even assuming that an attempt was

made to pledge the sugar and that delivery was made in

accordance with the agreement, the pledge so established

would be void as against third persons since it is provided

Article 1865 of the Civil Code that a pledge is without

effect as against third persons "if the certainty of the date

does not appear by public instrument ."

E) As to assignee Chua Seco: He filed a complaint in

intervention in this suit, in which he contends that by

reason of its sale and delivery by plaintiff to the insolvent,

title to the sugar passed to the latter and that the pledge

set up by the bank is void as to third persons. The title to

the sugar having been commenced against him before the

declaration of insolvency, the assignee, Chua Seco, has a

better right to its possession or to the product of its sale




during the pendency of this action. The decision of the

court below is therefore reversed, and it is decided that the

assignee of the bankruptcy of Chua Teng Chong is entitled

to the product of the sale of the sugar here in question, to

wit, P10,826.76, together with the interest accruing

thereon, reserving proceedings. So ordered.

CRUZ v LEE

SARMIENTO v JAVELLANA

Facts:

1. Spouses Villasenor obtained a loan from Javellana

to be paid within one year with an interest of 25%

p.a. evidenced by to documents.

2. They pledged 4,000 worth of jewels.

3. Upon maturity, the Spouses requested for an

extension.

4. After 7 years, Villasenor offered to pay the loan

and redeem the jewels.

5. Javellana refused on the ground that redemptionperiod has already expired and he has already

bought the jewels from the wife of Villasenor.

6. Villasenor brought an action against Javellana to

compel the return of the jewels pledged.

Issues:

1. WON Villasenor can still redeem the jewels?

2. WON the right to redeem has already expired?

Held:

. Yes. As the jewels in question were in the possession

of the defendant to secure the payment of a loan of

1,500 with interest thereon and for having

subsequently extended the term of the loan

indefinitely, and so long as the value of the jewels

pledged was sufficient to secure the payment of the

capital and the accrued interest, the defendant is

bound to return the jewels or their value to the

plaintiffs, and the plaintiffs have the right to demand

the same upon the payment by them of the sum of

1,500 plus interest.

. An action for recovery of the goods which were

pledged to secure the payment of a loan evidenced by

a document is an action on a written contract which

has a prescriptive period of 10 years from the date on

which the debtor may have paid the debt and

demanded the return of the goods pledged.

In this case, the expiration of the contract was in 1912

and the action to recover was filed in 1920, therefore,

the action has not yet prescribed.

PARAY v RODRIGUEZ

Facts: Respondents were the owners, in their respective

personal capacities, of shares of stock in a corporationknown as the Quirino-Leonor-Rodriguez Realty Inc.1

Sometime during the years 1979 to 1980, respondents

secured by way of pledge of some of their shares of stock

to petitioners Bonifacio and Faustina Paray ("Parays") the

payment of certain loan obligations. When the Parays

attempted to foreclose the pledges on account of

respondents’ failure to pay their loans, respondents filed

complaints with the Regional Trial Court (RTC) of Cebu

City and , sought the declaration of nullity of the pledge

agreements. However the RTC, in its decision3 dated 14

October 1988, dismissed the complaint and gave "due

course to the foreclosure and sale at public auction of the

various pledges. Respondents then received Notices of Sale

which indicated that the pledged shares were to be sold at

public auction. However, before the scheduled date of

auction, all of respondents caused the consignation with

the RTC Clerk of Court of various amounts. It was claimed

that respondents had attempted to tender these payments

to the Parays, but had been rebuffed. Notwithstanding the

consignations, the public auction took place as scheduled,

with petitioner Vidal Espeleta successfully bidding.

Respondents instead filed on 13 November 1991 a

complaint seeking the declaration of nullity of theconcluded public auction. Petitioners now argue that the

essential procedural requisites for the auction sale had

been satisfied.

Issue: W/N the the essential procedural requisites for the

auction sale had been satisfied?

Ruling: Yes. Under the Civil Code, the foreclosure of a

pledge occurs extrajudicially, without intervention by the

courts. All the creditor needs to do, if the credit has not

been satisfied in due time, is to proceed before a NotaryPublic to the sale of the thing pledged.

MANILA SURETY v VELAYO

F: Manila Surety & Fidelity Co., upon request of Rodolfo

Velayo, executed a bond for P2,800.00 for the dissolution

of a writ of attachment obtained by one Jovita Granados in

a suit against Rodolfo Velayo in the Court of First Instance

of Manila. Velayo undertook to pay the surety company an




annual premium of P112.00 and provided collateral

jewelry with the authority to sell in case Manila Surety

will be obliged to pay. Judgment having been rendered in

favor of Jovita Granados and against Rodolfo Velayo, and

execution having been returned unsatisfied, the surety

company was forced to pay P2,800.00 that it later sought

to recoup from Velayo; and upon the latter's failure to do

so, the surety caused the pledged jewelry to be sold,

realizing therefrom a net product of P235.00 only Thesurety files a claim against Velayo because the security Is

insufficient. Velayo claims the sale of the jewelry even if

insufficient extinguishes the principal obligation.

Issue: Won Velayo’s contention is correct

Ruling: Yes! The sale of the thing pledged shall extinguish

the principal obligation, whther or not the proceeds of the

sale are equal to the amount of the principal obligation,

interest and expenses in a proper case.

REAL MORTGAGE

VIOLA v EPCIB

FACTS: Via a contract denominated as “CREDIT LINE AND

REAL ESTATE MORTGAGE AGREEMENT FOR PROPERTY

LINE” (Credit Line Agreement ) executed on March 31,

1997, Leo-Mers Commercial, Inc., as the Client, and its

officers spouses Leopoldo and Mercedita Viola

(petitioners) obtained a loan through a credit line facility

in the maximum amount of P4,700,000.00 from the

Philippine Commercial International Bank (PCI Bank),

which was later merged with Equitable Bank and became

known as Equitable PCI Bank, Inc.

To secure the payment of the loan, petitioners executed

also on March 31, 1997 a “Real Estate Mortgage” in favor

of PCIBank over their two parcels of land.

Petitioners availed of the full amount of the loan.

Subsequently, they made partial payments and made no

further payments and despite demand, they failed to pay

their outstanding obligation.

Respondent thus extrajudicially foreclosed the mortgage

before the Office of the Clerk of Court & Ex-Officio

Provincial Sheriff of the Regional Trial Court (RTC) of

Marikina City. The mortgaged properties were sold on

April 10, 2003 for P4,284,000.00 at public auction to

respondent, after which a Certificate of Sale dated April

21, 2003 was issued.

More than five months later or on October 8, 2003,

petitioners filed a complaint for annulment of foreclosure

sale. They claim that:

1. they had made substantial payments

2. the foreclosure proceedings and auction sale

were not only irregularly and prematurely held

but were null and void because the mortgage debt

is only P2,224,073.31 on the principal obligation

and P1,455,137.36 on the interest, or a total ofonly P3,679,210.67 as of April 15, 2003, but the

mortgaged properties were sold to satisfy an

inflated and erroneous principal obligation of

P4,783,254.69, plus 3% penalty fee per month or

33% per year and 15% interest per year, which

amounted to P14,024,623.22 as of September 30

2002;”

3. that “the parties never agreed and stipulated in the

real estate mortgage contract ” that the 15%

interest per annum on the principal loan and the

3% penalty fee per month on the outstanding

amount would be covered or secured by the

mortgage;

ISSUE: whether the mortgage contract also secured the

penalty fee per month on the outstanding amount as

stipulated in the Credit Line Agreement .

RULING: A mortgage must “sufficiently describe the

debt sought to be secured, which description must not

be such as to mislead or deceive, and an obligation is

not secured by a mortgage unless it comes fairlywithin the terms of the mortgage.

In the case at bar, the parties executed two separate

documents on March 31, 1997 – the Credit Line Agreement

granting the Client a loan through a credit facility in the

maximum amount of P4,700,000.00, and the Real Estate

Mortgage contract securing the payment thereof.

Undisputedly, both contracts were prepared by

respondent and written in fine print, single space.

The provision of the mortgage contract does not

specifically mention that, aside from the principal loanobligation, it also secures the payment of “a penalty fee of

three percent (3%) per month of the outstanding amount

to be computed from the day deficiency is incurred up to

the date of full payment thereon,” which penalty was

expressly stipulates in the Credit Line Agreement .

Since an action to foreclose “must be limited to the amount

mentioned in the mortgage” and the penalty fee of 3% per

month of the outstanding obligation is not mentioned in




the mortgage, it must be excluded from the computation of

the amount secured by the mortgage.

Penalty fee” is entirely different from “bank charges.” The

phrase “bank charges” is normally understood to refer to

compensation for services. A “penalty fee” is likened to a

compensation for damages in case of breach of the

obligation. Being penal in nature, such fee must be specific

and fixed by the contracting parties, unlike in the present

case which slaps a 3% penalty fee per month of the

outstanding amount of the obligation.

DILAG v HEIRS OF RESSURECCION

FACTS:

4. BEFORE 1936: Laureano Marquez (LM) was

indebted to Fortunato Resurreccion (FR) in the

sum of P5k as the balance of purchase price of a

parcel of land which LM bought and received from

FR.

5. FR was in turn indebted to Luzon Surety Company

in the same amt, secured by a mortgage on 3

parcels of land – one of which was bought by LM

from him

6. AS EARLY AS 193: LM had agreed to pay FR’s

indebtedness to Luzon Surety Company by way of

satisfaction of his own indebtedness to FR in the

same amt

7. LM failed to pay indebtedness of FR to the Luzon

Surety Company, and the latter foreclosed

judicially the mortgage executed in its favour by

FR

8. Since LM did not fulfil his promise, FR commenced

an action against LM to recover the value of lost

properties

9. LM – sale at public auction of 5 parcels of land

mentioned in FR’s complaint is invalid because

they are not specifically described in the mortgage

deed. LM acquired those parcels of landsubsequent to the execution of mortgage deed.

10. In the fifth clause of said document Laureano

Marquez stipulated that inasmuch as the five

parcels of land described in the fourth clause were

not sufficient to cover all his obligations in favor of

Fortunato Resurreccion, he also constituted a

mortgage in favor of the latter and his assignees

on any other property he then might have and on

those he might acquire in the future.

ISSUE: WON such a stipulation constitute a valid mortgage

on the 5 other parcels of land which LM subsequently

acquired?

HELD: NO

1. LM could not legally mortgage any property he did

not yet own. In order that a mortgage may be

validly constituted the instrument by which it is

created must be recorded in the Registry of Deeds

and so far as the additional parcels of land are

concerned, the registration of Deed of Mortgage

did not affect and could not have affected them

because they were not specifically described

therein.

PBCOM v MACADAEG

FACTS:

On September 30, 1950, respondents Pedro B. Bautista,

Dativa Corrales Bautista, Inocencio C. Campos, and the

Flash Taxi Company jointly and severally applied for and

obtained a credit accommodation from the petitioner bank

in the sum of P100,000.00, and as a security therefor

executed in favor of the bank, in one single document, a

real estate mortgage over four parcels of land, and a

chattel mortgage on some movie equipment and thirty

taxicabs. Respondents having failed to pay the total

amount of P128,902.42 due on the credit accommodation

referred to, the petitioner bank procured the extrajudicial

foreclosure of the real estate mortgage in accordance with

Act No. 3135, as amended, and at the foreclosure sale on

January 9, 1956, the bank acquired the properties

mortgaged as the highest bidder for the sum of

P68,365.60.

Claiming a balance of P62, 749.72 still due, the petitionerbank, instead of foreclosing respondents' chattel mortgage,

filed against them on may 22, 1956, Civil Case No. 29752

for the collection of said balance. The lower court, on June

30, 1956, rendered judgment ordering defendants to pay

the plaintiff bank, jointly and severally, the sum of P62,

749.72, with interest thereon at the rate of 7% per annum

from May 22, 1956 until the said amount is fully paid.




On September 18,1956, the court issued an order to

execute said judgment; it does not appear, though, that

plaintiff sought the enforcement of the writ of execution.

On April 24, 1957, the court issued another order for the

execution of the judgement, pursuant to which the sheriff

of Manila published a "Notice of Sale," setting for sale at

public auction on May 13, 1957 the rights, interest or

participation of respondents on the certificate of public

convenience registered in the name of the Flash Taxi Co. in

cases Nos. 32578 of the Public Service Commission.

On May 13, 1957, the sheriff sold the rights, interests, or

participation of respondents in the certificate of public

convenience in question to the plaintiff bank as the highest

bidder for the amount of P60,371.25, and two days later,

on May 15, the sheriff issued to plaintiff the corresponding

certificate of sale.

Respondents Pedro B. Bautista, et al., filed in the court

below a "Petition To Set Aside Order dated June 8, 1957,Confirming Sheriffs Sale of may 15, 1957 and to Declare its

Nullity," claiming, as grounds for the petitions, that they

had other properties which they had pointed out to the

plaintiff bank with which the judgement could be satisfied

that the law grants to the judgement debtor the right to

direct which of his properties should be sold in execution

of a judgement; that the sale of the certificate of public

convenience in question would mean irreparable damage

to them and would prove of work about forth drivers

employed in their taxicab business; and that defendants

had no objection to bearing the expenses of the sale sought

to be revoked and of any subsequent execution sales in

satisfaction of the judgement.

Plaintiff bank opposed the petition, contending that there

was no showing that the sheriff's sale in question was

irregular or not in accordance with law; that the subject of

the execution sale being personal property, and a

certificate of sale having already been delivered to it by the

sheriff, the court could no longer set aside said sale

ISSUE: W/N the sheriff’s sale was irregular and therefore

null and void.

HELD:

The alleged nullity is claimed to arise from the fact that the

real estate and chattel mortgage executed by respondents

to secure their credit accommodation with the petitioner

bank was indivisible, and that consequently, the bank had

no legal right to extra judicially foreclose only the real

estate mortgage and leave out the chattel mortgage, and

then sue respondents for a supposed deficiency

judgement; and for this reason, respondents assert that the

judgement in the bank's favor for such deficiency in Civil

Case No. 29752 is a nullity.

The argument is fallacious because the mere embodiment

of the real estate mortgage and the chattel mortgage in one

document does not fuse both securities into an indivisible

whole. Both remain distinct agreements, differing not only

in the subject-matter of the contract but in the but in the

governing legal provisions. Petitioner bank, therefore, had

every right to foreclose the real estate mortgage and waive

the chattel mortgage, and maintain instead a personal

action for the recovery of the unpaid balance of its credit

(De la Rama vs. Sajo, 45 Phil., 703; Salomon vs. Dantees, 63

Phil., 522; Brancharch Motor Co. vs. Rangal, et al., 68 Phil.,

287, 290). This petitioner did by filing civil Case No. 29752

for the collection of the unpaid balance of respondents'

indebtedness; and the validity and correctness of the

action was admitted by respondents themselves when

they confessed judgement thereto. The court in fact

decision pursuant to such confession of judgement, and the

decision has long since been final and executory.

PRUDENTIAL BANK v PANIS

HOME BANKERS v CA

Facts:

1. Private respondents entered into a Contract to Sel

Agreement with TransAmerican through Engr

Garcia over portions of land with one unit three-

storey townhouse to be built on each portion.

2. Engr. Garcia obtained a loan from petitioner and

as security executed a mortgage over the property

subject to the Contract to Sell with the private

respondents. Petitioner registered its mortgage on

these titles without any other encumbrance or lien

annotated therein.

3. When the loan was due, Engr. Garcia failed to pay

hence petitioner instituted an extrajudicia

foreclosure on the subject lots.

4. Private respondents prayed for the annulment of

the mortgage in favor of petitioner.

5. Petitioner filed its Answer contending that private

respondents have no cause of action against it;

that at the time of the loan application and

execution of the promissory note and real estate

mortgage by Garcia, there were no known

individual buyers of the subject land nor




annotation of any contracts, liens or

encumbrances of third persons on the titles of the

subject lots; that the loan was granted and

released without notifying HLURB as it was not

necessary.

6. CA ruled in favor of private respondents saying

that despite the contracts to sell,

Garcia/TransAmerican did not apprise petitionerof the existence of these contracts nor did

petitioner exhaust any effort to inquire into their

existence since petitioner merely relied on the

purported clean reconstituted titles in the name of

Garcia; that the mortgage of the subject lots

without the consent of the buyers and the

authorization of the HLURB is a clear violation of

P.D. No. 957; that the mortgage contract is void

and unenforceable against private respondents.

ISSUES:

1. WON HLURB has jurisdiction over the case?

2. WON the mortgage is valid?

3. WON petitioner is a mortgagee in good faith and

since the titles on their face were free from any

claims, liens and encumbrances at the time of the

mortgage, it is not obliged under the law to go

beyond the certificates of title registered under

the Torrens system and had every reason to rely

on the correctness and validity of those titles.?

HELD:

1. HLURB has jurisdiction. The Court ruled in a prior

case that “the jurisdiction of the HLURB to

regulate the real estate trade is broad enough to

include jurisdiction over complaints for specific

performance of the sale, or annulment of the

mortgage, of a condominium unit, with damages.”

2. THE MORTGAGE IS VOID. Under Section 18 of P.D.

No. 957, it is provided that no mortgage on anyunit or lot shall be made by the owner or

developer without prior written approval of the

HLURB Such approval shall not be granted unless

it is shown that the proceeds of the mortgage loan

shall be used for the development of the

condominium or subdivision project and effective

measures have been provided to ensure such

utilization. Without the prior written approval of

the HLURB, the latter has the jurisdiction to annu

the mortgage for being void.

3. Petitioner is NOT A MORTGAGEE IN GOOD FAITH

Petitioner knew that the loan it was extending to

Garcia/TransAmerican was for the purpose of the

development of the eight-unit

townhouses. Petitioner’s insistence that prior to

the approval of the loan, it undertook a thoroughcheck on the property and found the titles free

from liens and encumbrances would not suffice. It

was incumbent upon petitioner to inquire into the

status of the lots which includes verification on

whether Garcia had secured the authority from

the HLURB to mortgage the subject

lots. Petitioner failed to do so. We likewise find

petitioner negligent in failing to even ascertain

from Garcia if there are buyers of the lots who

turned out to be private respondents. Petitioner’s

want of knowledge due to its negligence takes the

place of registration - thus it is presumed to know

the rights of respondents over the lot - and the

conversion of its status as mortgagee to buyer

owner will not lessen the importance of such

knowledge.

SAMANILLA v CAJUCOM

MOBIL PHILIPPINES v DIOCARES

FACTS:

The parties Mobil and Diocares entered an agreement

wherein on cash basis, Mobil will deliver minimum of 50k liters of petroleum a month. To secure this, diocares

executed a Real Mortgage. Diocares failed to pay the

balance of their indebtedness and Mobil filed an action for

the collection of the balance of the purchase amount or

that the Real Property mortgaged by Diocares be sold to a

public auction and the proceeds be applied to the payment

of the obligation. LC did not grant foreclosure on the

ground that the mortgage was not validly executed (not

registered).

ISSUE: WON failure to register the Real Mortgage would

render it invalid

SC: NO!

4. If the instrument is not recorded, the mortgage is

nevertheless binding between the parties. Its

conclusion, however, is that what was thus

created was merely a “personal obligation but did

not establish a real estate mortgage.”




5. The mere fact that there is as yet no compliance

with the requirement that it be recorded cannot

be a bar to foreclosure

MCCULLOUGH v VELOSO

FACTS:

1) On March 23, 1920, the plaintiff McCullough & Co., sold

to Mariano Veloso the "McCullough Building," and the land

thereon, for the price of P700,000. Veloso paid P50,000

cash on account at the execution of the contract, leaving a

balance of P650,000 to be paid.

2) Veloso assumed also the obligation to insure the

property for not less than P500,000, as well as to pay all

legal taxes that might be imposed upon the property, and

in the event of his failure to do so, the plaintiff should pay

said taxes at the expense of Veloso, with the right to

recover of him the amounts thus paid, with interest at 7

per cent per year. To secure the payment of these amounts,

Veloso mortgaged the property purchased

3) It was, also, stipulated that in case of failure on the part

of Veloso to comply with any of the stipulations contained

in the mortgage deed, all the installments with the interest

thereon shall become due, and the creditor shall then have

the right to bring the proper action for the collection of the

unpaid part of the debt.

4) On August 21, 1920, Mariano Veloso, in turn, sold the

property, with the improvements thereon for P100,00 to

Joaquin Serna, who agreed to respect the mortgage of the

property in favor of the plaintiff and to assume MarianoVeloso's obligation to pay the plaintiff the balance due of

the price of the estate on the respective dates when

payments should be made according to the contract

between Mariano Veloso and the plaintiff.

5) Veloso paid P50,000 on account of the P650,000, and

Serna made several payments up to the total sum of

P250,000. Subsequently, however, neither Veloso, nor

Serna, made any payment upon the last installments, by

virtue of which delay, the whole obligation became due,

and Veloso lost the right to the installments stipulated in

his contract with the plaintiff.

6) Upon a liquidation of the debt of Mariano Veloso in

favor of the plaintiff, including the interest due, with the

result that Veloso owed exactly P510,047.34. Thus, the

plaintiff brings this action to recover of the defendant the

sum due of P510,047.34. The defendant contends however

that having sold the property to Serna, and the latter

having assumed the obligation to pay the plaintiff the

unpaid balance of the price secured by the mortgage upon

the property, he no more obligation and it is upon Serna to

pay the plaintiff.

HELD:

A) The mortgage is merely an encumbrance upon the

property and does not extinguish the title of the debtor,

who does not, therefore, lose his principal attribute as

owner, that is, the right to dispose. the fact that the

plaintiff recognized the efficaciousness of that sale cannot

prejudice him, which sale the defendant had the right to

make and the plaintiff cannot oppose and which, at all

events, could not affect the mortgage, since it follows the

property whoever the possessor may be.

B) The Mortgage Law in force at the promulgation of the

Civil Code and referred to in the latter, provided, among

other things, that the debtor should not pay the debt upon

its maturity after a judicial or notarial demand for

payment has been made by the creditor upon him.Accordingly, the obligation of the new possessor to pay the

debt originated only from the right of the creditor to

demand payment of him, it being necessary that a demand

for payment should have previously been made upon the

debtor and the latter should have failed to pay.

C) The Civil Code imposes the obligation of the debtor to

pay the debt stand although the property mortgaged to

secure the payment of said debt may have been

transferred to a third person.

SANTIAGO v DIONISIO

DOCTRINE: All persons having or claiming an interest

in the mortgaged premises subordinate in right to that of

the holder of the mortgage should be made defendants in

the action for the foreclosure of the mortgage. Intervening

as a subordinate lienholder in a foreclosure case merely to

oppose the confirmation of the sale upon learning that

such a sale had been made, is no the same as being a party

to the suit to the extent of being bound by the judgement

in the foreclosure suit.

The effect of the failure to implead a subordinate

lienholder or subsequent purchaser or both is to render

the foreclosure ineffective as against them, with the result

that there remains in their favor the unforeclosed equity of

redemption.




PADERES v CA

Facts:

1. Manila International Construction Corporation

(MICC) mortgaged 21 properties in favor of Banco

Filipino (BF) for a loan of P1.8M. The mortgaged

was registered with the Registry of Deeds.

2. 2 of the lots were later sold to Spouses Paderes

and Spouses Bergardo.

3. MICC failed to pay the loan.

4. Without any redemption having been made within

the reglementary period, Banco Filipino

foreclosed the properties extra judicially.

5. BF won as the highest bidder in the auction sale.

6. Paderes and Bergardo filed a petition stating that

their right is superior than BF since they are

buyers in good faith and are still entitled to

redeem.

Issue: WON Paderes and Bergardo has still rights over the

properties?

Held:

No. Sale or transfer cannot affect or release the mortgage.

A purchaser is necessarily bound to acknowledge and

respect the encumbrance to which is subjected the

purchased thing and which is at the disposal of the

creditor in order that he, under the terms of the contract,

may recover the amount of his credit therefrom.

For a recorded real estate mortgage is a right in rem, a lien

on the property whoever its owner may be because thepersonality of the owner is disregarded. The mortgage

subsists notwithstanding changes of ownership. The last

transferee is just as much of a debtor as the first one. A

mortgage lien is inseparable from the property mortgaged.

All subsequent purchasers thereof must respect the

mortgage, whether the transfer to them be with or without

the consent of the mortgagee. For the mortgage until

discharged, follows the property.

With regard to the redemption period, it is settled that the

buyer in a foreclosure sale becomes the absolute owner of

the property purchased if it is not redeemed during the

period of one year after the registration of the sale. As

such, he is entitled to the possession of the said property

and can demand it any time following the consolidation of

ownership in his name and the issuance to him of a new

TCT. If the buyer demands the possession of the property

before the expiration period, he has to post a bond. No

bond is required after the redemption period if the

property is not redeemed.

VELASCO v CA

Facts: November 10, 1965, Alta Farms secured

from the GSIS a Three Million Two Hundred Fifty

Five Thousand Pesos (P3,255,000.00) loan and an

additional loan of Five Million Sixty-Two

Thousand Pesos (P5,062,000.00) on October 5,1967, to finance a piggery project. Alta Farms

defaulted in the payment because of this that Alta

Farms executed a Deed of Sale With Assumption of

Mortgage with Asian Engineering Corporation on

July 10, 1969 but without the previous consent or

approval of the GSIS and in direct violation of the

provisions of the mortgage contracts. Even without

the approval of the Deed of Sale With Assumption

of Mortgage by the GSIS, Asian Engineering

Corporation executed an Exclusive Sales Agency,Management and Administration Contract in favor

of Laigo Realty Corporation, with the intention of

converting the piggery farm into a subdivision.

After developing the area, on December 4, 1969,

Laigo entered into a contract with Amable

Lumanlan, one of the petitioners, to construct for

the home buyers, 20 houses on the subdivision.

Petitioner Lumanlan allegedly constructed 20

houses for the home buyers and for which he claims

a balance of P309,187.76 from the home buyers and

Laigo. Out of his claim, petitioner Lumanlan admits

that Mrs. Rhody Laigo paid him in several checks

totalling P124,855.00 but which checks were all

dishonoured. On December 29, 1969, Laigo entered

into a contract with petitioner Pepito Velasco to

construct houses for the home buyers who agreed

with Velasco on the prices and the downpayment.

Petitioner Velasco constructed houses for various

home buyers, who individually agreed withVelasco, as to the prices and the downpayment to be

paid by the individual home buyers.When neither

Laigo nor the individual home buyers paid for the

home constructed, Velasco wrote the GSIS to

intercede for the unpaid accounts of the home

buyers.




Issue: W/N GSIS is liable to the petitioners for the

cost of the materials and labor furnished by them in

construction of the 63 houses now owned by the

GSIS?

Ruling: Yes. GSIS should pay the petitioners. GSIS

assumed ownership of the houses built by

petitioners and was benefited by the same. Art.2127, the mortgage extends to the natural

accessions, to the improvements, growing fruits,

rents.

AFABLE v BELANDO

Afable brought a suit against Belando for an unpaid

promissory note. Judgment was rendered in favor of him

and because Belando has no money, the rents in her

property was given to Afable. It turns out, before Afable

filed a case for the collection of money, another creditor of

Belando, La Urbana, already had a lien on the property

because Belando borrowed money from La Urbana and as

a security, Belando mortgaged the property being rented

to La Urbana. La Urbana filed a petition to intervene in the

case of Afable v Belando and claims that since the property

was mortgaged to them, they also own the rents and the

rents cannot be given to Afable.

Issue: Won the contention of La Urbana is valid

Ruling: Yes. The mortgage extends to the rents not yet received when the obligation becomes due. In this case,

because the property was mortgaged to La Urbana, they

also own the rents of the mortgaged property.

Bank of America v American Realty

F: Petitioner Bank of America NT & SA (BANTSA) is an

international banking and financing institution Bank of

America International Limited (BAIL), on the other hand, is

a limited liability company organized and existing under

the laws of England.

BANTSA and BAIL on several occasions granted three

major multi-million United States (US) Dollar loans to the

following corporate borrowers and which are foreign

affiliates of private respondent. 3

Due to the default in the payment of the loan

amortizations, BANTSA and the corporate borrowers

signed and entered into restructuring agreements. As

additional security for the restructured loans, private

respondent ARC (American Realty) as third party

mortgagor executed two real estate mortgages, over its

parcels of land including improvements thereon, located at

Bulacan.

Eventually, the corporate borrowers defaulted in the

payment of the restructured loans prompting petitioner

BANTSA to file civil actions before foreign courts for the

collection. This includes the property of American Realty.

Petitioners already filed collection cases in foreign courts.

It also filed an extrajudicial foreclosure on the property in

Bulacan in which American Realty question because the

petitioners cannot file a case for collection and a case for

extrajudicial foreclosure at the same time.

Issue: Won the contention of respondents are valid

Ruling: yes! The mortgagee cannot have both remedies. He

has only one cause of action, i.e., non-payment of the

mortgage debt; hence, he cannot split up his cause of

action by filing a compliant for payment of the and anothercomplaint for foreclosure.

PEOPLE’S BANK v DAHICAN LUMBER

FACTS: On September 8, 1948, Atlantic Gulf & Pacific

Company of Manila, a West Virginia corporation licensed

to do business in the Philippines— hereinafter referred to

as ATLANTIC — sold and assigned all its rights in the

Dahican Lumber concession to Dahican Lumber Company

— hereinafter referred to as DALCO. Thereafter, to develop

the concession, DALCO obtained various loans from the

People's Bank & Trust Company.

As security for the payment of the abovementioned loans,

DALCO executed in favor of the BANK — the latter acting

for itself and as trustee for the Export-Import Bank of

Washington D.C. — a deed of mortgage covering five

parcels of land together with all the buildings and other

improvements existing thereon and all the personal

properties of the mortgagor located in its place of

business.

On the same date, DALCO executed a second mortgage on

the same properties in favor of ATLANTIC to secure

payment of the unpaid balance of the sale price of the

lumber concession.

Both deeds contained the following provision extending

the mortgage lien to properties to be subsequently

acquired — referred to hereafter as "after acquired

properties" — by the mortgagor:




All property of every nature and description taken

in exchange or replacement, and all buildings,

machinery, fixtures, tools equipment and other

property which the Mortgagor may hereafter

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

this mortgage in the same manner and to the same

extent as if now included therein, and theMortgagor shall from time to time during the

existence of this mortgage furnish the Mortgagee

with an accurate inventory of such substituted

and subsequently acquired property.

Both mortgages were registered in the Office of the

Register of Deeds. In addition thereto DALCO and DAMCO

pledged to the BANK 7,296 shares of stock of DALCO and

9,286 shares of DAMCO to secure the same obligations.

Upon DALCO's and DAMCO's failure to pay the fifth

promissory note upon its maturity, the BANK paid thesame to the Export-Import Bank of Washington D.C., and

the latter assigned to the former its credit and the first

mortgage securing it. Subsequently, the BANK gave DALCO

and DAMCO up to April 1, 1953 to pay the overdue

promissory note.

After July 13, 1950 — the date of execution of the

mortgages mentioned above — DALCO purchased various

machineries, equipment, spare parts and supplies in

addition to, or in replacement of some of those already

owned and used by it on the date aforesaid. Pursuant to

the provision of the mortgage deeds quoted theretofore

regarding "after acquired properties," the BANK requested

DALCO to submit complete lists of said properties but the

latter failed to do so.

The alleged sales of equipment, spare parts and supplies

by CONNELL and DAMCO to It, was subsequently

rescinded by the parties.

The BANK, in its own behalf and that of ATLANTIC,

demanded that said agreements be cancelled but

CONNELL and DAMCO refused to do so. As a result,

ATLANTIC and the BANK commenced foreclosure

proceedings.

Main contentions of plaintiffs as appellants are the

following: that the "after acquired properties" were

subject to the deeds of mortgage mentioned heretofore;

that said properties were acquired from suppliers other

than DAMCO and CONNELL; that even granting that

DAMCO and CONNELL were the real suppliers, the

rescission of the sales to DALCO could not prejudice the

mortgage lien in favor of plaintiffs.

The defendants-appellants contend that the mortgages

aforesaid were null and void as regards the "after acquired

properties" of DALCO because they were not registered in

accordance with the Chattel Mortgage Law.

ISSUES:

1. are the so-called "after acquired properties"

covered by and subject to the deeds of mortgage

subject of foreclosure?

2. assuming that they are subject thereto, are the

mortgages valid and binding on the properties

aforesaid inspite of the fact that they were not

registered in accordance with the provisions of

the Chattel Mortgage Law?

RULING:

1. it is crystal clear that all property of every nature

and description taken in exchange or replacement

as well as all buildings, machineries, fixtures

tools, equipments, and other property that the

mortgagor may acquire, construct, install, attach

or use in, to upon, or in connection with the

premises — that is, its lumber concession — "shal

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.

Such stipulation is neither unlawful nor immoral, its

obvious purpose being to maintain, to the extent allowed

by circumstances, the original value of the properties given

as security. Indeed, if such properties were of the nature

already referred to, it would be poor judgment on the part

of the creditor who does not see to it that a similar

provision is included in the contract.

2. the chattels were placed in the real properties

mortgaged to plaintiffs, they came within the

operation of Art. 415, paragraph 5 and Art. 2127of the New Civil Code. It is not disputed in the case

at bar that the "after acquired properties" were

purchased by DALCO in connection with, and for

use in the development of its lumber concession

and that they were purchased in addition to, or in

replacement of those already existing in the

premises on July 13, 1950. In Law, therefore, they

must be deemed to have been immobilized , with

the result that the real estate mortgages involved




herein — which were registered as such — did

not have to be registered a second time as chattel

mortgages in order to bind the "after acquired

properties" .

PHIL SUGAR ESTATE v CAMPS

FACTS:

3. Defendant executed and delivered to Plaintiff a

mortgage on certain real estate, which is

particularly described therein, including “the

building erected thereon,” in order to guarantee

the payment of certain sum of money; Another

mortgage upon the same property to secure the

payment of an additional sum of money

4. Plaintiff commenced an action to recover said

sums and to foreclose said mortgages when

neither of said sums of money secured by saidmortgages was fully paid and satisfied

5. Def – denied; alleged that the sum of P3k included

in said mortgages for the payment of expenses

was excessive

6. TC Judge Ostrand – ordered foreclosure of said

mortgages

7. While Sheriff tried to sell the property included in

said mortgages, Def interposed an objection that a

certain cinematograph which had been

constructed upon the property mortgaged was not

included therein and that it should not, therefore,

be sold under said execution.

8. Despite objection, Sheriff sold the property

mortgaged “together with the buildings erected

thereon”

9. Def objected to the confirmation of said sale; said

cinematograph in question was created by simply

reforming a building located on the land at the

time said mortgage was executed and delivered;that it was not a new structure on said land; that it

was the result of changing and altering a building

already upon the land, for the purpose of making

it into a cinematograph

10. TC Judge Harvey confirmed said sale

ISSUE: WON the sale under execution by the sheriff of

certain real property including the buildings thereon

should be confirmed?

HELD: YES

1. Questions presented by Camps have been

discussed by this court and decided against hiscontention in the case of Bischoff v. Pomar and

Compania General de Tabacos.

2. In that case, this court discussed the very articles

of the Mortgage Law upon which Camps now

seeks relief. In that case the Court said:

So that even though no mention had been

made of said machinery and tramway in

the mortgage instrument, the mortgage o

the property whereon they are located in

understood by law to extend to them and

they must be considered as included

therein, as well as all other

improvements, unless there was an

express stipulation between the parties

that they should be excluded.

1. IN THIS CASE: the buildings erected thereon"

were expressly included in the mortgage. Nothing

in the form of buildings was exclude. The

buildings, therefore, were manifestly included in

the mortgage.

TADY-Y v PNB

PRUDENTIAL BANK v ALVIAR

LOPEZ v ALVAREZ

FACTS: Appellee Evaristo holds a lien over the estate of

one Vicente Lopez as the latter executed a mortgage deed

in favor of Evaristo. On April 5, 1904, Evaristo assigned hislien on the estate to appellant Manuel Lopez through a

public instrument but the same was not registered in the

Registry of Deeds. Appellee Grindrod is a creditor of

Evaristo, to whom the latter promised to pay his obligation

through the sugar yielded by the hacienda, said agreement

was entered into July 7, 1900. But the hacienda was not

able to increase the sugar it yielded and defendant On

August 5, 1904, Grindrod who feared of not getting paid

obtained a preliminary attachment over all the property of




Evaristo including the lien that was assigned to appellant.

The same was registered on August 12, 1904. A dispute

arised over the rightful owner of the lien, defendant’s main

contention is that since the assignment made to Lopez was

not registered it is not binding and has no effect.

ISSUE: WON THE ASSIGNMENT OF A MORTGAGE CREDIT

NEED TO BE REGISTERED FOR IT TO BE VALID AND

EFFECTIVE?

HELD: NO. Although the Civil Code provides that “ A

mortgage credit may be alienated or assigned to a third

person, wholly or partially, with the formalities required

by law”, the fact that such assignment was not registered

in the property register is no obstacle to the transfer of the

dominion or ownership of said credit in the sum therein

stated in favor of Lopez. In as much as the assignment or

alienation of a credit, made by the owner thereof in favor

of another, is prior to the act of its registration, and

entirely independent of such formality to such an extent

that, if any question should arise over the contract between the assignor and the assignee, it would have to be

decided according to common law without need of

previous registration of the title, which shows that a credit

secured by a mortgage may be assigned or alienated, and is

a perfectly valid contract even if it were not registered.

Also, the registration of the assignment or alienation of a

credit secured by mortgage, required, among others, of the

Mortgage Law, is only necessary in order that it may be

effectual as against third parties.

BPI v CONCEPCION

LITONJUA v L&R CORPORATION

FACTS:

2. Spouses Litonjua (P) obtained a loan from L & R

Corporation (R) – Aug 6, 1974 (P200k) and Mar

27, 1978 (P200k) – which are secured by a

mortgage on 2 parcels of land owned by P

3. However, P sold to Phil White House Auto Supply

(PWHAS) the subject parcels of land, without priorwritten consent of R, pursuant to the Mortgage

agreement that they have.

4. Upon default of P, R initiated an extrajudicial sale

and won the bidding.

5. P later on filed for redemption of the property but

R refused to do accept the payment contending

that P violated the contract

6. R informed the Sheriff and Register of Deeds,

stating: (1) that the sale of the mortgaged

properties to PWHAS was without its consent, in

contravention of their Deed of Real Estate

Mortgage; and (2) that it was not the spouses

Litonjua, but PWHAS, who was seeking to redeem

the foreclosed properties,

7. Register of Deeds issued TCT in favor of R

8. A complaint for Quieting of Title, Annulment of

Title and Damages with preliminary injunction

was filed by the spouses Litonjua and PWHASagainst R

9. LC ruled in favor of R and affirmed by CA

ISSUE: WON paragraphs 8 and 9 of the Real Estate

Mortgage are valid and enforceable;

SC: NO!

10. Art. 2130 – stipulation forbidding alienation of

mortgaged property is VOID

11. A real mortgage is merely an encumbrance; it does

not extinguish the title of the debtor, whose right

to dispose — a principal attribute of ownership —

is not thereby lost. Thus, a mortgagor had every

right to sell his mortgaged property, which right

the mortgagee cannot oppose.

12. Although the provision does not absolutely

prohibit the mortgagor from selling his mortgaged

property; but what it does not outrightly prohibit,

it nevertheless achieves.

13. 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.

14. The mortgagee can simply withhold its consent

and thereby, prevent the mortgagor from selling

the property. This creates an unconscionable

advantage for the mortgagee and amounts to a

virtual prohibition on the owner to sell his

mortgaged property. In other words, stipulations

like those covered by paragraph 8 (requiring P to

acquire prior consent of R before alienating the

property) of the subject Deed of Real Estate

Mortgage circumvent the law, specifically, Article

2130 of the New Civil Code.15. Being contrary to law, paragraph 8 of the subject

Deed of Real Estate Mortgage is not binding upon

the parties.

UNION BANK v CA

FACTS:




1) A real estate mortgage was executed on December 1991

by spouses Dario (hereafter mortgagors) in favor of

UNIONBANK to secure a P3 million loan which covered a

Quezon City property in Leopoldo Dario's name and was

annotated on the title. For non-payment of the principal

obligation, UNIONBANK extrajudicially foreclosed the

property mortgaged on August 1993 and sold the same at

public auction, with itself posting the highest bid.

2) One week before the one-year redemption period

expired, private respondents filed a complaint with the

RTC against the mortgagors, UNIONBANK and the Register

of Deeds annulment of sale and real estate mortgage

reconveyance and prayer for restraining notice of lis

pendens was annotated on the title.

3) On October 1994, the RTC issued a TRO enjoining the

redemption of property within the statutory period and its

consolidation under UNIONBANK's name.

4) Without notifying private respondents, UNIONBANKconsolidated its title over the foreclosed property on

October 1994, UNIONBANK's name was issued in the new

TCT.

5) Private respondents filed an amended complaint,

alleging that they, not the mortgagors, are the true owners

of the property mortgaged and insisting on the invalidity

of both the mortgage and its subsequent extrajudicial

foreclosure. They claimed that the original title, was

entrusted to a certain Atty. Reynaldo Singson preparatory

to its administrative reconstitution after a fire gutted the

Quezon City Hall building. Mortgagor Leopoldo, privaterespondent Fermina's son, obtained the property from

Atty. Singson, had the title reconstituted under his name

without private respondents' knowledge, executed an

ante-dated deed of sale in his favor and mortgaged the

property to UNIONBANK.

6) On December 1994, the RTC admitted the

aforementioned amended complaint. UNIONBANK filed its

answer ad cautelam asserting its status as an innocent

mortgagee for value whose right or lien upon the property

mortgaged must be respected even if, the mortgagor

obtained his title through fraud. It also averred that the

action had become "moot and academic by the

consolidation of the foreclosed property on 24 October

1994" in its name.

7) On appeal, the CA nullified the consolidation of

ownership, which was the prior judgment in the RTC,

ordered the Register of Deeds to cancel the certificate of

title in UNIONBANK's name and to reinstate TCT of

respondents.

ISSUE: Whether UNIONBANK is a mortgagee in good faith

and for value with a right to consolidate ownership over

the foreclosed property with the redemption period

having expired and there having been no redemptioners.

HELD:

A) The SC disagrees with the CA’s judgment that

consolidation deprived private respondents of their

property without due process. Because the buyer in a

foreclosure sale becomes the absolute owner of the

property purchased if it is not redeemed during the period

of one year after the registration of the sale. In effect,

consolidation took place as a matter of right since there

was no redemption of the foreclosed property and the TRO

expired upon dismissal of the complaint.

C) UNIONBANK need not have informed private

respondent that it was consolidaint its title over the

property, upon the expiration of the redemption period,

without the judgment debtor having made use of his right

of redemption, the ownership of the property sold

becomes consolidated in the purchaser. Upon failure to

redeem foreclosed realty, consolidation of title becomes a

matter of right on the part of the auction buyer, and the

issuance of a certificate of title in favor of the purchaser

becomes ministerial upon the Register of Deeds.

C) At any rate, the consolidation of ownership over the

mortgaged property in favor of UNIONBANK and theissuance of a new title in its name during the pendency of

an action for annulment and reconveyance will not cause

injury to private respondents because as purchaser at a

public auction, UNIONBANK is only substituted to and

acquires the right, title, interest and claim of the judgment

debtors or mortgagors to the property at the time of levy.

With the main action for reconveyance pending before the

RTC, the notice of lis pendens, sufficiently protects private

respondents interest over the property. Thus the Decision

of the Court of Appeals is REVERSED and SET ASIDE. The

order of the trial court dated 7 August 1999, declaring

UNIONBANK's prayer for writ of preliminary injunction

moot and academic, is hereby REINSTATED. Let this case

be remanded to the Regional Trial Court for trial on the

merits.

DBP v LICUANAN

DOCTRINE: All persons having or claiming an interest

in the mortgaged premises subordinate in right to that of




the holder of the mortgage should be made defendants in

the action for the foreclosure of the mortgage. Intervening

as a subordinate lienholder in a foreclosure case merely to

oppose the confirmation of the sale upon learning that

such a sale had been made, is no the same as being a party

to the suit to the extent of being bound by the judgement

in the foreclosure suit.

The effect of the failure to implead a subordinate

lienholder or subsequent purchaser or both is to render

the foreclosure ineffective as against them, with the result

that there remains in their favor the unforeclosed equity of

redemption.

DBP v GO

Facts:

1. In 1982, Go obtained a loan from DBP evidenced

by two promissory notes, one for 194K payable

quarterly for 5 years and the other 300K payablequarterly for 7 years.

2. He mortgaged his real and personal property.

3. A contract provision states that DBP can

unilaterally increase the interest rate and requires

Go to insure the mortgaged properties.

4. DBP increased its interest rate to 35% then

lowered it to 29%.

5. Go failed to pay the loan.

6. In 1986, DBP extrajudicially foreclosed the

property and was declared the winner as the

highest bidder in the auction sale.

7. Go filed an action to annul the auction sale.

8. Both RTC and CA declared that the extrajudicial

foreclosure was void because loan has not yet

mature at the time of the foreclosure sale (the

foreclosure was done less than 5 years from the

execution of the contract).

Issue: WON the extrajudicial foreclosure should be

declared null and void?

Held:

Yes. The mortgage contract states that petitioner may

resort to either judicial or extrajudicial foreclosure in case

of default. Petitioner opted for extrajudicial foreclosure.

However, both the trial court and the CA declared that the

extrajudicial foreclosure void for being premature. For all

intents and purposes, there has been no foreclosure.

Therefore, this Court or any court cannot issue a writ of

execution to judicially foreclose the property.

FIESTAN v CA

Facts: Dionisio Fiestan and Juanita Arconada

owners of a parcel of land (Lot No. 2B) situated in

Ilocos Sur covered by TCT T-13218 which they

mortgaged to the Development Bank of the

Philippines (DBP) as security for their P22,400.00

loan. Lot No. 2-B was acquired by the DBP as thehighest bidder at a public auction sale on August 6,

1979 after it was extrajudicially foreclosed by the

DBP in accordance with Act No. 3135, as amended

by Act No. 4118, for failure of petitioners to pay

their mortgage indebtedness. On April 13,1982, the

DBP sold the lot to Francisco Peria in a Deed of

Absolute Sale. Francisco Peria mortgaged said lot to

the PNB Vigan Branch as security for his loan of

P115,000.00 as required by the bank to increase his

original loan from P49,000.00 to P66,000.00 until it

finally reached the approved amount of

P115,000.00. Since petitioners were still in

possession of Lot No. 2-B, the Provincial Sheriff

ordered them to vacate the premises.

Issue: W/N there was a valid extrajudicial

foreclosure sale?

Ruling: Yes. The formalities of a levy, as an

essential requisite of a valid execution sale under Section 15 of Rule 39 and a valid attachment lien

under Rule 57 of the Rules of Court, are not basic

requirements before an extrajudicially foreclosed

property can be sold at public auction. The case at

bar, as the facts disclose, involves an extrajudicial

foreclosure sale. Act No. 3135, as amended by Act

No. 4118 otherwise known as "An Act to Regulate

the Sale of Property under Special Powers Inserted

in or Annexed to Real Estate Mortgages" applies in

cases of extrajudicial foreclosure sale.

BANK OF AMERICA v AMERICAN REALTY

CHIENG v SPOUSE SANTOS

FIRST MARBELLA v GATMAYTAN




FACTS:

9. R is the registered owner of Fontavilla No. 501

(condo unit), Marbella I Condominium, Roxas Blvd

under CCT No. 1972

10. P filed a Petition for Extradudicial foreclosure of

the condominium unit of R and alleged that P is a

duly organized association of the tenants and

homeowners of Marbella I Condominium; that R is

a member thereof but has unpaid association dues

amounting to P3.2mill; that R refused to to pay his

dues despite demand

11. P - that it is expressly provided under Section 20

of Republic Act (R.A.) No. 4726 that it has the right

to cause the extrajudicial foreclosure of its

annotated lien on the condominium unit. Its

petition then is cognizable by the RTC under

Administrative Matter No. 99-10-05

12. R – objected to P's right to file the petition for

extra-judicial foreclosure, pointing out that the

latter does not hold a real estate mortgage on the

condominium unit or a special power of attorney

to cause the extra-judicial foreclosure sale of said

unit.

1. there is even a pending litigation regarding the

validity of petitioner's constitution as a

homeowners association and its authority to

assess association dues, annotate unpaid

assessments on condominium titles and enforcethe same through extrajudicial foreclosure sale

2. Clerk of Court, as Ex-Officio Sheriff, recommended

to RTC Exec. Judge :

Under the facts given, no mortgage exists between the

petitioner and respondent. Evidently, it is not one of those

contemplated under Act 3135 as amended by Act 4118.

The allegation simply does not show a mortgagor-

mortgagee relationship since respondent liability arises

from his failure to pay dues, assessments and charges due

to the petitioner.

As clearly stated, the authority of the Executive

Judge under Administrative Matter No. 99-10-05-

0, as amended dated March 1, 2001, covers extra-

judicial foreclosure of real estate mortgages under

R.A. No. 3135 and chattel mortgages under P.D.

No. 1508. There is nothing in the above mentioned

Circular which authorizes the Executive Judge

and/or the Ex-Officio Sheriff to extra judicially

foreclose properties covered by obligations other

than the said mortgages. Hence, the subject

petition is not proper for extra-judicial foreclosure

under the supervision of the Executive Judge

Dismissal of the subject petition is recommended

1. TC – denied request for extrajudicial foreclosure

of the subject condo unit and dismissed the

petition; It not within the authority of Exec. Judge

to supervise and approve the extrajudicia

foreclosures of mortgage

ISSUE: WON P has a right to file a petition for extrajudicial

foreclosure?

HELD: NO

2. In order to avail itself of a writ of mandamus

petitioner must establish that it has a clear right to

the extrajudicial foreclosure sale of the

condominium unit of respondent. Under Circular

No. 7-2002, implementing Supreme Court

Administrative Matter No. 99-10-05-0, it is

mandatory that a petition for extrajudicia

foreclosure be supported by evidence that

petitioner holds a special power or authority to

foreclose

3. Without proof of petitioner's special authority to

foreclose, the Clerk of Court as Ex-Oficio Sheriff is

precluded from acting on the application for

extrajudicial foreclosure

4. IN THIS CASE: the only basis of petitioner for

causing the extrajudicial foreclosure of the

condominium unit of respondent is a notice of

assessment annotated on CCT No. 1972 in

accordance with Section 20 of R.A. No. 4726

However, neither annotation nor law vests it with

sufficient authority to foreclose on the property

5. The notice of assessment contains no provision for

the extrajudicial foreclosure of the condominium

unit. All that it states is that the assessment o

petitioner against respondent for unpaid

association dues constitutes a "first lien against

[the] condominium unit




6. Section 20 of RA 4726 does not grant P special

authority to foreclose. It merely prescribes the

procedure by which petitioner's claim may be

treated as a superior lien - i.e., through the

annotation thereof on the title of the

condominium unit.

7. While the law also grants petitioner the option to

enforce said lien through either the judicial or

extrajudicial foreclosure sale of the condominium

unit, Section 20 does not by itself, ipso facto,

authorize judicial as extra-judicial foreclosure of

the condominium unit. Petitioner may avail itself

of either option only in the manner provided for

by the governing law and rules. As already pointed

out, A.M. No. No. 99-10-05-0, as implemented

under Circular No. 7-2002, requires that

petitioner furnish evidence of its special authority

to cause the extrajudicial foreclosure of the

condominium unit.

LANGKAAN REALTY v UCPB

BOHANAN v CA

METROBANK v WONG

FACTS: Mindanao Grains, Inc. applied for a credit

accommodation with petitioner. As security for such credit

accommodation, respondent Wong executed a real estate

mortgage in favor of petitioner. Due to MGI’s failure to pay

the obligation, petitioner filed an application for

extrajudicial foreclosure which was published in PagadianTimes once, for three consecutive weeks setting the date

for the auction sale. No notice was posted in the

municipality or city where the mortgaged property was

situated. The auction sale proceeded and petitioner was

adjudged as the sole and highest bidder. After the

expiration of the one year redemption period, ownership

was consolidated and TCT correspondingly issued in the

name of petitioner.

Respondent unaware of the foregoing developments,applied for a credit accommodation with another bank,

only to find out that his property was already foreclosed

by petitioner. Respondent filed a case assailing the validity

of the extrajudicial foreclosure on the ground that

petitioner did not comply with the procedural

requirements of law.

Petitioner on the other hand justifies his claim by citing

Olizon v. CA, (1) that its failure to comply with the posting

requirement did not necessarily result in the nullification

of the foreclosure sale since it complied with the

publication requirement; and (2) that personal notice of

the foreclosure proceedings to respondent is not a

condition sine qua non for its validity.

ISSUE: 1. WON PERSONAL NOTICE TO RESPONDENT IS A

CONDITION SINE QUA NON TO THE VALIDITY OF THE

FORECLOSURE PROCEEDINGS?

2. WON PETITIONER’S NON-COMPLIANCE WITH

THE POSTING REQUIREMENT IS FATAL TO THE VALIDITY

OF THE FORECLOSURE PROCEEDINGS?

HELD:

1. Section 3 of Act no. 3135 only requires: (1) the

posting of notices of sale in three public places,

and (2) the publication of the same in a

newspaper of general circulation. Personal notice

to the mortgagor is not necessary. Nevertheless,

the parties are not precluded from exacting

additional requirements. In the case at bar, it was

stipulated that notice should be served to the

mortgagor. When petitioner failed to send the

notice of foreclosure sale to respondent, he

committed a contractual breach sufficient to

render the foreclosure sale null and void.

2. The general rule is that non-compliance with the

posting requirement is fatal to the validity of the

foreclosure proceedings. The Olizon case was an

exception due to the unusual nature of the

attendant facts and peculiarity of the confluent

circumstances which are not present in the instant

case. While the law recognizes the right of the

bank to foreclose a mortgage upon the

mortgagor’s failure to pay his obligation, it is

important that such right be exercised according

to its clear mandate. Each and every requirement

of the law must be complied with

PNB v CA

PNB v NEPOMUCENO PRODUCTIONS, INC.

FACTS:

PNB granted respondents (R) a credit line to finance the

filming of the movie “Pacific Connection”. The loan was




secured by mortgages on R’s real and personal properties

(Malugay property, Forbes Park Property and motion

picture equipments). However, R defaulted in their

obligation. PNB sought foreclosure of the mortgaged

properties where pNB was the highest bidder. R filed for

annulment of foreclosure sale since it is null and void for

lack of publication of the notice of sale. LC annulled

foreclosure.

ISSUE: WoN the foreclosure sale was valid despite lack of

publication

SC: NO!

3. Act 3135, governing EJF of mortgages on real

property is specific with regard to the posting and

publication requirements of the notice of sale,

which requires:

1. Posting of notices of sale in 3 public

places

2. Publication of the same in a newspaper of

general circulation.

3. FAILURE TO PUBLISH the notice of sale

constitutes a jurisdictional defect, which

INVALIDATES the sale.

4. RE: WAIVER OF PUBLICATION REQUIREMENTS

1. PNB and R have absolutely NO RIGHT to

waive the posting and publication

requirements of the law.

2. The principal object of a notice of sale in a

foreclosure of mortgage is not so much to

notify the mortgagor as to inform the

public generally of the nature andcondition of the property to be sold, and

of the time, place and terms of the sale

5. Notice is given to secure bidders and prevent a

sacrifice of the property

6. Statutory requirement of Publication is mandatory

not for the mortgagor’s benefit, but for the public

or 3rd persons.

PNB v SPOUSES CABATINGAN

FACTS:

1) Respondent spouses Cabatingan obtained two loans,

secured by a real estate mortgage, in the total amount of

P421,200 from petitioner PNB. They were unable to fully

pay their obligation despite having been granted more

than enough time to do so.

2) Thus, PNB extrajudicially foreclosed on the mortgage.

Thereafter, a notice of extrajudicial sale was issued.

Pursuant to this, the properties were sold at public auction

on November 5, 1991. PNB was the highest bidder.

3) On March 16, 1993, respondent spouses filed

in the RTC a complaint for annulment of

extrajudicial foreclosure of real estate mortgage

and the November 5, 1991 auction sale.

4) Petitioners claimed that the provisions of ACT no. 3135

must be observed strictly. Thus, because the public auction

of the foreclosed properties was held for only 20 minutes

(instead of seven hours as required by law), the

consequent sale was void. Thus, the RTC issued an order

annulling the sale at public auction.

ISSUE: Whether a sale at public auction, to be valid, must

be conducted the whole day from 9:00 a.m. until 4:00 p.m.

of the scheduled auction day.

HELD:

A) Section 4 of Act 3135 provides that the sale

must take place between the hours of nine in themorning and four in the afternoon.

B) A creditor may foreclose on a real estate mortgage only

if the debtor fails to pay the principal obligation when it

falls due. But the foreclosure of a mortgage does not

extinguish a debtor’s obligation to his creditor. The

proceeds of a sale at public auction may not be sufficient to

extinguish the liability of the former to the latter. For this

reason, Section 4 of Act 3135 should be construed in such

a way that affords the creditor greater opportunity to

satisfy his claim without unduly rewarding the debtor for

not paying his just debt.

C) The word “between” ordinarily means “in the time

interval that separates.” Thus, “between the hours of nine

in the morning and four in the afternoon” merely provides

a time frame within which an auction sale may be

conducted. Therefore, a sale at public auction held within

the intervening period provided by law is valid, without

regard to the duration or length of time it took the

auctioneer to conduct the proceedings. Since it was

conducted within the time frame provided by law, the sale

was valid.

MONZON v RELOVA

DOCTRINE: Any person having a lien on the property

subsequent to the mortgage or deed of trust under which

the property is sold, may redeem the same at any time

within the term of one year from and after the date of sale.




Even if, for the sake of argument, Rule 68 is to be

applied to extrajudicial foreclosure of mortgages, such

right can only be given to second mortgagees who are

made parties to the (judicial) foreclosure. While a second

mortgagee is a proper and in a sense even a necessary

party to a proceeding to foreclose a first mortgage on real

property, he is not an indispensable party, because a valid

decree may be made, as between the mortgagor and the

first mortgagee, without regard to the second mortgagee;but the consequence of a failure to make the second

mortgagee a party to the proceeding is that the lien of the

second mortgagee on the equity of redemption is not

affected by the decree of foreclosure.

SAGUAN v PBCOM

Facts:

1. Saguan obtained a loan of 3M from PBC and

mortgaged his 5 lands.

2. Saguan defaulted.

3. PBC extrajudicially foreclosed the property andwon as the highest bidder in the auction sale.

4. Because Saguan failed to redeem, the properties

were consolidated in the name of PBC which later

on filed a writ of possession.

5. Saguan filed an opposition since PBC failed to

return the excess amount of the extrajudicial

foreclosure sale.

6. PBC points to Saguan’s remaining unsecured

obligations with the former to which the excess or

surplus proceeds were applied.

Issue:

1. WON the writ of possession should be issued?

2. WON PBC may unilaterally apply the excess

proceeds to petitioner’s remaining unsecured

obligations?

Held:

. Yes. A writ of possession is an order enforcing a

judgment to allow a person’s recovery of possession of

real or personal property. This writ may be issued

either 1) within the one-year redemption period, upon

filing of the bond, 2) after the lapse of the redemption

period, without the need of a bond.

In this case, the issuance of RTC of a writ of possession

in favor of PBC is proper since the redemption period

has already expired. The duty of the trial court to grant

a writ of possession in such instances is ministerial,

and the court may not exercise discretion or judgment

Even if the excess proceeds were not returned to the

petitioner, the writ is still valid.

A party may file a petition to set aside the foreclosure

sale to cancel the writ of possession in the same

proceeding where the writ was requested. However, in

this case, petitioners do not challenge the validity of

the foreclosure only the contention that the excess

proceeds were not returned to them.

2. No. The foreclosure of petitioner’s properties was

meant to answer only the obligation secured by the

mortgage. Even if the petitioners have remaining

obligations with the respondent, these obligations

were not collateralized by the foreclosed mortgage.

The petitioners’ remedy lies in a separate civil action

for collection of a sum of money and not an action to

set aside the foreclosure sale.

SUICO v CA

QUIRINO GONZALES v CA

Facts: Petitioners applied for credit accommodations with

respondent bank, which the bank approved granting a

credit line of Php900,000.00. Petitioner’s obligations were

secured by a real estate mortgage on four parcels of land.

Also, petitioners had made certain advances in separate

transactions from the bank in connection with QGLC’s

exportation of logs and executed a promissory note in

1964.

Due to petitioner’s long default in the payment of their

obligations under the credit line, the bank foreclosed the

mortgage and sold the properties covered to the highest

bidder in the auction. Respondent bank, alleging non-

payment of the balance of QGLC’s obligation after the

proceedings of the foreclosure sale were applied and non-

payment of promissory notes despite repeated demands,

filed a complaint for sum of money against petitioners.

Petitioners, on the other hand, asserted that the complaint

states no cause of action and assuming that it does, the

same is barred by prescription or void for want of

consideration.

Issue: Whether or not the cause of action is barred by




prescription.

Held: An action upon a written contract, an obligation

created by law, and a judgment must be brought within 10

years from the time the right of action accrues.

The finding of the trial court that more than ten years had

elapsed since the right to bring an action on the Bank’s

first to sixth causes had arisen is not disputed. The Bank

contends, however, that the notices of foreclosure sale inthe foreclosure proceedings of 1965 are tantamount to

formal demands upon petitioners for the payment of their

past due loan obligations with the Bank; hence, said

notices of foreclosure sale interrupted the running of the

prescriptive period.

The Bank’s contention has no merit. Prescription of actions

is interrupted when they are filed before the court, when

there is a written extrajudicial demand by the creditors,

and when there is any written acknowledgment of the debt

by the debtor.

The law specifically requires a written extrajudicial

demand by the creditor which is absent in the case at bar.

The contention that the notices of foreclosure are

tantamount to a written extrajudicial demand cannot be

appreciated, the contents of said notices not having been

brought to light.

But even assuming that the notices interrupted the

running of the prescriptive period, the argument would

still not lie for the following reasons:

The Bank seeks the recovery of the deficient amount of the

obligation after the foreclosure of the mortgage. Such suit

is in the nature of a mortgage action because its purpose is

to enforce the mortgage contract. A mortgage actionprescribes after ten years from the time the right of action

accrued.

The law gives the mortgagee the right to claim for the

deficiency resulting from the price obtained in the sale of

the property at public auction and the outstanding

obligation proceedings. In the present case, the Bank, as

mortgagee, had the right to claim payment of the

deficiency after it had foreclosed the mortgage in 1965. as

it filed the complaint only on January 27, 1977, more than

ten years had already elapsed, hence, the action had then

prescribed.

PIANO v CAYANONG

FACTS: On March 17, 1952, the plaintiffs commenced an

action to foreclose a mortgage executed by the defendant

in favor of the plaintiffs upon a parcel of land. The parties-

litigant submitted a compromise agreement.

The defendant failed to pay the obligation within the

period set by the Court; so the property in question was

sold at public auction on Jan. 30, 1952(should be 1953) per

order of the court, by the deputy sheriff of Maasin, Leyte,

to the plaintiffs, they being the only bidders for P2,475.

The certificate of sheriff's sale contained the provision that

the said property is subject "to redemption within one

year from the date hereof in the manner provided by the

law applicable to the case." On March 11, 1953, theplaintiffs filed a motion for the confirmation of the sale

executed by the sheriff, which was unopposed by the

defendant. The sale was confirmed by the Court on March

21, 1953.

Thereafter, the plaintiffs filed a petition for writ of

possession; by virtue of such petition the court adjudicated

possession to the plaintiffs on Aug. 15, 1953. On Aug. 20,

1953, the deputy clerk issued the writ of possesion prayed

for by the plaintiffs.

On Jan. 26, 1954, the defendant deposited with the court

the sum of P2,783.93, P2,772 of which was in the concept

of redemption deposit to be delivered to Generosa

Cayanong and her husband.

The oppositor Francisco Pilapil, on Feb. 11, 1954, filed an

opposition to the defendants' motion of Jan. 26, 1954,

claiming that the property, subject of foreclosure, having

been sold at a judicial foreclosure sale, was not subject to

redemption after the judicial sale was confirmed, title

thereto having been fully vested and consolidated in favor

of Cayanong and Bellones, their assignees and successors-

in-interest.

ISSUE: Whether the property subject of foreclosure, having

been sold at a judicial foreclosure sale is subject to

redemption after the judicial sale was confirmed.

RULING:

In a foreclosure of mortgage under Rule 70 of the Rules of

Court, there is no right of redemption after the sale is

confirmed, although there is an equity of redemption in

favor of the mortgagor or junior encumbrancer, consisting

in the right to redeem the mortgaged property within the

90-day period, or even thereafter, but before theconfirmation of the sale.

It is only in cases of foreclosures of mortgages in favor of

banking and credit institutions (Sec. 76, General Banking

Act [Rep. Act 337]), to the Philippine National Bank (Acts

Nos. 2747, and 2938), and in extrajudicial foreclosures

(Act 3135 as amended by Act 4118), where, by express

provision, the law allows redemption. In all other

foreclosure cases, there is no legal redemption.




The sheriff, therefore, has no authority to grant or insert a

period of redemption in the certificate of sale, when the

same is conducted pursuant to Rule 70 and, wanting in

said authority, any insertion therein has no validity and

effect. Once the judicial sale is confirmed by the court, the

rights are vested in the purchaser (Sec. 3, Rule 70).

LANDRITO v CA

FACTS:

1. P obtained a loan of P350k from R and secured

payment by executing a deed of real estate

mortgage of their parcel of land at Muntinlupa;

obtained again another loan P 1mill and was

granted by R with an amendment of real estate

mortgage

2. P defaulted and refused to comply with their

obligation despite repeated demands

3. R filed a petition for the extrajudicial foreclosure

of the mortgage. Mortgaged property was sold in a

public auction with R as highest bidder. R

registered sheriff’s certificate of sale.

4. P filed a complaint for annulment of the

extrajudicial foreclosure and auction sale and

alleged that said foreclosure and auction sale were

null and void for failure to comply with

requirements of notice and publication; the

mortgaged property was illegally foreclosed;application for consolidation of title was

premature because the R’s Husband granted them

an extension of the period of redemption

5. TC – granted R’s Motion to Dismiss; action already

barred by laches. CA affirmed

ISSUE: WON the extrajudicial foreclosure and public

auction sale of the subject parcel of land are valid and

lawful?

HELD: YES

1. Records indubitably show that at the time of the

foreclosure sale on 11 August 1993, petitioners

were already in default in their loan obligation to

respondent Carmencita San Diego.

2. A final notice of demand for payment had been

sent to them, despite which they still failed to

pay. Hence, respondent Carmencita San Diego’s

resort to extrajudicial foreclosure, provided no

less in the parties’ “ Amendment of Real Estate

Mortgage”.

3. The rule has been, and still is, that in real estate

mortgage, when the principal obligation is not

paid when due, the mortgagee has the right to

foreclose on the mortgage and to have the

mortgaged property seized and sold with the view

of applying the proceeds thereof to the payment of

the obligation

4. IN THIS CASE: The validity of the extrajudicial

foreclosure on 11 August 1993 was virtually

confirmed by the trial court when it dismissed

petitioners’ complaint, and rightly so, what with

the fact that petitioners failed to exercise their

right of redemption within the 1-year periodtherefor counted from the registration of the

sheriff’s certificate of sale.

5. It appears from the evidence on record that

despite due notice and publication of the same in a

newspaper of general, P did not bother to attend

the foreclosure sale nor raise any question

regarding the propriety of the sale.

6. It was only on November 9, 1994, or more than

one year from the registration of the Sheriff’s

Certificate of Sale, that P filed the instantcomplaint. Clearly, P had slept on their rights and

are therefore guilty of laches, which is defined as

the failure or neglect for an unreasonable or

explained length of time to do that which, by

exercising due diligence, could or should have

been done earlier, failure of which gives rise to the

presumption that the person possessed of the

right or privilege has abandoned or has declined

to assert the same.

7. In Lazo v. Republic Surety & Insurance Co., Inc., this

Court has made it clear that it is only where, by

voluntary agreement of the parties, consisting of

extensions of the redemption period, followed by

commitment by the debtor to pay the

redemption price at a fixed date, will the

concept of legal redemption be converted into one

of conventional redemption.




8. IN THIS CASE: There is no showing whatsoever

that petitioners agreed to pay the redemption

price on or before 11 November 1994, as allegedly

set by Mrs. San Diego’s husband. On the contrary,

their act of filing their complaint on 09 November

1994 to declare the nullity of the foreclosure sale

is indicative of their refusal to pay the redemption

price on the alleged deadline set by the

husband. At the very least, if they so believed that their loan obligation was only for P1,000,000.00,

petitioners should have made an offer to redeem

within one (1) year from the registration of the

sheriff’s certificate of sale, together with a tender

of the same amount. This, they never did.

METROBANK v TAN

IBAAN RURAL BANK v CA

RAMIREZ v CA

FACTS: One Ronnie Garcia executed a first mortgage over a

parcel of land in favor of PNB as a security for a loan

granted by PNB. The deed was registered with the Register

of Deeds and annotated in the title of the mortgaged

property. During the subsistence of the first mortgage,

Ronnie executed a second mortgage over the same

property in favor of private respondent Marmeto which

was also recorded on the title. For failure to pay his loan,

PNB extra-judicially foreclosed the mortgage and a

Certificate of Sale was issued in its favor on Nov. 8, 1977.

The second mortgage was also extra-judicially foreclosedand a Certificate of Sale was issued in favor of Marmeto on

June 27, 1978.

On February 1980, Ronnie executed a “Waiver and

Renunciation of Rights” with respect to his right of

redemption with respect to the first mortgage in favor of

his father. The latter assigned his right to petitioner Nimfa

Ramirez, who in turn paid the total redemption price to

PNB which accepted it. Meanwhile, Ronnie having not

exercised his right of redemption over the second

mortgage, Marmeto filed in court for the Consolidation of

Ownership over the mortgaged property to which

petitioner Ramirez filed an adverse claim.

ISSUE:

1. Whether Ramirez had acquired any right by virtue

of her having redeemed the property in question

beyond the one-year redemption period?

2. What will be the effect of the redemption by

Ramirez on private respondent Marmeto?

HELD:

1. Yes, by accepting the redemption price after the

statutory period for redemption had expired, PNB

is considered to have waived the one (1) year

period within which Ramirez could redeem the

property. There is nothing in the law which

prevents such a waiver. Allowing a redemption

after the lapse of the statutory period, when the

buyer at the foreclosure does not object but even

consents to the redemption, will uphold the policy

of the law. Thus, there is no doubt that the

redemption made by petitioner Ramirez is valid.

2. The rule is well settled that a second mortgagee

merely takes what is called an equity o

redemption and thus a second mortgagee has to

wait until after the debtor's obligation to the firstmortgagee has been fully settled. The rights of a

second mortgagee are strictly subordinate to the

superior lien of the first mortgagee. In the case at

bar, the proper foreclosure of the first mortgage

gave, not only the first mortgagor, but also

subsequent lien holders like Marmeto, the right to

redeem the property within the statutory period

Marmeto failed to make the redemption but

instead it was the petitioner who made such

redemption.

TOLENTINO v CA

SPOUSES OLIVEROS v PRESIDING JUDGE

FACTS:

The mortgagors (P) obtained 2 loans for the construction

of the Cabuyao Commercial Complex for P58M as

evidenced by promissory notes from Metrobank (R). To

secure the loans, Spouses Oliveros and Nevalga executed a

Deed of Real Estate Mortgage in favor of Metrobank over

the 3 parcels of land together with all the buildings and

improvements existing thereon. Due to the failure of

mortgagors to pay their loan, Metrobank instituted an EJF

over the Real Estate Mortgage. Metrobank won the bid.

Mortgagors failed to redeem the property hence,

Metrobank consolidated its title to the subject property.

Metrobank demanded P to turn over the actual possession

of the property but the mortgagors failed and refused to do

so. Metrobank filed a writ of possession which the

Petitioner Spouses opposed claiming thata pending case




was in another court for nullification of foreclosure

proceedings.

ISSUE: WoN a writ of possession is proper when there is a

pending case to nullify the foreclosure sale

SC: YES!

3. Metrobank purchased the properties at a public

auction following the EJF of the subject properties.Certificate of sale over the properties were issued

in favor of Metrobank and registered with RD. P as

mortgagors failed to redeem the properties within

the 1 year period of redemption hence Metrobank

consolidated its ownership over the subject

properties.

4. Metrobank having consolidated its title to the

mortgaged properties is even more entitled now

to possession thereof and makes more

unmistakable its right to file an ex parte motion

for the issuance of a writ of possession.

5. The issuance of the writ of possession becomes a

mere ministerial duty on the part of the judge,

regardless of WoN there is a pending action for

nullification of the sale at public auction or

foreclosure itself

CHINA BANK v ORDINARIO

FACTS:

1) Petitioner ChinaBank granted 3 loans to

TransAmerican owned by spouses Garcia, secured by real

estate mortgages constituted by Jesus Garcia 45 parcels of land The contracts of mortgage were all registered in the

same Registry. Subsequently for failure of TransAmerican

to pay its loans, Chinabank foreclosed extrajudicially the

three real estate mortgages which were then sold at public

auction for P38,004,205.01 to the same bank. The

Certificate of Sale was then registered in the Registry of

Deeds of Quezon City.

2) Thereafter Chinabank filed with the RTC a petition for

issuance of a writ of possession, which was granted, thus

placing Chinabank in possession of the 45 parcels of land.

Then, spouses Ordinario, filed a motion for

reconsideration praying that the parcel of land be excluded

from the above order alleging, that they purchased the

land covered on which was constructed their townhouse

and that the mortgage foreclosure cannot prevail over

their superior right as legitimate buyers of the area.

3) To this, Chinabank filed its opposition to respondents’

motion for reconsideration. The trial court denied Sps

Ordinario’s motion for reconsideration. On appeal, this

was overturned by the CA.

HELD:

A) Under Section 7 of Act No. 3135, the purchaser in a

foreclosure sale is entitled to possession of the property.

Thus the writ prayed for by petitioner granting it

possession has to be issued as a matter of course, being a

ministerial duty of the trial court to grant such writ of

possession. No discretion is left for the trial court .

B) Under the Rules of Court a third-party claimant or a

stranger to the foreclosure suit, like respondents herein,

can opt to file a remedy known as terceria against the

sheriff or officer effecting the writ by serving on him an

affidavit of his title and a copy thereof upon the judgment

creditor. By the terceria, the officer shall not be bound to

keep the property and could be answerable for damages. A

third-party claimant may also resort to an independent

"separate action," the object of which is the recovery of ownership or possession of the property seized by the

sheriff, as well as damages arising from wrongful seizure

and detention of the property despite the third-party

claim. If a "separate action" is the recourse, the third-party

claimant must institute in a forum of competent

jurisdiction an action, distinct and separate from the action

in which the judgment is being enforced, even before or

without need of filing a claim in the court that issued the

writ. Both remedies are cumulative and may be availed of

independently of or separately from the other. Availment

of the terceria is not a condition sine qua non to the

institution of a "separate action."

C) In essence, the Court of Appeals committed palpable

error when it granted Spouses Ordinario’s motion for

reconsideration and set aside the orders dated April 10,

1991 and September 21, 1992 of the RTC. Thus, the

appealed Decision and Resolution of the Court of Appeals

are REVERSED and SET ASIDE. The orders of the RTC,

Branch 90, Quezon City, directing the issuance of a writ of

possession in favor of petitioner bank are AFFIRMED.

ANTICHRESIS

DELA VEGA v BALLILOS

BARRETTO v BARRETTO

Facts:




. After the death of Juan Antonio Barretto, Sr., his son

Juan Antonio Grandpre, in his own behalf and as the

executor of his father, mortgaged, the cultivated half of

said hacienda in favor of Antonio Vicente Barretto as

security for the amount of P11,000 which the latter

loaned to him.

. By verbal agreement, Antonio will collect his credit

from the products of the property.

. His three children and heirs Antonio Ma Barretto,Ricardo Esteban Barretto, and Guadalupe Barretto

came to succeed after the death of Antonio.

. Guadalupe made a donation inter vivos in favor of the

plaintiff Alberto Barretto of the undivided one-third

part of the hypothecary credit and of the rights

belonging to her deceased father Antonio Vicente

Barretto, assigning to the donee all the rights and

actions which she might have in the foreclosure

proceedings exhibited at the trial of the present action,

on the condition that as soon as the donee Alberto

Barretto could collect the said one-third part of the

credit or should obtain the assignment of the property

of the debtor, he would divide what was donated, into

nine equal parts among the donee himself and six

living brothers and the heirs of their two brothers now

dead, each receiving one-ninth part.

. Alberto Barretto, complying with the condition

imposed in said document of the donation paid to each

of his brothers and nephews, and in exchange for the

sums received as such price his co-donees assigned

and conveyed to him one-eight part of the third of the

said hacienda and whatever rights and interests the

grantors might have by virtue of the said donation infavor of the plaintiff Barretto.

. It is to be noted that the plaintiff bought one-eight

undivided part of the third of the whole hacienda of

Balintagac and paid to every claimant the price of the

eight part sold to him. The third part of the ownership

of the hacienda was transferred to the plaintiff by the

donor Guadalupe Barretto.

. Antonio and Ricardo, as grantors, sold and conveyed

all their rights and actions included and derived from

the said hypothecary credit for the price of P14,000

which would be paid by the grantee and vendee byinstallments and in the manner prescribed in the said

deed, assigning to him, besides, all the rights which the

said brothers had over the two-third parts of the said

hacienda.

Issue: WON there was a transfer of ownership to Alberto?

Held:

No. the plaintiff did not obtain by assignment, sale, or

transfer, as expressed in said deeds, the ownership of the

said hacienda of Balintagac, but only the hypothecary

credit which the heirs of the deceased creditor Antonio

Vicente Barretto had inherited from the latter, after the

plaintiff had obtained from his other brothers the

conveyance of their respective rights to the donation.

The rights acquired by the creditor were transmitted by

hereditary title through operation of law to the heirs of the

same Antonio M.a, Ricardo Esteban, and Guadalupe,

Barretto y Rocha and these in turn assigned, sold and

transferred the credit with all their rights as hypothecary

creditors, as well as the right to the usufruct of all the

hacienda of Balintagac to the plaintiff Alberto Barretto.

When in the record of an action it is fully established that

the parties indebted in a certain amount, which is secured

with a mortgage over ½ of their hacienda, having delivered

to the creditor not only the mortgaged half but the whole

hacienda, not in the nature of an assignment of property in

payment of a debt, still unpaid, but with the object that the

creditor may collect by means of usufruct his credit and

the interest agreed upon, the verbal contract which is

inferred from such facts and presumed to have been

entered into between the parties, although not set in any

document, deserves in law the name of antichresis as

defined in Article 1881 of the Civil Code.

By the antichresis a creditor acquires a right to

receive the fruits of real property of his debtor,

with the obligation to apply them to the

payment of the interest, if due, and afterwards

to the principal of his credit.

The creditor in antichresis cannot by mere possession of

the real property which he received by virtue of anantichresis acquire ownership over the same for failure of

the debtor to pay the debt within the stipulated time, any

agreement to the contrary being void; and the debtor on

his part cannot recover the enjoyment and use of the real

property given in antichresis to the creditor, without

having previously paid the latter all his debt and interests

thereon, the creditor being entitled to ask the courts that

the said real property be sold to satisfy his credit.




With regard to prescription, the creditor in antichresis can

never by prescription acquire the ownership of the real

property received in antichresis, as he entered into the

possession of the same not as an owner but as a creditor

with right only to collect his credit from the fruits of said

real property.

The extinguishment of the right as creditor and the

termination of his use and possession of the real property

given in antichresis depend upon the full payment of the

debt and its interests, after the liquidation of the amounts

entered on the account of the debtors and received by the

creditor.

LEGAZPI & SALCEDO v CELESTIAL

ANGELES v SEC. OF JUSTICE

PANDO v GIMENEZ

FACTS: This action was instituted for the purpose of

foreclosing a mortgage executed by defendant Antonio

Gimenez. Massy Teague was also impleaded for having

purchased at public auction one of the mortgaged

properties.

In order to secure the payment of P8,000 which the

defendant Gimenez owed the plaintiff, he mortgaged the

house at No. 655 Santa Mesa, Manila, and the leaseholdright on the lot upon which it stands (Exhibit A). This was

payable on October 27, 1925, but, in spite of nonpayment,

the creditor, who is the plaintiff herein, did not foreclose

the mortgage.

The defendant was leaving the City of Manila in order to

attend to his business in the Province of Cagayan, and at

the special instance and request of the herein plaintiff, said

defendant gave to the plaintiff the full control, and

complete and absolute administration of the building and

the parcel of land on which said building was erected,

situated in Santa Mesa, District of Santa Mesa, mortgaged

to the plaintiffIt and it was agreed between them that the

plaintiff would collect the rents of said house, in order to

apply them to the payment of interest on the amount of the

indebtedness.

For default in the payment of taxes for the years 1925 and

1926, the house was on November 23, 1926 sold at public

auction, and, for failure to exercise the right of legal

redemption, the City of Manila, the attachment creditor

and vendor of the property, executed a final deed of sale in

favor of the purchaser, the other defendant Massy Teague.

Furthermore, for default in the payment of the rents due

on the lot of said house for the years 1925 to 1928, the

Santa Mesa estate, the lessor of said land, cancelled the

lease on July 13, 1928, pursuant to the terms of the

contract.

The appellant Gimenez contends that the plaintiff was

responsible for the delinquency in the payment of both the

tax on the house and the rent of the lot, which caused him

the loss of the said house and the leasehold right on the lot

because the plaintiff was at that time in charge of the

administration of the premises with the obligation to

attend to the payment of the tax and the rents.

The plaintiff denied that he had such obligation, alleging

that his duties were confined to the collection of the rents

of the house in order to apply them to the payment of theinterest on the mortgage.

Such was in fact the original agreement; but the appellant

asserts that it was modified by the letter.

ISSUE: Whether or not the the administration of the

property in question assumed by the plaintiff toward the

end of October, 1925 is antichretic in character.

RULING:

Taking into account the language of the letter Exhibit 1 andthe appellant's unimpeached testimony, we are

constrained to hold that it has been proved by a

preponderance of evidence, that even though at first the

plaintiff had only undertaken to collect the rents of the

house, later on, towards the end of October, 1925, he

assumed the obligation to pay both the tax on the house,

and the rent of the lot.

As to the consideration contained in the judgment

appealed from to the effect that, in view of the reduction of

the rent of the house in May, 1926, the plaintiff would not

have accepted the administration under the conditions

alleged by the defendant-appellant, it must be

remembered that the plaintiff took over such complete

administration months before such reduction of rents, and

it does not appear that the reduction was foreseen.

From all these circumstances it follows that the

administration of the property in question assumed by the

plaintiff toward the end of October, 1925 is antichretic in

character, and therefore justice and equity demand that




application be here made of the Civil Code provisions

touching the obligations of the antichretic creditor, to wit:

The creditor is obliged to pay the taxes and

charges which burden the estate, in the absence of

an agreement to the contrary.

He shall also be obliged to pay any expenses

necessary for its preservation and repair.

Any sums he may expend for such purposes shall

be chargeable against the fruits. (Art. 1882, Civil

Code.)

These obligations arise from the very nature of the

covenant, and are correlated with the plaintiff's acquired

right to take charge of the property and collect the fruits

for himself.

PERALTA v QUIMPO51 OG No. 3 p. 1383, Sept 1954

NO COPY AVAILABLE

VILLANUEVA v IPONDO

CHATTEL MORTGAGE

ALEMAN v CATERA

ALLIED BANK v SALAS

FACTS: Petitioner-bank (through petitioner’s predecessor)

granted Gencor Marketing, Inc. a time loan and was

secured by a Deed of Chattel Mortgage over certain

printing machineries and equipments; said deed was

recorded in the Chattel Mortgage Registry in Feb. 7, 1974.

Gencor failed to pay prompting petitioner to extra

judicially foreclose the mortgage and requested the Sheriff

of Quezon City to effect the said foreclosure. Upon issuanceof the Notice of Sheriff’s sale, private respondent filed a

motion in court to enjoin the public auction alleging that

the properties have been previously levied and attached by

the Sheriff of Rizal.

Metrobank is a creditor of Gencor’s president and claims

the properties as the exclusive property of the president

doing business under the firm name of Gencor Printing

and as such may not be foreclosed and sold at auction.

During the trial it was admitted by petitioner that the

properties belonged to the president and not to Gencor.

ISSUE: WHO between the two claimants has a better right

over the property.

HELD: Petitioner has the better right. Even though

petitioner admitted that it was the president and not

gencor who owned the properties, the Court nevertheless

finds that the chattel mortgage over the printing

machineries and equipment was ratified and approved by

Clarencio Yujuico. As earlier stated and as pointed out by

petitioner, it was Clarencio Yujuico as president of Gencor

Marketing, Inc., who signed the promissory note

evidencing the time loan granted by petitioner's

predecessor General Bank and Trust Company in favor o

Gencor Marketing, Inc.

Finding the chattel mortgage to be valid, the Court takes

special note of the fact that said chattel mortgage was

registered and duly recorded in the Chattel MortgageRegistry of Quezon City on February 7, 1974, prior to April

22, 1977, the date the writ of attachment of the properties

in question was issued. This is a significant factor in

determining who of two contending claimants should be

given preference over the same properties in question.

The registration of the chattel mortgage more than three

years prior to the writ of attachment issued by respondent

judge is an effective and binding notice to other creditors

of its existence and creates a real right or a lien, which

being recorded, follows the chattel wherever it goes. 7 The

chattel mortgage lien attaches to the property wherever itmay be. Thus, private respondent as attaching creditor

acquired the properties in question subject to petitioner's

mortgage lien as it existed thereon at the time of the

attachment.

In this regard, it must be stressed that the right of those

who so acquire said properties should not and cannot be

superior to that of the creditor who has in his favor an

instrument of mortgage executed with the formalities of

law, in good faith, and without the least indication of fraud8

Applying the foregoing principle to the case at bar, the

Court finds the lien of petitioner's chattel mortgage over

the mortgaged properties in question superior to the levy

on attachment made on the same by private respondent as

creditor of chattel mortgagor Clarencio Yujuico. What may

be attached by private respondent as creditor of said

chattel mortgagor is only the equity or right of redemption

of the mortgagor.




MAKATI LEASING v WEAREVER TEXTILES

TSAI v CA

FACTS:

8. Ever Textile (R) obtained a P3M loan from PBCOM

(P), with Real Property and Chattel Mortgage over

the lot, where its factory stands and the chattels

located therein as enumerated in its attached

schedule9. A 2nd loan was obtained secured by a Chattel

Mortgage over personal properties listed in its

attached list, which is similar to the attached list

to the 1st mortgage.

10. On the same date of the 2nd loan, R purchased

various machines and equipments

11. Later, R filed insolvency proceedings

12. P commenced an extrajudicial foreclosure (EJF),

wherein P won the bid and the properties were

leased and later sold to Tsai. P sold the factory,

properties and the contested machineries of R.

13. R filed for annulment of sale contending that the

machineries bought by R which are not included

in the list should be excluded from the sale to TSAI

14. P contended that the machineries, which are

connected to the land, are part of the real estate

stated in the Mortgage.

15. RTC and CA ruled in favor of R.

ISSUE: WoN the contested machineries (property bought

by R on the same day that the 2nd loan was executed)

should be inlcluded in the auction sale and sale to TSAI

SC: NO!

16. Based on the pieces of evidence, the true intention

of P and R is to treat machinery and equipment as

chattels.

17. The controverted machineries are not covered by

or included in either of the 2 mortgages

18. The machineries were not included in the Notice

of Sale

19. An immovable may be considered a personal

property if there is a stipulation as when it is used

as security in the payment of an obligation wherea chattel mortgage is executed over it, as in the

case at bar.

DOCTRINE: a chattel mortgage shall be deemed to cover

only the property described therein and not like or

substituted property thereafter acquired by the mortgagor

and placed in the same depository as the property

originally mortgaged.

ACME SHOE v CA

FACTS:

1) Petitioner Chua Pac, the president and general manager

of co-petitioner Acme Shoe, executed on June 1978, for and

in behalf of the company, a chattel mortgage in favor of

private respondent Producers Bank of the Philippines as

security for petitioner's corporate loan of P3,000,000.00. It

was stated that:

“In case the MORTGAGOR executes subsequent promissory

note or notes either as a renewal of the former note, as an

extension thereof, or as a new loan, or is given any other

kind of accommodations such as overdrafts, letters of credit,

acceptances and bills of exchange, releases of import

shipments on Trust Receipts, etc., this mortgage shall also

stand as security for the payment of the said promissory

note or notes and/or accommodations without the necessity

of executing a new contract and this mortgage shall have

the same force and effect as if the said promissory note or

notes and/or accommodations were existing on the datethereof. This mortgage shall also stand as security for said

obligations and any and all other obligations of the

MORTGAGOR to the MORTGAGEE of whatever kind and

nature, whether such obligations have been contracted

before, during or after the constitution of this mortgage”

2) On 10 and 11 January 1984, the bank yet again

extended to petitioner corporation a loan of P1,000,000.00

covered by four promissory notes for P250,000.00 each.

Due to financial constraints, the loan was not settled at

maturity. The bank then applied for an extra judicial

foreclosure of the chattel mortgage, with the Sheriff of

prompting Acme to file an injunction, which was

dismissed. The court also ordered the foreclosure of the

chattel mortgage. It held petitioner corporation bound by

the stipulations.

ISSUE: Whether it is valid and effective to have a clause in

a chattel mortgage that purports to likewise extend its

coverage to obligations yet to be contracted or incurred.

HELD:

A) Contracts of security are either personal or real. In

contracts of personal security, such as a guaranty or a

suretyship, the faithful performance of the obligation by

the principal debt or is secured by the personal

commitment of another.

B) In contracts of real security, such as a pledge, a

mortgage or an antichresis, that fulfillment is secured by




an encumbrance of property — in pledge, the placing of

movable property in the possession of the creditor; in

chattel mortgage, by the execution of the corresponding

deed substantially in the form prescribed by law; in real

estate mortgage, by the execution of a public instrument

encumbering the real property covered thereby; and in

antichresis, by a written instrument granting to the

creditor the right to receive the fruits of an immovable

property with the obligation to apply such fruits to thepayment of interest, if owing, and thereafter to the

principal of his credit — upon the essential condition that

if the obligation becomes due and the debtor defaults, then

the property encumbered can be alienated for the payment

of the obligation, but that should the obligation be duly

paid, then the contract is automatically extinguished

proceeding from the accessory character 8 of the

agreement.

C) While a pledge, real estate mortgage, or antichresis may

secure after-incurred obligations so long as these future

debts are accurately described, a chattel mortgage, can

only cover obligations existing at the time the mortgage is

constituted.

D) Although a promise expressed in a chattel mortgage to

include debts that are yet to be contracted can be a binding

commitment that can be compelled upon, the security

itself, however, does not come into existence or arise until

after a chattel mortgage agreement covering the newly

contracted debt is executed either by concluding a fresh

chattel mortgage or by amending the old contract. Refusal

on the part of the borrower to execute the agreement so asto cover the after-incurred obligation can constitute an act

of default on the part of the borrower of the financing

agreement whereon the promise is written but the remedy

of foreclosure can only cover the debts extant at the time

of constitution and during the life of the chattel mortgage

sought to be foreclosed.

E) A chattel mortgage, as hereinbefore so intimated, must

comply substantially with the form prescribed by the

Chattel Mortgage Law itself. One of the requisites, under

Section 5 thereof, is an affidavit of good faith. The fact, .that

the statute has provided that the parties to the contract must execute an oath that “the mortgage is made for the

purpose of securing the obligation specified in the conditions

thereof, and for no other purpose, and that the same is a just

and valid obligation, and one not entered into for the

purpose of fraud” means that the debt referred to in the

law is a current, not an obligation that is yet merely

contemplated.

F) In the chattel mortgage here involved, the only

obligation specified in the chattel mortgage contract was

the P3,000,000.00 loan which petitioner corporation later

fully paid. By virtue of Section 3 of the Chattel Mortgage

Law, the payment of the obligation automatically rendered

the chattel mortgage void or terminated. In other words,

“A mortgage that contains a stipulation in regard to future

advances in the credit will take effect only from the date

the same are made and not from the date of the mortgage.”

CERNA v CA

MAGNA FINANCIAL v COLARINA

Facts:

1. Elias Colarina bought on installment from Magna

Financial Services (MFS) one Suzuki Multicab.

2. After making a down payment, Colarina executed a

promissory note for the balance of P229,284.00payable in 36 equal monthly installments. To secure

payment, Colarina executed an integrated promissory

note and deed of chattel mortgage over the motor

vehicle.

3. Colarina failed to pay the monthly amortization

accumulating an unpaid balance of P131,607.00.

4. Despite repeated demands, he failed to make the

necessary payment.

5. MFS filed a Complaint for Foreclosure of Chattel

Mortgage with Replevin.

6.

Upon the filing of a Replevin Bond, a Writ of Replevinwas issued. Summons, together with a copy of the Writ

of Replevin, was served on Colarina who voluntarily

surrendered physical possession of the vehicle to the

Sheriff.

7. The motor vehicle was turned over by the sheriff to

Magna Financial Services Group, Inc.

8. The trial court rendered judgment in favor of MFS and

asked Coralina to pay the unpaid balance and foreclose

the chattel mortgage.

9. Colarina appealed to the Regional Trial Court which

affirmed in toto the decision of the MTCC.

10. CA reversed the decision of MTCC and RTC stating that

MTC and the RTC erred in ordering the defendant to

pay the unpaid balance of the purchase price of the

subject vehicle irrespective of the fact that the instant

complaint was for the foreclosure of its chattel

mortgage.

Issue:




1. WON MFS can avail of the two remedies, payment

of unpaid balance and foreclosure of chattel

mortgage?

2. WON there was actual foreclosure?

Held:

1. No. Article 1484, paragraph 3, provides that if the

vendor has availed himself of the right to foreclose

the chattel mortgage, he shall have no further

action against the purchaser to recover any

unpaid balance of the purchase price. Any

agreement to the contrary shall be void. In other

words, in all proceedings for the foreclosure of

chattel mortgages executed on chattels which

have been sold on the installment plan, the

mortgagee is limited to the property included in

the mortgage.

Petitioner resolutely declared that it has opted for theremedy provided under Article 1484(3) of the Civil

Code, that is, to foreclose the chattel mortgage. The

petitioner’s prayer contains t wo remedies, payment of

unpaid balance and foreclosure of chattel mortgage.

Such a scheme is not only irregular but is a flagrant

circumvention of the prohibition of the law. By

praying for the foreclosure of the chattel, Magna

Financial Services Group, Inc. renounced whatever

claim it may have under the promissory note.

2. No. In the case at bar, there is no dispute that the

subject vehicle is already in the possession of the

petitioner, Magna Financial Services Group, Inc.

However, actual foreclosure has not been pursued,

commenced or concluded by it. Where the

mortgagee elects a remedy of foreclosure, the law

requires the actual foreclosure of the mortgaged

chattel. It is the actual sale of the mortgaged

chattel that would bar the creditor (who chooses

to foreclose) from recovering any unpaid balance.

And it is deemed that there has been foreclosure

of the mortgage when all the proceedings of the

foreclosure, including the sale of the property at public auction, have been accomplished.

Be that as it may, although no actual foreclosure as

contemplated under the law has taken place in this

case, since the vehicle is already in the possession of

Magna Financial Services Group, Inc. and it has

persistently and consistently avowed that it elects the

remedy of foreclosure, the Court of Appeals, thus,

ruled correctly in directing the foreclosure of the said

vehicle without more.

BA FINANCE v CA

BICOL SAVINGS v GUINHAWA

F: Victorio Depositario together with private respondent

Jaime Guinhawa, acting as solidary co-maker, took a loan

from petitioner Bicol Savings and Loan Association

(BISLA) payable every 19th day of each month. To secure

the payment of the foregoing loan obligation, the principal

borrower Victorio Depositario put up as security a chattel

mortgage which was a Yamaha Motorcycle. Said

motorcycle was eventually foreclosed by reason of the

failure of Depositario and private respondent Guinhawa to

pay the loan. There was a deficiency in the amount of

P5,158.06 where BISLA made a demand to pay the same.

Petitioner BISLA (plaintiff therein) filed a complaint for the

recovery of a sum of money constituting the deficiency

after foreclosure of the chattel mortgage put up by the

principal borrower Depositario against the latter and his

solidary co-maker Guinhawa (herein private respondent)

as defendants. Eventually, a stipulation of facts was

entered into between BISLA and Guinhawa. They agreed to

drop Depositario, as "his whereabouts being unknown

now and he could not be served with summons". The

creditor claims that he can maintain an action for

deficiency and claim P5k balance.

Issue: WoN creditor can claim remaining balance

Ruling: Yes! The creditor may maintain an action for

deficiency although the chattel mortgage law Is silent on

this point. The reason is tat a chattel mortgage is only

given as a security and not as payment for the debt in case

of failure of payment

PAMECA WOOD v CA

FACTS: On April 17, 1980, petitioner PAMECA Wood

Treatment Plant, Inc. (PAMECA) obtained a loan of

US$267,881.67, or the equivalent of P2,000,000.00 from

respondent Bank. By virtue of this loan, petitioner

PAMECA, through its President, petitioner Herminio C.Teves, executed a promissory note for the said amount,

promising to pay the loan by installment.

As security for the said loan, a chattel mortgage was also

executed over PAMECA's properties in Dumaguete City,

consisting of inventories, furniture and equipment, to

cover the whole value of the loan.




On January 18, 1984, and upon petitioner PAMECA's

failure to pay, respondent bank extrajudicially foreclosed

the chattel mortgage, and, as sole bidder in the public

auction, purchased the foreclosed properties for a sum of

P322, 350.00.

On June 29, 1984, respondent bank filed a complaint for

the collection of the balance.

Petitioners submit that Articles 1484 and 2115 of the Civil

Code be applied in analogy to the instant case to preclude

the recovery of a deficiency claim.

ISSUES: Whether the foreclosure of the chattel mortgage

valid

RULING:

The court did not find anything irregular or fraudulent in

the circumstance that respondent bank was the sole

bidder in the sale, as all the legal procedures for theconduct of a foreclosure sale have been complied with,

thus giving rise to the presumption of regularity in the

performance of public duties.

The effects of foreclosure under the Chattel Mortgage Law

run inconsistent with those of pledge under Article 2115.

Whereas, in pledge, the sale of the thing pledged

extinguishes the entire principal obligation, such that the

pledgor may no longer recover proceeds of the sale in

excess of the amount of the principal obligation, Section 14

of the Chattel Mortgage Law expressly entitles the

mortgagor to the balance of the proceeds, upon

satisfaction of the principal obligation and costs.

Since the Chattel Mortgage Law bars the creditor-

mortgagee from retaining the excess of the sale proceeds

there is a corollary obligation on the part of the debtor-

mortgagee to pay the deficiency in case of a reduction in

the price at public auction.

As correctly pointed out by the trial court, the said article

applies clearly and solely to the sale of personal property

the price of which is payable in installments. Although

Article 1484, paragraph (3) expressly bars any further

action against the purchaser to recover an unpaid balance

of the price, where the vendor opts to foreclose the chattel

mortgage on the thing sold, should the vendee's failure to

pay cover two or more installments, this provision is

specifically applicable to a sale on installments.

SUPERLINES v ICC

FACTS:

1. Superlines decided to acquire five (5) new buses

from the Diamond Motors Corporation for the

price of P10k. However, Superlines lacked

financial resources for the purpose so by virtue of

a board resolution, it authorized its President and

Gen Mgr Lavides to look for a loan for the

purchase of said buses.

2. Lavides negotiated with ICC Leasing. ICC agreed to

finance the purchase of the new buses via a loan

and proposed a 3-yr term for the payment. The

new buses to be purchased were to be used by

Superlines as security for the loan.

3. Diamond Motors sold to Superlines 5 new buses

and was registered under the name of Superlines.

4. Superlines executed 2 docus – Deed of Chatte

Mortgage over said buses a security for the

purchase price of buses in P13mill loaned by ICC

to Superlines; a Continuing Guaranty to pay jointlyand severally in favour of ICC the amount of

P13mill

5. After paying only 7 monthly amortizations

Superlines defaulted in the payment of its

obligation to ICC.

6. ICC filed a complaint for collection of sum o

money with a prayer for a writ of replevin

7. TC dismissed; ICC and Superlines forged a

consumer loan agreement and not an amortized

commercial loan.

8. CA reversed;

9. ICC and Superlines entered into an amortized

commercial loan agreement with ICC as creditor

mortgagee and Superlines as debtor-mortgagor

and ordered Superlines and Lavides to pay jointly

and severally the sum of P5mill as deficiency

10. It was Diamond Motors Corporation and not ICC

which sold the subject buses to Superlines. It held

that no evidence had been presented by

Superlines to show that ICC bought the said buses

from Diamond Motors Corporation under a specia

arrangement and that ICC sold the buses to

Superlines. The appellate court also ruled that

Article 1484(3) is applicable only where there is

vendor-vendee relationship between the parties

and since ICC did not sell the buses to Superlines

the latter cannot invoke said law.




ISSUE: WON there was an amortized commercial loan

agreement?

HELD: YES

1. DIAMOND is the seller of the five units of busesand not the plaintiff

2. No convincing evidence, except the self-serving

testimony of defendant Manolet Lavides, was

presented to prove that there was an internal

arrangement between the plaintiff, as financing

agent, and Diamond, as seller of the buses. In fact,

defendant Lavides admitted under oath that

DIAMOND and plaintiff did not enter into

transaction over the sale of the buses

3. The evidence shows that the transaction betweenthe parties was an "amortized commercial loan" to

be paid in installments

4. P failed to adduce a preponderance of evidence to

prove that R and Diamond Motors Corporation

entered into a special arrangement relative to the

issuance of certificates of registration over the

buses under the name of petitioner Superlines.

5. P were also unable to prove that respondent

purchased from Diamond Motors Corporation the

new buses. In contrast, the vehicle invoices of Diamond Motors Corporation irrefragably show

that it sold the said buses to petitioner Superlines.

The net proceeds of the loan were remitted by

respondent to petitioner Superlines and the latter

remitted the same to Diamond Motors

Corporation in payment of the purchase price of

the buses. In fine, respondent and Diamond

Motors Corporation had no direct business

transactions relative to the purchase of the buses

and the payment of the purchase price thereof.

6. The evidence on record shows that under the

Promissory Note, Chattel Mortgage and

Continuing Guaranty, respondent was the

creditor-mortgagee of petitioner Superlines and

not the vendor of the new buses. Hence,

petitioners cannot find refuge in Article 1484(3)

of the New Civil Code.

7. What should apply was the Chattel Mortgage

executed by petitioner Superlines and R in

relation to the Chattel Mortgage Law.

8. This Court had consistently ruled that if in an

extra-judicial foreclosure of a chattel mortgage a

deficiency exists, an independent civil action may

be instituted for the recovery of said deficiency

To deny the mortgagee the right to maintain an

action to recover the deficiency after foreclosure

of the chattel mortgage would be to overlook the

fact that the chattel mortgage is only given as

security and not as payment for the debt in case of

failure of payment. Both the Chattel Mortgage Law

and Act 3135 governing extra-judicial foreclosure

of real estate mortgage, do not contain any

provision, expressly or impliedly, precluding the

mortgagee from recovering deficiency of the

principal obligation.

ESGUERRA v CA

BPI CREDIT v CA

SERVICEWIDE v CA

FACTS:

1. Respondents executed a promissory note and a

chattel mortgage over a vehicle they bought from

the mortgagee itself, C. R. Tecson Enterprises, for

the payment in installments of the vehicle. C. RTecson Enterprises, on the same date, assigned in

favor of Filinvest Credit Corporation. The

respondents were aware that the new mortagee is

Filinvest.

2. Respondent spouses by way of Deed of Sale with

Assumption of Mortgage transferred and

delivered the vehicle to Conrado Tecson.

3. Subsequently, Filinvest assigned all its rights as

mortgagee to petitioner.

4. Respondents failed to pay the installments and

despite demands from petitioner-mortgagee to

pay or to return the vehicle.

5. Petitioner filed a complaint for Replevin but the

respondents alleged in their Answer that they can

no longer be held liable as they had already

conveyed the car to Conrado Tecson.

ISSUE:




1. WON the assignment of credit by the creditor-

mortgagee quires the notice and consent of the

debtor- mortgagor?

2. WON the assignment of credit by the debtor-

mortgagor requires the notice and consent of the

creditor-mortgagee?

HELD:

1. Only notice to the debtor-mortgagor of the

assignment of credit is required. His consent is not

required.

2. In contrast, consent of the creditor-mortgagee

to the alienation of the mortgaged property is

necessary in order to bind said creditor. Since the

assignee of the credit steps into the shoes of the

creditor-mortgagee to whom the chattel was

mortgaged, it follows that the assignee's consent is

necessary in order to bind him of the alienation of

the mortgaged thing by the debtor-mortgagor.

This is tantamount to a novation. As the new

assignee, petitioner's consent is necessary before

respondent spouses' alienation of the vehicle can

be considered as binding against third persons.

Petitioner is considered a third person with

respect to the sale with mortgage between

respondent spouses and third party defendant

Conrado Tecson.

CONCURRENCE AND PREFERENCE OF CREDITS

DE BARRETTO v VILLANUEVA

SAMPAGUITA PICTURES v JALWINDOR

FACTS:

3. Sampaguita (P) is the owner of a building which

its roofdeck was leased to Capitol 300 (Capitol),

wherein it was agreed that whatever

improvements introduced therein by Capitol will

later be owned by P.4. Capitol purchased on credit from Jalwindor (R)

glass and wooden jalousies which were

DELIVERED and INSTALLED in the leased

premises by R, replacing the existing windows of

P.

5. Capitol failed to pay and R filed an action for

collection of sum of money against Capitol.

6. R made a levy on the glass and wooden jalousies

in question, which P intervened in the case

alleging that it cannot be levied upon since it is

already the owner of the subject jalousies.

ISSUE: WoN R may levy the jalousies

SC: NO!

7. When the glass and wooden jalousies were

delivered and installed in the leased premises, P

became the owner thereof, due to the contract between P and Capitol in which it stated that all

permanent improvements made by lessee shall

belong to the lessor and that said improvements

hav been considered as part of the monthly

rentals.

8. The fact that Capitol failed to pay R the purchase

price of the items levied upon did not prevent the

transfer of ownership to Capitol and then to P.

UY v ZAMORA

FACTS:

1) At the instance of plaintiff Uy, the MTC ordered the

attachment of a vehicle belonging to Zamora. The writ was

levied on the vehicle on August 11, 1960. Subsequently,

the Municipal Court rendered judgment for the plaintiff Uy

and ordered defendant Zamora to pay the sum of P1,740.

Zamora appealed to the CFI.

2) While the case was pending appeal, the Allied Finance,

Inc. intervene. According to it, the vehicle, which was

attached by the Sheriff, had previously been mortgaged toit by Zamora to secure the payment of a loan and that at

the time of the filing of the complaint in intervention, a

balance of P2,451.93 remained in its favor. Allied, prayed

that Zamora be ordered to pay P2,451.93 as principal.

3) On January 12, 1961, Uy and Zamora, submitted to the

court a compromise agreement wherein Zamora admitted

being indebted to Uy. Since the motor vehicle had already

been sold on order of the Court for P2,500 to prevent

depreciation, defendant Zamora agreed to have plaintiff

Uy's credit paid out of the proceeds of the sale.

4) The court found defendant Zamora to be liable to

plaintiff Uy in the amount of P2,500, and to the intervenor

in the amount of P2,451.93, plus interest. Uy claims

preference on the basis of a lien arising from the

attachment of the vehicle on August 11, 1960. On the other

hand, allied bases its claim to preference on a Deed of

Chattel Mortgage covering the same motor vehicle.

ISSUE: Which of the two credits is preferred?




HELD:

A) Considering the fact that Allied Finance, Inc. registered

its mortgage only on August 24, 1960, or subsequent to the

date of the writ of attachment obtained by plaintiff Uy on

August 11, 1960, the credit of the intervenor cannot

prevail over that of the plaintiff.

B) The SC disagreed with the lower court’s decision upheld

Allied’s credit on the ground t hat, being embodied in a

public instrument of an earlier date (June 20, 1960), it

should take precedence over plaintiff's lien by attachment

(August 11, 1960), pursuant to Article 2244 of the Civil

Code, for the reason that, as already stated, the credit of

the Allied cannot be considered as preferred until the same

has been recorded in the Motor Vehicles Office.

C) A mortgage of motor vehicles, in order to affect third

persons, should not only be registered in the Chattel

Mortgage Registry, but the same should also be recorded

in the Motor Vehicles Office The decision of the lowercourt is reversed, without pronouncement as to costs.

CORDOVA v REYES

CENTRAL BANK v MORFE

Facts:

. The Monetary Board found the Fidelity Savings Bank

to be insolvent. The Board directed theSuperintendent of Banks to take charge of its assets,

forbade it to do business and instructed the Central

Bank Legal Counsel to take legal actions.

. Prior to the institution of the liquidation proceeding

but after the declaration of insolvency, the spouses

Elizes filed a complaint in the CFI against the Fidelity

Savings Bank for the recovery of the balance of their

time deposits.

. In the judgment rendered in that case, the Fidelity

Savings Bank was ordered to pay the Elizes spouses

the sum plus accumulated interest.

. In another case, the spouses Padilla secured a

judgment against the Fidelity Savings Bank for the

sums as the balance of their time deposits, plus

interests, moral and exemplary damages and

attorney's fees.

. The lower court (having cognizance of the liquidation

proceeding), upon motions of the Elizes and Padilla

spouses and over the opposition of the Central Bank,

directed the latter as liquidator, to pay their time

deposits as preferred judgments, evidenced by final

judgments, within the meaning of article 2244(14)(b)

of the Civil Code.

6. Central Bank contends that the final judgments

secured by the Elizes and Padilla spouses do not enjoy

any preference because (a) they were rendered after

the Fidelity Savings Bank was declared insolvent and

(b) under the charter of the Central Bank and the

General Banking Law, no final judgment can be validlyobtained against an insolvent bank.

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?

Held:

No. It should be noted that fixed, savings, and current

deposits of money in banks and similar institutions are nottrue deposits. They are considered simple loans and, as

such, are not preferred credits.

The aforequoted 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 charge of its assets. Evidently, one purpose

in prohibiting the insolvent bank from doing business is to

prevent some depositors from having an undue or

fraudulent preference over other creditors and depositors.

We are of the opinion that such judgments cannot beconsidered preferred and that article 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.

In the Rohr case, the general principle of equity that the

assets of an insolvent are to be distributed ratably among

general creditors applies with full force to the distribution

of the assets of a bank. A general depositor of a bank is

merely a general creditor, and, as such, is not entitled to

any preference or priority over other general creditors.

The assets of a bank in process of liquidation are held in

trust for the equal benefit of all creditors, and one cannot

be permitted to obtain an advantage or preference over

another by an attachment, execution or otherwise.

Considering that the deposits in question, in their

inception, were not preferred credits, it does not seem

logical and just that they should be raised to the category

of preferred credits simply because the depositors, taking



advantage of the long interval between the declaration of

insolvency and the filing of the petition for judicial

assistance and supervision, were able to secure judgments

for the payment of their time deposits.

MANABAT v LAGUNA FED

PHIL SAVINGS BANK v LANTIN

F: c built a duplex apartment house on a registered lot of

spouses x and y, using his own money, P25k to finish the

construction. Meanwhile, x and y obtained from psb a loan

secured by a mortgage to complete construction. At the

time of the registration of the mortgage, the transfer

certificate of title over the property was free from all liens

and encumbrances. PSB foreclosed the mortgage, and

being the highest bidder a new certificate of title was

subsequently issued in its favor

C filed an action against the spouses to collect the unpaid

cost of construction. As x and y did not have any propertiesto satisfy the judgment rendered in his favor, c demanded

from psb a pro rata share in the value of the duplex

apartment in accordance with article 2242.

Issue: is c entitled to claim pro rata share in the value of

the property in question.

Ruling: no. the action filed by c to collect the unpaid cost of

the construction of the duplex apartment is far from being

a general liquidation of the estate of x and y.

Although the lower court found that there were no knowncreditors other than c and psb, this cannot be conclusive. It

will not bar other creditors in the event they show up and

present their claims against psb, claiming they have also

preferred claims against the property. Consequently, the

transfer certificate of title issued to psb which is supposed

to be indefeasible would remain constantly unstable and

Documents

Simple Loan or Mutuum