The Concept of Credit period of thirty five (35) days, where he received P6,438.

00 as cash advance to
defray his travel expenses.
Part I. Loan
Within the same period, petitioner was issued another travel order, T.O. 2268,
People v. Concepcion
requiring him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from
30 June to 4 July 1982, a period of five (5) days, where petitioner received a cash
FACTS:
advance of P495.00.
Defendant authorized an extension of credit in favor of Concepcion, a co-
partnership. Defendant’s wife was a director of this co-partnership. Defendant
On 14 January 1983, petitioner presented both travel orders for liquidation,
was found guilty of violating Sec. 35 of Act No. 2747 which says that “The National
submitting Travel Expense Reports to the Accounting Section. When the Travel
Bank shall not, directly or indirectly, grant loans to any of the members of
Expense Reports were audited, it was discovered that there was an overlap of four
the Board of Directors of the bank nor to agents of the branch banks.” This Section
(4) days (30 June to 3 July 1982) in the two (2) travel orders for which petitioner
was in effect in 1919 but was repealed in Act No. 2938 approved on January 30,
collected per diems twice. Petitioner was required to comment on the internal
1921.
auditor's report regarding the alleged anomalous claim for per diems. In his reply,
ISSUE:
petitioner denied the alleged anomaly, claiming that he made make-up trips to
W/N Defendant can be convicted of violating Sections of Act No. 2747,
compensate for the trips he failed to undertake under T.O. 2222because he was
which were repealed by Act No. 2938.
recalled to the head office and given another assignment.
HELD:
In the interpretation and construction, the primary rule is to ascertain and
Issue:
give effect to the intention of the Legislature. Section 49 in relation to Sec. 25 of
Was petitioner under obligation to return the same money (cash advance), which
Act No. 2747 provides a punishment for any person who shall violate any
he had received?
provisions of the Act. Defendant contends that the repeal of these Sections by Act
No. 2938 has served to take away basis for criminal prosecution. The Court holds
Held:
that where an act of the Legislature which penalizes an offense repeals a
No. Executive Order No. 10, dated 12 February 1980 provides as follows:
former act which penalized the same offense, such repeal does not have the
effect of thereafter depriving the Courts of jurisdiction to try, convict and
"B. Cash Advance for Travel
sentence offenders charged with violations of the old law.
"4. All cash advances must be liquidated within 30 days after date of projected
The Concept of Loan return of the person. Otherwise, corresponding salary deduction shall be made
immediately following the expiration day."
Yong Chan Kim v. People Liquidation simply means the settling of indebtedness. An employee, such as
herein petitioner, who liquidates a cash advance is in fact paying back his debt in
Doctrine: the form of a loan of money advanced to him by his employer, as per diems and
In commodatum, the bailor retains the ownership of the thing loaned, while in allowances. Similarly, as stated in the assailed, decision of the lower court, "
simple loan, ownership passes to the borrower if the amount of the cash advance he received is less than the amount he spent
for actual travel x x x he has the right to demand reimbursement from his employer
Facts: the amount he spent coming from his personal funds." In other words, the money
Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture advanced by either party is actually a loan to the other.
Department of the Southeast Asian Fisheries Development Center (SEAFDEC) with
head station at Tigbauan, Province of Iloilo. As Head of the Economics Unit of Hence, petitioner was under no legal obligation to return the same cash or money,
the Research Division, he conducted prawn surveys which required him to travel i.e.,the bills or coins, which he received from the private respondent.
to various selected provinces in the country where there are potentials for prawn
culture. On 15 June 1982, petitioner was issued Travel Order No. 2222 which Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
covered his travels to different places in Luzon from 16 June to 21 July 1982, a
"Art. 1933. By the contract of loan, one of the parties delivers to another, either Lease. As its title plainly indicates, the contract between the parties is one of lease
something not consumable so that the latter may use the same for a certain time and not of loan. It is clearly denominated a "LEASE AGREEMENT. The provision for
and return it, in which case the contract is called a commodatum; or money or the payment of rentals in advance cannot be taken as are payment of a loan
other consumable thing, upon the condition that the same amount of the same because there was no grant of money as to constitute an indebtedness on the part
kind and quality shall be paid, in which case the contract is simply called a loan or of the lessor. On the contrary, Petrophil was clearing its obligation by paying the 8
mutuum. years rentals, and it was for this advance payment that it was getting a discount.
There is no usury in this case because no money was given by Petrophil to Herrera.
Commodatum is essentially gratuitous. There was neither loan but a mere discount which Herrera allowed Petrophil to
deduct. The discount was in effect a reduction of the rentals which the lessor had
Simple loan may be gratuitous or with a stipulation to pay interest. the right to determine, and any reduction thereof, by any amount, would not
contravene the Usury Law. The difference between a discount and a loan or
In commodatum, the bailor retains the ownership of the thing loaned, while in forbearance is that the former does not have to be repaid. The loan or forbearance
simple loan, ownership passes to the borrower." is subject to repayment and is therefore governed by the laws on usury. To
constitute usury, "there must be loan or forbearance; the loan must be of money
"Art. 1953. - A person who receives a loan of money or any other fungible thing or something circulating as money; it must be repayable absolutely and in all
acquires the ownership thereof, and is bound to pay to the creditor an equal events; and something must be exacted for the use of the money in excess of and
amount of the same kind and quality." in addition to interest allowed by law. "The elements of usury are (1) a loan,
express or implied; (2) an understanding between the parties that the money lent
Herrera v. Petrophil shall or may be returned; that for such loan a greater rate or interest that is
allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a
Facts: corrupt intent to take more than the legal rate for the use of money loaned. Unless
On December 5, 1969, Herrera and Petrophil Corp. entered into a "Lease these four things concur in every transaction, it is safe to affirm that no case of
Agreement" where Herrera leased to Petrophil a portion of his property, subject usury can be declared.
inter alia to the following conditions:3. The LESSEE shall pay the LESSOR a rental
of a total of P2,930.20 per month on 2,093 sqm more or less, and that the Lessor
should be paid 8years advance rental based on P2,930.70 per month discounted Garcia v. Thio
at 12%interest per annum before registration of lease. On Dec. 31, 1969, Petrophil FACTS
paid the advance rentals for the first 8 years, subtracting the amount of Respondent Thio received from petitioner Garcia two crossed checks which
P101,010.73, the amount it computed as constituting the interest or discount for amount to US$100,000 and US$500,000, respectively, payable to the order of
the first 8 years, in the total sumP180,288.47.On Aug. 20, 1970, Petrophil Marilou Santiago. According to petitioner, respondent failed to pay the principal
explained that there had been a mistake in computation, and thereby reducing the amounts of the loans when they fell due and so she filed a complaint for sum of
amount to only P98,828.03.On Oct. 14, 1974, Herrera sued Petrophil for the sum money and damages with the RTC. Respondent denied that she contracted the
of P98,828.03,claiming this had been illegally deducted from him in violation of two loans and countered that it was Marilou Satiago to whom petitioner lent the
the Usury Law. Petrophil argued that the amount deducted was not usurious money. She claimed she was merely asked y petitioner to give the checks to
interest but was given for paying the rentals in advance for 8 years. Judgment Santiago. She issued the checks for P76,000 and P20,000 not as payment of
favoured Petrophil. Herrera appealed to the SC, insisting that such interest is interest but to accommodate petitioner’s request that respondent use her own
violative of the Usury Law; and that he had neither agreed to nor accepted checks instead of Santiago’s.
Petrophil’s computation of the total amount to be deducted for the eight years
advance rentals. RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was
no contract of loan between the parties.
ISSUE: Whether or not the contract is a loan or lease.
ISSUE
RULING: (1) Whether or not there was a contract of loan between petitioner and respondent.
(2) Who borrowed money from petitioner, the respondent or Marilou Santiago?
HELD
(1) The Court held in the affirmative. A loan is a real contract, not The culpable failure of AmEx herein is not the failure to timely approve petitioner’s
consensual, and as such I perfected only upon the delivery of the object of the purchase, but the more elemental failure to timely act on the same, whether
contract. Upon delivery of the contract of loan (in this case the money received by favorably or unfavorably. Even assuming that AmEx’s credit authorizers did not
the debtor when the checks were encashed) the debtor acquires ownership of have sufficient basis on hand to make a judgment, we see no reason why it could
such money or loan proceeds and is bound to pay the creditor an equal amount. not have promptly informed Pantaleon the reason for the delay, and duly advised
It is undisputed that the checks were delivered to respondent. him that resolving the same could take some time.

(2) However, the checks were crossed and payable not to the order
of the respondent but to the order of a certain Marilou Santiago. Delivery is the 2. Yes. The reason why Pantaleon is entitled to damages is not simply because
act by which the res or substance is thereof placed within the actual or AmEx incurred delay, but because the delay, for which culpability lies under Article
constructive possession or control of another. Although respondent did not 1170, led to the particular injuries under Article 2217 of the Civil Code for which
physically receive the proceeds of the checks, these instruments were placed in moral damages are remunerative. The somewhat unusual attending
her control and possession under an arrangement whereby she actually re-lent the circumstances to the purchase at Coster – that there was a deadline for the
amount to Santiago. completion of that purchase by petitioner before any delay would redound to the
injury of his several traveling companions – gave rise to the moral shock, mental
Petition granted; judgment and resolution reversed and set aside. anguish, serious anxiety, wounded feelings and social humiliation sustained by
Pantaleon, as concluded by the RTC.

Pantaleon v. AMEX
BPI Investment v. CA
FACTS:
After the Amsterdam incident that happened involving the delay of American FACTS
Express Card to approve his credit card purchases worth US$13,826.00 at the Frank Roa obtained a loan from Ayala Investment and Development Corporation
Coster store, Pantaleon commenced a complaint for moral and exemplary (AIDC), for the construction of his house. Said house and lot were mortgaged to
damages before the RTC against American Express. He said that he and his family AIDC to secure the loan. Roa sold the properties to ALS and Litonjua, the latter
experienced inconvenience and humiliation due to the delays in credit paid in cash and assumed the balance of Roa’s indebtedness wit AIDC. AIDC was
authorization. RTC rendered a decision in favor of Pantaleon. CA reversed the not willing to extend the old interest to private respondents and proposed a grant
award of damages in favor of Pantaleon, holding that AmEx had not breached its of new loan of P500,000 with higher interest to be applied to Roa’s debt, secured
obligations to Pantaleon, as the purchase at Coster deviated from Pantaleon's by the same property. Private respondents executed a mortgage deed containing
established charge purchase pattern. the stipulation. The loan contract was signed on 31 March 1981 and was perfected
on 13 September 1982, when the full loan was released to private respondents.
ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon. BPIIC, AIDC’s predecessor, released to private respondents P7,146.87, purporting
2. Whether or not AmEx is liable for damages. to be what was left of their loan after full payment of Roa’s loan. BPIIC filed for
foreclosure proceedings on the ground that private respondents failed to pay the
RULING: mortgage indebtedness. Private respondents maintained that they should not be
1. Yes. The popular notion that credit card purchases are approved “within made to pay amortization before the actual release of the P500,000 loan. The suit
seconds,” there really is no strict, legally determinative point of demarcation on was dismissed and affirmed by the CA.
how long must it take for a credit card company to approve or disapprove a
customer’s purchase, much less one specifically contracted upon by the parties. ISSUE
One hour appears to be patently unreasonable length of time to approve or Whether or not a contract of loan is a consensual contract.
disapprove a credit card purchase.
HELD failed to fulfill its obligation and the plaintiff is therefore entitled to recover
The Court held in the negative. A loan contract is not a consensual contract but a damages.
real contract. It is perfected only upon delivery of the object of the contract. A · When an application for a loan of money was approved by resolution of the
contract o loan involves a reciprocal obligation, wherein the obligation or promise respondent corporation and the responding mortgage was executed and
of each party is the consideration for that of the other; it is a basic principle in registered, there arises a perfected consensual contract.
reciprocal obligations that neither party incurs in delay, if the other does not · However, it should be noted that RFC imposed two conditions (availability of raw
comply or is not ready to comply is a proper manner with what is incumbent upon materials and increased production) when it restored the loan to the original
him amount of P500,000.00.
· Saura, Inc. obviously was in no position to comply with RFC’s conditions. So
instead of doing so and insisting that the loan be released as agreed upon, Saura,
Saura v. DBP Inc. asked that the mortgage be cancelled.The action thus taken by both parties
FACTS: was in the nature of mutual desistance which is a mode of extinguishing
● In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now obligations. It is a concept that derives from the principle that since mutual
DBP, for an industrial loan of P500,000 to be used for the construction of a agreement can create a contract, mutual disagreement by the parties can cause
factory building, to pay the balance of the jute mill machinery and equipment its extinguishment.
and as additional working capital. In Resolution No.145, the loan application ·WHEREFORE, the judgment appealed from is reversed and the complaint
was approved to be secured first by mortgage on the factory buildings, the dismissed.
land site, and machinery and equipment to be installed.
● The mortgage was registered and documents for the promissory note
were executed. But then, later on, was cancelled to make way for the
Commodatum
registration of a mortgage contract over the same property in favor of
Prudential Bank and Trust Co., the latter having issued Saura letter of credit for Producers Bank v. CA
the release of the jute machinery. As security, Saura execute a trust receipt in
favor of the Prudential. For failure of Saura to pay said obligation, Prudential FACTS:
sued Saura. Sometime in 1979, private respondent Franklin Vives was asked by his neighbor
● After almost 9 years, Saura Inc, commenced an action against RFC, and friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla,
alleging failure on the latter to comply with its obligations to release the loan in incorporating his business, the Sterela Marketing and Services (“Sterela” for
applied for and approved, thereby preventing the plaintiff from completing or brevity). Specifically, Sanchez asked private respondent to deposit in a bank a
paying contractual commitments it had entered into, in connection with its certain amount of money in the bank account of Sterela for purposes of its
jute mill project. incorporation. She assured private respondent that he could withdraw his money
● The trial court ruled in favor of Saura, ruling that there was a from said account within a month’s time. With this, Mrs. Vivies, Sanchez and a
perfected contract between the parties and that the RFC was guilty of breach certain Estrella Dumagpi, secretary of Doronilla, went to the bank to open an
thereof. account with Mrs. Vives and Sanchez as signatories. A passbook was then issued
to Mrs. Vives. Subsequently, private respondent learned that part of the money
ISSUE: Whether or not there was a perfected contract between the parties.
was withdrawn without presentment of the passbook as it was his wife got hold
of such. Mrs. Vives could not also withdraw said remaining amount because it had
HELD: YES. There was indeed a perfected consensual contract.
to answer for some postdated checks issued by Doronilla who opened a current
·Article 1934 provides: An accepted promise to deliver something by way of
account for Sterela and authorized the bank to debit savings.
commodatum or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until delivery of the object of the contract.
Private respondent referred the matter to a lawyer, who made a written demand
· There was undoubtedly offer and acceptance in the case. The application of
upon Doronilla for the return of his client’s money. Doronilla issued another check
Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant,
for P212,000.00 in private respondent’s favor but the check was again dishonored
and the corresponding mortgage was executed and registered. The defendant
for insufficiency of funds.
Private respondent instituted an action for recovery of sum of money in the
Regional Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Catholic Vicar v. CA
Dumagpi and petitioner. The RTC ruled in favor of the private respondent which
was also affirmed in toto by the CA. Hence this petition. Facts:
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an
ISSUE: WON THE TRANSACTION BETWEEN THE DORONILLA AND RESPONDENT application for registration of title over Lots 1, 2, 3, and 4, said Lots being the sites
VIVES WAS ONE OF SIMPLE LOAN. of the Catholic Church building, convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. The Heirs of Juan Valdez and the
HELD: NO. Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
A circumspect examination of the records reveals that the transaction between respectively, asserting ownership and title thereto since their predecessors’ house
them was a commodatum. Article 1933 of the Civil Code distinguishes between was borrowed by petitioner Vicar after the church and the convent were
the two kinds of loans in this wise: destroyed.. After trial on the merits, the land registration court promulgated its
Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
By the contract of loan, one of the parties delivers to another, either something The Heirs of Juan Valdez appealed the decision of the land registration court to the
not consumable so that the latter may use the same for a certain time and return then Court of Appeals, The Court of Appeals reversed the decision. Thereupon, the
it, in which case the contract is called a commodatum; or money or other VICAR filed with the Supreme Court a petition for review on certiorari of the
consumable thing, upon the condition that the same amount of the same kind and decision of the Court of Appeals dismissing his application for registration of Lots
quality shall be paid, in which case the contract is simply called a loan or mutuum. 2 and 3.

Commodatum is essentially gratuitous.

Issue: Whether or not the failure to return the subject matter of commodatum
constitutes an adverse possession on the part of the owner
Simple loan may be gratuitous or with a stipulation to pay interest.
Decision: No. The bailees’ failure to return the subject matter of commodatum to
the bailor did not mean adverse possession on the part of the borrower. The bailee
In commodatum, the bailor retains the ownership of the thing loaned, while in
held in trust the property subject matter of commodatum.
simple loan, ownership passes to the borrower.
Petitioner repudiated the trust by declaring the properties in its name for taxation
purposes.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However,
there are some instances where a commodatum may have for its object a
consumable thing. Article 1936 of the Civil Code provides: Pajuyo v. CA

Consumable goods may be the subject of commodatum if the purpose of the Facts: Pajuyo entrusted a house to Guevara for the latter's use provided he should
contract is not the consumption of the object, as when it is merely for exhibition. return the same upon demand and with the condition that Guevara should be
responsible of the maintenance of the property. Upon demand Guevara refused
Thus, if consumable goods are loaned only for purposes of exhibition, or when the to return the property to Pajuyo. The petitioner then filed an ejectment case
intention of the parties is to lend consumable goods and to have the very same against Guevara with the MTC who ruled in favor of the petitioner. On appeal with
goods returned at the end of the period agreed upon, the loan is a commodatum the CA, the appellate court reversed the judgment of the lower court on the
and not a mutuum. ground that both parties are illegal settlers on the property thus have no legal right
so that the Court should leave the present situation with respect to possession of
The rule is that the intention of the parties thereto shall be accorded primordial the property as it is, and ruling further that the contractual relationship of Pajuyo
consideration in determining the actual character of a contract. In case of doubt, and Guevara was that of a commodatum.
the contemporaneous and subsequent acts of the parties shall be considered in
such determination. Issue: Is the contractual relationship of Pajuyo and Guevara that of a
commodatum? ▪ July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo,
answered that because of the bad peace and order situation in Cagayan
Held: No. The Court of Appeals’ theory that the Kasunduan is one of commodatum Valley, particularly in the barrio of Baggao, and of the pending appeal he had
is devoid of merit. In a contract of commodatum, one of the parties delivers to taken to the Secretary of Agriculture and Natural Resources and the President
another something not consumable so that the latter may use the same for a of the Philippines, he could not return the animals nor pay their value and
certain time and return it. An essential feature of commodatum is that it is prayed for the dismissal of the complaint.
gratuitous. Another feature of commodatum is that the use of the thing belonging ▪ RTC: granted the action
to another is for a certain period. Thus, the bailor cannot demand the return of ▪ December 1958: granted an ex-parte motion for the appointment of a special
the thing loaned until after expiration of the period stipulated, or after sheriff to serve the writ outside Manila
accomplishment of the use for which the commodatum is constituted. If the bailor ▪ December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died
should have urgent need of the thing, he may demand its return for temporary on October 23, 1951 and administratrix of his estate, was notified
use. If the use of the thing is merely tolerated by the bailor, he can demand the ▪ January 7, 1959: she file a motion that the 2 bulls where returned by his son
return of the thing at will, in which case the contractual relation is called a on June 26, 1952 evidenced by recipt and the 3rd bull died from gunshot
precarium. Under the Civil Code, precarium is a kind of commodatum. The wound inflicted during a Huk raid and prayed that the writ of execution be
Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was quashed and that a writ of preliminary injunction be issued.
not essentially gratuitous. While the Kasunduan did not require Guevarra to pay ISSUE: W/N the contract is commodatum and NOT a lease and the estate should
rent, it obligated him to maintain the property in good condition. The imposition be liable for the loss due to force majeure due to delay.
of this obligation makes the Kasunduan a contract different from a commodatum.
The effects of the Kasunduan are also different from that of a commodatum. Case HELD: YES. writ of execution appealed from is set aside, without pronouncement
law on ejectment has treated relationship based on tolerance as one that is akin as to costs
to a landlord-tenant relationship where the withdrawal of permission would result ▪ If contract was commodatum then Bureau of Animal Industry retained
in the termination of the lease. The tenant’s withholding of the property would ownership or title to the bull it should suffer its loss due to force majeure. A
then be unlawful. contract of commodatum is essentially gratuitous. If the breeding fee be
considered a compensation, then the contract would be a lease of the bull.
Republic v. Bagtas Under article 1671 of the Civil Code the lessee would be subject to the
FACTS: responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the
▪ May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines contract be commodatum, still the appellant is liable if he keeps it longer than
through the Bureau of Animal Industry three bulls: a Red Sindhi with a book the period stipulated
value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for ▪ the estate of the late defendant is only liable for the sum of P859.63, the value
a period of 1 year for breeding purposes subject to a breeding fee of 10% of of the bull which has not been returned because it was killed while in the
the book value of the bulls custody of the administratrix of his estate
▪ May 7, 1949: Jose requested for a renewal for another year for the three bulls ▪ Special proceedings for the administration and settlement of the estate of the
but only one bull was approved while the others are to be returned deceased Jose V. Bagtas having been instituted in the CFI, the money
▪ March 25, 1950: He wrote to the Director of Animal Industry that he would judgment rendered in favor of the appellee cannot be enforced by means of
pay the value of the 3 bulls a writ of execution but must be presented to the probate court for payment
▪ October 17, 1950: he reiterated his desire to buy them at a value with a by the appellant, the administratrix appointed by the court.
deduction of yearly depreciation to be approved by the Auditor General.
▪ October 19, 1950: Director of Animal Industry advised him that either the 3 QUINTOS VS BECK 69 PHIL 108
bulls are to be returned or their book value without deductions should be paid
not later than October 31, 1950 which he was not able to do Facts: Quintos and Beck entered into a contract of lease, whereby the latter
▪ December 20, 1950: An action at the CFI was commenced against Jose praying occupied the former’s house. On Jan 14, 1936, the contract of lease was novated,
that he be ordered to return the 3 bulls or to pay their book value of P3,241.45 wherein the QUintos gratuitously granted to Beck the use of the furniture, subject
and the unpaid breeding fee of P199.62, both with interests, and costs to the condition that Beck should return the furnitures to Quintos upon demand.
 Thereafter, Quintos sold the property to Maria and Rosario Lopez. Beck was in these cases, who are the owners of the money allegedly taken by respondents
notified of the conveyance and given him 60 days to vacate the premises. IN and hence, are the real parties-in-interest; and (2) the Informations are bereft of
addition, Quintos required Beck to return all the furniture. Beck refused to return the phrase alleging "dependence, guardianship or vigilance between the
3 gas heaters and 4 electric lamps since he would use them until the lease was due respondents and the offended party that would have created a high degree of
to expire. Quintos refused to get the furniture since Beck had declined to return confidence between them which the respondents could have abused.".
all of them. Beck deposited all the furniture belonging to QUintos to the sheriff.
Issue:
ISSUE: WON Beck complied with his obligation of returning the furnitures to Whether or not the 112 informations for qualified theft sufficiently allege the
Quintos when it deposited the furnitures to the sheriff. element of taking without the consent of the owner, and the qualifying
RULING: The contract entered into between the parties is one of commadatum, circumstance of grave abuse of confidence.
because under it the plaintiff gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof; by this contract the Held:
defendant bound himself to return the furniture to the plaintiff, upon the latters Yes.
demand (clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741
of the Civil Code). The obligation voluntarily assumed by the defendant to return The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of
the furniture upon the plaintiff's demand, means that he should return all of them the Informations and, therefore, because of this defect, there is no basis for the
to the plaintiff at the latter's residence or house. The defendant did not comply existence of probable cause which will justify the issuance of the warrant of arrest.
with this obligation when he merely placed them at the disposal of the plaintiff, Petitioner assails the dismissal contending that the Informations for Qualified
retaining for his benefit the three gas heaters and the four eletric lamps. Theft sufficiently state facts which constitute (a) the qualifying circumstance of
grave abuse of confidence; and (b) the element of taking, with intent to gain and
As the defendant had voluntarily undertaken to return all the furniture to the without the consent of the owner, which is the Bank.
plaintiff, upon the latter's demand, the Court could not legally compel her to bear
the expenses occasioned by the deposit of the furniture at the defendant's behest. The RTC Judge based his conclusion that there was no probable cause simply on
The latter, as bailee, was nt entitled to place the furniture on deposit; nor was the the insufficiency of the allegations in the Informations concerning the facts
plaintiff under a duty to accept the offer to return the furniture, because the constitutive of the elements of the offense charged.
defendant wanted to retain the three gas heaters and the four electric lamps.
The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately
Simple Loan or Mutuum pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing
People v. Puig & Porras acquires the ownership thereof, and is bound to pay to the creditor an equal
Facts: amount of the same kind and quality.
Respondents were conspiring, confederating, and helping one another, with grave Article 1980. Fixed, savings, and current deposits of money in banks and similar
abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of institutions shall be governed by the provisions concerning loan.
Pototan, Inc., Pototan, Iloilo, without the knowledge and/or consent of the
management of the Bank and with intent of gain, did then and there willfully,
unlawfully and feloniously take, steal and carry away the sum of P15,000.00, In a long line of cases involving Qualified Theft, this Court has firmly established
Philippine Currency, to the damage and prejudice of the said bank in the aforesaid the nature of possession by the Bank of the money deposits therein, and the duties
amount. being performed by its employees who have custody of the money or have come
into possession of it. The Court has consistently considered the allegations in the
However, the trial court did not find the existence of probable cause because (1) Information that such employees acted with grave abuse of confidence, to the
the element of ‘taking without the consent of the owners’ was missing on the damage and prejudice of the Bank, without particularly referring to it as owner of
ground that it is the depositors-clients, and not the Bank, which filed the complaint the money deposits, as sufficient to make out a case of Qualified Theft.
 said amount shall earn compounded bank interest for the last six months
BPI FAMILY BANK V. FRANCO only. Under this circumstance, the amount of P3 million given by the
(Simple Loan) SECOND PARTY shall be treated as a loan and the property shall be
· Article 1980 of the Civil Code: Fixed, savings, and current deposits of money
considered as the security for the mortgage which can be enforced in
in banks and similar institutions shall be governed by the provisions concerning
loan. accordance with law.”
· As there is a debtor-creditor relationship between a bank and its
depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such
Frias received from San Diego-Sison P2million cash and P1million post-dated check
ownership is coupled with a corresponding obligation to pay him an equal amount
dated February 28, 1990, instead of 1991, which rendered the check stale. Frias
on demand. Although BPI-FB owns the deposits in Franco’s accounts, it cannot
then gave the TCT in the name of IRMDC and the Deed of Absolute Sale over the
prevent him from demanding payment of BPI-FB’s obligation by drawing checks
property between Frias and IRMDC.
against his current account, or asking for the release of the funds in his savings
San Diego-Sison decided not to purchase the property and informed Frias through
account. Thus, when Franco issued checks drawn against his current account, he
a letter reminding of the agreement that the amount of P2Million be considered
had every right as creditor to expect that those checks would be honored by BPI-
as a loan payable within 6 months. However, Frias failed to pay San Diego-Sison
FB as debtor.
who later filed a complaint for sum of money with preliminary attachment. Also,
San Diego-Sison averred that Frias tried to deprive her of the security for the loan
Bobie Rose V. Frias vs Flora San Diego-Sison
when Frias made a false report of the loss of her owner’s copy of the TCT and be
GR No. 155223
issued a new owner’s duplicate copy of said title.
FACTS:
The trial court ordered Frias to pay San Diego-Sison the sum of P2million plus
Bobie Rose Frias owns a house and lot acquired from Island Masters Reality and
interest at the rate of 32% per annum beginning December 7, 1991 due to the
Development Corporation (IMRDC) through a Deed of Sale and covered by transfer
compounded interest stipulated in the MOA. The appellate court affirmed the trial
certificate of title (TCT) in the name of IRMDC.
court’s decision but modified the rate of interest from 32% to 25% effective June
Frias, as the First Party, and Dra. Flora San Diego-Sison as the Second Party,
7, 1991 when the interest rate prevailing in 1991 ranged from 25% to 32% per
entered into a Memorandum of Agreement (MOA) over the property with the
annum and that the P2Million was considered as a loan in June 1991.
following terms and conditions:
Frias argued that the interest rate was contrary to the MOA because it provided
“xxx for and in consideration of the sum of P3,000,000.00 receipt of which is hereby
that if San Diego-Sison would decide not to purchase the property, Frias has the
acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have
period of another six months to pay the loan with compounded bank interest for
agreed as follows:
the last six months only.
ISSUES:
1. That the SECOND PARTY has a period of 6 months from the date of the
● Whether the compounded bank interest should be limited to 6 months
execution of this contract xxx to notify the FIRST PARTY of her intention to
only as stipulated in the contract.
purchase xxx at a price of P6,400,000.00 xxx another six months within
which to pay the remaining balance of P3.4 million. ● Whether CA committed error in awarding 25% interest per annum on the
2million peso loan even beyond the second 6 months stipulated period.
2. xxx
● Whether San Diego-Sison is entitled to moral damages.
3. That in case the FIRST PARTY has no other buyer within the first six months
from the six months from the execution of this contract, no interest shall
be charged by the SECOND PARTY on the P3million however, in the event HELD:
that on the sixth month the SECOND PARTY would decide not to purchase ● The Court said that the phrase “for the last six months only” should be
the aforementioned property, the FIRST PARTY has a period of another six taken in the context of the entire agreement. It agreed with CA’s
months within which to pay the sum of P3 million pesos provided that the interpretation of the phrase:
 damages. Moral damages may be awarded in culpa contractual or breach of
“Their agreement speaks of two periods of six months each. The first six- month contract cases when the defendant acted fraudulently or in bad faith. Bad faith
period was given to plaintiff-appellee (respondent) to make up her mind whether does not simply connote bad judgment or negligence; it imports a dishonest
or not to purchase defendant-appellant’s (petitioner’s) property. The second six- purpose or some moral obliquity and conscious doing of wrong. It partakes of the
month period was given to defendant-appellant to pay the P2 million loan in the nature of fraud.” Xxx “Petitioner’s actuation would have deprived respondent of
event that plaintiff-appellee decided not to buy the subject property in which case the security for her loan were it not for respondent’s timely filing of a petition for
interest will be charged “for the last six months only”, referring to the second six- relief whereby the RTC set aside its previous order granting the issuance of new
month period. This means that no interest will be charged for the first six-month title. Thus, the award of moral damages is in order
period while appellee was making up her mind whether to buy the property, but
only for the second period of six months after appellee had decided not to buy the Sebastian Siga-an, petitioner, vs. Alicia Villanueva, respondent.
property. This is the meaning of the phrase “for the last six months only”. Certainly,
there is nothing in their agreement that suggests that interest will be charged for Facts: Respondent filed a complaint for sum of money against petitioner.
six months only even if it takes defendant-appellant an eternity to pay the loan.” Respondent claimed that petitioner approached her inside the PNO and offered
Having considered it as a loan, the monetary interest for the last six months to loan her the amount of P540,000.00 of which the loan agreement was not
continued to accrue until actual payment of the loaned amount. reduced in writing and there was no stipulation as to the payment of interest for
the loan. Respondent issued a check worth P500,000.00 to petitioner as partial
The court further explained why interest must be paid: payment of the loan. She then issued another check in the amount of P200,000.00
to petitioner as payment of the remaining balance of the loan of which the excess
“ The payment of regular interest constitutes the price or cost of the use of money amount of P160,000.00 would be applied as interest for the loan. Not satisfied
and thus, until principal sum due is returned to the creditor, regular interest with the amount applied as interest, petitioner pestered her to pay additional
continues to accrue since the debtor continues to use such principal amount. It has interest and threatened to block or disapprove her transactions with the PNO if
been held that for a debtor to continue in possession of the principal of the loan she would not comply with his demand. Thus, she paid additional amounts in cash
and to continue to use the same after maturity of the loan without payment of the and checks as interests for the loan. She asked petitioner for receipt for the
monetary interest, would constitute unjust enrichment on the part of the debtor at payments but was told that it was not necessary as there was mutual trust and
the expense of the creditor.” confidence between them. According to her computation, the total amount she
paid to petitioner for the loan and interest accumulated to P1,200,000.00.
● The Court found no error in awarding 25% interest per annum on the
P2Million loan even beyond the six months stipulated period. “The The RTC rendered a Decision holding that respondent made an overpayment of
general rule is that if the terms of an agreement are clear and leave no her loan obligation to petitioner and that the latter should refund the excess
amount to the former. It ratiocinated that respondent’s obligation was only to pay
doubt as to the intention of the contracting parties, the literal meaning of
the loaned amount of P540,000.00, and that the alleged interests due should not
its stipulations shall prevail. It is further required that the various
be included in the computation of respondent’s total monetary debt because
stipulations of a contract shall be interpreted together, attributing to the there was no agreement between them regarding payment of interest. It
doubtful ones that sense which may result from all of them taken concluded that since respondent made an excess payment to petitioner in the
jointly.” Besides, Frias and San Diego-Sison agreed and as stipulated in amount of P660,000.00 through mistake, petitioner should return the said amount
the contract that the loaned amount shall earn compounded bank to respondent pursuant to the principle of solutio indebiti. Also, petitioner should
interests. pay moral damages for the sleepless nights and wounded feelings experienced by
respondent. Further, petitioner should pay exemplary damages by way of
example or correction for the public good, plus attorney’s fees and costs of suit.
Yes. The court agreed with “the findings of the trial court and the CA that
petitioner’s act of trying to deprive respondent of the security of her loan by Issue: (1) Whether or not interest was due to petitioner; and (2) whether the
executing an affidavit of loss of the title and instituting a petition for the issuance principle of solutio indebiti applies to the case at bar.
of a new owner’s duplicate copy of TCT No. 168173 entitles respondent to moral
Ruling: (1) No. Compensatory interest is not chargeable in the instant case
because it was not duly proven that respondent defaulted in paying the loan and and the bank granted an extension. Despite several demands from the Bank,
no interest was due on the loan because there was no written agreement as petitioners failed to settle the debt which then amounted to P114,416.10. The
regards payment of interest. Article 1956 of the Civil Code, which refers to Bank sent a final demand letter however petitioners still defaulted on their
monetary interest, specifically mandates that no interest shall be due unless it has obligation. The Bank then filed a complaint for recovery of the due amount.
been expressly stipulated in writing. As can be gleaned from the foregoing Petitioners instead of presenting their evidence had the schedule reset for two
provision, payment of monetary interest is allowed only if: (1) there was an consecutive occasions. On the third hearing date, the trial court resolved to
express stipulation for the payment of interest; and (2) the agreement for the consider the case submitted for decision.
payment of interest was reduced in writing. The concurrence of the two Two years later petitioners filed a motion for reconsideration which was denied
conditions is required for the payment of monetary interest. Thus, we have held by the trial court. Petitioners then interposed an appeal with the Court of Appeals,
that collection of interest without any stipulation therefor in writing is prohibited the appellate court affirmed the judgement of the trial court except the 2% service
by law. charge which was deleted pursuant to Central Bank Circular No. 763. The two
parties filed their motions for reconsiderations and the Court of Appeals resolved
(2) Petitioner cannot be compelled to return the alleged excess amount paid by the two motions: that the payment of interest and penalty commence on the date
respondent as interest. Under Article 1960 of the Civil Code, if the borrower of when the obligation became due and a penalty of 3% per month would suffice.
loan pays interest when there has been no stipulation therefor, the provisions of The petitioners filed an omnibus motion for reconsideration which was then
the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil denied by the Court of Appeals.
Code explains the principle of solutio indebiti. Said provision provides that if ISSUE:
something is received when there is no right to demand it, and it was unduly Whether or not the 15.189% interest and the penalty of 3% per month (36% per
delivered through mistake, the obligation to return it arises. In such a case, a annum) is exorbitant, iniquitous, and unconscionable.
creditor-debtor relationship is created under a quasi-contract whereby the payor RULING:
becomes the creditor who then has the right to demand the return of payment Petition is DENIED.
made by mistake, and the person who has no right to receive such payment HELD:
becomes obligated to return the same. The quasi-contract of solutio indebiti harks The question of whether a penalty is reasonable or iniquitous can be partly
back to the ancient principle that no one shall enrich himself unjustly at the subjective and partly objective. Its resolution will depend on such factors as, but
expense of another. The principle of solutio indebiti applies where (1) a payment not confined to, the type, extent and purpose of the penalty, the nature of the
is made when there exists no binding relation between the payor, who has no duty obligation, the mode of breach and its consequences, the supervening realities,
to pay, and the person who received the payment; and (2) the payment is made the standing and relationship of the parties, and the like, the application of which,
through mistake, and not through liberality or some other cause. We have held by and large, is addressed to the sound discretion of the court.
that the principle of solutio indebiti applies in case of erroneous payment of undue The Court of Appeals, exercising its good judgement has reduced the penalty
interest. interest from 5% a month to 3% a month. Given the circumstances and the
repeated acts of breach by petitioners of their contractual obligation, the Court
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio sees no cogent ground to modify the ruling of the appellate court.
indebiti, exemplary damages may be imposed if the defendant acted in an The stipulated interest of 15.189% per annum, does not appear as being excessive.
oppressive manner. Petitioner acted oppressively when he pestered respondent The essence or rationale for the payment of interest, quite often referred to as
to pay interest and threatened to block her transactions with the PNO if she would cost of money, is not exactly the same as that as a surcharge or a penalty. A penalty
not pay interest. This forced respondent to pay interest despite lack of agreement stipulation is not necessarily preclusive of interest, if there is an agreement to that
thereto. Thus, the award of exemplary damages is appropriate so as to deter effect, the two being distinct concepts which may separately be demanded. The
petitioner and other lenders from committing similar and other serious interest prescribed in loan financing arrangements is a fundamental part of the
wrongdoings banking business and the core of a banks existence.

Case Digest No. II-16 | GR No. 138677 | Ligutan v Court of Appeals | Vitug NACAR VS GALLERY FRAMES
FACTS: FACTS
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey,
amount of P120,000.00 from Security Bank and Trust Co. The obligation matured Jr. Nacar alleged that he was dismissed without cause by Gallery Frames on
January 24, 1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery a.1. shall run from date of judicial demand (filing of the case)
Frames guilty of illegal dismissal hence the Arbiter awarded Nacar P158,919.92 in a.2. rate of interest shall be that amount stipulated
damages consisting of backwages and separation pay. 1. If not stipulated in writing

Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme b.1. shall run from date of default (either failure to pay upon extra-judicial demand
Court affirmed the decision of the Labor Arbiter and the decision became final on or upon judicial demand whichever is appropriate and subject to the provisions of
May 27, 2002. Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
After the finality of the SC decision, Nacar filed a motion before the LA for
recomputation as he alleged that his backwages should be computed from the 1. Non-Monetary Obligations (such as the case at bar)
time of his illegal dismissal (January 24, 1997) until the finality of the SC decision
(May 27, 2002) with interest. The LA denied the motion as he ruled that the 1. If already liquidated, rate of interest shall be 6% per annum, demandable
reckoning point of the computation should only be from the time Nacar was from date of judicial or extra-judicial demand (Art. 1169, Civil Code)
illegally dismissed (January 24, 1997) until the decision of the LA (October 15,
1998). The LA reasoned that the said date should be the reckoning point because 1. If unliquidated, no interest
Nacar did not appeal hence as to him, that decision became final and executory.
Except: When later on established with certainty. Interest shall still be 6% per
ISSUE: annum demandable from the date of judgment because such on such date, it is
Whether or not the Labor Arbiter is correct. already deemed that the amount of damages is already ascertained.

RULING 1. Compounded Interest

No. There are two parts of a decision when it comes to illegal dismissal cases
(referring to cases where the dismissed employee wins, or loses but wins on – This is applicable to both monetary and non-monetary obligations
appeal). The first part is the ruling that the employee was illegally dismissed. This – 6% per annum computed against award of damages (interest) granted by the
is immediately final even if the employer appeals – but will be reversed if employer court. To be computed from the date when the court’s decision becomes final and
wins on appeal. The second part is the ruling on the award of backwages and/or executory until the award is fully satisfied by the losing party.
separation pay. For backwages, it will be computed from the date of illegal
dismissal until the date of the decision of the Labor Arbiter. But if the employer 1. The 6% per annum rate of legal interest shall be applied prospectively:
appeals, then the end date shall be extended until the day when the appellate
court’s decision shall become final. Hence, as a consequence, the liability of the – Final and executory judgments awarding damages prior to July 1, 2013 shall
employer, if he loses on appeal, will increase – this is just but a risk that the apply the 12% rate;
employer cannot avoid when it continued to seek recourses against the Labor – Final and executory judgments awarding damages on or after July 1, 2013 shall
Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code. apply the 12% rate for unpaid obligations until June 30, 2013; unpaid obligations
with respect to said judgments on or after July 1, 2013 shall still incur the 6% rate.
Anent the issue of award of interest in the form of actual or compensatory Notes:
damages, the Supreme Court ruled that the old case of Eastern Shipping Lines vs NACAR V. GALLERY FRAMES AND/OR BORDEY, (2013)
CA is already modified by the promulgation of the Bangko Sentral ng Pilipinas (Compensatory, Penalty or Indemnity Interest)
Monetary Board Resolution No. 796 which lowered the legal rate of interest from *Amending the Eastern Shipping Doctrine
12% to 6%. Specifically, the rules on interest are now as follows: *Important: because this case discusses the amendment of the legal interest in
loan and forbearance of money, credits or goods from 12% to 6% effective July 1,
1. Monetary Obligations ex. Loans: 2013.

2. If stipulated in writing: Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796,
approved the amendment of Section 2 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013, the (at which time the quantification of damages may be deemed to have been
pertinent portion of which reads: reasonably ascertained). The actual base for the computation of legal interest
Section 1. The rate of interest for the loan or forbearance of any money, goods or shall, in any case, be on the amount finally adjudged.
credits and the rate allowed in judgments, in the absence of an express contract 3.) When the judgment of the court awarding a sum of money becomes final and
as to such rate of interest, shall be six percent (6%) per annum. executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be6% per annum from such finality until its satisfaction,
Thus, from the foregoing, in the absence of an express stipulation as to the rate of this interim period being deemed to be by then an equivalent to a forbearance of
interest that would govern the parties, the rate of legal interest for loans or credit.
forbearance of any money, goods or credits and the rate allowed in judgments
shall no longer be 12% per annum but will now be 6% per annum effective July 1, Application in this case: The interest of 12% per annum of the total monetary
2013. awards, computed from May 27, 2002 to June 30, 2013 and 6% per annum from
Ø It should be noted, nonetheless, that the new rate could only be applied July 1, 2013 until their full satisfaction, is awarded.
prospectively and not retroactively. Consequently, the 12% per annum legal Eastern Shipping Lines, Inc. v CA (Credit Transactions)
interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of 6% G.R. No. 97412 July 12, 1994
per annum shall be the prevailing rate of interest when applicable.
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND
To recapitulate and for future guidance, the guidelines laid down in the case of MERCANTILE INSURANCE COMPANY, INC., respondents.
Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No.
799, as follows: VITUG, J.:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable FACTS:
for damages. The provisions under Title XVIII on "Damages" of the Civil Code
govern in determining the measure of recoverable damages. This is an action against defendants shipping company, arrastre operator and
II. With regard particularly to an award of interest in the concept of actual broker-forwarder for damages sustained by a shipment while in defendants'
and compensatory damages, the rate of interest, as well as the accrual thereof, is custody, filed by the insurer-subrogee who paid the consignee the value of such
imposed, as follows: losses/damages.

New guidelines in the award of interest: the losses/damages were sustained while in the respective and/or successive
1.) When the obligation is breached, and it consists in the payment of a sum of custody and possession of defendants carrier (Eastern), arrastre operator (Metro
money, i.e., a loan or forbearance of money, the interest due should be that which Port) and broker (Allied Brokerage).
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, As a consequence of the losses sustained, plaintiff was compelled to pay the
the rate of interest shall be 6% per annum to be computed from default, i.e., from consignee P19,032.95 under the aforestated marine insurance policy, so that it
judicial or extrajudicial demand under and subject to the provisions of Article 1169 became subrogated to all the rights of action of said consignee against defendants.
of the Civil Code.
2.) When an obligation, not constituting a loan or forbearance of money, is DECISION OF LOWER COURTS: * trial court: ordered payment of damages, jointly
breached, an interest on the amount of damages awarded may be imposed at the and severally * CA: affirmed trial court.
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand ISSUES AND RULING:
can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time (a) whether or not a claim for damage sustained on a shipment of goods can be a
the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such solidary, or joint and several, liability of the common carrier, the arrastre operator
certainty cannot be so reasonably established at the time the demand is made, and the customs broker;
the interest shall begin to run only from the date the judgment of the court is made
YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the established with reasonable certainty, the interest shall begin to run from the time
goods that are in its custody and to deliver them in good condition to the the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
consignee, such responsibility also devolves upon the CARRIER. Both the certainty cannot be so reasonably established at the time the demand is made,
ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the interest shall begin to run only from the date the judgment of the court is made
the goods in good condition to the consignee. (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest
The common carrier's duty to observe the requisite diligence in the shipment of shall, in any case, be on the amount finally adjudged.
goods lasts from the time the articles are surrendered to or unconditionally placed
in the possession of, and received by, the carrier for transportation until delivered 3. When the judgment of the court awarding a sum of money becomes final and
to, or until the lapse of a reasonable time for their acceptance by, the person executory, the rate of legal interest, whether the case falls under paragraph 1 or
entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods this interim period being deemed to be by then an equivalent to a forbearance of
shipped either are lost or arrive in damaged condition, a presumption arises credit.
against the carrier of its failure to observe that diligence, and there need not be
an express finding of negligence to hold it liable. (c) whether the applicable rate of interest, referred to above, is twelve percent
(12%) or six percent (6%).
(b) whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision SIX PERCENT (6%) on the amount due computed from the decision, dated 03
appealed from is rendered; and February 1988, of the court a quo (Court of Appeals) AND A TWELVE PERCENT
(12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT) finality of the Supreme Court decision until the payment thereof.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, RATIO: when the judgment awarding a sum of money becomes final and
delicts or quasi-delicts is breached, the contravenor can be held liable for executory, the monetary award shall earn interest at 12% per annum from the
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern date of such finality until its satisfaction, regardless of whether the case involves a
in determining the measure of recoverable damages. loan or forbearance of money. The reason is that this interim period is deemed to
be by then equivalent to a forbearance of credit.
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 NOTES: the Central Bank Circular imposing the 12% interest per annum applies
imposed, as follows: only to loans or forbearance of money, goods or credits, as well as to judgments
involving such loan or forbearance of money, goods or credits, and that the 6%
1. When the obligation is breached, and it consists in the payment of a sum of interest under the Civil Code governs when the transaction involves the payment
money, i.e., a loan or forbearance of money, the interest due should be that which of indemnities in the concept of damage arising from the breach or a delay in the
may have been stipulated in writing. Furthermore, the interest due shall itself earn performance of obligations in general. Observe, too, that in these cases, a
legal interest from the time it is judicially demanded. In the absence of stipulation, common time frame in the computation of the 6% interest per annum has been
the rate of interest shall be 12% per annum to be computed from default, i.e., from applied, i.e., from the time the complaint is filed until the adjudged amount is fully
judicial or extrajudicial demand under and subject to the provisions of Article 1169 paid.
of the Civil Code.
UCPB vs Beluso
2. When an obligation, not constituting a loan or forbearance of money, is FACTS: On April 1997, spouses Beluso constituted other than promissory notes, a
breached, an interest on the amount of damages awarded may be imposed at the real estate mortgage over parcels of land. 3 of their promissory notes were
discretion of the court at the rate of 6% per annum. No interest, however, shall be renewed several times. Subsequently, spouses failed to deliver payment upon
adjudged on unliquidated claims or damages except when or until the demand can UPCB’s demand. As a result, their mortgage was foreclosed. Spouses filed Petition
be established with reasonable certainty. Accordingly, where the demand is
for Annulment, Accounting and Damages against UCPB. Trial court ruled in favor 1. Whether the CB-MB exceeded its authority when it issued CB Circular No. 905,
of the spouses. CA affirmed the same decision. which removed all interest ceilings and thus suspended Act No. 2655 as regards
usurious interest rates. NO
ISSUE: Whether the contract between the spouses Beluso and UPCB is valid.
2. Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB
HELD: No. Article 1308 of the Civil Code provides: Circular No. 905. YES
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. RULING:
The provision stating that the interest shall be at the “rate indicative of DBD retail
rate or as determined by the Branch Head” is indeed dependent solely on the will 1. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
of petitioner UCPB. Under such provision, petitioner UCPB has two choices on Circular No. 905.
what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a The power of the CB to effectively suspend the Usury Law pursuant to P.D. No.
rate as determined by the Branch Head. As UCPB is given this choice, the rate 1684 has long been recognized and upheld in many cases. As the Court explained
should be categorically determinable in both choices. If either of these two in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 "did
choices presents an opportunity for UCPB to fix the rate at will, the bank can easily not repeal nor in anyway amend the Usury Law but simply suspended the latter’s
choose such an option, thus making the entire interest rate provision violative of effectivity;" that "a CB Circular cannot repeal a law, [for] only a law can repeal
the principle of mutuality of contracts. another law;" that "by virtue of CB Circular No. 905, the Usury Law has been
rendered ineffective;" and "Usury has been legally non-existent in our jurisdiction.
Advocates for Truth in Lending, Inc. vs. BSP, et. al. Interest can now be charged as lender and borrower may agree upon."
G.R. No. 192986 / January 15, 2013 By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’
FACTS: freedom of contract to agree freely on the rate of interest. It cited Article 1306 of
Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer claim that the New Civil Code, under which the contracting parties may establish such
they are raising issues of transcendental importance to the public and so they filed stipulations, clauses, terms and conditions as they may deem convenient,
Petition for Certiorari under Rule 65 ROC seeking to declare that the Bangko provided they are not contrary to law, morals, good customs, public order, or
Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank public policy.
Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue 2. The BSP-MB has authority to enforce CB Circular No. 905.
enforcing Central Bank Circular No. 905, issued by the CB-MB in 1982, which Section 1 of CB Circular No. 905 provides that, "The rate of interest, including
"suspended" the Usury Law of 1916 (Act No. 2655). commissions, premiums, fees and other charges, on a loan or forbearance of any
money, goods, or credits, regardless of maturity and whether secured or
R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered unsecured, that may be charged or collected by any person, whether natural or
the CB-MB to, among others, set the maximum interest rates which banks may juridical, shall not be subject to any ceiling prescribed under or pursuant to the
charge for all types of loans and other credit operations, within limits prescribed Usury Law, as amended." It does not purport to suspend the Usury Law only as it
by the Usury Law. applies to banks, but to all lenders.

In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of 1982. Petitioners contend that, granting that the CB had power to "suspend" the Usury
Section 1 of the Circular, under its General Provisions, removed the ceilings on Law, the new BSP-MB did not retain this power of its predecessor, in view of
interest rates on loans or forbearance of any money, goods or credits. Section 135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The
petitioners point out that R.A. No. 7653 did not reenact a provision similar to
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 Section 109 of R.A. No. 265.
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB. A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law, as amended, the
ISSUE/S: BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made
by pawnshops, finance companies and similar credit institutions. It even 4. Petitioners filed a complaint for annulment of real estate mortgage and
authorizes the BSP-MB to prescribe different maximum rate or rates for different the consequent foreclosure proceedings.
types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries. Act No. 2655, an earlier law, is much broader in scope, 5. Petitioners claim that following the Courts ruling in Medel v. Court of
whereas R.A. No. 265, now R.A. No. 7653, merely supplemented it as it concerns Appeals the rate of interest stipulated in the principal loan agreement is clearly
loans by banks and other financial institutions. Had R.A. No. 7653 been intended
null and void. Consequently, they also argue that the nullity of the agreed interest
to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.
rate affects the validity of the real estate mortgage.
Further, the lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest. It is settled that
nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
ISSUE: A. Whether the interest rate is valid.---NO
interest rates to levels which will either enslave their borrowers or lead to a
B. Whether validity of said interest rate affects the Mortgage Contract.--NO
hemorrhaging of their assets. Stipulations authorizing iniquitous or
unconscionable interests have been invariably struck down for being contrary to
HELD: A. INTEREST RATE
morals, if not against the law.
Petitioners contend that the agreed rate of interest of 6% per month or 72% per
annum is so excessive, iniquitous, unconscionable and exorbitant that it should
SPOUSES DAVID B. CARPO and RECHILDA S. CARPO, Petitioners,
have been declared null and void. Instead of dismissing their complaint, they aver
- versus -
that the lower court should have declared them liable to respondents for the
ELEANOR CHUA and TINGA, and ELMA DY NG, CHICO-NAZARIO, JJ. Respondents.
original amount of the loan plus 12% interest per annum and 1% monthly penalty
DOCTRINE: Usurious loan transaction is not a complete nullity but defective only
charge as liquidated damages, in view of the ruling in Medel v. Court of Appeals
with respect to the agreed interest.
where the Court found that the interest stipulated at 5.5% per month or 66% per
In simple loan with stipulation of usurious interest, the prestation of the debtor to
annum was so iniquitous or unconscionable as to render the stipulation void.
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code),
In a long line of cases, this Court has invalidated similar stipulations on interest
is not illegal. The illegality lies only as to the prestation to pay the stipulated
rates for being excessive, iniquitous, unconscionable and exorbitant.
interest; hence, being separable, the latter only should be deemed void, since it is
In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum.
the only one that is illegal.
By the standards set in the above-cited cases, this stipulation is similarly
FACTS:
invalid.From that perspective, it is apparent that the stipulated interest in the
1. Petitioners borrowed from respondents the amount of P175,000.00,
subject loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant to
payable within six (6) months with an interest rate of six percent (6%) per month. the freedom of contract principle embodied in Article 1306 of the Civil Code,
To secure the payment of the loan, petitioners mortgaged their residential house contracting parties may establish such stipulations, clauses, terms and conditions
and lot. as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. In the ordinary course, the codal provision
may be invoked to annul the excessive stipulated interest.
2. Petitioners failed to pay the loan upon demand. Consequently, the real
estate mortgage was extrajudicially foreclosed where the respondents emerged B. INTEREST RATE INVALIDITY &MORTGAGE CONTRACT
winners in the public auction. The question as to whether the invalidity of the stipulation on interest carries with
it the invalidity of the principal obligation is crucial . The consideration of the
3. Petitioners failed to exercise their right of redemption, thus a certificate mortgage contract is the same as that of the principal contract from which it
of sale was issued and new TCT was issued in the name of respondents. Despite receives life, and without which it cannot exist as an independent contract. Being
a mere accessory contract, the validity of the mortgage contract would depend on
the issuance of the TCT, petitioners continued to occupy the said house and lot,
the validity of the loan secured by it.
prompting respondents to file a petition for writ of possession.Writ of possession Notably in Medel, the Court did not invalidate the entire loan obligation despite
was then issued. the inequitability of the stipulated interest, but instead reduced the rate of
interest to the more reasonable rate of 12% per annum. This is congruent with
the rule that a usurious loan transaction is not a complete nullity but defective of a contracting party as to destroy his free agency, making him express the will of
only with respect to the agreed interest. another rather than his own.
Further, Article 1273, Civil Code, provides: "The renunciation of the principal debt
shall extinguish the accessory obligations; but the waiver of the latter shall leave The RTC had likewise concluded that petitioners were barred by laches from
the former in force." assailing the validity of the real estate mortgage.
Article 1420 of the New Civil Code provides in this regard: "In case of a divisible SC: Agrees. If indeed petitioners unwillingly gave their consent to the agreement,
contract, if the illegal terms can be separated from the legal ones, the latter may they should have raised this issue as early as in the foreclosure proceedings. It was
be enforced." only when the writ of possession was issued did petitioners challenge the
In simple loan with stipulation of usurious interest, the prestation of the debtor to stipulations in the loan contract in their action for annulment of mortgage.
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), Evidently, petitioners slept on their rights.
is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since it is Clearly then, with the absence of undue influence, petitioners have no cause of
the only one that is illegal. action. Even assuming undue influence vitiated their consent to the loan contract,
The principal debt remaining without stipulation for payment of interest can thus their action would already be barred by prescription when they filed it. Moreover,
be recovered by judicial action. And in case of such demand, and the debtor incurs petitioners had clearly slept on their rights as they failed to timely assail the
in delay, the debt earns interest from the date of the demand (in this case from validity of the mortgage agreement.
the filing of the complaint). Such interest is not due to stipulation, for there was
none, the same being void. Rather, it is due to the general provision of law that in
obligations to pay money, where the debtor incurs in delay, he has to pay interest Part II. Deposit
by way of damages
Voluntary Deposit
Hence, it is clear and settled that the principal loan obligation still stands and
remains valid. By the same token, since the mortgage contract derives its vitality BPI v. The Intermediate Appellate Court & Zshornack, G.R. No. L-66826, August
from the validity of the principal obligation, the invalid stipulation on interest rate 19, 1998
is similarly insufficient to render void the ancillary mortgage contract. Facts:
(Note: I included the below in case it is deemed relevant in Credit Trans)
C. UNDUE INFLUENCE Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings
RTC pronounced that the complaint was barred by the four-year prescriptive account and a peso current account. An application for a dollar drat was
period because of vitiated consent through undue influence. accomplished by Virgillo Garcia branch manager of COMTRUST payable to a
certain Leovigilda Dizon. In the PPLICtion, Garcia indicated that the amount was to
SC: Disagrees. Article 1391, in relation to Article 1390 of the Civil Code, grants the be charged to the dolar savings account of the Zshornacks. There wasa no
aggrieved party the right to obtain the annulment of contract on account of factors indication of the name of the purchaser of the dollar draft. Comtrust issued a check
which vitiate consent. Article 1337 defines the concept of undue influence, as payable to the order of Dizon. When Zshornack noticed the withdrawal from his
follows: account, he demanded an explainaiton from the bank. In its answer, Comtrust
claimed that the peso value of the withdrawal was given to Atty. Ernesto
There is undue influence when a person takes improper advantage of his power Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashiers
over the will of another, depriving the latter of a reasonable freedom of choice. The check for P8450 issued by the manila banking corporation payable to Ernesto.
following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties or the fact that the person alleged to have been Issue: Whether the contract between petitioner and respondent bank is a
unduly influenced was suffering from mental weakness, or was ignorant or in deposit?
financial distress.
While petitioners were allegedly financially distressed, it must be proven that Held: The document which embodies the contract states that the US$3,000.00
there is deprivation of their free agency. In other words, for undue influence to be was received by the bank for safekeeping. The subsequent acts of the parties also
present, the influence exerted must have so overpowered or subjugated the mind show that the intent of the parties was really for the bank to safely keep the dollars
and to return it to Zshornack at a later time. Thus, Zshornack demanded the return American Jurisprudence:
of the money on May 10, 1976, or over five months later. The prevailing rule is that the relation between a bank renting out safe-
deposit boxes and its customer with respect to the contents of the box is that of a
The above arrangement is that contract defined under Article 1962, New Civil bail or bailee, the bailment being for hire and mutual benefit.
Code, which reads: Our provisions on safety deposit boxes are governed by Section 72 (a) of the
Art. 1962. A deposit is constituted from the moment a person receives a thing General Banking Act, and this primary function is still found within the parameters
belonging to another, with the obligation of safely keeping it and of returning the of a contract of deposit like the receiving in custody of funds, documents and other
same. If the safekeeping of the thing delivered is not the principal purpose of the valuable objects for safekeeping. The renting out of the safety deposit boxes is not
contract, there is no deposit but some other contract. independent from, but related to or in conjunction with, this principal function.
Thus, depositary’s liability is governed by our civil code rules on obligation and
Agro-Industrial Development Corporation v. Ca and Security Bank & Trust contracts, and thus the SBTC would be liable if, in performing its obligation, it is
Company, G.R. No. 90027, March 3, 1993, 219 SCRA 426 found guilty of fraud, negligence, delay or contravention of the tenor of the
Facts: agreement.
On July 3, 1979, petitioner (through its President- Sergio Aguirre) and the Spouses
Ramon and Paula Pugao entered into an agreement whereby the former purchase Roman Catholic Bishop of Jaro v. Dela Pena, G.R. No. L-6913, November 21, 1913,
two parcel of lands from the latter. It was paid of downpayment while the balance 26 Phil 144
was covered by there postdated checks. Among the terms and conditions FACTS : The plaintiff is the trustee of a charitable bequest made for the
embodied in the agreement were the titles shall be transferred to the petitioner construction of a leper hospital and that father Agustin de la Peña was the duly
upon full payment of the price and the owner's copies of the certificate of titles authorized representative of the plaintiff to receive the legacy. The defendant is
shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos the administrator of the estate of Father De la Peña.
then rented Safety Deposit box of private respondent Security Bank and Trust
Company. In the year 1898 the books Father De la Peña, as trustee, showed that he had on
hand as such trustee the sum of P6,641, collected by him for the charitable
Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs purposes aforesaid. In the same year he deposited in his personal account P19,000
Ramos demand the execution of a deed of sale which necessarily entailed the in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war
production of the certificate of titles. In view thereof, Aguirre, accompanied by the of the revolution, Father De la Peña was arrested by the military authorities as a
Pugaos, then proceed to the respondent Bank to open the safety deposit box and political prisoner, and while thus detained made an order on said bank in favor of
get the certificate of titles. However, when opened in the presence of the Bank's the United States Army officer under whose charge he then was for the sum thus
representative, the box yielded no such certificate. Because of the delay in the deposited in said bank. The arrest of Father De la Peña and the confiscation of the
reconstitution of the title, Mrs Ramos withdrew her earlier offer to purchase. funds in the bank were the result of the claim of the military authorities that he
was an insurgent and that the funds thus deposited had been collected by him for
Hence this petition. revolutionary purposes. The money was taken from the bank by the military
authorities by virtue of such order, was confiscated and turned over to the
Issue: Government.
Whether or not the contractual relation between a commercial bank and While there is considerable dispute in the case over the question whether the
another party in the contract of rent of a safety deposit box is one of bailor and P6,641 of trust funds was included in the P19,000 deposited as aforesaid,
bailee. nevertheless, a careful examination of the case leads us to the conclusion that said
trust funds were a part of the funds deposited and which were removed and
Ruling: confiscated by the military authorities of the United States.
Yes.
The contract in the case at bar is a special kind of deposit. It cannot be ISSUE : Whether or not Father de la Peña is liable for the loss of the money under
characterized as an ordinary contract of lease under Article 1643 because the full his trust?
and absolute possession and control of the safety deposit box was not given to the
joint renters – the petitioner and Pugaos.
 RULINGS : The court, therefore, finds and declares that the money which is the investigated Hotel Security Officer, Ernesto T. Horlador, Jr. and Justimbaste. See
subject matter of this action was deposited by Father De la Peña in the Hongkong gave his Sinumpaang Salaysay to the police investigator, and filed a Complaint
and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken Sheet with the PNP Traffic Management Group in Camp Crame. it paid the
from the bank by the armed forces of the United States during the war of the P1,163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank, Inc.
insurrection; and that said Father De la Peña was not responsible for its loss. as indemnity for the loss of the Vitara.

Father De la Peña's liability is determined by those portions of the Civil Code which The Vitara was lost due to the negligence of Durban Apartments and Justimbaste
relate to obligations. (Book 4, Title 1.) because it was discovered during the investigation that this was the second time
Although the Civil Code states that "a person obliged to give something is also that a similar incident of carnapping happened in the valet parking service and no
bound to preserve it with the diligence pertaining to a good father of a family" (art. necessary precautions were taken to prevent its repetition. Durban Apartments
1094), it also provides, following the principle of the Roman law, major casus est, was wanting in due diligence in the selection and supervision of its employees
cui humana infirmitas resistere non potest, that "no one shall be liable for events particularly defendant Justimbaste. Both failed and refused to pay its valid, just,
which could not be foreseen, or which having been foreseen were inevitable, with and lawful claim despite written demands.
the exception of the cases expressly mentioned in the law or those in which the
obligation so declares." (Art. 1105.) ISSUE: Is petitioner liable for the loss of See’s vehicle?

By placing the money in the bank and mixing it with his personal funds De la Peña RULING: Yes.
did not thereby assume an obligation different from that under which he would Article 1962, in relation to Article 1998, of the Civil Code defines a contract of
have lain if such deposit had not been made, nor did he thereby make himself deposit and a necessary deposit made by persons in hotels or inns:
liable to repay the money at all hazards. If the had been forcibly taken from his Art. 1962. A deposit is constituted from the moment a person receives a thing
pocket or from his house by the military forces of one of the combatants during a belonging to another, with the obligation of safely keeping it and returning the
state of war, it is clear that under the provisions of the Civil Code he would have same. If the safekeeping of the thing delivered is not the principal purpose of the
been exempt from responsibility. The fact that he placed the trust fund in the bank contract, there is no deposit but some other contract.
in his personal account does not add to his responsibility. Such deposit did not Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be
make him a debtor who must respond at all hazards. regarded as necessary. The keepers of hotels or inns shall be responsible for them
as depositaries, provided that notice was given to them, or to their employees, of
the effects brought by the guests and that, on the part of the latter, they take the
Necessary Deposit precautions which said hotel-keepers or their substitutes advised relative to the
care and vigilance of their effects.
Durban Apartments Corp. v. Pioneer Insurance and Surety Corp, G.R. No. 179419,
January 12, 2011, 639 SCRA 441
Plainly, from the facts found by the lower courts, the insured See deposited his
vehicle for safekeeping with petitioner, through the latter’s employee,
FACTS: July 22, 2003, Pioneer Insurance and Surety Corp, by right of subrogation,
Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of
filed with the RTC of Makati a Complaint for Recovery of Damages against Durban
deposit was perfected from See’s delivery, when he handed over to Justimbaste
Apartments Corp. (or City Garden Hotel) and defendant before the RTC, Vicente
the keys to his vehicle, which Justimbaste received with the obligation of safely
Justimbaste. Respondent averred that it is the insurer for loss and damage of
keeping and returning it. Ultimately, petitioner is liable for the loss of See’s vehicle.
Jeffrey S. See’s 2001 Suzuki Grand Vitara in the amount of P1,175,000.00. On April
30, 2002, See arrived and checked in at the City Garden Hotel before midnight,
YHT Realty Corporation v. CA, G.R. No. 126780, February 17, 2005, 451 SCRA 638
and its parking attendant, Justimbaste got the key to said Vitara from See to park
FACTS:
it. On May 1, 2002, at about 1:00 am, See received a phone call where the Hotel
Respondent McLoughlin would always stay at Tropicana Hotel every time
Chief Security Officer informed him that his Vitara was carnapped while it was
he is here in the Philippines and would rent a safety deposit box. The safety deposit
parked unattended at the parking area of Equitable PCI Bank See went to see the
box could only be opened through the use of 2 keys, one of which is given to the
Security Officer, thereafter reported the incident to the Operations Division of the
registered guest, and the other remaining in the possession of the management
Makati City Police Anti-Carnapping Unit, and a flash alarm was issued. The police
of the hotel.
 McLoughlin allegedly placed the following in his safety deposit box – 2 loss of the contents of the safety deposit box whether or not negligence was
envelopes containing US Dollars, one envelope containing Australian Dollars, incurred by Tropicana or its employees. The New Civil Code is explicit that the
Letters, credit cards, bankbooks and a checkbook. responsibility of the hotel-keeper shall extend to loss of, or injury to, the personal
On 12 December 1987, before leaving for a brief trip, McLoughlin took property of the guests even if caused by servants or employees of the keepers of
some items from the safety box which includes the ff: envelope containing Five hotels or inns as well as by strangers, except as it may proceed from any force
Thousand US Dollars (US$5,000.00), the other envelope containing Ten Thousand majeure.41 It is the loss through force majeure that may spare the hotel-keeper
Australian Dollars (AUS$10,000.00), his passports and his credit cards. The other from liability. In the case at bar, there is no showing that the act of the thief or
items were left in the deposit box. Upon arrival, he found out that a few dollars robber was done with the use of arms or through an irresistible force to qualify
were missing and the jewelry he bought was likewise missing. the same as force majeure.
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 Part III.
stolen McLouglin’s key and was able to open the safety deposit box with the
Guaranty
assistance of Lopez, Paiyam and Lainez. Lopez also told McLoughlin that Tan stole
the key assigned to McLouglin while the latter was asleep. 28. American Home Insurance Co. of New York v. F.F. Cruz & Co., Inc., G.R. No.
McLoughlin insisted that it must be the hotel who must assume 174926, August 10, 2011
responsibility for the loss he suffered. Lopez refused to accept responsibility
relying on the conditions for renting the safety deposit box entitled “Undertaking 29. Salvador P. Escano, et al v. Rafael Ortigas Jr., G.R. No. 151953, June 29, 2007
For the Use of Safety Deposit Box”
Facts:
ISSUE: WON the "Undertaking for the Use of Safety Deposit Box" admittedly
On April 28, 1980, Private Development Corporation of the Philippines (PDCP)
executed by private respondent is null and void.
entered into a loan agreement with Falcon Minerals, Inc. (Falcon) amounting to
HELD: YES $320,000.00 subject to terms and conditions. [“Nagpautang ang PDCP sa Falcon ng
Article 2003 was incorporated in the New Civil Code as an expression of $320K]
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. Catering to the public, hotelkeepers are bound to provide not only On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George A. Scholey,
lodging for hotel guests and security to their persons and belongings. The twin and George T. Scholey executed an Assumption of Solidary Liability “to assume in
duty constitutes the essence of the business. The law in turn does not allow such [their] individual capacity, solidary liability with [Falcon] for due and punctual
duty to the public to be negated or diluted by any contrary stipulation in so-called
payment” of the loan contracted by Falcon with PDCP.
“undertakings” that ordinarily appear in prepared forms imposed by hotel keepers
on guests for their signature.
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 Two (2) separate guaranties were executed to guarantee payment of the same loan
that they be actually delivered to the innkeepers or their employees. It is enough by other stockholders and officers of Falcon, acting in their personal and individual
that such effects are within the hotel or inn. With greater reason should the capacities. One guaranty was executed by Escaño, Silos, Silverio, Inductivo and
liability of the hotelkeeper be enforced when the missing items are taken without Rodriguez.
the guest’s knowledge and consent from a safety deposit box provided by the
hotel itself, as in this case.
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 Two years later, an agreement developed to cede control of Falcon to Escaño, Silos
the contents and/or use of the safety deposit box for any cause whatsoever. and Matti. Contracts were executed whereby Ortigas, George A. Scholey, Inductivo
Evidently, the undertaking was intended to bar any claim against Tropicana for any and the heirs of then already deceased George T. Scholey assigned their shares of
stock in Falcon to Escaño, Silos and Matti. An Undertaking dated June 11, 1982 was several debtor, on one hand, and a surety on the other. Solidarity signifies that the
executed by the concerned parties, namely: with Escaño, Silos and Matti as creditor can compel any one of the joint and several debtors or the surety alone to
“SURETIES” and Ortigas, Inductivo and Scholeys as “OBLIGORS” answer for the entirety of the principal debt. The difference lies in the respective
faculties of the joint and several debtor and the surety to seek reimbursement for
the sums they paid out to the creditor. In the case of joint and several debtors, Article
Falcon eventually availed of the sum of $178,655.59 from the credit line extended by 1217 makes plain that the solidary debtor who effected the payment to the creditor
PDCP. It would also execute a Deed of Chattel Mortgage over its personal properties “may claim from his co-debtors only the share which corresponds to each, with the
to further secure the loan. However, Falcon subsequently defaulted in its payments. interest for the payment already made.” Such solidary debtor will not be able to
After PDCP foreclosed on the chattel mortgage, there remained a subsisting recover from the co-debtors the full amount already paid to the creditor, because
deficiency of Php 5,031,004.07 which falcon did not satisfy despite demand. the right to recovery extends only to the proportional share of the other co-debtors,
and not as to the particular proportional share of the solidary debtor who already
paid. In contrast, even as the surety is solidarily bound with the principal debtor to
the creditor, the surety who does pay the creditor has the right to recover the full
Issue: Whether the obligation to repay is solidary, as contended by respondent and
amount paid, and not just any proportional share, from the principal debtor or
the lower courts, or merely joint as argued by petitioners.
debtors. Such right to full reimbursement falls within the other rights, actions and
benefits which pertain to the surety by reason of the subsidiary obligation assumed
by the surety.
Held/Ruling:

In case, there is a concurrence of two or more creditors or of two or more

debtors in one and the same obligation, Article 1207 of the Civil Code states that *Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of P1.3M; Legal
among them, “[t]here is a solidary liability only when the obligation expressly so interest of 12% per annum on P 1.3M computed from March 14, 1994. Assailed
states, or when the law or the nature of the obligation requires solidarity.” Article rulings are affirmed. Costs against petitioners
1210 supplies further caution against the broad interpretation of solidarity by
providing: “The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.” These Civil Code provisions 30. Atok Finance Corporation v. CA, G.R. No. 80078, May 18, 1993
establish that in case of concurrence of two or more creditors or of two or more
debtors in one and the same obligation, and in the absence of express and FACTS:
indubitable terms characterizing the obligation as solidary, the presumption is that ● Sanyu Chemical Corporation (Sanyu Chemical) as Principal
the obligation is only joint. It thus becomes incumbent upon the party alleging that ● Sanyu Trading Corporation (Sanyu Trading) along with Private Stockholders (as
the obligation is indeed solidary in character to prove such fact with a preponderance sureties):
of evidence. o Sps. Danilo E. Arrieta & Nenita B. Arrieta
o Leopoldo G. Halili
o Pablito Bermindo
They Executed a Continuing Suretyship Agreement1 in favor of Atok Finance
Note that Article 2047 itself specifically calls for the application of the Corporation (Atok Finance) as creditor.
provisions on joint and solidary obligations to suretyship contracts. Article 1217 of
the Civil Code thus comes into play, recognizing the right of reimbursement from a ● Under this Agreement, Sanyu Trading and the individual private respondents who
co-debtor (the principal debtor, in case of suretyship) in favor of the one who paid were officers and stockholders of Sanyu Chemical did:
(i.e., the surety).[However, a significant distinction still lies between a joint and (1) For Valuable and/or other consideration x x x, jointly and severally unconditionally

1
 guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the o Dismissed the appeal upon the ground of abandonment, since the private
full, faithful and prompt payment and discharge of any and all indebtedness of respondents had failed to file their appeal brief
[Sanyu Chemical] x x x (hereinafter called Principal) to the Creditor o CA granted petition for relief of judgment
▪ Held that a surety agreement is an accessory contract and therefore cannot
The word ‘indebtedness’ is used herein in its most comprehensive sense and includes exist without a principal contract, which was not proven to have existed when
any and all advances, debts, obligations and liabilities of Principal or any one or the time the surety agreement was constituted. 2
more of them, here[to]fore, now or hereafter made, incurred or created, whether ▪ Cited Article 2052 which states that a guarantee cannot exist without a valid
obligation.
voluntary or involuntary and however arising, whether direct or acquired by the
▪ Cited Art. 1629, which made Sanyu Chemical free from liability.
Creditor by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined and whether ISSUE (S):
the Principal may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter become barred by any statute of 1)WoN that Agreement must be held null and void as having been executed without
limitations, or whether such indebtedness may be or otherwise become consideration and without a pre-existing principal obligation to sustain it and would
unenforceable.”
 then hold private respondents and Sanyu Chemical solidarily liable.

● 27 November 1981: Sanyu Chemical assigned its trade receivables outstanding 2) WoN private respondents are liable under the Deed of Assignment on the
as of 27 November 1981 with a total face value of P125,871.00 to Atok Finance receivables thereby assigned.
in consideration of receipt from Atok Finance of the amount of P105,000.00.
o The assigned receivables carried a standard term of 30 days; RATIO: Petition for Review is hereby GRANTED DUE COURSE, and the Decision of the
o It appeared, however, that the standard commercial practice was to grant an
CA are hereby REVERSED and SET ASIDE. RTC decision reinstated but modified.
extension of up to 120 days without penalties.
Penalty is reduced to 18% per annum (instead of P0.03 for every peso monthly or
● 13 January 1984: Atok Finance commenced action against Sanyu Chemical, the
36% per annum.
Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the RTC-Manila to:
o Collect the sum of P120,240.00
o Plus penalty charges amounting to P0.03 for every peso due and payable for In the First Issue: (Relevant to DOCTRINE)
each month starting from 1 September 1983.
● Atok Finance alleged that Sanyu Chemical had failed to collect and remit the ● Article 2052 is not to be read in an absolute and literal manner and carried to the
amounts due under the trade receivables. limit of its logic.
● Sanyu Chemical and individual private respondents sought dismissal of Atok’s ● This is clear from Article 2052 and 20533 of the Civil Code itself: “Art. 2052. A
claim upon the ground that: guaranty cannot exist without a valid obligation.
o Such claim had prescribed under Article 1629 of the Civil Code and Nevertheless, a guaranty may be constituted to guarantee the performance of a viodable
o Lack of cause of action or an unenforceable contract. It may also guarantee a natural obligation.
o Also contended that the Continuing Suretyship Agreement, being an ● In Rizal Commercial Banking Corporation and the NARIC cases4 rejected the
accessory contract, was null and void since, at the time of its execution, Sanyu distinction which the CA in the case at bar sought to make with respect to Article
Chemical had no pre-existing obligation due to Atok Finance. 2053, that is, that the “future debts” referred to in that Article relate to “debts
● The trial court rendered a decision in favor of Atok Finance. (Respondents had already existing at the time of the constitution of the agreement but the
no evidence) amount [of which] is unknown,” and not to debts not yet incurred and existing
o Private Respondents appealed before the IAC but was dismissed at that time.
● A surety is not bound under any particular principal obligation until that principal

2
Article 2052; NCC conditional obligation may also be secured.” 

3
:
“A guaranty may also be given as security for future debts, the amount of which is not yet
4
known; there can be no claim against the guarantor until the debt is liquidated. A See notes
 obligation is born. But there is no theoretical or doctrinal difficulty inherent in were activated by the resulting obligations of Sanyu Chemical as solidary obligor
saying that the suretyship agreement itself is valid and binding even before the under each of the assigned receivables by virtue of the operation of the Deed of
principal obligation intended to be secured thereby is born, any more than Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting
there would be in saying that obligations which are subject to a condition period set out in Article 1629 of the Civil Code.
precedent are valid and binding before the occurrence of the condition ● It follows that at the time the original complaint was filed by Atok Finance in the
precedent. trial court, it had a valid and enforceable cause of action against Sanyu
● Comprehensive or continuing surety agreements are common in present day Chemical and the other private respondents. We also agree with the Court of
financial and commercial practice. A bank or a financing company which Appeals that the original obligors under the receivables assigned to Atok Finance
anticipates entering into a series of credit transactions with a particular remain liable under the terms of such receivables.
company, commonly requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. Notes: (For your reference.)
● By executing such an agreement, the principal places itself in a position to enter
into the projected series of transactions with its creditor; with such suretyship In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co.,
agreement, there would be no need to execute a separate surety contract or Inc:
bond for each financing or credit accommodation extended to the principal
debtor. This is precisely what happened in the case at bar. Mr. Justice J.B.L. Reyes, made short shrift of the private respondents’ doctrinaire
argument:
In the Second Issue: (Not so Relevant)
“Under his third assignment of error, appellant Fojas questions the validity of the
● The contention of Sanyu Chemical was that Atok Finance had no cause of action additional bonds on the theory that when they were executed, the principal
under the Deed of Assignment for the reason that Sanyu Chemical’s warranty of
obligation referred to in said bonds had not yet been entered into, as no copy thereof
the debtors’ solvency had ceased.
was attached to the deeds of suretyship.
o In submitting this contention, Sanyu Chemical relied on Article 1629 5
● Assignment of receivables is a commonplace commercial transaction today. It is
This defense is untenable, because in its complaint the NARIC averred, and the
an activity or operation that permits the assignee to monetize or realize the value
of the receivables before the maturity thereof. In other words, Sanyu Chemical appellant did not deny that these bonds were posted to secure the additional credit
received from Atok Finance the value of its trade receivables it had assigned; that Fojas has applied for, and the credit increase over his original contract was
Sanyu Chemical obviously benefitted from the assignment. The payments due in sufficient consideration for the bonds. That the latter were signed and filed before
the first instance from the trade debtors of Sanyu Chemical would represent the the additional credit was extended by the NARIC is no ground for complaint. Article
return of the investment which Atok Finance had made when it paid Sanyu 1825 of the Civil Code of 1889, in force in 1948,expressly recognized that ‘a guaranty
Chemical the transfer value of such receivables. may also be given as security for future debts the amount of which is not yet known.’
● the assignor Sanyu Chemical becomes a solidary debtor under the terms of the ” (Italics supplied)
receivables covered and transferred by virtue of the Deed of Assignment. And
because assignor Sanyu Chemical became, under the terms of the Deed of In Rizal Commercial Banking Corporation v. Arro:
Assignment, solidary obligor under each of the assigned receivables, the other
private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo The Court was confronted again with the same issue, that is, whether private
Halili), became solidarily liable for that obligation of Sanyu Chemical, by virtue of respondent was liable to pay a promissory note dated 29 April 1977 executed by the
the operation of the Continuing Suretyship Agreement.
principal debtor in the light of the provisions of a comprehensive surety agreement
● Put a little differently, the obligations of individual private respondent officers
which petitioner bank and the private respondent had earlier entered into on 19
and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement

5
“Art. 1629. In case the assignor in good faith should have made himself responsible for the had already expired. If the credit should be payable within a term or period which has not
yet expired, the liability shall cease one year after the maturity.”

solvency of the debtor, and the contracting parties should not have agreed upon the duration
of the liability, it shall last for one year only, from the time of the assignment if the period
October 1976. the back of CCT No. 2130. Two years later again the spouses borrowed One Million
One Hundred Thousand Pesos (P1,100,000.00) from petitioner bank, which was also
Under the comprehensive surety agreement, the private respondents had bound secured by a mortgage over the same property annotated at the back of CCT No.
themselves as solidary debtors of the Diacor Corporation not only in respect of 2130.
existing obligations but also in respect of future ones. In holding private respondent
surety (Residoro Chua) liable under the comprehensive surety agreement, the Court
said: On Jan 1996 respondents paid One Million Eleven Thousand Five Hundred Fifty-Five
Pesos and 54 centavos (P1,011,555.54), as evidenced by Official Receipt No. 1477417
“The surely agreement which was earlier signed by Enrique Go., Sr. and private
issued by petitioner bank. On the face of the receipt, it was written that the payment
respondent, is an accessory obligation, it being dependent upon a principal one
was "in full payment of the loan and interest." Respondents then asked petitioner
which, in this case is the loan obtained by Diacor as evidence by a promissory note.
bank to cancel the mortgage annotations on CCT No. 2130 since the loans secured by
What obviously induced petitioner bank to grant the loan was the surety agreement
the real estate mortgage were already paid in full. However, the bank refused to
whereby Go and Chua bound themselves solidarily to guaranty the punctual payment
cancel the same and demanded payment of Four Million Six Hundred Thirty-Three
of the loan at maturity. By terms that are unequivocal, it can be clearly seen that the
Thousand Nine Hundred Sixteen Pesos and Sixty-Seven Centavos (P4,633,916.67),
surety agreement was executed to guarantee future debts which Daicor may incur
then petitioner bank applied for extra-judicial foreclosure of the mortgages over the
with petitioner, as is legally allowable under the Civil Code.
condominium unit. The public auction sale was scheduled on September 4, 1998.

Relevant provision of deed of assignment: Respondents filed suit with the RTC, Quezon City, assailing the validity of the
foreclosure and auction sale of the property.
“2. To induce the ASSIGNEE [Atok Finance] to purchase the above contracts, the
ASSIGNOR [Sanyu Chemical] does hereby certify, warrant and represent that x x x RTC granted respondents’ prayer for issuance of a writ of preliminary injunction,
restraining petitioner bank from foreclosing on the mortgage and ordered that
(g) the debtor/s under the assigned contract/s are solvent and his/its/theirfailure to specific performance with damages and injunction filed by plaintiffs, Sps. Andres and
pay the assigned contract/s and/or any installment thereon upon maturity thereof Eliza Flores against defendants, Bank of Commerce and Stephen Z. Taala, is hereby
shall be conclusively considered as a violation of this warranty; and x x x DISMISSED. Likewise, the counterclaim filed by defendants, Bank of Commerce and
Stephen Z. Taala against plaintiffs, Sps. Andres and Eliza Flores is DISMISSED for
The foregoing warranties and representations are in addition to those provided for insufficiency of evidence.
in the Negotiable Instruments Law and other applicable laws. Any violation thereof
Upon appeal, CA rendered a Decision reversing the decision and the resolution of the
shall render the ASSIGNOR immediately and unconditionally liable to pay the
RTC entering a new order:
ASSIGNEE jointly and severally with the debtors under the assigned contracts, the
amounts due thereon. (a) ordering the cancellation of the real estate mortgage annotations on the dorsal
side of CCT No. 2130 of the Registry of Deeds of Quezon City;

(b) ordering appellee Bank to issue a corresponding release of mortgages to plaintiffs-

31. Bank of Commerce, et al. v. Sps. Andres and Eliza Flores, G.R. No. 174006, appellants’ CCT No. 2130;
December 8, 2010
(c) declaring null and void the challenged extra-judicial foreclosure and public auction
Facts: sale held on March 25, 2004 together with the Certificate of Sale dated April 14, 2004
Spouse Flores borrowed money from petitioner bank in the amount of Nine Hundred issued in favor of appellee Bank; and,
Thousand Pesos (P900,000.00) on Oct 1993. Respondents executed a Real Estate (d) appellees’ counterclaims are ordered dismissed, for lack of sufficient basis
Mortgage5 over the condominium unit as collateral, and the same was annotated at therefor.
Issue: Decision of the CA is REVERSED and SET ASIDE. The decision of the Regional Trial
Court dated December 4, 2002 is hereby REINSTATED.
WON the real estate mortgage over the subject condominium unit is a continuing
guaranty for the future loans of respondent spouses despite the full payment of the
principal loans annotated on the title of the subject property.
32. Philippine Blooming Mills, Inc. v. CA, G.R. No. 142381, October 15, 2003
Held:
FACTS: Ching was the Senior Vice President of PBM. In his personal capacity and not
Yes, A continuing guaranty is a recognized exception to the rule that an action to as a corporate officer, Ching signed a Deed of Suretyship for trust receipts and bound
foreclose a mortgage must be limited to the amount mentioned in the mortgage himself as a co-maker of a promissory note to cover a trust loan. All of which were
contract.23 Under Article 2053 of the Civil Code, a guaranty may be given to secure loaned from TRB.
even future debts, the amount of which may not be known at the time the guaranty PBM defaulted in its payment of the three liabilities. PBM and Ching filed a
is executed. This is the basis for contracts denominated as a continuing guaranty or petition for suspension of payments with the Securities and Exchange Commission.
The petition sought to suspend payment of PBMs obligations and prayed that the SEC
suretyship. A continuing guaranty is not limited to a single transaction, but
allow PBM to continue its normal business operations free from the interference of
contemplates a future course of dealing, covering a series of transactions, generally
its creditors. One of the listed creditors of PBM was TRB.
for an indefinite time or until revoked. It is prospective in its operation and is PBM and Ching moved to dismiss the complaint on the ground that the trial
generally intended to provide security with respect to future transactions within court had no jurisdiction over the subject matter of the case. PBM and Ching invoked
certain limits, and contemplates a succession of liabilities, for which, as they accrue, the assumption of jurisdiction by the SEC over all of PBMs assets and liabilities. TRB
the guarantor becomes liable. In other words, a continuing guaranty is one that filed an opposition to the Motion to Dismiss. TRB argued that (1) Ching is being sued
covers all transactions, including those arising in the future, which are within the in his personal capacity as a surety for PBM; (2) the SEC decision declaring PBM in
description or contemplation of the contract of guaranty, until the expiration or suspension of payments is not binding on TRB; and (3) Presidential Decree No. 1758
termination thereof. (PD No. 1758), which Ching relied on to support his assertion that all claims against
PBM are suspended, does not apply to Ching as the decree regulates corporate
activities only.
The trial court denied the motion to dismiss with respect to Ching and affirmed
The language of the real estate mortgage unambiguously reveals that the security
its dismissal of the case with respect to PBM. The trial court stressed that TRB was
provided in the real estate mortgage is continuing in nature. Thus, it was intended as holding Ching liable under the Deed of Suretyship. As Ching’s obligation was solidary,
security for the payment of the loans annotated at the back of CCT No. 2130, and as the trial court ruled that TRB could proceed against Ching as surety upon default of
security for all amounts that respondents may owe petitioner bank. It is well settled the principal debtor PBM. The trial court also held that PD No. 1758 applied only to
that mortgages given to secure future advance or loans are valid and legal contracts, corporations, partnerships and associations and not to individuals.
and that the amounts named as consideration in said contracts do not limit the Upon the trial courts denial of his Motion for Reconsideration, Ching filed a
amount for which the mortgage may stand as security if from the four corners of the Petition for Certiorari and Prohibition before the Court of Appeals. The appellate
instrument the intent to secure future and other indebtedness can be gathered. court granted Chings petition and ordered the dismissal of the case. The appellate
court ruled that the SEC assumed jurisdiction over Ching and PBM to the exclusion of
courts or tribunals of coordinate rank.
TRB assailed the Court of Appeals Decision before this Court. In Traders Royal
Respondents’ full payment of the loans annotated on the title of the property shall Bank v. Court of Appeals, this Court upheld TRB and ruled that Ching was merely a
not effect the release of the mortgage because, by the express terms of the nominal party in SEC Case No. 2250. Creditors may sue individual sureties of debtor
mortgage, it was meant to secure all future debts of the spouses and such debts had corporations, like Ching, in a separate proceeding before regular courts despite the
been obtained and remain unpaid. Unless full payment is made by the spouses of all pendency of a case before the SEC involving the debtor corporation.
the amounts that they have incurred from petitioner bank, the property is burdened In his Answer dated 6 November 1989, Ching denied liability as surety and
by the mortgage. accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision approving a revised rehabilitation plan for PBMs creditors, and that PBM guaranty is to secure advances to be made from time to time, it will be construed to
obtained the credit accommodations for corporate purposes that did not redound to be a continuing one.
his personal benefit. He further claimed that even as a surety, he has the right to the In other jurisdictions, it has been held that the use of particular words and
defenses personal to PBM. Thus, his liability as surety would attach only if, after the expressions such as payment of any debt, any indebtedness, or any sum, or the
implementation of payments scheduled under the rehabilitation plan, there would guaranty of any transaction, or money to be furnished the principal debtor at any
remain a balance of PBMs debt to TRB. time, or on such time that the principal debtor may require, have been construed to
indicate a continuing guaranty.
ISSUE: Whether Ching can be sued separately and whether Ching is liable for
obligations PBM contracted after execution of the Deed of Suretyship.
RULING: Yes, Ching can be sued separately to enforce his liability as surety for PBM, 33. Security Bank & Trust Company v. Cuenca, G.R. No. 138544, October 3, 2000,
as expressly provided by Article 1216 of the New Civil Code. It is elementary that a 341 SCRA 781
corporation has a personality distinct and separate from its individual stockholders
I. Facts
and members. Being an officer or stockholder of a corporation does not make ones
property the property also of the corporation, for they are separate entities. Ching’s * Creditor: Sccurity Bank and Trust Co.
act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC Debtor: Sta. Ines Melale Corp.
jurisdiction over his person or property, for jurisdiction does not depend on the Surety: Rodolfo Cuenca
consent or acts of the parties but upon express provision of law.
A. Sta. Ines is a corporation engaged in logging operations. In 1980, it was
Also, Ching is liable for credit obligations contracted by PBM against TRB before and
granted by Security Bank a credit line in the amount of Php 8M. To secure payment,
after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the
tenor of the deed itself, referring to amounts PBM may now be indebted or may it executed a chattel mortgage over some of its machineries and equipments. And as
hereafter become indebted to TRB. The law expressly allows a suretyship for future an additional security, its President and Chairman of the Board of Directors Rodolfo
debts. Article 2053 of the Civil Code provides: Cuenca, executed an Indemnity agreement in favor of Security Bank whereby he
A guaranty may also be given as security for future debts, the amount of which is not bound himself jointly and severally with Sta. Ines. After Cuenca resigned, Sta. Ines
yet known; there can be no claim against the guarantor until the debt is liquidated. A obtained a Php 6M loan. Because of its difficulty in making the amortization
conditional obligation may also be secured. (Emphasis supplied) payments, in 1989 it requested Security Bank a complete restructure of its
indebtedness, which was approved without prior notice to, or prior consent of
Furthermore, this Court has ruled in Dio v. Court of Appeals that:
Under the Civil Code, a guaranty may be given to secure even future debts, the Cuenca. Still it was unable to pay.
amount of which may not be known at the time the guaranty is executed. This is the
basis for contracts denominated as continuing guaranty or suretyship. A continuing B. Contention of the Petitioner
guaranty is one which is not limited to a single transaction, but which contemplates Security Bank insists that the 1989 Loan Agreement was a mere renewal or
a future course of dealing, covering a series of transactions, generally for an indefinite extension of the Php 8M original accommodation, that Cuenca waived his right to be
time or until revoked. It is prospective in its operation and is generally intended to notified of and to give consent to any substitution, renewal, extension, increase,
provide security with respect to future transactions within certain limits, and amendment, conversion or revival of the same, and that it was a continuing surety.
contemplates a succession of liabilities, for which, as they accrue, the guarantor
becomes liable. Otherwise stated, a continuing guaranty is one which covers all
transactions, including those arising in the future, which are within the description or C. Contention of the Respondent
contemplation of the contract of guaranty, until the expiration or termination Cuenca argues that the 1989 agreement extinguished the obligation under
thereof. A guaranty shall be construed as continuing when by the terms thereof it is the 1980 credit accommodation by novation.
evident that the object is to give a standing credit to the principal debtor to be used
from time to time either indefinitely or until a certain period; especially if the right to II. Issues
recall the guaranty is expressly reserved. Hence, where the contract states that the WON the 1989 Loan Agreement novated the original credit accommodation
and Cuenca’s liability under the Indemnity Agreement.
III. Ruling liable only for the purchases made by defendant Celia Aurora Syjuco Regala
Yes. The 1989 Loan Agreement is extinguished by novation the obligation with the use of the Pacificard from October 29, 1975 up to October 29, 1976
under the 1980 P8 million credit accommodation. It is essential in the law of up to the amount of P2,000.00 per month only, with interest from the filing
suretyship that any agreement between the creditor and the principal debtor that of the complaint up to the payment at the rate of 14% per annum without
essentially varies the terms of the principal contract without the consent of the
pronouncement as to costs.
surety, will release the surety from liability. 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
Agreement, which had allegedly extended the original P8 million credit facility. ISSUE:
Indeed, the stipulation in the 1989 Loan Agreement providing for the surety
of respondent, without even informing him, smacks of negligence on the part of the Whether or not, Roberto Regalado as a guarantor is limited to pay up to only
bank and bad faith on that of the principal debtor. Since that Loan Agreement P2000 per month in the liability of his spouse to the said bank,
constituted a new indebtedness, the old loan having been already liquidated, the
spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a
surety for the new loan.
DECISION:
G.R. No. 72275 November 13, 1991
The undertaking signed by Roberto Regala, Jr. although denominated
PACIFIC BANKING CORPORATION, petitioner, "Guarantor's Undertaking," was in substance a contract of surety. As
vs. distinguished from a contract of guaranty where the guarantor binds himself
HON INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA, to the creditor to fulfill the obligation of the principal debtor only in case the
JR., respondents. latter should fail to do so, in a contract of suretyship, the surety binds himself
solidarily with the principal debtor. It is true that under Article 2054 of the
Civil Code, "(A) guarantor may bind himself for less, but not for more than the
FACTS: principal debtor, both as regards the amount and the onerous nature of the
conditions. It is likewise not disputed by the parties that the credit limit
The case is a petition for review on certiorari of the decision of the granted to Celia Regala was P2,000.00 per month and that Celia Regala
Intermediate Appellate Court. In the case, Cecilia Regala obtained a Pacific succeeded in using the card beyond the original period of its effectivity,
Credit Card and her spouse, Roberto Regala signed as her guarantor. The October 29, 1979. We do not agree however, that Roberto Jr.'s liability should
holder of the card purchased goods and/or services under the pacificard be limited to that extent.
amounting to P92, 803.98. Despite the execution of demand from the bank,
the couple did not comply. The trial court renders judgment for the plaintiff A guarantor or surety does not incur liability unless the principal debtor is
and against the defendants condemning the latter, jointly and severally, to held liable. It is in this sense that a surety, although solidarily liable with the
pay said plaintiff the amount of P92,803.98, with interest thereon at 14% per principal debtor, is different from the debtor. It does not mean, however, that
annum, compounded annually, from the time of demand on November 17, the surety cannot be held liable to the same extent as the principal debtor.
1978 until said principal amount is fully paid; plus 15% of the principal The nature and extent of the liabilities of a guarantor or a surety is
obligation as and for attorney's fees and expense of suit; and the costs. determined by the clauses in the contract of suretyship.

The defendants appealed to the Intermediate Appellate Court. Wherein the

said court modified only as to appellant Roberto Regala, Jr., so as to make him
ACCORDINGLY, the petition is GRANTED. The questioned decision of 3. Whether or not the surety cannot be made to pay since the principal
respondent appellate court is SET ASIDE and the decision of the trial court is cannot, owing to the order of insolvency, be made to pay its
REINSTATED. obligation.

GR No. 172041 | Gateway Electronics Corp v Asianbank Corp | Velasco 4. Whether or not a deed of suretyship would secure a loan obligation
contracted three years after the execution of the surety deed.
FACTS:
HELD:
In July 1996, Geronimo delos Reyes and Andrew delos Reyes executed
separate but almost identical deeds of suretyship for Gateway in favor of The petition is DENIED and the CA resolution AFFIRMED with modifications
respondent Asianbank Corporation. Later developments saw Asianbank that any claim against Gateway, shall be pursued before the RTC in Cavite as
extending to Gateway several export packing loans and secured by a chattel the insolvency court.
mortgage over Gateway’s equipment. Gateway initially made payments on
RULING:
its loan obligations, but later on defaulted. Asianbank extended the maturity
dates of the loan several times. Gateway issued two checks but was 1. The issuance of the insolvency order of December 2004 had the effect
dishonored for insufficiency of funds. Asianbank’s demand for payment upon of automatically staying the civil action for a sum of money filed by
Gateway and its sureties went unheeded. Asianbank against Gateway. No creditor whose debt is provable
under this Act shall be allowed, to prosecute to final judgement any
In December 1999, Asianbank filed a complaint for a sum of money against
action therefore against the debtor until the question of the debtor’s
Gateway, Geronimo and Andrew. And in October 2003 the RTC rendered
discharge shall have been determined, and any such suit proceeding
judgement in favor of Gateway. Gateway, Geronimo and Andrew appealed to
shall, upon the application of the debtor or of any creditor, or the
the CA and then Gateway filed a petition of insolvency in November 2004. In
assignee, be stayed to await the determination of the court on the
October 2005 the CA affirmed the decision of the RTC. Gateway and
question of discharge. (Sec 60 of Act No. 1956)
Geronimo interposed a motion for reconsideration and followed by a
Supplemental Motion for Reconsideration on January 2006. On December 2. A creditor’s right to proceed against the surety exists independently
2004, Gateway was declared insolvent by the RTC in Imus and directing all its of his right to proceed against the principal. Under Art 1216 of the
creditor to appear before the court for the purpose of choosing the assignee Civil Code, the creditor may proceed against any one of the solidary
of Gateway’s estate. debtors or some or all of them simultaneously. If the obligation is
joint and several, the creditor has the right to proceed even against
In March 2006, the CA denied the motion for reconsideration.
the surety alone.
ISSUE:
3. The rule that the obligation of a guarantor may be less, but cannot be
1. Whether or not an action commenced by a creditor against a more than the principal debtor. The rule cannot plausibly be
judicially declared insolvent for the recovery of his claim should be stretched to mean that a guarantor or surety is freed from liability as
dismissed and referred to the insolvency court. such guarantor or surety in the event the principal debtor becomes
insolvent or is unable to pay the obligation. The essence of a
2. Whether or not claims against a surety may proceed independently
suretyship contract refers to an agreement whereunder one person,
from that against the principal debtor.
the surety, engages to be answerable for the debt, default, or
miscarriages of another known as principal.
 4. A continuing guaranty is one which is not limited to a single Did Petitioners herein stated bind themselves personally with regard to the
transaction, but which contemplates a future course of dealing, company debt herein described when they signed the Trust Receipts?
covering a series of transactions, generally for an indefinite time or
Held:
until revoked. It is prospective in its operation and is generally
intended to provide security with respect to future transactions NO.
within certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. A CORPORATE REPRESENTATIVE signing as a solidary guarantee as corporate
representative did not undertake to guarantee personally the payment of the
GR. No. 145578 corporation’s debts.
Tupaz IV, Tupaz vs. CA, BPI In the aforementioned trust receipt, petitioners signed below its clause as
officers of El Oro Corporation. Thus, under petitioner Petronila Tupaz’s
Facts:
signature are the words “Vice-Pres–Treasurer” and under petitioner Jose
Jose C. Tupaz IV - VP for Operations and Petronila C. Tupaz -VP/Treasurer of Tupaz’s signature are the words “Vice-Pres–Operations.” By so signing that
EL ORO Engraver Corporation, entered into a contract with the AFP - Armed trust receipt, PETITIONERS DID NOT BIND THEMSELVES PERSONALLY LIABLE
Forces Of The Philippines to supply the latter with “survival bolos.” FOR EL ORO CORPORATION’S OBLIGATION.

To finance the purchase of the raw materials for the bolos, Jose Tupaz and In Ong v. Court of Appeals, a corporate representative signed a solidary
Petronila Tupaz on behalf of EL ORO Corporation, applied with respondent guarantee clause in two trust receipts in his capacity as corporate
bank BPI - Bank of the Philippine Islands for 2 commercial Letters of Credit. representative. There, the Court held that the corporate representative did
The LCs were in favor of El Oro Corporation’s suppliers, TANCHAOCO not undertake to guarantee personally the payment of the corporation’s
Manufacturing Incorporated. debts.

Simultaneous with the issuance of the LCs, the 2 Tupazes, Jose Tupaz and A corporation, being a juridical entity, may act only through its directors,
Petronila Tupaz.. ,(okay) petitioners hereto signed TRUST RECEIPTS in favor officers, and employees. Debts incurred by these individuals, acting as such
of respondent bank BPI. corporate agents, are not theirs but the direct liability of the corporation they
represent.
Now here comes the issue. Jose C. Tupaz IV signed, in his personal capacity,
a trust receipt corresponding to a Letter of Credit for P564,871. (exception)

The problem was, petitioners did not comply with their undertaking under As an exception, directors or officers are personally liable for the
the TRUST RECEIPTS. Respondent bank naturally made several demands for corporation’s debts only if they so contractually agree or stipulate.
payments but EL ORO Corporation made partial payments only.
Prudential Bank v Intermediate Appellate Court and Anacleto Chi G.R. No.
So as a consequence, respondent bank BPI sent final demand letters to EL 74886 December 8, 1992
ORO Corporation where EL ORO replied that it could not fully pay its debt
Through a letter of credit, the bank merely substitutes its own promise to pay
because the AFP (Armed Forces of the Philippines) had delayed paying for the
for one of its customers who in return promises to pay the bank the amount
survival bolos. (in short, naipit sya)
of funds mentioned in the letter of credit plus credit or commitment fees
Issue: mutually agreed upon.
Facts: it would be the Bank (Bank of America) — and not Philippine Rayon — which
had to accept the same for the latter was not the drawee.
Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co.,
Ltd. of Japan for the importation of textile machineries under a 5-year The trial court and the public respondent, therefore, erred in ruling that
deferred payment plan. To effect the payment, PRMI applied for a presentment for acceptance was an indispensable requisite for Philippine
commercial letter of credit with the Prudential Bank and Trust Company in Rayon’s liability on the drafts to attach. Contrary to both courts’
favor of Nissho. Prudential Bank opened Letter of Credit No. DPP-63762 for pronouncements, Philippine Rayon immediately became liable upon Bank of
$128,548.78 Against this letter of credit, drafts were drawn and issued by America’s payment on the letter of credit. Such is the essence of the letter of
Nissho, which were all paid by the Prudential Bank through its correspondent credit issued by the petitioner. A different conclusion would violate the
in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were accepted by principle upon which commercial letters of credit are founded because in
PRMI through its president, Anacleto R. Chi, while the others were not. Upon such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the
the arrival of the machineries, the Prudential Bank indorsed the shipping petitioner, respectively, would be placed at the mercy of Philippine Rayon
documents to the PRMI which accepted delivery of the same. To enable PRMI even if the latter had already received the imported machinery and the
to take delivery of the machineries, it executed, by prior arrangement with petitioner had fully paid for it.
the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his
In fact, there was no need for acceptance as the issued drafts are sight drafts.
capacity as President of PRMI company
Presentment for acceptance is necessary only in the cases expressly provided
At the back of the trust receipt was printed a form to be accomplished by 2 for in Section 143 of the Negotiable Instruments Law (NIL).
sureties who, by the very terms and conditions thereof, were to be jointly and
In the instant case then, the drawee was necessarily the herein the Bank of
severally liable to the Prudential Bank should the PRMI fail to pay the total
America. It was to the latter that the drafts were presented for payment.
amount or any portion of the drafts issued by Nissho and paid for by
Prudential Bank. . PRMI was able to take delivery of the textile machineries Bitanga vs. Pyramid Const.
and installed the same at its factory site. Chi argued that presentment for
acceptance was necessary to make PRMI liable. The trial court ruled that that G.R. No. 173526
presentment for acceptance was an indispensable requisite for Philippine August 28, 2008
Rayon’s liability on the drafts to attach.
FACTS: Pyramid filed with the RTC a Complaint for specific performance and
Issue : damages with application for the issuance of a writ of preliminary attachment
Whether or not presentment for acceptance was needed in order for PRMI against the petitioner and wife Marilyn.
to be liable under the draft. Respondent alleged in its Complaint that, it entered into an agreement with
Macrogen Realty, of which Bitanga is the President, to construct for the latter
the Shoppers Gold Building located in Parañaque City. Respondent
HELD : commenced civil, structural, and architectural works on the construction
project. However, Macrogen failed to settle respondent’s progress billings.
Presentment for acceptance is defined an the production of a bill of exchange
Petitioner, through his representatives and agents, assured respondent that
to a drawee for acceptance. Acceptance, however, was not even necessary in
the outstanding account of Macrogen would be paid and relying on the
the first place because the drafts which were eventually issued were sight
drafts. Even if these were not sight drafts, thereby necessitating acceptance,
assurances made by petitioner, respondent continued the construction the Compromise Agreement, considering that Macrogen Realty still
project. had uncollected credits which were more than enough to pay for the same.
Given these premise, petitioner could not be held liable as guarantor.
Later, respondent suspended work on the construction project since the
conditions that it imposed for the continuation thereof, including payment of ISSUE: WON petitioner cam avail of the benefit of excussion
unsettled accounts, had not been complied with by Macrogen. Respondent
HELD: petition denied for lack of merit; CA affirmed; Bitanga (alone; not
instituted with the Construction Industry Arbitration Commission (CIAC) a
including his wife who is not a party to the compromise agreement) is liable
case for arbitration against Macrogen Realty seeking payment by the latter of
as per Compromise Agreement or the contract of guaranty.
its unpaid billings and project costs. Before the arbitration case could be set
for trial, Pyramid and Macrogen entered into a Compromise Agreement, with NO
petitioner acting as signatory for and in behalf of Macrogen Realty.
Under a contract of guarantee, the guarantor binds himself to the creditor to
Under the Compromise Agreement, Macrogen Realty agreed to pay fulfill the obligation of the principal debtor in case the latter should fail to do
respondent the total amount of P6,000,000.00 by installments. Petitioner so. The guarantor who pays for a debtor, in turn, must be indemnified by the
guaranteed the obligations of Macrogen Realty under the Compromise latter. However, the guarantor cannot be compelled to pay the creditor
Agreement by executing a Contract of Guaranty in favor of respondent, by unless the latter has exhausted all the property of the debtor and resorted to
virtue of which he irrevocably and unconditionally guaranteed the full and all the legal remedies against the debtor. This is what is otherwise known as
complete payment of the principal amount of liability of Macrogen. Upon the benefit of excussion
joint motion of respondent and Macrogen Realty, the CIAC approved the
Compromise Agreement. Article 2060 of the Civil Code reads:

Macrogen Realty failed and refused to pay all the monthly installments Art. 2060. In order that the guarantor may make use of the benefit of
agreed upon in the Compromise Agreement. Hence respondent moved for excussion, he must set it up against the creditor upon the latter’s demand for
the issuance of a writ of execution against Macrogen, which CIAC granted. 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
The sheriff 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. It must be stressed that despite having been served a demand letter at his
Respondent then made, a written demand on petitioner, as guarantor of office, petitioner still failed to point out to the respondent properties of
Macrogen to pay the liability or to point out available properties of the Macrogen Realty sufficient to cover its debt as required under Article 2060 of
Macrogen within the Philippines sufficient to cover the obligation the Civil Code. Such failure on petitioner’s part forecloses his right to set up
guaranteed. It also made verbal demands on petitioner. Yet, respondent’s the defense of excussion.
demands were left unheeded. Worthy of note as well is the Sheriff’s return stating that the only property of
Petitioner filed with the RTC his Answer to respondent’s Complaint. As a Macrogen Realty which he found was its deposit of P20,242.23 with the
special and affirmative defense, petitioner argued that the benefit of Planters Bank.
excussion was still available to him as a guarantor since he had set it up prior Article 2059(5) of the Civil Code thus finds application and precludes
to any judgment against him. According to petitioner, respondent failed to petitioner from interposing the defense of excussion. We quote:
exhaust all legal remedies to collect from Macrogen the amount due under
Art. 2059. This excussion shall not take place:

xxxx

(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.

As the Court of Appeals correctly ruled:

We find untenable the claim that the Bitanga cannot be compelled to pay
Pyramid because the Macrogen Realty has allegedly sufficient assets. Reason:
The said [petitioner] had not genuinely controverted the return made by
Sheriff Bisnar, who affirmed that, after exerting diligent efforts, he was not
able to locate any property belonging to the Macrogen Realty, except for a
bank deposit with the Planter’s Bank at Buendia, in the amount
of P20,242.23. It is axiomatic that the liability of the guarantor arises when
the insolvency or inability of the debtor to pay the amount of debt is proven
by the return of the writ of execution that had not been unsatisfied
 AUTOCORP and
Rodriguez vs. ISAC and BOC
G.R. No. 166662 for no writ of execution has been issued against such bonds, therefore the
case was prematurely filed by ISAC
June 27, 2008
HELD: PETITION IS WITHOUT MERIT

YES
FACTS: Autocorp Group, represented by its President, Rodriguez, secured an
ordinary re-export bond from private respondent Intra Strata Assurance The Indemnity Agreements give ISAC the right to recover from petitioners the
Corporation (ISAC) in favor of public Bureau of Customs (BOC), to guarantee face value of the subject bonds plus attorney’s fees at the time ISAC becomes
the re-export of 2 units of car (at 2 different dates) and/or to pay the taxes liable on the said bonds to the BOC, (specifically to re-export the imported
and duties thereon. Petitioners executed and signed two Indemnity vehicles within the period of six months from their date of entry) regardless
Agreements with identical stipulations in favor of ISAC, agreeing to act as of whether the BOC had actually forfeited the bonds, demanded payment
surety of the subject bonds thereof and/or received such payment. It must be pointed out that the
Indemnity Agreements explicitly provide that petitioners shall be liable to
In sum, ISAC issued the subject bonds to guarantee compliance by petitioners
indemnify ISAC “whether or not payment has actually been made by the
with their undertaking with the BOC to re-export the imported vehicles within
[ISAC]” and ISAC may proceed against petitioners by court action or otherwise
the given period and pay the taxes and/or duties due thereon. In turn,
“even prior to making payment to the [BOC] which may hereafter be done by
petitioners agreed, as surety, to indemnify ISAC for the liability the latter may
[ISAC].”
incur on the said bonds
Article 2071 of the Civil Code provides:
Autocorp failed to re-export the items guaranteed by the bonds and/or
liquidate the entries or cancel the bonds, and pay the taxes and duties Art. 2071. The guarantor, even before having paid, may proceed against the
pertaining to the said items, despite repeated demands made by the BOC, as principal debtor:
well as by ISAC. By reason thereof, the BOC considered the two bonds
(1) When he is sued for the payment;
forfeited.
(2) In case of insolvency of the principal debtor;
Failing to secure from petitioners the payment of the face value of the two
bonds, ISAC filed with the RTC an action against petitioners to recover a sum (3) When the debtor has bound himself to relieve him from the guaranty
of money plus AF. ISAC impleaded the BOC “as a necessary party plaintiff in within a specified period, and this period has expired;
order that the reward of money or judgment shall be adjudged unto the said
necessary plaintiff.” (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
Petitioners filed a MTD, which was denied. RTC ordered Autocorp to pay ISAC period for its maturity, unless it be of such nature that it cannot be
and/or BOC the face value of the subject bonds plus AF. Autocorp’s MR was extinguished except within a period longer than ten years;
denied. CA affirmed the trial court’s decision. MR was denied. Hence this
Petition for Review on Certiorari (6) If there are reasonable grounds to fear that the principal debtor intends
to abscond;
ISSUE: WON these bonds are now due and demandable, as there is yet no
actual forfeiture of the bonds, but merely a recommendation of forfeiture, (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 executed by petitioner-spouses Luis Toh and Vicky Tan Toh.On 17 January
guaranty, or to demand a security that shall protect him from any 1994 respondent Bank filed a complaint for sum of money. Petitioners also
proceedings by the creditor and from the danger of insolvency of the debtor. contended that through FBPC Board Resolution, petitioner Luis Toh was
removed as an authorized signatory for FBPC and replaced by respondent-
spouses Ng Li and Padilla for all the transactions of FBPC with respondent
SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID BANK Bank.24 They even resigned from their respective positions in FBPC. Finally,
CORPORATION, FIRSTBUSINESS PAPER CORPORATION (FBPC) petitioners averred that sometime in June 1993 they obtained from
respondent Kenneth Ng Li their exclusion from the several surety
RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an "omnibus agreementsthey had entered into .
line" credit facility worth P10 million in favor of (FBPC). The terms and
conditions of the agreement as well as thechecklist of documents necessary ISSUE:
to open the credit line were stipulated in a "letter-advise" of the Bank. The
WON spouses TOH are discharged as sureties under the Continuing Guaranty.
documents essential for the credit facility and submitted for this purpose
werethexxx(c) Continuing Guaranty for any and all amounts signed by HELD
petitioner-spouses Luis Toh andVicky Tan Toh, and respondent-spouses
This Court holds that the Continuing Guaranty is a valid and binding contract
Kenneth and Ma. Victoria Ng Li xxx The spouses Toh were then Chairman of
of petitioner-spouses as it is a public document that enjoys the presumption
the Board and Vice-President, of FBPC, while respondent-spouses Ng Li were
of authenticity and due execution. Similarly, there is no basis for petitioners
President and General Manager of the same corporation.5The Continuing
to limit their responsibility so long as they were corporate officers and
Guaranty set forth no maximum limit on the indebtedness that respondent
stockholders of FBPC. Nothing in the Continuing Guaranty restricts their
FBPC may incur and contained a de facto acceleration clause. So as to
contractual undertaking to such condition or eventuality.But as we bind the
strengthen this security,the Continuing Guaranty waived rights of the sureties
spouses Luis Toh and Vicky Tan Toh to the surety agreement they signed
against delay or absence of notice or demand on the part of respondent Bank,
somust we also hold respondent Bank to its representations in the "letter-
and gave future consent to the Bank's action to “extend or change the time
advise" of 16 May1993. Particularly, as to the extension of the due dates of
payment, and/or the manner, place or terms of payment, “including renewal,
the letters of credit, we cannot exclude from the Continuing Guaranty the
of the credit facility or any part thereof in such manner and upon such terms
preconditions of the Bank that were plainly stipulated in the "letter-advise.
as the Bank may deem proper without notice to or further assent from
“Insofar as petitioners stipulate in the Continuing Guaranty that respondent
the sureties. On 16 June 1993 respondent FBPC started to avail of the credit
Bank "may at anytime, or from time to time, in [its] discretion x x x extend or
facility and secured letters of credit.7 FBPC opened thirteen (13) letters of
change the time payment," this provision even if understood as a waiver is
credit and executed a series of trust receipts over the goods allegedly
confined per se to the grant of an extension and does not surrender the
purchased from the proceeds of the loans.9On 13 January 1994 respondent
prerequisites therefor as mandated in the "letter-advise." In other words, the
Bank received information that respondent-spouses Kenneth Ng Li and Ma.
authority of the Bank to defer collection contemplates only authorized
Victoria Ng Li had fraudulently departed from their conjugal home.10 On
extensions, that is, those that meet the terms of the "letter-advise.
14January 1994 the Bank served a demand letter upon FBPC and petitioner
“Certainly, while the Bank may extend the due date at its discretion pursuant
Luis Toh invoking the acceleration clause11 in the trust receipts of FBPC and
to the Continuing Guaranty, it should nonetheless comply with the
claimed payment for P10,539,758.68 as unpaid overdue accounts on the
requirements that domestic letters of creditbe supported by fifteen percent
letters of credit plus interests and penalties within twenty-four(24) hours
(15%) marginal deposit extendible three (3) times for a period of thirty (30)
from receipt thereof.12 The Bank also invoked the Continuing Guaranty
days for each extension, subject to twenty-five percent (25%) partial payment
perextension.Furthermore, the assurance of the sureties in the Continuing petitioners herein, or at the very least, mitigate the liability of the surety up
Guaranty that "[n]o act or omission of any kind on [the Bank's] part in the to the value of the property or lien released
premises shall in any event affect or impair thisguaranty"51 must also be read
–
"strictissimi juris" for the reason that petitioners are only accommodation
sureties, i.e., they received nothing out of the security contract they If the creditor has acquired a lien upon the property of a principal, the
signed.5An extension of the period for enforcing the indebtedness does not creditor at once becomes charged with the duty of retaining such security, or
by itself bring about the discharge of the sureties unless the extra time is not maintaining such lien in the interest of the surety, and any release or
permitted within the terms of the waiver,i.e., where there is no payment or impairment of this security as a primary resource for the payment of a debt,
there is deficient settlement of the marginal deposit and the twenty-five will discharge the surety to the extent of the value of the property or lien
percent (25%) consideration, in which case the illicit extension releases the released x x xx [for] there immediately arises a trust relation between the
sureties. Under Art. 2055 of the Civil Code, the liability of a surety is measured parties, and the creditor as trustee is bound to account to the surety for the
by the terms of his contract, and while he is liable to the full extent thereof, value of the security in his hands.60For the same reason, the grace period
his accountability is strictly limited to that assumed by its terms. granted by respondent Bank represents unceremonious abandonment and
forfeiture of the fifteen percent (15%) marginal deposit and the twenty-
It is admitted by respondent Bank before the trial court that several letters of
fivepercent (25%) partial payment as fixed in the "letter-advise." These
credit wereirrevocably extended for ninety (90) days with alarmingly flawed
payments are unmistakably additional securities intended to protect both
and inadequate consideration- the indispensable marginal deposit of
respondent Bank and the sureties in the event that the principal debtor FBPC
fifteen percent (15%) and the twenty-five percent (25%)prerequisite for each
becomes insolvent during the extension period. Compliance with these
extension of thirty (30) days.The foregoing extensions of the letters of credit
requisites was not waived by petitioners in the Continuing Guaranty. For this
made by respondent Bank without observingthe rigid restrictions for
unwarranted exercise of discretion, respondent Bank bears the loss; due to
exercising the privilege are not covered by the waiver stipulated in
its unauthorized extensions to pay granted to FBPC, petitioner-spouses Luis
theContinuing Guaranty. Evidently, they constitute illicit extensions
Toh and Vicky Tan Toh are discharged as sureties under the Continuing
prohibited under Art. 2079 of the Civil Code, "[a]n extension granted to the
Guaranty.
debtor by the creditor without the consent of theguarantor extinguishes the
guaranty."As a result of these illicit extensions, petitioner-spouses Luis Toh
and Vicky Tan Toh are relievedof their obligations as sureties of respondent
FBPC under Art. 2079 of the Civil Code.By the same token, there is no
explanation on record for the utter worthlessness of the trust receipts in
favor of the Bank when these documents ought to have added more security
to the indebtedness of FBPC. To be sure, the goods subject of the trust
receipts were not entirely lost since the security officer of respondent Bank
who conducted surveillance of FBPC even had the chance to intercept the
surreptitious transfer of the items under trust. In addition, the attached
properties of FBPC were perfunctorily abandoned by respondent Bank
although the bonds therefor were considerably reduced by the trial
court.58The consequence of these omissions is to discharge the surety,
 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 original P8 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.

FACTS:
Security Bank granted a credit line in the amount of 8 million
pesos in favour of Sta. Ines, a corporation engaged in logging
operations and in which Rodolfo Cuenca is the President. In order
to secure payment, Sta. Ines executed a chattel mortgage over some
of its machineries and equipments and as an additional security
Cuenca executed an Indemnity Agreement where he bound himself
jointly and severally with Sta. Ines and without the benefit of
excussion of whatever amount the client may be indebted to the
bank by virtue of aforesaid credit accommodation(s) including the
substitutions, renewals, extensions, increases, amendments,
conversions and revivals of the aforesaid credit accommodation(s).

After Cuenca resigned, Sta. Ines was able to obtained a loan of

6 million pesos, but was unable to pay the amortization payments
and requested Security Bank a complete restructure
of its indebtedness which was approved and without prior notice to
45. SECURITY BANK AND TRUST COMPANY, Inc. vs. RODOLFO or consent of Cuenca. Despite that Sta. Ines was still unable to pay. As
M. CUENCA
a result Security Bank made failed attempts to demand from Sta. Ines PALMARES vs. CA (288 SCRA 422)
and Cuenca the fulfillment
of their obligation, thus a complaint was filed and a decision in FACTS:
favour of Security Bank was rendered which held Cuenca liable.
Private respondent M.B. Lending Corporation extended a loan to the
On appeal, Cuenca contends that the original agreement of 8 spouses Osmeña and Merlyn Azarraga, together with petitioner
million loan was extinguished by novation when the obligation Estrella Palmares, in the amount of P30,000.00 payable on or before
under the 6 million loan and subsequent restructuring was granted. May 12, 1990, with compounded interest at the rate of 6% per annum
to be computed every 30 days from the date thereof.
ISSUE:
Whether Cuenca is liable as a surety to the 6 million loan under the On four occasions after the execution of the promissory note and
Indemnity Agreement? even after the loan matured, petitioner and the Azarraga spouses
were able to pay a total of P16,300.00, thereby leaving a balance of
HELD: P13,700.00. No payments were made after the last payment on
NO. September 26, 1991. Consequently, on the basis of petitioner's
The Indemnity Agreement is a continuing surety and as such does not solidary liability under the promissory note, respondent corporation
authorize the bank to extend the scope of the principal obligation filed a complaint 3 against petitioner Palmares as the lone party-
inordinately. A surety being an onerous undertaking, a surety defendant, to the exclusion of the principal debtors, allegedly by
agreement is strictly construed against the creditor, and every doubt is reason of the insolvency of the latter.
resolved in favor of the solidary debtor. The fundamental rules of fair
play require the creditor to obtain the consent of the surety to ISSUES:
any material alteration in the principal loan agreement, or at least
to notify it thereof. Hence, petitioner bank cannot hold herein (1) Where a party signs a promissory note as a co-maker and binds
respondent liable for loans obtained in excess of the a herself to be jointly and severally liable with the principal debtor in
mount or beyond the period stipulated in the original agreement, case the latter defaults in the payment of the loan, is such undertaking
absent any clear stipulation showing that the latter waived his right to of the former deemed to be that of a surety as an insurer of the debt,
be notified thereof, or to give consent thereto. This is especially true or of a guarantor who warrants the solvency of the debtor? Or WON
where, as in this case, respondent was no longer the principal Palmares is liable
officer or major stockholder of the corporate debtor at the time
the later obligations were incurred. He was thus no longer in a position (2) WON the penalty charge of 3% per month and attorney's fees
to compel the debtor to pay the creditor and had no more reason to bind equivalent to 25% of the total amount due are highly inequitable and
himself anew to the subsequent obligations. unreasonable

HELD:

(1) YES.

If a person binds himself solidarily with the principal debtor, the

provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship.

46. Palmares v CA (Negotiable Instruments Law)

a surety is bound equally and absolutely with the principal, and as 47.
such is deemed an original promisor and debtor from the beginning.
This is because in suretyship there is but one contract, and the surety E.ZOBEL, INC. vs. CA
is bound by the same agreement which binds the principal. In GR# 113931, May 6, 1998
essence, the contract of a surety starts with the agreement, which is
precisely the situation obtaining in this case before the Court. FACTS: Respondent Spouses Claveria, doing business under the
name “ Agro Brokers”, applied for a loan with respondent Consolidated
It is a cardinal rule in the interpretation of contracts that if the terms of Bank & Trust Corp. (now SOLID BANK) amounting to P2.875M. The
a contract are clear and leave no doubt upon the intention of the loan was granted subject to the condition that respondent spouses
contracting parties, the literal meaning of its stipulation shall control. In execute a chattel mortgage over the 3 vessels to be acquired and that
the case at bar, petitioner expressly bound herself to be jointly and a continuing guarantee be executed by Ayala International Phils., Inc.,
severally or solidarily liable with the principal maker of the note. The now herein petitioner E.Zobel, Inc. in SOLID BANK’s favor. The
terms of the contract are clear, explicit and unequivocal that Claverias defaulted in the payment of the entire obligation upon
petitioner's liability is that of a surety. maturity. Petitioner moved to dismiss the complaint asserting that its
liability as guarantor of the loan was extinguished pursuant to A.2080,
(2) YES. NCC. It argued that it has lost its right to be subrogated to the first
chattel mortgage in view of SOLIDBANK’s failure to register the chattel
It must be remembered that from the principal loan of P30,000.00, the mortgage with the appropriate government
amount of P16,300.00 had already been paid even before the filing of agency. SOLIDBANKmeantime claimed that A.2080 is not applicable
the present case. Article 1229 of the Civil Code provides that the court because petitioner is not a guarantor but a surety.
shall equitably reduce the penalty when the principal obligation has HELD: In the contract executed by petitioner in SOLIDBANK’s favor,
been partly or irregularly complied with by the debtor. And, even if albeit denominated as a “Continuing Guaranty”, is in fact a contract of
there has been no performance, the penalty may also be reduced if it surety. The contract’s terms obligates petitioner as “surety” to induce
is iniquitous or leonine. SOLIDBANK to extend credit to the Claverias. The contract clearly
disclose that petitioner assumed liability to SOLIDBANK, as a regular
The grant of attorney's fees equivalent to 25% of the total amount due party the undertaking and obligated itself as an original promissory. It
is, in our opinion, unreasonable and immoderate, considering the bound itself jointly and severally to the obligation with the Claverias. In
minimal unpaid amount involved and the extent of the work involved in fact, SOLIDBANK need not resort to all other legal remedies or exhaust
this simple action for collection of a sum of money. We, therefore, the Claverias’ properties before it can hold petitioner liable for the
hold that the amount of P10,000.00 as and for attorney's fee would be obligation. Since the petitioner is a surety, A.2080, NCC is
sufficient in this case. inapplicable. Said article applies where the liability is as a guaranty not
as a surety.

48. PHILIPPINE BLOOMING MILLS v. CA, GR No. 142381, 2003-10-

15
Facts:
Ching was the Senior Vice President of PBM. In his personal capacity
and not as a corporate officer, Ching signed a Deed of Suretyship dated
21 July 1977 binding himself
On 24 March and 6 August 1980, TRB granted PBM letters of credit on P15,773,708.78 WITH LEGAL INTEREST AT 12% PER ANNUM
application of Ching in his capacity as Senior Vice President of PBM. UNTIL FULLY PAID DESPITE THE FACT THAT UNDER THE
Ching later accomplished and delivered to TRB trust receipts, which REHABILITATION PLAN OF PETITIONER PBM
acknowledged receipt in trust for TRB of the merchandise subject of
the... letters of credit. Ruling:

On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. The petition has no merit.
Ching signed as co-maker in the notarized Promissory Note evidencing The case before us is an offshoot of the trial court's denial of Ching's
this trust loan. motion to have the case dismissed against him. The petition is a thinly
On 1 April 1982, PBM and Ching filed a petition for suspension of veiled attempt to make this Court reconsider its decision in the prior
payments with the Securities and Exchange Commission ("SEC"), case of Traders Royal Bank v. Court of Appeals.
docketed as SEC Case No. 2250. [48] This Court has already resolved the issue of Ching's separate
On 9 July 1982, the SEC placed all of PBM's assets, liabilities, and liability as a surety despite the rehabilitation proceedings before the
obligations under the rehabilitation receivership of Kalaw, Escaler and SEC.
Associates. Ching is liable for credit obligations contracted by PBM against TRB
On 13 May 1983, ten months after the SEC placed PBM under before and after the execution of t... he 21 July 1977 Deed of
rehabilitation receivership, TRB filed with the trial court a complaint for Suretyship.
collection against PBM and Ching. Ching would like this Court to rule that his liability is limited, at most, to
On 25 May 1983, TRB moved to withdraw the complaint against PBM the amount stated in PBM's rehabilitation plan.
on the ground that the SEC had already placed PBM under Ching is still liable for the amounts stated in the letters of credit covered
receivership. by the trust receipts. Other than his bare allegations, Ching has not
On 23 June 1983, PBM and Ching also moved to dismiss the complaint shown proof of payment or settlement with TRB. Atty. Vicente Aranda,
on the ground that the trial court had no jurisdiction over the subject TRB's corporate secretary and First Vice
matter of the case. President of its Human Resource Management Department, testified
Issues: that the conditions in the TRB board resolution presented by Ching
were not met or implemented
THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT
RULED THAT PETITIONER ALFREDO CHING WAS LIABLE FOR The trial court found and the appellate court affirmed that the
OBLIGATIONS CONTRACTED BY PBM LONG AFTER THE outstanding principal amounts as of the filing of the complaint with the
EXECUTION OF THE DEED OF SURETYSHIP. trial court on 13 May 1983

T WHEREFORE, we AFFIRM the decision of the Court of Appeals with

MODIFICATION
HE COURT OF APPEALS COMMITTED AN ERROR WHEN IT
RULED THAT THE PETITIONERS WERE LIABLE FOR THE TRUST
RECEIPTS DESPITE THE FACT THAT PRIVATE RESPONDENT
HAD PREVENTED THEIR FULFILLMENT.
HE COURT OF APPEALS COMMITTED AN ERROR WHEN IT
FOUND PETITIONER ALFREDO CHING LIABLE FOR
 No. The obligation was joint.
49. Escaño and Silos vs Ortigas Jr.
In this case, there is a concurrence of two or more creditors or of two
March 25, 2016 or more debtors in one and the same obligation. Article 1207 of the Civil
G.R. No. 151953 (2007) Code states that among them, there is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity. Article 1210 supplies further caution
Ponente: J. Tinga against the broad interpretation of solidarity by providing that the
indivisibility of an obligation does not necessarily give rise to solidarity.
Nor does solidarity of itself imply indivisibility.
Facts:

These Civil Code provisions establish that in case of concurrence of

1. On April 28, 1980, Private Development Corp. of the Philippines
two or more creditors or of two or more debtors in one and the same
(PDCP) entered into a loan agreement with the Falcon Minerals, Inc.
obligation, and in the absence of express and indubitable terms
(Falcon) whereby PDCP agreed to male available and lend to Falcon
characterizing the obligation as solidary, the presumption is that the
the amount of US $320, 000.00 for specific purposes and subject to
obligation is only joint. It thus becomes incumbent upon the party
certain terms and conditions.
alleging that the obligation is indeed solidary in character to prove such
2. Three stockholder officers of the Falcon assumed solidary liability, in
fact with a preponderance of evidence.
their individual capacity, with Falcon for the due and punctual payment
of the loan.
3. Two years later, control of Falcon was ceded to Escaño, Silos and The Undertaking does not contain any express stipulation that the
Matti, and the shares of deceased Scholey, through his heirs Ortigas, petitioners agreed to bind themselves jointly and severally in their
Scholey and Inductivo, were assigned to the three new stock-holders, obligations to the Ortigas group, or any such terms to that effect. Hence,
as well as all of their guaranteed to PDCP and PAIC. such obligation established in the Undertaking is presumed only to be
4. On April 28, 1989, PDCP filed a complaint for sum of money with the joint. Ortigas, as the party alleging that the obligation is in fact solidary,
RTC of Makati. A counterclaim was filed by Ortigas. bears the burden to overcome the presumption of jointness of
5. The other parties entered into compromise agreement with PDCP. obligations. The SC ruled that he failed to discharge such burden.
Ortigas pursued his claim against Escaño, Silos and Matti, and filing a
motion for Summary Judgement in his favor against Escaño, Silos and
Matti.
6. The RTC ruled in favor of Ortigas, ordering the three to pay jointly and 50. Nilo and ramos v obispo digest (SCRIBD digest. Di kop o
severally the amount of P1,300,000.00 as well as P20,000.00 in madowload huhuhu paupdate nito pls )
attorney’s fees.
7. On appeal, the Court of Appeals affirmed the Summary Judgement.
Hence, the present petition for review.
51. Pnb v reblando digest (SCRIBD digest. Di kop o madowload
huhuhu paupdate nito pls )
Issue: Whether or not there was solidary obligation.

Ruling: 52. UNION BANK OF THE PHILIPPINES VS. LAIN⃰ JUNIAT,

WINWOOD APPAREL, INC., WINGYAN APPAREL, INC.,
NONWOVEN FABRIC PHILIPPINES (G.R. NO. 171569, 01 AUGUST a contract later entered into by WINWOOD/WINGYAN and THIRD
2011, DEL CASTILLO, J.) SUBJECTS: MORTGAGE; PLEDGE; PARTY NONWOVEN.”[1][53] As aptly pointed out by petitioner, no
DACION EN PAGO. (BRIEF TITLE: UNION BANK VS. JUNIAT). evidence was presented by Nonwoven to show that the attached
properties were subsequently sold to it by way of a dacion en pago.
======================================== Also, there is nothing in the Agreement dated May 9, 1992 to indicate
DIGEST/SUBJECT/DOCTRINE that the motorized sewing machines, snap machines and boilers were
ceded to Nonwoven as payment for the Wingyan’s and Winwood’s
obligation. It bears stressing that there can be no transfer of ownership
if the delivery of the property to the creditor is by way of security.[2][54]
JUNIAT EXECUTED A CHATTEL MORTGAGE IN FAVOR OF UNION
In fact, in case of doubt as to whether a transaction is one of pledge or
BANK COVERING SEWING MACHINES AND OTHER EQUIPMENT
dacion en pago, the presumption is that it is a pledge as this involves a
FOR AND ON BEHALF OF WINWOOD AND WINGYAN. JUNIAT ET
lesser transmission of rights and interests.[3][55]
AL DID NOT PAY SUBJECT LOAN. UNION BANK SUED THEM FOR
SUM OF MONEY AND MOVED TO ATTACH THE SEWING
MACHINES AND EQUIPMENT. THE MACHINES AND EQUIPMENT
WERE IN THE POSSESSION OF NONWOVEN. COURT ISSUED 53. Nestor borromeo v ca digest No digest found
SUMMONS TO NONWOVEN. NONWOVEN ARGUED THAT IT HAS 54. martelino v national home digest (SCRIBD digest. Di kop o
A BETTER RIGHT TO THE MACHINES AND EQUIPMENT BECAUSE madowload huhuhu paupdate nito pls )
JUNIAT EXECUTED DACION EN PAGO IN THEIR FAVOR. THEY
THEFORE HOLD THE MACHINES AS OWNER WHILE PETITIONER
HOLDS THE MACHINES ONLY AS MORTGAGEE. NONWOVEN
PRESENTED A DOCUMENT WHERE JUNIAT PLEGED THE 55. DBP V. CA (1998)
MACHINES TO NONWOVEN TO SECURE AN OBLIGATION.
G.R.No. 118367 January 5, 1998
WHO HAS A BETTER RIGHT TO THE MACHINES AND EQUPMENT? Lessons Applicable: Certainty (Torts and Damages)
UNION BANK HAS A BETTER RIGHT. NONWOVEN FAILED TO Laws Applicable: Article 1245, Article 1255, Article 2087, Art. 2088 of
PROVE THAT THERE WAS DACION EN PAGO. THE DOCUMENT the Civil Code
EXECUTED BY JUNIAT APPEARS TO BE AN UNNOTARIZED
PLEDGE. IN CASE OF DOUBT WHETHER A DEED IS A SALE OR A
PLEDGE, THE DEED IS DEEMED A PLEDGE. SINCE THE PLEDGE FACTS:
WAS NOT NOTARIZED IT CANNOT BIND THIRD PARTIES.
▪ Lydia P. Cuba is a grantee of a Fishpond Lease Agreement from
A perusal of the Agreement dated May 9, 1992 clearly shows that the the Government
sewing machines, snap machines and boilers were pledged to ▪ Cuba obtained loans from DBP stated
Nonwoven by Juniat to guarantee his obligation. However, under under promissory notes dated September 6, 1974; August 11,
Article 2096 of the Civil Code, “[a] pledge shall not take effect against 1975; and April 4, 1977 executing 2 Deeds of Assignment of her
third persons if a description of the thing pledged and the date of the Leasehold Rights as security
pledge do not appear in a public instrument.” Hence, just like the chattel ▪ Upon failure to pay, without foreclosure proceedings it was
mortgage executed in favor of petitioner, the pledge executed by Juniat appropriated and DBP executed in turn a Deed of Conditional
in favor of Nonwoven cannot bind petitioner. Sale of the Leasehold Rights in her favor
▪ Her offer to repurchase was accepted and a new Fishpond Lease
Neither can we sustain the finding of the CA that: “The machineries
Agreement was issued by the Ministry of Agriculture and Food in
were ceded to THIRD PARTY NONWOVEN by way of dacion en pago,
her favor alone excluding her husband
▪ Failing to pay her amortizations, she entered into a temporary to the fishpond and the adjoining house that she came to know of
agreement with DBP the alleged loss of several articles
▪ Soon, she was sent a Notice of Rescission and DBP took ▪ bangus which died also not duly proved nor was it expressed in
possession of the Leasehold Rights of the fishpond her later 7 months after DBP took over
▪ After the public bidding, DBP executed a Deed of Conditional Sale ▪ The award of actual damages should, therefore, be struck down
in favor of defendant Agripina Caperal for lack of sufficient basis
▪ Cuba filed against DBP since no foreclosure proceedings was ▪ Exemplary or corrective damages in the amount of P25,000
done thus, contrary to Article 2088 of the Civil Code should likewise be awarded by way of example or correction for
▪ RTC: favored Cuba, it being a pactum commissorium the public good. There being an award of exemplary damages,
▪ return leasehold rights to Cuba attorney’s fees are also recoverable
▪ entitling P1,067,500 actual damages, P100,000 moral Labels: 1998, art 1245, art 1255, art 2087, Case
and P50,000 exemplary damages and P100,000 attorney’s fees Digest, certainty, DBP v CA, G.R.No. 118367, January 5, Juris
▪ CA: leasehold rights to Caperal as valid but same damages Doctor, torts and damages, torts and damages case digest
ISSUE: W/N Cuba should be awarded with actual and compensatory
damages

HELD: NO. CA reversed except the P50,000 as moral 56. Natalia Bustamante vs Rodito and Norma
damages. REMANDED to the trial court for the reception of the Rosel [G. R. No. 126800. November 29, 1999]
income statement of DBP, as well as the statement of the account of
Lydia P. Cuba, and for the determination of each party’s financial 319 SCRA 413 Case Digest
obligation to one another

▪ assignment of leasehold rights was a mortgage contract (Article Natalia Bustamante vs Rodito and Norma Rosel
2087)
▪ not novated, cession (Article 1255 of the Civil Code), dation in Concept:
payment (Article 1245 of the civil Code), pactum commissorium
▪ condition no. 12 did not provide that CUBA’s default would Article 1245. Dation in payment, whereby property is
operate to vest in DBP ownership of the said rights alienated to the creditor in satisfaction of a debt in money,
▪ The fact that CUBA offered and agreed to repurchase her
leasehold rights from DBP did not estop her from questioning shall be governed by the law on sales.
DBP’s act of appropriation.
▪ estoppel cannot give validity to an act that is prohibited by law or Facts:
against public policy
∙ March 8, 1987. Norma Rosel entered in a loan agreement with
▪ alleged loss of personal belongings and equipment was not
proved by clear evidence. Other than the testimony of CUBA and Natalia Bustamante with the conditions:
her caretaker, there was no proof as to the existence of those 1. That the borrowers are the registered owners of a parcel of
items before DBP took over the fishpond in question. Neither was land, evidenced by TRANSFER CERTIFICATE OF TITLE No. 80667,
a single receipt or record of acquisition presented.
containing an area of FOUR HUNDRED TWENTY THREE (423)
▪ dated 17 May 1985, CUBA included “losses of property” as among
SQUARE Meters, more or less, situated along Congressional
the damages resulting from DBP’s take-over of the fishpond. Yet,
it was only in September 1985 when her son and a caretaker went Avenue.
 2. That the borrowers were desirous to borrow the sum of ∙ The SC found no error in the decision of the trial court, petitioner
ONE HUNDRED THOUSAND (P100,000.00) PESOS from the asked for a reconsideration. Respondent filed an opposition against
LENDER, for a period of two (2) years, counted from March 1, 1987, petitioner’s motion for reconsideration. They contend that the
with an interest of EIGHTEEN (18%) PERCENT per annum, and to agreement between the parties was not a sale with right of re-
guaranty the payment thereof, they are putting as a collateral purchase, but a loan with interest at 18% per annum for a period of
SEVENTY (70) SQUARE METERS portion, inclusive of the apartment two years and if petitioner fails to pay, the respondent was given the
therein, of the aforestated parcel of land, however, in the event the right to purchase the property or apartment for P200,000.00, which is
borrowers fail to pay, the lender has the option to buy or purchase the not contrary to law, morals, good customs, public order or public
collateral for a total consideration of TWO HUNDRED THOUSAND policy.
(P200,000.00) PESOS, inclusive of the borrowed amount and interest
therein;
Issue: W/ON the petitioner failed to pay the loan at its maturity and is
3. That the lender do hereby manifest her agreement and
conformity to the preceding paragraph, while the borrowers do hereby the stipulation in the loan contract valid
confess receipt of the borrowed amount.”
∙ When the loan was about to mature the respondent proposed to buy Held: No. The respondents refused to accept payment, petitioner
the land for P200,000 but the petitioner refused and offered another consigned the amount with the trial court. We note the eagerness of
residential lot at road. 20 project 8, quezon city. Respondent accepted respondents to acquire the property given as collateral to guarantee
the lot. The Respondents were not the owner but entitled as Land the loan. The sale of the collateral is an obligation with a suspensive
developers condition. It is dependent upon the happening of an event, without
∙ March 1, 1989. Petitioner tendered payment for the loan but the which the obligation to sell does not arise. Since the event did not
respondent refused insisting that the former sign the document as occur, respondents do not have the right to demand fulfillment of
deed of absolute sale of the collateral petitioner’s obligation, especially where the same would not only be
disadvantageous to petitioner but would also unjustly enrich
∙ Respondent filed a complaint and sent a letter asking the petitioner to respondents considering the inadequate consideration (P200,000.00)
sell the collateral pursuant to the loan agreement for a 70 square meter property situated at Congressional Avenue,
Quezon City.
∙ March 5, 1990. Petitioner filed a petition for consignation and
deposited the amount of P153,000 with the City Treasurer of Quezon
City. Petitioner refused the sell the collateral and the respondent
cosigned the amount of P47,500 with the trial court. In arriving at the No, The SC said that the stipulation is void. the intent of the creditor
amount deposited, respondents considered the principal loan of appears to be evident,for the debtor is obliged to dispose of the
P100,000.00 and 18% interest per annum thereon, which amounted collateral at the preagreed consideration amounting to practically the
to P52,500.00. The principal loan and the interest taken together same amount
amounted to P152,500.00, leaving a balance of P47,500.00 as the loan. In effect, the creditor acquires the collateral in the event
∙ The trial court ruled in favor of the petitioner and denied the prayer of of non-payment of the loan. This is within the concept of pactum
the respondents in the execution of the deed of sale commissorium. Such stipulation is void.

∙ Court of Appeals reversed the decision of the trial court

 The Court finds that the Memorandum of Agreement and Dacion
in Payment constitute pactum commissorium, which is
57. SPOUSES WILFREDO N. ONG AND EDNA SHEILA prohibited under Article 2088 of the Civil Code which provides
PAGUIO-ONG v. ROBAN LENDING CORPORATION that the creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the
557 SCRA 516 (2008)
contrary is null and void
In a true dacion en pago, the assignment of the property
The elements of pactum commissorium, which enables the
extinguishes the monetary debt.
mortgagee to acquire ownership of the mortgaged property
On various dates, petitioner Spouses Wilfredo N. Ong without the need of any foreclosure proceedings, are: (1) there
and Edna Sheila Paguio-Ong obtained several loans from should be a property mortgaged by way of security for the
respondent Roban Lending Corporation in the total amount of payment of the principal obligation, and (2) there should be a
P4, 000,000. These loans were secured by real estate mortgage stipulation for automatic appropriation by the creditorof the
on Spouses Ong‘s parcel of lands. thing mortgaged in case of non-payment of the principal
obligation within the stipulated period.
Later Spouses Ong and Roban executed several agreements – an
amendment to the amended Real Estate Mortgage which Here, Memorandum of Agreement and the Dacion in Payment
consolidated their loans amounting to P5, 916,117.50; dacion in contain no provisions for foreclosure proceedings nor
payment wherein spouses Ong assigned their mortgaged redemption. Under the Memorandum of Agreement, the failure
properties to Roban to settle their total obligation and by the
Memorandum of Agreement (MOA) in which the dacion in
petitioners to pay their debt within the one-year period gives
payment agreement will be automatically enforced in case
respondent the right to enforce the Dacion in Payment
spouses Ong fail to pay within one year from the execution of the
transferring to it ownership of the properties covered by TCT No.
agreement.
297840. Respondent, in effect, automatically acquires ownership
Spouses Ong filed a complaint before Regional Trial Court of of the properties upon Spouses Ong’s failure to pay their debt
Tarlac City to declare the mortgage contract, dacion in payment within the stipulated period.
agreement, and MOA void. Spouses Ong allege that the dacion in In a true dacion en pago, the assignment of the property
payment agreement is pactum commissorium, and therefore extinguishes the monetary debt.
void. In its Answer with counterclaim, Roban alleged that the
Here, the alienation of the properties was by way of security, and
dacion in payment agreement is valid because it is a special form
not by way of satisfying the debt. The Dacion in Payment did not
of payment recognized under Article 1245 of the Civil Code. RTC
extinguish Spouses Ong’s obligation to Roban. On the contrary,
ruled in favor of Roban, finding that there was no pactum
under the Memorandum of Agreement executed on the same day
commissorium. The Court of Appeals upheld the RTC decision.
as the Dacion in Payment, petitioners had to execute a promissory
ISSUE: note for P5, 916, 117.50 which they were to pay within one year
EDMUNDO T.
Whether or not the dacion in payment agreement entered into by
Spouses Ong and Roban constitutes pactum commissorium 58. SPS. LEHNER AND LUDY MARTIRES v. MENELIA
HELD: CHUA, GR No. 174240, 2013-03-20
Facts: The CA held that the true intention of respondent was merely to
provide security for her... loan and not to transfer ownership of the
twenty-four memorial lots located at the Holy Cross Memorial
property to petitioners.
Park
Issues:
Respondent, together with her mother, Florencia R. Calagos,
own... respondent borrowed from petitioner spouses THE COURT OF APPEALS PATENTLY ERRED IN NOT
UPHOLDING THE DEED OF TRANSFER EXECUTED BY THE
The loan was secured by a real estate mortgage over the
RESPONDENT IN FAVOR OF THE PETITIONERS
abovementioned property
BY RULING THAT
Respondent failed to fully settle her obligation.
The Deed of Transfer executed by respondent in favor of
Subsequently, without foreclosure of the mortgage, ownership of
petitioners over the subject property was not entered in the
the subject lots were transferred in the name of petitioners...
Notarial Book
respondent filed... against petitioners... praying for the annulment
of the... contract of mortgage between her and petitioners on the Ruling:
ground that the interest rates imposed are unjust and exorbitant.
The petition lacks merit.
She likewise prayed that the Register of Deeds of Quezon City and
the presumptions that attach to notarized documents can be
Manila Memorial
affirmed only so long as it is beyond dispute that the notarization
Park, Inc. be directed to reconvey the disputed property to her. was regular.

After trial, the RTC of Quezon City rendered a Decision in favor of A defective... notarization will strip the document of its public
petitioners character and reduce it to a private instrument... when there is a
defect in the notarization of a document, the clear and convincing
On appeal, the CA affirmed
evidentiary standard normally attached to a... duly-notarized
The CA ruled that respondent voluntarily entered into a contract of document is dispensed with... the CA has clearly pointed out the
loan and that the execution of the Deed of Transfer is sufficient dubious circumstances and irregularities attendant in the alleged
evidence of petitioners' acquisition of ownership of the subject notarization of the subject Deed of Transfer
property.
While indeed a notarized document enjoys the presumption of
The CA reconsidered its findings and concluded that the Deed of regularity, the fact that a deed is notarized is not a guarantee of
Transfer which, on its face, transfers ownership of the subject the validity of its contents.
property to petitioners, is, in fact, an equitable mortgage.
The presumption is not absolute and may be rebutted by clear
and convincing evidence to the... contrary.
An equitable mortgage has been defined as one which... reveals In 2002, Yllas Lending Corporation caused the sheriff of
the intention of the parties to charge real property as security for a the trial court to serve an alias writ of seizure against
debt FBDC. FBDC found out that in 2001, respondents filed a
complaint for Foreclosure of Chattel Mortgage with
Since the original transaction between the parties was a
Replevin, against Tirreno, et al. In their complaint, Yllas
mortgage, the subsequent assignment of ownership of the subject
alleged that they lent a sum of money to Tirreno et al and
lots to petitioners without the benefit of foreclosure proceedings,
in 2000 executed a Deed of Chattel Mortgage in favor of
partakes of the nature of a pactum commissorium
Yllas as security for the loan. The Chattel Mortgage
Pactum commissorium is a stipulation empowering the creditor to covered properties of the Tirreno’s restaurant and bar.
appropriate the thing given as guaranty for the fulfillment of the
obligation in the event the obligor fails to live up to his On the same day, FBDC served on the sheriff an affidavit
undertakings, without further formality... the instant petition is of title and third party claim.
DENIED
Despite FBDC’s service upon him of an affidavit of title
and third party claim, the sheriff proceeded with the
59.
seizure of certain items from FBDC’s premises. The
sheriff delivered the seized properties to Yllas.

60. FBDC vs. YLLAS LENDING CORP

FBDC questioned the propriety of the seizure and
G.R. No. 158997
delivery of the properties to respondents without an
October 6, 2008
indemnity bond before the trial court, which decided
against FBDC. It stated that:
FACTS: FORT BONIFACIO DEVELOPMENT CORP. (
FBDC) executed a lease contract in favor of Tirreno, Inc.
over a unit at the Bonifacio Global City in Taguig, Metro 1. Section 22 of the lease contract between FBDC and
Manila. The parties had the lease contract notarized on Tirreno is void under Article 2088 of the Civil Code.
the day of its execution. Tirreno used the leased premises
for Savoia Ristorante and La Strega Bar. 2. FBDC should have filed a separate complaint against
Due to Tirreno’s alleged failure to settle its outstanding respondents instead of filing a motion to intervene. (The
obligations, FBDC entered and occupied the leased trial court quoted Bayer Phils. v. Agana )
premises. FBDC also appropriated the equipment and FBDC filed a MR, which was denied. Hence this petition
properties left by Tirreno pursuant to Section 22 of their to review pure questions of law.
Contract of Lease as partial payment for Tirreno’s
outstanding obligations.
ISSUE:
1. WON FBDC has no right of ownership over the subject instead sell the same to third parties and apply the
properties because Section 22 of the contract of lease is proceeds thereof against any unpaid rentals, charges
void for being a pledge and a pactum commissorium; and/or damages.
2. WON the proper remedy of FBDC as third party
claimant over the subject properties is to file a separate Articles 2085 and 2093 of the Civil Code enumerate the
action; and requisites essential to a contract of pledge:
(1) the pledge is constituted to secure the fulfillment of a
3. WON the trial court is should have required principal obligation;
respondents to file an indemnity bond for FBDC’s
protection (2) the pledgor is the absolute owner of the thing
pledged;
4. WON FBDC can terminate the lease contract without
judicial intervention (3) the persons constituting the pledge have the free
disposal of their property or have legal authorization for
HELD: Petition granted the purpose; and
1.NO. Respondents, as well as the trial court, contend
that Section 22 constitutes a pactum commissorium, a void (4) the thing pledged is placed in the possession of the
stipulation in a pledge contract. FBDC, on the other creditor, or of a third person by common agreement.
hand, states that Section 22 is merely a dacion en pago. Article 2088 of the Civil Code prohibits the creditor from
Section 22 of the Lease Contract between FBDC and appropriating or disposing the things pledged, and any
Terrano states: contrary stipulation is void.

Section 22. Lien on the Properties of the Lessee Section 22, as worded, gives FBDC a means to collect
payment from Tirreno in case of termination of the lease
Upon the termination of this Contract or the expiration contract or the expiration of the lease period and there
of the Lease Period without the rentals, charges and/or are unpaid rentals, charges, or damages. The existence of
damages, if any, being fully paid or settled, the LESSOR a contract of pledge, however, does not arise just because
shall have the right to retain possession of the properties FBDC has means of collecting past due rent from Tirreno
of the LESSEE used or situated in the Leased Premises other than direct payment.
and the LESSEE hereby authorizes the LESSOR to offset
the prevailing value thereof as appraised by the LESSOR The fourth requisite, that the thing pledged is placed in the
against any unpaid rentals, charges and/or damages. If possession of the creditor, is absent. There is non-
the LESSOR does not want to use said properties, it may compliance with the fourth requisite even if Tirreno’s
personal properties are found in FBDC’s real property. situated as to be adversely affected by a distribution or
Tirreno’s personal properties are in FBDC’s real property other disposition of property in the custody of the court
because of the Contract of Lease, which gives Tirreno or of an officer thereof may, with leave of court, be
possession of the personal properties. Since Section 22 is allowed to intervene in the action. The court shall
not a contract of pledge, there is no pactum commissorium. consider whether or not the intervention will unduly
On the other hand, Article 1245 of the Civil Code delay or prejudice the adjudication of the rights of the
defines dacion en pago, or dation in payment, as the original parties, and whether or not the intervenor’s
alienation of property to the creditor in satisfaction of a rights may be fully protected in a separate proceeding.
debt in money. Philippine National Bank v. Pineda held that Although intervention is not mandatory, nothing in the
dation in payment requires delivery and transmission of Rules proscribes intervention.
ownership of a thing owned by the debtor to the creditor
as an accepted equivalent of the performance of the 3. YES. Pursuant to Section 14 of Rule 57, the sheriff is
obligation. There is no dation in payment when there is not obligated to turn over to respondents the properties
no transfer of ownership in the creditor’s favor, as when subject of this case in view of respondents’ failure to file a
the possession of the thing is merely given to the creditor bond.
by way of security.
2. NO. The Bayer ruling is inapplicable to the present
case. The third party in Bayer filed his claim during The bond in Section 14 of Rule 57 (proceedings where
execution; in the present case, FBDC filed for property is claimed by third person) is different from the
intervention during the trial. bond in Section 3 of the same rule (affidavit and bond).
The timing of the filing of the third party claim is
important because the timing determines the remedies Under Section 14 of Rule 57, the purpose of the bond is to
that a third party is allowed to file. A third party claimant indemnify the sheriff against any claim by the intervenor
under Section 16 of Rule 39 (Execution, Satisfaction and to the property seized or for damages arising from such
Effect of Judgments)17 of the 1997 Rules of Civil seizure, which the sheriff was making and for which the
Procedure may vindicate his claim to the property in a sheriff was directly responsible to the third party.
separate action, because intervention is no longer
allowed as judgment has already been rendered. We allow Section 3, Rule 57, on the other hand, refers to the
FBDC’s intervention in the present case because FBDC attachment bond to assure the return of defendant’s
satisfied the requirements of Section 1, Rule 19 personal property or the payment of damages to the
(Intervention) of the 1997 Rules of Civil Procedure, defendant if the plaintiff’s action to recover possession of
which reads as follows: the same property fails, in order to protect the plaintiff’s
Section 1. Who may intervene. — A person who has a legal right of possession of said property, or prevent the
interest in the matter in litigation, or in the success of
either of the parties, or an interest against both, or is so
defendant from destroying the same during the pendency MACHINES TO NONWOVEN TO SECURE AN OBLIGATION.
of the suit. WHO HAS A BETTER RIGHT TO THE MACHINES AND
EQUPMENT?

Because of the absence of the indemnity bond in the

present case, FBDC may also hold the sheriff for damages UNION BANK HAS A BETTER RIGHT. NONWOVEN FAILED TO
for the taking or keeping of the properties seized from PROVE THAT THERE WAS DACION EN PAGO. THE DOCUMENT
FBDC. EXECUTED BY JUNIAT APPEARS TO BE AN
UNNOTARIZED PLEDGE. IN CASE OF DOUBT WHETHER A
DEED IS A SALE OR A PLEDGE, THE DEED IS DEEMED A
4. YES. A lease contract may be terminated without PLEDGE. SINCE THE PLEDGE WAS NOT NOTARIZED IT
judicial intervention. Consing v. Jamandre upheld the CANNOT BIND THIRD PARTIES.
validity of a contractually-stipulated termination clause:
This stipulation is in the nature of a resolutory condition,
for upon the exercise by the [lessor] of his right to take A perusal of the Agreement dated May 9, 1992 clearly shows that the
possession of the leased property, the contract is deemed sewing machines, snap machines and boilers were pledged to
terminated. This kind of contractual stipulation is not Nonwoven by Juniat to guarantee his obligation. However, under
Article 2096 of the Civil Code, “[a] pledge shall not take effect against
illegal, there being nothing in the law proscribing such
third persons if a description of the thing pledged and the date of the
kind of agreement. pledge do not appear in a public instrument.” Hence, just like the
chattel mortgage executed in favor of petitioner, the pledge executed
by Juniat in favor of Nonwoven cannot bind petitioner.
61. Union Bank vs. Juniat
Neither can we sustain the finding of the CA that: “The machineries
JUNIAT EXECUTED A CHATTEL MORTGAGE IN FAVOR were ceded to THIRD PARTY NONWOVEN by way of dacion en
OF UNION BANK COVERING SEWING MACHINES AND pago, a contract later entered into by WINWOOD/WINGYAN and
OTHER EQUIPMENT FOR AND ON BEHALF OF WINWOOD THIRD PARTY NONWOVEN.”[1][53] As aptly pointed out by
AND WINGYAN. JUNIAT ET AL DID NOT PAY SUBJECT petitioner, no evidence was presented by Nonwoven to show that the
LOAN. UNION BANK SUED THEM FOR SUM OF MONEY attached properties were subsequently sold to it by way of a dacion en
AND MOVED TO ATTACH THE SEWING MACHINES AND pago. Also, there is nothing in the Agreement dated May 9, 1992 to
EQUIPMENT. THE MACHINES AND EQUIPMENT WERE IN indicate that the motorized sewing machines, snap machines and
THE POSSESSION OF NONWOVEN. COURT ISSUED boilers were ceded to Nonwoven as payment for the Wingyan’s and
SUMMONS TO NONWOVEN. NONWOVEN ARGUED THAT Winwood’s obligation. It bears stressing that there can be no transfer
IT HAS A BETTER RIGHT TO THE MACHINES AND of ownership if the delivery of the property to the creditor is by way of
EQUIPMENT BECAUSE JUNIAT EXECUTED DACION EN security.[2][54] In fact, in case of doubt as to whether a transaction is
PAGO IN THEIR FAVOR. THEY THEFORE HOLD THE one of pledge or dacion en pago, the presumption is that it is a pledge
MACHINES AS OWNER WHILE PETITIONER HOLDS THE as this involves a lesser transmission of rights and interests.[3][55]
MACHINES ONLY AS MORTGAGEE. NONWOVEN
PRESENTED A DOCUMENT WHERE JUNIAT PLEGED THE
62. ESTATE OF LITTON V. MENDOZA & CA, (1988)
Pledge: Ownership of Collateral, Art. 2103, Art. 2102, Art. 2101, Art. Note: Private respondent has, from the very beginning, been fully
1951, Art. 2108, Art. 2112, Art. 2097 aware of the deed of assignment executed by Tan in favor of Litton, Sr.
Having such knowledge thereof, private respondent is estopped from
(see full text for the facts) entering into a compromise agreement involving the same litigated
credit without notice to and consent of the assignee,petitioner herein.
More so, in the light of the fact that no reimbursement has ever been
The fact that the deed of assignment was done by way of securing or made in favor of the assignee as required under Article 1634. Private
guaranteeing Tan's obligation in favor of George Litton, Sr., as observed respondent acted in bad faith and in connivance with assignor Tan so
by the appellate court, will not in any way alter the resolution on the as to defraud the petitioner in entering into the compromise agreement.
matter. The validity of the guaranty or pledge in favor of Litton has not
been questioned. Our examination of the deed of assignment shows
that it fulfills the requisites of a valid pledge or mortgage.

63. MANILA BANKING CORPORATION V. TEODORO, JR.

AND TEODORO, (1989). (INCLUDE CONCURRING
Rule
OPINION)
Although it is true that Tan may validly alienate the litigatious credit as
Pledge: Right to Payment, Art. 2102, Art. 2118
ruled by the appellate court, citing Article 1634 of the Civil Code, said
provision should not be taken to mean as a grant of an absolute right (see full text for the facts)
on the part of the assignor Tan to indiscriminately dispose of the thing
or the right given as security. The Court rules that the said provision
should be read in consonance with Article 2097 of the same
code. Although the pledgee or the assignee, Litton, Sr. did not ipso The assignment of receivables executed by appellants did not transfer
factobecome the creditor of private respondent Mendoza, the pledge the ownership of the receivables to appellee bank and release appellants
being valid, the incorporeal right assigned by Tan in favor of the former from their loans with the bank incurred under promissory notes.
can only be alienated by the latter with due notice to and consent of
Litton, Sr. or his duly authorized representative. To allow the assignor
to dispose of or alienate the security without notice and consent of the
The Deed of Assignment provided that it was for and in consideration
assignee will render nugatory the very purpose of a pledge or an
of certain credits, loans, overdrafts, and their credit accommodations
assignment of credit.
extended to appellants by appellee bank, and as security for the
payment of said sum and the interest thereon; that appellants as
assignors, remise, release, and quitclaim to assignee bank all their
Moreover, under Article 1634, the debtor has a corresponding rights, title and interest in and to the accounts receivable assigned. It
obligation to reimburse the assignee, Litton, Sr. for the price he paid or was further stipulated that the assignment will also stand as
for the value given as consideration for the deed of assignment. Failing a continuing guaranty for future loans of appellants to appellee
in this, the alienation of the litigated credit made by Tan in favor of bank and correspondingly the assignment shall also extend to all the
private respondent by way of a compromise agreement does not bind accounts receivable; appellants shall also obtain in the future, until the
the assignee, petitioner herein.
consideration on the loans secured by appellants from appellee bank in payment, exchange or donation, and without the need of the consent
shall have been fully paid by them. of the debtor, transfers his credit and its accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could have enforced it against the debtor.

The position of appellants, however, is that the deed of assignment is a

quitclaim in consideration of their indebtedness to appellee bank, not
mere guaranty, in view of the following provisions of the deed of
assignment:
64. CHU V. COURT OF APPEALS ET AL., 1989
... the Assignor do hereby remise, release and quit-claim unto said
assignee all its rights, title and interest in the accounts receivable Pledge: Right to Payment, Art. 2102, Art. 2118
described hereunder. (Emphasis supplied by appellants, first par., Deed
of Assignment).
As the collateral was also money or an exchange of "peso for peso," the
provision in Article 2112 of the Civil Code for the sale of the thing
... that the title and right of possession to said account receivable is to pledged at public auction to convert it into money to satisfy the
remain in said assignee and it shall have the right to collect directly pledgor's obligation, did not have to be followed. All that had to be done
from the debtor, and whatever the Assignor does in connection with the to convert the pledgor's time deposit certificates into cash was to
collection of said accounts, it agrees to do so as agent and present them to the bank for encashment after due notice to the debtor.
representative of the Assignee and it trust for said Assignee.

65.CITIBANK, N.A. & INVESTOR FINANCE CORPORATION

V. SABENIANO, (2006)
The character of the transactions between the parties is not, however,
determined by the language used in the document but by their Pledge: Right to Payment, Art. 2102, Art. 2118
intention. Definitely, the assignment of the receivables did not result
from a sale transaction. It cannot be said to have been constituted by
virtue of a dation in payment for appellants' loans with the bank
evidenced by promissory note which are the subject of the suit for Facts:
collection in a Civil Case. At the time the deed of assignment was Modesta Sabeniano is a client of Citibank and FNCB Finance. On
executed, said loans were non-existent yet. Obviously, the deed of February 1978, Sabeniano obtained a loan of Php 200,000 from
assignment was intended as collateral security for the bank loans of
Citibank. This loan was followed with several other loans – some were
appellants, as a continuing guaranty for whatever sums would be owing
by defendants to plaintiff, as stated in stipulation No. 9 of the deed. paid, while some were not. Those that were not paid upon maturity
were rolled over, reflecting a total unpaid loan of Php 1,069,847.40 as
of September 1979.

Assignment of credit is an agreement by virtue of which the owner These loans were secured by Sabeniano’s money market placements
of a credit, known as the assignor, by a legal cause, such as sale, dation with FNCB Finance through a Deed of Assignment plus a Declaration
of Pledge which states that all present and future fiduciary placements annum. The RTC also ordered Sabeniano to pay her outstanding loan
held in her personal and/or joint name with Citibank Switzerland, will to Citibank without interests and penalty charges.
secure all claims that Citibank may have or, in the future, acquire
against her. Both parties appealed to the CA which affirmed the RTC’s decision,
but further ruled entirely in favor of Sabeniano – holding that Citibank
The Deeds of Assignment were duly notarized, while the Declaration failed to establish her indebtedness and that all the executed deeds
of Pledge was not notarized and Citibank’s copy was undated, while should be returned to her account. The case has now reached the
that of Sabeniano bore the date, September 24, 1979. Supreme Court.

Since Sabeniano failed to pay her obligations to Citibank, the latter The liquidation of respondent’s outstanding loans were valid in so far
sent demand letters to request payment. Her total unpaid loan initially as petitioner Citibank used respondent’s savings account with the bank
amounted to Php 2,123,843.20 (inclusive of interests). and her money market placements with petitioner FNCB Finance; but
illegal and void in so far as petitioner Citibank used respondent’s dollar
Still failing to pay, Citibank executed the Deeds of Assignment and accounts with Citibank-Geneva.
used the proceeds of Sabeniano’s money market placement from
FNCB Finance which totaled Php 1,022,916.66 and her deposits with
Citibank which totaled Php 31,079.14 to set-off her loan. Without the Declaration of Pledge, petitioner Citibank had no authority
to demand the remittance of respondent’s dollar accounts with
This reduced the unpaid balance to Php 1,069,847.40 as previously Citibank-Geneva and to apply them to her outstanding loans. It
mentioned. Since the loan remains unpaid, Citibank proceeded to cannot effect legal compensation under Article 1278 of the Civil Code
execute the Declaration of Pledge and remitted a total of $149,632.99 since, petitioner Citibank itself admitted that Citibank-Geneva is a
from Sabeniano’s Citibank-Geneva accounts to off-set the loan. distinct and separate entity. As for the dollar accounts, respondent
was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and respondent
Sabeniano then filed a complaint against Citibank for damages and
was the debtor. The parties in these transactions were evidently not
specific performance (for proper accounting and return of the remitted
the principal creditor of each other.
proceeds from her personal accounts). She also contended that the
proceeds of 2 promissory notes (PN) from her money market
placements with Citibank were rolled over or reinvested into the
Therefore, this Court declares that the remittance of respondent’s
petitioner bank, and these should also be returned to her.
dollar accounts from Citibank-Geneva and the application thereof to
her outstanding loans with petitioner Citibank was illegal, and null and
Regarding the execution of the pledge, the RTC declared this illegal, void.
null and void. Citibank was ordered to return the $149,632.99 to
Sabeniano’s Citibank-Geneva account with a legal interest of 12% per
66.PARAY & ESPELETA V. RODRIGUEZ, ET AL., The right to redeem property is a bare statutory privilege to be exercised
(2006) only by the persons named in the statute.

Right of Redemption
The right of redemption over mortgaged real property sold
extrajudicially is established by Act No. 3135, as amended. The said
Respondents were the owners, in their respective personal capacities, law does not extend the same benefit to personal property. In fact, there
of shares of stock in a corporation known as the Quirino-Leonor- is no law in our statute books which vests the right of redemption over
Rodriguez Realty Inc.[1] Sometime during the years 1979 to 1980, personal property. Act No. 1508, or the Chattel Mortgage Law,
respondents secured by way of pledge of some of their... shares of ostensibly could have served as the vehicle for any legislative intent to
stock to petitioners Bonifacio and Faustina Paray ("Parays") the bestow a right of redemption over personal property, since that law
payment of certain loan obligations. governs the extrajudicial sale of mortgaged personal property, but the
statute is definitely silent on the point. And Section 39 of the 1997
When the Parays attempted to foreclose the pledges on account of Rules of Civil Procedure, extensively relied upon by the Court of
respondents' failure to pay their loans, respondents filed complaints Appeals, starkly utters that the right of redemption applies to real
with the Regional Trial Court (RTC) of Cebu City. properties, not personal properties, sold on execution.
The actions, which were consolidated and tried before RTC Branch 14,
Cebu City, sought the... declaration of nullity of the pledge
agreements, among others. Obviously, since there is no right to redeem personal property, the
rights of ownership vested unto the purchaser at the foreclosure sale
Petitioners now argue before this Court that they were authorized to
are not entangled in any suspensive condition that is implicit in a
refuse as they did the tender of payment since they were undertaking
redemptive period.
the auction sale pursuant to the final and executory decision in Civil
Cases Nos. R-20120 and 20131, which did not authorize the payment
of... the principal obligation by respondents.
Issue #2: The Court of Appeals also found fault with the apparent sale
Issue: WON the pledged shares of stock auctioned off in a notarial sale in bulk of the pledged shares, notwithstanding the fact that these shares
could still be redeemed by their owners. were owned by several people, on the premise the pledgors would be
denied the opportunity to know exactly how much they would need to
shoulder to exercise the right to redemption.
The right of redemption as affirmed under Rule 39 of the Rules of
Court applies only to execution sales, more precisely execution sales
of real property. Held: Rule 39 of the Rules of Court does provide for instances when
properties foreclosed at the same time must be sold separately, such as
in the case of lot sales for real property under Section 19. However,
Does the right of redemption exist over personal these instances again pertain to execution sales and not extrajudicial
property? No law or jurisprudence establishes or affirms such right. sales. No provision in the Rules of Court or in any law requires that
Indeed, no such right exists. pledged properties sold at auction be sold separately.
On the other hand, under the Civil Code, it is the pledgee, and not the credit has not been satisfied in due time, the creditor may proceed with
pledgor, who is given the right to choose which of the items should be the sale by public auction under the procedure provided under Article
sold if two or more things are pledged. No similar option is given to 2112 of the Code.
pledgors under the Civil Code. Moreover, there is nothing in the Civil
Code provisions governing the extrajudicial sale of pledged properties
that prohibits the pledgee of several different pledge contracts from Section 18, Rule 39 provides that the judgment obligor may prevent
auctioning all of the pledged properties on a single occasion, or from the sale by paying the amount required by the execution and the costs
the buyer at the auction sale in purchasing all the pledged properties that have been incurred therein. However, the provision applies only to
with a single purchase price. The relative insignificance of ascertaining execution sales, and not extra-judicial sales, as evidenced by the use of
the definite apportionments of the sale price to the individual shares the phrases “sale of property on execution” and “judgment obligor.”
lies in the fact that once a pledged item is sold at auction, neither the
pledgee nor the pledgor can recover whatever deficiency or excess there ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. vs.
may be between the purchase price and the amount of the principal LULU V. JORGE and CESAR JORGE, respondents.
obligation. [G.R. No. 159617; August 8, 2007]

FACTS:
A different ruling though would obtain if at the auction, a bidder Lulu V. Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to secure
expressed the desire to bid on a determinate number or portion of the a loan in the total amount of P59,500. In 1987, two armed men entered the
pledged shares. In such a case, there may lie the need to ascertain with pawnshop and took away whatever cash and jewelry were found inside the
particularity which of the shares are covered by the bid price, since not pawnshop vault. Spouses Jorge, filed a complaint against petitioner Sicam for
all of the shares may be sold at the auction and correspondingly not all indemnification for the loss of pawned jewelry.
of the pledge contracts extinguished. The same situation also would lie
if one or some of the owners of the pledged shares participated in the Sicam filed his Answer contending that he is not the real party-in-interest as the
auction, bidding only on their respective pledged shares. pawnshop was incorporated on 1987 and known as Agencia de R.C. Sicam, Inc; that
petitioner corporation had exercised due care and diligence in the safekeeping of
the articles pledged with it and could not be made liable for an event that is
fortuitous.
Issue #3: Whether the consignations made by respondents
extinguished their respective pledge contracts in favor of the Parays so RTC ruled that petitioner corp. could not be held liable for the loss of the pawned
as to enjoin the latter from auctioning the pledged shares. jewelry since the loss of the pledged pieces of jewelry was occasioned by armed
robbery; that robbery is a fortuitous event which exempts the victim from liability
for the loss. On appeal, CA reversed the RTC. The CA held that the corresponding
diligence required of a pawnshop is that it should take steps to secure and protect
Held: There is no doubt that if the principal obligation is satisfied, the
the pledged items and should take steps to insure itself against the loss of articles;
pledges should be terminated as well. Article 2098 of the Civil Code
and that robberies and hold-ups are foreseeable risks in that those engaged in the
provides that the right of the creditor to retain possession of the pledged
pawnshop business are expected to foresee.
item exists only until the debt is paid. Article 2105 of the Civil Code
further clarifies that the debtor cannot ask for the return of the thing ISSUE:
pledged against the will of the creditor, unless and until he has paid the
debt and its interest. At the same time, the right of the pledgee to Whether petitioners are liable for the loss of the pawned articles in their
possession.
foreclose the pledge is also established under the Civil Code. When the
HELD: 300 shares of stock in the Go Fay & Company Inc. Guiok obliged himself to pay
interest on said loan at the rate of 10% per annum from the date of said contract of
Under Article 1174 of the Civil Code provides:
pledge.
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the On the same date, Alfonso Sy Lim secured a loan, from Lim Tay in the amount of
assumption of risk, no person shall be responsible for those events which could not P40,000 payable in 6 months. To secure the payment of his loan, Sy Lim executed a
be foreseen or which, though foreseen, were inevitable. "Contract of Pledge" covering his 300 shares of stock in Go Fay & Co. Under said
contract, Sy Lim obliged himself to pay interest on his loan at the rate of 10% per
Fortuitous events by definition are extraordinary events not foreseeable or
annum from the date of the execution of said contract.
avoidable. It is therefore, not enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be one impossible to foresee or The contract provided that Lim Tay was merely authorized to foreclose the pledge
to avoid. The mere difficulty to foresee the happening is not impossibility to foresee upon maturity of the loans, not to own them. The foreclosure is not automatic, for
the same. it must be done in a public or private sale.

To constitute a fortuitous event, the following elements must concur: Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered
(a) the cause of the unforeseen and unexpected occurrence or of the failure of the the same to Lim Tay. However, Guiok and Sy Lim failed to pay their respective loans
debtor to comply with obligations must be independent of human will; and the accrued interests thereon to Lim Tay.
(b) it must be impossible to foresee the event that constitutes the caso fortuito or,
In October 1990, Lim Tay filed a "Petition for Mandamus" against Go Fay & Co., with
if it can be foreseen, it must be impossible to avoid;
SEC praying that an order be issued directing the corporate secretary to register the
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose stock transfers and issue new certificates in favor of Lim Tay; and ordering the
the possibility of negligence on the part of herein petitioners. corporation to pay all dividends due and unclaimed on the said certificates to Lim
Tay. In the interim, Sy Lim died. Guiok and the Intestate Estate of Alfonso Sy Lim,
The provision on pledge, particularly Article 2099 of the Civil Code, provides that
represented by Conchita Lim, filed their Answer-In-Intervention with the SEC.
the creditor shall take care of the thing pledged with the diligence of a good father
of a family. This means that petitioners must take care of the pawns the way a The SEC hearing officer dismissed Lim Tay's Complaint on the ground that although
prudent person would as to his own property. That it was revealed that there were the SEC had jurisdiction over the action, he failed to prove the legal basis for the
no security measures adopted by petitioners in the operation of the pawnshop. secretary of the Corporation to be compelled to register stock transfers in favor of
Evidently, no sufficient precaution and vigilance were adopted by petitioners to Lim Tay and to issue new certificates of stock under his name. His appeal was
protect the pawnshop from unlawful intrusion. denied by SEC. He appealed with CA.

The preponderance of evidence shows that petitioners failed to exercise the The CA debunked Lim Tay's claim that he had acquired ownership over the shares
diligence required of them under the Civil Code. by virtue of novation, holding that Guiok's and Sy Lim's endorsement and delivery
of the shares were pursuant to Articles 2093 and 2095 of the Civil Code and that
Lim Tay's receipt of dividends was in compliance with Article 2102 of the same
Lim Tay Vs. CA G.R. No. 126891 Code.

Date: August 5, 1998 Arguments of Lim Tay: He contends that it has acquired ownership of the shares
"through extraordinary prescription," pursuant to Article 1132 of the Civil Code, and
Facts: through respondents' subsequent acts, which amounted to a novation of the
contracts of pledge. Petitioner also claims that there was dacion en pago, in which
On 8 January 1980, Sy Guiok secured a loan from Lim Tay in the amount of P40,000
the shares of stock were deemed sold to petitioner, the consideration for which
payable within 6 months. To secure the payment of the aforesaid loan and interest
thereon, Guiok executed a Contract of Pledge in favor of Lim Tay. He pledged his
was the extinguishment of the loans and the interests thereon. Petitioner likewise 300 shares of stock in the Go Fay & Company Inc. by Guiok and 300 shares of stock
claims that laches bars respondents from recovering the subject shares. in the Go Fay & Company Inc. by Sy Lim. Date - January 8, 1980.

Issue: WON Lim Tay is the owner of the shares previously subjected to pledge, for
him to cause the registration of said shares in his own name.
CLEMENTINO IMPERIAL, petitioner, vs. MARIANO F. SANTIAGO, JR., Sheriff IV,
Held: NO. RTC, Branch 139, Makati City, respondent.

Lim Tay's ownership over the shares was not yet perfected when the Complaint was NO CASE DIGEST FOUND.
filed. The contract of pledge certainly does not make him the owner of the shares
pledged.
INSULAR ASSURANCE COMPANY vs. ROBERTO YOUNG
Further, whether prescription effectively transferred ownership of the shares,
whether there was a novation of the contracts of pledge, and whether laches had No case digest found.
set in were difficult legal issues, which were unpleaded and unresolved when Lim
Tay asked the corporate secretary of Go Fay to effect the transfer, in his favor, of
the shares pledged to him. Lim Tay has failed to establish a clear legal right.
PRUDENTIAL BANK VS ALVIAR

Doctrine:
Lim Tay's contention that he is the owner of the said shares is completely without The “dragnet clause” in the first security instrument constituted a continuing offer
merit. Lim Tay does not have any ownership rights at all. At the time Lim Tay by the borrower to secure further loans under the security of the first security
instituted his suit at the SEC, his ownership claim had no prima facie leg to stand on. instrument, and that when the lender accepted a different security he did not
At best, his contention was disputable and uncertain. accept the first offer.

Lim Tay cannot claim to have acquired ownership over the certificates of stock Facts:
through extraordinary prescription, as provided for in Article 1132 of the Civil Code.
What is required by Article 1132 is possession in the concept of an owner. Herein, ● Spouses Alviar are the registered owners of a parcel of land in San Juan,
Lim Tay's possession of the stock certificates came about because they were Metro Manila
delivered to him pursuant to the contracts of pledge. His possession as a pledgee ● They executed a deed of real estate mortgage of the said property in favor
cannot ripen into ownership by prescription. Lim Tay expressly repudiated the of petitioner Prudential Bank to secure the payment of a loan
worth P250,000.00. (PN BD#75/C-252) was then issued covering the said
pledge, only when he filed his Complaint and claimed that he was not a mere
loan, which provides that the loan matured on 4 August 1976 at an interest
pledgee, but that he was already the owner of the shares.
rate of 12% per annum with a 2% service charge, and that the note is secured
Based on the foregoing, Lim Tay has not acquired the certificates of stock through by a real estate mortgage as aforementioned with a “blanket mortgage
extraordinary prescription. Neither did Lim Tay acquire the shares by virtue of a clause” or the “dragnet clause”.
● The spouses thereafter issued other promissory notes (PN):
novation of the contract of pledge. Novation cannot be presumed by Guiok's and Sy
o PN BD#76/C-345 for P2,640,000.00, secured by D/A SFDX #129,
Lim's indorsement and delivery of the certificates of stock covering the 600 shares,
signifying that the loan was secured by a “hold-out” on the
nor Lim Tay's receipt of dividends from 1980 to 1983, nor the fact that Guiok and Sy
mortgagor’s foreign currency savings account with the bank under
Lim have not instituted any action to recover the shares since 1980. Novation is Account No. 129
never presumed inferred. o In the name of Donalco Trading, Inc., PN BD#76/C-430
covering P545,000.000 to be secured by “Clean-Phase out TOD CA
Notes: There is a contract of pledge between Guiok (respondent) and Lim Tay
3923. Bank also mentioned in their approval letter that additional
(petitioner) & Sy Lim (respondent) and Lim Tay (petitioner). What was mortgaged?
securities for the loan were the deed of assignment on two PNs
 executed by Bancom Realty and the chattel mortgage on various still be properly subjected to foreclosure proceedings for the unpaid P250,000.00
heavy and transportation equipment. loan, and as mentioned earlier, for any deficiency after D/A SFDX#129, security for
● Spoused Alviar paid petitioner P2,000,000.00, to be applied to the PN BD#76/C-345, has been exhausted, subject of course to defenses which are
obligations of G.B. Alviar Realty and Development, Inc. and for the release available to respondents.
of the real estate mortgage for the P450,000.00 loan covering the two (2)
lots in San Juan, Metro Manila. The payment was acknowledged by Petition is DENIED. CA affirmed.
petitioner who accordingly released the mortgage over the two properties
● Prudential Bank moved for the extrajudicial foreclosure of the mortgage on
the property since respondents had the total obligation of P1,608,256.68,
covering the three (3) promissory notes.
● Respondents then filed a complaint for damages with a prayer for the
issuance of a writ of preliminary injunction with the RTC of Pasig,[11] claiming People's Bank and Trust Co. v. Dahican Lumber Co., G.R. No. L-17500 (May 16,
that they have paid their principal loan secured by the mortgaged property, 1967) Case Digest
and thus the mortgage should not be foreclosed
● RTC, on its final decision, favored respondents saying that the extrajudicial
foreclosure was improper for the mortgage only covers the first loan of Facts:
P250,000
● CA affirmed the decision of the RTC Dahican Lumber Co. (DALCO) obtained a loan from People's Bank and Trust Co.
(Bank) secured by a deed of mortgage covering 5 parcels of land together with all
Issue: WON real estate mortgage secures only the first loan of P250,000. the buildings and other improvements existing thereon and all the personal
properties of DALCO located in its place of business.
Held: Yes. While the existence and validity of the “dragnet clause” cannot be
denied, there is a need to respect the existence of the other securities given for the After the day of the execution of the mortgage, DALCO purchased various
two other promissory notes. The foreclosure of the mortgaged property should machinery, equipment, spare parts and supplies.
only then be for theP250,000.00 loan covered by PN BD#75/C-252, and for any
amount not covered by the security for the second promissory note.
Pursuant to the provision of the mortgage deeds regarding "after acquired
properties", the Bank requested DALCO to submit complete list of the said
Petitioner and respondents intended the real estate mortgage to secure not only
properties but DALCO refused to do so.
the P250,000.00 loan from the petitioner, but also future credit facilities
and advancements that may be obtained by the respondents. However, the
subsequent loans obtained by respondents were secured by other securities. Issue:

When the mortgagor takes another loan for which another security was given it could Whether or not the "after acquired properties" were subject to the deed of
not be inferred that such loan was made in reliance solely on the original security mortgage.
with the “dragnet clause,” but rather, on the new security given. This is the “reliance
on the security test.” Held:

If the parties intended that the “blanket mortgage clause” shall cover subsequent Yes, they are subject to the deeds of mortgage.
advancement secured by separate securities, then the same should have been
indicated in the mortgage contract. This ambiguity shall be interpreted strictly against
Article 415 of the Civil Code does not define real property but enumerates what are
petitioner for having drafted the same.
considered as such, among them being machinery, receptacles, instruments or
Petitioner, however, is not without recourse. Both the lower courts found that replacements intended by owner of the tenement for an industry or works which
respondents have not yet paid the P250,000.00. Thus, the mortgaged property could may be carried on in a building or on a piece of land, and shall tend directly to meet
the needs of the said industry or works. B. Pollution Tank Nos. 1 and 2.
Reserve Water Tank and Swimming Pool
The chattels or the "after acquired properties" were placed in the real properties Waste Water Treatment Tank
mortgaged to the Bank. They came within the operation of Article 145. Elevated Concrete Water Tank
And other Improvements listed in Annex "A"
Hence, the "after acquired properties" were subject to the deed of mortgage. C. Power Plants Nos. 1 and 2
Fabrication Building
Various Fuel, Water Tanks and Pumps
Transformers

STAR TWO (SPV-AMC), INC., V PAPER CITY CORPORATION OF THE PHILIPPINES Annex "B"
D. D. Material Handling Equipment
FACTS Paper Plant No. 3
For review is a Petition for Review on Certiorari filed by Rizal Commercial Banking ● The MTI was later amended to increase the contributions of the RCBC and
Corporation now substituted by Star Two (SPV-AMC), Inc. Union Bank. As a consequence, they executed a Deed of Amendment to MTI but
still included as part of the mortgaged properties by way of a first mortgage the
● Respondent Paper City is a domestic corporation engaged in the various machineries and equipments located in and bolted to and/or forming part
manufacture of paper products. Paper City applied for and was granted loans and of buildings.
credit accommodations in peso and dollar denominations by RCBC secured by 4 ● A Second Supplemental Indenture to the MTI was executed to increase the
Deeds of Continuing Chattel Mortgages on its machineries and equipments found amount of the loan secured against the existing properties composed of land,
inside its paper plants. building, machineries and equipments and inventories described in Annexes "A"
● However, a unilateral Cancellation of Deed of Continuing Chattel Mortgage and "B."
on Inventory of Merchandise/Stocks-in-Trade was executed by RCBC over the ● Finally, a Third Supplemental Indenture to the MTI was executed to
merchandise and stocks-in-trade covered by the continuing chattel mortgages. increase the existing loan obligation with an additional security composed of a
● RCBC, Metrobank and Union Bank (creditor banks with RCBC instituted as newly constructed two-storey building and other improvements, machineries and
the trustee bank) entered into a Mortgage Trust Indenture (MTI) with Paper City. In equipments located in the existing plant site.
the said MTI, Paper City acquired an additional P170, 000,000.00 from the creditor ● Paper City was able to comply with its loan obligations but economic crisis
banks in addition to the previous loan from RCBC amounting to P110, 000,000.00. ensued which made it difficult for Paper City to meet the terms of its obligations
● The old loan of P110,000,000.00 was partly secured by various parcels of leading to payment defaults. Consequently, RCBC filed a Petition for Extrajudicial
land situated in Valenzuela City. The new loan obligation of P170,000,000.00 would Foreclosure.
be secured by the same five (5) Deeds of Real Estate Mortgage and additional real ● The petition was for the extra-judicial foreclosure of eight parcels of land
and personal properties described in an annex to MTI, Annex "B" which covered the including all improvements thereon which were sold in favor of the creditor banks
machineries and equipments of Paper City. RCBC, Union Bank and Metrobank as the highest bidders.
This foreclosure sale prompted Paper City to file a Complaint against the creditor
Annex "A" banks alleging that the extra-judicial sale of the properties and plants was null and
A. Office Building void due to lack of prior notice and attendance of gross and evident bad faith on the
Building 1, 2, 3, 4, and 5 part of the creditor banks.
Boiler House
Workers’ Quarter/Restroom Acting on the said motion, the trial court issued an Order denying the prayer and
Canteen ruled that the machineries and equipments were included in the annexes and form
Guardhouse, Parking Shed, Elevated Guard part of the MTI.
Post and other amenities
 equipments are surely part of the foreclosure of the "real estate properties, including
Paper City filed its Motion for Reconsideration which was favorably granted by the all improvements thereon" as prayed for in the petition.
trial court with justification that the disputed machineries and equipments are
chattels by agreement of the parties through their inclusion in the four Deeds of
Chattel Mortgage and the deed of cancellation executed by RCBC was not valid The real estate mortgage over the machineries and equipments is even in full accord
because it was done unilaterally and without the consent of Paper City. with the classification of such properties by the Civil Code of the Philippines as
immovable property. Thus:
The CA affirmed the Order.
Article 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
ISSUE (5) Machinery, receptacles, instruments or implements intended by the owner of the
Whether the subject machineries and equipments were included in the mortgage, tenement for an industry or works which may be carried on in a building or on a piece
extrajudicial foreclosure and in the consequent sale. of land, and which tend directly to meet the needs of the said industry or works;

RULING CONCLUSION
Yes. By contracts, all uncontested in this case, machineries and equipments are
included in the mortgage in favor of RCBC, in the foreclosure of the mortgage and in The petition is GRANTED.
the consequent sale on foreclosure also in favor of petitioner.

Repeatedly, the parties stipulated that the properties mortgaged by Paper City to G.R. No. 158891 June 27, 2012
RCBC are various parcels of land including the buildings and existing improvements PABLO P. GARCIA, Petitioner, vs. YOLANDA VALDEZ VILLAR, Respondent.
thereon as well as the machineries and equipments, which as stated in the granting
clause of the original mortgage, are "more particularly described and listed that is to Facts:
say, the real and personal properties listed in Annexes ‘A’ and ‘B’.”
Lourdes V. Galas (Galas) was the original owner of a piece of property
The plain language and literal interpretation of the MTIs must be applied. The (subject property), which she mortgaged to Yolanda Valdez Villar (Villar) as security
petitioner, other creditor banks and Paper City intended from the very first execution for a loan.
of the indentures that the machineries and equipments enumerated in Annexes "A"
and "B" are included. Obviously, with the continued increase in the amount of the Galas subsequently mortgaged the same subject property to Pablo P. Garcia
loan, totaling hundreds of millions of pesos, Paper City had to offer all valuable (Garcia) to secure another loan. Both mortgages were annotated on the subject
properties acceptable to the creditor banks. property’s TCT.

Galas thereafter sold the subject property to Villar. The Deed of Sale was
The MTIs did not describe the equipments and machineries as personal
property. Notably, while "personal" appeared in the granting clause of the original registered and, consequently, a new TCT was issued in the name of Villar. Both
MTI, the subsequent Deed of Amendment specifically stated that: Villar’s and Garcia’s mortgages were carried over and annotated on Villar’s new TCT.
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the
Garcia filed a Petition for Mandamus with Damages against Villar before the
improvements listed above and located on the parcels of land subject of the
RTC. Garcia subsequently amended his petition to a Complaint for Foreclosure of Real
Mortgage Trust Indenture and the Real Estate Mortgage.
Estate Mortgage with Damages and alleged that when Villar purchased the subject
Considering that the Indenture which is the instrument of the mortgage that was property, she acted in bad faith as she knowingly and willfully disregarded the laws
foreclosed exactly states through the Deed of Amendment that the machineries and on judicial and extrajudicial foreclosure of mortgaged property.
equipments listed in Annexes "A" and "B" form part of the improvements listed and
located on the parcels of land subject of the mortgage, such machineries and
 The RTC ruled in favor of Garcia and ordered Villar to pay the former the (1) There should be a property mortgaged by way of security for the payment of the
sum of P1.8M (the amount of the loan secured by the mortgage) plus legal interest. principal obligation; and
The RTC declared that the direct sale of the subject property to Villar, the first
mortgagee, could not operate to deprive Garcia of his right as a second
mortgagee. The RTC further explained that upon Galas’s failure to pay her obligation, (2) There should be a stipulation for automatic appropriation by the creditor of the
Villar should have foreclosed the subject property to provide junior mortgagees like thing mortgaged in case of non-payment of the principal obligation within the
Garcia the opportunity to satisfy their claims from the residue, if any, of the stipulated period.
foreclosure sale proceeds.
Villar’s purchase of the subject property did not violate the prohibition
Villar appealed and contended that the second mortgage is a void and on pactum commissorium. The power of attorney provision above did not provide
inexistent contract. The Court of Appeals reversed the RTC’s decision and declared that the ownership over the subject property would automatically pass to Villar upon
that Galas was free to mortgage the subject property even without Villar’s consent Galas’s failure to pay the loan on time. What it granted was the mere appointment
as the restriction that the mortgagees consent was necessary in case of a subsequent of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject
encumbrance was absent in the Deed of Real Estate Mortgage. However, the Court property, and to apply the proceeds to the payment of the loan. This provision is
of Appeals held that the sale of the subject property to Villar was valid as it found customary in mortgage contracts, and is in conformity with Article 2087 of the Civil
nothing in the records that would show that Galas violated the Deed of Real Estate Code, which reads:
Mortgage prior to the sale.
Art. 2087. It is also of the essence of these contracts that
Garcia appealed to the Supreme Court, with the same arguments he posited when the principal obligation becomes due, the things in which the
before the lower courts, but added that the Deed of Real Estate Mortgage contained pledge or mortgage consists may be alienated for the payment to
a stipulation, which is violative of the prohibition on pactum commissorium. the creditor.

Galas’s decision to eventually sell the subject property to Villar was well within the
scope of her rights as the owner of the subject property. The subject property was
Issue (relating to pactum commissorium):
transferred to Villar by virtue of another and separate contract, which is the Deed
Whether or not the sale of the subject property to Villar was in violation of of Sale. Garcia never alleged that the transfer of the subject property to Villar was
the prohibition on pactum commissorium automatic upon Galas’s failure to discharge her debt, or that the sale was simulated
to cover up such automatic transfer.

Ruling:
KOREA EXCHANGE BANK, petitioner, vs.
No. The sale of the subject property does not violate the prohibition on
FILKOR BUSINESS INTEGRATED, INC., KIM EUNG JOE, and LEE HAN
pactum commissorium.
SANG, respondents.
Ratio: G.R. No. 138292. April 10, 2002

Garcia claims that the stipulation appointing Villar, the mortgagee, FACTS: Respondent FILKOR had three transactions with the respondent KOREA
as the mortgagor’s attorney-in-fact, to sell the property in case of default in EXCHANGE BANK:
the payment of the loan, is in violation of the prohibition on pactum
commissorium, as stated under Article 2088 of the Civil Code. 1. Borrowed US$ 40,000.00, of which only US$ 40,000.00 was paid;

The following are the elements of pactum commissorium: 2. Executed nine (9) trust receipt but failed to turn over the proceeds of
the goods or the goods themselves; and
 3. Negotiated the proceeds of seventeen (17) letters of credit, which
were all dishonored because of discrepancies.

To secure payment for these obligations respondent FILKOR executed a Real ● In petitioner’s complaint before the trial court, petitioner alleges:
Estate Mortgage. It mortgaged to the bank the improvements it constructed on the
lot it was leasing in Cavite Export Processing Zone Authority. Respondents Kim Eung
To secure payment of the obligations of defendant Corporation
Joe and Lee Han Sang on their part executed a Continuing Suretyship binding
under the First to the Twenty-Seventh Cause of Action, on February
themselves jointly and severally with FILKOR to pay the obligations to the bank.
9, 1996, defendant Corporation executed a Real Estate Mortgage
When FILKOR breached all its obligations, petitioner KOREA EXCHANGE by virtue of which it mortgaged to plaintiff the improvements
BANK filed a civil case with the RTC of CAVITE. The petitioner sought to be paid for standing on Block 13, Lot 1, Cavite Export Processing Zone,
27 causes of action and that the mortgaged property be foreclosed and sold at a Rosario, Cavite, belonging to defendant Corporation covered by
public auction in case the respondent fails to pay within ninety days from the entry Tax Declaration No. 5906-1 and consisting of a one-story building
of judgment. called warehouse and spooling area, the guardhouse, the
cutting/sewing area building and the packing area building. (A
The trial court rendered a judgment in favor of the petitioner for all 27 copy of the Real Estate Mortgage is attached hereto as Annex “SS”
actions but failed to order the foreclosure and public auction of the mortgaged and made an integral part hereof.)
property in the event that FILKOR fails to pay its obligation. Petitioner filed a motion
for partial reconsideration seeking that the relief of foreclosure be granted but such ● This allegation satisfies in part the requirements of Section 1, Rule 68 of the
motion was denied saying that the petitioner in opting to file a civil action for the 1997 Rules of Civil Procedure on foreclosure of real estate mortgage, which
collection of the defendant’s obligation, has abandoned its mortgaged lien on the provides:
property subject of the real estate mortgage.
SECTION 1. Complaint in action for foreclosure. – In an action for
BASIS of TC’s DECISION: Danao vs. Court of Appeals, 154 SCRA 446, citing Manila the foreclosure of a mortgage or other encumbrance upon real
Trading and Supply Co. vs. Co Kim, et al., 71 Phil. 448 estate, the complaint shall set forth the date and due execution
“The rule is now settled that a mortgage creditor may elect to waive his security and of the mortgage; its assignments, if any; the names and
bring, instead, an ordinary action to recover the indebtedness with the right to residences of the mortgagor and the mortgagee; a description of
execute a judgment thereon on all the properties of the debtor including the subject the mortgaged property; a statement of the date of the note or
matter of the mortgage, subject to the qualification that if he fails in the remedy by other documentary evidence of the obligation secured by the
him elected, he cannot pursue further the remedy he has waived.” mortgage, the amount claimed to be unpaid thereon; and the
names and residences of all persons having or claiming an
ISSUE: (Assigned by petitioner) Whether or not the petitioner had abandoned the interest in the property subordinate in right to that of the holder
real estate mortgage in its favor, because it filed a simple collection case. NO of the mortgage, all of whom shall be made defendants in the
action.
(Resultant Issue) Whether or not petitioner’s complaint before the trial
court was an action for foreclosure of a real estate mortgage, or an action for ● Prayer of the complaint before the trial court reads as follows:
collection of a sum of money.
WHEREFORE, it is respectfully prayed that judgment be rendered:
HELD: It was an action for foreclosure of a real estate mortgage. Petitioner’s
x xx
allegations in its complaint, and its prayer that the mortgaged property be
foreclosed and sold at public auction, indicate that petitioner’s action was one for
foreclosure of real estate mortgage.
 2. Ordering that the property mortgaged be foreclosed and sold up in Credit Transactions. Second, and more related to our topic, would be the
at public auction in case defendants fail to pay plaintiff within nature of a counterclaim.
ninety (90) days from entry of judgment.

● Petitioner’s action being one for foreclosure of real estate mortgage the trial At bar is a petition assailing the Court of Appeals decision, setting aside the RTC
should have ordered the foreclosure and public auction of the mortgaged Makati decision that held that Huerta had the right to redeem property within a
property in the event that respondent Filkor fails to pay its outstanding one year period prescribed by Sec. 78 of RA 337, the General Banking Act.
obligations. This is pursuant to Section 2 of Rule 68 of the 1997 Rules of Civil
This section provides -- “in case of a foreclosure of a mortgage in favor of a bank,
Procedure, which provides:
banking or credit institution, whether judicially or extrajudicially, the mortgagor
shall have the right, within one year after the sale of the real estate as a result of
SEC. 2. Judgment on foreclosure for payment or sale.- If upon the
the foreclosure of the respective mortgage, to redeem the property.”
trial in such action the court shall find the facts set forth in the
complaint to be true, it shall ascertain the amount due to the Facts
plaintiff upon the mortgage debt or obligation, including interest
and other charges as approved by the court, and costs, and shall ■ SMGI (“Respondents”) filed a complaint for judicial foreclosure of
render judgment for the sum so found due and order that the same mortgage on Oct 19, 1989
o They sought to foreclose 4 parcels of land mortgaged by Huerta
be paid to the court or to the judgment obligee within a period of
(“petitioner”) to Intercon Fund Resource Inc (Intercon)
not less than ninety (90) days nor more than one hundred twenty
o Respondent instituted this as mortgagee-assignee (Intercon
(120) days from entry of judgment, and that in default of such assigned their rights at some point.)
payment the property shall be sold at public auction to satisfy the o The loan was P8.5M, secured by the subject parcels of land.
judgment. ■ In its answer, petitioner questioned
o Assignment of Intercon of the mortgage right (they said it was
ultra vires)
DISPOSITION: WHEREFORE, the petition is GRANTED The Order dated o The correctness of charges.
March 12, 1999, of the Regional Trial Court of Cavite City, Branch 88, in Civil ■ Petitioner lost and was ordered to pay the loan, plus interest and charges,
within 150 days from receipt of the order, else the properties would be
Case No. N-6689 is hereby MODIFIED, to state that the mortgaged property
sold to satisfy the debt.
of respondent Filkor be ordered foreclosed and sold at public auction in the ■ Petitioner appealed to the CA, which dismissed the case (late payment of
event said respondent fails to pay its obligations to petitioner within ninety docket fees).
(90) days from entry of judgment. ■ Petitioner then went to the SC, which also dismissed their complaint.
■ After these rulings, respondent filed with the original RTC a motion of
execution, which was granted.
o Thus, a notice of levy and execution was issued by the Sheriff
Huerta Alba Resort Inc, v. CA and Syndicated Management Grp, Inc. o He issued a notice of Sheriff’s sale for the auction of subject
properties.
Date: Sep. 1, 2000
■ Petitioner then filed a motion to quash and set aside the writ of execution,
Ponente: Purisima saying that the trial court acted with GAD.
■ It argued that the record of the case was still with the CA, and thus the writ
This is a fairly long case with two main discussion points. The first main point is the was premature
difference between equity of redemption and right of redemption, which we took o The 150 days period had not yet lapsed
o There was no default because respondent had not yet demanded
for payment.
■ RTC denied this, saying that the judgment had become final and executor ■ Hence, this petition.
o Execution thereof was a matter of right
o Writ of execution thus was its ministerial duty
■ Guess what? Petitioner appealed to the CA.
■ While the appeal was pending, the auction sale proceeded and
Issue
Respondent won the bidding.
o The certificate of sale was issued to it, and registered with the ■ w/n Huerta has the one year right of redemption under Sec 78 of RA 337 –
RoD. No.
■ After this, petitioner presented a “motion for clarification,” asking the trial Held
court if the 12 month period for redemption would apply
o RTC ruled that the period of redemption would have to follow the ■ Various decisions show that Huerta has been adjudged to have only the
rule on judicially foreclosed property (see Rule 68) Equity of Redemption, not the Right of Redemption (Court cited Limpin v.
o [The sale] shall operate to divest the rights in the property of all IAC)
the parties to the action and to vest their rights in the purchaser, o Right of Redemption – exists only in extrajudicial mortgage.
subject to such rights of redemption as may be allowed by law. ▪ No right recognized in judicial foreclosure unless
■ Thus, petitioner filed a motion to set aside this order, saying that it altered mortgagee is PNB or a banking institution
the earlier decision ▪ Mortgagor has one year from registration of sheriff’s
o First decision declared that satisfaction of judgment would be certificate of sale to redeem the property.
governed by the sale of real estate under execution (not Rule 68). o This does not exist in judicial foreclosure of the mortgagee is not a
■ Remember the CA? All this happened while the case was pending there, banking institution
diba? They held that the 150 day period of redemption should be ▪ The case here is mentioned above (Rule 68).
computed from the date of notification of entry of judgment – thus, it had ▪ What exists only now is the Equity of Redemption – right
expired on Sept. 11, 1994. of the mortgagor to extinguish the mortgage and retain
o The appeal was dismissed because the subject was already moot ownership by paying the debt within the 90 day period
and academic. after judgment becomes final.
■ They also dismissed the MR ● Rule 68, Sec 2 – [court] shall render judgment
o Even if it is true that Sec 78 of RA 337 (mentioned above) for the sum so found due and order the same to
prescribes a period of one year from the auction sale to redeem be paid into court within a period of not less
the property, petitioner never averred in its pleadings that it was than ninety (90) days from the date of the
entitled to this provision service of such order, and that in default of such
▪ Issue of whether SMGI was a credit institution was never payment the property be sold to realize the
brought squarely before the court. mortgage debt and costs.'
■ SMGI then filed a petition for writ of possession – it was here that Huerta ▪ This is the equity of redemption – it may even be
first claimed the right to redeem under the General Banking Act exercised beyond the 90 day period from date of service
o Original mortgagee, they said, was a credit institution, and the of the order, as long as its before the order of
assignment to SMGI did not remove the transaction from the confirmation of the sale. (After such order of
coverage of Sec 78 of RA 337. confirmation, there is no more redemption possible)
o Thus, they should have one year to redeem from registration of ■ Petitioner did not seasonably invoke its purported right under Sec 78 of RA
the auction sale. 337
o Thus, they said, the issuance of titles to SMGI was premature. o Earliest opportunity – when it submitted its answer to the
■ RTC denied the petition for writ of possession – they agreed (for the first complaint for foreclosure (essentially, they should have filed a
time EVER) with Huerta, saying that they had until Oct 21, 1995 to redeem counterclaim).
said parcels of land. ■ What is a Counterclaim? (in case he asks)
o SMGI challenged the order, and the CA overturned it
 o A cause of action existing in favor of the defendant against the GRAND FARMS, INC. v. CA, (1991)
plaintiff. (Extrajudicial Foreclosure: Requirement of Notice)
o It will, if established, defeat/qualify the judgment or relief to
which the plaintiff is entitled.
o Distinct/independent cause of action There has been no denial by private respondent that no personal
o Defendant, in respect to the counterclaim, becomes an actor notice of the extrajudicial foreclosure was ever sent to petitioners
▪ There exist 2 simultaneous actions, each party is at the prior thereto. This omission, by itself, rendered the foreclosure
same time a plaintiff and a defendant defective and irregular for being contrary to the express
▪ Represents the right of the defendant to have the claims
provisions of the mortgage contract. While private respondent
of the parties counterbalanced
▪ Counterclaim is essentially an independent action, and
was constituted as their attorney-in-fact by petitioners, the
should be treated as such. (tested by the same rules, inclusion of the aforequoted paragraph (k) in the mortgage
etc.) contract nonetheless rendered personal notice to the latter
■ The point? – Huerta should have asserted their right under Sec 78 of RA indispensable. An additional stipulation between the parties is
337 as a counterclaim in its answer. the law between them and as it not contrary to law, morals, good
o Counterclaims allow the whole controversy between parties to be customs and public policy, the same should be complied with
disposed of in one action faithfully (Article 1306, New Civil Code of the Philippines). Thus,
o The applicability of Sec 78 hinged on a factual question
while publication of the foreclosure proceedings in the newspaper
▪ Was Intercon a credit institution? – this was never
squarely brought before the court.
of general circulation was complied with, personal notice is still
▪ The claim of benefits under Sec 78 is in the nature of a required, as in the case at bar, when the same was mutually
compulsory counterclaim that should have been in the agreed upon by the parties as additional condition of the
answer to the complaint. mortgage contract. The extrajudicial foreclosure proceedings on
■ Failure of Huerta to assert this alleged right precludes it from doing so at the property in question are fatally defective and are not binding
the late stage of litigation on the deceased debtor-mortgagor or to his heirs.
o Estoppel may successfully be invoked.
o A party who failed to invoke his claim in the main case, while
having opportunity to do so, will be precluded from invoking this Purpose: intended for the mortgagors so that they may take
claim subsequently. the necessary legal steps for the protection of their interests
o Huerta should have alleged at the very start that Intercon was a such as the payment of the loan to prevent foreclosure or to
credit institution, in order for Sec 78 to apply. subsequently arrange for redemption of the property foreclosed.

MEDIDA, ET. AL V. CA, (1992)

(Who may Redeem)

Issue: WON a mortgagor, whose property has been

extrajudicially foreclosed and sold at the corresponding
foreclosure sale, may validly execute a mortgage contract over
the same property in favor of a third party during the period of
redemption. YES.
 becoming and acquiring the rights of a redemptioner, aside from
his right against the mortgagor.
Rules:
· If the purchaser at the foreclosure sale merely acquired an
inchoate right to the property which could ripen into ownership Held: In the case at bar what is presently involved is a
only upon the lapse of the redemption period without his credit mortgage, not a sale, to petitioner bank. Such mortgage does not
having been discharged. involve a transfer, cession or conveyance of the property but
· during that same period of twelve months the mortgagor is only constitutes a lien thereon. There is no obstacle to the legal
NOT "divested" of his ownership, otherwise the absurd result creation of such a lien even after the auction sale of the property
would be that the land will consequently be without an owner but during the redemption period.
although it remains registered in the name of the mortgagor.
· what is divested from the mortgagor is only his "full right as SPOUSES YAP v. SPOUSES DY (2011)
owner thereof to dispose (of) and sell the lands," - merely (How to redeem)
clarifying that the mortgagor does not have the unconditional Issue: To whom payment of the redemption money should be
power to absolutely sell the land since the same is encumbered by made?
a lien of a third person which, if unsatisfied, could result in a 1. purchaser or redemptioner, or
consolidation of ownership in the lienholder but only after the 2. for him to the officer who made the sale.
lapse of the period of redemption. Even on that score, it may
plausibly be argued that what is delimited is not the Section 31, Rule 39 of the Rules of Court:
mortgagor's jus dispodendi, as an attribute of ownership, but SEC. 31. Effect of redemption by judgment debtor, and a
merely the rights conferred by such act of disposal which may certificate to be delivered and recorded thereupon. To whom
correspondingly be restricted. payments on redemption made.—If the judgment debtor
· A redemptioner is defined as a creditor having a lien by redeem:
attachment, judgment or mortgage on the property sold, or on 1. he must make the same payments as are required to effect
some part thereof, subsequent to the judgment under which the a redemption by a redemptioner,
property was sold. 2. whereupon the effect of the sale is terminated and
· A property sold at a public auction, while within the period 3. he is restored to his estate, and
of redemption, may still be subsequently mortgaged by the 4. the person to whom the payment is made must execute and
mortgagor: Since the mortgagor remains as the absolute owner deliver to him a certificate of redemption acknowledged or
of the property during the redemption period and has the free approved before a notary public or other officer authorized to take
disposal of his property, there would be compliance with the acknowledgments of conveyances of real property.
requisites of Article 2085 of the Civil Code for the constitution Ø Such certificate must be filed and recorded in the office of the
of another mortgage on the property. To hold otherwise would registrar of deeds of the province in which the property is
create the inequitable situation wherein the mortgagor would be situated, and the registrar of deeds must note the record thereof
deprived of the opportunity, which may be his last recourse, to on the margin of the record of the certificate of sale.
raise funds wherewith to timely redeem his property through
another mortgage thereon.
· Effect: The proceeding pursuant to which the mortgaged Litonjua v. L & R Corporation:
property was sold, a subsequent mortgage could nevertheless be This Court declared valid the sale by the mortgagor of mortgaged
legally constituted thereafter with the subsequent mortgagee property to a third person notwithstanding the lack of written
consent by the mortgagee, and likewise recognized the third 3. written notice of the redemption must be served on the
person’s right to redeem the foreclosed property (for having officer who made the sale and a duplicate filed with the Register
assumed the obligation to pay the mortgage debt after buying the of Deeds of the province.
mortgaged property), to wit:
Therefore, such third person stepped into the shoes of the
mortgagor (seller) on account of such sale and was in effect, their
Doctrine of indivisibility of the mortgage
successor-in-interest. As such, it had the right to redeem the
does not apply once the mortgage is extinguished by a complete
property foreclosed by the mortgagee
foreclosure thereof as in the instant case.

Tambunting, clarifies that –

General Rule: Art. 2089, Civil Code
· The third persons, by stepping into the mortgagor’s shoes as
Art. 2089. A pledge or mortgage is indivisible, even though the
assignees, had the obligation to pay the mortgage debts,
debt may be divided among the successors in interest of the
otherwise, these debts would and could be enforced against the
debtor or of the creditor.
property subject of the assignment.
· Therefore, the debtor’s heir who has paid a part of the debt
· Stated otherwise, the Hernandezes, by the assignment,
cannot ask for the proportionate extinguishment of the pledge or
obtained the right to remove the burdens on the property subject
mortgage as long as the debt is not completely satisfied.
thereof by paying the obligations thereby secured; that is to say:
· Neither can the creditor’s heir who received his share of the
a) they had the right of redemption as regards the first
debt return the pledge or cancel the mortgage, to the prejudice of
mortgage, to be exercised within the time and in the manner
the other heirs who have not been paid.
prescribed by law and the mortgage deed; and
b) as regards the second mortgage, sought to be judicially
foreclosed but yet unforeclosed, they had the so-called equity of Exception: The case in which, there being several things given
redemption.” in mortgage or pledge, each one of these guarantees only a
determinate portion of the credit.
· The debtor, in this case, shall have a right to the
The requisites for a valid redemption:
extinguishment of the pledge or mortgage as the portion of the
1. the redemption must be made within 12 months from the
debt for which each thing is specially answerable is satisfied.
time of the registration of the sale in the Office of the Register of
Deeds;
2. payment of the: What the law (Art. 2089) proscribes:
a) purchase price of the property involved, ü is the foreclosure of only a portion of the property or a number
b) plus 1% interest per month thereon in addition, up to the of the several properties mortgaged corresponding to the unpaid
time of redemption, portion of the debt where before foreclosure proceedings partial
c) together with the amount of any assessments or taxes which payment was made by the debtor on his total outstanding loan or
the purchaser may have paid thereon after the purchase, obligation.
d) also with 1% interest on such last named amount; and ü 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 a SUICO v. PNB (2007)
partial fulfillment of the obligation. Right to Surplus
ü Hence, it is provided that the debtor who has paid a part of the
debt cannot ask for the proportionate extinguishment of the
Notice of Sheriff’s Sale
mortgage as long as the debt is not completely satisfied.
Purpose: Notices are given for the purpose of securing bidders
and to prevent a sacrifice of the property. If these objects are
Once the mortgage is extinguished by a complete foreclosure attained, immaterial errors and mistakes will not affect the
thereof, said doctrine of indivisibility ceases to apply since, with sufficiency of the notice; but if mistakes or omissions occur in
the full payment of the debt, there is nothing more to secure. the notices of sale, which are calculated to deter or mislead
bidders, to depreciate the value of the property, or to prevent it
from bringing a fair price, such mistakes or omissions will be
Piecemeal redemption, allowed.
fatal to the validity of the notice, and also to the sale made
Nothing in the law prohibits the piecemeal redemption of
pursuant thereto.
properties sold at one foreclosure proceeding. In fact, in several
early cases decided by this Court, the right of the mortgagor or
Effect of the non-delivery of the bid price or the surplus
redemptioner to redeem one or some of the foreclosed properties
to the mortgagor
was recognized:
Rule 39 of the Rules of Court on extrajudicial foreclosure sale
provide:
Castillo v. Nagtalon: ten parcels of land were sold at public SEC. 21. Judgment obligee as purchaser. – When the
auction. Nagtalon, who owned three of the ten parcels of land purchaser is the judgment obligee, and no third-party claim has
sold, wanted to redeem her properties. Though the amount she been filed, he need not pay the amount of the bid if it does
tendered was found as insufficient to effectively release her not exceed the amount of his judgment. If it does, he
properties, the Court held that the tender of payment was made shall pay only the excess.
timely and in good faith and thus, in the interest of justice,
Nagtalon was given the opportunity to complete the redemption
SEC. 39. Obligor may pay execution against obligee. – After a
purchase of three of the ten parcels of land foreclosed.
writ of execution against property has been issued, a person
indebted to the judgment obligor may pay to the sheriff holding
the writ of execution the amount of his debt or so much thereof
as may be necessary to satisfy the judgment, in the manner
Held: Clearly, the Dys and Maxinos can effect the redemption
prescribed in section 9 of this Rule, and the sheriff’s receipt shall
of even only two of the five properties foreclosed. And since they
be a sufficient discharge for the amount so paid or directed to be
can effect a partial redemption, they are not required to pay
credited by the judgment obligee on the execution.
the P216,040.93 considering that it is the purchase price for all
the five properties foreclosed.

Issue: Considering the amount of PNB’s bid of P8,511,000.00

as against the amount of the petitioners’ obligation
ofP1,991,770.38 in the Notice of Sale, is the PNB obliged to concerns the unconsumed balance, the mortgagee is deemed a
deliver the excess? YES. trustee for the mortgagor or owner of the equity of redemption.

Rule 68, Section 4 of the Rules of Court provides:

Effect: Thus it has been held that if the mortgagee is retaining
SEC. 4. Disposition of proceeds of sale.- The amount
more of the proceeds of the sale than he is entitled to, this fact
realized from the foreclosure sale of the mortgaged property
alone will not affect the validity of the sale but simply give the
shall, after deducting the costs of the sale, be paid to the person
mortgagor a cause of action to recover such surplus.
foreclosing the mortgage, and when there shall be any balance or
residue, after paying off the mortgage debt due, the same shall be
paid to junior encumbrancers in the order of their priority, to be
ascertained by the court, or if there be no such encumbrancers or CUA LAICHU, ET AL., v. LAQUI & PBCOMM., (2010)
there be a balance or residue after payment to them, then to the After Consolidation of Ownership, Rules of Court, Rule 39, Sec.
mortgagor or his duly authorized agent, or to the person entitled 33
to it. Issue: Whether the writ of possession was properly issued
despite the pendency of a case questioning the validity of the
extrajudicial foreclosure sale and despite the fact that
Under the above rule, the disposition of the proceeds of the sale
petitioners were declared in default in the proceeding for the
in foreclosure shall be as follows:
issuance of a writ of possession. YES.
1. first, pay the costs
2. secondly, pay off the mortgage debt
3. thirdly, pay the junior encumbrancers, if any in the order of Ø Petitioners point out that the issuance of a writ of possession
priority will deprive them not only of the use and possession of their
4. fourthly, give the balance to the mortgagor, his agent or the property, but also of its ownership.
person entitled to it. Ø Private respondent argues that the issuance of a writ of
possession may not be stayed by a pending case questioning the
validity of the extrajudicial foreclosure sale.
Based on the foregoing, after payment of the costs of suit and
satisfaction of the claim of the first mortgagee/senior mortgagee,
Banco Filipino Savings and Mortgage Bank v. Pardo
the claim of the second mortgagee/junior mortgagee may be
Ruled on the right to possession of a purchaser at an extrajudicial
satisfied from the surplus proceeds.
foreclosure of a mortgage. This case involved a REM as security
· The application of the proceeds from the sale of the
for a loan obtained from a bank. Upon the mortgagor’s default,
mortgaged property to the mortgagor’s obligation is an act of
the bank extrajudicially foreclosed the mortgage. At the auction
payment, not payment by dacion; hence, it is the mortgagee’s
sale, the bank was the highest bidder. A certificate of sale was duly
duty to return any surplus in the selling price to the
issued and registered. The bank then applied for the issuance of a
mortgagor.
writ of possession, which the lower court dismissed. The Court
· A mortgagee who exercises the power of sale contained in a
reversed the lower court and held that the purchaser at the
mortgage is considered a custodian of the fund and, being bound
auction sale was entitled to a writ of possession pending the lapse
to apply it properly, is liable to the persons entitled thereto if he
of the redemption period upon a simple motion and upon the
fails to do so. And even though the mortgagee is not strictly
posting of a bond.
considered a trustee in a purely equitable sense, but as far as
 Held: Since the foreclosed property was not redeemed within
one year from the registration of the extrajudicial foreclosure
Navarra v. CA
sale, private respondent had acquired an absolute right, as
the purchaser at an extrajudicial foreclosure sale applied for a
purchaser, to the writ of possession. It had become the
writ of possession after the lapse of the one-year redemption
ministerial duty of the lower court to issue the writ of possession
period. The Court ruled that the purchaser at an extrajudicial
upon mere motion pursuant to Section 7 of Act No. 3135, as
foreclosure sale has a right to the possession of the property even
amended. Moreover, once ownership has been consolidated,
during the one-year redemption period provided the purchaser
the issuance of the writ of possession becomes a ministerial duty
files an indemnity bond. After the lapse of the said period with
of the court, upon proper application and proof of title. In the
no redemption having been made, that right becomes absolute
present case, when private respondent applied for the issuance
and may be demanded by the purchaser even without the posting
of a writ of possession, it presented a new TCT issued in its
of a bond. Possession may then be obtained under a writ which
name. The right of private respondent to the possession of the
may be applied for ex parte pursuant to Section 7 of Act No. 3135,
property was thus founded on its right of ownership. As the
as amended by Act No. 4118, thus:
purchaser of the property at the foreclosure sale, in whose name
title over the property was already issued, the right of private
SEC. 7. In any sale made under the provisions of this Act, respondent over the property had become absolute, vesting in it
the purchaser may petition the RTC of the province or place the corollary right of possession.
where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing
Questioning the validity of the extrajudicial foreclosure sale,
bond in an amount equivalent to the use of the property for a
remedy:
period of twelve months, to indemnify the debtor in case it be
not later than 30 days after the purchaser was given
shown that the sale was made without violating the mortgage or
possession, petition to:
without complying with the requirements of this
1. to have the sale set aside and
Act. Such petition:
2. the writ of possession cancelled
1. shall be made under oath and filed in form of an ex
3. specifying the damages suffered by him, because the
parte motion and
mortgage was not violated or the sale was not made in
2. the court shall, upon approval of the bond, order that a writ
accordance with the provisions hereof. (Section 8 of Act No.
of possession issue, addressed to the sheriff of the province in
3135)
which the property is situated, who shall execute said order
immediately.
· Such question should not be raised as a justification for
opposing the issuance of a writ of possession since under Act No.
Facts: The certificate of sale of the foreclosed property was
3135, as amended, the proceeding for this is ex parte.
annotated on the TCT on 7 June 2002. The redemption period
Petitioners cannot oppose or appeal the court’s order granting the
thus lapsed on 7 June 2003, one year from the registration of
writ of possession in an ex parte proceeding.
the sale. When private respondent applied for the issuance of a
· Further, the right to possession of a purchaser at an
writ of possession on 18 August 2004, the redemption period
extrajudicial foreclosure sale is not affected by a pending case
had long lapsed.
questioning the validity of the foreclosure proceeding. The latter
is not a bar to the former. Even pending such latter proceeding,
the purchaser at a foreclosure sale is entitled to the possession of BPI FAMILY SAVINGS BANK, INC. v. GOLDEN POWER
the foreclosed property. DIESEL SALES CENTER (2011)

When Held by a Third Party, Rules of Court, Rule 39, Sec. 33,
Sec. 16

BPI Family argues that respondents cannot be considered “a

third party who is claiming a right adverse to that of the debtor
or mortgagor” because respondents, as vendee, merely stepped c) of any other real property encumbered with a mortgage
into the shoes of CEDEC, the vendor and judgment obligor. duly registered in the office of any register of deeds in
According to BPI Family, respondents are mere extensions or accordance with any existing law,
successors-in-interest of CEDEC. BPI Family also argues that d) and in each case the clerk of the court shall, upon the filing
the pendency of an action questioning the validity of a mortgage of such petition, collect the fees specified in paragraph 11 of Sec.
or auction sale cannot be a ground to oppose the 114 of Act No. 496, as amended by Act No. 2866, and
implementation of a writ of possession. 5. the court shall, upon approval of the bond, order that a
writ of possession issue, addressed to the sheriff of the province
in which the property is situated, who shall execute said order
On the other hand, respondents insist that they are third
immediately.
persons who claim rights over the properties adverse to CEDEC.
Respondents argue that the obligation of the court to issue an ex
parte writ of possession in favor of the purchaser in an Note: This procedure may also be availed of by the purchaser
extrajudicial foreclosure sale ceases to be ministerial once it seeking possession of the foreclosed property bought at the
appears that there is a third party in possession of the property public auction sale after the redemption period has expired
who is claiming a right adverse to that of the judgment obligor. without redemption having been made.

In extrajudicial foreclosures of real estate mortgages, the issuance China Banking Corporation v. Lozada
of a writ of possession is governed by Sec. 7 of Act No. 3135, as · It is thus settled that the buyer in a foreclosure sale becomes
amended, which provides: the absolute owner of the property purchased if it is not redeemed
SEC. 7. In any sale made under the provisions of this Act, the during the period of one year after the registration of the sale. As
purchaser may such, he is entitled to the possession of the said property and can
1. petition the RTC of the province or place where the demand it at any time following the consolidation of ownership
property or any part thereof is situated, to give him possession in his name and the issuance to him of a new transfer certificate
thereof during the redemption period, of title.
2. furnishing bond in an amount equivalent to the use of the · The buyer can in fact demand possession of the land even
property for a period of twelve months, to indemnify the during the redemption period except that he has to post a bond
debtor in case it be shown that the sale was: in accordance with Section 7 of Act No. 3135, as amended.
a) made without violating the mortgage or · No such bond is required after the redemption period if the
b) without complying with the requirements of this Act. property is not redeemed. Possession of the land then becomes
3. Such petition shall be made under oath and an absolute right of the purchaser as confirmed owner. Upon
4. filed in form of an ex parte motion proper application and proof of title, the issuance of the writ of
a) in the registration or cadastral proceedings if the property possession becomes a ministerial duty of the court.
is registered, or
b) in special proceedings in the case of property registered
Writ of Posession
under the Mortgage Law or under Sec. 194 of the Administrative
GR: A purchaser in a public auction sale of a foreclosed
Code, or
property is entitled to a writ of possession and, upon an ex
parte petition of the purchaser, it is ministerial upon the trial
court to issue the writ of possession in favor of the purchaser.
 be stayed and a hearing shall be conducted to determine their
E: Section 33, Rule 39 of the Rules of Court provides: ownership.
Section 33. Deed and possession to be given at expiration of
redemption period; by whom executed or given.
Respondentsʼ argument fails to persuade the Court. It is clear
Upon the expiration of the right of redemption, the purchaser that respondents acquired possession over the properties
or redemptioner shall be substituted to and acquire all the pursuant to the Deed of Sale which provides that for P15,000,000
rights, title, interest and claim of the judgment obligor to the CEDEC will “sell, transfer and convey” to respondents the
property as of the time of the levy. The possession of the properties “free from all liens and encumbrances excepting the
property shall be given to the purchaser or last redemptioner by mortgage as may be subsisting in favor of the BPI FAMILY
the same officer unless a third party is actually holding SAVINGS BANK.” Moreover, the Deed of Sale provides that
the property adversely to the judgment obligor. respondents bind themselves to assume “the payment of the
unpaid balance of the mortgage indebtedness of the VENDOR
(CEDEC) amounting to P7,889,472.48, as of July 31, 1998, in
Foreclosed property held by the third party adversely to favor of the aforementioned mortgagee (BPI Family) by the
the judgment obligor mortgage instruments and does hereby further agree to be bound
· Therefore, in an extrajudicial foreclosure of real property, by the precise terms and conditions therein contained.”
when the foreclosed property is in the possession of a third party
holding the same adversely to the judgment obligor, the issuance
by the trial court of a writ of possession in favor of the purchaser Roxas v. Buan
of said real property ceases to be ministerial and may no longer It will be recalled that Roxasʼ possession of the property was
be done ex parte. premised on its alleged sale to him by Valentin for the amount
· Procedure: is for the trial court to order a hearing to of P100,000.00. Assuming this to be true, it is readily apparent
determine the nature of the adverse possession. For the exception that Roxas holds title to and possesses the property
to apply, however, the property need not only be possessed by a as Valentinʼ s transferee. Any right he has to the property is
third party, but also held by the third party adversely to the necessarily derived from that of Valentin. As transferee, he steps
judgment obligor. into the latterʼ s shoes. Thus, in the instant case, considering that
the property had already been sold at public auction pursuant to
an extrajudicial foreclosure, the only interest that may be
Facts: BPI Family invokes the general rule that they are transferred by Valentin to Roxas is the right to redeem it within
entitled to a writ of possession because respondents are mere the period prescribed by law. Roxas is therefore the successor-in-
successors-in-interest of CEDEC and do not possess the interest of Valentin, to whom the latter had conveyed his interest
properties adversely to CEDEC. Respondents, on the other in the property for the purpose of redemption.
hand, assert the exception and insist that they hold the
Consequently, Roxasʼ occupancy of the property cannot be
properties adversely to CEDEC and that their possession is a
considered adverse to Valentin.
sufficient obstacle to the ex parte issuance of a writ of
possession in favor of BPI Family.
Held: In this case, respondentsʼ possession of the properties
Issue: WON respondents are third party adversely to the was premised on the sale to them by CEDEC for the amount
judgment obligor so that the issuance of a writ of execution may of P15,000,000. Therefore, respondents hold title to and possess
the properties as CEDECʼ s transferees and any right they have
over the properties is derived from CEDEC. As transferees of
CEDEC, respondents merely stepped into CEDEC’s shoes and are
necessarily bound to acknowledge and respect the mortgage
CEDEC had earlier executed in favor of BPI Family. Respondents
are the successors-in-interest of CEDEC and thus,
respondentsʼ occupancy over the properties cannot be
considered adverse to CEDEC.

China Bank v. Lozada

We discussed the meaning of “a third party who is actually
holding the property adversely to the judgment
obligor.” We stated:
The exception provided under Section 33 of Rule 39 of the
Revised Rules of Court contemplates a situation in which a third
party holds the property by adverse title or right, such as that of a
co-owner, tenant or usufructuary. The co-owner,
agricultural tenant, and usufructuary possess the property in
their own right, and they are not merely the successor or
transferee of the right of possession of another co-owner or the
owner of the property.

In this case, respondents cannot claim that their right to

possession over the properties is analogous to any of these.
Respondents cannot assert that their right of possession is
adverse to that of CEDEC when they have no independent right
of possession other than what they acquired from CEDEC. Since
respondents are not holding the properties adversely to CEDEC,
being the latterʼ s successors-in-interest, there was no reason for
the trial court to order the suspension of the implementation of
the writ of possession.

Question of validity of foreclosure sale

Furthermore, it is settled that a pending action for annulment of
mortgage or foreclosure sale does not stay the issuance of the writ
of possession. The trial court, where the application for a writ of
possession is filed, does not need to look into the validity of the
mortgage or the manner of its foreclosure. The purchaser is
entitled to a writ of possession without prejudice to the outcome
of the pending annulment case.
 In the early case of Bischoff v. Pomar and Cia. General de
Tabacos, the Court ruled that even if the machinery in question
was not included in the mortgage expressly, Article 111 of the
old Mortgage Law provides that chattels permanently located
STAR TWO (SPV-AMC), INC. V. PAPER CITY CORP. OF in a building, either useful or ornamental, or for the service of
THE PHIL., 2013 some industry even though they were placed there after the
Effect and Extent, Art. 2126, Art. 2127, Art. 2129 creation of the mortgage shall be considered as mortgaged with
the estate, provided they belong to the owner of said estate.
Law and jurisprudence provide and guide that even if not
expressly so stated, the mortgage extends to the improvements. The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co. relied on
Article 2127 of the Civil Code provides: this provision. The issue was whether the machineries and
Art. 2127. The mortgage extends: accessories were included in the mortgage and the subsequent
1. to the natural accessions, sale during public auction. This was answered in the affirmative
2. to the improvements, by the Court when it ruled that the machineries were integral
3. growing fruits, and parts of said sugar central hence included following the principle
4. the rents or income not yet received when the obligation of law that the accessory follows the principal.
becomes due, and
5. to the amount of the indemnity granted or owing to the
Further, in the case of Manahan v. Hon. Cruz, this Court denied
proprietor from the insurers of the property mortgaged, or
the prayer of Manahan to nullify the order of the trial court
6. in virtue of expropriation for public use, with the
including the building in question in the writ of possession
declarations, amplifications and limitations established by law,
following the public auction of the parcels of land mortgaged to
whether the estate remains in the possession of the mortgagor, or
the bank. It upheld the inclusion by relying on the principles laid
it passes into the hands of a third person.
upon in Bischoff v. Pomar and Cia. General de Tabacos and Cu
Unjieng e Hijos v. Mabalacat Sugar Co.
 Magdalena V. Reyes (Reyes) owned a piece of titled land1 in Pilar
Village, Las Piñas City. On August 17, 1979 she got a housing loan from
Held: Contrary to the finding of the CA, the Extra-Judicial respondent Social Security System (SSS) for which she mortgaged her land.
Foreclosure of Mortgage includes the machineries and In late 1979, however, she asked the petitioner spouses Antonio and Leticia
equipments of respondent. While captioned as a "Petition for Vega (the Vegas) to assume the loan and buy her house and lot since she
wanted to emigrate.
Extra-Judicial Foreclosure of Real Estate Mortgage Under Act
No. 3135 As Amended," the averments state that the petition is
Upon inquiry with the SSS, an employee there told the Vegas that the
based on the Indenture duly notarized and entered. The petition SSS did not approve of members transferring their mortgaged homes. The
for foreclosure prayed that a foreclosure proceedings on the Vegas could, however, simply make a private arrangement with Reyes
aforesaid real properties, including all improvements thereon provided they paid the monthly amortizations on time. This practice, said the
covered by the real estate mortgage be undertaken and the SSS employee, was commonplace. Armed with this information, the Vegas
appropriate auction sale be conducted. Considering that the agreed for Reyes to execute in their favor a deed of assignment of real property
with assumption of mortgage and paid Reyes P20,000.00 after she undertook
Indenture which is the instrument of the mortgage that was to update the amortizations before leaving the country. The Vegas then took
foreclosed exactly states through the Deed of Amendment that possession of the house in January 1981.
the machineries and equipments listed in Annexes "A" and "B"
form part of the improvements listed and located on the parcels But Reyes did not readily execute the deed of assignment. She left the
of land subject of the mortgage, such machineries and country and gave her sister, Julieta Reyes Ofilada (Ofilada), a special power
equipments are surely part of the foreclosure of the "real estate of attorney to convey ownership of the property. Sometime between 1983 and
1984, Ofilada finally executed the deed promised by her sister to the Vegas.
properties, including all improvements thereon" as prayed for in
Ofilada kept the original and gave the Vegas two copies. The latter gave one
the petition. copy to the Home Development Mortgage Fund and kept the other.
1âwphi1 Unfortunately, a storm in 1984 resulted in a flood that destroyed the copy left
with them.

The real estate mortgage over the machineries and equipments is In 1992, the Vegas learned that Reyes did not update the
even in full accord with the classification of such properties by the amortizations for they received a notice to Reyes from the SSS concerning
Civil Code of the Philippines as immovable property. Thus: it. They told the SSS that they already gave the payment to Reyes but, since
Article 415. The following are immovable property: it appeared indifferent, on January 6, 1992 the Vegas updated the amortization
(1) Land, buildings, roads and constructions of all kinds adhered themselves and paid P115,738.48 to the SSS, through Antonio Vega’s
personal check. They negotiated seven additional remittances and the SSS
to the soil;
acceptedP8,681.00 more from the Vegas.
xxxx
(5) Machinery, receptacles, instruments or implements intended Meanwhile, on April 16, 1993 respondent Pilar Development
by the owner of the tenement for an industry or works which may Corporation (PDC) filed an action for sum of money against Reyes before the
be carried on in a building or on a piece of land, and which tend Regional Trial Court (RTC) of Manila in Civil Case 93-6551. PDC claimed that
directly to meet the needs of the said industry or works; Reyes borrowed from Apex Mortgage and Loans Corporation
(Apex) P46,500.00 to buy the lot and construct a house on it. Apex then
assigned Reyes’ credit to the PDC on December 29, 1992, hence, the suit by
CASE DIGEST: PDC for the recovery of the unpaid debt. On August 26, 1993 the RTC
SPS. ANTONIO vs. SSS rendered judgment, ordering Reyes to pay the PDC the loan of P46,398.00
plus interest and penalties beginning April 11, 1979 as well as attorney’s fees
FACTS: and the costs. Unable to do so, on January 5, 1994 the RTC issued a writ of
execution against Reyes and its Sheriff levied on the property in Pilar Village.
 On February 16, 1994 the Vegas requested the SSS to acknowledge ISSUE:
their status as subrogees and to give them an update of the account so they
could settle it in full. The SSS did not reply. Meantime, the RTC sheriff Whether or not Article 1237 of the Civil Code is applicable in the case
published a notice for the auction sale of the property on February 24, March at bar.
3 and 10, 1994. He also served on the Vegas notice of that sale on or about
March 20, 1994. On April 5, 1994, the Vegas filed an affidavit of third party HELD:
claimant and a motion for leave to admit a motion in intervention to quash the
levy on the property.
No.
Still, stating that Vegas’ remedy lay elsewhere, the RTC directed the
sheriff to proceed with the execution. Meantime, the Vegas got a telegram Article 1237. Whoever pays on behalf of the debtor without the
dated August 29, 1994, informing them that the SSS intended to foreclose on knowledge or against the will of the latter, cannot compel the creditor to
the property to satisfy the unpaid housing debt of P38,789.58. On October 19, subrogate him in his rights, such as those arising from a mortgage, guaranty,
1994 the Vegas requested the SSS in writing for the exact computation of the or penalty. (1159a)
indebtedness and for assurance that they would be entitled to the discharge
of the mortgage and delivery of the proper subrogation documents upon But Article 1237 cannot apply in this case since Reyes consented to
payment. They also sent aP37,521.95 manager’s check that the SSS refused the transfer of ownership of the mortgaged property to the Vegas. Reyes also
to accept. agreed for the Vegas to assume the mortgage and pay the balance of her
obligation to SSS. Of course, paragraph 4 of the mortgage contract covering
On November 8, 1994 the Vegas filed an action for consignation, the property required Reyes to secure SSS’ consent before selling the
damages, and injunction with application for preliminary injunction and property. But, although such a stipulation is valid and binding, in the sense that
temporary restraining order against the SSS, the PDC, the sheriff of RTC the SSS cannot be compelled while the loan was unpaid to recognize the sale,
Branch 19, and the Register of Deeds before the RTC of Las Piñas. Still, while it cannot be interpreted as absolutely forbidding her, as owner of the
the case was pending, the SSS released the mortgage to the PDC. And on mortgaged property, from selling the same while her loan remained unpaid.
August 22, 1996 the Register of Deeds issued TCT T-56657 to the PDC. A writ Such stipulation contravenes public policy, being an undue impediment or
of possession subsequently evicted the Vegas from the property. interference on the transmission of property.30

On May 8, 2002 the RTC decided Civil Case 94-2943 in favor of the Besides, when a mortgagor sells the mortgaged property to a third
Vegas. It ruled that the SSS was barred from rejecting the Vegas’ final payment person, the creditor may demand from such third person the payment of the
of P37, 521.95 and denying their assumption of Reyes’ debt, given the SSS’ principal obligation. The reason for this is that the mortgage credit is a real
previous acceptance of payments directly from them. The Vegas were right, which follows the property wherever it goes, even if its ownership
subrogated to the rights of Reyes and substituted her in the SSS housing loan changes. Article 2129 of the Civil Code gives the mortgagee, here the SSS,
and mortgage contract. That the Vegas had the receipts show that they were the option of collecting from the third person in possession of the mortgaged
the ones who made those payments. The RTC ordered the PDC to deliver to property in the concept of owner. More, the mortgagor-owner’s sale of the
the Vegas the certificate of title covering the property. It also held the SSS and property does not affect the right of the registered mortgagee to foreclose on
PDC solidarily liable to the Vegas for P300, 000.00 in moral damages, P30, the same even if its ownership had been transferred to another person. The
000.00 in exemplary damages, and P50, 000.00 in attorney’s fees and for latter is bound by the registered mortgage on the title he acquired.
costs of the suit.
After the mortgage debt to SSS had been paid, however, the latter
The SSS appealed to the Court of Appeals. The CA ruled that, under had no further justification for withholding the release of the collateral and the
Article 1237 of the Civil Code, the Vegas who paid the SSS amortizations registered title to the party to whom Reyes had transferred her right as owner.
except the last on behalf of Reyes, without the latter’s knowledge or against Under the circumstance, the Vegas had the right to sue for the conveyance to
her consent, cannot compel the SSS to subrogate them in her rights arising them of that title, having been validly subrogated to Reyes’ rights.
from the mortgage. Further, said the CA, the Vegas’ claim of subrogation was
invalid because it was done without the knowledge and consent of the SSS as SPS. FELINO S. SAMATRA and CHARLITA ISIDRO, petitioners, vs.
required under the mortgage agreement.
RITA S. VDA. DE PARIAS, respondent. CASE DIGEST:

and Macaria Sana, to the Rural Bank of Sto. Domingo, Nueva Ecija to PCI LEASING v.TROJAN METAL INDUSTRIES
secure their loans. While the mortgages were still subsisting, mortgagor
Donato executed a "Kasunduang Buwisan sa Sakahan" constituting his
FACTS: TMI came to PCI to seek a loan. Instead of extending a loan, PCI
daughter, respondent Rita, as agricultural lessee over the mortgaged lots,
offered to buy various equipment TMI owned, in exchange for P2.8M.
without the consent of the mortgagee bank.
Deeds of sale were executed.
When the mortgagors-spouses failed to pay their loans upon maturity,
the mortgagee bank extrajudicially foreclosed the mortgages over the PCI and TMI then entered into a lease agreement:
subject lots. At a public auction, the lots were sold to the mortgagee bank. - lease the equipment it previously owned
Respondent continued in possession of the lands. Thereafter, it was - postdated checks for 24 monthly installments
agreed that respondent would buy back the lots but she failed to do so. - guaranty deposit of P1.03M (security for timely performance of
Consequently, the bank sold the lots to petitioners. Respondent filed an TMI's obligations under the lease agreement, to be automatically
agrarian case with the RTC against the mortgagee bank and the forfeited should TMI return the leased equipment before expiration of the
petitioners. The trial court decided in favor of petitioners. On appeal, the lease agreement)
Court of Appeals ruled that respondent is a bonafide lessee, but denied - Sps. Dizon (President and Vice-President of TMI) also executed
her the right of pre-emption as she was already given by the bank in favor of PCI a Continuing Guaranty of Lease Obligations (agreed to
sufficient opportunity to exercise it but she failed to avail of it. Petitioners' immediately pay obligations in case TMI failed, under the lease
motion for reconsideration was denied. Hence, this petition. agreement)

HELD: In setting aside the decision of the Court of Appeals, the Supreme However, to obtain additional loan from another financing company, TMI
Court held that: (a) a real estate mortgage does not extinguish the title of used the leased equipment as temporary collateral.
the debtor; (b) the legal question of agricultural leasehold relationship
cannot be made to depend on mere certifications issued by the president PCI considered the 2nd mortgage a violation of the lease agreement. PCI
or officers of associations and organizations; and (c) respondent is not a sent TMI a demand letter for payment of the latter's outstanding
bonafide agricultural lessee of the subject lands for failure to prove the obligation, which was unheeded.
important element of personal cultivation.

The Supreme Court affirmed the award of actual damages to petitioners PCI filed in the RTC a complaint against TMI and sps. Dizon for recovery
and the deletion of the award of attorney's fees and litigation expenses. of sum of money and personal property, with prayer for the issuance of a
writ of replevin.
SYLLABUS
RTC issued the writ of replevin. PCI sold the leased equipment to a third
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; REAL ESTATE party and collected the proceeds amounting to P1.025M
MORTGAGE; A STIPULATION FORBIDDING THE OWNER FROM
ALIENATING THE IMMOVABLE MORTGAGED PROPERTY IS VOID. — Respondent claimed that the sale with lease agreement was a mere
The Court of Appeals correctly applied Article 2130 of the Civil Code scheme to facilitate the financial lease between PCI and TMI, and that the
which renders void any stipulation forbidding the owner from alienating true agreement between them was a loan secured by a chattel mortgage.
the immovable mortgaged (pacto de non aliendo) property. It is settled
that a real estate mortgage does not extinguish the title of the debtor. He RTC: Lease agreement is valid; judgment in favor of PCI
does not lose his right to use or dispose of the mortgaged property (jus
disponendi) which is one of the principal attributes of ownership. Thus, in CA: Set aside the decision of the RTC; sale with lease was a loan secured
the case at bar, the mortgagor-spouses were well within their rights when by chattel mortgage
they constituted respondent as an agricultural lessee and the legality of Directed PCI to refund P1.1M to TMI
the leasehold contract cannot be validly assailed on this ground.
ISSUE/HELD: WON the sale with lease agreement the parties entered ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA
into was a financial lease or a loan secured y the chattel mortgage - PAC, petitioners, vs. HON. COURT OF APPEALS, PRODUCERS BANK
OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN
Petitioner (PCI): transaction between the parties was a sale and CITY, respondents
leaseback financing arrangement, which is not contrary to law, morals,
good customs, public order or public policy; guaranty deposit should be CASE DIGEST:
forfeited in its favor, as provided in the lease agreement FACTS:
Petitioner Chua Pac, the president and general manager of co-petitioner
Respondents (TMI): transfer of ownership to PCI was never the intention Acme executed a chattel mortgage in favor of private respondent
of the parties; guaranty deposit will only be forfeited if TMI returned the Producers Bank as a security for a loan of P3,000,000. A provision in the
leased equipment to PCI before expiration of the lease agreement. Since chattel mortgage agreement was to this effect:
TMI never returned the lease property voluntarily, but through writ of
replevin, the guaranty deposit should not be forfeited. "In case the MORTGAGOR executes subsequent promissory note or
SC: In a true financial leasing, a finance company purchases on behalf of a notes either as a renewal of the former note, as an extension thereof, or
cash-strapped lessee the equipment the latter wants to buy, but, due to as a new loan, or is given any other kind of accommodations such as
financial limitations, is incapable of doing so. The finance company then overdrafts, letters of credit, acceptances and bills of exchange, releases
leases the equipment to the lessee in exchange for the latter's periodic of import shipments on Trust Receipts, etc., this mortgage shall also
payment of a fixed amount of rental. stand as security for the payment of the said promissory note or notes
and/or accommodations without the necessity of executing a new
HERE, TMI already owned the subject equipment before it transacted contract and this mortgage shall have the same force and effect as if the
with PCI. Therefore the transaction between the parties cannot be said promissory note or notes and/or accommodations were existing on
deemed to be in the nature of a financial leasing as defined in law. the date thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the MORTGAGOR to the
* "Where the client already owned the equipment, but needed additional MORTGAGEE of whatever kind and nature, whether such obligations
working capital and the finance company purchased such equipment with have been contracted before, during or after the constitution of this
the intention of leasing it back to him, the lease agreement was simulated mortgage."
to disguise the true transaction that was a loan with security."
In due time, the loan of P3,000,000.00 was paid. Subsequently it
* "The intention of the parties was not to enable the client to acquire and obtained additional loan totalling P2,700,000.00 which was also duly
use the equipment, but to extend to him a loan." paid.

* Financial leasing contemplates the extension of credit to assist a buyer Another loan was again extended (P1,000,000.00) covered by four
in acquiring movable property which he can use and eventually own. promissory notes for P250,000.00 each, but went unsettled prompting
the bank to apply for an extrajudicial foreclosure with the Sheriff.
The transaction between the parties was simply a loan secured by chattel
mortgage. Thus upon TMI's default, PCI was entitled to seize the ISSUE:
mortgaged equipment, not as owner but as creditor-mortgagee for the Would it be valid and effective to have a clause in a chattel mortgage that
purpose of foreclosing the chattel mortgage. purports to likewise extend its coverage to obligations yet to be
contracted or incurred?
PCI's sale to a third party of the mortgaged equipment and collection of
the proceeds of the sale can be deemed in the exercise of its right to HELD:
foreclose the chattel mortgage as creditor-mortgagee. No. While a pledge, real estate mortgage, or antichresis may exceptionally
secure after-incurred obligations so long as these future debts are
accurately described, a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted. 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, Held:
the security itself, however, does not come into existence or arise until The said machinery is a personal property. Like what was involved in
after a chattel mortgage agreement covering the newly contracted debt the Tumalad case, if a house of strong materials, may be considered as
is executed either by concluding a fresh chattel mortgage or by amending personal property for purposes of executing a chattel mortgage
the old contract conformably with the form prescribed by the Chattel thereon, as long as the parties to the contract so agree and no innocent
Mortgage Law. Refusal on the part of the borrower to execute the third party will be prejudiced thereby, there is absolutely no reason why a
agreement so as to cover the after-incurred obligation can constitute an machinery, which is movable in its nature and becomes immobilized only
act of default on the part of the borrower of the financing agreement by destination or purpose, may not be likewise treated as such. This is
whereon the promise is written but, of course, the remedy of foreclosure really because one who has so agreed is estopped from the denying the
can only cover the debts extant at the time of constitution and during the existence of the chattel mortgage. The decision of the Court of Appeals
life of the chattel mortgage sought to be foreclosed. was set aside and the order of the lower court was reinstated.

CASE DIGEST:

Makati Leasing and Finance Corp. vs Wearever Textile Mills Inc., CASE DIGEST:

G.R. No. 58469 SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE HON.
COURT OF APPEALS, JESUS PONCE, and ELIZABETH PONCE, respondents.
May 16, 1983 G.R. No. 116363. December 10, 1999
Doctrine:
In case of assignment of credit, only notice to but not the consent of
the debtor-mortgagor is necessary to bind the latter.
Facts:
The assignee’s consent is necessary in order to bind him of the
Wearever Textile Mills, Inc. executed a chattel mortgage contract in favor
alienation of the mortgaged thing by the debtor- mortgagor.
of Makati Leasing and Finance Corporation covering certain raw materials
and machinery. Upon default, Makati Leasing filed a petition for judicial
Article Applicable:
foreclosure of the properties mortgaged. Acting on Makati Leasing’s
Article 2141 states that the provisions concerning a contract of pledge
application for replevin, the lower court issued a writ of seizure. Pursuant
shall be applicable to a chattel mortgage, such as the one at bar,
thereto, the sheriff enforcing the seizure order and removed the main
insofar as there is no conflict with Act No. 1508, the Chattel Mortgage
motor of the subject machinery. In a petition for certiorari and prohibition,
Law
the Court of Appeals ordered the return of the machinery on the ground
that the same cannot be the subject of replevin because it is a real
Facts:
property pursuant to Article 415 of the new Civil Code, the same being
- Respondent spouses Atty. Jesus and Elizabeth Ponce bought on
attached to the ground by means of bolts and the only way to remove it
from Wearever textile’s plant would be to drill out or destroy the concrete installment a Holden Torana vehicle from C. R. Tecson Enterprises.
floor. When the motion for reconsideration of Makati Leasing was denied - They executed a promissory note and a chattel mortgage on the
by the Court of Appeals, Makati Leasing elevated the matter to the vehicle dated in favor of the C. R. Tecson Enterprises to secure
Supreme Court. payment of the note
- The mortgage was registered both in the Registry of Deeds and
the Land Transportation Office
- C. R. Tecson Enterprises, in turn, executed a deed of assignment
Issue: of said promissory note and chattel mortgage in favor of Filinvest
Whether or not the machinery in suit is real or personal property from the Credit Corporation with the conformity of respondent spouses
point of view of the parties. - In 1976, respondent spouses transferred and delivered the
vehicle to Conrado R. Tecson by way of sale with assumption of CASE DIGEST:
mortgage
- Subsequently, in 1978, Filinvest assigned all its rights and interest RCBC v. ROYAL CARGO
over the same promissory note and chattel mortgage to Right of Redemption
petitioner Servicewide Specialists Inc. without notice to
respondent spouses Issue: WON petitioner, as mortgagee, had the duty to notify the
- Due to the failure of respondent spouses to pay the installments respondent of the public auction sale.
under the promissory note from October 1977 to March 1978,
and despite demands to pay the same or to return the vehicle,
petitioner was constrained to file before the Regional Trial Court Section 13 of the Chattel Mortgage Law allows the would-be
of Manila on May 22, 1978 a complaint for replevin with damages redemptioner thereunder to redeem the mortgaged property
against them. only before its sale. Consider the following pronouncement in Paray:

Contention of the RESPONDENT/DEFENDANT (SPS. PONCE)

- Respondent spouses denied any liability claiming they had
· [T]here is no law in our statute books which vests the right of
already returned the car to Conrado Tecson pursuant to the redemption over personal property. Act No. 1508, or the Chattel
Deed of Sale with Assumption of Mortgage Mortgage Law, ostensibly could have served as the vehicle for any
- They filed a third party complaint against Conrado Tecson legislative intent to bestow a right of redemption over personal property,
praying that in case they are adjudged liable to petitioner, since that law governs the extrajudicial sale of
Conrado Tecson should reimburse them. mortgaged personal property, but the statute is definitely silent on the
point.
Ruling of Lower Court: Found respondent spouses jointly and solidarily
liable to petitioner, however, the third party defendant Conrado · the right of redemption applies to real properties, not personal
Tecson properties, sold on execution.
was ordered to reimburse the respondent spouses for the sum that
they
would pay to petitioners. Unmistakably, the redemption cited in Section 13 partakes of an equity of
redemption, which is the right of the mortgagor to redeem the mortgaged
Ruling of CA: The CA reversed and set aside the RTC’s decision on the property after his default in the performance of the conditions of the
principal ground that respondent spouses were not notified of the mortgage but before the sale of the property to clear it from the
assignment of the promissory note and chattel mortgage to petitioner. encumbrance of the mortgage. It is not the same as right of
redemption which is the right of the mortgagor to redeem the mortgaged
Issue/s: property after registration of the foreclosure
Whether the assignment of a credit requires notice to the debtor in sale, and even after confirmation of the sale.
order
to bind him? –YES
Whether the consent of the creditor- mortgagee necessary when the
While respondent had attached some of Terrymanila’s assets to secure
debtor-mortgagor alienates the property to a third person? – YES
the satisfaction of a P296,662.16 judgment rendered in another case,
what it effectively attached was Terrymanila’s equity of redemption. That
Ruling:
respondent’s claim is much lower than the P1.5 million actual bid of
In case of assignment of credit, only notice to but not the consent of petitioner at the auction sale does not defeat respondent’s equity of
the debtor-mortgagor is necessary to bind the latter redemption. Top Rate International Services, Inc. v. IAC enlightens:
When the credit was assigned to petitioner, only notice to but not the
consent of the debtor-mortgagor was necessary to bind the latter.
 who has in his favor an instrument of mortgage executed with the
formalities of the law, in good faith, and without the least indication of
We, therefore, hold that the appellate court did not commit any error in fraud. In purchasing it, with full knowledge that such circumstances
ruling that there was no over-levy on the disputed properties. What existed, it should be presumed that he did so, very much willing to respect
was actually attached by respondents was Consolidated Mines’ right or the lien existing thereon, since he should not have expected that with the
equity of redemption, an incorporeal and intangible right, the value of purchase, he would acquire a better right than that which the vendor then
which can neither be quantified nor equated with the actual value of the had.
properties upon which it may be exercised.

It bears noting that the chattel mortgage in favor of petitioner was

registered more than two years before the issuance of a writ of
Held: Having thus attached Terrymanila’s equity of redemption, attachment over some of Terrymanila’s chattels in favor of respondent.
respondent had to be informed of the date of sale of the mortgaged This is significant in determining who between petitioner and respondent
assets for it to exercise such equity of redemption over some of those should be given preference over the subject properties. Since the
foreclosed properties, as provided for in Section 13. registration of a chattel mortgage is an effective and binding notice to
other creditors of its existence and creates a real right or lien that follows
the property wherever it may be, the right of respondent, as an attaching
creditor or as purchaser, had it purchased the mortgaged chattel at the
However, even prior to receiving, through counsel, a mailed notice of the auction sale, is subordinate to the lien of the mortgagee who has in his
auction sale on the date of the auction sale itself on June 16, 1992, favor a valid chattel mortgage.
respondent was already put on notice of the impending foreclosure sale
of the mortgaged chattels. Despite its window of opportunity to exercise
its equity of redemption, however, respondent chose to be technically
shrewd about its chances, preferring instead to seek annulment of the Held: Petitioner is not liable for constructive fraud for proceeding with the
auction sale, which was the result of the foreclosure of the mortgage, auction sale. Nor for subsequently selling the chattel. For foreclosure
permission to conduct which it had early on opposed before the suits may be initiated even during insolvency proceedings, as long as
insolvency court. Its negligence or omission to exercise its equity of leave must first be obtained from the insolvency court as what petitioner
redemption within a reasonable time, or even on the day of the auction did.
sale, warrants a presumption that it had either abandoned it or opted not
CASE DIGEST:
to assert it. Equitable considerations thus sway against it. To now allow
respondent have its way in annulling the auction sale and at the same SERVICEWIDE SPECIALISTS, INC. V. CA, (1999)
time let it proceed with its claims before the insolvency court would
neither rhyme with reason nor with justice. Right to Possession

Rule 60 of the Revised Rules of Court requires that an applicant for

replevin must show that he:
In any event, even if respondent would have participated in the auction
sale and matched petitioner’s bid, the superiority of petitioner’s 1. “is the owner of the property claimed, particularly describing it, or
(mortgagee) lien over the mortgaged assets would preclude respondent
2. is entitled to the possession thereof.”
from recovering the chattels.

It has long been settled by this Court that “the right of those who acquire
said properties should not and can not be superior to that of the creditor Northern Motors, Inc. vs. Herrera
“There can be no question that persons having a special right of property particularly describe the articles sold, and state the amount received for
in the goods the recovery of which is sought, such as a chattel mortgagee, each article, and shall operate as a discharge of the lien thereon created
may maintain an action for replevin therefor. Where the mortgage by the mortgage. The proceeds of such sale shall be applied to the
authorizes the mortgagee to take possession of the property on default, payment:
he may maintain an action to recover possession of the mortgaged
chattels from the mortgagor or from any person in whose hands he may 1. first, of the costs and expenses of keeping and sale, and then
find them.” 2. to the payment of the demand or obligation secured by such
mortgage, and

Thus, in default of the mortgagor, the mortgagee is thereby constituted 3. the residue shall be paid to persons holding subsequent mortgages
as attorney-in-fact of the mortgagor, enabling such mortgagee to act for in their order, and
and in behalf of the owner. That the defendant is not privy to the chattel 4. the balance, after paying the mortgage, shall be paid to the
mortgage should be inconsequential. By the fact that the object of mortgagor or persons holding under him on demand.
replevin is traced to his possession, one properly can be a defendant in an
action for replevin. Pledge Chattel Mortgage

Article 2115 Act No. 1508

However, in case the right of possession on the part of the plaintiff, or his the sale of the thing pledged entitles the mortgagor to the
authority to claim such possession or that of his principal, is put to great extinguishes the entire principal balance of the proceeds, upon
doubt, it could become essential to have other persons involved and obligation, such that the pledgor satisfaction of the principal
impleaded for a complete determination and resolution of the may no longer recover proceeds obligation and costs
controversy. In this case, it is not disputed that there is an adverse and of the sale in excess of the
independent claim of ownership by the respondent as evinced by the amount of the principal obligation
existence of a pending case before the CA involving subject motor
vehicle between the same parties herein. Since the Chattel Mortgage Law bars the creditor-mortgagee from
retaining the excess of the sale proceeds there is a corollary obligation on
CASE DIGEST: the part of the debtor-mortgagee to pay the deficiency in case of a
reduction in the price at public auction.
PAMECA v. CA

Right to Surplus or Deficiency, Act. No 1508, Sec. 14

The theory of the lower court would lead to the absurd conclusion that if
the chattels mentioned in the mortgage, given as security, should sell for
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, more than the amount of the indebtedness secured, that the creditor
states: would be entitled to the full amount for which it might be sold, even
though that amount was greatly in excess of the indebtedness. Such a
The officer making the sale shall, within 30 days thereafter, make in result certainly was not contemplated by the legislature when it adopted
writing a return of his doings and file the same in the office of the Registry Act No. 1508. There seems to be no reason supporting that theory under
of Deeds where the mortgage is recorded, and the Register of Deeds shall the provision of the law. The value of the chattels changes greatly from
record the same. The fees of the officer for selling the property shall be time to time, and sometimes very rapidly. If, for example, the chattels
the same as the case of sale on execution as provided in Act 190, and the should greatly increase in value and a sale under that condition should
amendments thereto, and the fees of the Register of Deeds for result in largely overpaying the indebtedness, and if the creditor is not
registering the officer’s return shall be taxed as a part of the costs of sale, permitted to retain the excess, then the same token would require the
which the officer shall pay to the Register of Deeds. The return shall
 debtor to pay the deficiency in case of a reduction in the price of the 4. that the mortgagee must account for the rents and profits of the land, or
chattels between the date of the contract and a breach of the condition. its value for purposes of use and occupation, any amount thus realized
going towards the discharge on the mortgage debt;
5. that if the mortgage remains in possession after the mortgage debt has
And the fact that Act No. 1508 permits a private sale, such sale is not, in been satisfied, he becomes a trustee for the mortgagor as to the excess of
fact, a satisfaction of the debt, to any greater extent than the value of the the rents and profits over such debt; and lastly,
property at the time of the sale. The amount received at the time of the 6. that the mortgagor can only enforce his rights to the land by an equitable
sale, of course, always requiring good faith and honesty in the sale, is only action for an account and to redeem.
a payment, pro tanto, and an action may be maintained for a deficiency in
the debt.” A creditor with a lien on real property who took possession thereof with
the consent of the debtor, held it as an "antichretic creditor with the right
CASE DIGEST: to collect the credit with interest from the fruits, returning to the
antichretic creditor the balance, if any, after deducting the expenses,"
DIEGO v. FERNANDO because the fact that the debtor consented and asked the creditor to take
charge of managing his property "does not entitle the latter to appropriate
Issue: Whether the contract between the parties is one of mortgage or of
to itself the fruits thereof unless the former has expressly waived his right
antichresis. MORTGAGE.
thereto."
Appellant, while admitting that the contract Exhibit "A" shows a deed of
mortgage, contends that the admitted fact that the loan was without
In the present case, the parties having agreed that the loan was to be
interest, coupled with the transfer of the possession of the properties
without interest, and the appellant not having expressly waived his right to
mortgaged to the mortgagee, reveals that the true transaction between
the fruits of the properties mortgaged during the time they were in
him and appellee was one of antichresis.
appellee's possession, the latter, like an antichretic creditor, must account
for the value of the fruits received by him, and deduct it from the loan
Held: It is not an essential requisite of a mortgage that possession of the
obtained by appellant. The appellee should be made to account for the
mortgaged premises be retained by the mortagagor. To be antichresis, it
fruits he received from the properties mortgaged from the time of the
must be expressly agreed between creditor and debtor that the former,
filing of this action until full payment by appellant, which fruits should be
having been given possession of the properties given as security, is to
deducted from the total amount due him from appellant under this
apply their fruits to the payment of the interest, if owing, and thereafter to
judgment. (deficiency should be recovered)
the principal of his credit (Art. 2132, Civil Code); so that if a contract of loan
with security does not stipulate the payment of interest but provides for
the delivery to the creditor by the debtor of the property given as security, CONTRACTS; MORTGAGE NOT ANTICHRESIS; LOAN WITHOUT
in order that the latter may gather its fruits, without stating that said fruits INTEREST; POSSESSION TRANSFERRED TO MORTGAGEE; CASE AT
are to be applied to the payment of interest, if any, and afterwards that of BAR. — If a contract of loan with security does not stipulate the payment
the principal, the contract is a mortgage and not antichresis. of interest like in the case at bar, and possession of the mortgaged
property is delivered to the mortgagee in order that the latter may gather
As such mortgagee in possession, his rights and obligations are similar to its fruits, but without stating that said fruits are to be applied to the
those of an antichretic creditor: payment of interest, if any, and afterwards that of the principal, the
1. If the mortgagee acquires possession in any lawful manner, he is entitled contract is a mortgage and not antichresis (Legaspi and Salcedo vs.
to retain such possession until the indebtedness is satisfied and the Celestial, 66 Phil., 372).
property redeemed;
2. that the non-payment of the debt within the term agreed does not vest
the ownership of the property in the creditor;
3. that the general duty of the mortgagee in possession towards the
premises is that of the ordinary prudent owner;