!

"#$%& (")*+),&%-*+

!"#$%&' ") $*%+,'

.#-/0# 12 !-*,#/,%-*

The ,"#$%& of an inuiviuual means his ability to boiiow money by
viitue of the tiust oi confiuence ieposeu by a lenuei that he will
pay what he may piomise.

A 0-)* means the ueliveiy by one paity anu the ieceipt by the
othei of a given sum of money, upon an agieement, expiess oi
implieu, to iepay the sum loaneu, with oi without inteiest.

The ,-*,#++%-* -3 ) ,"#$%& necessaiily involves the gianting of
loans up to the limit of the amount fixeu in the cieuit.

To uiscount a papei is only a moue of loaning money, with the
following uistinctions:

a. In a uiscount, inteiest is ueuucteu in auvance, while in
a loan, inteiest is taken at the expiiation of a cieuit;
b. A uiscount is always on a uouble-name papei; a loan is
geneially on a single-name papei

!"--"+.'/-

4#/560%, 12 7)8&)+

A contiact of commouatum is essentially giatuitous. 0wneiship
of the thing uoes not tiansfei to the bailee, thus, the bailoi beais
the iisk of loss uue to foice majeuie. Bowevei, the bailee is liable
foi loss of the thing uue to foituitous event if he keeps the thing
longei than the peiiou stipulateu oi when the thing loaneu has
been ueliveieu with appiaisal of its value, unless theie is a
stipulation exempting him fiom iesponsibility in case of a
foituitous event.

.)95:- 12 !;

In a contiact of commouatum, one of the paities ueliveis to
anothei something not consumable so that the lattei may use the
same foi a ceitain time anu ietuin it. An essential featuie of
commouatum is that it is giatuitous. The use of the thing
belonging to anothei is foi a ceitain peiiou such that the bailoi
cannot uemanu the ietuin of the thing loaneu until aftei the
expiiation of the peiiou stipulateu oi aftei accomplishment of
the use foi which the commouatum is constituteu. If the bailoi
shoulu have uigent neeu of the thing, he may uemanu its ietuin
foi tempoiaiy use. If the use of the thing is meiely toleiateu by
the bailoi, he can uemanu the ietuin of the thing at will, in which
case, the contiactual ielation is a piecaiium.

<5%*&-+ 12 7#,=

The bailee is bounu to ietuin all the things subject of the
commouatum upon uemanu of the bailoi. Be is not ueemeu to
have complieu with his obligation if he ietains foi himself some
of the things loaneu oi when he meiely placeu them at the
uisposal of the bailoi, when the agieement between them is foi
him to ietuin them at the bailoi's iesiuence. The bailee is not
entitleu to place the thing on ueposit, anu the bailoi cannot be
compelleu to accept the offei to ietuin only some of things
loaneu.

A bailee who bieacheu the contiact of commouatum anu without
any ieason iefuseu to ietuin anu uelivei all the things loaneu
upon the bailoi's uemanu is bounu to pay the legal expenses anu
juuicial costs which the bailoi woulu not have otheiwise
uefiayeu.

."-$5,#">+ 7)*= -3 &?# .?%0%//%*#+ 12 !;

A commouatum may have foi its object a consumable thing if the
consumable goous aie loaneu only foi the puipose of exhibition,
oi when the intention of the paities is to lenu consumable goous
anu to have the veiy same goous ietuineu at the enu of the
peiiou agieeu upon.

0,-&1% 1".# "* -/'//-

@)",%) 12 (?%-

A loan is a ieal contiact, not consensual, anu as such is peifecteu
only upon the ueliveiy of the object of the contiact. 0pon
ueliveiy of the object of the contiact of loan, the uebtoi acquiies
owneiship of such money oi loan pioceeus anu is bounu to pay
the cieuitoi an equal amount.

Beliveiy is the act by which the ies oi substance theieof is placeu
within the actual oi constiuctive possession oi contiol of
anothei.

A)5") B*,2 12 C7.

Wheie an application foi a loan of money was appioveu by
iesolution of the coipoiation (lenuei) anu the coiiesponuing
moitgage was executeu anu iegisteieu, theie aiises a peifecteu
consensual contiact of loan.

Since mutual agieement can cieate a contiact, mutual
uisagieement by the paities can cause its extinguishment.

7.B B*1#+&D#*& !-"/2 12 !;

A loan contiact is not a consensual, but a ieal, contiact. It is
peifecteu only upon the ueliveiy of the object of the contiact.

A loan contiact involves a iecipiocal obligation wheiein the
obligation oi piomise of each paity is the consiueiation foi that
of the othei. Neithei paity incuis in uelay if the othei uoes not
comply oi is not ieauy to comply in a piopei mannei with what
is incumbent upon him.

.#-/0# 12 .5%8 )*$ .-"")+

The bank acquiies owneiship of the money uepositeu by its
clients. The ielationship between banks anu uepositois is that of
a cieuitoi anu uebtoi.

The employees of the bank who aie entiusteu with the
possession of the ueposits in the bank occupy positions of
confiuence by viitue of the confiuence ieposeu in them. It is not
the uepositoi-client who is the ieal-paity-in-inteiest in a case foi
qualifieu theft fileu by the bank against its employees who
misappiopiiateu the money uepositeu in the bank, but the bank
itself, as it is now the ownei of such money.

7.B E)D%0: 7)*= 12 E")*,-

The quality of being fungible uepenus upon the possibility of the
piopeity, because of its natuie oi the will of the paities, being
substituteu by otheis of the same kinu, not having a uistinct
inuiviuuality. Noney is geneiic anu fungible anu beais no
eaimaiks of peculiai owneiship.

The ueposit of money in banks is goveineu by the piovisions on
simple loan. As theie is a uebtoi-cieuitoi ielationship between a
bank anu its uepositoi, a bank acquiies owneiship of the
ueposits, but such owneiship is coupleu with an obligation to pay
him an equal amount on uemanu.

2#'%*%3'

E"%)+ 12 A)* C%#8-FA%+-*

Foi a uebtoi to continue in possession of the piincipal of the loan
anu to continue to use the same aftei matuiity of the loan
without payment of the monetaiy inteiest woulu constitute
unjust eniichment on the pait of the uebtoi at the expense of the
cieuitoi.

G%85&)* 12 !;

A penalty clause is an accessoiy unueitaking to assume gieatei
liability on the pait of the obligoi in case of bieach of an
obligation. It functions to stiengthen the coeicive foice of the
obligation anu to pioviue in effect, foi what woulu be the
liquiuateu uamages iesulting fiom such a bieach. The obligoi
woulu then be bounu to pay the stipulateu inuemnity without the
necessity of pioof on the existence anu on the measuie of
uamages causeu by the bieach. Such stipulateu penalty may still
be equitably ieuuceu by the couits if iniquitous oi
unconscionable oi if the piincipal obligation has been paitly oi
iiiegulaily complieu with.

A penalty stipulation is not necessaiily pieclusive of inteiest, if
theie is an agieement to that effect, the two being uistinct
concepts which may be sepaiately uemanueu. What may justify
the couit in ieuucing penalty oi suichaiges may not equally
justify non-payment oi ieuuction of inteiest.

@ABA 12 !; (1986)

Stipulation in the Contiact:
The iate of inteiest shall be 9% pei annum compounueu
monthly, anu that any uue anu unpaiu monthly amoitization
shall beai inteiest at the iate of 9%12% pei month.

Ratio:
The 0suiy Law applies only to inteiest by way of compensation
foi the use oi foibeaiance of money. Inteiest by way of uamages
is goveineu by Ait. 22u9.
Ait. 22u9. If the obligation consists in the payment of a sum of
money, anu the uebtoi incuis in uelay, the inuemnity foi
uamages, theie being no stipulation to the contiaiy, shall
be the payment of the inteiest agieeu upon.

The Civil Coue peimits the agieement upon a penalty apait fiom
inteiest. Shoulu theie be such agieement, the penalty uoes not
incluue the inteiest, anu as such the two aie uiffeient anu
uistinct things which may be uemanueu sepaiately.
The stipulation about payment of auuitional iate paitakes of
the natuie of a penalty clause, which is sanctioneu by
law.

H)+&#"* A?%//%*8 G%*#+ 12 !; (1994)

CB Ciiculai 416: the iate of inteiest foi !"#$ oi &"'()#'#$*) of
money, goous oi cieuit, anu the iate alloweu in juugments, in the
absence of expiessly contiact as to such iate of inteiest, shall be
12% pei annum.

If the claim uoes not constitute a loan oi foibeaiance, then CB
Ciiculai 416 will not apply. In this case, the claim is one
foi +#,#-). which is still unliquiuateu, hence, the legal
inteiest to be paiu is 6% on the amount uue computeu
fiom the uecision of the *"/'0 # 1/".

Rules of thumb in computing inteiest as uamages:
When an obligation, iegaiuless of its souice, is bieacheu, the
contiavenoi can be helu liable foi uamages.
With iegaiu paiticulaily to an awaiu of inteiest in the concept
of #*0/#! anu *",2)$.#0"'3 +#,#-).4 the iate of inteiest,
as well as the acciual theieof, is imposeu as follows:

G-)* -" E-"6#)")*,# -3 I-*#:

5607 .062/!#06"$8 When an obligation is
bieacheu anu it consists in the payment of a
sum of money, i.e., a loan oi foibeaiance of
money, the inteiest uue shoulu be that
stipulateu, commencing fiom the 06,) 60 6.
9/+6*6#!!3 +),#$+)+8
5607"/0 .062/!#06"$8 In the absence of
stipulation, the iate of inteiest shall be 12%
pei annum to be computeu fiom uefault, i.e.,
fiom 9/+6*6#! "' ):0'#9/+6*6#! +),#$+ anu
subject to the piovisions of Ait. 1169|1j.

J&?#" J60%8)&%-*+
When an obligation, not constituting a loan oi
foibeaiance of money, is bieacheu, an inteiest in the
amount of uamages awaiueu may be imposeu at the
+6.*')06"$ "& 07) *"/'0 at the iate of 6% p.a. No inteiest,
howevei, shall be aujuugeu on unliquiuateu claims oi
uamages except when oi until the uemanu can be
establisheu with ieasonable ceitainty.
o Wheie the uemanu is establisheu with
ieasonable ceitainty, the inteiest shall begin to
iun fiom the time the claim is maue juuicially oi
extiajuuicially.
o When such ceitainty cannot be ieasonably
establisheu at the time the uemanu is maue, the
inteiest shall begin to iun only fiom the uate the
juugment of the couit is maue.

K?#* L5$8D#*& E%*)0 )*$ HM#,5&-":
When the juugment of the couit awaiuing a sum
of money becomes final anu executoi, the iate of legal
inteiest, whethei the case falls unuei pai. 1 oi pai. 2,
shall be 12% p.a. fiom such finality until its
satisfaction, this inteiim peiiou being ueemeu to be by
then an equivalent to a foibeaiance of cieuit.

C%+,5++%-*N
0thei 0bligations Not Constituting Loan oi Foibeaiance of
Noney:
Recoveiy of uamages foi injuiy to peison anu
loss of piopeity
Recoveiy of uamages aiising fiom the collapse of
the builuing
Noial anu exemplaiy uamages
Bamages foi bieach of employment contiact
Complaint foi a sum of money as just
compensation foi lanus expiopiiateu

A%8)F)* 12 O%00)*5#1) (2uu9)

I-*#&)": B*&#"#+&
No monetaiy inteiest shall be uue unless it has been expiessly
stipulateu in wiiting (Ait. 19S6). Nonetai inteiest is
compensation fixeu by the paities foi the use oi foibeaiance of
money.

Requisites foi payment of monetaiy inteiest:
1. An expiess stipulation foi the payment of
inteiest
2. Such agieement foi the payment of inteiest must
be ieuuceu in wiiting

!-D/#*+)&-": B*&#"#+&
Compensatoiy inteiest is inteiest as penalty oi inuemnity foi
uamages|2j. Inteiest can be payable even in the absence of an
expiess stipulation in wiiting. Compensatoiy inteiest CANN0T
be chaigeu as compensation foi the use of foibeaiance of money.
The iight to inteiest aiises only:
By viitue of a contiact
By viitue of uamages foi uelay oi failuie to pay
the piincipal loan on which inteiest is uemanueu

A-05&%- %*$#6%&%

0nuei Ait. 196u|Sj, if the boiiowei of loan pays inteiest when
theie has been no stipulation theiefoi, the piinciple of solution
inuebiti applies. It applies to eiioneous payment of unuue
inteiest.

Requisites:
1. A payment is maue when theie exists no binuing
ielation between the payoi, who has no uuty to pay,
anu the peison who ieceiveu the payment
2. The payment is maue thiough mistake, anu not
thiough libeiality of some othei cause

CH.JAB(

4"1/#'.*5 6%&"3,'

7.B 12 B;! PQRSST

Zschoinack entiusteu to C0NTR0ST $S,uuu cash (gieenbacks)
foi safekeeping, anu that the agieement was embouieu in a
uocument.

4)&%-N

The uocument anu the subsequent acts of the paities show that
they intenueu the bank to safekeep the foieign exchange, anu
ietuin it latei to Zschoinack. The paities uiu not intenu to sell
the 0S uollais to the Cential Bank within one business uay fiom
ieceipt. 0theiwise, the contiact of uepositum woulu nevei have
been enteieu into at all.

Bowevei, since safekeeping of gieenback is piohibiteu, both
paities aie in paii uelicto anu Zschoinack cannot iecovei the
amount.

4-D)* !)&?-0%, 7%+?-/ -3 L)"- 12 C# 0) .#*)

No one shall be liable foi events which coulu not be foieseen, oi
which having been foieseen weie inevitable, with the exception
of the cases expiessly mentioneu in the law oi those in which the
obligation so ueclaies.
By placing the money in the bank anu mixing it
with his peisonal funus, Be la Pena uiu not theieby
assume an obligation uiffeient fiom that unuei which
he woulu have lain if such ueposit hau not been maue,
noi uiu he theieby make himself liable to iepay the
money at all hazaius. The fact that he placeu the tiust
funu in the bank in his peisonal account uoes not auu
to his iesponsibility. The question heie is not
negligence.

Theie was no law piohibiting him fiom uepositing it as he uiu
anu theie was no law which changeu his iesponsibility by ieason
of the ueposit.

C%+,5++%-*N

Na'am uisagiees. The change of way of the ueposit was
unwaiianteu within the puiview of Ait. 197S. Change of way of
ueposit - the contiact was conveiteu fiom a ueposit to a loan
Ait. 197S. 0nless theie is a stipulation to the
contiaiy, the uepositaiy cannot ueposit the thing with
a thiiu peison. If ueposit with a thiiu peison is
alloweu, the uepositaiy is liable foi the loss if he
uepositeu the thing with a peison who is manifestly
caieless oi unfit. The uepositaiy is iesponsible foi the
negligence of his employees.

("%/0# O 12 E%0%/%*- I#",?)*&+

Be Asis availeu of the valet p aiking seivice of Tiiple v anu
entiusteu hei cai key to the vale countei. The cai anu the key
weie stolen.

4)&%-N

In a contiact of ueposit, a peison ieceives an object belonging to
anothei with the obligation of safely keeping it anu ietuining the
same. A ueposit may be constituteu even without any
consiueiation. It is not necessaiy that the uepositaiy ieceives a
fee befoie it becomes obligateu to keep the item entiusteu foi
safekeeping anu to ietuin it latei to the uepositoi.

C%+,5++%-*N

Why liable:
Ait. 2uuu. The iesponsibility iefeiieu to in the two pieceuing
aiticles shall incluue the loss of, oi injuiy to the peisonal
piopeity of the guests causeu by the seivants oi employees of
the keepeis of hotels oi inns as well as stiangeis; (/0 $"0 07#0
;76*7 ,#3 2'"*))+ &'", #$3 &"'*) ,#9)/')8 The fact that
tiavelleis aie constiaineu to iely on the vigilance of the keepei of
the hotels oi inns shall be consiueieu in ueteimining the uegiee
of caie iequiieu of him.

Situation: If the cai key was with the ownei, woulu it be a
contiact of ueposit.
No. It woulu be a contiact of lease as theie was no ueliveiy as to
constitute ueposit anu the ownei hau the contiol of the thing.

!; ;8"-FB*$5+&"%)0 C#1>& !-"/2 12 !;

The contiact foi the ient of the safety ueposit box is not an
oiuinaiy contiact of lease of things but a +/#,%)0 =%*$ -3
$#/-+%&2
It cannot be chaiacteiizeu as an oiuinaiy
contiact of lease of things because the full anu absolute
possession anu contiol of the safety ueposit box was
not given to the joint ienteis.
o The guaiu key iemaineu with the Bank.
Without this key, neithei of the ienteis
coulu open the box.
o 0n the othei hanu, the Bank cannot
likewise open the box without the ientei's
key.

Ait. 197S|4j cannot be invokeu as an aigument against the
ueposit theoiy.
0bviously, the fiist paiagiaph cannot apply to a
uepositaiy of ceitificates, bonus, secuiities oi
instiuments which eain inteiest if such uocuments aie
kept in a ienteu safety ueposit box. It is cleai that the
uepositaiy cannot open the box without the ientei
being piesent.

The contiactual ielation between a commeicial bank anu
anothei paity in a contiact of ient of a safety ueposit box with
iespect to its contents is one of (#6!"' #$+ (#6!)).
The pievailing iule in Ameiican juiispiuuence is
that the ielation between a bank ienting out safe-
ueposit boxes anu its customeis with iespect to the
contents of the box is that of a bailoi anu bailee, 07)
(#6!,)$0 ()6$- &"' 76') #$+ ,/0/#! ()$)&608
We auopteu the pievailing iule in the 0S.
o ueneial Banking Act: The banks may
ieceive in custouy funus, uocuments, anu
valuable objects, anu ient safety ueposit
boxes foi its safeguaiuing. The banks shall
peifoim these seivices as uepositaiies oi as
agents.
o The ienuing out of the safety
ueposit boxes is not inuepenuent
fiom, but ielateu to oi in conjunction
with, this piincipal function.

C%+,5++%-*N

Na'am uisagiees. Bailment contiact is a common law concept in
the 0S. The 2nu pai. of Ait. 197S means that the uepositaiy has
no uuty to pieseive the value as long they aie ceitificates, bonus,
secuiities oi instiuments. The contiact is one of ueposit, not a
bailment contiact.

7%$%33.*5 6%&"3,'

UV( 4#)0&: !-"/-")&%-* 12 !; PWXXYT

Those who in the peifoimance of theii obligations aie guilty of
fiauu, negligence, oi uelay, anu those who in any mannei
contiavene the tenoi theieof, aie liable foi uamages (Ait. 117u).
The owneis anu manageis of an establishment oi enteipiise aie
likewise iesponsible foi uamages causeu by theii employees in
the seivice of the bianches in which the lattei aie employeu oi
on the occasion of theii functions Ait. 218u (4).

o Tiopicana is guilty of gioss negligence. The guest
alone cannot open the safety ueposit box without the
assistance of the management oi its employees. With
moie ieason that access of the safety box shoulu be
uenieu if the one iequesting foi the opening of the
safety ueposit box is a stiangei.

The hotel-keepei cannot fiee himself fiom iesponsibility by
posting notices to the effect that he is not liable foi the aiticles
biought by the guest. Any stipulation between the hotel-keepei
anu the guest wheieby the iesponsibility of the foimei as set
foith in aiticles 1998 to 2uu1 is suppiesseu oi uiminisheu shall
be voiu (Ait. 2uuS).

Responsibility of the hotel-keepei shall extenu to loss of, oi
injuiy to, the peisonal piopeity of the guests even if causes by
seivants oi employees of the keepeis of hotels oi inns as well as
by stiangeis, except as it may pioceeu fiom any foice majeuie.
o In the case at bai, theie is no showing that the act of
the thief oi iobbei was uone with the use of aims oi
thiough an iiiesistible foice to qualify the same as
foice majeuie.

89::9;0 <= !;962:

(")*+3%#0$ .?%02 12 G5Z-* V:$"- !-"/-")&%-* PWXX[T

A lettei of cieuit is a wiitten instiument wheieby the wiitei
iequests oi authoiizes the auuiessee to pay money oi uelivei
goous to a thiiu peison anu assumes iesponsibility foi payment
of uebt theiefoi to the auuiessee.

The inuepenuent natuie of a lettei of cieuit may be:
<$+)2)$+)$*) 6$ 0"0" wheie the cieuit is
inuepenuent fiom the justification aspect anu is a
sepaiate obligation fiom the unueilying agieement
like foi instance a typical stanuby
<$+)2)$+)$*) ,#3 "$!3 () #. 0" 07) 9/.06&6*#06"$
#.2)*0 like in a commeicial lettei of cieuit oi
iepayment stanuby, which is iuentical with the same
obligations unuei the unueilying agieement.
In both cases, the payment may be enjoineu if in light of the
puipose of the cieuit, the payment of the cieuit woulu constitute
fiauuulent abuse of cieuit.

A5"#&: !-*&"),&

The suiety has no uuty to pay beneficiaiy until the lattei pioves
the fact of obligoi's peifoimance in a litigation. Buiing the
litigation, the suiety holus the money anu the beneficiaiy beais
most of the cost of uelay in peifoimance.

G#&&#" -3 !"#$%&

In a stanuby cieuit case, the beneficiaiy avoius that litigation
buiuen anu ieceives his money piomptly upon piesentation of
the iequiieu uocument. It may be that the applicant has in fact
peifoimeu his obligation anu that the beneficiaiy's piesentation
of uocuments is wiongful. In that case, applicant may sue the
beneficiaiy in toit, contiact oi in bieach of waiianty; but uuiing
the litigation, the beneficiaiy, not the applicant, holus the money.

4)&%-N

Letteis of cieuit, by theii natuie, aie sepaiate tiansactions fiom
the sales oi othei contiacts on which they may be baseu. The
engagement of the issuing bank is to pay the sellei oi beneficiaiy
of the cieuit once the uiaft anu the iequiieu uocuments aie
piesenteu to it.
The 6$+)2)$+)$*) 2'6$*62!) assuies the sellei oi
the beneficiaiy of piompt payment inuepenuent of any
bieach of the main contiact anu piecluues the issuing
bank fiom ueteimining whethei the main contiact is
actually accomplisheu oi not. The beneficiaiy can
invoke the inuepenuence piinciple to justify its
uiawing of the secuiities because the lettei of cieuit
was piecisely enteieu into foi the benefit of both
issuing bank anu beneficiaiy.
o Banks aie in no way conceineu with oi
bounu by such contiacts, even if any iefeience
whatsoevei to such contiact is incluueu in the
cieuit.
o Banks assume no iesponsibility foi the
foim, sufficiency oi genuineness of any
uocument piesenteu to it, noi uoes it assume
iesponsibility foi the gooubau faith of the
consignoi.

Injunction uoes not lie to pievent LBC to uiaw on the lettei of
cieuit. To iequiie that any uispute must fiist be iesolveu by the
paities woulu conveit the lettei of cieuit into a meie guaianty. In
a lettei of cieuit, the settlement of a uispute between the paities
is not a pieiequisite foi the ielease of funus.
Fuitheimoie, nothing in the contiact suggesteu
that all uisputes iegaiuing uelay must fiist be settleu
befoie LBC can uiaw on the secuiities.

:;>0: ;9!92?:0 8@A

!-0%*)"#+ 12 !; PWXXXT

Tiust ieceipt tiansactions aie intenueu to aiu in financing
impoiteis anu ietail uealeis who uo not have sufficient funus oi
iesouices to finance the impoitation oi puichase of
meichanuise, anu who may not be able to acquiie cieuit except
thiough utilization, as collateial, of the meichanuise impoiteu oi
puichaseu.

The Tiust Receipts Law uoes not seek to enfoice payment of the
loan, iathei it punishes the uishonesty anu abuse of confiuence
in the hanuling of money oi goous to the piejuuice of anothei
iegaiuless of whethei the lattei is the ownei.

The piactice of banks of making boiioweis sign
tiust ieceipts to facilitate collection of loans anu place
them unuei the thieats of ciiminal piosecution shoulu
they be unable to pay it may be unjust anu inequitable,
if not iepiehensible. Such agieements aie contiacts of
auhesion which boiioweis have no option but to sign
lest theii loan be uisappioveu.

4)&%-N

The tiansaction was a contiact of loan. Petitioneis ieceiveu the
meichanuise fiom CN Builueis on 0ct. Su. 0n the same uay,
owneiship ovei the meichanuise was alieauy tiansfeiieu to
them who weie to use the mateiials foi theii constiuction
pioject. It was only on 0ct. S1 when they went to the bank to
apply foi a loan to pay foi the meichanuise. The situation belies
what noimally obtains in a puie tiust ieceipt tiansaction.
Petitioneis aie not impoiteis acquiiing the goous foi ie-sale,
contiaiy to the expiess piovision embouieu in the tiust ieceipt.

Tiust Receipt Tiansaction:
The bank acquiies a "secuiity inteiest" in the
goous as holuei of a secuiity title foi the auvances it
hau maue to the entiustee.
o The owneiship of the meichanuise
continues to be vesteu in the peison who
hau auvanceu payment until he has been
paiu in full, oi if the meichanuise has
alieauy been solu, the pioceeus of the sale
shoulu be tuineu ovei to him by the
impoitei oi by his iepiesentative oi
successoi in inteiest.

To secuie that the bank shall be paiu, it takes full
title to the goous at the veiy beginning anu continues
to holu that title as his inuispensable secuiity until the
goous aie solu anu the venuee is calleu upon to pay foi
them; hence, the impoitei has nevei owneu the goous
anu is not able to uelivei possession.
o In a ceitain mannei, tiust ieceipts
paitake of the natuie of a conuitional sale
wheie the impoitei becomes absolute
ownei of the impoiteu meichanuise as soon
as he has paiu its piice.

:*/'B ,# 8%#+,#C @$'

\!.7 12 A)D5#0 )*$ 7#05+- PWXX]T

Sec. 4 of the Tiuth in Lenuing Act cleaily pioviues that the
uisclosuie statement must be fuinisheu piioi to the
consummation of the tiansaction. The piomissoiy notes, the
copies of which weie piesenteu to the spouses Beluso aftei
execution, aie not sufficient notification fiom 0CPB.
The iationale of this piovision is to piotect
uebtois by peimitting them to fully appieciate the tiue
cost of theii loan, to enable them to give full consent to
the contiact, anu to piopeily evaluate theii options in
aiiiving at business uecisions.
0pening a cieuit line uoes not cieate a cieuit
tiansaction of loan oi mutuum, since the foimei is
meiely a piepaiatoiy contiact to the contiact of loan
oi mutuum. The cieuit tiansaction thus occuiieu not
when the cieuit line was openeu, but iathei when the
cieuit line was availeu of. The violation occuiieu not
when the paities executeu the Cieuit Agieement,
wheie not inteiest iate was mention, but when the
paities executeu the piomissoiy notes, wheie the
allegeuly offenuing inteiest iate was stipulateu.

The penalty foi the violation of the act is P1uu oi an amount
equal to twice the &6$#$*) *7#'-) ')1/6')+ (3 ./*7 *')+60"' in
connection with such tiansaction, whichevei is gieatei, except
that such liability shall not exceeu P2,uuu on any cieuit
tiansaction. As this penalty uepenus on the &6$#$*) *7#'-)
')1/6')+ "& 07) ("''";)', the boiiowei's cause of action woulu
only acciue when such finance chaige is iequiieu.
The uate of the uemanu foi payment of the
finance chaige is Sept. 2, 1998 while the foieclosuie
was maue on Bec. 28, 1998. The filing of the case on
Feb. 9, 1999 is theiefoie within the 1-yeai piesciiptive
peiiou.

^-&#N Penalty is P26,uuu, not P2,uuu computation is pei cieuit
tiansaction

>3/*5 8.D

!)"/- 12 !?5) PWXXYT

Puisuant to the fieeuom of contiact piinciple embouieu in
Aiticle 1Su6 of the Civil Coue, contiacting paities may establish
such stipulations, clauses, teims anu conuitions as they may
ueem convenient, pioviueu they aie not contiaiy to law, moials,
goou customs, public oiuei, oi public policy.
P0-_#+& %*&#"#+& ")&# "#$5,#$ 6: &?# A!T
In =/6> ?8 @"/'0 "& A22)#!., we equitably ieuuceu the
agieeu S% pei month oi S6% pei annum inteiest to
1% pei month oi 12% pei annum inteiest.

Aiticle 142u pioviues: "In case of a uivisible contiact, if the
illegal teims can be sepaiateu fiom the legal ones, the lattei may
be enfoiceu." In simple loan with stipulation of usuiious inteiest,
the piestation of the uebtoi to pay the piincipal uebt, which is
the cause of the contiact (Aiticle 1SSu), is not illegal. By the
same token, since the moitgage contiact ueiives its vitality fiom
the valiuity of the piincipal obligation, the invaliu stipulation on
inteiest iate is similaily insufficient to ienuei voiu the ancillaiy
moitgage contiact.
The illegality lies only as to the piestation to pay
the stipulateu inteiest; hence, being sepaiable, the
lattei only shoulu be ueemeu voiu, since it is the only
one that is illegal.
The invaliuation of the inteiest iates is congiuent
with the iule that a usuiious loan tiansaction is not a
complete nullity but +)&)*06?) only with iespect to the
agieeu inteiest.
The piincipal uebt iemaining without stipulation
foi payment of inteiest can thus be iecoveieu by
juuicial action. Anu in case of such uemanu, anu the
uebtoi incuis in uelay, the uebt eains inteiest fiom the
uate of the uemanu (in this case fiom the filing of the
complaint). Such inteiest is not uue to stipulation, foi
theie was none, the same being voiu. =#07)'4 60 6. +/) 0"
07) -)$)'#! 2'"?6.6"$ "& !#; 07#0 6$ "(!6-#06"$. 0" 2#3
,"$)34 ;7)') 07) +)(0"' 6$*/'. 6$ +)!#34 7) 7#. 0" 2#3
6$0)').0 (3 ;#3 "& +#,#-). BA'08 CCDE4 @6?6! @"+)F8

Since an excessive stipulateu inteiest iate may be voiu foi being
contiaiy to public policy, an action to annul saiu inteiest iate
uoes not piesciibe. Such inueeu is the iemeuy; it is not the action
foi annulment of the ancillaiy ieal estate moitgage.

A.*%B"/3% ;%$%,&'3 8.D

.^7 12 A# PQRR`T

A waiehouseman shall have a lien on goous uepositeu in his
hanus, foi all lawful chaiges foi stoiage anu pieseivation of the
goous (Sec. 27). A waiehouseman having a lien valiu against the
peison uemanuing the goous may iefuse to uelivei the goous to
him until the lien is satisfieu (Sec. S1). Theiefoie, while PNB is
entitleu to the sugai stocks as the enuoisee of the queuans,
ueliveiy to it shall be effecteu only upon payment of the stoiage
fees.
Aftei being ueclaieu not the ownei, but the
waiehouseman, Noah's Aik cannot be uepiiveu of its
iight to enfoice its claim foi waiehouseman's lien, foi
ieasonable stoiage fees anu pieseivation expenses.

The unconuitional piesentment of the ieceipts by PNB foi
payment against Noah's Aik on the stiength of the piovisions of
the Waiehouse Receipts Law caiiieu with it the aumission of the
existence anu valiuity of the stipulations wiitten on the face of
the waiehouse ieceipts, incluuing the unqualifieu iecognition of
the payment of the waiehouseman's lien foi stoiage fees anu
pieseivation expenses.

Impeiative is the iight of a waiehouseman to uemanu payment
of his lien at this junctuie, because unuei Sec.29, the lien may be
lost wheie the waiehouseman suiienueis the possession of the
goous without iequiiing payment of his lien, ()*#/.) #
;#')7"/.),#$G. !6)$ 6. 2"..).."'3 6$ $#0/')8


.^7 2O AH (uouble)

A&0)' ()6$- +)*!#')+ $"0 07) ";$)' "& 07) -""+. ./(9)*0 "& 07)
;#')7"/.) ')*)620.4 (/0 07) ;#')7"/.),#$4 H"#7G. A'I 6. *!#6,6$-
07) '6-70 0" # ;#')7"/.),#$G. !6)$ B&"' 2#3,)$0 "& .0"'#-) &)).
#$+ 2').)'?#06"$ ):2)$.).F8
The subject waiehouse ieceipts themselves containeu a
stipulation which pioviues foi Noah's Aik iight to impose
anu collect waiehouseman's lien.
Even in the absence of such a stipulation, law anu equity
uictate the payment of the waiehouseman's lien puisuant to
Secs. 27 anu S1 of the Waiehouse Receipts Law.
o Sec. 27: a; _)"#?-5+#D)* +?)00 ?)1# ) 0%#* -*
8--$+ $#/-+%&#$ %* ?%+ ?)*$+b 3-" )00 0)_350
,?)"8#+ 3-" +&-")8# )*$ /"#+#"1)&%-* -3 &?#
8--$+2c
o Sec. S1: a; _)"#?-5+#D)* ?)1%*8 ) 0%#* 1)0%$
)8)%*+& &?# /#"+-* $#D)*$%*8 &?# 8--$+ D):
"#35+# &- $#0%1#" &?# 8--$+ &- ?%D 5*&%0 &?#
0%#* %+ +)&%+3%#$2c
! A lien may be lost wheie the
waiehouseman suiienueis the
possession of the goous without iequiiing
payment of his lien, because )
_)"#?-5+#D)*>+ 0%#* %+ /-++#++-": %*
*)&5"#2

E>@;@7:F @76 0>;9:F

H2 dJ7HG B^!2 O2 !;

<$ 07) +"*/,)$0 ')&)'')+ 0" #. J@"$06$/6$- K/#'#$034L M8 N"()! <$*8
"(!6-#0)+ 60.)!& 0" O"!6+(#$I #. # J./')038L
A suiety is uistinguisheu fiom a guaianty in that a 85)")*&-"
is the %*+5"#" -3 &?# +-01#*,: of the uebtoi anu thus binus
himself to pay if the piincipal is 5*)60# &- /):, while a
+5"#&: is the %*+5"#" -3 &?# $#6&4 anu he obligates himself to
pay if the piincipal $-#+ *-& /):.
Suiety
o Be is usually bounu with his piincipal by the
same instiument, executeu at the same time, anu
on the same consiueiation.
o Be is an oiiginal piomissoi anu uebtoi fiom the
beginning, anu is helu, oiuinaiily, to know eveiy
uefault of his piincipal.
o 0sually, he will not be uischaigeu, eithei by the
meie inuulgence of the cieuitoi to the piincipal,
oi by want of notice of the uefault of the piincipal,
no mattei how much he may be injuieu theieby.
uuaiantoi
o The contiact of guaianty is the guaiantoi's own
sepaiate unueitaking, in which the piincipal uoes
not join. It is usually enteieu into befoie oi aftei
that of the piincipal, anu is often suppoiteu on a
sepaiate consiueiation fiom that suppoiting the
contiact of the piincipal.
o The oiiginal contiact of his piincipal is not his
contiact, anu he is not bounu to take notice of its
non-peifoimance.
o Be is often uischaigeu by the meie inuulgence of
the cieuitoi to the piincipal, anu is usually not
liable unless notifieu of the uefault of the
piincipal.
(?# 5+# -3 &?# &#"D a85)")*&##c $-#+ *-& ,&3" ).$'" D#)*
&?)& &?# ,-*&"),& %+ -*# -3 85)")*&##2 "uuaiantee" is
fiequently employeu in business tiansactions to uesciibe not
the secuiity of the uebt but an intention to be bounu by a
piimaiy oi inuepenuent obligation.
o The contiact, albeit uenominateu as a "Continuing
uuaianty," is a contiact of suiety. The teims of
the contiact categoiically obligates E. Zobel Inc.
as "suiety".


B^(>G EB^;^!H !J4.2 O2 BI.H4B;G (He(BGH IBGGA PB(IT

P7) JK/#'#$0)) A-')),)$0L 2'"?6+)+ &"' 07) ."!6+#'3 !6#(6!603 "&
<PQ ;607 RR<@4 07) 2'6$*62#! +)(0"'8
B3 ) /#"+-* 6%*$+ ?%D+#03 +-0%$)"%0: _%&? &?# /"%*,%/)0
$#6&-"b &?# ,-*&"),& %+ ) +5"#&:+?%/2
o When the "uuaiantee Agieement" pioviueu foi
the soliuaiy liability of ITN, it biought ITN to the
level of PPIC anu thus, not meiely seconuaiily
liable but piimaiily liable as a suiety. ITN became
a suiety when it bounu itself soliuaiily with the
piincipal uebtoi.
The use of the woiu "guaiantee" uoes not 62." &#*0" make the
contiact one of guaianty. The woiu is fiequently useu in
business tiansactions to uesciibe the intention to be bounu
by a piimaiy oi an inuepenuent obligation.


.VBG2 7GJJIB^@ IBGGA O2 !;

S$+)' # T))+ "& O/')03.7624 @76$- "(!6-#0)+ 76,.)!& #. ./')03 "&
RUQ8 V#0)'4 RUQ B;607 @76$-F &6!)+ # 2)0606"$ &"' ./.2)$.6"$ "&
2#3,)$0. ;607 07) OM@8
!"#$%&-"+ D): +5# %*$%1%$5)0 +5"#&%#+ -3 $#6&-"F
,-"/-")&%-*+ %* ) +#/)")&# /"-,##$%*8 6#3-"# "#850)"
,-5"&+ $#+/%&# &?# /#*$#*,: -3 ) ,)+# 6#3-"# &?# AH!
%*1-01%*8 ) $#6&-"F,-"/-")&%-*2
o Being a nominal paity in the SEC case, Ching's
piopeities weie not incluueu in the iehabilitation
ieceiveiship that the SEC constituteu to take
custouy of PBN's assets. Theiefoie, the Bank was
not baiieu fiom filing a suit against Ching, as
suiety foi PBN.
! An anomalous situation woulu aiise if
inuiviuual suieties foi uebtoi-
coipoiations may escape liability by
simply co-filing with the coipoiation a
petition foi suspension of payments in the
SEC whose juiisuiction is limiteu only to
coipoiations anu theii assets.
;+ &?# %*+5"#" -3 $#6&b ) +5"#&: %+ 6-5*$ &- /): &?# $#6&
%* &?# -"%8%*)0 )D-5*&b *-& &?# "#$5,#$f"#?)6%0%&)&#$
)D-5*&2
o In gianting the loan to PBN, the Bank iequiieu
Ching's suiety piecisely to insuie full iecoveiy of
the loan in case PNB becomes insolvent oi fails to
pay in full. Thus, Ching cannot use PBN's failuie
to pay in full as justification foi his own ieuuceu
liability. As suiety, Ching agieeu to pay in full
PBN's loan in case it fails to pay in full foi any
ieason, incluuing insolvency.


HA!;^J g AJGBA O2 J4(B@;A

}oint anu seveial uebtois (active soliuaiity) v. Suiety
o A%D%0)"%&:N Soliuaiity signifies that the cieuitoi
can compel any one of the joint anu soliuaiy
uebtois oi the suiety alone to answei foi the
entiiety of the piincipal uebt.
o C%33#"#*,#N The uiffeience lies in the iespective
faculties of the joint anu seveial uebtoi anu the
suiety to seek ieimbuisementinuemnification.
! In the case of 9-%*& )*$ +#1#")0 $#6&-"+,
the soliuaiy uebtoi who pays may claim
fiom his co-uebtois -*0: &?# +?)"#
_?%,? ,-""#+/-*$+ &- #),? (with
inteiest).
! In contiast, even as the suiety is soliuaiily
bounu with the piincipal uebtoi to the
cieuitoi, &?# +5"#&: _?- /):+ ?)+ &?#
"%8?& &- "#,-1#" &?# 3500 )D-5*& /)%$b
)*$ *-& 95+& &?# /"-/-"&%-*)0 +?)"#b
3"-D &?# /"%*,%/)0 $#6&-"f+2
(?# "%8?&+ &- %*$#D*%3%,)&%-* )*$ +56"-8)&%-* )+
8")*&#$ &- &?# 85)")*&-" #M&#*$ )+ _#00 &- +5"#&%#+2
o The application of the piovisions on joint anu
soliuaiy obligations on suietyship, howevei, uoes
not mean that suietyship is withuiawn fiom the
applicable piovisions goveining guaianty.
0theiwise, theie woulu be no uiffeience between
the suiety anu the joint anu seveial uebtois.


(\.;d BO g (\.;d O2 !;

A coipoiate iepiesentative signing as a soliuaiy guaiantee in
his capacity as coipoiate iepiesentative uoes not unueitake
to guaiantee peisonally the payment of the coipoiation's
uebt.
o Bebts incuiieu by coipoiate iepiesentatives,
acting as such, aie not theiis but the uiiect
liability of the coipoiation. As an exception, they
aie peisonally liable only if they so stipulate.
A-0%$)": 85)")*&## 12 +5"#&:
o The clause "we jointly anu seveially agiee anu
unueitake" iefeis to the unueistanuing between
the 2 paities who aie to sign it oi to the liability
existing between themselves. It uoes not iefei to
the unueitaking between eithei one oi both of
them on the one hanu, anu the bank on the othei
with iespect to the liability uesciibeu in the tiust
ieceipt.
o V)$ &?#"# 6##* D-"# &?)* -*# +%8*)&-": &-
&?# &"5+& "#,#%/&+b &?# +-0%$)"%&: 0%)6%0%&:
_-50$ #M%+& 6#&_##* &?# 85)")*&-"+2
HM,5++%-* %+ *-& ) /"#"#h5%+%&# &- +#,5"# 95$8D#*&
)8)%*+& ) 85)")*&-"2
o The guaiantoi can still uemanu uefeiment of the
execution of the juugment against him until aftei
the assets of the piincipal uebtoi shall have been
exhausteu.
(?# 6#*#3%& -3 #M,5++%-* D): 6# _)%1#$2
o Tupaz waiveu excussion when he agieeu that his
liability in the guaianty shall be uiiect anu
immeuiate, without any neeu on the pait of the
bank to take any steps oi exhaust any legal
iemeuies.


?896E9 @76 G<;:E@E9 H!"--"# ?*"I,3,"#3J


C7. O2 !;

O6,/!0#$)"/. ;607 07) ):)*/06"$ "& 07) !"#$. ;#. 07) ):)*/06"$ "&
A..6-$,)$0 "& V)#.)7"!+ =6-70. (3 @/(# 6$ &#?"' "& TUR #.
.)*/'6038 @"$+606"$ WC "& 07) A..6-$,)$0 2'"?6+). &"' 07)
#22"6$0,)$0 "& TUR #. #00"'$)3X6$X&#*0 ;607 #/07"'603 0" .)!! 07)
!)#.)7"!+ '6-70. 6$ *#.) "& +)&#/!0 (3 @/(#4 07) 2'"*))+. 0" ()
#22!6)+ 0" 07) 2#3,)$0 "& 07) !"#$.8 S2"$ +)&#/!04 TUR4 ;607"/0
&"')*!"./') 2'"*))+6$-.4 #22'"2'6#0)+ 07) !)#.)7"!+ '6-70.8
;* )++%8*D#*& &- 85)")*&## )* -60%8)&%-* %+ %* #33#,& )
D-"&8)8#2
o The Assignment of Leaseholu Rights is a
moitgage contiact. It is by way of secuiity foi the
payment of the loans.
!-*$%&%-* QW $%$ *-& ,-*+&%&5&# ) &.$'/- $"--,33"*,/-K
o H0#D#*&+N
! (?#"# _-50$ 6# ) /"-/#"&: D-"&8)8#$
6: _): -3 +#,5"%&: 3-" &?# /):D#*& -3
&?# /"%*,%/)0 -60%8)&%-*2
! (?#"# +?-50$ 6# ) +&%/50)&%-* 3-"
./'"-.',$ .&&*"&*,.',"# 6: &?#
,"#$%&-" -3 &?# &?%*8 D-"&8)8#$ %* ,)+#
-3 *-*F/):D#*& -3 &?# /"%*,%/)0
-60%8)&%-* _%&?%* &?# +&%/50)&#$
/#"%-$2
o Conuition 12 uiu not pioviue that the owneiship
ovei the leaseholu iights woulu automatically
pass to BBP upon Cuba's failuie to pay the loans
on time. It meiely pioviueu foi the appointment
of BBP as attoiney-in-fact foi the sale.
BBP howevei, exceeueu the authoiity vesteu by Conuition
12.
o It hau, without foieclosuie pioceeuings, whethei
juuicial oi extiajuuicial, appiopiiateu Cuba's
leaseholu iights.


7\A(;I;^(H O2 4JAHG

P" -/#'#$0)) 2#3,)$0 "& 07) !"#$4 07) +)(0"'. 2/0 #. *"!!#0)'#! #
2#'*)! "& !#$+8 <0 ;#. .062/!#0)+ 07#0 6$ 07) )?)$0 07)3 &#6! 0" 2#34
07) *')+60"' 7#. 07) "206"$ 0" (/3 07) *"!!#0)'#! &"' # 2')X#''#$-)+
2'6*) 6$*!/.6?) "& 07) #,"/$0 "& 07) !"#$ #$+ 6$0)').08
; +,"5&%*: -3 &?# +&%/50)&%-* -3 &?# /)"&%#+ "#1#)0+ )
+56&0# %*&#*&%-* -3 &?# ,"#$%&-" &- ),h5%"# &?# /"-/#"&:
8%1#* )+ +#,5"%&: 3-" &?# 0-)*2 (?%+ %+ #D6"),#$ %* &?#
,-*,#/& -3 &.$'/- $"--,33"*,/-2
o The uebtois aie obligeu to uispose of the
collateial at the pie-aiiangeu consiueiation
amounting to piactically the same amount as the
loan. In effect, the cieuitoi acquiies the collateial
in the event of non-payment of the loan.
Na'am comments: It is 2#*0/, *",,6.."'6/, since the
option has no sepaiate consiueiation inuepenuent of the
piice.


J^@ O2 4J7;^ GH^CB^@ !J4.2

Y$- .2"/.). ):)*/0)+ # 2'",6.."'3 $"0) &"' 07)6' +)(0 0" ="(#$ "$
07) .#,) +#3 07)3 .6-$)+ # +#*6"$ 6$ 2#3,)$0 #-')),)$08 <$ 07)
#-')),)$04 Y$- ;"/!+ #..6-$ 07) ,"'0-#-)+ 2'"2)'06). 0" ="(#$
6$ .)00!),)$0 "& 07)6' "(!6-#06"$8 A QYA ;#. #!." .6-$)+ "$ 07)
.#,) +#34 ;76*7 2'"?6+). 07#0 &#6!/') "& Y$- 0" 2#3 07)6' +)(0 "$
06,) ;"/!+ -6?) ="(#$ 07) '6-70 0" )$&"'*) 07) +#*6"$ 6$ 2#3,)$0
#-')),)$0 #$+ 0'#$.&)' 0" 60 07) ";$)'.762 "& 07) ,"'0-#-)+
2'"2)'06).8
K?%0# &?# )8"##D#*& %+ *)D#$ a$),%-* %* /):D#*&bc %& %*
3),& ,-*+&%&5&#+ &.$'/- $"--,33"*,/-b )+ 3)%05"# -3 6:
J*8 &- /): &?#%" $#6&+ 8")*&+ 4-6)* &?# "%8?& &-
)5&-D)&%,)00: ),h5%"# -_*#"+?%/ -3 &?# D-"&8)8#$
/"-/#"&%#+2
o B* ) &"5# $),%-* #* /)8-b &?# )++%8*D#*& -3
/"-/#"&: #M&%*85%+?#+ &?# D-*#&)": $#6&2
V#"#b J*8 +&%00 ?)$ &- #M#,5&# ) /"-D%++-":
*-&# 3-" &?#%" $#6& -* &?# +)D# $): )+ &?#:
+%8*#$ &?# $),%-* #* /)8- )8"##D#*&2

?896E9

.;4;U g HA.HGH(; O2 4JC4B@\Hd

="+'6-/)> )0 #!8 2!)+-)+ 07)6' .7#'). "& .0"*I. 0" R#'#3 0" .)*/')
*)'0#6$ "(!6-#06"$.8 S2"$ 07)6' +)&#/!04 #00),20)+ 0" &"')*!"./')
07) 2!)+-).8 R'6"' 0" 07) &"')*!"./')4 ="+'6-/)> )0 #!8 *#/.)+ 07)
*"$.6-$#06"$ ;607 07) @!)'I "& @"/'0 "& *)'0#6$ #,"/$0. ;76*7
#!!)-)+!3 ;)') 0)$+)')+ 0" R#'#3 ()&"')7#$+8 Z";)?)'4 07)
#/*06"$ 0""I 2!#*)8
B* -"$#" 3-" ,-*+%8*)&%-* &- ?)1# &?# #33#,& -3
#M&%*85%+?%*8 &?# /0#$8#b &?# )D-5*&+ +?-50$ ,-1#" *-&
-*0: &?# /"%*,%/)0 0-)* 65& )0+- &?# +&%/50)&#$ %*&#"#+&2
(?# "%8?& -3 &?# ,"#$%&-" &- "#&)%* /-++#++%-* -3 &?# &?%*8
/0#$8#$ #M%+&+ -*0: 5*&%0 &?# $#6& %+ /)%$2
(?# $#6&-" ,)**-& )+= 3-" &?# "#&5"* -3 &?# &?%*8 /0#$8#$
)8)%*+& &?# _%00 -3 &?# ,"#$%&-" 5*0#++ )*$ 5*&%0 ?# ?)$
/)%$ &?# $#6& )*$ %&+ %*&#"#+&2
o ;& &?# +)D# &%D#b &?# "%8?& -3 &?# /0#$8## &-
3-"#,0-+# /0#$8# %+ )0+- #+&)60%+?#$ 5*$#" &?#
!-$#2 K?#* &?# ,"#$%& ?)+ *-& 6##* +)&%+3%#$
%* $5# &%D#b &?# ,"#$%&-" D): /"-,##$ _%&? &?#
+)0# 6: /560%, )5,&%-*2

;9@8 90:@:9 G<;:E@E9

IHCBC; O2 !;

A$"07)' ,"'0-#-) ;#. *"$.060/0)+ "$ 07) ,"'0-#-)+ 2'"2)'06).
+/'6$- 07) ')+),206"$ 2)'6"+8
A%*,# &?# D-"&8)8-" "#D)%*+ )+ &?# )6+-05&# -_*#" -3
&?# /"-/#"&: $5"%*8 &?# "#$#D/&%-* /#"%-$ )*$ ?)+ 3"##
$%+/-+)0 -3 ?%+ /"-/#"&:b &?#"# _-50$ 6# ,-D/0%)*,# _%&?
&?# "#h5%+%&#+ -3 ;"&2 WXSY 3-" &?# ,-*+&%&5&%-* -3 )*-&?#"
D-"&8)8# -* &?# /"-/#"&:2
o C5"%*8 &?# "#$#D/&%-* /#"%-$b %& ,)**-& 6#
+)%$ &?)& &?# D-"&8)8-" %+ *- 0-*8#" &?#
-_*#" -3 &?# 3-"#,0-+#$ /"-/#"&: +%*,# &?#
"50# %+ &?)& &?# "%8?& -3 &?# /5",?)+#" )& )
3-"#,0-+5"# +)0# %+ D#"#0: %*,?-)&# 5*&%0 )3&#"
&?# /#"%-$ -3 "#$#D/&%-* ?)+ #M/%"#$ _%&?-5&
&?# "%8?& 6#%*8 #M#",%+#$2
o (?# "#$#D/&%-* -3 /"-/#"&: +-0$ 5*$#" )
3-"#,0-+5"# +)0# $#3#)&+ &?# %*,?-)&# "%8?& -3
&?# /5",?)+#" )*$ "#+&-"#+ &?# /"-/#"&: &-
&?# +)D# ,-*$%&%-* )+ %3 *- +)0# ?)$ 6##*
D)$#2 B& $-#+ *-& 8%1# &- &?# D-"&8)8-" ) *#_
&%&0#b _?%,? _)+ *#1#" 0-+&b 65& D#"#0:
"#+&-"#+ &- ?%D &?# &%&0# 3"##$ -3 &?#
#*,5D6")*,# -3 &?# 0%#* 3-"#,0-+#$2


V\H4(; ;G7; 4HAJ4( O2 !;

Right of ieuemption v. Equity of ieuemption
o The "%8?& -3 "#$#D/&%-* - unueistoou in the
sense of a pieiogative to ie-acquiie moitgageu
piopeity Q :#)" )3&#" "#8%+&")&%-* -3 &?#
,#"&%3%,)&# -3 +)0# - exists only in the case of
#M&")95$%,%)0 3-"#,0-+5"# of the moitgage.
! ^- +5,? "%8?& %+ "#,-8*%Z#$ %* ) 95$%,%)0
3-"#,0-+5"# #M,#/& -*0: _?#* &?#
D-"&8)8## %+ &?# .^7 -" ) 6)*= -" )
6)*=%*8 %*+&%&5&%-*2
o Hh5%&: -3 "#$#D/&%-* is the iight of the
moitgagoi in a 95$%,%)0 3-"#,0-+5"# of the
moitgage to extinguish the moitgage by paying
the uebt RXFQWX $):+ 3"-D #*&": -3 95$8D#*&b
-" #1#* )3&#" 65& 6#3-"# &?# ,-*3%"D)&%-* -3
+)0#2
K?#"# ) /)"&: 3)%0#$ &- )++#"& ) "%8?& &- "#$##D %*
+#1#")0 ,"5,%)0 +&)8#+ -3 &?# /"-,##$%*8+b %& %+ &-- 0)&# %*
&?# $): 3-" %& &- +56+#h5#*&0: %*1-=# +5,? "%8?& in
opposition to a motion foi issuance of a wiit of possession
aftei confiimation of sale by the couit of the foieclosuie sale
anu the iegistiation of the ceitificate of sale.


A5%,- 12 .?%0%//%*# ^)&%-*)0 7)*=

It is tiue that statutoiy piovisions goveining publication of
notice of moitgage foieclosuie sales must be stiictly
complieu with, anu that even slight ueviations theiefiom will
invaliuate the notice anu ienuei the sale at least voiuable.
Nonetheless, we must not also lose sight of the fact that the
/5"/-+# of the publication of the Notice of Sheiiff's Sale is to
infoim all inteiesteu paities of the $)&#b &%D#b anu /0),# of
the foieclosuie sale.
o Logically, this not only iequiies that the coiiect uate,
time anu place of the foieclosuie sale appeai in the
notice, but also that any anu all inteiesteu paities be
able to $#&#"D%*# that what is about to be solu at the
foieclosuie sale is the "#)0 /"-/#"&: in which they
have an inteiest.
^-&%,#+ )"# 8%1#* 3-" &?# /5"/-+# -3 +#,5"%*8 6%$$#"+ )*$
&- /"#1#*& +),"%3%,# -3 &?# /"-/#"&:2
o If these objectives aie attaineu, immateiial eiiois anu
mistakes will not affect the sufficiency of the notice.
o But if mistakes oi omissions occui in the notices of
sale, which aie calculateu to uetei oi misleau biuueis,
to uepieciate the value of the piopeity, oi to pievent
it fiom biinging a faii piice, such mistakes oi
omissions will be fatal to the valiuity of the notice,
anu also to the sale maue puisuant theieto.
7"#L+%1,I%*5 ") 'B% M,+ &*,$% "* 'B% 3/*&1/3 ,# .
)"*%$1"3/*% 3.1% +"%3 #"' ,#I.1,+.'% 'B% 3.1%K
B3 &?# D-"&8)8## "#&)%*+ D-"# -3 &?# /"-,##$+ -3 &?# +)0#
&?)* ?# %+ #*&%&0#$ &-b &?%+ 3),& )0-*# _%00 *-& )33#,& &?#
1)0%$%&: -3 &?# +)0# M/' 3,-&15 C,I% 'B% -"*'C.C"* . $./3%
") .$',"# '" *%$"I%* 3/$B 3/*&1/3K
B3 &?# )D-5*& -3 &?# 0-)* %+ #h5)0 &- &?# )D-5*& -3 &?#
6%$b &?#"# %+ *- *##$ &- /): &?# )D-5*& %* ,)+?2
o The '#6."$ +G)0') is that it woulu obviously be
senseless foi the sheiiff oi the notaiy public
conuucting the foieclosuie sale to go thiough the iule
ceiemony of ieceiving the money anu paying it back
to the cieuitoi.
(?# /"-,##$+ -3 &?# 3-"#,0-+5"# +)0# +?)00 6# )//0%#$ &- 33
%* -"$#"N
o costs of the sale
o moitgageu uebt
o payment to the junioi encumbianceis, if any in the
oiuei of piioiity
o balance to the moitgagoi
(?# )//0%,)&%-*+ -3 &?# /"-,##$+ -3 &?# +)0# -3 &?#
D-"&8)8#$ /"-/#"&: &- &?# D-"&8)8-">+ -60%8)&%-* %+ )*
.$' ") &.5-%#'b *-& /):D#*& 6: +.$,"#i ?#*,#b %& %+ &?#
D-"&8)8##>+ $5&: &- "#&5"* )*: +5"/05+ %* &?# +#00%*8 /"%,#
&- &?# D-"&8)8-"2
o A moitgagee who exeicises the powei of sale
containeu in a moitgage is consiueieu a */.0"+6#$ "&
07) &/$+ anu, being bounu to apply it piopeily, is
liable to the peisons entitleu theieto if he fails to uo
so.

!B.''%1 G"*'C.C%

;,D# A?-# 4566#" )*$ .0)+&%, !-"/2 12 !; (aftei-incuiieu
obligations)
BAA\HN W0N a chattel moitgage can extenu to covei )3&#"F
%*,5""#$ -60%8)&%-*+

VHGCN ^J2 A chattel moitgage can only covei obligations
existing at the time the moitgage is constituteu.

!-*&"),&+ -3 +#,5"%&: )"# #%&?#" /#"+-*)0
Q
-" "#)0
W
.

Contiacts of ieal secuiity aie subject to the essential
conuition that if the obligation becomes uue anu the uebtoi
uefaults, then the piopeity encumbeieu can be alienateu foi
the payment of the obligation, but that shoulu the obligation
be uuly paiu, then the contiact is automatically extinguisheu
pioceeuing fiom the accessoiy chaiactei of the agieement.
! ;+ &?# 0)_ +- /5&+ %&b -*,# &?# -60%8)&%-* %+
,-D/0%#$ _%&?b &?# ,-*&"),& -3 +#,5"%&: 6#,-D#+b
,&3" ).$'"b ^\GG ;^C OJBC2

While a pleuge, ieal estate moitgage, oi antichiesis may
exceptionally secuie aftei-incuiieu obligations so long as
these futuie uebts aie accuiately uesciibeu, a chattel
moitgage, howevei, can only covei obligations existing at the
time the moitgage is constituteu.
! Although a 2'",6.) expiesseu in a chattel moitgage to
incluue uebts that aie yet to be contiacteu can be a
binuing commitment that can be compelleu upon, &?#
+#,5"%&: %&+#03b ?-_#1#"b $-#+ *-& ,-D# %*&- #M%+&#*,#
-" )"%+# 5*&%0 )3&#" ) ,?)&&#0 D-"&8)8# )8"##D#*&
,-1#"%*8 &?# *#_0: ,-*&"),&#$ $#6& %+ #M#,5&#$
#%&?#" 6: ,-*,05$%*8 ) 3"#+? ,?)&&#0 D-"&8)8# -" 6:
)D#*$%*8 &?# -0$ ,-*&"),& ,-*3-"D)60: _%&? &?#
3-"D /"#+,"%6#$ 6: &?# !?)&&#0 I-"&8)8# G)_2
! Refusal on the pait of the boiiowei to execute the
agieement so as to covei the aftei-incuiieu obligation
can constitute an act of uefault on the pait of the
boiiowei of the financing agieement wheieon the
piomise is wiitten but, of couise, the iemeuy of
foieclosuie can only covei the uebts extant at the time of
constitution anu uuiing the life of the chattel moitgage
sought to be foiecloseu.

A chattel moitgage must comply substantially with the foim
piesciibeu by the Chattel Noitgage Law itself.
! 0ne of the iequisites, unuei Section S theieof, is
an affiuavit of goou faith. While it is not uoubteu
that if such an affiuavit is not appenueu to the
agieement, the chattel moitgage woulu still be
valiu between the paities (not against thiiu
peisons acting in goou faith), the fact, howevei,
that the statute has pioviueu that the paities to
the contiact must execute an oath makes it
obvious that &?# $#6& "#3#""#$ &- %* &?# 0)_ %+ )
,5""#*&b *-& )* -60%8)&%-* &?)& %+ :#& D#"#0:
,-*&#D/0)&#$.
! F0RN 0F 0ATB
o "We seveially sweai that the foiegoing
moitgage is maue foi the puipose of
secuiing the obligation specifieu in the
conuitions theieof, anu foi no othei
puipose, anu that the same is a 95+& )*$
1)0%$ -60%8)&%-*, anu one not enteieu
into foi the puipose of fiauu."

In ,-*&"),&+ -3 /#"+-*)0 +#,5"%&:, such as a guaianty oi a
suietyship, the faithful peifoimance of the obligation by the
piincipal uebtoi is secuieu by the 2)'."$#! commitment of
anothei (the guaiantoi oi suiety).

In a ,-*&"),& -3 "#)0 +#,5"%&:, that fulfillment is secuieu by an
)$*/,('#$*) "& 2'"2)'03.
! in &1%+C%N the placing of movable piopeity in the
possession of the cieuitoi;
! in $B.''%1 -"*'C.C%, by the execution of the
coiiesponuing ueeu substantially in the foim piesciibeu
by law;
! in *%.1 %3'.'% -"*'C.C%, by the execution of a public
instiument encumbeiing the ieal piopeity coveieu
theieby;
! in .#',$B*%3,3b by a wiitten instiument gianting to the
cieuitoi the iight to ieceive the fiuits of an immovable
piopeity with the obligation to apply such fiuits to the
payment of inteiest, if owing, anu theieaftei to the
piincipal of his cieuit

^-&#+ 3"-D I)>)DN
To piotect uebtoi-moitgagoi in cases wheie the agieement
pioviues that the moitgage will extenu to aftei-incuiieu
obligations (to make suie that the moitgagee will unueitake to
amenu the olu contiact oi cieate a new one to incluue the aftei-
incuiieu obligations), it is best to incluue an agency
agieementcontiact. A thiiu paity may be hiieu to act as the
collateial agent of the paities who will execute the
afoiementioneu on the paities' behalf.

.#-/0#>+ 7)*= )*$ ("5+& !-D/)*: 12 C)?%,)* G5D6#"
!-D/)*: (aftei-acquiieu piopeities)

Issue: W0N )3&#"F),h5%"#$ /"-/#"&%#+ may be subject of a
moitgage (in the case, it was a ieal moitgage)
Ratio: YES. A stipulation that aftei-acquiieu piopeities shall
immeuiately become subject to the lien of a moitgage is not
unlawful, as its puipose is to maintain the oiiginal value of the
piopeities given as secuiity. These stipulations aie often piesent
in cases wheie piopeities given as collateial aie peiishable oi
subject to weai anu teai (i.e. machineiies anu tools bought as
ieplacements, *stocks-in-tiaue)


I)=)&% G#)+%*8 )*$ E%*)*,# !-"/-")&%-* 12 K#)"#1#" (#M&%0#
I%00+

BAA\HN W0N machineiy that has been immobilizeu by
uestination may be the subject of a chattel moitgage.
VHGCN YES. Theie is no ieason why a machineiy, which is
movable in its natuie anu becomes immobilizeu only by
uestination oi puipose, may not be tieateu as such. This is
because one who has agieeu is estoppeu fiom uenying the
existence of the chattel moitgage.
The chaiacteiization of the machineiy as chattel by the piivate
iesponuent is inuicative of intention. It impiesses upon the
piopeity the chaiactei ueteimineu by the paities.


C: 12 !;

; D-"&8)8-" _?- 8%1#+ ?%+ /"-/#"&: )+ +#,5"%&: 5*$#" )
,?)&&#0 D-"&8)8# $-#+ *-& /)"& _%&? &?# -_*#"+?%/ -3 &?#
+)D#b even upon his uefault. Be has the iight to sell such
moitgageu piopeity, although unuei the obligation to secuie
the wiitten consent of the moitgagee lest he lay himself open
to ciiminal piosecution unuei Aiticle S19 pai. 2 of the
Reviseu Penal Coue. Bowevei, even if no consent is obtaineu
fiom the moitgagee, the valiuity of the sale will not be
affecteu.
The only iemeuy given to the moitgagee is to have saiu
piopeity solu at public auction anu the pioceeus of the sale
applieu to the payment of the obligation secuieu by the
moitgagee.
57)') # 076'+ 2)'."$ 2/'*7#.). 07) ,"'0-#-)+ 2'"2)'034 7)
#/0",#06*#!!3 .0)2. 6$0" 07) .7"). "& 07) "'6-6$#! ,"'0-#-"'8
Bis iight of owneiship shall be subject to the moitgage of the
thing solu to him.


A#"1%,#_%$# A/#,%)0%+& B*,2 12 !;

! When a cieuitoi-moitgagee assigns his cieuit, he neeu not
get the consent of the uebtoi in oiuei to binu the lattei. Be
only neeus to give N0TICE of such assignment.
! Legal Basis: Ait 2128 (on pleuge): The moitgage
cieuit may be alienateu oi assigneu to a thiiu peison,
in whole oi in pait, ;607 07) &"',#!606). ')1/6')+ (3
!#;8
The piovision applies because: Ait 2141. The
piovisions on pleuge shall apply to chattel
moitgages insofai as they aie not in conflict
with the chattel moitgage law
! The puipose of notice is to infoim the uebtoi that
fiom the uate of the assignment of cieuit, he shoulu
make payments to the assignee anu not to the
oiiginal cieuitoi.
Notice is foi the piotection of the assignee
since befoie notice but aftei assignment,
payment to the oiiginal cieuitoi is valiu
o (?# ,-*+#*& -3 ,"#$%&-"FD-"&8)8## &- )0%#*)&%-* -3
D-"&8)8#$ /"-/#"&: 6: $#6&-"FD-"&8)8-" %+ *#,#++)": %*
-"$#" &- 6%*$ &?# 3-"D#"2


A#"1%,#_%$# A/#,%)0%+& B*,2 12 !;

PK?#"# "%8?& -3 /-++#++%-* %+ *-& $%+/5&#$T
K?#"# &?# "%8?& -3 &?# /0)%*&%33 P)//0%,)*& 3-" "#/0#1%*T &-
&?# /-++#++%-* -3 &?# +/#,%3%#$ /"-/#"&: %+ +- ,-*,#$#$
-" #1%$#*&b &?# ),&%-* 3-" "#/0#1%* *##$ -*0: 6#
D)%*&)%*#$ )8)%*+& ?%D _?- /-++#++#+ &?# /"-/#"&:2
o In uefault of the moitgagoi, 07) ,"'0-#-)) 6. 07)')(3
*"$.060/0)+ #. #00"'$)3X6$X&#*0 "& 07) ,"'0-#-"',
enabling such moitgagee to act foi anu in behalf of
the ownei.
o P7#0 07) +)&)$+#$0 6. $"0 2'6?3 0" 07) *7#00)! ,"'0-#-)
.7"/!+ () 6$*"$.)1/)$06#!8 By the fact that the object
of ieplevin is tiaceu to his possession, one piopeily
can be a uefenuant in an action foi ieplevin.

PK?#"# "%8?& -3 /-++#++%-* %+ $%+/5&#$T
V-_#1#"b %* ,)+# &?# "%8?& -3 /-++#++%-* -* &?# /)"& -3 &?#
/0)%*&%33b -" ?%+ )5&?-"%&: &- ,0)%D +5,? /-++#++%-* -" &?)&
-3 ?%+ /"%*,%/)0b %+ /5& &- 8"#)& $-56& Pa contenuing paity
may contest the legal bases foi plaintiff's cause of action oi an
auveise anu inuepenuent claim of owneiship oi iight of
possession may be iaiseu by that paity, i.e. an auveise anu
inuepenuent claim of owneiship by a thiiu paity), %& ,-50$
6#,-D# #++#*&%)0 &- ?)1# -&?#" /#"+-*+ %*1-01#$ )*$
%D/0#)$#$ 3-" &?# ,-D/0#&# $#&#"D%*)&%-* )*$ "#+-05&%-*
-3 &?# ,-*&"-1#"+:2
B* ) +5%& 3-" "#/0#1%*b . $1%.* *,CB' ") &"33%33,"# -/3' M%
),*3' %3'.M1,3B%+K
o The ieplevin in this case has been iesoiteu to in
oiuei to pave the way foi the foieclosuie of what is
coveieu by the chattel moitgage.
o P7) *"$+606"$. )..)$06#! &"' ./*7 &"')*!"./') ;"/!+ ()
0" .7";4 &6'.0!34 07) ):6.0)$*) "& 07) *7#00)! ,"'0-#-)
#$+4 .)*"$+!34 07) +)&#/!0 "& 07) ,"'0-#-"'8
A%*,# &?# D-"&8)8##>+ "%8?& -3 /-++#++%-* %+ ,-*$%&%-*#$
5/-* &?# ),&5)0 3),& -3 $#3)50& _?%,? %&+#03 D): 6#
,-*&"-1#"&#$b &?# %*,05+%-* -3 -&?#" /)"&%#+b 0%=# &?#
$#6&-" -" &?# D-"&8)8-" ?%D+#03b D): 6# "#h5%"#$ %*
-"$#" &- )00-_ ) 3500 )*$ ,-*,05+%1# $#&#"D%*)&%-* -3 &?#
,)+#2
o An auveise possessoi, who is not the moitgagoi,
cannot just be uepiiveu of his possession, let alone be
bounu by the teims of the chattel moitgage contiact,
simply because the moitgagoi biings up an action foi
ieplevin.


.;IH!; K--$ ("#)&D#*& .0)*& 12 !;

! 0nuei Section 14 of Act No. 1Su8, as amenueu, oi the Chattel
Noitgage Law, 07) (#!#$*) &'", 07) 2'"*))+. "& 07) .#!)4 #&0)'
2#36$- 07) ,"'0-#-)4 .7#!! () 2#6+ 0" 07) ,"'0-#-"' "'
2)'."$. 7"!+6$- /$+)' 76, "$ +),#$+8

It is cleai that the effects of foieclosuie unuei the Chattel
Noitgage Law iun inconsistent with those of pleuge unuei
Aiticle 211S.
! Wheieas, in pleuge, the sale of the thing pleugeu extinguishes
the entiie piincipal obligation, such that the pleugoi may no
longei iecovei pioceeus of the sale in excess of the amount of
the piincipal obligation, A#,&%-* Q[ -3 &?# !?)&&#0 I-"&8)8#
G)_ #M/"#++0: #*&%&0#+ &?# D-"&8)8-" &- &?# 6)0)*,# -3
&?# /"-,##$+b 5/-* +)&%+3),&%-* -3 &?# /"%*,%/)0
-60%8)&%-* )*$ ,-+&+.

Since the Chattel Noitgage Law bais the cieuitoi-moitgagee
fiom ietaining the excess of the sale pioceeus, &?#"# %+ )
,-"-00)": -60%8)&%-* -* &?# /)"& -3 &?# $#6&-"FD-"&8)8-"
&- /): &?# $#3%,%#*,: %* ,)+# -3 ) "#$5,&%-* %* &?# /"%,# )&
/560%, )5,&%-*2
! As explaineu in Q#$6!# P'#+6$- #$+ O/22!3 @"8 ?.8 P#,#'#;
R!#$0#06"$ @".:

J576!) 60 6. 0'/) 07#0 .)*06"$ [ "& A*0 H"8 W\D] 2'"?6+).
07#0 ^# *7#00)! ,"'0-#-) 6. # *"$+606"$#! .#!)G4 60
&/'07)' 2'"?6+). 07#0 60 ^6. # *"$+606"$#! .#!) "&
2)'."$#! 2'"2)'03 #. .)*/'603 &"' 07) 2#3,)$0 "& #
+)(04 "' &"' 07) 2)'&"',#$*) "& .",) "07)' "(!6-#06"$
.2)*6&6)+ 07)')6$8G

! INPLICATI0N: the chattels incluueu in the chattel moitgage
aie only given #. .)*/'603 #$+ $"0 #. # 2#3,)$0 "& 07) +)(0, in
case of a failuie of payment. If the cieuitoi is not peimitteu to
ietain the excess, then the same token woulu iequiie the
uebtoi to pay the ueficiency in case of a ieuuction in the piice
of the chattels.

@#',$B*%3,3
!"#$/**%#$% .#+ ?*%)%*%#$% ") !*%+,'3

C# 7)""#&- 12 O%00)*5#1)

! A piefeiieu cieuitoi's S
iu
paity claim to the pioceeus of a
juuicial foieclosuie sale %+ *-& &?# /"-,##$%*8 contemplateu
by law foi the enfoicement of piefeiences unuei Ait. 2242,
unless the claimant weie enfoicing a cieuit foi taxes which
enjoy absolute piioiity. If none of the claims is foi taxes, a
uispute between 2 cieuitois will not enable the couit to
asceitain the pio iate uiviuenu coiiesponuing to each,
because the iights of othei cieuitois likewise enjoying
piefeience unuei Ait. 2242 cannot be asceitaineu.
! What the law contemplates, thus, is a pioceeuing wheie the
claims of all piefeiieu cieuitois may be binuingly
aujuuicateu, such as %*+-01#*,:b &?# +#&&0#D#*& -3 &?#
$#,#$#*&>+ #+&)&# 5*$#" 450# S] -3 &?# 4J!b )*$ -&?#"
0%h5%$)&%-* /"-,##$%*8+ -3 +%D%0)" %D/-"&2
Ait 224S explains: "the claims oi cieuits enumeiateu in
the 2 pieceuing aiticles shall be consiueieu as moitgages
oi pleuges of ieal oi peisonal piopeity, oi !6)$. ;6076$ 07)
2/'?6); "& !)-#! 2'"?6.6"$. -"?)'$6$- 6$."!?)$*3."
These pioceeuings make pio-iating fully effective, as the
piefeiieu cieuitois aie conveneu anu the impoit of theii
claims asceitaineu.
! In the absence of insolvency pioceeuings, the conflict
between claiming paities must be ueciueu accoiuing to the
piinciple that # 2/'*7#.)' 6$ -""+ &#607 #$+ &"' ?#!/) 0#I).
')-6.0)')+ 2'"2)'03 &')) &'", !6)$. #$+ )$*/,('#$*). "07)'
07#$ .0#0/0"'3 !6)$. #$+ 07".) ')*"'+)+ 6$ 07) *)'06&6*#0) "&
060!)8
! Piivilegeu cieuitois must cause theii claims to be
iecoiueu in the books of the iegistiy of Beeus to
piotect theii iights even outsiue liquiuation oi
insolvency pioceeuings.
o In the new CC, no moie oiuei of piefeience among piefeiieu
cieuits, except foi taxes, which enjoy absolute piefeience. All
piefeiieu cieuitois must be paiu pioiata in piopoition to
amount of theii iespective cieuits. Thus, foi pioiating to be
effective, all the cieuitois must be conveneu anu the impoit
of theii claims asceitaineu. This can be uone thiough
liquiuation anu insolvency pioceeuings.


L2G2 7#"*)"$- !-*+&"5,&%-* 12 !;

A statutoiy lien cannot be enfoiceu in an action foi
specific peifoimance anu uamages.
Ait 2242 only finus application when theie is a
concuiience of cieuits, i.e. when the same specific
piopeity of the uebtoi is subjecteu to the claims of
seveial uebtois anu the value of such piopeity of the
uebtoi is insufficient to pay in full all the cieuitois. In
such a situation, the question of piefeience will aiise.
Theie will be a neeu to ueteimine which of the cieuitois
will be paiu aheau of the otheis
Bue piocess uictates that a statutoiy lien shoulu only be
enfoiceu in the context of some kinu of pioceeuing wheie
the claims of all piefeiieu cieuitois may be binuingly
aujuuicateu, such as insolvency pioceeuings
o Ait 224S: the claims anu liens enumeiateu in
2241 anu 2242 shall be consiueieu moitgages oi
pleuges of ieal oi peisonal piopeity, oi liens
within the puiview of legal piovisions goveining
insolvency

C7. 12 !;

full application of 2241, 2242, 2249 uemanus that theie
must be some pioceeuing wheie the claims of all the
piefeiieu cieuitois may be binuingly aujuuicateu such
as:
o insolvency pioceeuings
o settlement of ueceuent's estate
o othei liquiuation pioceeuings of the same impoit
0nly taxes enjoy an absolute piefeience. All othei
cieuitois enjoy no piioiity among themselves, but must
be paiu pio iata, in piopoition to the amount of theii
iespective cieuits. (Ait. 2249)

2#3"1I%#$5 8.D

@)&#_): H0#,&"-*%,+ !-"/2 12 ;+%)*7)*= !-"/-")&%-*

0nuei sec. 18 of Act 19S6, the issuance of an oiuei
aujuuicating insolvency, aftei the insolvency couit finus the
petition foi insolvency meiitoiious, shall stay ALL penuing
civil actions against insolvent's piopeity. The claimants must
seek ielief in the insolvency pioceeuings.
Sec. 18, howevei, must be ieau with Sec. 6u of the same act,
which applies to the peiiou )3&#" &?# ,-DD#*,#D#*& -3 &?#
/"-,##$%*8+ %* %*+-01#*,:2 Thus, the 2 piovisions shoulu be
haimonizeu as follows:
o 0pon the filing of the petition foi insolvency, penuing
civil actions against the piopeity of the uebtoi aie
not ipso facto stayeu, but the insolvent may apply
with the couit in which the actions aie penuing foi a
stay of the actions against the insolvent's piopeity. If
the couit giants it, penuing civil actions against the
piopeity shall be stayeu; otheiwise, they shall
continue. 0nce an oiuei of insolvency neveitheless
issues, all civil pioceeuings against the uebtoi's
piopeity aie by statutoiy commanu, automatically
stayeu.
(?# %++5)*,# -3 )* %*+-01#*,: -"$#" ?)+ &?# #33#,& -3
)5&-D)&%,)00: +&):%*8 )00 /#*$%*8 ,%1%0 ),&%-*+2 0nuei sec.
6u of Act 19S6, such actions may only be justifieu to continue
foi puiposes of asceitaining the amount uue fiom uebtoi.
B*+-01#*,: ,-5"& %+ 6#"#3& -3 95"%+$%,&%-* -1#" +5"#&%#+ -3
&?# /"%*,%/)0 $#6&-"2 A suit against the suiety, insofai as the
suiety's liability is conceineu, is not affecteu by insolvency
pioceeuings. The same piinciple holus tiue foi suieties of
uistiesseu coipoiations unueigoing iehabilitation
pioceeuings. Suieties of uistiesseu coipoiations can be sueu
sepaiately to enfoice his liability as such, notwithstanuing an
oiuei ueclaiing the uebtoi unuei a state of suspension of
payment.


!"*&"*.'% ;%B.M,1,'.',"#


456: B*$5+&"%)0 1 !;

Rehabilitation contemplates a continuance of coipoiate life anu
activities in an effoit to iestoie anu ieinstate the coipoiation to
its foimei position of successful opeiation anu solvency. When a
uistiesseu company is placeu unuei iehabilitation, the
appointment of a management committee follows to avoiu
collusion between the pievious management anu cieuitois it
might favoi, to the piejuuice of the othei cieuitois. All assets of a
coipoiation unuei iehabilitation ieceiveiship aie helu in tiust
foi the equal benefit of all cieuitois to piecluue one fiom
obtaining an auvantage oi piefeience ovei anothei by the
expeuiency of attachment, execution oi otheiwise. As between
the cieuitois, the key phiase is equality in equity. 0nce the
coipoiation thieateneu by bankiuptcy is taken ovei by a
ieceivei, all the cieuitois ought to stanu on equal footing. Not
any one of them shoulu be paiu aheau of the otheis. This is
piecisely the ieason foi suspenuing all penuing claims against
the coipoiation unuei ieceiveiship.

N0TES:
! Between Benhai anu Ruby - contiact T0 loan
o Theie is no tiue loan" if theie was a contiact 0F
loan, the cieuitoi woulu have been Chinabank, as
Benhai only offeieu Ruby to use its cieuit facility
! Remembei that it was Benhai that paiu some of the
cieuitois anu not Ruby. But the cieuitois assigneu theii
iights to Benhai, effectively making Benhai one of Ruby's
cieuitois. Anu unuei the ieviseu iehab plan, payments
maue by Benhai unuei the voiueu ueeus of assignment
weie iecognizeu as payable to Benhai unuei the ieviseu
plan.


4!7! 1 B;!

Rules of thumb:
1. All claims against coipoiations, paitneiships, oi
associations that aie penuing befoie any couit, tiibunal
oi boaiu, without uistinction as to whethei oi not a
cieuitoi is secuieu oi unsecuieu shall be suspenueu
effective upon the appointment of a management
committee, iehabilitation ieceivei, boaiu oi bouy in
accoiuance with the piovisions of PB 9u2-A.
2. Secuieu cieuitois ietain theii piefeiences ovei
unsecuieu cieuitois but enfoicement of such piefeience
is equally suspenueu upon the appointment of a
management committee, iehabilitation ieceivei, boaiu oi
bouy. In the event that assets of the coipoiation,
paitneiship oi association aie finally liquiuateu,
howevei, secuieu anu piefeiieu cieuits unuei the
applicable piovisions of the Civil Coue will uefinitely
have piefeience ovei unsecuieu ones.

N0TES: All claims aie tieateu equally " concept of paii passu


;/1%3 ") ?*"$%+/*% "# !"*&"*.'% ;%B.M,1,'.',"#

GH!; 4#)0&: !-"/ 1 I)*5#0) !-"/

The amount of iental is an essential conuition of any lease
contiact. The change of its iate (gioss uisciepancy between the
amounts of ient agieeu upon by the paities anu those pioviueu
in the Rehabilitation plan) is not justifieu as it impaiis the
stipulation between the paities.

The Stay 0iuei issueu by the couit uiiecteu Nanuela to pay in
full all auministiative expenses incuiieu aftei its issuance.
Auministiative expenses aie costs associateu with the geneial
auministiation of an oiganization anu incluue such items as
utilities, ients, salaiies, postages, fuinituie anu housekeeping
chaiges. Inasmuch as ients aie consiueieu as auministiative
expenses anu consiueiing that the Stay 0iuei uiiecteu
iesponuent Nanuela to pay the ients in full, then it must comply
at the iates agieeu upon.

4566#"_-"0$ 1 ^G4!

! The law is cleai: upon the cieation of a management
committee oi the appointment of a iehabilitation ieceivei, all
claims foi actions "shall be suspenueu accoiuingly." No
exception in favoi of laboi claims is mentioneu in the law.
The law makes no uistinction oi exemptions. S(6 !): $"$
+6.06$-/60 $)* $". +6.06$-/)') +)(),".. Allowing laboi cases
to pioceeu cleaily uefeats the puipose of the automatic stay
anu seveiely encumbeis the management committee's time
anu iesouices.

! The piefeiential iight of woikeis anu employees unuei Ait.
11u of the Laboi Coue may be invokeu only upon the
institution of insolvency oi juuicial liquiuation pioceeuings.
The puipose of iehabilitation pioceeuings is to enable the
company to gain a new lease on life anu theieby allow
cieuitois to be paiu theii claims fiom its eainings. In
insolvency pioceeuings on the othei hanu, the company
stops opeiating anu the claims of cieuitois aie satisfieu fiom
the assets of the insolvent coipoiation. The piesent case
involves the iehabilitation anu not the liquiuation. Bence the
piefeience of cieuit gianteu to woikeis oi employees unuei
Ait. 11u is not applicable.


.;G 1 !;

Claims foi uamages baseu on a bieach of contiact of caiiiage aie
also stayeu upon the appointment by the SEC of management
committee oi a iehabilitation ieceivei.

N0TES: If claims aie stayeu, the iecouise of the family is eithei
to: 1) file claim foi uamages with the iehabilitation ieceivei; oi
2) file a Relief of Stay 0iuei (Sec. 1u, Rules of Coip. Rehab)
aiguing that uamages neeu not be iestiuctuieu. B0 N0T IuN0RE
C0RP. REBAB. PR0CEEBINuS.


!0)"%-* 1 ^G4!

The LA, NLRC oi CA shoulu not have pioceeueu to iesolve the
complaint foi illegal uismissal in view of the iehabilitation
pioceeuings. Insteau, it shoulu have uiiecteu the complainant to
louge hei claim befoie the ieceivei of Claiion. Bowevei, to iefile
the claim aftei 8 yeais lapseu, the Couit ueems it most expeuient
anu auvantageous foi both paities that Claiion's liability be
ueteimineu with finality insteau of filing befoie liquiuatois of
Claiion.


A-6"#95)*%&# 1 ;A7 C#1&2 !-"/

The inteiim iules uefine a claim as iefeiiing to all claims oi
uemanus, of whatevei natuie oi chaiactei against a uebtoi oi its
piopeity, whethei foi money oi otheiwise. The uefinition is all
encompassing as it iefeis to all actions whethei foi money oi
otheiwise. Theie aie no uistinctions oi exemptions.

As such the BL0RB aibitei shoulu have suspenueu the
pioceeuings foi iescission of contiact anu uamages upon the
appioval by the SEC of the ASB uioup of Companies'
iehabilitation plan anu the appointment of its iehabilitation
ieceivei. By the suspension of the pioceeuings, the ieceivei is
alloweu to fully uevote his time anu effoits to the iehabilitation
anu iestiuctuiing of the uistiesseu coipoiation. By allowing the
pioceeuings, the BL0RB aibitei gave unuue piefeience to
Sobiejuanite ovei the othei cieuitois anu claimants of ASBBC.


I#&"-6)*= 1 AG@( V-0$%*8+

SLuT's anu Bylanco's complaints uiu not seek monetaiy iecoveiy
oi to touch the coipoiate coffeis of ASB aheau of otheis. They uiu
not even consiuei themselves as money claimants. All they ask
was foi the enfoicement of ASB's statutoiy anu contiactual
obligations as a conuominium uevelopei. Bence theii claims aie
not stayeu foi they uo not involve pecuniaiy consiueiation unlike
in the case of Sobiejuanite.

Also, Sec. 24 of the inteiim iules limits the coveiage of the Rules
on iehabilitation anu consequently the iule of suspension of
action to those who stanu in the categoiy oi uebtois anu
cieuitois. The ielationship between the petitionei banks, as
moitgagoi anu iesponuents, as unit buyeis, cannot be that of a
uebtoi-cieuitoi so as to biing the case within the puiview of the
iules on coipoiate iecoveiy.

N0TES:
! Cieuitoi-uebtoi " shoulu have been constiueu in a moie
geneial concept (as in obligations)
! Claim " what about "money oi otheiwise" uo you not
unueistanu.
! Ruling might have been coiiect but iatiocination was
uubious
o Shoulu have focuseu on the fact that conuo selleis
cannot claim the units as theii assets but only
holu them in tiust; hence claims against the units
aie not stayeu oi suspenueu


IKAA 1 C)_):

A lettei of cieuit is an engagement by a bank oi othei peison
maue at the iequest of a customei that the issuei shall honoi
uiafts oi othei uemanus of payment upon compliance with the
conuitions specifieu in the cieuit. It is an absolute unueitaking to
pay the money auvanceu oi the amount foi which cieuit is given
on the faith of the instiument. It is a piimaiy obligation anu not
an accessoiy contiact. While it is a secuiity aiiangement, it is not
conveiteu into a contiact of guaianty.

The piohibition is on the enfoicement of claims against
guaiantois oi suieties of the uebtois whose obligations aie not
soliuaiy with the uebtoi. The paiticipating bank's obligation aie
soliuaiy with Naynilau in that it is a piimaiy, uiiect, uefinite anu
an absolute unueitaking to pay anu is not conuitioneu on the
piioi exhaustion of the uebtoi's assets. Being soliuaiy, the claims
against the bank can be puisueu sepaiately fiom anu
inuepenuently of the iehabilitation case.

N0TES: Why is Naynilau so inteiesteu. L0C is in effect a contiact
T0 loan; that when NWSS calls foi the lettei of cieuit anu the
bank pays, it becomes a contiact 0F loan. The bank becomes
Naynilau's cieuitoi. If this is the case, Naynilau cannot use the
same uefenses against the bank.


J*8 1 .!B7

The bank as cieuitoi may pioceeu against petitionei-spouses as
suieties uespite the execution of the N0A which pioviueu foi the
suspension of payment anu filing of collection suits against BNC.
The bank's iight to collect payment fiom the suiety exists
inuepenuently of its iight to pioceeu uiiectly against the
piincipal uebtoi.


I#&"-6)*= 1 ;A7 V-0$%*8+

Theie is no compulsion on the pait of the bank to accept a uacion
en pago aiiangement of the moitgageu piopeities baseu on ASB
uioup of Companies' tiansfei values anu to conuone inteiests
anu penalties.

The uacion en pago piogiam anu the intent of ASB to ask
cieuitois to waive the inteiests, penalties anu ielateu chaiges
aie not compulsoiy in natuie. They aie meiely pioposals foi the
cieuitois to accept. If the uacion en pago uoes not mateiialize in
case secuieu cieuitois iefuse to agiee theieto, the Rehabilitation
Plan contemplates to settle the obligations to secuieu cieuitois
with moitgageu piopeities at selling piices.

The appioval of the Rehabilitation Plan by the SEC Beaiing Panel
is in fuitheiance of the iationale behinu PB 9u2-A, as amenueu,
which is "to effect a feasible anu viable iehabilitation" of ailing
coipoiations which affect the public welfaie.

N0TES: But isn't the iehab plan compulsoiy. (that the couit may
even appiove it ovei the objections of the cieuitoi)


!?)+ 4#)0&: )*$ C#1#0-/D#*& !-"/2 1 ()0)1#")

Wheie no extiaoiuinaiy coipoiate acts (oi one that unuei the
law woulu call foi a 2S vote) aie contemplateu to be uone in
caiiying out the pioposeu iehabilitation plan, then the appioval
of stockholueis woulu only be by a majoiity, not necessaiily 2S
vote, as long as, theie is a quoium.