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ONLINE DIGESTS (2085-2090)

ESTANISLAUA ARENAS vs. FAUSTO O. RAYMUNDO G.R. No. L-5741. March 13, 1911 TORRES, J.: FACTS: In 1908, the attorneys for Estanislaua Arenas and Julian La O, brought suit against Fausto O. Raymundo. The plaintiffs alleged that the jewelries subject of the case, was delivered to Elena de Vega to sell on commission, and that the latter, in turn, delivered it to Conception Perello, likewise to sell on commission, but that Perello, instead of fulfilling her trust, pledged the jewelry in the defendant's pawnshop. Conception Perello was prosecuted for estafa, convicted, and the judgment became final; that the said jewelry was then under the control and in the possession of the defendant, as a result of the pledge by Perello, and that the former refused to deliver it to the plaintiffs. Thus counsel for the plaintiffs asked that judgment be rendered sentencing the defendant to make restitution of the said jewelry and to pay the costs. The defendant, as a special defense alleged that the jewelry was pledged on his pawnshop by Conception Perello as security for a loan of P1,524, with the knowledge, consent, and mediation of Gabriel La O, a son of the plaintiffs, as their agent, and that, in consequence thereof, the said plaintiffs were estopped from disavowing the action of the said Perello. Judgment was rendered sentencing the defendant to restore to the plaintiff spouses the jewelry described in the complaint, the right being reserved to the defendant to institute his action against the proper party. ISSUE: Whether the subject jewelry be returned to the owner without indemnifying the pawnshop when it was pledged. HELD: The possession of personal property, acquired in good faith, is equivalent to a title thereto. However, the person who has lost personal property or has been illegally deprived thereof may recover it from whoever possesses it. If the possessor of personal property, lost or stolen, has acquired it in good faith at a public sale, the owner can not recover it without reimbursing the price paid therefor." Neither can the owner of things pledged in pawnshops, established with the authorization of the Government, recover them, whosoever may be the person who pledged them, without previously refunding to the institution the amount of the pledge and the interest due. With regard to things acquired on exchange, or at fairs or markets or from a merchant legally established and usually employed in similar dealings, the provisions of the Code of Commerce shall be observed. In the cause prosecuted against Perello, as also in the present suit, it was not proven that Estanislaua authorized the former to pawn the jewelry given to her by Arenas to sell on commission. Because of the mere fact of Perello's having been convicted and sentenced for estafa, and for the very reason that she is now serving her sentence must be complied with, that is, the jewelry misappropriated must be restored to its owner, inasmuch as it exists and has not disappeared this restitution must be made, although the jewelry is found in the pawnshop of Fausto O. Raymundo and the latter had acquired it by legal means. Raymundo however retains his right to collect the amounts delivered upon the pledge, by bringing action against the proper party. This finding is in accord with the provisions of the Penal Code and article 464 of the Civil Code. The exception contained in paragraph 3 of article 464 is not applicable to the present case because a pawnshop does not enjoy the privilege established by said article. The owner, notwithstanding the fact that he acted in good faith, did not acquire the jewels at a public sale. Neither does a pawnshop enjoy the privilege granted to a monte de piedad. Even supposing that the defendant Raymundo had acted in good faith in accepting the pledge of the jewelry in litigation, even then he would not be entitled to retain it until the owner thereof reimburse him for the amount loaned to the embezzler, since the said owner of the jewelry, the plaintiff, did not make any contract with the pledgee, that would obligate him to pay the amount loaned to Perello, and the trial record does not disclose any evidence, even circumstantial, that the plaintiff Arenas consented to or had knowledge of the pledging of her jewelry in the pawnshop of the defendant.

For this reason, and because Conception Perello was not the legitimate owner of the jewelry which she pledged to the defendant Raymundo, for a certain sum that she received from the latter as a loan, the contract of pledge entered the jewelry so pawned can not serve as security for the payment of the sum loaned, nor can the latter be collected out of the value of the said jewelry. Article 1857 of the Civil Code prescribes as one of the essential requisites of the contracts of pledge and of mortgage, that the thing pledged or mortgaged must belong to the person who pledges or mortgages it. This essential requisite for the contract of pledge between Perello and the defendant being absent as the former was not the owner of the jewelry given in pledge, the contract is as devoid of value and force as if it had not been made, and as it was executed with marked violation of an express provision of the law, it can not confer upon the defendant any rights in the pledged jewelry, nor impose any obligation toward him on the part of the owner thereof, since the latter was deprived of her possession by means of the illegal pledging of the said jewelry, a criminal act. Between the supposed good faith of the defendant Raymundo and the undisputed good faith of the plaintiff Arenas, the owner of the jewelry, neither law nor justice permit that the latter, after being the victim of the embezzlement, should have to choose one of the two extremes of a dilemma, both of which, without legal ground or reason, are injurious and prejudicial to her interest and rights, that is, she must either lose her jewelry or pay a large sum received by the embezzler as a loan from the defendant, when the plaintiff Arenas is not related to the latter by any legal or contractual bond out of which legal obligations arise. The decision of the trial court is affirmed.

G.R. No. L-32116 April 2l, 1981 RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners, vs. THE COURT OF APPEALS and MAXIMA CASTRO, respondents. FACTS: Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank of Caloocan to apply for a loan. Valencia arranged everything about the loan with the bank. He supplied to the latter the personal data required for Castro's loan application. After the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed a promissory note corresponding to her loan in favor of the bank. On the same day, the Valencia spouses obtained from the bank an equal amount of loan for P3,000.00. They signed another promissory note (Exhibit "2") corresponding to their loan in favor of the bank and had Castro affixed thereon her signature as co-maker. Both loans were secured by a real-estate mortgage on Castro's house and lot. Later, the sheriff of Manila sent a notice to Castro, saying that her property would be sold at public auction to satisfy the obligation covering the two promissory notes plus interest and attorney's fees. Upon request by Castro and the Valencias and with conformity of the bank, the auction sale was postponed, but was nevertheless auctioned at a later date. Castro claimed that she is a 70-year old widow who cannot read and write in English. According to her, she has only finished second grade. She needed money in the amount of P3,000.00 to invest in the business of the defendant spouses Valencia, who accompanied her to the bank to secure a loan of P3,000.00. While at the bank, an employee handed to her several forms already prepared which she was asked to sign, with no one explaining to her the nature and contents of the documents. She also alleged that it was only when she received the letter from the sheriff that she learned that the mortgage contract which was an encumbrance on her property was for P6.000.00 and not for P3,000.00 and that she was made to sign as co-maker of the promissory note without her being informed. Castro filed a suit against petitioners contending that thru mistake on her part or fraud on the part of Valencias she was induced to sign as co-maker of a promissory note and to constitute a mortgage on her house and lot to secure the questioned note. At the time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with the court a quo in full payment of her personal loan plus interest. Castro prayed for: (1) the annulment as far as she is concerned of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; and (2) for the discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the court a quo upon the filing of her complaint. ISSUE: Whether or not respondent court correctly affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00 only. HELD: Yes. RATIO: While the Valencias defrauded Castro by making her sign the promissory note and the mortgage contract, they also misrepresented to the bank Castro's personal qualifications in order to secure its consent to the loan. Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both Castro and the bank committed mistake in giving their consents to the contracts . In other words, substantial mistake vitiated their consents given. For if Castro had been aware of what she signed and the bank of the true qualifications of the loan applicants, it is evident that they would not have given their consents to the contracts. Article 1342 of the Civil Code which provides: Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual.

We cannot declare the promissory note valid between the bank and Castro and the mortgage contract binding on Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto, such may however be invalidated on the ground of substantial mistake mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the Valencias . Thus, in the case of Hill vs. Veloso, this Court declared that a contract may be annulled on the ground of vitiated consent if deceit by a third person, even without connivance or complicity with one of the contracting parties, resulted in mutual error on the part of the parties to the contract. The fraud particularly averred in the complaint, having been proven, is deemed sufficient basis for the declaration of the promissory note invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract valid only up to the amount of P3,000.00.

CAVITE DEVELOPMENT BANK AND FAR EAST BANK AND TRUST COMPANY, PETITIONERS, VS. SPOUSES CYRUS LIM AND LOLITA CHAN LIM AND COURT OF APPEALS, RESPONDENTS. Facts: Rodolfo Guansing obtained a loan from Cavite Development Bank(CDB) and offered as security his real estate property. For failing to pay his loan the property was foreclosed and title was issued in the name of CDB. Now here comes Lolita Chan Lim, the respondent on this case who offered to buy the property from CDB. Mrs. Lim paid P30,000.00 as option money and was issued receipt by CDB. However , Mrs. Lim later discovered that the title of the property is being disputed by Perfecto Guansing, the father of the mortgagee Rodolfo Guansing. In fact, in a separate case it was declared that Rodolfo fraudulently secured title to the said mortgaged property and title to it was restored to Perfecto . The decision has since become final and executory. Aggrieved by what she considered a serious misrepresentation by CDB and its mother company FEBTC, on their ability to sell the subject property, filed an action for specific performance and damage against petitioners. Issues: Was the sale between CDB and Mrs. Lim perfected? Is CDB liable for damges? Is the sale valid? Decision: Contracts are not defined by the parties thereto but by the principles of law. In determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties. In the case at bar, the sum of P30,000.00, although denominated in the offer to purchase as option money is actually in the nature of earnest money or down payment when considered with the other terms of the offer. It is because when Mrs. Lim offered to buy the property the 10% so called option money forms part of the purchase price as contemplated under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price. CDB cannot invoke the defense that it is a mortgagee in good faith. It only applies to private individuals and not to banking institutions. They cannot be excused from the duty of exercising the due diligence required of banking institutions. It is standard practice for banks, before approving a loan, to investigate who are the real owners thereof. Banking is affected with public interest that is why they are expected to exercise more care and prudence than private individuals. Considering CDBs negligence it is therefore liable for damages. As to its validity, the doctrine of Nemo dat quod non habet applies. One cannot give what one does not have. The seller not being the owner the sale is void.

NATALIA P. BUSTAMANTE vs. SPOUSES RODITO F. ROSEL and NORMA A. ROSEL G.R. No. 126800 November 29, 1999 PARDO, J.: Facts: 1. Norma Rosel entered into a loan agreement with Natalia Bustamante and her late husband Ismael C. Bustamante for the amount of P100,000 for the period of 2 years with interest of 18% a. and to guaranty payment, putting as collateral 70 sqm inclusive of the apartment, of the said land b. that if borrowers fail to pay, lender has an option to buy the collateral for 200k 2. When loan was to mature, Spouses Rosel proposed to buy at a pre-set price of 200k 3. Bustamante refused and requested for extension of time to pay the loan. a. offered to sell another residential lot with the principal loan plus interest as downpayment. 4. Spouses refused to extend the payment of the loan and accept the lot as it was occupied by squatters and Bustamante and her husband were not the owners but mere land developers entitled to subdivision shares or commission if and when they developed at least 1/2 of the subdivision area. 5. Bustamante tendered payment of the loan which the Spouses refused to accept a. insisting on Bustamante's signing of a prepared deed of absolute sale of the collateral 6. Spouses Rosel filed with RTC a complaint for specific performance with consignation against the Spouses Bustamante. 7. Spouses Rosel sent a demand letter asking Bustamante to sell the collateral pursuant to the option to buy embodied in the loan agreement. 8. However, Bustamante filed with RTC a petition for consignation, and deposited the amount of P153,000 with the City Treasurer. 9. Bustamante still refused and the barangay conciliation failed a. so Spouses consigned the amount of P47,500 with the TC b. Spouses considered the principal loan of P100k and interest of P52k so leaving a balance of 47.5k 10. TC ruled and a. denied prayer for the execution of the Deed of Sale to convey the collateral b. ordered Bustamante to pay the loan with interest counted from due date until time when Bustamante deposited the amount with the City Treasurer. 11. Spouses appealed and CA reversed a. ordering Bustamante to accept the amount of P47k deposited with the Clerk of Court b. and Bustamante to execute the Deed of Sale c. Bustamante are allowed to withdraw the P153k deposited by them 12. Hence, Petition BUSTAMANTE: that the real intention of the parties to the loan was to put up the collateral as guarantee similar to an equitable mortgage according to Article 1602 of the Civil Code. SPOUSES ROSEL: that the agreement between the parties was not a sale with right of re-purchase, but a loan with interest at 18% per annum for a period of two years and if petitioner fails to pay, the respondent was given the right to purchase the property or apartment for P200,000.00, which is not contrary to law, morals, good customs, public order or public policy. Issue: Did Bustamante fail to pay the loan at its maturity date and whether the stipulation in the loan contract was valid and enforceable? Bustamante did not fail to pay and Stipulation was void Held: The loan was due for payment on March 1, 1989. o On said date, Bustamante tendered payment to settle the loan which the Spouses refused to accept, insisting that Bustamante sell to them the collateral of the loan. o When Spouses refused to accept payment, Bustamante consigned the amount with the trial court. There was eagerness from the Spouses to acquire the property given as collateral to guarantee the loan. The sale of the collateral is an obligation with a suspensive condition. o It is dependent upon the happening of an event, without which the obligation to sell does not arise. o Since the event did not occur, Spouses do not have the right to demand fulfillment of Bustamantes obligation, especially where the same would not only be disadvantageous to Bustamante but would also unjustly enrich the Spouses considering the inadequate consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City. On Spouses argument that contracts has the force of law between the contracting parties and must be complied with in good faith. o There are, exceptions to the rule, specifically Article 1306 of the Civil Code o Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy Stipulation of the parties reveals an intention of the creditor to acquire the property given as security for the loan. This is embraced in the concept of pactum commissorium, which is proscribed by law.

The elements of pactum commissorium are as follows: o (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and o (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. A significant task in contract interpretation is the ascertainment of the intention of the parties and looking into the words used by the parties to project that intention. The intent to appropriate the property given as collateral in favor of the creditor (SPOUSES) appears to be evident, for the debtor (BUSTAMANTE) is obliged to dispose of the collateral at the pre-agreed consideration amounting to practically the same amount as the loan. In effect, the creditor acquires the collateral in the event of non-payment of the loan. o This is within the concept of pactum commissorium. o Such stipulation is void. Petition Granted


TORRES, J.: FACTS: In 1905, the defendants borrowed from the plaintiff 480 pesos, payable in January of said year under the agreement that if, at the expiration of the said period, said amount should not be paid it would be understood that the house and lot they owned be considered as absolutely sold to the plaintiff for the said sum. The plaintiff filed a complaint in the Court of First Instance of La Laguna, praying that judgment be rendered in his behalf ordering the defendants to deliver to him the house and lot claimed, and to pay him in addition thereto as rent the sum of pesos per month from February of that year, and to pay the costs of the action. The defendants argued that the principal borrowed was only 200 pesos and that the interest was 280 pesos, although the amount of indebtedness was made to appear in the sum of 480 pesos; and that as their special defense defendants alleged that they offered to pay the plaintiff the sum of 480 pesos, but the plaintiff had refused to accept the same. The trial court rendered a judgment ordering the defendants to deliver to the plaintiff the house and lot and to pay the costs of the action. ISSUE: Whether or not the two contracts entered into between the parties are void. HELD: The fact that the parties have agreed at the same time, in such a manner that the fulfillment of the promise of sale would depend upon the nonpayment or return of the amount loaned, has not produced any charge in the nature and legal conditions of either contract, or any essential defect which would tend to nullify the same. If the promise of sale is not vitiated because, according to the agreement between the parties thereto, the price of the same is to be the amount loaned and not repaid, neither would the loan be null or illegal, for the reason that the added agreement provides that in the event of failure of payment the sale of property as agreed will take effect, the consideration being the amount loaned and not paid. The property, the sale of which was agreed to by the debtors, does not appear mortgaged in favor of the creditor, because in order to constitute a valid mortgage it is indispensable that the instrument be registered in the Register of Property, in accordance with article 1875 of the Civil Code. In the case at bar, the transaction does not constitute a mortgage, nor could it possibly be a mortgage, for the reason of said document is not vested with the character and conditions of a public instrument. Also, the said property could not be pledged, not being personal property, and notwithstanding the said double contract the debtor continued in possession thereof and the said property has never been occupied by the creditor. Neither was there ever any contract of antichresis by reason of the said contract of loan, inasmuch as the creditor-plaintiff has never been in possession thereof, nor has he enjoyed the said property, nor for one moment ever received its rents; therefore, there are no proper terms in law, taking into consideration the terms of the conditions contained in the aforesaid contract, whereby this court can find that the contract was null, and under no consideration whatever would it be just to apply to the plaintiff articles 1859 and 1884 of the same code. The contract (pactum commissorium), indicates the existence of the contracts of mortgage or of pledge or that of antichresis, none of which have coincided in the loan indicated herein. It is a principle in law, that the will of the contracting parties is the law of contracts. It was agreed between plaintiff and defendants herein that if defendants should not pay the loan of 480 pesos in January1905, the property belonging to the defendants and described in the contract should remain sold for the aforesaid sum. The document of contract has been recognized by the defendant Alinea and by the witnesses who signed same with him, being therefore an authentic and efficacious document, in accordance with article 1225 of the Civil Code; and as the amount loaned has not been paid and continues in possession of the debtor, it is only just that the promise of sale be carried into effect, and the necessary instrument be executed by the vendees. Therefore, by virtue of the reasons given above and accepting the findings given in the judgment appealed from, we affirm the said judgment herein, with the costs against the appellants. After expiration of twenty days from the date of the notification of this decision let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the court from whence it came for proper action.

WILLARD, J., dissenting: This contract violates the fundamental principle of the Spanish law, which does not permit a debtor, at the time he secures a loan of money, to make an agreement whereby the mere failure to pay the loan at maturity shall divest him irrevocably or allow his interest in the specific property mentioned in the agreement without any right on his part to redeem or to have the property sold to pay the debt. (Civil Code, arts. 1859, 1872, and 1884.) I therefore dissent. Alcantara v.Alinea Facts: 1. In 1904, Ambrosio Alinea and Eudosia Belarmino borrowed from Pedro Alcantara the amount of 480 pesos, payable in January 1905. 2. It was agreed that if, at the expiration of the said period and the said amount should not be paid, the house owned by the defendants and located in the town of San Pablo be considered as absolutely sold to the plaintiff for the said sum. 3. Although the time for the payment of said sum has expired and no payment has been made, the defendants refused to deliver to plaintiff the said property. 4. Defendants alleged that the principal borrowed was only 200 pesos and that the interest was 280 pesos, and that they offered to pay the plaintiff the sum of 480 pesos, but the plaintiff had refused to accept it. 5. Trial court ruled for the plaintiff.

Issue: Was the contract between the parties that of mortgage, or pledge, or antichresis and was the contract against the law? (Note: The dissent suggest that identifying the nature of the contract between the parties was the issue because the Spanish law then did not allow an agreement whereby the mere failure to pay the loan at maturity shall divest a debtor of a specific property without any right on his part to redeem the property (pledge, mortgage). The contract in this case did not give to a debtor a right to redeem.) Decision: No on both issues. Ratio: 1. The contract was that of loan and promise of sale of a house and lot with the amount loaned as the price. Either one of the contracts is perfectly legal and both are authorized by the Civil Code. 2. The contract was not a mortgage because in order to constitute a valid mortgage it is indispensable that the instrument be registered in the Register of Property, in accordance with article 1875 of the Civil Code, and because said document was not vested with the character and conditions of a public instrument. 3. The contract was not a pledge because the property was not a personal property and because the debtor continued in possession thereof and the said property has never been occupied by the creditor. 4. The contract was not an antichresis too because the creditor has never been in possession of the property, has not enjoyed the said property, and has not received its rents. 5. As the amount loaned has not been paid and continued to be in possession of the debtor, it is only just that the promise of sale be carried into effect, and the necessary instrument be executed by the vendees. 6. Judgment of the trial court for plaintiff Alcantara was AFFIRMED.

MAHONEY v TUASON Facts: P. Blanc, the owner of the jewels, entered into a contract of pledge, delivering to the creditor Mariano Tuason several jewels and other merchandise for the purpose of securing the fulfillment of the obligation which he (Blanc) had contracted in favor of the latter who had guaranteed the payment of a considerable amount of money which Blanc owed to the Chartered Bank. Creditor Tuason paid to the Chartered Bank the sum of sixteen thousand pesos (P16,000) which the debtor Blanc owed and failed to pay, and that the latter did not reimburse Tuason the amount paid to the bank together with interests thereon. Issue: W/N Tuason can appropriate the things given by way of pledge? Ruling: No. Tuason is entitled to retain and appropriate to himself the merchandise received in pledge is null and indefensible, because he can only recover his credit, according to law, from the proceeds of the sale of the same. Art. 2088.

LANUZA v DE LEON (Reyes v De Leon) Spouses lanuza executed a deed of sale with a right to repurchase to Reyes. Upon expiration of term to repurchase, the time was extended without the wife of lanuza signing the document. A stipulation to the effect that the ownership will only be passed to the vendee if the vendor fails to repurchase the property was included. The spouses then mortgage the property to respondent to secure a debt. The debt was unpaid and respondent filed a case to foreclose the mortgage which was granted. Reyes filed a case for consolidation, claiming she has the right to the property. Reyes claims the ownership in the property automatically passes immediately to him after the sale and not after the end of the period to repurchase. Issue: won reyes contention valid Ruling: yes. a stipulation in a purported pacto de retro sale that the ownership over the property sold would automatically pass to the vendee in case no redemption was effected within the stipulated period is contrary to the nature of a true pacto de retro sale, under which the vendee acquires ownership of the thing sold immediately upon the execution of the sale, subject only to the vendors rights of redemption. The said stipulation is a pactum commissorium which enables the mortgagee to acquire ownership of the mortgaged property without need of forclosure. It is void. Its insertion in the contract is an avowal of the intention to mortgage rather than to sell the property.