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CREDIT DIGESTS (PART ONE

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People v Concepcion (1922)

PEOPLE v. CONCEPCION
Nov 29, 1922 | J. Malcolm | Mutuum

PLAINTIFF-APPELLEE: The People of the Philippine Islands
DEFENDANT-APPELLANT: Venancio Concepcion

SUMMARY: Venancio, Pres. and a member of board of directors of PNB, authorized an extension of credit in favor of a
copartnership of which his wife is a partner. He was charged with and convicted for violating a law which prohibited PNB
from directly and indirectly granting loans to any of the members of the bank’s board of directors. On appeal, he argues
that (1) what he authorized was a concession of a credit and not a loan and that (2) what was granted to the co-
partnership was a discount and not a loan. SC held that the transaction which Venancio authorized is a loan.

DOCTRINES:
1. The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the
“credit”.
2. To discount a paper is only a mode of loaning money, with, however, these distinctions:
a. Interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit;
b. A discount is always on double--name paper; a loan is generally on single--name paper.

FACTS:
1. Venancio Concepcion, President of PNB, authorized an extension of credit in favor of Puno y Concepcion, S. en
C in the amount of P300,000.
2. Pursuant to this authorization, credit aggregating to P300,000 was granted to Puno y Concepcion, the only
security required consisting of six demand notes.
3. Puno y Concepcion, S. en C. was a copartnership. Rosario San Agustin, wife of Venancio, was one of the
partners.
4. Venancio, as Pres. and as member of the board of directors of PNB, was charged with violation of Sec 35 of Act
No. 2747— prohibited PNB from directly or indirectly granting loans to any of the members of the board of
directors of the bank.
5. He was convicted and was sentenced to imprisonment and to pay a fine.
6. Counsel for the defense assign several errors as having been committed by the trial court. He argues:
a. that the documents of record (the demand notices) do not prove that authority to make a loan was given but only
show the concession of a credit. Exhibits speak of “credito” (credit) and not of a “prestamo” (loan); and
b. that what was granted was a discount and not a loan.

ISSUES/HELD:
1. Was the granting of a credit of P300,000 to the copartnership by Venancio a loan? - YES
2. Was the granting of a credit of P300,000 to the copartnership by Venancio a loan or discount?- LOAN

RATIO:
1. The "credit" of an individual means his ability to borrow money by virtue of the confidence or trust reposed by a
lender that he will pay what he may promise. A "loan" means the delivery by one party and the receipt by the
other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or
without interest. The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the
amount fixed in the “credit.”
2. To discount a paper is only a mode of loaning money, with, however, these distinctions:
a. Interest is deducted in advance, while in a loan, interest is taken at the expiration of a credit;
b. A discount is always on double--name paper (both parties sign it); a loan is generally on single--name
paper (only one of the parties sign it).

3. The demand notes signed by the firm "Puno y Concepcion, S. en C." were not discount paper but were mere
evidences of indebtedness, because
a. interest was not deducted from the face of the notes, but was paid when the notes fell due; and
b. they were single--name and not double--name paper.

4. The Court concluded otherwise and declared that there were loan contracts between Garcia and Thio. This is evident in Art. Art. to whom Garcia actually lent the money. 2. Garcia then received from Thio P20. On June 29. 000 on August 5. 6. and P76. 000. respondent Rica Marie S. 500 on July 26. The payments of P76. 1934 of the Civil Code. Thio claimed that she was merely asked by Garcia to give the crossed checks to Santiago. THIO March 16. Garcia RESPONDENT: Rica Marie S. all in 1995. 3. Thus. 5. Thio borrowed from her US$100. Garcia a crossed check in the amount of US$100. 1995. which amount was covered by the first crossed check. and as such is perfected only upon the delivery of the object of the contract. for which the latter was liable to pay the principal amounts. The RTC ruled in Garcia’s favor. Civil Code. June 26. and October 26. for Thio’s alleged failure to pay the principal amounts of the loans (US$100. 000 payable to a certain Marilou Santiago. 000 from Thio on March 24. Thereafter. 500 and P20. Thio also received from Garcia another crossed check in the amount of P500. Garcia filed a complaint for sum of money and damages in the RTC of Makati City. 1934. In June 1995. but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. October 5. Thio contended that Garcia actually lent the money to Santiago. An accepted promise to deliver something by way of commodatum or simple loan is binding upon parties. In February 1995. April 26. ISSUES/HELD WON there were contracts of loan between the parties – YES RATIO: . and November 5. Garcia received US$3.Garcia v Thio (2007) GARCIA v. DOCTRINE: 1. 000 and P500. 2007 | Corona | Mutuum PETITIONER: Carolyn M. Thio received from petitioner Carolyn M. and July 26. Garcia alleged that on February 24. 1995. 2. 1995. Thio again borrowed P500. A loan is a real contract. which amount was covered by the second crossed check. 000 with 3% monthly interest. 1995. 000 were not interest on the loans but an accomodation to Garcia’s request that Thio use her own checks. For Thio’s alleged failure to pay the principal amounts of the loans. 000 with 4% monthly interest. (n) FACTS: 1. August 26. September 5. Garcia which were payable to a certain Marilou Santiago. and that she was merely asked to give Santiago the crossed checks. Thio SUMMARY: Respondent Rica Marie S. 000). the CA reversed the decision of the RTC and declared that there was no contract of loan between the parties. On the other hand. Garcia alleged that the checks covered two loans contracted between her and Thio. On appeal. not consensual. also payable to Santiago. Thio received two crossed checks from petitioner Carolyn M. Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. Garcia filed a complaint for sum of money and damages in the RTC of Makati City.

This is because there is no written proof of the interest payable except for the verbal agreement between the parties. Thio is not liable for the 3% and 5% monthly interest rate for the two loans. after which Thio would lend the same amount to Santiago at a higher interest rate of 5%. 1995. the Court declared that there is basis for legal interest. thus earning a 2% profit. d. 1956 of the CC requires that interest must be expressly stipulated in writing. 000 and P500. e. 000 and P20. Art. Several factors support this conclusion: a. The Court finds it difficult to believe that Thio would place herself in a position where she would be compelled to pay interest for loans she did not contract. 2209 of the CC. 000 to cover the monthly interest. For the US$100. which provides for an interest rate of 12% per annum counted from the date of demand. . when Thio received Garcia’s demand letter. Despite there being no basis for stipulated interest. In Santiago’s petition for insolvency. testified that the latter’s plan was for Garcia to lend her money at a monthly interest rate of 3%. the said instruments were placed in her control and possession under an arrangement where she then re-lent the amounts to Santiago. Leticia Ruiz. Thio admitted that Garcia did not personally know Santiago. c. a mutual friend of Garcia and Thio. pursuant to Art. Thio never presented Santiago as a witness to corroborate her account of the events. 2. 000 loans. 3. The Court agrees with Garcia’s contention that once Thio received the checks.1. However. Thio admitted issuing her own checks in the respective amounts of P76. b. it was Thio and not Garcia who was listed as one of Santiago’s creditors. In this case. the start of the period is November 21.

6. Roca be substituted for the name of Inocencia Arellano as one of the other co- makers. 3. As a result of the failure of the bank to release the amount sought to be borrowed. the borrower. Ltd. the reexamination contemplated in Resolution No. | Mutuum PETITIONER: SAURA IMPORT and EXPORT CO. payment of the balance of purchase price of machinery & equipment.000.00 to pay the balance of the purchase price of the jute mill machinery and equipment. instead of insisting for its release. indicate mutual desistance between the parties. Saura’s request for the cancellation of the mortgage and their failure to protest against any alleged breach of contract by RFC. 1972 | Makalintal. and asked that the necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. and the corresponding deed of mortgage. Saura wrote RFC that China Engineers. 736 for the purpose of “re- examining the aspects of the approved loan”. 145. with F. FACTS: 1. On April 13. SAURA IMPORT AND EXPORT CO.100. sought to modify the terms that instead of having China Engineers sign as co-maker.00 as additional working capital. 1954.R. The Court held that DBP is not liable for damages. DOCTRINE: 1. Saura applied to the RFC. the land site thereof. but the parties could not fully agree as to the terms. It was approved on the basis of the purposes provided for by Saura on its application (for construction of factory building. for an industrial loan of P500. 1954. On July 1953. to be used as follows: P250. J. Saura was officially notified of the resolution on January 9. shall sign the promissory notes jointly with the borrower-corporation. and that Maria S. that the board members of Saura and China Engineers. 4. and working capital). Saura commenced the present suit for damages. as one of the co-signers. 5. the principle that since mutual agreement can create a contract. Although there was a perfected consensual contract. the loan documents were executed in accordance with Resolution 145: the promissory note.000. Despite this however. the action taken by both parties was in the nature of mutual desistance—what Manresa terms “mutuo disenso”—which is a mode of extinguishing obligations. Saura. before its conversion into DBP. but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. Ltd. asked that the mortgage given as security be cancelled and the creditor acceded thereto. An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties. to be certified to by an appraiser of this Corporation. However. 736 proceeded. or even point out that the latter's stand was legally unjustified.00 for the construction of a factory building (for the manufacture of jute sacks).00. and the machinery and equipment to be installed. INC RESPONDENTS:DEVELOPMENT BANK OF THE PHILIPPINES SUMMARY: Saura filed for a loan from DBP. however. Where after approval of his loan.500 pesos. Inc. P240. The day before.900. Saura then asked the bank to cancel the mortgage constituted on its property. ART.. The loan documents were already signed and the accompanying mortgage registered. Resolution 736. 2. had again agreed to act as co-signer for the loan. 145 subject to the terms that the loan shall be secured by a mortgage on the factory building to be constructed. It is a concept that derives from. v DBP April 27. Saura defaulted in its other obligations. subject to availability of funds. This was approved by the RFC and because of this it issued Resolution No. Ltd. The application was approved by the RFC by virtue of Resolution No. and that the release shall be made at the discretion of the Rehabilitation Finance Corporation. The jute mill machinery had already been purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co.. and so almost 9 years later. it would just post a bond equivalent to 123. On March 24. despite the execution of these documents.000. and P9. . 2. The RFC Board of Governors reduced the loan to P300. mutual disagreement by the parties can cause its extinguishment. representing China Engineers. Halling. 1954. 1954. and as the construction of the factory buildings progresses. a committee was still established to re-examine the loan in consonance with the subsequent resolution.

But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. It was in line with such assumption that when RFC. The request was denied by RFC as it viewed the loan as already cancelled because of the withdrawal from the transaction of China Engineers. executed on August 6. the representative of China Engineers Ltd. saying “. It must be noted however that the imposition of those ." 11.00 where it imposed additional conditions. requested P500. 9.000 albeit with the following (additional) proviso: That in view of observations made of the shortage and high cost of imported raw materials. RFC replied with the letter clarifying that the loan will be released from time to time subject to the availability of funds. and the corresponding mortgage was executed and registered. DBP appeals saying (1) that the plaintiff's cause of action had prescribed. Inc. 14.the basis of the original approval is to develop the manufacture of sacks on the basis of the locally available raw materials. There was a perfected contract in this case as the application of Saura for a loan of P500.” 10. Saura.09 for raw materials and labor be immediately released.” 13. On July 24.. RFC restored the loan to the original amount of P500.. 1964. in connection with its jute mill project. sued Saura. 8.413. and 2. In the meantime Saura. 7. the negotiations reached came to a standstill.000.00 be granted in accordance with Resolution 145. 1954. 1954 Saura. The mortgage was cancelled and it was revealed that the cancellation was requested to make way for the registration of a mortgage contract. Your statement that you will have to rely on the importation of jute and your request that we give you assurance that your company will be able to bring in sufficient jute materials as may be necessary for the operation of your factory. principally kenaf. (2) that there was no perfected contract.000. Saura then sought that the mortgage contract it issued be cancelled. Thus. Halling. Inc. reconsidered its position and is now again willing to sign as a co-maker. informed RFC that China Engineers. However. on May 15. almost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura.. RFC granted the application on the assumption that the factory to be constructed would utilize locally grown raw materials." and (3) 182. Inc wrote RFC stating that: 1) stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably even next year. would not be in line with our principle in approving the loan. backed out of the transaction and it notified RFC that it would no longer proceed with its transaction with Saura. by Resolution No.R. On January 9. 15. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity. Inc. restored the loan to the original amount of P500. Because of this. 1955. thereby preventing the plaintiff from completing or paying contractual commitments it had entered into." (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as may be necessary for the full operation of the jute mill. the plaintiff itself did not comply with the terms thereof. There is no serious dispute about this. 1954. 2. 9083 approved on December 17. Ltd. the Department of Agriculture and Natural Resources shall certify to the following: 1. alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds of the loan applied for and approved. under which contract Saura. Inc. another problem arose as F. ISSUES/HELD: WON DBP should be held liable for breach of a perfected consensual contract as recognized in Art. Inc. 1954. 12. RTC: the defendant was guilty of breach of the perfected contract 16. 586. and (3) that assuming there was. It appears further that for failure to pay the said obligation the Prudential Bank and Trust Co.000. On June 19.91 for the purchase of materials and equipment for the jute mill and 67. 1954? NO RATIO: 1. That there is prospect of increased production thereof to provide adequately for the requirements of the factory. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned.00 was approved by resolution of the defendant. over the same property in favor of the Prudential Bank and Trust Co. or that its claim had been waived or abandoned. the latter commenced the present suit for damages. RFC notified Saura that a certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials.

5. 145 and embodied in the mortgage contract. Inc. The subsequent conduct of Saura. implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon. This was a deviation from the terms laid down in Resolution No. Evidently Saura was the one who deviated from the terms of Resolution 145 when it wrote that it cannot obtain sufficient quantity of local jute (kenaf) for its production. 1955. So instead of doing so and insisting that the loan be released as agreed upon. Saura asked that the mortgage be cancelled. mutual disagreement by the parties can cause its extinguishment. conditions was by no means a deviation from the terms of the agreement. but rather a step in its implementation. Thus. or even point out that the latter's stand was legally unjustified. It is a concept that derives from the principle that since mutual agreement can create a contract. RFC turned down the request and the negotiations reached an impasse. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. The action thus taken by both parties was in the nature of mutual desistance — what Manresa terms "mutuo disenso" — which is a mode of extinguishing obligations. confirms this desistance. 4. It did not protest against any alleged breach of contract by RFC. Its request for cancellation of the mortgage carried no reservation of whatever right it believe it might have against RFC for the latter’s non- compliance . 145. which was done on June 15. 3.

perfected by the delivery of the object.87. the trial court rendered its judgment in Civil Case Nos. who assumed his indebtedness with AIDC. 28 Feb 1985: ALS and Litonjua filed Civil Case No. 5. Hence. CA affirmed the decision. Foreclosure suit was dismissed for being premature. a. payable in equal monthly amortizations for a period of 10 years. private respondents appeal was dismissed for non- payment of docket fees. Said house and lot were mortgaged to AIDC to secure the loan.601. Computing the amount due as of date of foreclosure proceedings should be hence counted from Oct 1982. but they say that they in fact actually overpaid. 1982. amounted to P475.000. He subsequently sold this to ALS and Litonjua. a. v CA (2002) BPI INVESTMENT CORP. DOCTRINE: A loan contract is not a consensual contract but a real contract. 1981. 2. It is perfected only upon the delivery of the object of the contract. only the total amount of P464.23 should be applied to the initial monthly amortization for the loan.77 was released to private respondents. reducing Roa’s principal balance to P457.585. CA & ALS 15 Feb 2002 | Quisumbing | Mutuum PETITIONER: BPI Investment RESPONDENTS: CA. On September 13. However. assumed the P500.351. Civil Code. 52093 against BPIIC. alleging that they were not in arrears in their payment and in fact had overpaid.000.000. AIDC was not willing to extend the old interest rate to private respondents. not May 1981 as stipulated. They paid P350. out of the P500. was liquidated when BPIIC applied thereto the proceeds of private respondents’ loan of P500.000 balance of Roa’s indebtedness with AIDC. applied the proceeds of their P500. BPIIC instituted foreclosure proceedings saying ALS didn’t pay mortgage indebtedness. In 1982. b. They maintained that they should not be made to pay amortization before the actual release of the P500. ALS and Litonjua paid P190.000 loan. 1980: Roa sold the house and lot to private respondents ALS and Antonio Litonjua for P850.90 which. 1984. ruling in favor of ALS. 11831 and 52093. AIDC was not willing to grant the same interest rate to them and proposed that they take out a new loan to be applied to the balance. June 1984: BPIIC instituted foreclosure proceedings against private respondents on the ground that they failed to pay the mortgage indebtedness which from May 1. reducing the principal balance to P457. Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and Development Corporation (AIDC). However.31. On August 31. a.35. 1988.146. Interest rate would be 20% per annum and 1% per annum service fee.601. The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934. with a new interest rate. Petitioner misapplied Bonnevie.BPI Investment Corp.351.000 loan. Proposal: grant new loan of P500. the predecessor of petitioner BPIIC.77. VS. 13 August 1982: ALS and Litonjua paid BPIIC P190. to be applied to the debt and secured by same property. BPIIC released to private respondents P7. which was liquidated when AIDC. as the loan contract was only perfected in Sept 1982. 1981: Mortgage deed with above stipulations.204. It is an accepted promise to deliver something by way of simple loan. applying the effects of legal compensation. 3. c.000 loan in August and September 1982. the balance of P35. payable on monthly successive amortizations for 10 years.000 in cash. 1984.648. A notice of sheriff’s sale was published on August 13. in turn. 4. Both parties appealed to the Court of Appeals. interest at 20% + 1% per annum service charge. payment of the monthly amortization shall commence on May 1. Further. purporting to be what was left of their loan after full payment of Roa’s loan. Muntinlupa.204. for the construction of a house on his lot in New Alabang Village. 6. His house and lot were mortgaged to secure this loan. . now BPIIC. 1981 to June 30. Court ruled that a loan contract is a real contract. b. which he used to build a house. 7. FACTS: 1. The loan was only in the principal sum of P464. ALS Mgmt & Devt SUMMARY: Roa obtained a loan from AIDC.

It is perfected only upon the delivery of the object of the contract. It is a basic principle in reciprocal obligations that neither party incurs in delay. Following the intentions of the parties on the commencement of the monthly amortization. Civil Code. the date of the second release of the loan. 1981. wherein the obligation or promise of each party is the consideration for that of the other. as found by the Court of Appeals. . In its decision.791. hence this petition ISSUES/HELD: W/N a contract of loan is a consensual contract in light of Bonnevie vs. payment of the monthly amortization should commence only a month after the said date. CA -. 8. when BPIIC issued a cancellation of mortgage of Frank Roas loan. the promise of BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall pay the monthly amortization commencing on May 1. the date when BPIIC released the purported balance of theP500. 4. 1982. Consequently. one month after the supposed release of the loan. 1982. 3. the loan contract between BPI. it was only actually released on March 31. 1981. 1982 for it was only then when it complied with its obligation under the loan contract. 1982 and not May 1. there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the publication in newspapers concerning private respondents delinquency in the payment of their loan. 1982. if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. Therefore. they already paid a total amount of P201. The motion for reconsideration filed by petitioner BPIIC was likewise denied. The contract of loan between BPIIC and ALS & Litonjua was perfected only on September 13. While documents show that the loan was released on August 1982. Thus. As averred by private respondents. In the present case. in computing the amount due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage.43.NO RATIO: 1. Evidence showed that private respondents had an overpayment. default sets in. 1981. the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the object of the contract. as can be inferred from the stipulations in the contract. The contract in Bonnevie declared by this Court as a perfected consensual contract falls under the first clause of Article 1934. A loan contract is not a consensual contract but a real contract. 2. This fact constituted sufficient ground for moral damages in favor of private respondents.960. private respondents’ obligation to pay commenced only on October 13. It is an accepted promise to deliver something by way of simple loan. because as of June 1984. Therefore. From October 1982 to June 1984. 1981 of the Deed of Absolute Sale executed by Roa in favor of ALS. transferring the title of the property to ALS. Petitioner misapplied Bonnevie. on the one hand. We also agree with private respondents that a contract of loan involves a reciprocal obligation.000 loan after deducting therefrom the value of Roas indebtedness. was perfected only on September 13. This finds support in the registration on March 31. despite the express agreement of the parties that payment shall commence on May 1. 9. a month after the perfection of the contract. the starting date is October 13. and ALS and Litonjua. This. the total amortization due was only P194.96. and ALS executing the Mortgage Deed in favor of BPIIC. 1981. petitioner could only demand for the payment of the monthly amortization after September 13. on the other. Only when a party has performed his part of the contract can he demand that the other party also fulfills his own obligation and if the latter fails.

He also found out that part of the money had been withdrawn by Doronilla. By the contract of loan. 1936. CC. Vives issued a check in the amount of Two Hundred Thousand Pesos (P200. the bailor retains the ownership of the thing loaned. The bailee in commodatum acquires the use of the thing loaned but not its fruits . while in simple loan. CA February 19. Doronilla issued three postdated checks. one of the parties delivers to another. 8. Article 1935. Franklin Vives was asked by his neighbor Angeles Sanchez to help her townmate. Private respondent instituted an action for recovery of sum of money which was deided by the RTC in his favour. either something not consumable so that the latter may use the same for a certain time and return it. Vives filed an action for collection of a sum of money. all of which were dishonored. | Mutuum PETITIONER: Producers Bank of the Philippines RESPONDENTS: CA and Franklin Vives SUMMARY: Francisco lent P200k to Doronilla for incorporating his business under the assurance that the money would be returned to him after 30 days. 3. CC: Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object. To cover payment thereof.. Commodatum is essentially gratuitous.00). 5. in which case the contract is simply called a loan or mutuum. upon the condition that the same amount of the same kind and quality shall be paid. J. He instructed his wife to accompany the two in opening a savings account in the name of Sterela in Producers Bank of the Philippines.Producer's Bank of the Phils v CA (2003) Producers Bank of the Philippines v.000. Sanchez asked Vives to deposit in a bank a certain amount of money in the bank account of Sterela for purposes of its incorporation and assured him that he could withdraw his money from said account within a months time. Col. In commodatum.000. 2003| Callejo. in which case the contract is called a commodatum. through Doronilla. obtained a loan of P175. Doronilla opened Current Account for Sterela and authorized the Bank to debit Savings Account for the amounts necessary to cover overdrawings 7.00 from the Bank. 6. Sterela. After the latter failed to pay. 4. ownership passes to the borrower. as when it is merely for exhibition.Sr. Vives could not withdraw said remaining amount because it had to answer for some postdated checks issued by Doronilla. NO RULES: 1933 . private respondent learned that Sterela was no longer holding office in the address previously given to him. Subsequently. CC . FACTS: 1. A bank account was opened for Sterela but Vives later found out that Doronilla was withdrawing from the account. in incorporating his business. assuring him that his money was intact and would be returned to him but the check he later gave as payment was dishonored. The bank manager told them that Mrs. Vives received a letter from Doronilla. or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon. the loan is a commodatum and not a mutuum. and that only P90. Art.000. CA affirmed ISSUES/HELD: WN error was committed by the Court of Appeals when it ruled that the transaction between private respondent and Doronilla was a commodatum and not a mutuum. 1936. or money or other consumable thing. Arturo Doronilla. DOCTRINE: there are some instances where a commodatum may have for its object a consumable thing such as in Art.00 remained therein. 9. the Sterela Marketing and Services 2. If consumable goods are loaned only for purposes of exhibition. Simple loan may be gratuitous or with a stipulation to pay interest.

if consumable goods are loaned only for purposes of exhibition. Art.00. 1933 foregoing provision seems to imply that if the subject of the contract is a consumable thing. the evidence shows that private respondent agreed to deposit his money in the savings account of Sterela specifically for the purpose of making it appear that said firm had sufficient capitalization for incorporation. 1935) . 3.00 which the latter deposited in Sterelas account together with an additional P12. as a favor to his good friend Sanchez 5. such as money. did not convert the transaction into a mutuum because such was not the intent and because it represents fruits from the lending of 200k. allegedly representing interest on the mutuum. Which must rightfully be returned to the bailee. 2. Private respondent merely accommodated Doronilla by lending his money without consideration. with the promise that the amount shall be returned within thirty (30) days. the loan is a commodatum and not a mutuum. 4.000. Doronillas attempts to return to private respondent the amount of P200. there are some instances where a commodatum may have for its object a consumable thing such as in Art. or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon.000. (Art. the contract would be a mutuum. 1936. However.RATIO: 1.

guardianship or vigilance. ○ In Roque v People. Inc. Petitioner went directly to the SC via the instant petition. Chico-Nazario l Mutuum Petition for certiorari under Rule 45 of the Revised ROC praying for the reversal of the RTC decision dismissing the 112 cases of Qualified Theft against respondents Teresita Puig and Romeo Porras. ○ TC Decision: Element of taking without the consent of the owners was missing since it is the depositors- clients and not the Bank. and that they took various amounts of money with grave abuse of confidence. Ruling: ● Petition granted. RTC decision reversed and set aside. ● MR was filed by petitioner. . Bookkeepers. Issue and Held: ● WoN the 112 informations for qualified theft sufficiently allege the element of taking without the consent of the owner and the qualifying circumstance of grave abuse of confidence. guardianship or vigilance between the respondents and the offended party that would have created a high degree of confidence between them which the respondents could have abused ○ SC: The information must state the acts or omissions complained of as constituting the offense. which respondents abused. 1953 and 1890 of the NCC were appropriately cited by pet. without necessarily stating the phrase being assiduously insisted upon by respondents. and so no warrants of arrest were issued. Art. but the RTC denied such. that the crime was committed with grave abuse of confidence. People V Locson. ● The trial court did not find the existence of probable cause on the ground that the elements of the offense were not sufficiently alleged in the information. People v Sison. ○ SC: Agrees with pet’s contention.” and without employing the word “owner” in lieu of the “Bank” were considered to have satisfied the test of sufficiency of allegations. Facts: ● Iloilo Provincial Prosecutor’s Office filed 112 cases of Qualified theft against Puig and Porras. respectively. ○ Pet: The depositors who place their money with the bank are considered creditors of the bank. who were the Cashier and Bookkeeper. and other employees of a Bank who come into possession of the monies deposited therein enjoy the confidence reposed in them by their employer. ○ TC Decision: Informations are bereft of the phrase alleging dependence. Cashiers.YES. with intent to gain and without the knowledge and consent of the Bank. The bank acquires ownership of the money deposited by its clients. The relationship between banks and depositors has been held to be that of creditor and debtor. or vigilance. “of a relation by reason of dependence. the Court has held that where the informations merely alleged the positions of the respondents. guardianship. between the respondents and the offended party that has created a high degree of confidence between them. making the money taken by respondents as belonging to the bank. of complainant Rural Bank of Pototan.People v Puig (2008) PEOPLE VS PUIG Aug 8 2008 l J. ○ It is beyond doubt that tellers. It need not use the exact language of the statute in alleging the acts or omissions complained of as constituting the offense. between the relation by reason of dependence. who are the owners of the money allegedly taken by respondents. The depositors and not the Bank are the real parties-in-interest. ○ Pet: Informations sufficiently allege all the elements of qualified theft: alleged that the respondents were the Cashier and Bookkeeper of the Rural Bank of Pototan.

however. —NO. RATIO: ● The deposit of money in banks is governed by the Civil Code provisions on simple loan/mutuum. he had every right as creditor to expect that those checks would be honored by BPI as debtor. ● As there is a debtor-creditor relationship between a bank and its depositor. ● Thus. to recover Tevesteco’s total withdrawals from its account. | Mutuum PETITIONER: BPI FAMILY BANK RESPONDENTS: AMADO FRANCO SUMMARY: Franco drew checks against his BPI account. the funding for the P2M check was part of the amount debited by BPI from FMIC’s account and credited to Tevesteco’s account pursuant to an Authority to Debit purportedly signed by FMIC’s officers. BPI instructed its branch manager to debit Franco’s accounts. ● BPI does not have a unilateral right to freeze the accounts of Franco based in its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. Franco (2007) BPI FAMILY BANK v. ISSUES/HELD: W/N BPI can unilaterally freeze Franco’s account. would open the floodgates of public distrust in the banking industry. ● In turn. ● To grant any bank the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions. DOCTRINE: The creditor-debtor relationship that exists between clients and banks is coupled with an obligation to pay the client what is owed to them by the bank upon demand. he had every right as creditor to expect that those checks would be honored by BPI as debtor. two checks drawn by Franco against his BPI account were dishonored. ● The bank must bear the cost of its own negligence in not thoroughly examining the signature of its clients.BPI Family Bank v. when Franco issued checks drawn against his current account. ● In the meantime. ● It appears. . ● But such ownership of BPI is coupled with a corresponding obligation to pay Franco an equal amount on demand. J. ● The total amount used to open these accounts is traceable to a P2M check issued by Tevesteco. BPI had frozen Franco’s accounts after learning that the money used to open his account was traceable to a multi-million peso scam. FRANCO November 23. 2007 | Nachura. Franco’s account was garnished by virtue of an order by the RTC in a civil case which had been filed by BPI against Franco et al. ● To protect its interests in light of FMIC’s forgery claim. and stamped with a notation “account under garnishment” ● Apparently. FACTS: ● Franco opened 3 accounts with BPI. Banks do not have a right to unilaterally freeze the assets of its clients on mere suspicion. The Court held that when Franco issued checks drawn against his current account. that the signatures of FMIC’s officers on the Authority to Debit were forged. ● Franco filed a case against BPI in response to the latter’s failure to unfreeze his account. notwithstanding BPI’s suspicion of his involvement in the scam. Such checks were dishonored. BPI ultimately acquired ownership of Franco’s deposits.

000. Batan.00. evidenced by an acknowledgment receipt dated March 1999 and was payable within one (1) year. ii. 3.00. Used the acknowledgment receipt executed by R which showed that: i.00 (Full amount of P500. As such. While the acknowledgement receipt showed that interest was to be charged.000. Series of 2013. the interest due should be that stipulated in writing. whether as contractually stipulated interest or as interest in the concept of actual or compensatory damages. alleging that R obtained a loan from them in the amount of P500. CA ruled that while R had entered into a simple loan with P. in the absence of an express contract as to such rate of interest. Indebtedness was to be paid within one (1) year. Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate. and iii. Annie C. b. DOCTRINE: 1. a. Abella (sgd. a. 2013. Using Art. “the rate of interest for the loan or forbearance of any money. 1999 This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500. the loan could not have earned interest. 799. in the parties’ failure to stipulate the interest due. 2015 | Leonen. a.000. no particular interest rate was specified. they were not liable to pay the outstanding amount of P300. Indebtedness was subject to interest. shall now be six percent (6%) per annum. these interest payments were invalid for not being properly stipulated by the parties. effective July 1.000. the SC ruled the legal interest of 12% per annum shall apply. b. Alma R. Aklan March 22. FACTS: 1. R answered that the amount involved did not pertain to a loan but was part of the capital for a joint venture involving the lending of money. R were indebted to the extent of P500.00) Pesos from Mrs. Series of 1982 and issued Circular No. RTC ruled in favor of petitioners.) Romeo M. THE USURY LAW AND THE TRUTH IN LENDING ACT Abella v Abella (2015) ABELLA V ABELLA July 8. Spouses Olan noted that the legal rate of interest is to apply: "In a loan or forbearance of money. The point of contention rises from the absence of stipulation specifying the interest due. J. b. 4.000. the rate shall be 12% per annum. P filed a Complaint5 for sum of money and damages against R. Concluded that R obtained a simple loan.5% interest per month). 905. | Topic PETITIONER: SPOUSES SALVADOR ABELLA AND ALMA ABELLA RESPONDENTS: SPOUSES ROMEO ABELLA AND ANNIE ABELLA SUMMARY: P filed a complaint for sum of money and damages against R who loaned P500.)33 2.00 + 2. Abella.000. payable within one (1) year from date hereof with interest.” This Circular shall take effect on 1 July 2013. according to the Civil Code. at the time respondents were making interest payments of 2. Thus. Spouses Toring v. 1956 CC.5% per month. Abella (sgd. and in the absence thereof.000 from them. goods or credits and the rate allowed in judgments.00. . due to the amendment of Section 2 of Circular No. alleging that R were able to pay an unpaid balance of P300." However.

the rate shall be 12% per annum. but no exact interest rate was mentioned." a. in the absence of an express contract as to such rate of interest. Series of 2013.379. R's receipt of the sum of P500. Since P’s charging of interest was invalid. As R made an overpayment.5. 4. shall always be the legal rate at the time the agreement was executed and shall not be susceptible to shifts in rate. the loan obtained by R from P is deemed subjected to conventional interest at the rate of 12% per annum. approved the amendment of Section 2 of Circular No. This shall be reckoned from the finality of this Decision until its full satisfaction. the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB). R made an overpayment of P3. Nacar also provides. goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum but will now be six percent (6%) per annum effective July 1. Consequently.00. R made an overpayment in the amount of P3.500.379. Whether petitioners are liable to reimburse respondents for the latter’s supposed excess payments and for interest? – Yes. Series of 1982 and issued Circular No. must be adjusted in favor of herein R. Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate. ISSUES/HELD: 1. whether the case falls under paragraph 1 or paragraph 2. However. subject to Nacar's qualification on prospective application. Applying the principle of solutio indebiti. From the foregoing. ” Thus. interest at the rate of 6% per annum may be properly imposed on the total judgment award. the obligation to return it arises. therefore. the CA reasoned that all payments R made by way of interest should be deemed payments for the principal amount of P500.379. 3. that “the rate of interest for the loan or forbearance of any money. the rate of legal interest. b. shall be 6% per annum from such finality until its satisfaction. The acknowledgment receipt to P attests to: a. and in the absence thereof. the rate of 12% per annum shall persist as the rate of conventional interest. shall be six percent (6%) per annum. 7. under Art. in its Resolution No. the rate of legal interest for loans or forbearance of any money. the interest due should be that stipulated in writing. If so. at what rate? – Yes. Come July 1. DECISION: Salvador and Alma Abella are DIRECTED to jointly and severally reimburse respondents Spouses Romeo and Annie Abella the amount of P3. Spouses Olan. which states in Section 1 thereof. which entailed an overpayment of P148. 905. 2013. according to the Civil Code. R's duty to pay interest. the court clarified the effect of Article 1956 of the Civil Code and noted that the legal rate of interest is to apply: "In a loan or forbearance of money. above. 2.17. 2013. the principle of solutio indebiti as provided by Article 2154 of the Civil Code applies. 5." The controversy. a. the twelve percent (12%) per annum legal interest shall apply only until June 30. the legal rate of interest shall apply. 799.” This Circular shall take effect on 1 July 2013.17 . when applied as conventional interest. this is 6% per annum. the legal rate of interest at the time the parties executed their agreement. Recently. “if something is received when there is no right to demand it. 6. goods or credits and the rate allowed in judgments. “when the judgment of the court awarding a sum of money becomes final and executory. effective July 1. legal interest of 12%.00. 6. this interim period being deemed to be by then an equivalent to a forbearance of credit. 2013. R's duty to pay back this amount within one (1) year from March 22. a. however.000. Where interest was stipulated in writing by the debtor and creditor in a simple loan or mutuum. CA further noted that R made a total payment of P648. should conventional interest still be due as of July 1. RATIO: 2. 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. being unconscionable. In Spouses Toring v.” 8. 2013. Moreover.000. 1956 CC. 1999.00. The legal rate of interest. the CA concluded that P were liable to reimburse R for the overpaid amount of P148.500. states that "no interest shall be due unless it has been expressly stipulated in writing. 796 dated May 16. Applying this. Whether interest accrued on respondents' loan from petitioners.00. stems from the acknowledgment receipt's failure to state the exact rate of interest.00.500. 2013. At present. c. rate agreed upon. and it was unduly delivered through mistake.

.

However. Expenses of litigation and costs of suit 6. interests. the amount of deficiency after applying the proceeds of the foreclosure sale.901. 2. 1/10 of 1% per day of the total amount until fully paid – additional amount as penalty c.216.355.300.. 2013 | Villarama. partly granted the petition of the spouses and reduced the amount to be paid. from 23 February 2001 until fully paid. we hold that the escalation clause is still void because it grants respondent the power to impose an increased rate of interest without a written notice to petitioners and their written consent. A stipulation of such nature violates the principle of mutuality of contracts. The lower courts ruled in favor of the bank. the Senior Loans Assistant of the bank testified that she called the petitioners monthly to inform them of the prevailing rates to be used in computing the interest due on the loan.000 and Php 4. A detailed billing statement based on the new imposed interest with corresponding computation of the total debt should have been provided by the respondent to enable petitioners to make an informed decision. Petitioners failed to pay the monthly amortizations so the respondent demanded full payment of the outstanding balance with the accrued monthly interests.Juico v China Banking Corp.300. and attorney’s fees. Php 8. the respondents filed a complaint for the collection of sum of money. JUICO v CHINA BANKING CORPORATION April 10. On the same day. Petitioners answered by admitting the existence of the debt but arguing that the complaint states no cause of action since the principal was already paid when the mortgaged property was extrajudicially foreclosed and sold for Php 10.776. By 23 February 2001. b.000 so they should only be held liable for the deficiency of Php 55. 5. This notwithstanding. 3. DOCTRINE: Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the contracting parties.63 – amount of deficiency. which is not favored under the Civil Code. an escalation clause "which grants the creditor an unbridled right to adjust the interest independently and upwardly. On 8 May 2001.776. FACTS: 1. Respondent’s monthly telephone calls to petitioners advising them of the prevailing interest rates would not suffice. 7. Since its demand was left unheeded.355. An appropriate form must also be signed by the petitioners to indicate their conformity to the new rates.000 and the bid price. praying that petitioners pay: a.201.63. Juico and Alice P. Juico obtained a loan from China Banking but they failed to pay so the bank foreclosed on the mortgage property and demanded the deficiency amount after applying the proceeds of the foreclosure sale. The SC. Ignacio F. Juico RESPONDENT: China Banking Corporation SUMMARY: Sps.776. | Usury Law PETITIONERS: Sps. Nevertheless.139. meanwhile. assuming there is a cause of action. She reiterated that the interest . This Court has long recognized that there is nothing inherently wrong with escalation clauses which are valid stipulations. the Juicos countered that the interest rate imposed by the bank was excessive and that the promissory notes they signed were blank. They also argued that.000 or the difference between the outstanding obligation of Php 10. Jr. the amount due on the 2 Notes totaled Php 19. with the last demand letter dated 29 August 2000 being received by the petitioners on 5 September 2000. plus interests at the legal rate. the deficiency cannot be enforced because it consists only of the penalty and/or compounded interest on the accrued interest. 4. the petitioners received a demand letter for the payment of Php 8. J. 10% of the foregoing amounts – attorney’s fees d. (2013) SPS. penalties. completely depriving the debtor of the right to assent to an important modification in the agreement" is void. During trial. Compliance with these requisites is essential to preserve the mutuality of contracts. the mortgaged property was sold at public auction with the respondent as the highest bidder for the amount of Php 10.000 (total of 10. Sps.000) and secured by a Real Estate Mortgage over their property in Quezon City.63 representing the principal.901. Juico obtained a loan from China Banking as evidenced by 2 Promissory Notes both dated 6 October 1998 for the sums of Php 6.000.

While the latter is not strictly an escalation clause. decrease or otherwise change from time to time the rate of interest and/or bank charges "without advance notice" to petitioner. The CA affirmed. the trial and appellate courts. 5.” 4. The two promissory notes signed by petitioners provide: “I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case may be. petitioner Ignacio. testified that he was made to sign a blank promissory note and was simply informed that the interest rate will be based on prevailing market rates. The provision in the promissory note authorizing respondent bank to increase. Thus." does not give respondent bank unrestrained freedom to charge any rate other than that which was agreed upon. the Central Bank has shifted to a market-oriented interest rate policy. A detailed billing statement based on the new imposed interest with corresponding computation of the total debt should have been provided by the respondent to enable petitioners to make an informed decision. rate changes every month based on the prevailing market rate and that the petitioners signed the promissory notes that indicated their agreement to pay interest at the prevailing rate. There is no indication that petitioners were coerced into agreeing with the foregoing provisions of the promissory notes. Compliance with these requisites is essential to preserve the mutuality of . The subject promissory notes contained the following condition written after the first paragraph: “With one year grace period on principal and thereafter payable in 54 equal monthly instalments to start on the second year. completely depriving the debtor of the right to assent to an important modification in the agreement" is void. Interest at the prevailing rates payable quarterly in arrears. admitted having understood his obligations before signing them. The RTC ruled in favor of the bank. While a ceiling on interest rates under the Usury Law was already lifted under Central Bank Circular No. an escalation clause "which grants the creditor an unbridled right to adjust the interest independently and upwardly. At no time did petitioners protest the new rates imposed on their loan even when their property was foreclosed by respondent. in upholding the validity of the escalation clause. In this case. should be read together with the statement after the first paragraph where no rate of interest was fixed as it would be based on prevailing market rates. A stipulation of such nature violates the principle of mutuality of contracts. this Court has previously nullified the unilateral determination and imposition by creditor banks of increases in the rate of interest provided in loan contracts. 7. 905. This notwithstanding. increasing or decreasing such interest rate or service charge. the interest rate/service charge presently stipulated in this note without any advance notice to me/us in the event a law or Central Bank regulation is passed or promulgated by the Central Bank of the Philippines or appropriate government entities. we hold that the escalation clause is still void because it grants respondent the power to impose an increased rate of interest without a written notice to petitioners and their written consent. ISSUES/HELD: W/n the interest rates imposed upon them by the bank are valid – NO RATIO: 1. 8. 2. Nevertheless. It may also be mentioned that since the deregulation of bank rates in 1983.” 6. including any upward or downward adjustment. nothing therein "grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. a physician engaged in the medical supply business. Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the contracting parties. its clear import was that interest rates would vary as determined by prevailing market rates." 3. such stipulations are not void per se. underscored the fact that there was actually no fixed rate of interest stipulated in the promissory notes as this was made dependent on prevailing rates in the market. Petitioner Ignacio. This Court has long recognized that there is nothing inherently wrong with escalation clauses which are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. An appropriate form must also be signed by the petitioners to indicate their conformity to the new rates. Respondent’s monthly telephone calls to petitioners advising them of the prevailing interest rates would not suffice. "in the event of change in the interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines. meanwhile. 9. the escalation clause in the promissory notes authorizing the respondent to adjust the rate of interest on the basis of a law or regulation issued by the Central Bank of the Philippines. Here. Evidently. Hence. to be determined by the prevailing market rates and not dictated by respondent’s policy. In fact. the parties intended the interest on petitioners’ loan.

Based on the 29 August 2000 demand letter of China Bank.201. 9. the rate charged for the first year. we consider as invalid the interest rates in excess of 15%.000. 8. The Court also finds the penalty charges imposed excessive and arbitrary.355. In the absence of consent on the part of the petitioners to the modifications in the interest rates. For indeed. the adjusted rates cannot bind them. Petition partly granted. contracts. because such impositions are not based on the parties’ essential equality. one-sided impositions do not have the force of law between the parties. hence the same is hereby reduced to 1% per month or 12% per annum. Hence. due to China Bank’s unilateral increases in the interest rates from 15% to as high as 24.50% and penalty charge of 1/10 of 1% per day or 36.776.5% per annum for the period 4 November 1999 to 23 February 2001. petitioners’ total principal obligation under the two promissory notes which they failed to settle is Php 10. However. petitioners’ balance ballooned to Php 19.63. Note that the original amount of principal loan almost doubled in only 16 months. .

7. Petitioners. and a Credit Agreement. and although the Usury Law was amended to allow the imposition of higher interest rates that the parties may agree upon. The REM also allowed PNB to increase and decrease interest rates based on PNB’s future policies.5M. which represents the amounts incident to the extension of credit. 3. Based on the principle of mutuality of contracts. changes must be made with the consent of the parties. and a Supplement to Existing REM over another parcel of land was executed. The SC also held that PNB violated the Truth in Lending Act when it required the petitioners to sign the credit documents and the promissory notes in blank. such as interest. the same may not be done without the other party’s consent. Section 4 (6) of said law provides for the disclosure of finance charges. and by the latter part ng ratio. which included a provision providing for the interest at the rate of 19. 3. 2.8M. The credit line was increased to 1. 2014| J. (1991) Credit Agreement was amended to reflect. alleging that the bank was not allowed to fix interest rates beyond the legal rate of 12% per annum. Pursuant to said Amendment. Some of the PNs included the following provision: “I/We agree that the rate of interest herein stipulated may be increased or decreased for the subsequent Interest Periods. and the agreements entered into. but within the limits allowed by law or by the Monetary Bank. allowed PNB to increase or decrease interest rates. They can agree to adjust the rates previously stipulated. or in the Bank’s overall cost of funds. Pero ang gulo ng discussion ng case dito) FACTS: 1. etc. The 8 PNs. except for the last one. and then unilaterally filled them up later on. Or baka sabaw lang ako. PD 1684 and C. 4.Silos v PNB (2014) SILOS v. on the other hand. Cir 905 now allows parties to stipulate freely regarding any adjustment in interest rates that shall accrue on a loan or forbearance of money. Purpose of RA 3765 (Truth in Lending Act) is to protect citizens from lack of awareness of the true cost of credit by using a full disclosure of costs. with prior notice to the Borrower in the event of changes in interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines. The credit line was increased to 2. among others.B. as well as the shifting from the floating interest rate to the fixed interest rate systems. I/We hereby agree that in the event I/we are not agreeable to the interest rate fixed . DOCTRINE: 1. (1989) 8 promissory notes were issued by Petitioners. 5. assailed the interest rates imposed. however.5%/annum. increasing as well the value of the mortgage to the same amount. These may be done without notice to the petitioners/borrowers. (1987) They obtained a 1-year revolving credit line worth 150k from PNB. 4. Petitioners have been in the retail business for about two decades. biglang napupunta yung discussion sa ibang cited cases. Del Castillo | Usury Law and Truth in Lending Act PETITIONER: SPOUSES EDUARDO and LYDIA SILOS RESPONDENTS: PHILIPPINE NATIONAL BANK SUMMARY: Petitioners took out a credit line with PNB. 2. SC agreed and annulled the interest rates. did not authorize either party to unilaterally raise the interest rate without the other’s consent. Another provision allowed the Bank to modify the interest rate in the Loan based on future policies. (Disclaimer: ang haba ng case. PNB July 2. which covers the principal. was signed. “Borrowers agree to pay interest on each Availment from date of each Availment up to but not including the date of full payment thereof at the rate per annum which is determined by the Bank to be prime rate plus applicable spread in effect as of the date of each Availment” 6. and promissory notes issued contained provisions providing for the grant of right to PNB to unilaterally increase or decrease the interest rates therein. Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds. The law. mid-ratio. all of which were settled. Certain amendments were effected. Petitioners issued 18 additional PNs. secured with a REM over a lot in Kalibo. Such interest was payable in advance every 120 days at rate prevailing at time of renewal. after losing their security due to default.

the interest rates were the responsibility of the Treasury Department in Manila. 2. they were told that PNB alone would determine the interest rate. That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board. (1998) PNB released a Statement of Account detailing the amount due. Provided. In either case.48M and that PNB sent them a demand petitioners a demand letter on March 2000. 538k of which. was interest. etc. and the mortgages were foreclosed. alleging overpayment of around 800k resulting from the allegedly illegal and steep interest rates.) 16. Facts agreed upon during pre-trial: payment of 3. She also testified that she no longer read the documents she signed as she assumed that everything therein were correct. Petitioners failed to pay. did not authorize either party to unilaterally raise the interest rate without the other’s consent. Cir 905 now allows parties to stipulate freely regarding any adjustment in interest rates that shall accrue on a loan or forbearance of money. as the same were fixed by PNB. .3M. 10. changes must be made with the consent of the parties. being in default. The lands were sold for over 4. PNB counters that it did not unilaterally fix the rates. Based on the principle of mutuality of contracts. and were beyond the 12% legal rate of interest. 2 of PD 1684. testified that as a practice. I/we shall have the option to repay the loan or credit facility without penalty within ten (10) calendar days from the Interest Setting Date. 1684 is not to be retroactively applied to loans granted before its effectivity. however. which amended the Usury Law. alleging that the stipulations as regards interests are void. (2004) Petitioners filed a complaint to annul the foreclosure sale. Petitioners. 6. 9. By 1997. Provided further. RTC dismissed the case.6M. Credit Agreement: “The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future and provided. CA partly granted the appeal. and that the rates in the PNs they issued were left blank. No. Lydia Silos testified that during the application for the line.B. This clause is authorized by Sec. the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in maximum interest rate. 17. ruling that Banks are allowed to stipulate that interest rates on loans need not be fixed. and set the interest rate after the expiration of the first 30-day interest period to 12%/annum. Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds.” 3. W/N the interest rates were unilaterally and arbitrarily imposed by PNB? NO RATIO: 1.” 4. 12. that. 11. were subject to the penalty rate of 24%. 7. the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. and that there were a multitude of factors that affect the interest rate (cost of money. etc. PNB. During trial. there must nevertheless be a de-escalation clause to mitigate the one- sidedness of the escalation clause. petitioners could no longer pay the interests as the rates soared due to the Asian financial crisis. through Diosdado Aspa (Kalibo Branch Manager). on the other hand.” 8. They can agree to adjust the rates previously stipulated. 5.D. ISSUES/HELD: 1. They also sought to be reimbursed. foreign currency values. goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased bylaw or by the Monetary Board. 14. That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. The law. Navarro) Although P. to reflect: “Parties to an agreement pertaining to a loan or forbearance of money. PD 1684 and C. and that petitioners agreed to the imposition and notice-less modifications of the interest rates. which amounted to over 3. provided for in the last PN. for any Interest Period. Because of concern for the unequal status of borrowers vis-à-vis the banks. that there were no stipulations as to the payment of penalties. 13. (Banco Filipino Savings & Mortgage Bank v. 15. Also. Court has struck down provisions in credit documents which allowed the banks to increase or decrease interest rates “within the limits allowed by law at any time depending on whatever policy it may adopt in the future.

In the present credit agreement. borrowers get caught and stuck in the web of subsequent steep rates and penalties. 13. however. . The parties’ original agreement stipulated the payment of 19. to the capital or principal. 12. -instead. Gallery Frames99 and Bangko Sentral ng Pilipinas-Monetary Board Circular No. Because they have been lured into these contracts by initially low interest rates. and later. but because only the rates are found to be improper. With regard to interest. 15. respondent violated the Truth in Lending Act. offers of low initial interest rates. By requiring the petitioners to sign the credit documents and the promissory notes in blank. 2013. Respondent should then refund the excess amount of interest that it has illegally imposed upon petitioners. Purpose of RA 3765 (Truth in Lending Act) is to protect citizens from lack of awareness of the true cost of credit by using a full disclosure of costs. but then again this is not possible in a one-sided credit system where the temptation to abuse is strong and the willingness to rectify is made weak by the eternal desire for profit. they succumb to whatever charges the lenders impose. the prevailing rate of interest shall be 6% per annum pursuant to our ruling in Nacar v. and depending on complex and subjective factors. Jurisprudence have fashioned the rule that any increase in the rate of interest made pursuant to an escalation clause must be the result of agreement between the parties.5% interest. the amount due shall be subject to legal interest at the rate of 12% per annum. the element of consent or agreement by the borrower is now completely lacking. or "sweetened" with. the obligation to pay interest subsists. Section 4 (6) of said law provides for the disclosure of finance charges. 9. Interests paid by petitioners should be applied first to the payment of the stipulated or legal and unpaid interest. 11. this rate was intended to apply only to the first promissory note which expired on November 21. the stipulations in question no longer provide that the parties shall agree upon the interest rate to be fixed. and upon maturity. they naturally dread legal complications and cannot afford court litigation. but actually accompanied by provisions written in fine print that allow lenders to later on increase or decrease interest rates unilaterally. 2013. it was not intended to apply to the whole duration of the loan. surcharges and the like. the principal amount of the loan is subject to the original or stipulated rate of interest. Starting July1. 10. among others. and then unilaterally filling them up later on. Loan and credit arrangements may be made enticing by. 1989 and was paid by petitioners. Being ordinary individuals or entities. they are worded in such a way that the borrower shall agree to whatever interest rate respondent fixes. the Court finds that since the escalation clause is annulled. as the case may be. which represents the amounts incident to the extension of credit. 8. the 12% interest shall apply only until June 30. What is even more glaring in the present case is that. without the consent of the borrower. 799. and was remiss in its disclosure obligations. such as interest. 14. Subsequent higher interest rates have been declared illegal. which makes respondent’s unlawful act all the more reprehensible. borrowers should be charged rightly. However. the same to be fixed at the legal rate of 12% per annum. At the very least.

the principal loan (Php 350K) is set off against total interest payments made (Php 576K). L&J subsequently failed to pay afterwards. De La Paz cannot enforce the 6% monthly interest for being unconscionable and shocking to the morals. the interest rate is reduced to 12% per annum on the remaining principal (Php 350K). Nonetheless. Salonga as its President and General Manager). At present. 905 s. Applying the principle of legal compensation (Art. L&J voluntarily paid the interest at such rate from 2000 to 2003 so it is already estopped from impugning the same. FACTS: 1. this petition by De La Paz to the SC. 11. Salonga’s Answer: Failure to pay was due to fortuitous event (financial difficulties due to economic crisis). CC). he agreed to lend them money. CA: Reversed the RTC. 7. On December 27. 1956. Usury has been legally non-existent in view of the suspension of the Usury Law by Central Bank Circular No. Hence. which De La Paz must pay to L&J. De La Paz then filed for Collection of Sum of Money against L&J (and Atty. De La Paz RESPONDENT: L&J Development Company SUMMARY: De La Paz lent Php 350K without any security to L&J Dev’t Corp. L&J DEVELOPMENT CO. 1956. 2003. 1279. 3. MeTC (Marikina): Upheld the 6% monthly interest. 6. RTC (Marikina): Affirmed the MeTC. if not against the law. DOCTRINE: No interest shall be due unless it has been expressly stipulated in writing (Art. CC). 9. and b) the agreement to pay interest is reduced in writing. Salonga in his personal capacity). De La Paz filed for Collection. L&J paid De La Paz a total of Php 576K representing interest charges. The loan had no specified maturity date and carried a 6% monthly interest. Hence. 10. tricking De La Paz into lending his money without the loan transaction being reduced into writing. Even so. 2000. 2. L&J failed to pay despite repeated demands. Salonga’s suggestion (through L&J’s secretary/treasurer). For interest to be due and payable. From Dec. 5. the 6% monthly interest is still outrightly illegal and unconscionable because it is contrary to morals. 12. leaving an excess of Php 226K. After paying a total of Php 576K representing interest charges. the payments already made should be applied to the Php 350K principal loan. and the owner of L&J which developed Brentwood Subdivision in Antipolo where his associate Nilo Velasco lives. SC held that the charging of monetary interest in the absence of a written stipulation to pay interest on the loaned amount is NOT proper. L&J contends that the 6% monthly interest for being unconscionable and shocking to the morals. plus interest of 12% per annum from the finality of CA decision. 8. stood at Php 772K. inclusive of the monthly interest. a son of a former Senator.De la Paz v L&J Devt Co. ISSUES/HELD: WON charging monetary interest in the absence of a written stipulation to pay interest on the loaned amount is proper. Salonga prior to the loan transaction but knew him as a lawyer. Petitioner De La Paz lent Php 350K without any security to Respondent L&J Dev’t Corp. Salonga and L&J needed money to finish their projects. not all interest rates levied upon loans are permitted by the courts as they have the power to equitably reduce unreasonable interest rates. CC). 2005. (2014) DE LA PAZ v. (with Atty. De La Paz’s Complaint: L&J’s debt as of Jan. the 6% monthly interest was upon Atty. - NO . Also. 8 Sept 2014| Del Castillo | Usury Law / Truth in Lending PETITIONER: Rolando C. L&J and Atty. When Nilo told De La Paz that Atty. The parties failed to stipulate in writing the imposition of interest on the loan therefore no interest shall be due (Art. Subsequently. two conditions must concur: a) express stipulation for the payment of interest. 1982. Also. 2000 to Aug. The loan had no specified maturity date and carried a 6% monthly interest (Php 21K). 4. Quick background: De La Paz had no communication with Atty. for reasons of equity. Even if interest had been stipulated in writing.

even if knowingly and voluntarily assumed. a 6% monthly interest rate on a loan is unconscionable. voluntariness does not make the stipulation on an unconscionable interest valid. Even assuming that it was L&J (Atty. 1982). 3. 905 s. Usury has been legally non-existent (suspension of the Usury Law by Central Bank Circular No. 5. and b) The agreement to pay interest is reduced in writing. Hence. . two conditions must concur: a) Express stipulation for the payment of interest. 799 s. there is no specified period as to the payment of the loan. levying 6% monthly or 72% interest per annum is "definitely outrageous and inordinate. the interest imposed by the CA is now modified: The Php 226K which De La Paz is ordered to pay L&J shall earn an interest of 6% per annum from the finality of this SC Decision until fully paid. 2. De La Paz and L&J did not put down in writing their agreement. The collection of interest without any stipulation in writing is prohibited by law. At present. repulsive to the common sense of man.RATIO: 1. regardless of who between the parties proposed the rate. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property. Salonga) who insisted on the interest rate. In this case. 1956. Indeed. No interest shall be due unless it has been expressly stipulated in writing (Art. Even so. Gravador] 9. is immoral and unjust." [Asian Cathay Finance and Leasing Corporation v." 7. no interest is due. 4. For interest to be due and payable. In this case. not all interest rates levied upon loans are permitted by the courts as they have the power to equitably reduce unreasonable interest rates. 6. this will not exempt De La Paz from a ruling that the rate is void. Even if the payment of interest had been reduced in writing. “The imposition of an unconscionable rate of interest on a money debt. Thus. CC). Pursuant to Central Bank Circular No. 8. 2013.

Governor Armando Tetangco Jr. 30 and 32 removed the ceilings for non-bank financial intermediaries. On June 14. or to suspend the Usury Law and continue enforcing CB Circular No. Sections 5. except when the law itself authorizes their validity. within limits prescribed by the Usury Law (Act 2655). goods or credits.Advocates for Truth in Lending v Bangko Sentral Monetary Board (2013) Advocates for Truth in Lending v. 905 is unconstitutional in light of Section 1 of the Bill of Rights. Ignacio Bunye and Cesar Purisima SUMMARY: Petitioners filed a Rule 65 certiorari petition directly with this Court for declaration that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB). Peter Fa Vila. No. Section 109 of R.A. 2224 of December 3. and fees for commercial banks b. commissions. empowered the CB-MB to set the maximum interest rates which banks may charge for all types of loans and other credit operations. Rule 65) and not those exercising executive functions such as the CB- MB . NCC: "Acts executed against provisions of mandatory or prohibitory laws shall be void. Ramos signed into law RA 7653 establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB as well as adding a repealing clause. PROCEDURAL ISSUES: 1. Whether certiorari will lie in the instant case—NO. 905 of 1982 by the BSP-MB. which "suspended" Act No. 1982. Alfredo Antonio. as a writ of certiorari is directed against a tribunal exercising judicial or quasi-judicial functions (Sec 1. On March 17. is void for violating Article 5. that nothing in P. other charges. 28. 5. and its incumbent members: Juanita Amatong. nor shall any person be denied the equal protection of the laws. giving the CB-MB authority to prescribe different maximum rates of interest which may be imposed for a loan or renewal thereof or the forbearance of any money. Sections 12 and 17 removed the interest ceilings for thrift banks. SC said that the Circular merely suspended the Usury Law. effective January 1.. liberty or property without due process of law. J. The banks immediately re-priced their loans to rates even higher than those of the "Jobo" bills.” d. President Fidel V. AFTIL is a non-profit. They argue: a. the benchmark 91-day Treasury bills (T-bills AKA "Jobo" bills) shot up to 40% per annum as a result. which called for investigations by the Senate Committee on Banks and Financial Institutions into unconscionable commercial rates of interest.D. No. Section 1-a of the Usury Law was amended by PD 1684. 905. | Parties > General PETITIONERS: Advocates for Truth in Lending. Bangko Sentral Monetary Board January 15. e. a. has no authority to continue enforcing Central Bank (CB) Circular No. 2013 | Reyes. goods or credits. that the authority of the CB-MB was only to fix the banks’ maximum rates of interest. In its Resolution No. but within the limits of the Usury Law c. which was promulgated without any prior public hearing. c. 3.” Weeks after the issuance of CB Circular No. which commands that "no person shall be deprived of life. Books I to IV of the CB’s "Manual of Regulations for Banks and Other Financial Intermediaries" (Manual of Regulations) were also amended by removing the applicable ceilings on specific interest rates. Section 1 removed the ceilings on interest rates on loans or forbearance of any money. that CB Circular 905. Petitioners attached copies of Senate Bills and Resolutions of the 10th Congress (1995-1998). General Provisions. 1948. the BSP-MB has been stripped of the power either to prescribe the maximum rates of interest which banks may charge for different kinds of loans and credit transactions. 905. Nelly Villafuerte. 2. that CB Circular No. represented by its Chairman. which replaced the Central Bank Monetary Board (CB-MB) by RA 7653. Sections 19 and 21 removed the ceilings applicable to rural banks. non-stock corporation engaging in pro bono concerns and activities relating to money lending issues. or the Usury Law of 1916. in view of the repealing clause in Section 135 of RA 7653 which established the BSP. provided that the changes are effected gradually and announced in advance. 1980. Sections 26. which seeks to challenge the enforcement of CB Circular No. 2655. 4. the CB-MB issued CB Circular 905. 6. which created the CB on June 15. 9. FACTS: 1. 905 of 1982. 1684 authorized the CB-MB to lift or suspend limits of interest on all credit transactions b. Inc. premiums. 10 removed ceilings for interest.(AFTIL) and Eduardo Olaguer (AFTIL’s founder and president) RESPONDENTS: Bangko Sentral Monetary Board. d. 1993. 265. 1983. and. leading to this petition.

The power of the CB to effectively suspend the Usury Law pursuant to P.A. or loans of financial intermediaries. and this right can be exercised by the creditor upon failure by the debtor to pay the debt due. unconscionable. including those for loans of low priority such as consumer loans. c. The BSP-MB has authority to enforce CB Circular No. it would have so stated in unequivocal terms. these contracts are deemed inexistent and void ab initio. and iniquitous interest—NO. terms and conditions as they may deem convenient. Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals and law. provided they are not contrary to law. a circular cannot repeal a law. 2. 265 covered only loans extended by banks. . the 15 year delay in filing of the petition rendered the issues moot and academic. the interest due should be that which may have been stipulated in writing. Whether petitioners have locus standi to file the petition—NO. b. whereas R. good customs. and it consists in the payment of a sum of money. When the obligation is breached. CB Circular No. 905 which removed all interest ceilings—YES. a subsequent law cannot be construed as repealing a prior law unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws. a. as such circular merely suspended the effectivity of usurious interest rates in the Usury Law. morals. because laws are presumed to be passed with deliberation and full knowledge of all laws existing pertaining to the subject. i. Whether the lifting of the ceilings for interest rates authorizes stipulations charging excessive.91%) SUBSTANTIVE ISSUES: 1. a. CA. 2655. a loan or forbearance of money. unjust. Had R. nor may the right to set up their illegality as a defense be waived. No. repugnant. the right to foreclose the mortgage subsists.A. or public policy. 7653. as the “direct injury” test of personal injury or substantial interest of the parties was not fulfilled and neither was there any misuse of public funds alleged to relax the requirement on standing 3. HELD: 1. now R. Whether the petition raises issues of transcendental importance—NO.A. b. an earlier law. is much broader in scope. 905. In the absence of an express repeal. 905 merely upheld the parties’ freedom of contract to agree freely on the rate of interest. DISPOSITIVE: Petition dismissed. By lifting the interest ceiling. The nullity of the stipulation of usurious interest does not affect the lender’s right to recover the principal of a loan. No. It cited Article 1306 of the New Civil Code. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. Under Article 1409 of the Civil Code. only another law can 2. 1684 has long been recognized and upheld in many cases (Medel v. i. Act No. No. Repeals by implication are not favored. clauses. No. as well as such loans made by pawnshops. v. 7653.e. as amended. Whether CB-MB had authority to issue CB Circular No.. 2655. First Metro Investment Corp.e. Este Del Sol Mountain Reserve) b. 7653 been intended to repeal Section 1-a of Act No. A closer perusal shows that Section 109 of R. 905. in a usurious loan with mortgage. Nothing in CB Circular No. the rate of interest shall be 12% per annum to be computed from default.. merely supplemented it as it concerns loans by banks and other financial institutions. 905—YES 3. Whether the BSP-MB has authority to enforce CB Circular No. and a legal interest of 12% per annum will be added in place of the excessive interest formerly imposed. goods or credits. the interest due shall itself earn legal interest from the time it is judicially demanded. as the high interest rates 15 years ago (40% per annum lending rates) do not apply anymore in 2012 (5. The debt due is considered as without the stipulated excessive interest. 265. 3. and therefore cannot be ratified. Furthermore. and repulsive to the law. whereas under Section 1-a of the Usury Law. 2. finance companies and similar credit institutions. 905 grants lenders authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. a.D.A.A. under which the contracting parties may establish such stipulations. public order. No. the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money. We find no such conflict between the provisions of Act 2655 and R. In the absence of stipulation. nor affect the other terms thereof. including deposits and deposit substitutes. Rules on the rate of interest and accrual thereof in an award of interest in the concept of actual and compensatory damages: 1. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings. Thus. as this is immoral. No.

this interim period being deemed to be by then an equivalent to a forbearance of credit. however. not constituting a loan or forbearance of money. shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.2. No interest. . be on the amount finally adjudged. the rate of legal interest. When an obligation. The interest shall then begin to run from the time the claim is made judicially or extrajudicially (Art. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. in any case. the interest shall begin to run only from the date of the court judgment. above. When the judgment of the court awarding a sum of money becomes final and executory. The actual base for the computation of legal interest shall. shall be 12% per annum from such finality until its satisfaction. is breached. 1169. 3. whether the case falls under paragraph 1 or paragraph 2. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made.

Despite the issuance of the TCT in Rs favor.Carpo v Chua (2005) CARPO v. CARPO RESPONDENTS: ELEANOR CHUA AND ELMA DY NG SUMMARY: P borrowed from R 175. Jaucian: 16% per month. However. iniquitous. the real estate mortgage was extrajudicially foreclosed. CHUA September 30. Ps mortgaged their residential house and lot. contrary to morals. P filed complaint of annulment of the mortgage and the consequent foreclosure proceedings. When Ps failed to pay the loan upon demand. Whether the invalidity of the stipulation on interest carries with it the invalidity of the principal obligation . 2. Whether the interest rate on the loan is iniquitous or unconscionable . . if not against the law. (C) that they should only be liable for the original amount of the loan plus plus 12% interest per annum and 1% monthly penalty charge as liquidated damages. To secure the payment of the loan. the stipulated interest rate is similarly invalid.80.000. or public policy. 4. Arrofo v. Cuaton v. 5.5% per month. clauses. Ruiz v. Salazar: 6% per month or 72% per annum interest on a P60.000.000. the interest rate stipulated (6% per month or 72% per annum) in the principal loan agreement is so excessive. Ps borrowed from Rs P175. FACTS: 1. Quino: 7% interest per month on a P15. Imperial v. or 66% per annum. stipulated in the promissory note iniquitous or unconscionable.NO RATIO: 1. In a long line of cases.00 loan amounting to 84% interest per annum) 2. for P367. On 18 July 1995. provided they are not contrary to law. CARPO AND RECHILDA S. In Medel. Ps filed a complaint for annulment of real estate mortgage and the consequent foreclosure proceedings. Salud: 10% and 8% interest rates per month on a P1. good customs. morals. so Rs filed a petition for writ of possession with the RTC which it granted.00 loan. did not pertain to the annulment of a real estate mortgage (it was a case for annulment of the loan contract itself).457.00 payable within six (6) months with an interest rate of 6% per month. petitioners continued to occupy the said house and lot. The Court agreed that the interest rate in the principal loan is iniquitous and unconscionable and thus it is an invalid stipulation BUT it does not carry with it the invalidity of the principal loan to which the mortgage was attached as an accessory. Court of Appeals: 3% per month or 36% per annum. the Court found the interest at 5. this Court has invalidated similar stipulations on interest rates for being excessive. CA. Meanwhile. Ps claim that (A) following Medel v. In the case at bar. unconscionable and exorbitant. who were the only bidders. and. Subsequently. terms and conditions as they may deem convenient. 2005 | Tinga | Usury Law PETITIONERS: SPOUSES DAVID B. hence.000 payable within 6 months with interest of 6% per month. unconscionable and exorbitant that it should have been declared null and void. the RTC suspended the enforcement of the writ of possession pending the final disposition of the complaint.YES 2.00 loan. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code. the Medel doctrine was not applied as Medel.000. 3. (B) the nullity of the agreed interest rate affects the validity of the real estate mortgage. 3. ISSUES/HELD 1. unlike here. The loan was secured with a real estate mortgage. There is no need to unsettle the principle in Medel. DOCTRINE: A usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest. iniquitous. So such stipulation was voided. public order.000. The house and lot was awarded to Rs. (Solangon v. contracting parties may establish such stipulations.

if the illegal terms can be separated from the legal ones. and Arrofo. and the debtor incurs in delay. the accessory stipulation is to pay interest thereon. The same remedial approach to the wrongful interest rates involved was employed or affirmed by the Court in Solangon. the prestation of the debtor to pay the principal debt is not illegal. And said two stipulations are divisible in the sense that the former can still stand without the latter. as amended). the principal one is to pay the debt. . 5. Since the mortgage contract derives its vitality from the validity of the principal obligation. but instead reduced the rate of interest to the more reasonable rate of 12% per annum. Cuaton. And in case of such demand. A contract of loan with usurious interest consists of principal and accessory stipulations. Imperial. the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract. Article 1420 NCC: "In case of a divisible contract. 7. notwithstanding the fact that the CA on certain occasions ruled that a usurious loan is wholly null and void. the debt earns interest by way of damages from the date of the demand (in this case from the filing of the complaint). The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. 6. the latter may be enforced. a loan with usurious interest is not totally void only as to the interest." In simple loan with stipulation of usurious interest. 2655. As provided in the Usury Law (Act No. Going back to Medel.4. the Court did not invalidate the entire loan obligation despite the inequitability of the stipulated interest. Ruiz.

UCPB demanded that the Sps pay their total obligation of P2. The 3 PNs were renewed several times. CA Affirmed. particularly for unilaterally fixing the interest rates on the promissory notes.3M was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. to enable them to give full consent to the contract.UCPB v Samuel & Beluso (2007) UCPB v.543. UCPB continued to charge interest and penalty on the obligations of the spouses Beluso. the spouses Beluso executed two more promissory notes for a total of P350. but the Sps failed to comply. From 1996 to February 1998 the spouses Beluso were able to pay the total sum of P763. however. ordering the return to Sps. The Credit Agreement was subsequently amended to increase the amount of the PNL to a P2.2M for a term ending on 30 April 1997. they filed a Petition for Annulment. uncertainty of interest rates. which. When they failed to pay. failed to make any payment of the foregoing amounts. already ballooned to P3. and the like. DOCTRINE:. 2. as follows: 8. 4. that UCPB to pay Sps. The payment of the principal and interest of the latter two promissory notes were debited from the Sps account with UCPB.784. 10.00. yet. by that time. Beluso of the properties subject of foreclosure. 5. UCPB is thus aggrieved as this was not raised in the Complaint against them. deduction of interests from the loaned amount.The rationale of the Truth in Lending Act is to protect users of credit from a lack of awareness of the true cost thereof.03.00. Beluso September 30. Samuel & Odette Beluso SUMMARY: Spouses Beluso were extended a Promissory Note Line whereby they could avail of credit from UCPB of up tp PhP 2. CA denied UCPBs Motion for Reconsideration for lack of merit. The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their loan.692.603.35.560. RTC ruled in favor of the spouses Beluso by declaring the interest rate void. Beluso PhP 50. 6.000. Accounting and Damages against UCPB with the RTC of Makati City. 2005 | Tinga | Usury Law PETITIONERS: United Coconut Planters Bank RESPONDENTS: Sps. Sps alleged that the amounts covered by these last 2 PNs were never released or credited to their account and. FACTS: 1. 12. a real estate mortgage over parcels of land in Roxas City as additional security for the obligation. and that Sps. 9. UCPB applied interest rates on the different promissory notes ranging from 18% to 34%.308. claimed that the principal indebtedness was only P2M. Sps filed a Petition for Annulment. UCPB granted Spouses Beluso (Sps) a Promissory Notes Line (PNL) under a Credit Agreement whereby the Sps could avail from UCPB credit of up to P1. To completely avail themselves of the P2. The Sps constituted. pay UCPB PhP 1. 3. as these were in blank. a consolidated loan for P1. The RTC held them liable for violating the Truth in Lending Act.000 by wat of atty’s fees & pay costs of the suit. CA affirmed RTC 13. UCPB thus filed the present petition . This was secured by their execution of Promissory Notes. UCPB thus foreclosed the properties mortgaged by the Sps to secure their credit line.00 plus 25% attorneys fees.932.35 Million credit line extended to them by UCPB. 7. Sps. From 28 February 1998 to 10 June 1998. proceeding from the experience that banks are able to conceal such true cost by hidden charges.35 Million pesos and to extend the term thereof to 28 February 1998. 11. other than their promissory notes (PNs). SC Affirmed. Accounting and Damages against UCPB. However. and to properly evaluate their options in arriving at business decisions. thus. Sps.

While admittedly. Section 5. the creditor shall be liable for reasonable attorneys fees and court costs as determined by the court. . Sec 6(c). (5) the total amount to be financed. The penalty for the violation of the act is P100 or an amount equal to twice the finance charge required by such creditor in connection with such transaction. the date of the demand for payment of the finance charge is 2 September 1998. Sec 6(a). In any action under this subsection in which any person is entitled to a recovery. Beluso and the lower court. and (7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation. the original complaint did not explicitly allege a violation of the TLA and no action to formally admit the amended petition was made either by Sps. UCPB’s argument that complaint did not allege violations of TLA is not entirely valid: a. except that such liability shall not exceed P2. The filing of the case on 9 February 1999 is therefore within the one-year prescriptive period. to be credited as down payment and/or trade-in. (6) the finance charge expressed in terms of pesos and centavos.ISSUES/HELD 1. the allegation of violation can be inferred from the same allegation in the complaint. except that such liability shall not exceed P2. Here. a.000.000 or more than P5. par 7) . the following information: (1) the cash price or delivered price of the property or service to be acquired. the joinder may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court and the venue lies therein. individually itemized. while the foreclosure was made on 28 December 1998. whichever is the greater. to the extent applicable and in accordance with rules and regulations prescribed by the Board. 2. a clear statement in writing setting forth. nor more than one year or both. (MAIN) W/N UCPB is liable for violation of the Truth in Lending Act (TLA)? → Yes RULES 1. 2. par 6). Sec 4. the borrowers cause of action would only accrue when such finance charge is required.00 on any credit transaction (See Rule #1) As this penalty depends on the finance charge required of the borrower.000 on any credit transaction. The allegation that the PNs grant UCPB the power to unilaterally fix the interest rates certainly also means that the promissory notes do not contain a clear statement in writing of the finance charge expressed in terms of pesos and centavos (See Rule #4. whichever is greater. TLA: Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction. in any court of competent jurisdiction. 3. Rules of Court (Joinder of Causes of Action): xxx Where the causes of action are between the same parties but pertain to different venues or jurisdictions.000 or imprisonment for not less than 6 months. if any. prior to the consummation of the transaction. and the percentage that the finance charge bears to the amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation (See Rule #4. (2) the amounts. TLA: Any creditor shall furnish to each person to whom credit is extended. TLA: Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1. (3) the difference between the amounts set forth under clauses (1) and (2) (4) the charges. which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit. UCPB’s contention that the action has prescribed is wrong. RATIO: 1. Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation. b. 4.

UCPB’s assertion that Mthe MetTC and not the RTC has juridiction. The belated discovery of the true cost of credit will too often not be able to reverse the ill effects of an already consummated business decision. c. The action to recover the penalty under Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void. where the allegedly offending interest rate was stipulated. the spouses Beluso also expressly raised this issue: Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act provision to express the interest rate as a simple annual percentage of the loan? 4. This joinder is allowed under Rule 2. Upholding UCPBs claim of substantial compliance would defeat these purposes of the Truth in Lending Act. to lend to the other party amounts not exceeding the limit provided. respondent bank violated the Truth in Lending Act in not informing the borrower in writing before the execution of the Promissory Notes of the interest rate expressed as a percentage of the total loan. The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof. The credit transaction thus occurred not when the credit line was opened. In the case at bar. As can be gleaned from Section 6(a) and (c) of the TLA (See Rules # 1 &). Beluso after execution. In attacking the RTCs disposition on the violation of the TLA since the same was not alleged in the complaint. imposing the penalty therefor of fine.3. considering that this involves more than 1 credit transaction. In addition. joined with other causes of action a. The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their loan. whichever is greater. and (2) the action to declare the foreclosure void. clearly provides for a civil cause of action for failure to disclose any information of the required information to any person in violation of the Act. to enable them to give full consent to the contract. Under such credit line. the violation of the said Act gives rise to both criminal and civil liabilities. The interest rate provision therein does not sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory notes. being a criminal offense. opening a credit line does not create a credit transaction of loan or mutuum. Beluso were duly given copies of the subject promissory notes after their execution. and to properly evaluate their options in arriving at business decisions. UCPB is actually asserting a violation of due process (mandates that a defendant should be sufficiently apprised of the matters he or she would be defending himself or herself against). UCPB’s argument (violation of the TLA. then they were duly notified of the terms thereof is wrong a. The penalty therefor is an amount of P100 or in an amount equal to twice the finance charge required by the creditor in connection with such transaction. the promissory notes. imprisonment or both. except that the liability shall not exceed P2. There had been no question that the above actions belong to the jurisdiction of the RTC. The action to recover such penalty may be instituted by the aggrieved private person separately and independently from the criminal case for the same offense. the respondent bank instead is liable to pay petitioners double the amount the bank is charging petitioners by way of sanction for its violation”) b.000. UCP’s argument of their substantial complaince with the TLA since the Sps. uncertainty of interest rates. are not sufficient notification from UCPB. the claim for civil sanctions for violation of the TLA was expressly alleged (“since from the start. where no interest rate was mentioned. since the former is merely a preparatory contract to the contract of loan or mutuum. 5. UCPB was not denied of due process. Section 5 of the Rules of Court (See Rule #3) 3.00 on any credit transaction. deduction of interests from the loaned amount. is wrong a. cannot be inferred nor implied from the allegations made in the complaint) is misplaced because this complaint is actually regarding the civil aspect of the TLA. . the copies of which were presented to the Sps. Furthermore. Section 6(c) considers a criminal offense the willful violation of the Act. In the same pre-trial brief. the violation of the Truth in Lending Act allegedly occurred not when the parties executed the Credit Agreement. but when the parties executed the promissory notes. Section 6(a). and (2) the action to declare the foreclosure void. (See Rule #3) b. on the other hand. a. the civil action to recover the penalty under Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void. b. but rather when the credit line was availed of. proceeding from the experience that banks are able to conceal such true cost by hidden charges. and the like. Section 4 of the TLA (See Rule #4) clearly provides that the disclosure statement must be furnished prior to the consummation of the transaction b. the bank is merely obliged. in the 1 July 1999 pre-trial brief filed by the spouses Beluso before the RTC. However. Here. for the considerations specified therefor.

Wilson Chan and Lily Chan RESPONDENTS: Bonifacio S. After four years. It held that Ps were duty bound to realease the construction materials upon R’s demand. ISSUES: (1) Has respondent presented proof that the construction materials and equipment were actually in Ps’ warehouse when he asked that the same be turned over to him? NO (2) If so. A depositary is obliged to return the thing to the depositor. The deposit was free of charge. FACTS: 1. Inventory by disbursement and payroll officer of R 9. R filed MR but the same was denied because of his failure to appear on the scheduled hearing. in turn. R is not entitled to damages. Then. R entered into a building construction contract with Moreman Builders for the construction of his New Gran Hotel Project in Tacloban City. 4. or to the person who may have been designated in the contract. MACEDA April 30 2003 | J. 5. upon R’s motion. does respondent have the right to demand the release of the said materials and equipment or claim for damages? NO HELD: TC and CA decision reversed and set aside. Ps have no obligation to R. PROCEDURAL (not important but just in case) 6. 3. R filed a second MR. Delivery receipts c. TC dismissed complaint for failure to prosecute. Five years thereafter. R’s claim for damages is based on Ps’ failure to return or to release to him the construction materials and equipment deposited by Moreman to their warehouse. R filed an action for damages with an application for a writ of preliminary attachment against Ps before RTC Pasig. Ps were declared in default. moral damages. TC granted and the case was reinstated 10 years from the time the action was originally filed. on the ground that the MTD was filed out of time and it did not contain any notice of hearing. Sandoval-Gutierrez | Deposit PETITIONERS: Joseph Chan. Testimony of labor contractor (Conge)-. Ps told him that Moreman already withdrew the construction materials. rescinded the contract and awarded him damages. Hence. Ps filed a MTD but. or to his heirs or successors. R ordered Ps to return to him the construction materials and equipment.testified that he was contracted by Ps to get bags of cement and stel bars from the construction site to store them in Ps warehouse. Ps said that Moreman already withdrew the said materials. the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. 7. He filed an action for damages against Ps. this petition for review on certiorari. 8. exemplary damages and atty’s fees and to pay the costs. R was allowed to present evidence ex parte. and that there were construction materials in P’s warehouse at the time of his demand to return the same. Maceda Jr. Moreman deposited the construction materials he bought in the warehouse of Ps but when he demanded their return. R purchased various construction materials and equipment in Manila. the essential issues to be resolved are: (1) Has respondent presented proof that the construction materials and equipment were actually in Ps’ warehouse when . deposited them in the warehouse of the Ps. SUMMARY: R entered into a contract with Moreman for the construction of a hotel. SC held that he is not entitled to damages because he failed to prove the existence of a contract of deposit between him and the Ps nor between Ps and Moreman in his favor. 2.Chan v Maceda (2003) CHAN v. TC ruled in favor of R and ordered Ps to pay R actual damages. RATIO: 1. Hence. R filed an action for rescission and damages against Moreman. DOCTRINE: In an action against the depositary. R failed to prove the existence of any contract of deposit between him and P nor between the latter and Moreman in his favor. Moreman failed to finish the construction of the hotel on time. Moreman. CA affirmed. Some of the evidence he presented are as follows: a. b. CFI ruled in his favor.

he asked that the same be turned over to him? (2) If so. or to the person who may have been designated in the contract. respondent miserably failed to do so. In an action against the depositary. The only pieces of evidence respondent presented to prove the contract of deposit were the delivery receipts. Hence. Contracts are binding upon the parties (and their assigns and heirs) who execute them (Art 1311 NCC). it is still incumbent upon respondent to prove its existence and that it was executed in his favor. Significantly. And granting arguendo that there was indeed a contract of deposit between petitioners and Moreman. 5. there is likewise no obligation or liability to speak about and thus no cause of action arises. between Ps and R. the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action. A depositary is obliged to return the thing to the depositor. petitioners or respondent or any of their authorized representatives. 4. The record is bereft of any contract of deposit. or to his heirs or successors. they are unsigned and not duly received or authenticated by either Moreman. those delivery receipts have no probative value at all. When there is no privity of contract. If at all.. it was only between Ps and Moreman. oral or written. . 3. R also failed to prove that there were construction materials and equipment in Ps’ warehouse at the time he made a demand for their return. However. 6. does R have the right to demand the release of the said materials and equipment or claim for damages? 2.

The latter not having appealed the Court of Appeals decision. on October 27.1975. the savings account of the Zshornacks. or over five months later.46 were to be charged to Current Acct. the current account of the Zshornacks. a dollar savings account and a peso current account. he demanded an explainaiton from the bank.000. Zshornack demanded the return of the money on May 10. 5. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current account. with an indication that it was to be charged to Dollar Savings Acct. In the PPLICtion.00. Dizon in the sum of US $1. New York. 6. New Civil Code. maintained in COMTRUST.00 was received by the bank for safekeeping. Thus. There was no indication of the name of the purchaser of the dollar draft. 1975. When Zshornack noticed the withdrawal of US$1. COMTRUST claimed that the peso value of the withdrawal was given to Atty.000. Assistant Branch Manager of COMTRUST Quezon City. Zaldy Zshornack and his wife. An application for a dollar drat was accomplished by Virgillo Garcia branch manager of COMTRUST payable to a certain Leovigilda Dizon. 2. Quezon City Branch.BPI v IAC (1988) BPI v IAC August 19. the issues facing this Court are limited to the bank's liability with regard to the first and second causes of action and its liability for damages. When Zshornack noticed the withdrawal from his account. ISSUES/HELD: Whether the contract between petitioner and respondent bank is a deposit? RATIO: 1.000. No. Garcia indicated that the amount was to be charged to the dolar savings account of the Zshornacks. October 27.00 was received by the bank for safekeeping. 210465-29. J.1976 by filing in the Court of First Instance of Rizal — Caloocan City a complaint against COMTRUST alleging four causes of action. 25-4109. Jr. 25-4109. Garcia.450. which reads: Art. FACTS: 1. with the obligation of safely keeping it and of returning the same. issued a check payable to the order of Leovigilda D. Except for the third cause of action.. Rizaldy Zshornack initiated proceedings on June 28.000. The bank appealed to the Intermediate Appellate Court which modified the CFI decision absolving the bank from liability on the fourth cause of action. Ernesto Zshornack. 1988| Cortes. 1975 when he (Ernesto) encashed with COMTRUST a cashier's check for P8. 3. In answer. Comtrust issued a check payable to the order of Dizon. The document which embodies the contract states that the US$3. In its answer. an application for a dollar draft was accomplished by Virgilio V. Comtrust claimed that the peso value of the withdrawal was given to Atty. the bank comes to this Court praying that it be totally absolved from any liability to Zshornack. The original parties to this case were Rizaldy T.00 issued by the Manila Banking Corporation payable to Ernesto. he demanded an explanation from the bank. COMTRUST. 1976. 1962. there is no deposit but some other contract. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time. the CFI ruled in favor of Zshornack. Garcia. 4. If the safekeeping of the thing delivered is not the principal purpose of the contract. In the application. under the signature of Virgilio V. again. No. Ernesto Zshornack. Zshornack demanded the return of the money on May 10.000 drawn on the Chase Manhattan Bank. brother of Rizaldy.00 from his account. When he encashed with COMTRUST a cashiers check for P8450 issued by the manila banking corporation payable to Ernesto. DOCTRINE: The document which embodies the contract states that the US$3. the Bank of the Philippine Islands (hereafter referred to as BPI absorbed COMTRUST through a corporate merger. Shirley Gorospe. 1976. payable to a certain Leovigilda D. The above arrangement is that contract defined under Article 1962. Undaunted. Garcia indicated that the amount was to be charged to Dollar Savings Acct. Thus. documentary stamp tax and others totalling P17. There wasa no indication of the name of the purchaser of the dollar draft. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time. Dizon in the amount of $1. brother of Rizaldy. and was substituted as party to the case. 7. No. | Deposit PETITIONER: Bank of the Philippine Islands RESPONDENTS: Intermediate Appellate Court SUMMARY: Rizaldy T."] In 1980. On the same date. Zshornack and the Commercial Bank and Trust Company of the Philippines [hereafter referred to as "COMTRUST. the charges for commission. On October 27. . A deposit is constituted from the moment a person receives a thing belonging to another.

or over five months later. The parties did not intend to sell the US dollars to the Central Bank within one business day from receipt.000. 8. there is no deposit but some other contract." [Art. and its legal consequences.00 awarded by the courts a quo as damages in the concept of litigation expenses and attorney's fees to be reasonable. Zshornack demanded the return of the money on May 10. The parties did not intended to sell the US dollars to the Central Bank within one business day from receipt. with the obligation of safely keeping it and of returning the same. 20. 3. More importantly. and the act constitutes a criminal offense. they shall have no cause of action against each other. the document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange. New Civil Code. As earlier stated. Having determined that Garcia's act of entering into the contract binds the corporation. The award is sustained. 1411. 4. Hence. 5. who alleged in his complaint that he is a Philippine resident. The practical effect of absolving a corporation from liability every time an officer enters into a contract which is beyond corporate powers. 1962. Court finds the P8. we now determine the correct nature of the contract. or over five months later. 20. both parties being in pari delicto.000. The document which embodies the contract states that the US$3. "When the nullity proceeds from the illegality of the cause or object of the contract. which reads: Art. 6. Thus. is a transaction which is not authorized by CB Circular No. the contract of depositum would never have been entered into at all. it affords neither of the parties a cause of action against the other. 7. promulgated on December 9. it must be considered as one which falls under the general class of prohibited transactions. Hence. If the safekeeping of the thing delivered is not the principal purpose of the contract. . having been executed against the provisions of a mandatory/prohibitory law. Since the mere safekeeping of the greenbacks. A deposit is constituted from the moment a person receives a thing belonging to another. the transaction was covered by Central Bank Circular No. there is no deposit but some other contract. 1962. without selling them to the Central Bank within one business day from receipt. 1949. If the safekeeping of the thing delivered is not the principal purpose of the contract. Art. Petitioner's argument must also be rejected for another reason. . New Civil Code. Note that the object of the contract between Zshornack and COMTRUST was foreign exchange. The above arrangement is that contract defined under Article 1962. and return it later to Zshornack. Otherwise. pursuant to Article 5 of the Civil Code. including its enforceability. 2. A deposit is constituted from the moment a person receives a thing belonging to another. is to cast corporations in so perfect a mold that transgressions and wrongs by such artificial beings become. Otherwise. the contract of depositum would never have been entered into at all. Restrictions on Gold and Foreign Exchange Transactions. with the obligation of safely keeping it and of returning the same. 1976. which was in force at the time the parties entered into the transaction involved in this case. .] The only remedy is one on behalf of the State to prosecute the parties for violating the law. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time. even without the proper allegation or proof that the corporation has not authorized nor ratified the officer's act.00 was received by the bank for safekeeping. it is void.

[2] which absolves the bank from liability. 1448 of private respondent Security Bank and Trust Company 3. RESPONDENTS: COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY SUMMARY: Aguirre (president of petitioner) and Pugao entered an agreement whereby the former purchased from the latter land covered by TCTs transferrable to his name upon full payment. Opening the box required 1 renter’s key and a guard key. and the depositor cannot gain access thereto without the consent and active participation of the company. The bank is not a depositary of the contents of the safe and it has neither the possession nor control of the same. The LC dismissed the petition and held that the contract between bank and parties was one of lease. However. *1 renter’s key was given to each party (Aguirre and Pugao) and 1 guard key remained with the bank. 4. LC and CA dismiss and affirm respectively. They then rented Safety Deposit Box No. which is still found within the parameters of a contract of deposit. | Voluntary Deposit PETITIONER: CA AGRO-INDUSTRIAL DEVELOPMENT CORP. That access to the contents of the safe-deposit box can be had only by the use of a key retained by the lessee (whether sole key or one used with lessor’s) does not operate to alter the foregoing rule. . Bank and parties then signed a contract of lease which stipulated in part: 13. 5. Bank would only be made answerable in case unauthorized persons enter into the vault area or when the rented box is forced open. the contract here is a special kind of deposit. which is actually one of deposit[3] and the prevailing rule in the US states: (all important so quoted in full more or less) The prevailing rule appears to be that where a safe-deposit company leases a safe-deposit box and the lessee takes possession of the box and places therein his valuables.00. the TCTs are no longer there. It is not lease under Article 1643 because the full and absolute possession and control of the safety deposit box was not given to the joint renters (there was still a guard key without which neither renter could access the box). Sergio Aguirre) and the spouses Pugao entered into an agreement whereby the former purchased from the latter 2 parcels of land for a consideration of P350. Among the terms and conditions of the agreement were that the titles to the lots shall be transferred to the petitioner upon full payment of the purchase price and that the owner's TCTs shall be deposited in a safety deposit box of a bank to be withdrawn only upon joint signatures of petitioner and Pugaos and upon full payment. governed by Article 1643[1] and Article 1975. Mrs. 6. since the company is. on the theory that the contract executed is a lease by virtue of which renters were given control over the box and its contents while the Bank retained no right to open it.CA Agro Industrial Devt Corp v CA (1993) CA AGRO INDUSTRIAL DEVELOPMENT CORP. when the Pugaos and Aguirre went to fetch the TCTs from the safety deposit box. the balance was covered by 3 postdated checks. The argument that there is no delivery of exclusive possession and control to the deposit company—thus different from bailment—has been generally rejected since as possession must be either in the depositor or the company. however. 2. it is in the latter rather than in the former. 14. Thus petitioner files this case against the bank for unrealized profits. The bank argued that based on the above provisions in their contract.[More of] Deposit pursuant to Sec.Court also found that the deposit theory does not find unanimous support in American jurisprudence. As such. Ramos offered to buy from the petitioner the 2 lots at a P100 profit per square meter. except herein expressly provided. 1975 for example contemplates a depository who has sole access to the safe rather than that he cannot open it without the renters. 1979. v. Bank could not likewise open the box on its own. CA AND SECURITY BANK 1993 | Davide. After downpayment. SC modifies this and says it was a special kind of deposit. . Petitioner appeals contending that bank is liable pursuant to the contract. DOCTRINE: The renting out of a safety deposit box is only pursuant to the principal function of receiving in custody of valuable objects for safekeeping. petitioner (through its President. and it assumes absolutely no liability in connection therewith. The parties then rent a safety deposit box in respondent bank where the TCTs may be safely kept. a.625. b. RATIO: 1. The bank has no interest whatsoever in said contents. 72 of the General Banking Act. We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the CC provisions on deposit.Hence. When a third party offers to buy the lands and the parties open the box. Jr. given absolute control of access to the property. FACTS: 1. Art. the authorities cited by the respondent Court do not apply. the relation of bailment is created. ISSUES/HELD: Is the contract between renters and bank one of deposit (petitioner) or of lease (respondent)? . they found the box empty. a. loss of anything contained in the box could not give rise to an action against it. by the nature of the contract. .

either of them could ask the Bank for access to the box and open it. However. without the other renter being present. Thus petition must be dismissed but only because no proof was presented to show that (1) Bank was aware of the agreement between renters that TCTs were withdrawable only upon both parties' signatures. with regard to the safekeeping and the loss of the thing. one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain. The depositary holding certificates. His responsibility. [3] Art. etc. would be void for being contrary to law and public policy. the Banking Act guides. In the lease of things. and (2) the loss was due to the fraud or negligence of the Bank.[4] Thus the principal function is still found within the parameters of a contract of deposit. and rent safety deposit boxes for the safeguarding of such. the receiving in custody of valuable objects for safekeeping. or to his heirs and successors.. shall be governed by the provisions of Title I of this Book. 72. Book IV. xxx xxx xxx The banks shall perform the services under subsections (a). He would be liable if found guilty of fraud. when required. 3.e. xxx [4] Sec. a. or to the person who may have been designated in the contract. c. In addition to the operations specifically authorized elsewhere in this Act. [1] Art. no lease for more than ninety-nine years shall be valid. securities or instruments which earn interest shall be bound to collect the latter when it becomes due. In the absence of any stipulation. provided not contrary to law. But there being no bad faith on petitioner’s part.. i. In our jurisdiction. to the depositor. Deposit may be entered into orally or in writing and.. delay or breach. PARTIALLY GRANTED & DECISION MODIFIED. the diligence of a good father of a family is to be observed. documents. the parties thereto may establish such stipulations they may deem convenient. 1643. The above provision shall not apply to contracts for the rent of safety deposit boxes. banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds. 1975. Stipulations 13 and 14 are void. he does not have to answer for respondent’s counterclaim of attorney’s fees. è This in turn flows from this Court's determination that the contract was one of deposit. b. (b) and (c) of this section as depositories or as agents… . The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I. negligence. [2] Art. The renting out of the safety deposit box is only pursuant to this principal function. and for a period which may be definite or indefinite. morals. The depositary is obliged to keep the thing safely and to return it. and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law.2. pursuant to Art 1306 CC. and valuable objects. Hence. etc. bonds. 1972. any stipulation exempting the depositary from liability arising from the loss of the thing on account of fraud. Since depositors agreed that each should have a renter's key. 4.

including money from somewhere else) in his personal account in the Hongkong and Shanghai Bank. 2. Thomas) . The sum deposited in the bank was confiscated and turned over to the government ISSUE: WON the Fr.The books of Fr. During the war." (US v. The money was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo was forcibly taken from the bank by the armed forces of the United States during the war of the insurrection. If this money had been deposited in the name of De la Peña as trustee or agent of the plaintiff. 3. administrator of the estate of Fr. with the exception of the cases expressly mentioned in the law or those in which the obligation so declares” 2. While it may be true that one who is under obligation to do or give a thing is in duty bound. RATIO: 1. 3.Roman Catholic Bishop of Jaro v De la Pena (1913) THE ROMAN CATHOLIC BISHOP OF JARO v. or which having been foreseen were inevitable. Fr. he by this act stamped on the said fund his own private marks and unclothed it of all the protection it had. Moreland l Deposit PLAINTIFF-APPELLEE: The Roman Catholic Bishop of Jaro DEFENDANT-APPELLANT: Gregorio de la Pena. 4. He deposited the said amount (19k in total. if unavoidable. J. The military authorities claimed that he was an insurgent and that the funds he deposited had been collected by him for revolutionary purposes. "Trustees are only bound to exercise the same care and solicitude with regard to the trust property which they would exercise with regard to their own. Fr. Such deposit did not make him a debtor who must respond at all hazards.major casus est. nor did he thereby make himself liable to repay the money at all hazards. Equity will not exact more of them. Father De la Peña was not responsible for its loss. Agustin de la Pena SUMMARY: DOCTRINE: FACTS: 1. to temper the effects of those events. 1898-. Principle of the Roman law-. If the had been forcibly taken from his pocket or from his house by the military forces of one of the combatants during a state of war. Trent dissenting: 1. it is clear that under the provisions of the Civil Code he would have been exempt from responsibility. 3. and they become mere debtors. But this exemption ceases when they mix the trust -money with their own. to take all reasonable means and measures to escape or. By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an obligation different from that under which he would have lain if such deposit had not been made. De la Pena showed that as a trustee he had on hand P6. P is the trustee of a charitable bequest made for the construction of a leper hospital. De la Pena was arrested as a political prisoner. They are not liable for a loss by theft without their fault. when he sees events approaching the results of which will be dangerous to his trust.641 for the charitable purposes aforesaid. 4. When De la Peña mixed this trust fund with his own and deposited the whole in the bank to his personal account or credit. cui humana infirmitas resistere non potest: "no one shall be liable for events which could not be foreseen. in choosing between two means equally legal. it may be presumed that the military authorities would not have confiscated it for the reason that they were looking for insurgent funds only. DE LA PENA Nov 21. There was no law prohibiting him from depositing it as he did and there was no law which changed his responsibility be reason of the deposit. De la Pena was the duly authorized representative of P to receive the legacy. 1913 l J. we do not feel constrained to hold that. whereby it loses its identity. De la Pena is responsible for the loss of the trust funds HELD: NO. 2. he is culpably negligent in selecting one whereas he would not have been if he had selected the other. The fact that he placed the trust fund in the bank in his personal account does not add to his responsibility.

4. The record also shows that these funds were withdrawn and again deposited all together on the 29th of May. These facts strongly indicate that De la Peña had as a matter of fact been using the money in violation of the trust imposed in him.000. 1900.280. It will be noted that a considerable length of time intervened from the time of the deposit until the funds were confiscated by the military authorities. . on June 28 of that year P3. 1898. In fact the record shows that De la Peña deposited on June 27.259. P5.970. this last deposit amounting to P18. and on August 5 of the same year P6.

RTC and CA both held Durban solely liable for the amount of P1. RTC held Durban Apartments Corporation solely liable to respondent Pioneer Insurance for the sum of P1. as indemnity for the loss of the Vitara. by right of subrogation. by right of subrogation. A contract of necessary deposit existed between the insured See and petitioner. Pioneer claimed that it was the insurer for loss and damage of Jeffrey S. When he entrusted its key to the Justimbaste. Makati City before midnight. SUMMARY: One Jeffrey See had turned over his Suzuri Vitara at the valet parking lot of petitioner Durban Apartments to its parking attendant (defendant) Justimbaste. it was See who requested a parking attendant to park the Vitara at any available parking space. there is no deposit but some other contract. · That Justimbaste did not get the ignition key of Sees Vitara. and placed the ignition key inside a safety key box while See checked in. The Vitara was lost due to the negligence of Durban Apartments and Justimbaste (2 nd incident of carnapping in their valet parking & no necessary precautions were taken) 7. That See had arrived and checked in at the City Garden Hotel in Makati corner Kalayaan Avenues. they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. parked the Vitara at the Equitable PCI Bank parking area. DOCTRINE: Article 1962.00 money claim of See and mortgagee ABN AMRO Savings Bank. A deposit is constituted from the moment a person receives a thing belonging to another. See got a telephone call from the Hotel Chief Security Officer who informed him that his Vitara was carnapped while it was parked unattended at the parking area of Equitable PCI Bank along Makati Avenue between the hours of 12:00a. Art. this was carnapped. on the part of the latter. against Durban and Justimbaste. Pioneer Insurance and Surety Corp paid See under the policy then proceed. Hence this petition.NECESSARY AND VOLUNTARY DEPOSIT. The keepers of hotels or inns shall be responsible for them as depositaries. 6.163. in relation to Article 1998.250. 8. As this vehicle was covered by insurance. Both Durban and Justimbaste made a written denial of the demand of Pioneer Insurance for want of legal basis: · Durban asserts that See did not check in at its hotel. he was a guest of a certain Ching Montero. of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns: Art. or to their employees. with the obligation of safely keeping it and returning the same.m. PETITIONERS: DURBAN APARTMENTS CORPORATION doing business under the name and style of City Garden Hotel RESPONDENTS: Pioneer Insurance and Suretey Corp.163. 1962. the latter issued him a valet parking customer claim stub.m. Inc. FACTS: 1. on the contrary.163. and its parking attendant(defendant Justimbaste) got the key from See to park the Vitara. WAREHOUSE RECEIPTS LAW DURBAN APARTMENTS CORPORATION v PIONEER INSURANCE AND SURETY CORPORATION Jan. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. ISSUES/HELD: WON petitioner Durban is liable for the loss of See’s vehicle? –YES. SC affirmed. CA affirmed 9.. and Vicente Justimbaste 2. on the contrary.250. 4.00 with legal interest. At about 1am.00 w/ legal interests. However. provided that notice was given to them. of the effects brought by the guests and that.250. 1998. 2011 | Nachura. Sees [the insured] 2001 Suzuki Grand Vitara 3. Pionener paid the P1. J. 5. and 1:00 a. Pioneer Insurance and Surety Corporation. If the safekeeping of the thing delivered is not the principal purpose of the contract. 12. . | NECESSARY DEPOSIT. filed w/ the RTC a Complaint for Recovery of Damages against Durban Apartments Corporation (doing business under the name and style of City Garden Hotel).

Inc RESPONDENTS: Filipino Merchants Insurance Company. Crispa filed a claim against insurer FMCI. is an explicit waiver of any right to claim indemnity for the loss of the car. Petitioner argues they are not a depositary of the car and that it exercised due diligence in safe keeping it. De asis availed of the valet parking service (note her car: Mitsubishi Galant Super Saloon. In detail: See gave notice to the doorman and parking attendant of the said hotel about his Vitara. FMCI pays out the indemnity and subrogates Crispa in its rights and sues Triple V for damages. FILIPINO MERCHANTS Feb 21. RATIO: · A contract of necessary deposit existed between the insured See and petitioner. to petitioner's mind. The car was never recovered. through the latters employee. complaint failed to aver facts to support the allegations of recklessness and negligence committed in the safekeeping and custody of the subject vehicle i. FMCI indemnified Crispa with P669. parked the Vitara at the Equitable PCI Bank parking area. SUMMARY: De asis while eating out avails for valet. petitioner is liable for the loss of Sees vehicle. It is not necessary that the depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor. De Asis received a parking ticket where under it is so provided that "[Management and staff will not be responsible for any loss of or damage incurred on the vehicle nor of valuables contained therein". Inc. In accepting the complimentary valet parking service. the employees wasted no time in ascertaining the loss of the car and in informing De Asis of the discovery of the loss. . which Justimbaste received with the obligation of safely keeping and returning it. Inc. 2. CA:FMCI 8. · See deposited his vehicle for safekeeping with petitioner. CA (2005) TRIPLE-V vs. and placed the ignition key inside a safety key box while See checked in. 2005| not written | Necessary deposit PETITIONER: Triple-V Food Services. when he handed over to Justimbaste the keys to his vehicle. Thus. Justimbaste issued a claim stub to See.50 and subrogated her to her right. the contract of deposit was perfected from Sees delivery. a provision which. Valet loses car (assigned to her by her employer) so he applies for a claim against his insurer. 5. .YES . FMCI. ISSUES/HELD: W/N Triple V was a depositary of the car. the latter issued him a valet parking customer claim stub. March 2. The Equitable PCI Bank parking area became an annex of City Garden Hotel when the management of the said bank allowed the parking of the vehicles of hotel guests thereat in the evening after banking hours. Triple V contest that they were not the depositary of the BUT SC disagrees. Triple V: a. DOCTRINE: Safely keeping it and returning the same A deposit may be constituted even without any consideration. Triple V Food Services Inc. 3. 4. [Crispa]. b. The car was parked by valet attendant Madidano who after a few minutes of parking saw the car was Gone from the parking slot and its key missing from their custody. In turn. TC: for FMCI 7. assigned to her by her employer Crispa Textile Inc. v. subsequently filing a case for damages against petitioner Triple-V Food Services. Ultimately. When he entrusted its key to the Justimbaste. FACTS: 1. 1997: Mary Jo-Anne De asis dines in Camayan restaurant in West Ave. Justimbaste. 6.

2. v. CA 17 Feb 2005 | Tinga | Deposit PETITIONERS: YHT Realty Corporation. 4. With re Claim stub with waiver of liability: a. McLoughlin rented a safey deposit box (as was his practice). one of which is given to the registered guest. He sued the hotel for damages. parking claim stub embodying the terms and conditions of the parking. Thus. Erlinda Lainez and Ancia Payam RESPONDENTS: Court of Appeals and Maurice McLoughlin SUMMARY: McLoughlin deposited various amounts of money and jewelry in the safety deposit boxes of YHT hotel. Whatever he deposited would consistently be diminished upon subsequent inspection. He found out that the hotel staff had been allowing his companion/lover/tour guide to open the safety deposit box that was assigned exclusively to him. 3. hotel-keepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. While contracts of adhesion are not void in themselves. is essentially a contract of adhesion. petitioner must not be allowed to use its parking claim stub's exclusionary stipulation as a shield from any responsibility for any loss or damage to vehicles or to the valuables contained therein. Catering to the public. like De Asis. including that of relieving petitioner from any loss or damage to the car. When De Asis entrusted the car in question to the valet attendant the former expected the car's safe return at the end of her meal. Payam. Tan took care of McLoughlins booking at the Tropicana where he started staying during his trips to the Philippines from December 1984 to September 1987. In a contract of deposit. DOCTRINE: Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely. Tan befriended McLoughlin and convinced him to transfer to Tropicana. the Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and circumstances. used to stay at Sheraton Hotel during his trips to the Philippines prior to 1984 when he met Tan. FACTS: 1. Petitioner cannot evade liability by arguing that neither a contract of deposit nor that of insurance. The hotel business like the common carrier’s business is imbued with public interest. The twin duty constitutes the essence of the business. an Australian businessman-philanthropist. McLoughlin. v CA (2005) YHT REALTY CORP. . 2. Hotel tried to escape liability by pointing to the terms and conditions regarding the use of their safety deposit boxes that stated that it would not be liable for any loss incurred through the use of such. guaranty or surety for the loss of the car was constituted when De Asis availed of its free valet parking service. 3. It is not necessary that the depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it later to the depositor. petitioner was constituted as a depositary of the same car. YHT Realty Corp. drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of the customers. Lainez. and the other remaining in the possession of the management of the hotel. RATIO: 1. He was aware that the safety deposit box could only be opened through the use of two keys. and Danilo Lopez were employees of Tropicana. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called “undertakings” that ordinarily appear in prepared forms imposed by hotel-keepers on guests for their signature. a person receives an object belonging to another with the obligation of safely keeping it and returning the same A deposit may be constituted even without any consideration. who merely adheres to the printed stipulations therein appearing. Lopez served as manager of the hotel while Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. b. During his stay in October 1987.

and so McLoughlin made Lopez and Tan sign a promissory note for him for the loss. however. another of 10k AUD. through legal counsel. and the most of the jewelry he bought in HK was missing. 1998 to 2001 is suppressed or diminished shall be void. Upon arrival. 15. 2. The CA modified only the amount of damages awarded. 11. 12. McLoughlin confronted Tan. Payam and YHT Realty Corporation as defendants. 8. 10. who admitted that she had stolen McLoughlin’s key and was able to open the safety deposit box with the assistance of Lopez. The police did not arrive. reasoning that McLoughlin signed an "Undertaking for the Use of Safety Deposit Box" which disclaims any liability of the hotel for things put inside the box. it is null and void. 9. He placed an envelope containing 15k USD. He asked Lainez iif some money was missing or returned to her. 5. 2 bankbooks. but because he had no idea if the safety deposit box has been tampered. Lopez got in touch with Tan and arranged for a meeting with the police and McLoughlin. (this is the only issue relevant to our topic) RATIO: 1. Lopez. 4. 2002 exempts the hotel-keeper from liability if the loss is due to the acts of the guest. were not served with summons. Art 2003: The Hotel Keeper cannot free himself from the responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. He came back to the Philippines in April 1988. Payam and Tan. Payam and Lainez. 7. Art. Cory Aquino which was pushed back to the DOJ and the Western Police District. he discovered that the envelope with 10k USD only had 5k USD. McLoughlin allegedly placed the following in his safety deposit box: 15k USD. Yes. He immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit box with the key assigned to McLoughlin. He went back from the PH to AU several times more to attend business and follow up but the matter was only filed Dec 1990 since he was not there to personally follow up. Tan and Lopez. checked out of Tropicana and flew back to Australia. which he placed in two envelopes 10k AUD which he also placed in another envelope. 14. When he arrived in HK. 6. Any stipulation between the hotel keeper and the guest whereby the responsibility of the former as set forth in Art. he took from the box the envelopes 5k USD and 10k AUD because he was not checking out. In this case there was a finding that management acted negligently. 2003 is controlling. Upon return to Australia. McLoughlin filed an action against YHT Realty Corporation. ISSUES/HELD: WON the "Undertaking for the Use of Safety Deposit Box" which disclaims any liability of the hotel for things put inside the box is void . CA affirmed. He returned to Manila. He opened the box a few days later and noticed that cash was again missing from the 2 envelopes. the envelope with 5k USD only contained 3k USD. He again registered at the Tropicana and rented a safety deposit box. McLoughlin requested the management for an investigation of the incident. This is an expression of public policy that the hotel business like common carriers are imbued with public interest. 13. 2 envelopes containing letters and credit cards. Before leaving for Hong Kong in Dec 1987. 3. and a checkbook. McLoughlin. This responsibility cannot be waived away by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. Lainez. and trial proceeded with only Lainez. RTC rendered judgment in favor of McLoughlin. he thought it was just bad accounting. . family or visitors falls because the hotel is guilty of negligence as well. wrote a letter addressed to Pres.YES. to which the latter answered there was not. Lopez refused liability on behalf of the hotel. This provision presupposes that the hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the occurrence of the loss. The defense of YHT that Art.

PNB v. SE
APRIL 18, 1996 | HERMOSISIMA, JR., J. | WAREHOUSE RECEIPTS LAW

PETITIONER: Philippine National Bank
RESPONDENTS: Hon. Pres. Judge Benito C. Se, Jr., RTC, Br 45, Manila; Noah’s Ark Sugar Refinery; Alberto T.
Looyuko, Jimmy T. Go and Wilson T. Go

SUMMARY: Noah’s Ark issued 5 Warehouse Receipts (Quedans) covering sugar stocks. These were endorsed to Ramos
and Zoleta, who used them as security to obtain loans to PNB. Ramos and Zoleta failed to pay, so PNB demanded
delivery of the stocks. Noah’s Ark refused and alleged ownership thereof. PNB filed suit in RTC to compel delivery. Case
reached SC, which ordered Noah’s Ark to deliver the sugar stocks. Noah’s Ark et al. prayed deferment of proceedings in
RTC until their warehouseman’s lien is paid. RTC ruled in their favor. PNB elevated case to SC, which ruled that Noah’s
Ark et al. are entitled to their warehouseman’s lien, and that PNB must pay storage fees before the delivery of the sugar
stocks.

DOCTRINE: Imperative is the right of the warehouseman to demand payment of his lien upon surrender of goods,
because, in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by
surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien, because a warehouseman’s lien is possessory in nature.

FACTS:
1. Noah’s Ark Sugary Refinery issued 5 Warehouse Receipts (Quedans), covering sugar stocks. These quedans
were negotiated and endorsed to Luis Ramos and Cresencia Zoleta. Ramos and Zoleta used the quedans as security for
two loan agreements (one for P15.6M, the other for P23.5M) they obtained from PNB.
2. Upon failure to pay the loans, PNB demanded delivery of the sugar stocks from Noah’s Ark, but the latter refused
and alleged ownership thereof. Hence, PNB filed with RTC a complaint to compel delivery of the sugar stocks. RTC ruled
against PNB. Case reached CA, and eventually the SC, which ordered Noah’s Ark to deliver the sugar stocks to PNB.
3. Noah’s Ark et al. then filed with the RTC an Omnibus Motion seeking deferment of the proceedings until they are
heard on their claim for warehouseman’s lien. RTC granted the Omnibus Motion and ordered deferment of the
proceedings. PNB filed a petition with SC to nullify the RTC order.
4. PNB asserted that Noah’s Ark et al. lost their right to recover warehouseman’s lien for failure to raise such claim
in their Answer before the RTC, and that the SC’s ruling already foreclosed such right.
5. Noah’s Ark et al. countered that they could not have claimed right to a warehouseman’s lien in the RTC, since it
would be inconsistent with their claim of ownership. They also maintained that SC did not make any decision on the
matter of warehouseman’s lien.

ISSUES/HELD: WON Noah’s Ark et al. are entitled to warehouseman’s lien, obliging PNB to pay storage fees – YES

RATIO:
1. There was no point in taking up the issue of warehouseman’s lien since the matter of ownership was as yet being
determined. Neither could storage fees be due then while no one has been declared the owner of the sugar stocks in
question.
2. Noah’s Ark et al. cannot legally be deprived of their right to enforce their claim for warehouseman’s lien, for
reasonable storage fees and preservation expenses. Sec. 27 and 31 of RA 2137 (Warehouse Receipts Law) dictate the
payment of warehouseman’s lien:
SECTION 27. What claims are included in the warehouseman’s lien. - Subject to the provisions of section
thirty, a warehouseman shall have lien on goods deposited or on the proceeds thereof in his hands, for all
lawful charges for storage and preservation of the goods; also for all lawful claims for money advanced,
interest, insurance, transportation, labor, weighing coopering and other charges and expenses in relation
to such goods; also for all reasonable charges and expenses for notice, and advertisement of sale, and
for sale of the goods where default has been made in satisfying the warehouseman’s lien.

xxx xxx xxx

SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a lien
valid against the person demanding the goods may refuse to deliver the goods to him until the lien is
satisfied.
3. Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in
accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by
surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien, because a warehouseman’s lien is possessory in nature.
4. Thus, while the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees.

AGLIBOT v. SANTIA
Dec. 5, 2012 | Reyes, Jr. | Guaranty

PETITIONERS: Fideliza J. Aglibot
RESPONDENTS: Ingersol L. Santia

SUMMARY: Respondent Ingersol Santia, thru a promissory note, loaned the amount of P2,500,000.00 to Pacific Lending
& Capital Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). As a guaranty for the payment
of the note, Aglibot issued 11 post-dated personal checks drawn from her own demand account. The checks bounced,
hence, Santia demanded payment from both PLCC and Aglibot. The MTCC and the RTC ruled in favor of Aglibot,
acquitting her from civil and criminal liability. This was however reversed by the CA, hence this petition by Aglibot.
The argument of Aglibot was that while she indeed obtain a loan from Santia, she did so in behalf of PLCC and
that she was acting a mere guarantor of the loan of PLCC when she issued her own checks. Because she is only a mere
guarantee, she is entitled to the benefit of excussion as provided under Art 2058 of the Civil Code. The benefit of
excussion is the prior exhaustion of the property of the debtor, and in this case, Aglibot was arguing that Santia has not
yet complied with this as Santia has not yet exhausted all means to collect the debt from PLCC which is the principal
debtor, and hence she cannot be permitted to go after Aglibot’s subsidiary liability.
The Court agreed that indeed, a guarantor is entitled to the benefit of excussion, however, the Court ruled that
Aglibot was not a mere guarantor of PLCC for lack of proof. There was no evidence in writing proving the guarantee
agreement, hence the alleged guarantee agreement relied upon by Aglibot was unenforceable as it did not comply with
Art 1403(2) of the Civil Code or the Statute of Frauds.

DOCTRINE:While under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public
document, and while the Statute of Frauds simply provides the method by which the contracts enumerated in Article
1403(2) may be proved, but does not declare them invalid just because they are not reduced to writing, Article 2055 of the
Civil Code provides that a guaranty is not presumed, but must be express, and cannot extend to more than what is
stipulated therein.

This is the obvious rationale why a contract of guarantee is unenforceable unless made in writing or evidenced by some
writing. For as pointed out by Santia, Aglibot has not shown any proof, such as a contract, a secretary’s certificate or a
board resolution, nor even a note or memorandum thereof, whereby it was agreed that she would issue her personal
checks in behalf of the company to guarantee the payment of its debt to Santia. Certainly, there is nothing shown in the
Promissory Note signed by Aglibot herself remotely containing an agreement between her and PLCC resembling her
guaranteeing its debt to Santia. And neither is there a showing that PLCC thereafter ratified her act of “guaranteeing” its
indebtedness by issuing her own checks to Santia.

FACTS:
1. Private respondent Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending &
Capital Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced
by a Promissory Note issued by Aglibot in behalf of PLCC, payable in one year subject to interest at 24% per
annum.
2. Allegedly as a guaranty or security for the payment of the note, Aglibot, a major stockholder of PLCC, also issued
and delivered to Santia eleven (11) post-dated personal checks drawn from her own demand account maintained
at Metrobank, Camiling Branch.
3. However, the checks were dishonored by the bank for having been drawn against insufficient funds or closed
account.
4. Santia thus demanded payment from PLCC and Aglibot the face value of the checks, but neither of them heeded
his demand.
5. Consequently, eleven (11) Informations for violation of Batas Pambansa Bilang 22 (B.P. 22) were filed against
Aglibot before the Municipal Trial Court in Cities (MTCC), Dagupan City.
6. MTCC – in favor of petitioner Aglibot. Acquitted of all counts of the crime of violation of the bouncing checks law
on reasonable doubt.

5. And neither is there a showing that PLCC thereafter ratified her act of “guaranteeing” its indebtedness by issuing her own checks to Santia. be in writing. (Pertinent to the topic) Aglibot cannot invoke the benefit of excussion 2. Certainly. She is what the Negotiable Instruments Law calls an accommodation party. a contract of guaranty does not have to appear in a public document. 9. Whether or not CA erred in reversing the lower courts and adjudging Aglibot personally liable for issuing her own eleven (11) post-dated checks to Santia when she did so in behalf of her employer. Under the above provision. The Court must. ARGUMENTS OF PETITIONER AGLIBOT: She did obtain a loan from Santia. Santia’s MR denied. The Petition is without merit. Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure. but claimed that she did so in behalf of PLCC. or some note or memorandum thereof. a secretary’s certificate or a board resolution. Otherwise. concerning a guaranty agreement. RTC – in favor of petitioner Aglibot. Rejected the anovementioned basis of RTC’s decision. Aglibot. embodying the Statute of Frauds. the principal debtor. default. it would be unenforceable unless ratified. 7. the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to pay. . 7. as the manager of PLCC.” 8. Thus. Ordered Aglibot to personally pay Santia. which is a promise to answer for the debt or default of another. RATIO: 1. For as pointed out by Santia. but must be express. there is nothing shown in the Promissory Note signed by Aglibot herself remotely containing an agreement between her and PLCC resembling her guaranteeing its debt to Santia. Aglibot is personally liable to Santia. Aglibot personally liable. the PLCC in this case. 6. (Not so pertinent) Aglibot is an accommodation party and therefore liable to Santia 8. Aglibot has not shown any proof. Section 29 states that an accommodation party is liable on the instrument to a holder for value notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. must first be exhausted before the guarantor may be held answerable for the debt. in view of Article 1403(2) of the Civil Code. such as a contract. nor even a note or memorandum thereof. the true borrower and beneficiary of the loan? No. the law clearly requires that it. The relation between an accommodation party and the party accommodated is. The liability is immediate and direct. It is settled that the liability of the guarantor is only subsidiary. ISSUES/HELD: 1. Pertinent portion: Art. Article 2055 of the Civil Code provides that a guaranty is not presumed. the CA did not err. While under Article 1358 of the Civil Code. and cannot extend to more than what is stipulated therein. RTC further absolved Aglibot of any civil liability towards Santia. Aglibot insists that Santia failed to exhaust all means to collect the debt from PLCC. or miscarriage of another 4. Basis of RTC’s absolving from civil liability: “failure to fulfill a condition precedent of exhausting all means to collect from the principal debtor. She was a mere guarantor of the said debt of PLCC when she agreed to issue her own checks. and therefore she cannot now be permitted to go after her subsidiary liability. 9. This is also called as the benefit of excussion – prior exhaustion of the property of the debtor – as provided under Article 2058 of the Civil Code. 3. agreed to accommodate its loan to Santia by issuing her own post-dated checks in payment thereof. unless they are ratified: (2) Those that do not comply with the Statute of Frauds as set forth in this number… b) A special promise to answer for the debt. whereby it was agreed that she would issue her personal checks in behalf of the company to guarantee the payment of its debt to Santia. reject Aglibot’s claim as a mere guarantor of the indebtedness of PLCC to Santia for want of proof. CA – in favor of respondent Santia. but does not declare them invalid just because they are not reduced to writing. Hence. in effect. 1403. This is the obvious rationale why a contract of guarantee is unenforceable unless made in writing or evidenced by some writing. 10. however. The following contracts are unenforceable. This rule is contained in Article 2062of the Civil Code. one of principal and surety — the accommodation party being the surety. and while the Statute of Frauds simply provides the method by which the contracts enumerated in Article 1403(2) may be proved. PLCC. and all the properties of the principal debtor. reversed the rulings of both lower courts. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promisor and debtor from the beginning.

acceptor. and for the purpose of lending his name to some other person. here is the the definition of an accommodation party: Sec. . drawer. without receiving value therefor. 29. or indorser.Digester’s note: Just in case sir asks. Liability of an accommodation party. Such a person is liable on the instrument to a holder for value notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party. — An accommodation party is one who has signed the instrument as maker.

(ITM) and IFC as parties thereto. the Agreement specifically stated that the corporation was jointly and severally liable. International Finance Corporation (IFC) and Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan of US$7.967. As Article 2047 provides. J. IFC applied for the extrajudicial foreclosure of mortgages on properties owned by PPIC. 3. Imperial Textile Mills Inc.000. to pay the outstanding balance.250. the Contract further stated that ITM was a primary obligor. Despite the demand made by IFC. 4. TC held PPIC liable for the payment of the outstanding loan but relieved ITM of its obligation as guarantor and the case against it was dismissed. absolutely and unconditionally guarantee. was actually a surety. IMPERIAL TEXTILE MILLS November 15. as primary obligors and not as sureties merely. the use of the word guarantor to refer to a surety does not violate the law. the use of the two words did not limit the Contract to a mere guaranty because the specific stipulations in the Contract show otherwise. There is no ambiguity in the provisions of the Guarantee Agreement. Consequently. ITM and Grandtex agreed to guarantee PPIC’s obligations under the loan agreement. as guarantor of PPIC. this appeal. IFC demanded ITM. v. although denominated as such. (2005) INTERNATIONAL FINANCE CORPORATION V. 2005 │Panganiban. When qualified by the term jointly and severally. a suretyship is created when a guarantor binds itself solidarily with the principal obligor. Notwithstanding the use of the words guarantee and guarantor. PPIC defaulted.00 leaving a balance of US$2. the outstanding balance remained unpaid. DOCTRINE: The terms of a contract govern the rights and obligations of the contracting parties. ITM was HELD secondarily liable to pay the amount adjudged. 2. the law deems the contract to be one of suretyship. Indubitably therefore. irrevocably. ISSUE: Whether ITM is a mere guarantor or a surety. IFC filed a complaint with the RTC of Manila against PPIC and ITM for the payment of the outstanding balance. the subject Contract was indeed a surety. The Guarantors jointly and severally. On appeal to the CA. Hence. The Guarantee Agreement contains that: Section 2. Inc. In addition. a Guarantee Agreement was executed with Imperial Textile Mills. By virtue of PPICs failure to pay.01. because its terms were clear and left no doubt as to the intention of the parties. IFC claims that. 7. under the Guarantee Agreement. hence the Guaranty Agreement. The Court has recognized that the word is frequently employed in business transactions to describe the intention to be bound by a . not a mere surety. the due and punctual payment of the principal of xxx the Loan xxx as set forth in the Loan Agreement and in the Notes. To put emphasis on the nature of that liability.Int'l Finance Corp. and in consideration of IFC entering into said Agreement. Foreclosure proceedings were carried out and properties sold at US$5. The language of the agreement uses the words guarantee and guarantors.00. 6. The Guarantee agreement used the words “jointly and severally” and that ITM bound itself as a “primary obligor”. 5. HENCE. If solidary liability was instituted to guarantee a principal obligation.000. ITM bound itself as a surety to PPIC’s obligations. the use of the word guarantee does not ipso facto make the contract one of guaranty. The Court held that the agreement shows that ITM bound itself solidarily with PPIC. FACTS: 1.00. SOLIDARILY LIABLE WITH PPIC. RATIO: ITM BOUND ITSELF AS A SURETY.000. payable in sixteen semi-annual installments. it means that the obligation is solidary. However.833. MR denied. When the obligor undertakes to be jointly and severally liable. ITM bound itself to be solidarily. PPIC still failed to pay the remaining balance. prompting ITM to base its argument on those words. │ Guaranty SUMMARY: ITM bound itself as a guarantor for a loan obtained by PPIC from IFC. In order to induce IFC to enter into the Loan Agreement. While referring to ITM as a guarantor.

4. guarantees the performance by another party. Lim v Security Bank Corp. While it is an accessory or collateral to a principal obligation. 2014 | Peralta. The Continuing Suretyship stipulated the liability of the surety. The debtor. With the present finding that ITM is a surety. ITM was a stranger to the Loan Agreement between PPIC and IFC. 6. ITMs liability commenced only when it guaranteed PPICs obligation and ITM became a surety when it bound itself solidarily with the principal obligor. called the obligee. the Surety shall. demand or any other act or deed. “The liability of the Surety is solidary and not contingent upon the pursuit of the Bank of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. Furthermore. it was a surety. called the principal or obligor. immediately become liable and the Surety shall pay and perform the same. ITM agreed with the stipulation in Section 2. the contract is clear. Raul Arroyo. Arroyo defaults on his obligations and now. or equivalent to that of a regular party to the undertaking. defaulted. For failure of petitioner to comply with said demand. Court modified CA decision to require ITM to pay the amount adjudged in favor of IFC. Petitioner appealed to the CA. primary and absolute. but the appellate court affirmed the RTC judgment.” 2. The Court cannot give a different meaning to the plain language of the Guarantee Agreement. SC held that the Surety agreement Mariano executed bound him unequivocally with the principal debtor for fulfilling the obligation of payment. it is clear that the CA erred in declaring the former secondarily liable. respondent filed a complaint for collection of sum of money against him and the Arroyo spouses. DOCTRINE: A contract of suretyship is an agreement whereby a party. If any of the Guaranteed Obligations is not paid or performed on due date. No brainer. of an obligation or undertaking in favor of another party. the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor receives any benefit therefrom. The Regional Trial Court of Davao (RTC) rendered judgment.01 and is now estopped from feigning ignorance of its solidary liability. A surety is considered in law to be on the same footing as the principal debtor in relation to whatever is adjudged against the latter. Although the contract of a surety is secondary to a valid principal obligation. Initially. cannot be found nor served summons. 5. Those stipulations meant that to all legal intents and purposes. ordering defendant Lim to pay. ISSUES/HELD: W/N the petitioner may validly be held liable for the principal debtor's loan obtained six months after the execution of the Continuing Suretyship? – Yes. | Guaranty PETITIONER: Mariano Lim RESPONDENTS: Security Bank Corporation SUMMARY: Mariano Lim executed a Continuing Suretyship in favor of Security Bank to secure all credit accommodations that may be granted by the Bank in favor of one Raul Arroyo. (2014) LIM v SECURITY BANK CORPORATION March 12. Mariano receives a demand from Security Bank for the collection of the sum of money Raul owed them. Petitioner executed a Continuing Suretyship in favor of Security Bank to secure "any and all types of credit accommodation that may be granted by the bank" in favor of Raul Arroyo. the liability of the surety is direct. called the surety. Petitioner received a Notice of Final Demand. RATIO: . FACTS: 1. without need for any notice. 3. primary or an independent obligation. consistent with the position of IFC as creditor was its requirement of a higher degree of liability from ITM in case PPIC committed a breach. J.

but merely accessory or collateral to the obligation contracted by the principal. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter. he is directly and equally bound with the principal. the principal places itself in a position to enter into the projected series of transactions with its creditor. direct and immediate”. suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for fulfilling an obligation. called the obligee. 15 2003 l J. A suretyship/guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period. Stronghold Insurance Co..” 2. the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor receives any benefit therefrom. 3. In this case. In his personal capacity. The agreement expressly provided that Ching’s liability shall be “solidary. “the surety's obligation is not an original and direct one for the performance of his own act. 5. Blooming Mills (PBM) obtained a P10M loan from Traders Royal Bank (TRB). BLOOMING MILLS INC. until the expiration or termination thereof.. PH Charter Insurance Corp. DOCTRINE: A continuing suretyship/guaranty is one which covers all transactions. v Petroleum Distributors Service Corp. Although the contract of a surety is secondary to a valid principal obligation. immediately become liable and shall pay "all credit accommodations extended by the Bank to the Debtor. 6. PMB was placed under receivership. PBM defaulted in its payment of the trust receipts and the trust loan. Subsequently. PBM also obtained a P3. 7. TRB granted PBM letters of credit. 2. drafts. as surety. PBM filed a petition for suspension of payments with the Securities and Exchange Commission (SEC). Ching bound himself to pay. overdrafts and other credit obligations on which PBM may now be indebted or may hereafter become indebted to TRB. he signed a Deed of Suretyship binding himself. executed a Deed of Suretyship to secure PBM’s obligations to TRB. in case of default of PBM in its payment of its indebtedness to TRB. By executing such an agreement. Nevertheless. shall. Trust receipts were accomplished and delivered to TRB. Carpio l Guaranty SUMMARY: Ching. Ergo. Phil.5M trust loan from TRB. called the principal or obligor. TRB filed a complaint for collection against PBM and Ching . Subsequently.” 3. demand or any other act or deed. and their liabilities are interwoven as to be inseparable. the Continuing Suretyship executed by the is an agreement commonplace in present day financial and commercial practice. of an obligation or undertaking in favor of another party. Inc. called the surety. 4. in case of the default of PBM. Alfredo Ching (Ching) was the Senior VP of Phil. CA (2003) Oct. PMB obtained more loans from TRB. Ching argued that he should not be held liable for obligations contracted by PBM after the execution of the Deed of Suretyship and his liability should be limited to the amount apportioned to PBM under the SEC-approved rehabilitation plan. petitioner is unequivocally bound by the terms of the Continuing Suretyship. v CA (2003) PHIL. Thus. It states that petitioner. SC held that the surety agreement is a continuing guaranty and that Ching cannot use PBM’s failure to pay in full to justify his reduced liability because the very purpose of the surety is to insure full recovery in case of PBM’s default. his liability to the creditor or promisee of the principal is said to be direct. In the agreement. the Senior VP of PBM. which are within the description or contemplation of the contract of suretyship. without need for any notice. with such suretyship agreement. there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. to pay such notes. SEC placed PBM under rehabilitation receivership. Republic-Asahi Glass Corp. v. primary and absolute. The terms of the Continuing Suretyship executed are very clear. Blooming Mills (PBM). FACTS: 1. v. TRB proceeded against Ching. the obligations on which PBM “may now be indebted or may hereafter become indebted” to TRB. guarantees the performance by another party. Philippine Blooming Mills Inc. “a contract of suretyship is an agreement whereby a party. including those arising in the future.1. 4.” Thus.

. It ruled that TRB could proceed against Ching in his personal capacity. Jr. upheld TRB and ruled that creditors may sue individual sureties of debtor corporations in a separate proceeding before regular courts despite the pendency of a case before the SEC involving the debtor corporation. as creditor. He invokes Art 1222 of CC which provides that a solidary debtor may avail himself of the defenses which personally belong to his co-debtors as regards that part of the debt for which the latter are responsible. 9. b. Ortigas filed a cross-claim against Falcon. 3. until the expiration or termination thereof. 2007 | Tinga. As surety. Inc. Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the Deed of Suretyship. which are within the description or contemplation of the contract of suretyship.3- M plus attorney’s fees and 12% interest. SUMMARY: An Undertaking was executed by Salvador Escaño. Mario Silos. 10. The RTC thus issued a summary judgment ordering Escaño. This was the very purpose of the surety. (Article 2053 CC: A guaranty may also be given as security for future debts. Thus. Escaño and Mario M. 1216 CC). George A. the SC. ISSUE#1: Whether Ching is liable for obligations PBM contracted after the execution of the Deed of Suretyship HELD: YES. and Joseph Matti where they agreed to assume as SURETIES the liability of OBLIGORS Rafael Ortigas Jr. et al. After Falcon defaulted on its loan. The Deed of Suretyship could not answer for obligations not yet in existence at the time of its execution. A suretyship shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period. and Silos pursuant to the Undertaking. The Court held that despite petitioners’ desigination in the Undertaking as SURETIES. The Deed of Suretyship is a continuing suretyship. 1. A continuing suretyship is one which covers all transactions. Silos RESPONDENT: Rafael Ortigas. referring to amounts PBM “may now be indebted or may hereafter become indebted” to TRB. | Guaranty PETITIONERS: Salvador P. His obligation should not exceed the amount (P1. The law expressly allows a suretyship for future debts.. Ching agreed to pay in full PBMs loan in case PBM fails to pay in full for any reason. including its insolvency. to pay Ortigas jointly and severally P1. TRB. CA ruled in his favor and held that SEC had jurisdiction. On the petition for certiorari filed by Ching. including those arising in the future. 11. Ching argues that: a. 8. ISSUE#2: Whether Ching’s liability is limited to the amount stated in PBM’s rehabilitation plan HELD: NO 1. Scholey. TC denied. However. J. they were not solidarily liable to pay Ortigas for his settelement with PDCP.) 3. and the heirs of George T. Scholey to Private Development Corporation of the Philippines (PDCP) for its loan to Falcon Minerals. This is evident from the tenor of the deed itself.3M) apportioned to PBM under the SEC-approved rehabilitation plan. 2. Ching moved to dismiss complaint on the ground that the TC had no jurisdiction over the subject matter of the case since SEC had already assumed jurisdiction. the amount of which is not yet known. Carlos Inductivo. Ching cannot use PBMs failure to pay in full as justification for his own reduced liability to TRB. Escano v Ortigas (2007) ESCAÑO v. TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM becomes insolvent or fails to pay in full. ORTIGAS June 29. in Traders Royal Bank v CA. The only issue left to be determined is the amount of Ching’s liability 12. Escaño. has the right under the surety to proceed against Ching for the entire amount of PBM’s loan (Art. 2.

Silos. 3.3-M to satisfy PDCP’s claim against him. FACTS: 1.3-M plus P20. Escaño. Most importantly. Scholey. a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor. to be released from their liability for Falcon’s loan. PDCP filed a complaint to recover the deficiency against Falcon. Inductivo. Ortigas in turn filed a cross-claim against Falcon. Paragraph 3 of the Undertaking provided that petitioners irrevocably agreed and undertook to assume all of the OBLIGORS’ guaranties to PDCP. Two years later. Jr. This assumption is governed by the terms and conditions of sub- paragraphs (a) to (c) of Paragraph 3. The trial court denied a subsequent MR of the said judgment and also awarded Ortigas legal interest of 12% per annum to be computed from 28 February 1994. which presumably includes extrajudicial settlements. Petitioners claim that Ortigas was not made to pay PDCP the amount sought to be reimbursed. 655. in their individual capacity.3-M as an amicable settlement. Silos. WON petitioners were only jointly. The moment the surety fully answers to the creditor for the obligation created by the principal debtor. Three stockholders-officers of Falcon. and the heirs of George T. relieving themselves of their liability to PDCP. such obligation is extinguished. 4. for the surety does in fact become subrogated to all the rights and remedies of the creditor. Inc.031-M. WON petitioners were liable for attorney’s fees and interest – YES RATIO: 1. and Matti. as he voluntarily paid the P1. Thus. On 24 February 1994. Silverio. and Joaquin Rodriguez. Ortigas. an Undertaking dated 11 June 1982 was executed with Escaño. et al. Falcon availed of US$178. Silos. as OBLIGORS. there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to. ISSUES/HELD: 1. as SURETIES and Ortigas. the surety may seek reimbursement from the principal debtor for the amount paid. WON petitioners were liable to Ortigas under the Undertaking – YES 2. Ortigas entered into a compromise agreement with PDCP without the knowledge of Escaño. Scholey. Scholey. inasmuch as the latter is vested with the right to proceed against the former to collect the credit in lieu of proceeding against the principal debtor for the same obligation. leaving a deficiency of P5. (Falcon) under which the former agreed to lend US$320. et al.. the shares of stock of Ortigas. 000 in attorney’s fees. Two separate guaranties were also executed by other stockholders and officers of Falcon. However. et al. solidary liability for Falcon’s loan. et al. George A. Falcon subsequently defaulted on its payments and PDCP foreclosed the mortgage. Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with Falcon Minerals. and not solidarily. Carlos Inductivo. The suretyship does bind the surety to the creditor. in consideration of Ortigas. to pay Ortigas. and Matti. At the same time. 2. executed an Assumption of Solidary Liability where they agreed to assume. George A. Escaño. and Silos pursuant to the Undertaking.59 from its credit line with PDCP and also executed a Deed of Chattel Mortgage to further secure the loan. 000 to the latter. and Inductivo. liable to Ortigas – YES 3. . He then filed a motion for summary judgment against the latter three. where he paid P1. Paragraph 3(c) provides for reimbursement in the event that any of the OBLIGORS is for any reason made to pay any amount to PDCP. On the first issue: a. and George T. P1. Scholey were assigned to Escaño. The RTC granted Ortigas’s motion and ordered Escaño. b. jointly and severally. One was executed by petitioner Salvador Escaño while the other was executed by petitioner Mario Silos along with Ricardo Silverio. et al. respondent Rafael Ortigas. The clauses of the Undertaking clearly show the desire of Ortigas. At the same time.DOCTRINE: As indicated by Article 2047 (of the Civil Code).

and SPOUSES RAUL and ELEA R. a solidary co-debtor may only claim from his co-debtors only the share which corresponds to each. The right of the surety to full reimbursement is based on the guarantor’s rights to indemnification and subrogation in Arts. b. 2208(2). The loan was granted subject to the condition that spouses execute a chattel mortgage over three vessels to be acquired by them and that a continuing guarantee be executed by E. from the principal debtor/s. and to repay him for his payments to PDCP. Thus.3-M without their knowledge and consent. Solidbank filed a complaint for the sum of money against E. The Undertaking does not contain any express stipulation that petitioners agreed to bind themselves jointly and severally liable for the obligations of Ortigas. which allows for recovery when the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Zobel Inc. The reckoning date should therefore be 14 March 1994. Zobel in favor of Solidbank. | Guaranty PETITIONER: E. 1998 | MARTINEZ. Ortigas relies on the fact that petitioners and Matti referred to themselves as SURETIES in the Undertaking. Zobel. In addition. As regards the award of interest. d. 2047 calls for the application of the provisions on joint and solidary obligations to suretyship contracts. which he failed to do. On the second issue: a. However. Zobel Inc.c. As explained by Tolentino. ZOBEL. the Partial Compromise Agreement between him and PDCP was conditioned without him admitting liability to the latter. c. despite the fact that Ortigas paid PDCP after he had assigned his obligation. when Ortigas filed a third-party complaint against petitioners and Matti. In this case. The spouses defaulted in payment of the entire obligation upon maturity. RESPONDENTS: THE COURT OF APPEALS. The Undertaking does not evince such an indication. v CA May 6. Furthermore. CONSOLIDATED BANK AND TRUST CORPORATION. While Art. it shall be at 12% per annum to be computed from the date of judicial or extrajudicial demand. 2. the burden was on Ortigas to prove that the obligation was in fact solidary. petitioners’ obligations do not partake of the nature of a surety as defined by Art. 2047 of the Civil Code. d. E. v CA (1998) E. not just any proportional share. the Undertaking specifically required petitioners to release Ortigas from his surety agreements with Falcon. there has to be an indication that among the petitioners and Matti. b. one or some of them is Ortigas’s principal debtor and another is surety. et al. and he cannot recover the full amount paid to the creditor. the latter can still pursue its claim as it was not a party to the Undertaking. On the third issue: a. a sruety may recover the full amount. J. the Undertaking contains no stipulation or clause that establishes petitioners’ obligation as solidary. the requirement is imposed so that the SURETIES can timely take measures to settle the said obligation. Petitioner moved to dismiss the complaint on the . for Ortigas’s claim to prosper. there is still a difference between a joint and several debtor and a surety. While Paragraph 3(a) requires that the OBLIGORS inform the SURETIES if they received any demand for payment of Falcon’s obligations. Petitioners also claim that Ortigas paid the P1. CLAVERIA SUMMARY: Spouses Raul and Elea Claveria applied for a loan with Solidbank. INC. Thus. 2066-2067. Contrary to petitioners’ claim that Ortigas denied any liability to PDCP. which extend to sureties under Art. Petitioners are liable to pay attorney’s fees under Art. 3. On the other hand. notwithstanding the use of the term SURETIES. 2047.

obligated itself as a surety and so Art 2080 is not applicable RATIO: 1. against respondents spouses and petitioner. 2080 does not apply as based on their contract. Based on the aforementioned definitions. E. not as a guarantor. DOCTRINE: Article 2080 of the New Civil Code does not apply where the liability is as a surety." is a contract of surety.) in favor of Solidbank. a chattel mortgage and a Continuing Guaranty were executed. Inc. 7. 5. Inc. to make loans or advances or to extend credit in any other manner to. is a collateral undertaking to pay the debt of another in case the latter does not pay the debt. in your discretion. 3. The Court held that Art. The loan was granted subject to the condition that respondent spouses execute a chattel mortgage over the three vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines. CA: affirmed RTC decision. The terms of the contract categorically obligates E. the contract executed by petitioner in favor of Solidbank.000. holding that the provisions of the document are clear. A contract of surety is an accessory promise by which a person binds himself for another already bound. and he obligates himself to pay if the principal does not pay. E. The spouses defaulted in the payment of the entire obligation upon maturity 4. Zobel. RAUL P. Inc. ISSUES/HELD: Whether petitioner’s obligation to SOLIDBANK under the “Continuing Guaranty” is that of a guarantor or surety and whether Art. 2. of legal age. 3. Spouses Claveria agreed to the arrangement.ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080. is a surety. Zobel. Having thus established that E. doing business under the name "Agro Brokers.875. at any time or from time to time hereafter. Consequently. Zobel. on the other hand. is not a guarantor but a surety. Spouses Raul and Elea Claveria. January 31. FACTS: 1. Article 2080 of the New Civil Code does not apply where the liability is as a surety. for the payment of which the undersigned is now obligated to you as surety and in order to induce you. albeit denominated as a "Continuing Guaranty. a single proprietorship owned by MR. Zobel Inc. ➔ “For and in consideration of any existing indebtedness to you of AGRO BROKERS. A contract of guaranty. and agrees with the creditor to satisfy the obligation if the debtor does not. 6. It bound itself jointly and severally to the obligation with the respondent spouses. (Bicol Savings and Loan Association vs. signed as surety. as a regular party to the undertaking and obligated itself as an original promissor. married and with business address x x x (hereinafter called the Borrower). CLAVERIA. A surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt. or at the request or for the account of the Borrower…” ➔ The contract clearly disclose that E. Zobel Inc as "surety" to induce Solidbank to extend credit to respondent spouses. Zobel assumed liability to Solidbank.: moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. Solidbank: E. 2080 is applicable — E. not as a guarantor.00 to finance the purchase of two (2) maritime barges and one tugboat which would be used in their molasses business. 8. (now E. E. Zobel’s liability is that of a surety. 2. Inc. Article 2080 of the Civil Code finds no application to the case at bar. It has lost its right to be subrogated to the first chattel mortgage in view of Solidbank's failure to register the chattel mortgage with the appropriate government agency. RTC: denied Motion to Dismiss. Inc." applied for a loan with respondent Consolidated Bank and Trust Corporation (now Solidbank) in the amount of P2.1991: Solidbank filed a complaint for sum of money with a prayer for a writ of preliminary attachment. Guinhawa) . Zobel Inc. plain and explicit. Zobel.

ASPAC. 6. The bonding companies argue that their liabilities have been extinguished by the grant of payment extensions by the foreign banks to TIDCORP without their consent invoking Art. 7. 2079. 3. holding themselves solidarily liable to TIDCORP for whatever liabilities the latter may incur under the Letters of Guarantee. the principal debtor is ASPAC and the creditor is TIDCORP. 8. 12. TIDCORP and its creditor banks (including Banque Indosuez and PCI Capital) forged a Restructuring Agreement extending the maturity dates of the Letters of Guarantee. Banque Indosuez and PCI capital demanded payment from TIDCORP. upon ASPAC’s default. On request. 11. RTC absolved the bonding companies from liability on the ground that the payment extensions granted by the creditor banks to TIDCORP without their consent extinguished their obligations. entered into surety agreements (Surety Bonds) with Paramount. Hence.) . v R&B Surety & Ins. To finance its capital requirements. (2014) Feb. In turn. as condition precedent to the issuance of the Letters of Guarantee. of the Phils. ASPAC defaulted. FACTS: 1. under which the bonding companies are being held liable. 2014 l J. in turn. As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee. 9. Art 2079 equally applies to both contracts of guaranty and suretyship. 5. Inc. The bonding companies were not privy to the agreement and hence did not give their consent to the payment extensions. v. Article 2079. as a principal debtor. 2. which refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety. These loans were secured by Letters of Guarantee issued by Trade Investment Development Corp. finds no application. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. Asia Paces Corp. (Cochingyan Jr. 12. The payment extensions were granted by the foreign banks to TIDCORP.. the foreign banks gave payment extensions to TIDCORP. 4. TIDCORP filed a collection case against the bonding companies. demanded payment from the bonding companies. 10. Phoenix. The foreign banks. as sureties. Export and Foreign Loan Guarantee Corp. ASIA PACES CORP. CA upheld RTC. ASPAC entered into surety agreements with bonding companies. demanded payment from TIDCORP. xxx HELD: NO 1. It cited Art 2079 of the CC. (TIDCORP) then known as Phil. TRADE AND INVESTMENT DEVELOPMENT CORP. (ASPAC) entered into a sub-contracting agreement for the construction and erection of a double circuit bundle phase conductor transmission line in Libya. TIDCORP fully settled its obligations under the Letters of Guarantee.— a GOCC created for guaranteeing approved foreign loans. and Fortune (bonding companies). These bonding companies held themselves solidarily liable to TIDCORP for whatever liabilities it may incur under the Letters of Guarantee. DOCTRINE: Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety. Mega Pacific. ASPAC obtained loans from foreign banks Banque Indosuez and PCI Capital. These loans were secured by Letters of Guarantee issued by TIDCORP. Perlas-Bernabe l Guaranty SUMMARY: ASPAC obtained loans from foreign banks. TIDCORP irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations in the event of default by the latter. Taking into account the moratorium request by the Minister of Finance of the Phils. Co. SC held that it did not because under the surety agreements. TIDCORP. ISSUE: WON the bonding companies’ liabilities to TIDCORP under the Surety Bonds have been extinguished by the payment extensions granted by the creditor banks to TIDCORP RULE: Article 2079 CC.

4. the principal debtor. It must be stressed that these payment extensions did not modify the terms of the Letters of Guarantee but only provided for a new payment scheme covering TIDCORP’s liability to the banks. even if he is aware of such contract and has acted with knowledge thereof. the damages and liabilities it may incur under the Letters of Guarantee. The Surety Bonds are suretyship contracts which secure the debt of ASPAC. Article 2079 of the Civil Code should not be applied. 3. The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety’s consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. RULING: The bonding companies are ordered to pay their respective obligations under the Surety Bonds to TIDCORP. granted by TIDCORP in favor of ASPAC in this regard. the creditor. and it cannot favor or prejudice a third person. hence. 5. however. Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety. . No payment extension was. under the Deeds of Undertaking to pay TIDCORP.” 6. The Surety Bonds concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt to the banks. 2. the payments extensions (which conversely concern TIDCORP’s debt to the banks and not ASPAC’s debt to TIDCORP) would not deprive the bonding companies of their right to pay their creditor (TIDCORP) and to be immediately subrogated to the latter’s remedies against the principal debtor (ASPAC) upon the maturity date. There are two sets of transactions that should be treated separately and distinctly from one another following the civil law principle of relativity of contracts "which provides that contracts can only bind the parties who entered into it.

so it filed a complaint against the Teodoros. and quitclaim to assignee bank all their rights. DOCTRINE: In case of doubt as to whether a transaction is a pledge (no transfer of ownership) or dacion in payment (with transfer of ownership). RATIO: 1. overdrafts and other credit accommodations given to the defendants by MBC. transfers his credit and its accessory rights to an assignee. provided further that: ○ Defendants as assignors. et al.. TEODORO January 13. . executed in favor of MBC a Deed of Assignment of Receivables from the Emergency Employment Administration (EEA) amounting to P44. this involves transfer of ownerhip) ○ Donation (when assignment is by gratuitious tilte ○ Guaranty (creditor gives AR as collateral to assignee.420. since there is less transmission of rights in the latter FACTS: ● Anastacio Teodoro. who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor ● It may be in the form of: ○ Sale ○ Dation in payment (e. PFC failed to pay the Teodoros. the deed of assignment is a quitclaim in consideration of their loan to MBC. debtor assigns to creditor his credit against third person to release himself (Debtor) from debt. By virtue of the deed of assignment of accounts receivable. J. the intention of the parties was that the receivables serve as security. NO 2. NO. Sr. Teodoro Jr. | Pledge PETITIONER: THE MANILA BANKING CORPORATION RESPONDENTS: ANASTACIO TEODORO. by a legal cause. respectively. ● Assignment of credit: owner of a credit (assignor). and not a mere guaranty ● They also argued that MBC must first proceed against the PFC before MBC can proceed against them for collection of the loans. title and interest in and to the accounts receivable assigned ○ The assignment serves as a continuing guarantee for future loans of the defendants to MBC ● Defendants failed to pay for the loans. therefore the Teodoros also failed to pay MBC. therefore it must proceed against PFC. loans. MBC tried collecting from PFC but failed. MANILA BANKING CORPORATION v. Court held that while in form. and not them (Teodoros). ISSUE: 1. the deed of assignment appears to effect a transfer of ownership to MBC. The Teodoros assigned the accounts receivable from PFC in favor of MBC. Furthermore. 1K) in favor of MBC ● These loans were by reason of certain contracts entered into by defendants with the now defunct Emergency Employment Administration (succeeded by Philippine Fisheries Commission) ● PRIOR to the issuance of the PN’s. JR. Therefore. 1989| Bidin. WON MBC must first exhaust all legal remedies against the Philippine Fisheries COmmision before it can proceed against the defendants for collection of the loan. It merely guaranteed the debt by virtue of a pledge. executed three promissory notes (P10. EEA (now PFC) also owed the Teodoros money. allegedly because the PFC failed to pay them ● MBC filed action for collection of sum of money against the defendants ● Defendants argue that based on the words used in the contract. The assignment did not extinguish the obligation.g. P8K. making the receivables worthless as security.365 as security for payment of certain credits. release. and GRACE ANNA TEODORO SUMMARY: MBC loaned the Teodoros money. as security and continuing guaranty for their present and future loans. without transmitting ownership) ● Court in this case was deciding whether the assignment can be considered as dation or pledge. WON the assignment of AR has the effect of payment of all the loans contracted by the defendants from MBC. there is no point in going after EEA since it is now defunct. NO payment. in substance. it is considered a pledge. Teodoros argue that the assignment has completely transferred the ownership of the receivables to MBC. remise. and without the need of the consent of the debtor. the presumption is in favor of pledge.

MBC can proceed directly against Teodoros. ● Defendants were NOT released from their debt by the assignment of receivables. the loans are now unsecured. since there is less transmission of rights in the latter. TC AFFIRMED. ● In case of doubt as to whether a transaction is a pledge of dacion in payment. however. ● (Besides. not guarantors. ● MBC can therefore proceed directly against the Teodoros. MBC is obliged to collect the receivables and apply the same to the loan. it must be construed as a pledge ● Accdg to jurisprudence: A transfer of property by the debtor to a creditor that appears in form to be an absolute conveyance. ○ it was intended as collateral security for the loans. it cannot be a dation for the 3 loans in question. and return the balance to the defendants ● Without such conveyance of title. the presumption is in favor of pledge. APPEAL DISMISSED. since proceeding against PFC is pointless. determined by the language used in the document but by their intention. and purchase them . when the principal obligation becomes due. ● The assignment of receivables in this case did NOT transfer the ownership of the receivables to MBC nor release the defendants from their loan with MBC ● Instead what the Deed of Assignment provided for was the assignment of the accounts receivable to MBC in consideration of the loans and as security for payment thereof. since Emergency Employment Agency which issued the receivables had been abolished. place them on public auction. but by the parties’ intention. since the assignment was made 2 years before the 3 PN’s were issued for another debt worth 10K) 2. ● Article 2058 (benefit of excussion) is therefore not applicable to defendants. NO. They remain as principal debtors. MBC would have to treat the deed of assignment as no more than a deed of pledge ○ In order for MBC to realize proceeds from AR. and as a continuing guaranty for future loans ● As to the argument that the contract considers the assignment as a quitclaim and not as a mere guaranty: The character of the transaction is determined NOT by the language used in the document. The deed of assignment merely guarantees the debts. ● If it was intended to secure the payment of money. Concurring opinion of Feliciano: ● As to statement in main opinion that "the character of the transactions between the parties is not. ● In a contract of pledge. albeit for a limited purpose of securing the loans ○ In other words. should be treated as a pledge if the debt continues in existence and is not discharged by the transfer. the thing pledged may be alienated for the payment to the creditor ● The receivables however could no longer collected.' ○ It should be borne in mind that the intent of the parties is to be determined by the very language used in the contract ● Language used in the deed suggest that parties in fact intend a transfer of ownership. it would have to foreclose upon the same. ● Without the receivables.

G. 5. (formerly known as the First National City Bank). 6. in 1985. affiliate of Citibank -. However. The Motion failed to state the exact . Petitioners admitted that respondent had deposits and money market placements with them. and attorney’s fees. Sabeniano was unable to pay her debts. Sabeniano is also entitled to damages. Respondent alleged that she received a copy of the assailed Court of Appeals Decision on 18 April 2002 and until 3 May 2002 within which to file her Petition for Review. an affiliate of Citibank. moral. The parties in these transactions were evidently not the principal creditor of each other. Respondent filed a Motion for Extension of Time to File her Petition for Review. 3. Sabeniano requested the withdrawal of her deposits.A. including dollar accounts in the Citibank branch in Geneva. for which she executed Promissory Notes (PNs).R. 152985: Respondent filed with the Court on 3 May 2002 a Motion for Extension of Time to File a Petition for Review. but this did not cover her placements in Citibank-Geneva due to a highly-suspect Declaration of Pledge. When respondent failed to pay her loans despite repeated demands. petitioner exercised its right to offset or compensate respondent’s outstanding loans with her deposits and money market placements. N. MODESTA SABENIANO | J. void. which affirmed the RTC decision. petitioners filed a Motion for Reconsideration at the CA. The CA affirmed this decision. and were therefore surprised when six years later. DOCTRINE: Without the Declaration of Pledge. Sabeniano is entitled to the return of the amount that Citibank used to offset her loans sourced from Citibank-Geneva. All the parties appealed the foregoing Decision of the RTC to the Court of Appeals.handled money market placements). pursuant to the Declaration of Pledge and the Deeds of Assignment executed by respondent in its favor. From this they appeal. and illegal. and (b) Deeds of Assignment of her money market placements with petitioner FNCB Finance. and as for the outstanding loans. respondent and her counsel made repeated requests for the withdrawal of respondent’s deposits and money market placements with petitioner Citibank. ruling entirely in favor of respondent 8. 7. Parties: Petitioner Citibank. which was partially granted. Hence. she filed a Complaint. As for the dollar accounts. No. Petitioners further alleged that the respondent later obtained several loans from petitioner Citibank. 9. Chico Nazario | 2006 SUMMARY: Sabeniano deposited money and market placements with Citibank. and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva. Citibank collected on the Deed of Assignment and exercised its right to compensate the outstanding loans. VS. It cannot effect legal compensation under Article 1278 of the Civil Code since.847. and that respondent was indebted to petitioner for P1. Switzerland (Citibank-Geneva). which petitioners refused to return her deposits and the proceeds of her money market placements despite her repeated demands. On the other hand. Petitioner supposedly informed respondent Sabeniano of the foregoing compensation through letters.40.Citibank v. and Respondent Modesta Sabeniano.069. hence.A. On 8 August 1985. but she failed to file one within the prescribed period and as such. Both parties then elevated the case to the SC for review. respondent was the creditor and Citibank-Geneva is the debtor. 4. Thus. FACTS 1. but also that she must pay the balance of her loans with Citibank. The debts were secured by Deeds of Assignment of the money market placements in FNCB Finance. a Decision was finally rendered which declared the set-off null. Hence. which Citibank did not grant. Investor’s Finance Corporation (did business under FNCB Finance. respondent filed a Complaint against petitioners. They assailed the CA decision and filed this petition. the SC resolved that the CA decision became final and executory. including her dollar accounts with Citibank-Geneva and her money market placements with petitioner FNCB Finance. petitioner Citibank was the creditor and respondent was the debtor. The RTC declared this set-off null and void. Petitioners and respondents then made separate attempts to bring the aforementioned Decision of the CA before this Court for review. Ten years after the filing of the Complaint on 8 August 1985. to whom she was indebted to. 2. Sabeniano CITIBANK N. petitioner Citibank itself admitted that Citibank-Geneva is a distinct and separate entity. petitioner Citibank had no authority to demand the remittance of respondents dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. petitioners prayed for the dismissal of the Complaint and for the award of actual. claiming to have substantial deposits and money market placements with the petitioners. and exemplary damages. The SC held that Citibank had the right to exercise its rights over the Deeds of Assignment and apply the proceeds to Sabeniano’s outstanding loans.

W/N Sabeniano committed forum shopping . and that the amount paid was actually used to open one of respondent’s TD accounts with petitioner. ○ The pledge is irregular. G. ● While there was documentary evidence re: reinvestment of the proceeds of respondent’s money market placements. given that the deposition and testimony were had 10 years from the time the transactions actually took place. In contrast.NO ● There exists a disputable presumption that the Decision was rendered by the judge in the regular performance of his official duties. causes of action. No. extension period respondent was requesting for. ● With the PNs unpaid. Further.R. Hence. ○ Via processual presumption. W/N petitioners are liable to return respondent’s money used to offset her loans. The MR was partially granted. 2. where identity of parties. there was none regarding the payment of the PNs. petitioner has an obligation separate and distinct from FNCB Finance’s arising from respondent’s money market placements with FNCB Finance ● The determination of w/n respondent is entitled to the return of the proceeds of certain PNs is dependent on the resolution of issues raised re: existence of loans and petitioner’s authority to use proceeds of the PNs (plus other deposits and money market placements) to pay for the same ○ Note: respondent says that she paid some of her loans. Hence.NO ● In GR 152985. the Court presumed that the laws re: pledge in Switzerland are the same as Philippine laws on pledge. it may not be said that she was simultaneously seeking relief from both the CA and the SC. ● Petitioners admit the genuineness and due execution of the Promissory Notes issued. Respondent further had no obligation to attach a Certificate of Non-Forum Shopping when she filed her motion. ● The liquidation of respondent’s outstanding loans were valid as regards petitioner using the money with FNCB. Because of this. but the Court did not give weight to her allegations since her evidence was insufficient. reliefs sought may be established. W/N Decision was erroneous given that the it was rendered by a judge other than the judge who heard and tried the case . 10. It did not actually effect a legal compensation. this Court issued a Resolution in which it pronounced that the case was terminated and that the judgment sought to be reviewed has become final and executory. all respondent did was to file a Motion for Extension of Time to file Petition for Review. ● There remained a balance due even after obtaining the proceeds of the money market placements with FNCB Finance. Petitioners assail the CA decision and hence filed this present petition. but partly extinguished respondent’s loans through the application of the security given. while petitioner had the Deed of Assignment Notarized . Without such. but void as regards using the dollar accounts with Citibank-Geneva ○ Deposit should be considered mutuum ● As regards FNCB Finance: what petitioner did was actually exercise the rights to the proceeds of the money market placement via the Deeds of Assignment. The PetRev would be the initiatory pleading. Respondent failed to file any Petition for Review within the prescribed period for appeal and. the records and stenographic notes were complete and available for consideration by the former. respondent was able to establish prima facie that petitioner was liable to her for the amounts stated. ■ It was unnotarized. 11. ISSUES & RATIO 1. This was not contradicted. then the period for appeal continued to run and still expired on 3 May 2002. petitioner’s loan officers’ testimonies were clear. ● Court did not give weight to the testimonies of petitioner’s witnesses.YES ● Respondent made a P500k placement with Citibank in 1976. She did not claim the proceeds and instead re-invested the principal and its proceeds several times in the succeeding years. petitioner applied respondent’s dollar accounts with Citibank-Geneva pursuant to a Declaration of Pledge executed in its favor. Citibank cannot effect legal compensation to offset respondent’s loans. hence. Since this Court did not act upon respondent’s Motion for Extension of Time to file her Petition for Review. ● Petitioner failed to satisfactory prove that the PNs were already paid. 3. but said they were no longer outstanding. as there really was no case yet. 156132: Petitioners filed with the CA a Motion for Reconsideration.

■ Petitioner Citibank was unable to establish the date it was actually executed ■ It was irregularly filled out ■ Respondent denied that she signed the pledge. and petitioner Citibank failed to produce the original document .

Mikes father. 2. the creditor is given the right to retain his debtor’s movable property in his possession. it is necessary that: a. For the contract to be valid. Calibo and he left the tractor in its garage. CA January 29. until the debt is paid. ISSUES/HELD: WN pledge between Atty. Mike saw Calibo in Tagbilaran City to inquire about the possible tractor buyer. Also not deposit because primary purpose of a deposit is safekeeping. Pablo was not amenable to this proposal. On all three occasions. Pablo Abella owned a tractor which he left with his son Mike for safekeeping. DOCTRINE: Requisites of a contract of pledge 1. Pablo filed an action for replevin. 4.Calibo v CA CALIBO v. TC ruled in favour of Abella 11. 9. Upon confrontation. he stopped doing so. 2. 3. He also assured Calibo that he will settle his accounts. Calibo also learned that Mike had never paid the charges for electric and water consumption. 6. came to Tagbilaran City to claim and take possession of the tractor. Dioniso Calibo RESPONDENTS: CA and Dr. The pledger is the absolute owner of the thing pledged 3.000.NO RATIO: ON PLEDGE 1. The pledge acts as security for the fulfilment of the principal obligation 2. claiming ownership of the tractor and seeking to recover possession thereof from Calibo. 8. Mike reassured Calibo that the tractor would stand as a guarantee for its payment. Calibo and Mike Abella . In a contract of pledge.000. Calibo was unable to talk to Mike . Mike even asked Calibo to help him find a buyer for the tractor so he could pay sooner 5. did not push through. That was the last time Calibo saw or heard from Mike.. J. The pledger has free disposal of the property or is legally authorized to enter into a contract of pledge as regard the thing pledged FACTS: 1. CA affirmed: no valid pledge because Mike was not the owner of the tractor . Mike leased the house of Atty. Calibo refused saying that the rental have not yet been paid. On November 22. however. . the contract of pledge was not valid. Mike informed Atty. offering the tractor as security. He offered to write Mike a check for P2. or in that of a third person to whom it has been delivered. Calibo visited Mike in Cebu three times and tried to collect payment. 2001| Quisumbing . Mike had been religiously paying the monthly rentals but beginning November of 1986. 7. The Court ruled against Calibo because one of the requisites of a valid pledge is that the pledger is the absolute owner of the thing and the has free disposal of the property and since Mike was not the owner of the tractor and was not authorized to pledge it.00 in payment of the unpaid lease rentals. | Mutuum PETITIONER: Atty. The sale.00-check only if the latter would execute a promissory note in his favor to cover the amount of the unpaid electric and water bills. the pledge is constituted to secure the fulfillment of a principal obligation. Pablo Abella (father) demanded the return of the tractor but Atty. Pablo Abella SUMMARY: Mike Abella pledged his father’s tractor in order to secure the payment of unpaid rentals for the lease of Atty. in addition to issuing postdated checks to cover the unpaid electric and water bills the correctness of which Pablo said he still had to verify with Mike. Calibo that he would be staying in the house only until the end of December 1986. Pablo Abella. Calibo’s House. 10. Calibo told Pablo that he would accept the P2. 1988.

there is no valid pledge. Clearly. The right of creditor to retain pledge exists only until debt is paid. that he be legally authorized for the purpose. CA overturned in favor of the Rodriguezes. Respondents caused consignation with RTC of amount due claiming they tried to tender payment but Parays did not accept. . Petitioner himself states that he received the tractor not to safely keep it but as a form of security for the payment of Mike Abella’s obligations. or somehow construed as having been made in the exercise of the right of redemption. Mike Abella. is absent in this case. b. 2. Tinga | 2006 SUMMARY: Rodriguezes defaulted in their obligations to Parays. 2. No contract of agency a. while the amounts consigned by respondents could answer for their respective principal loan obligations. the consigned payments should not be treated with liberality. Parays attempted to foreclose pledges due to failure to pay loans on part of respondents so they filed complaints with RTC Cebu. for an agency relationship to be deemed as implied. Nevertheless. There is no deposit where the principal purpose for receiving the object is not safekeeping. Parays foreclosed on pledges due. . RTC dismissed on ground that it was consigned at a later date after default. b. The general rule is that the satisfaction of the principal obligation terminates the pledges. Hence. 3. Respondents filed a complaint seeking declaration of nullity of the concluded public auction on ground of tender of payment and subsequent consignations which extinguished loan obligations and discharged the pledge contracts. ON AGENCY & DEPOSIT 1. appellee categorically stated that the only purpose for his leaving the subject tractor in the care and custody of Mike Abella was for safekeeping. In the case at bar. Here. Article 1869. The debtor cannot ask for return of the pledge against the creditor’s will unless and until debt and interest is paid. the principal must know that another person is acting on his behalf without authority. Respondents were owners of shares of stock in a corporation. Paray v Rodriguez | J. SC rules there is no right of redemption over personal property like pledges. they were not sufficient to cover the interests due on these loans. RTC gave due course to foreclosure and sale at public auction. CA affirmed. They secured by way of pledge of some of their shares to petitioners Paray for payment of certain loan obligations. We rule in favor of petitioners. The pledgor in this case. No valid deposit a. which were pegged at the rate of 5%per month or 60% per annum. a person receives an object belonging to another with the obligation of safely keeping it and of returning the same. In a contract of deposit.In order that the consignation could have the effect of extinguishing the pledge contracts. 4. and c. The right of pledgee to foreclose pledge can be effected if credit cannot be satisfied in due time. the second requisite for a valid pledge. but also the monthly interests thereon. RTC dismissed complaint and gave due course to foreclosure and sale at public auction of various pledges. the pledgor be the absolute owner of the thing pledged. that the pledgor be the absolute owner of the property. the person constituting the pledge has the free disposal of his property. ISSUE: WoN public sale was valid and pledge contracts were now extinguished RULING: 1. and definitely not for him to pledge or alienate the same. DOCTRINE: The pledged shares in this case are not subject to redemption. public auction took place with petitioner Espeleta winning the bid for all pledged shares. CA affirmed such. was not the absolute owner of the tractor that was allegedly pledged to petitioner. Thus this petition filed by the Parays. c. 3. The tractor was owned by his father who left the equipment with him for safekeeping. FACTS: 1. 4. such amounts should cover not just the principal loans. The right to redeem property sold as security for satisfaction of unpaid obligations does not exist. Thus. and in the absence thereof. b.

Since 1980. or mortgagor against being overreached by his creditor who holds a pledge or mortgage over property whose value is much more than the debt. Where. W/n the secured obligations have been paid – NO RATIO: 1. 2. RTC dismissed. A few months later. Chu appealed. the security for the debt is also money deposited in a bank. Family Savings Bank. Due to an unpaid account.75 only because one of the time deposit certificates lacked the proper signatures. CA affirmed. pledgor.75. However. as in this case. The prohibition against a pacto commissorio is intended to protect the obligor. ISSUES/HELD: 1. extrajudicial sale was stayed with the filing of Civil Cases which sought to annul the pledge contracts. she executed deeds of assignment of her time deposits in the total of Php 320. 8. 3. Chu had been purchasing cement on credit from CAMS Trading. To guaranty payment. it was not illegal for the creditor to encash the time deposit certificates to pay the debtors' overdue obligation. CAMS Trading Enterprises SUMMARY: Chu. CHU v CA Sept 26. the amount of which is even less than the debt. CAMS notified the bank that Chu had an unpaid account in the sum of Php 314. 4.737. DOCTRINES: A pacto commissorio is a provision for the automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity. but instead upheld the right of the Parays to conduct such sale at their own volition. CA affirmed. as in this case. the amount of which is even less than the debt. with the latter's consent. 7. 5. executed deeds of assignment of her time deposits as a guaranty. petitioners attempted to proceed extrajudicially with the sale of the pledged shares by public auction. The encashment of the deposit certificates was not a pacto commissorio which is prohibited under Art. CAMS encashed the time deposit certificates to which Chu verbally agreed. the security for the debt is also money deposited in a bank.639. arguing that the encashment was a pactum commissorium and thus illegal. this appeal where Chu alleges the CA erred in: a) Not annulling the encashment of her time deposit certificates as a pactum commissorium. 6. Chu demanded the restoration of her time deposit but this was not acted upon hence her suit to recover the amount encashed. it was not illegal for the creditor to encash the time deposit certificates to pay the debtors' overdue obligation. 2.75 and it asked that it be allowed to encash the time deposit certificates assigned to it. with the latter's consent. In this case. who had been purchasing cement on credit from CAMS. After verbally advising Chu and obtaining her verbal conformity. Said judgment did not direct the sale by public auction of the pledged shares.737.000 in Family Savings Bank. 2088 of the Civil Code. Neither of them complied so Chu filed a complaint for the recovery of the Php 283. . and b) Not finding that the obligations secured by her time deposits had already been paid. Chu demanded from the bank and CAMS that her time deposit be restored. W/n the encashment of the deposit certificates was a pactum commissorium – NO 2. A pacto commissorio is a provision for the automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity. Upon notification of the encashment. the bank agreed to encash the certificates and it delivered to CAMS the sum of Php 283. Hence. The final and executory judgment in those cases affirmed the pledge contracts and disposed them. FACTS: 1. Upon being informed of the encashment. Grino-Aquino | Pledge PETITIONER: Victoria Yau Chu RESPONDENTS: CA. 1989 | J. RTC dismissed for lack of merit. Where.

Said agreement provided that as security. Since the petitioner signed on July 18. notwithstanding that the elements were in two different agreements. and PPC issued new certificates in the name of PIC. and execute a pledge agreement in favor of the Seller. Leonardo-De Castro | Pledge/Antichresis PETITIONER: PHILNICO INDUSTRIAL CORP. 2. The fact that these 2 are in separate documents is of no moment. PMO denied this. because. It was also provided that the closing of the sale shall take place on the Closing Date. Petition for review denied. The relationship between the parties was no longer merely buyer-seller. 4. A Pledge Agreement was then entered into by PIC and PNPI (as pledgers) and PMO (as pledgee). 1980 a letter admitting her indebtedness to be in the sum of P404. PMO complied with the conditions of the ARDA. and there is no proof of payment made by her thereafter to reduce or extinguish her debt. 3. which she had assigned to the creditor to secure the payment of her debt. Whether the debt had already been paid as now alleged by the debtor. 2 elements of pactum commissorium: 1. and assigned such to PMO. PIC defaulted. and as security. There should be a stipulation for an automatic appropriation by the creditor of the thing in the event of nonpayment of the principal obligation within the stipulated period. Angeles-Hutalia where the Court recognized that the agreement may be embodied in separate writings. . citing Blas v. which laid down the terms of the purchase by PIC the shares that were assigned to PMO (or 90% of the shares of PPC). was proper. 2. 2 Consolidated cases with 1 case being filed by Philnico. PIC and PMO entered into ARDA whereby former would purchase the PPC shares. 1980. 2. were receipts for payments made prior to July 18. It also upheld that validity of the Pledge Agreement. Philnico Industrial Corp. taken together with the Pledge Agreement was a pactum commissorium. should be read and interpreted together. The Court of Appeals did not commit a reversible error in holding that it was so. and another filed by PMO. 5. and the execution of the Pledge Agreement. and at such place as may be agreed upon. there should be a pledge or mortgage wherein a property is used as security for the payment of an obligation. Parties entered into an Amended and Restated Definitive Agreement. and assailed the validity of the Pledge Agreement due to PIC not being the absolute owner of the shares pledged.500. DOCTRINE: 1. 2014 | J. which allowed PIC to pledge the shares in favor of PMO in the first place. the issuance of new stock certificates. 3. 6. the application of her time deposits. the Buyer shall pledge the shares to the Seller. the ARDA provided for the transfer of the shares. v Privatization and Management Office PHILNICO v PMO Aug 7. RESPONDENTS: PRIVATIZATION AND MANAGEMENT OFFICE SUMMARY: PMO was assigned shares of PPC. is a factual question which the Court of Appeals found not to have been proven for the evidence which the debtor sought to present on appeal. execute a Pledge Agreement over such shares. and if so. DBP and PNB acquired shares in PPC (under Philnico group) through foreclosure. so PMO demanded payment. contrary to PMO’s contentions. as well as the Converted and New shares. SC ruled in favor of PIC and nullified the ipso facto reversion clause for being a pacum commissorium. PIC alleged that the clauses of the ARDA as to ipso facto reversion. The Closing involved the transfer of the deed of sale. but was now creditor-pledgee and debtor-pledgor FACTS: 1. 2.

12. morals. INCORRECT. unlike in this case where one element appears in the ARDA. The Pledge Agreement provided for the giving by PIC of PPC’s shares of stocks to PMO as security for the fulfillment of the former’s obligation.7. in light of PPC’s nickel refinery becoming obsolete. CA: denied appeal by PMO. 13. 8. Angeles-Hutalia where the Court recognized that the agreement may be embodied in separate writings. and if so. This agreement restructured the payment terms of the obligation. W/N the provisions of the ARDA on ipso facto or automatic reversion constitutes pacto commissorium? YES RATIO: 4. In other words. raising the need for mutual restitution. Art. 9. There is automatic appropriation under Sec. Art. 8. and is null and void being contrary to Art. Hence. 9. which required the execution of a Pledge Agreement. should be read and interpreted together. ISSUES/HELD: 1. 11. and in the Whereas Clauses of the Pledge Agreement. 10. Any stipulation to the contrary is void. PMO cannot now insist on applying the provisions of the ARDA while excluding those of the Pledge Agreement to evade pactum commissorium. the relationship between the parties was no longer merely buyer-seller. holding that the automatic reversion of the thing pledged is contrary to good morals and public policy. 2 elements of pactum commissorium: a. but was now creditor-pledgee and debtor-pledgor. PIC requested that it be given more time to raise funds for its business. as it empowers a creditor to appropriate things given as guaranty for the fulfillment of the obligation in case the obligor fails to comply with his undertakings. and is void for being a pactum commissorium. 2. food customs. 11. against PMO and PPC. This relationship is evident in Sec. . 5. RTC issued a TRO. There should be a stipulation for an automatic appropriation by the creditor of the thing in the event of nonpayment of the principal obligation within the stipulated period. b. PMO filed MR and MtD – denied.04 of the ARDA. (On validity of Pledge Agreement) PMO insists that the Pledge Agreement was invalid because PIC could not have pledged the shares of PPC as it was not yet the absolute owner of such. It argued that the sale was subject to the resolutory condition of nonpayment by PIC of the installments due on the purchase price. 6. Pactum commissoriums are among the stipulations deemed contrary to law. which explicitly mentions the ARDA. or public policy. PMO notified PIC of its default. 7. PMO: CA erred in ruling that the ipso facto reversion clause of the ARDA is contrary to law in the absence of any law allegedly violated by the said clause. 2088 of the Civil Code. and the other in the Pledge Agreement. 1305 allows parties to establish stipulations and clauses as they may deem convenient. but PMO insisted that it intended to enforce the ARDA should PIC fail to settle its obligation. the ARDA and Pledge Agreement are integral to one another. (On Pactum Commissorium) The provision constitutes pactum commissorium. 14. Suspension of Payment and Fixing of Period of Payment. Having enjoyed the security and benefits of the Pledge Agreement. PIC filed a Complaint for Prohibition against Reversion of Shares with Prayer for Writ of Prelim Injunction and/or TRO. Before the deadline set by PMO. 8. 15. The parties then entered into an Amended Agreement. and demanded payment. b. PIC filed an Amended Complaint. citing Blas v.02 of the ARDA in case PIC defaults. Both elements are present in this case: a. 13. due to the Pledge Agreement. provided that they are not contrary to law. 2088 provides that a creditor cannot appropriate things given by way of pledge or mortgage. 3 years later. The fact that these 2 are in separate documents is of no moment. there should be a pledge or mortgage wherein a property is used as security for the payment of an obligation. public order. PIC: CA committed GAoD when it held that the essential elements of a Pactum Commissorium should be present in one contract. 12. as well as the reasons as to why the former was executed. if ARDA is rescinded. without foreclosure proceedings. 10. This was provided as the ipso facto reversion of the shares from PIC to PMO without need of demand.

his debt had already been paid. Lower Court: ● There is nothing in the deed of mortgage to show that it was not a true contract of mortgage. ● The parties must have intended that Diego (mortgagee) would collect the fruits of the mortgaged properties as interest on his loan.14. with Diego still owing him a refund (from the excess amount). 1960 | Reyes. JBL. Diego then filed an action for Foreclosure of Mortgage at the CFI Nueva Ecija.720. is to apply their fruits to the payment of the interest. having been given possession of the properties given as security. DIEGO vs. 8. with Diego still owing him a refund of some Php 2. The demands were unheeded. To be antichresis. at the rate of Php 10/cavan. Fernando failed to pay the loan after 4 years. HOWEVER. if owing. but in the same breath claim that non- payment by PIC of the installments due on the purchase price is a resolutory condition for the contract of sale – these two arguments are actually contradictory. 5. J. enabling it to pledge such to PMO. After the execution of the Deed. Possession of the mortgaged properties was turned over to Diego. On May 26. The SC held that the agreement was one of mortgage and not antichresis. ● Diego had already received a total of 120 cavans of palay from the properties given as security. PMO had transferred its rights to PIC through the ARDA. coupled with transfer of the possession of the properties mortgaged to Diego (mortgagee). 1950. the provisions of the ARDA show that ownership over the said stocks had passed to PIC. 4. 2. The fact that possession of the mortgaged properties were turned over to Diego (mortgagee) did not alter the transaction. DENIED petition of PMO. and even gave PIC the right to vote as a shareholder. Fernando's Defense: ● The true transaction between him and Diego was ANTICHRESIS and NOT mortgage. 6. it must be expressly agreed between creditor and debtor that the former. 3. it is required that the pledger is the absolute owner of the thing pledged. which agreement is not uncommon. 7. FACTS: 1. which. Fernando contended that the true transaction between him and Diego was ANTICHRESIS and NOT mortgage. so Diego filed an action for Foreclosure of Mortgage. Diego had already received a total of 120 cavans of palay from the properties given as security so Fernando's debt had already been paid.200. GRANTED petition of PIC. possession of the mortgaged properties was turned over to Diego (mortgagee). REMANDED case to RTC. DOCTRINE: It is not an essential requisite of a mortgage that possession of the mortgaged premises be retained by the mortgagor.000 loan (without interest) payable within 4 years from the date of the mortgage. represented a value of Php 5. and thereafter to the principal of his credit. Although Fernando also admits that: ● The contract shows mortgage. True. and . Segundo Fernando executed a Deed of Mortgage in favor of Cecilio Diego over 2 parcels of land (registered in Fernando’s name) to secure a Php 2. PMO cannot maintain that the ownership of the PPC shares of stock did not pass on to PIC. | Antichresis PETITIONER: Cecilio Diego RESPONDENT: Segundo Fernando SUMMARY: Segundo Fernando executed a Deed of Mortgage in favor of Cecilio Diego over 2 parcels of land to secure a loan without interest payable within 4 years from the date of the mortgage. Fernando failed to pay the loan after 4 years. and ● The loan was without interest. Further. so Diego made several demands for payment. FERNANDO Aug. 15. 25. hence.

● The evidence showed that Diego had already received 55 cavans of palay from the properties during the
period of his possession.
9. Judgment was rendered for Diego in the amount of Php 2,000 (the loan he gave to Fernando), with legal interest
from the filing of the action until full payment, plus Php 500 as attorney’s fees and the costs; and in case of default
in payment, for the foreclosure of the mortgage.
10. Hence, this appeal (originally brought to CA but certified to SC because it raises only questions of law).

ISSUES/HELD:
WON the contract between the parties is one of mortgage or of antichresis. - MORTGAGE

RATIO:
● It is not an essential requisite of a mortgage that possession of the mortgaged premises be retained by the
mortgagor.
● To be antichresis, it must be expressly agreed between creditor and debtor that the former, having been given
possession of the properties given as security, is to apply their fruits to the payment of the interest, if owing, and
thereafter to the principal of his credit (Art. 2132, Civil Code); so that if a contract of loan with security does not
stipulate the payment of interest but provides for the delivery to the creditor by the debtor of the property given as
security, in order that the latter may gather its fruits, without stating that said fruits are to be applied to the
payment of interest, if any, and afterwards that of the principal, the contract is a mortgage and not antichresis.
● However, the trial court is not authorized to infer from this transfer of possession alone that the parties had
verbally modified their written agreement that the loan was to be without interest for four years, and substituted
another giving appellee the right to receive the fruits of the mortgaged properties as interests.
● The true position of Fernando under his contract with Diego is a "mortgage in possession" ("one who has
lawfully acquired actual or constructive possession of the premises mortgaged to him, standing upon his rights as
mortgagee and not claiming under another title, for the purpose of enforcing his security upon such property or
making its income help to pay his debt"). As such mortgagee in possession, his rights and obligations are
similar to those of an antichretic creditor.
● As such mortgagee in possession, his rights and obligations are similar to those of an antichretic creditor:
1. If the mortgagee acquires possession in any lawful manner, he is entitled to retain such possession
until the indebtedness is satisfied and the property redeemed;
2. That the non-payment of the debt within the term agreed does not vest the ownership of the property in
the creditor;
3. That the general duty of the mortgagee in possession towards the premises is that of the ordinary
prudent owner;
4. That the mortgagee must account for the rents and profits of the land, or its value for purposes of use
and occupation, any amount thus realized going towards the discharge on the mortgage debt;
5. That if the mortgage remains in possession after the mortgage debt has been satisfied, he becomes a
trustee for the mortgagor as to the excess of the rents and profits over such debt; and lastly,
6. That the mortgagor can only enforce his rights to the land by an equitable action for an account and to
redeem.
● A creditor with a lien on real property who took possession thereof with the consent of the debtor, held it as an
"antichretic creditor with the right to collect the credit with interest from the fruits, returning to the antichretic
creditor the balance, if any, after deducting the expenses," because the fact that the debtor consented and asked
the creditor to take charge of managing his property "does not entitle the latter to appropriate to itself the fruits
thereof unless the former has expressly waived his right thereto."
● In this case, the parties having agreed that the loan was to be without interest, and Fernando not having
expressly waived his right to the fruits of the properties mortgaged during the time they were in Diego's
possession, the latter, like an antichretic creditor, must account for the value of the fruits received by
him, and deduct it from the loan obtained by Fernando.
● Fernando also claims that the lower court erred in ordering him to pay legal interest on his indebtedness to Diego
from the filing of the action, since the latter is, up to the present, still in the possession of the properties
mortgaged and still enjoying its fruits.

● The court did not err in so holding, since at the time the action was filed and up to the present, Fernando
has not discharged his indebtedness to Diego, and the law allows the latter, in the absence of stipulation
as to payment of interest, legal interest from the time of the debtor’s default (Art. 2209, New Civil Code).
● Diego should be made to account for the fruits he received from the properties mortgaged from the time
of the filing of this action until full payment by Fernando, which fruits should be deducted from the total
amount due him from appellant under this judgment. (deficiency should be recovered)
● Diego had received a net share of 55 cavans of palay out of the mortgaged properties up to the time he filed the
present action; at the rate of Php 9/cavan (a rate admitted by the parties), the total value of the fruits received by
appellee is Php 495. Deducting this amount from the loan of Php 2,000 received by Fernando from Diego, the
former has only Php 1,505 left to pay the latter.

Chattel Mortgage and Trust Receipts Law

Acme Shoe Rubber & Plastic Corp. vs. Court of Appeals 1996)
Acme Shoe Rubber & Plastic Corp. v. Court of Appeals
August 22, 1996 | Vitug | Chattel Mortgage

PETITIONER: Acme Shoe, Rubber & Plastic Corporation and Chua Pac
RESPONDENTS: Hon. Court of Appeals, Producers Bank of the Philippines and Regional Sheriff of Caloocan City

SUMMARY:Acme Shoe executed a chattel mortgage in favor of Producers Bank as security for its loan. The chattel
mortgage agreement contained a provision that extends its coverage to obligations yet to be contracted or incurred. The
loan was eventually paid. Later, Acme Shoe again loaned from Producers Bank, and defaulted. Producers Bank applied
for an extrajudicial foreclosure of the chattel mortgage with the sheriff. Acme Shoe to filed an action for injunction. SC
ruled in favor of Acme Shoe as the payment of the first loan automatically rendered the chattel mortgage void or
terminated.

DOCTRINE: A chattel mortgage can only cover obligations existing at the time the mortgage is constituted.

FACTS:
1. Chua Pac, the president and general manager Acme Shoe, executed for and in behalf of Acme Shoe a chattel
mortgage in favor of Producers Bank as security for its corporate loan of P3M.
2. The chattel mortgage agreement contained a provision that extends its coverage to obligations yet to be
contracted or incurred:
○ “In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the
former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations
such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on
Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory
note or notes and/or accommodations without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind
and nature, whether such obligations have been contracted before, during or after the constitution of this
mortgage.”
3. In due time, the loan of P3M was paid by Acme Shoe.
4. Later, Producers Bank yet again extended a loan to Acme Shoe.
5. Due to financial constraints, the loan was not settled at maturity.
6. Producers Bank thereupon applied for an extrajudicial foreclosure of the chattel mortgage with the sheriff.
7. Acme Shoe to filed an action for injunction, with damages and a prayer for a writ of preliminary injunction, before
the RTC.
8. RTC: dismissed the complaint and ordered the foreclosure of the chattel mortgage.
○ Held Acme Shoe bound by the stipulations of the chattel mortgage.
9. CA: affirmed RTC

ISSUE/HELD:
W/N it would be valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to
obligations yet to be contracted or incurred.—NO

RATIO:
● Chattel mortgage limited to existing obligations.
○ A pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long
as these future debts are accurately described. A chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted. Although a promise expressed in a
chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be
compelled upon, the security itself, however, does not come into existence or arise until after a chattel

● The only obligation specified in the chattel mortgage contract was the P3M loan which Acme Shoe later fully paid. the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. and one not entered into for the purpose of fraud. One of the requisites. ○ By virtue of Section 3 of the Chattel Mortgage Law. ○ Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but. of course. it is obvious that the debt referred to in the law is a current obligation. The Chattel Mortgage Law provides that the parties to the contract must execute an oath that “…(the) mortgage is made for the purpose of securing the obligation specified in the conditions thereof. under Section 5 thereof. and that the same is a just and valid obligation. and for no other purpose. not an obligation that is yet merely contemplated. mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law. . Judgments of respondent court and court a quo set aside. is an affidavit of good faith. must comply substantially with the form prescribed by the Chattel Mortgage Law.” From the foregoing. the payment of the obligation automatically rendered the chattel mortgage void or terminated. ○ A chattel mortgage.

Makati Leasing argued that Wearever is estopped from claiming that the machinery is real property when it constituted a chattel mortgage thereon. as it argued that the machinery was not realty and thus the Chattel Mortgage is null and void. Private respondent contends that estoppel cannot apply against it because it had never represented nor agreed that the machinery in suit be considered as personal property but was merely required and dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at the time of signing. Upon the failure to implement the foreclosure. 6. As aptly pointed out by petitioner and not denied by the respondent. When Wearever defaulted on its obligation. 4. 5. the house was built on land that did not belong to the owner of the house. INC. To secure the collection of the receivables assigned. vs. The sheriff enforcing the orders. because it is a real property pursuant to Article 415 CC (attached to the ground by means of bolts and the only way to remove it from respondent's plant would be to drill out or destroy the concrete floor). WEAREVER May 16. Makati Leasing filed a petition for extrajudicial foreclosure. 2. Vicencio said that a house of strong materials may be considered as personal property for purposes of executing a chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby. Estoppel applies in this case. Wearever went to the CA. The Court in Tumalad v. 3. That being said. replevin). as long as no interest of third parties would be prejudiced thereby. which is movable in its nature and becomes immobilized only by destination or purpose. removed the main drive motor of the machinery (described in #2). RATIO: 1. This contention lacks persuasiveness. Wearever Textile Mills (1983) MAKATI LEASING v. Jaramillo) FACTS: 1. But the CA rejected this. Makati Leasing then filed a petition for judicial foreclosure with the CFI. When Wearever defaulted. there is absolutely no reason why a machinery. The SC held that Wearever is estopped from claiming that the machinery is real property. 2. and HONORABLE COURT OF APPEALS SUMMARY: Wearever executed a Chattel Mortgage over a piece of machinery. In light of the Tumalad doctrine.Makati Leasing & Finance Corp. 3. DOCTRINE: Parties to a contract may by agreement treat as personal property that which by nature would be real property. Despite being initially restrained by Wearever’s MR. the CFI issued a writ of seizure and and order to break open Wearever’s premises to enforce said writ. The CA ruled that the machinery cannot be the subject of a chattel mortgage (and thus. 1983 | De Castro | Chattel Mortgage PETITIONERS: MAKATI LEASING and FINANCE CORPORATION RESPONDENTS: WEAREVER TEXTILE MILLS. Wearever discounted and assigned several receivables with Makati Leasing under a Receivable Purchase Agreement in order to obtain financial accommodations from the latter. 4. Wearever assailed the validity of the Chattel Mortgage. (b) No records show that . In Tumalad. Wearever executed a Chattel Mortgage over certain inventory as well as machinery (Artos Aero Dryer Stentering Range). who set aside the CFI’s orders and ordered the return of the drive motor seized. may not be likewise treated as a movable by agreement. 5. as shown by the following: (a) Wearever never put the status of the machinery as movable or immovable in issue except in a supplemental memorandum before the CA. so this argument regarding the inapplicability of Tumalad must fail.. the law contemplates no distinction. ISSUES/HELD Can the machinery in this case be subject of a chattel mortgage? YES. One who has so agreed is estopped from denying the existence of the chattel mortgage. (Standard Oil v. Makati Leasing judicially foreclosed on the Chattel Mortgage and the drive motor of the machinery was seized by the Sheriff.

.Wearever took steps to have the mortgage annulled. assuming that they were indeed required to sign a blank form by Makati Leasing in executing the Chattel Mortgage. 6. Equity dictates that Wearever could not now be allowed to impugn the efficacy of the chattel mortgage after it has benefited therefrom.

● CA reversed and held that tractor still belongs to Wilfredo Dy. Wilfredo’s brother. by purchase or otherwise. RTC decided in favor of Perfecto. insisted that the check must first be cleared before it will deliver the truck and tractor. By a writ of execution. due to a case for recovery of money against Wilfredo. acquire the properties referred to therein. However. which sold the same to Antonio Gonzales (private respondent). and therefore. | Chattel Mortgage PETITIONER: PERFECTO DY. Libra however. RATIO ● Sale was valid and binding between the two brothers and to the mortgagee (Libra) as well. FACTS: ● Wilfredo Dy purchased a truck and farm tractor through a loan from Libra (Libra Finance and Investment Corporation). YES. RESPONDENTS: COURT OF APPEALS. W was still owner. ● Perfecto convinced his sister to pay for the remaining truck through a P22K check. a. ● The tractor was sold to Perfecto. DOCTRINE: The chattel mortgagor continues to be the owner of the property. and ANTONIO V. Whether the sale was consummated upon the execution of the Deed of Sale or upon the clearance of the check. and b. however. and not the clearance of the check. Libra insisted that since Wilfredo’s loan covered not only the tractor. the instruments of mortgage are binding. but also the truck. bought the tractor with the consent of Libra. the despite being a chattel mortgagor. GELAC TRADING INC. the tractor was not to be released by Libra until full payment for both tractor AND truck. Wilfredo. full payment should be made for BOTH before the tractor can be released. Both truck and farm tractor were also mortgaged as security for the loan. His right of ownership means that he . CA July 8. 1991| Gutierrez. still had the right to sell the same even if it was under a chattel mortgage. the ownership of the tractor had already been transferred to Perfecto and can no longer be subject to levy and subsequent sale to Gonzales. there was a pending case for recovery of sum of money against Wilfredo Dy. However.. ● GELAC and Gonzales argue that the sale of the tractor to Perfecto was not validly consummated. ● Perfecto Dy (brother) wanted to buy the tractor so he wrote a letter to Libra requesting that he be allowed to buy the tractor and assume the mortgage debt of Wilfredo. the validity of the sale would still not be affected. It was sold in a public auction to GELAC. ● Perfecto offered to fully pay for the tractor. relying on the deed of sale. J. DY vs. since the check was not yet cleared and encashed at that time. Jr. Both were mortgaged as security for the loan. Libra approved. the sale between the two brothers was not yet valid since it was consummated only upon the clearance of the check which occurred after the levy. ISSUES: WON the sale of Wilfredo Dy as chattel mortgagor of the tractor to Perfecto Dy was valid.) that since the sale was consummated upon the execution of the Deed of Sale (public instrument). ● By the time the check was cleared. Even if no consent was obtained from the mortgagee. GONZALES SUMMARY: Wilfredo Dy obtained a loan from Libra to buy a truck and tractor.) as owner of the tractor. he is obliged under pain of penal liability. not only upon the parties executing them but also upon those who later. and it was with consent of Libra. He filed an action to recover tractor. ● Meanwhile. but it was in the possession of Libra due to Wilfredo’s failure to fully pay the loan. Wilfredo claims ownership of the tractor. to secure the written consent of the mortgagee. Execution of DOS. the tractor was levied upon and sold via public auction to GELAC and then to Gonzales.. Thus. JR. Court held that Wilfredo. A check was presented as payment but before the check could be cleared. and a Deed of Sale was executed. while they subsist. and argue that by the time the tractor was levied and sold to them. GELAC and Gonzales also claim ownership. Perfecto. the trial court ordered the seizure and levy of the tractor which was in the possession of Libra. has the power to alienate the same. Perfecto discovered that the tractor was now in possession of the respondents. continues to be the owner of the tractor.

not to serve as payment of the purchase price. However. the tractor belongs to Perfecto Dy. ● The tractor was no longer owned by Wilfredo by the time was levied upon by the sheriff. There cannot be levy upon properties NOT owned by the debtor. . Actual delivery of the tractor could not be made. there was constructive delivery of the same upon execution of the public instrument (pursuant to A1498 CC) and upon the consent of the parties (pursuant to A1499 CC). ● Consummation of the sale does NOT depend on the encashment of the check. Libra consented to the sale. ● Therefore. The sale transaction between Perfecto and Wilfredo is distinct and apart from the transaction between Perfecto and Libra. need not be in actual possession and control of the subject tractor at the time of sale. ● The sale was consummated upon the execution of the public instrument. NOT Antonio Gonzales. The payment of the check was intended to extinguish the mortgage. Also.

Tecson). 4. This provision is in accordance with the Chattel Mortgage Law which provides that a mortgagor of personal property shall not sell . W/N the assignment of a credit requires notice to the debtor in order to bind him → Yes . Servicewide was constrained to file before the RTC Manila a complaint for replevin with damages against them. Filinvest assigned all its rights and interest over the same PN & CM to petitioner Servicewide Specialists Inc. What is relevant is not the assignment of credit between petitioner and its assignor. RTC ruled that Ponces are jointly and solidarily liable to petitioner but ordered 3rd party defendant Conrado Tecson to reimburse the Ponces for the sum that they would pay to Servicewide. C. vs. 2. this petition for review. 1976 → Ponces transferred and delivered the vehicle to Conrado R. They thus filed a 3rd party complaint against Conrado Tecson praying that in case they are adjudged liable to petitioner. CA reversed and set aside the judgment of the RTC on the principal ground that respondent spouses were not notified of the assignment of the promissory note and chattel mortgage to petitioner. RESPONDENTS: CA. Conrado Tecson should reimburse them. Tecson Enterprises (C.R. ISSUES 1. 3. claiming they had already returned the car to Conrado Tecson pursuant to the Deed of Sale with Assumption of Mortgage. As provided in Article 2096 in relation to Article 2141 of the Civil Code. the assignee of Filinvest (which in turn is the assignee of the original mortgagor C. and despite demands to pay the same or to return the vehicle. to whom Filinvest assigned its credit without notice to the Ponces.R. The mortgage was registered both in the Registry of Deeds and the Land Transportation Office. FACTS: 1. Hence. R. His consent is not required. Tecson. Elizabeth Ponce SUMMARY: Controversy is between the Ponces (debtor-mortgagors) who alienated the mortgaged property without the consent of Servicewide (subsequent mortgagee-creditor). in 1978. Court of Appeals Dec 10. consent of the creditor-mortgagee to the alienation of the mortgaged property is necessary in order to bind said creditor. 1975 → Sps. On the same date. Ponce (Ponces) bought on installment a Holden Torana vehicle from C. on the one hand. Due to the failure of Ponces to pay the installments under the PN. DOCTRINE: Only notice to the debtor of the assignment of credit is required. 1999 | Ynares-Santiago | Chattel Mortgage PETITIONER: Servicewide Specialist Inc. Subsequently. and Servicewide. In contrast. Tecson executed a deed of assignment of said PN & CM in favor of Filinvest Credit Corporation (Filinvest) with the conformity of the Ponces. 5. Article 2141 states that the provisions concerning a contract of pledge shall be applicable to a CM insofar as there is no conflict with the Chattel Mortgage Law. Jesus Ponce. Tecson by way of sale with assumption of mortgage. a thing pledged may be alienated by the pledgor or owner with the consent of the pledgee.R. W/N Ponces needed to notify or secure the consent of petitioners predecessor (C. but the knowledge or consent of the creditors assignee to the debtor-mortgagors sale of the property to another. Ponces denied any liability in their answer. Tecson) to the alienation of the vehicle HELD: On Issue #1 1.R. he can no longer be held liable since he already alienated the property? → Yes . Servicewide Specialist Inc. (SEE Doctrine) 2. They executed a promissory note (PN) and a chattel mortgage (CM) on the vehicle in favor of C. Tecson). (Servicewide) without notice to the Ponces.(More specifically) Is the debtor-mortgagor who sold the property to another entitled to notice of the assignment of credit made by the creditor to another party such that if the debtor was not notified of the assignment. The latter were aware of the endorsement of the note and the mortgage to Filinvest as they in fact availed of its financing services to pay for the car.(Conversely) Is the consent of the creditor-mortgagee necessary when the debtor-mortgagor alienates the property to a third person? → Yes 2. R.

insofar as Filinvest is concerned. The law speaks not of consent but of notice to the debtor. it follows that the Ponces were not bound to obtain the consent of Servicewide as it was not yet an assignee of the credit at the time of the alienation of the mortgaged vehicle. the spouses had earlier sold the vehicle to another. When Tecson Enterprises assigned the PN & CM to Filinvest. The defenses that could have been invoked by Filinvest against the Ponces can be successfully raised by Servicewide. When Filinvest in turn. Being the plaintiff in the trial below. the burden is on the party who would be defeated if no evidence is given on either side. relying on the strength of its own evidence and not upon the weakness of that of its opponent. In this case. Having subsequently stepped into the shoes of Filinvest. they failed to do. On the other hand. Servicewide acquired the same rights as Filinvest had against the Ponces. So that. payment to the original creditor is valid. or any part thereof. 2. RTC REINSTATED. Since the assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel was mortgaged. Worse. Servicewide’s consent is necessary before the Ponces’ alienation of the vehicle can be considered as binding against third persons. petitioner must establish its case. Having asserted the affirmative on the issue of notice. the latter should have notified the respondent spouses of the assignment in order to bind them. the Ponces stood on record as the debtor-mortgagor. or pledge such property. Tecson was not binding on the former. Tecson ordered to REIMBURSE Ponces. the alienation made by respondent spouses is not binding on the former. Applying by analogy Article 2128 of the Civil Code to a chattel mortgage. When the credit was assigned by Filinvest to Servicewide. and 1627 of the Civil Code on assignment of credits do not require the debtors consent for the validity thereof and so as to render him liable to the assignee. On Issue #2: 1. 3. they should have obtained the consent of Filinvest since they were already aware of the assignment to the latter. his consent is always necessary as provided in Article 1293 of the Civil Code. the debtor is still respondent spouses because of the absence of its consent to the sale. Therefore. This is tantamount to a novation. as assignee. the purpose of which is to inform the latter that from the date of assignment he should make payment to the assignee and not to the original creditor.1626. One thing that militates against the Ponces’ posture is that although they are not bound to obtain the consent of the petitioner before alienating the property. The testimony of petitioners witness that notice of assignment was sent to respondent spouses was stricken off the record. Though this provision in the chattel mortgage has been expressly repealed by Article 367 of the Revised Penal Code. assigned it further to petitioner. Notice is thus for the protection of the assignee because before said date. Servicewide is considered a 3rd person with respect to the sale with mortgage between respondent spouses and third party defendant Conrado Tecson. The sale with assumption of mortgage made by the Ponces is tantamount to a substitution of debtors. it was made with the Ponces’ tacit approval. a mortgage credit may be alienated or assigned to a third person. In civil cases. since the alienation by the Ponces of the vehicle occurred prior to the assignment of credit to Servicewide. W/o such consent by the creditor. This. it follows that the assignee’s consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor-mortgagor. In such case. Articles 1625. The consent to the assignment given by respondent spouses to Filinvest cannot be construed as the spouses knowledge of the assignment to petitioner precisely because at the time of the assignment to the latter. yet under Article 319 (2) of the same Code. As the new assignee. Servicewide should have substantiated its allegations in order to obtain a favorable judgment. mortgaged by him without the consent of the mortgagee in writing on the back of the mortgage and on the margin of the record thereof in the office where such mortgage is recorded. Filinvest was not even notified of such sale. however. the sale of the thing mortgaged may be made provided that the mortgagee gives his consent and that the same is recorded. 3. . mere notice to the creditor is not enough. the sale of the vehicle to Conrado R. for failure of the Ponces to obtain the consent of Filinvest thereto. CA REVERSED.

Also. 5. 14 of the Chattel Mortgage Law (CML). but the motion was denied. even if Royal participated in the sale and matched RCBC’s bid. After the chattels were sold in a public sale. 2. his executor. Royal filed a petition before RTC Manila for annulment of the auction sale. Terrymanila. Royal. and even after confirmation of the sale. 7. RTC and CA ruled in favor of Royal Cargo.662. The provision reads. drawing attention to Paray v. RCBC. which is the right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the property to clear it from the encumbrance of the mortgage.” 8. Upon appeal. RTC Bataan declared Terrymanila insolvent. Royal’s right over the subject properties would still be subordinate over that of RCBC’s. 1992. Royal Cargo (2009) RCBC V. 2. | WAREHOUSE RECEIPTS LAW PETITIONER: Rizal Commercial Banking Corporation RESPONDENTS: Royal Cargo Corporation SUMMARY: Terrymanila owed RCBC and Royal Cargo separately. 2009 | CARPIO-MORALES. One of its creditors is RCBC (Petitioner). At the auction sale.Rizal Commercial Banking Corporation vs. OCTOBER 2. Royal filed a petition in RTC Manila for its annulment. another creditor of Terrymanila. Royal filed for MR. Royal Cargo (Respondent). the sole bidder. in good faith. WON RCBC as a mortgagee had the duty to notify Royal of the auction sale –SC finds this issue IMMATERIAL . administrator or assignee shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale … at least ten days previous to the date. in whose favor there existed a valid chattel mortgage. filed for insolvency in RTC Bataan. The redemption cited in Section 13 partakes of an equity of redemption. The right of those who acquire said properties should not and can not be superior to that of the creditor who has in his favor an instrument of mortgage executed with the formalities of the law. which Terrymanila has a P3M obligation secured by a chattel mortgage. CA noted that “w]hat is being contested is the right of Royal Cargo to be timely informed of the foreclosure sale. Rodriguez. filed an action before RTC Manila for collection of sum of money and preliminarily attached some of Terrymanilas personal properties to secure the satisfaction of a judgment award of P296. arguing that it should have been notified of the sale at least 10 days before of the date of sale. RCBC likewise posits that Sec. J. SC ruled that the issue partakes of an equity of redemption. ROYAL CARGO CORP. “The mortgagee. Inc. which violates Sec. 6. the RTC issued an Order granting RCBC permission to extrajudicially foreclose the mortgaged property. 4. and granted RCBC permission to foreclose Terrymanila’s chattel mortgage. 13 permits a subsequent attaching creditor to redeem the mortgage only before the holding of the auction sale. purchased the properties. was already notified of the auction sale when it filed for MR to cancel the Order granting foreclosure of the properties. and without the least indication of fraud. ISSUES/HELD: 1. but was denied. It is not the same as right of redemption which is the right of the mortgagor to redeem the mortgaged property after registration of the foreclosure sale. 9. Royal claimed that it got notice of the auction sale only on the same day of that sale. Royal moved to have this Order reconsidered. CA ruled that Royal had a right to be timely informed of the foreclosure sale. which instructs that no right of redemption exists over personal property as the Chattel Mortgage Law is silent thereon. RCBC argued that Secs. which requires notification before the sale of the property.16 3. RTC Bataan declared Terrymanila insolvent. FACTS: 1. 3. DOCTRINE: 1. RCBC filed a petition for review with the SC. however.” RTC Manila ruled in favor of Royal. 13 and 14 of the CML should be read in tandem since the right given to the attaching creditor under Section 13 would not serve its purpose if we were to exclude the subsequent attaching creditor from those who under Section 14 need to be notified of the foreclosure sale ten days before it is held. On Feb.

662. and without the least indication of fraud. (Cabral v. respondent had to be informed of the date of sale as provided for in Section 13. 1992 Order of RTC Bataan. Evangelista) 9. 4. which motion was denied. Recall. It bears noting that the chattel mortgage in favor of petitioner was registered more than two years before the issuance of a writ of attachment over some of Terrymanilas chattels in favor of respondent. Thus. .2. 1992. On Second Issue 8. It is not the same as right of redemption. This is significant in determining who between petitioner and respondent should be given preference over the subject properties. respondent chose to be technically shrewd about its chances. the right of respondent. respondent failed to allege this incident in his annulment of sale case before RTC Manila. Since the registration of a chattel mortgage is an effective and binding notice to other creditors of its existence and creates a real right or lien that follows the property wherever it may be. Assuming Royal participated in the auction and matched RCBC’s bid. is subordinate to the lien of the mortgagee who has in his favor a valid chattel mortgage. Equitable considerations thus sway against it.5 million actual bid of petitioner at the auction sale does not defeat respondent’s equity of redemption. The right of those who acquire said properties should not and can not be superior to that of the creditor who has in his favor an instrument of mortgage executed with the formalities of the law. which granted leave to petitioner to foreclose the chattel mortgage. 7. or even on the day of the auction sale. Section 13 of the Chattel Mortgage Law allows the would-be redemptioner thereunder to redeem the mortgaged property only before its sale. which was the result of the foreclosure of the mortgage. however. The redemption cited in Section 13 partakes of an equity of redemption. Having thus attached Terrymanila’s equity of redemption. 5. a mortgagor or person holding a subsequent mortgage. which is the right of the mortgagor to redeem the mortgaged property after registration of the foreclosure sale. could Royal rightfully recover the chattels? –NO RATIO: On first issue 1. which is the right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the property to clear it from the encumbrance of the mortgage. and even after confirmation of the sale. Notably.16 judgment rendered in another case. even prior to receiving a mailed notice of the auction sale on the date of the auction sale itself on June 16. permission to conduct which it had early on opposed before the insolvency court. had it purchased the mortgaged chattel at the auction sale. that respondent filed a motion to reconsider the February 3. Despite its window of opportunity to exercise its equity of redemption. preferring instead to seek annulment of the auction sale. warrants a presumption that it had either abandoned it or opted not to assert it. however. 6. or a subsequent attaching creditor may redeem the same…” 2. respondent was already put on notice of the impending foreclosure sale of the mortgaged chattels. Its negligence or omission to exercise its equity of redemption within a reasonable time. While respondent had attached some of Terrymanila’s assets to secure the satisfaction of a P296. what it effectively attached was Terrymanila’s equity of redemption. The provision states: “When the condition of a chattel mortgage is broken. That respondent’s claim is much lower than the P1. in good faith. 3. as an attaching creditor or as purchaser.

(b) Did not find anything fraudulent in the circumstance that DBP was the sole bidder. Pameca (through its Pres. W/N public auction was tainted with fraud -. In 1980: Pameca loaned P2mil from DBP. CA ruling: (a) Disregarded documents (inventory dated March 1980) for failure to present them in evidence. equipment) 3. in accordance with the terms of the chattel mortgage contract that required that the inventories "be maintained at a level no less than P2 mil". W/N Teves. Pameca argues: (a) Public auction sale were tainted with fraud. DBP was the sole bidder and bought it for P322.Pameca Wood Treatment Plant vs. | Chattel Mortgage PLAINTIFF: PAMECA WOOD TREATMENT PLANT. It was the only bidder so it was able to buy it for around P322.000. (c) Teves. SECURITY for the LOAN: Chattel mortgage over PAMECA’s properties in Dumaguete (inventories. and taking into consideration that the contract of loan was a contract of adhesion. A month before the mortgage contract. CA affirmed.evidenced from an inventory dated March 1980 (valued at around P2.NO 2. such that the pledgor proceeds. as all legal procedures for the conduct of a foreclosure sale were complied with. Teves) executed a promissory note promising to pay by installment. 5. or allude to them before the LC and said that it is not unlikely that the chattels deteriorated as thereby fetching a low price at the auction sale. furniture. Then for the deficiency. INC. W/N NCC 1484 and 2115 should be applied by analogy (Pameca invokes the equity jurisdiction of the SC to preclude the recovery of the deficiency) -. it filed a complaint against Pameca and its solidary debtors (Teveses and Pulido) according to the promissory note it signed. secured by its inventory of furniture and equipment. Pulido are solidarily liable with Pameca – YES RATIO: First issue: 1. and Pulido were not solidarily liable with Pameca because the intention was that the loan is only for the Corp’s benefit ISSUES/HELD: 1. In 1984: PAMECA failed to pay so DBP extrajudicially forclosed the chattel mortgage. DOCTRINE: Pledge Chattel Mortgage Article 2115 Act No. upon satisfaction of the principal may no longer recover proceeds of the sale in obligation and costs excess of the amount of the principal obligation FACTS: 1. thus giving rise to the presumption of regularity in the performance of public duties. CA July 14. (b) NCC 1484 and 2115 should be applied by analogy reading the spirit of the law. After which. Court of Appeals (1999) PAMECA WOOD TREATMENT PLANT. v. Claims the chattels were bought by DBP as sole bidder in only 1/6 of the market value. (claims the market value was for more than P2mil) --.5mil. 6. 2. 1508 the sale of the thing pledged extinguishes the entitles the mortgagor to the balance of the entire principal obligation. INC. DBP filed a complaint for collection of the balance of around P4mil. hence unconscionable and inequitable. its supposed market value was P2. and so it is null and void.5mil). By virtue of this loan. RTC-Makati: ordered Pameca to pay the P4mil. Teves. Petition in SC. They defaulted so DBP extrajudicially foreclosed on the chattels. J.000. 4. 1999 | Gonzaga-Reyes. Teves. Complaint filed against Pameca and Herminio Teves and Victoria Teves as solidary debtors with Pameca under the promissory note. NCC 2115 in relation to the Chattel Mortgage Law: they are INCONSISTENT . DEFENDANT: Court of Appeals and Development Bank of the Philippines SUMMARY: Pameca loaned Php 2million from DBP and executed a promissory note.NO 3.

| CHATTEL MORTGAGE AND TRUST RECEIPTS LAW . (d) “bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreign currency borrowings from where the loan shall be drawn”. 4. In pledge. 4. (b) “in case of default in the payment of any installment above. Pameco never assailed the validity of the sale in the RTC. The inventory was as of March 1980. the date of the contracts of loan and chattel mortgage. or even prior to April 1980. the terms of the promissory note unmistakably set forth the solidary nature of the Teveses’ commitment: (a) “we hereby bind ourselves. and ignore the language and intent of the Chattel Mortgage Law. upon satisfaction of the principal obligation and costs. RULING: Petition denied. the sale of the thing pledged extinguishes the entire principal obligation. and never against. 6. 3. They are not made to answer for the corporate act of Pameca. par (3) bars any action against the purchaser to recover an unpaid balance of the price. should the buyer’s failure to pay cover 2 or more installments. this provision is specifically applicable to a sale on installments. JR. inventory and chattel mortgage document do not prove that the mortgaged properties had a market value of at least P2mil on Jan 1984. Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in the price at public auction. 3. 5. Teveses and Pulido” It is clear that Teveses intended to bind themselves solidarily with Pameca in the loan. PEOPLE August 14. The sparseness of evidence leaves the SC no discretion but to uphold the presumption of regularity in the conduct of the public sale. Third issue: 1. As found by the TC and CA. Basic is the rule that parties may not bring on appeal issues that were not raised on trial. To accommodate Pameco’s prayer even on the basis of equity would be to expand the application of the provisions of NCC 1484 to situations beyond its specific purview. Hur Tin Yang vs. 3. It is clear from Sec 14 of the Chattel Mortgage Law that the effects of foreclosure run inconsistent with those of pledge under NCC 2115. Second issue: 1. and may not be inferred from the lone circumstance that it was only DBP that bid. jointly and severally. the chattel mortgage contract only indicates the obligation of the mortgagor-debtor to maintain the inventory at a value of at least P2mil. SC unable to find merit that the public auction sale is void on grounds of fraud and inadequacy of price. It is far from being an accurate estimate of the market value of the properties. Although NCC 1484. (c) “bind ourselves to pay for bank advances for insurance premiums. At best. Promissory note was signed: “Pameca by: (followed by the) sgd. Affirm the Teveses’ liability with Pameco in the loan. 2013| VELASCO. statutory law or judicial rules of procedure. we bind ourselves to pay DBP for advances” o “bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows”. "justice outside legality". such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation. Fraud is a serious allegation that requires full and convincing evidence. 2. taxes”. NCC 1484 applies solely to the sale of personal property the price of which is payable in installments.2. the date of the foreclosure sale. to make partial payments as follows”. is applied only in the absence of. but are made liable because they made themselves co- makers with Pameca under the promissory note. (e) “jointly and severally bind ourselves to pay for attorney's fees as provided for in the mortgage contract” 2. In any case. The mere fact that DBP was the sole bidder does not warrant the conclusion that the transaction was attended with fraud. where the seller opts to foreclose the chattel mortgage. Sec 14 of the Chattel Mortgage Law expressly ENTITLES the mortgagor (debtor) to the balance of the proceeds. Equity. only in the CA. People of the Philippines (2013) HUR TIN YANG V.

3. People and LBP v. defrauded METROBANK as represented by its OIC. A violation of any of these undertakings constitutes Estafa. Defense: that said trust receipts were demanded by Metrobank as additional security for simple loans extended to Supermax for the purchase of construction equipment which Metrobank knew were for personal use rather than resale. 2nd refers to the merchandise received under the obligation to "return" it (devolvera) to the owner. 24 complaints alleged that the accused. or return the merchandise to the entruster if not sold. courts are not bound by the title or name given but the intention of the parties. Supermax failed to pay or deliver the goods or proceeds. 4. thus becomes a mere loan. Perez are on all fours: the fact that the entruster bank knew even before the execution of the trust receipt agreements that the construction materials covered were never intended by the entrustee for resale or is sufficient to prove that the transaction was a simple loan. Court rules for petitioner. ISSUES/HELD: 1. as representative of construction company Supermax. 2. In determining the nature of a contract. words. DOCTRINE: 1. actions and deeds prior to. mere failure to deliver the proceeds of the sale or goods. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible. even if it was sufficiently proved that the entruster (Metrobank) knew beforehand that the goods subject of the trust receipts were never intended to be sold but only for use in the entrustee’s construction business. FACTS: 1. . Thereafter. during and immediately after executing the agreement. 1(b) of the RPC in relation to PD 115. if not sold. There are 2 obligations in a trust receipt transaction: the first refers to money received with the duty to turn it over (entregarla) to the owner of the merchandise sold. 2. it is not a trust receipt transaction. Metrobank required petitioner. VILLANUEVA 2. 2 obligations: the first refers to money received under the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold. as shown by their conduct. to sign 24 trust receipts as security for the construction materials and to hold those materials or the proceeds of the sales in trust for Metrobank. 4. Metrobank eventually filed the instant criminal complaints. par. CA ruled that since the offense under PD 115 is in the nature of malum prohibitum. A violation of either constitutes Estafa.PETITIONER: HUR TIN YANG RESPONDENTS: PEOPLE OF THE PHILIPPINES SUMMARY: This case is brought to Court by a MR on SC decision previously affirming CA’s finding that Hur Tin Yang was guilty of Estafa with Abuse of Confidence in violation of PD 115. 1(b) of the RPC[1] in relation to PD 115 before the RTC. as representative of Supermax. METROBANK had extended several commercial letters of credit (LCs) to Supermax. authorized officer of SUPERMAX. Ng v. a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of the sale. WON petitioner is liable for Estafa under Art. INC. The bank contends Supermax had the obligation to return such materials or else turn over proceeds from their resale. à NO. 315. 3. is sufficient for conviction under PD 115. Petitioner contends that the bank knew these materials were simple loans and that the trust receipts were just additional security for such loans. 2nd refers to the merchandise received with the duty to "return" it (devolvera).. These commercial LCs were used by Supermax to pay for the delivery of several construction materials which were used in their construction business. The factual findings of the LCs reveal that the dealing was not a trust receipt transaction but one of simple loan. signed 24 trust receipts as security for construction materials bought from Metrobank. As such. 5. which failed to pay the loan or turn over proceeds––does not conclusively prove that the transaction was a trust receipts transaction. When these fell due and despite demand. par. Hur Tin Yang was charged with the crime of Estafa under Article 315. RATIO: 1. Hur Tin Yang’s admission––that he signed the trust receipts on behalf of Supermax. documentary and parol evidence may be submitted and admitted to prove such intention. a. Under PD 115. Petitioner. b. as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale.

Nonetheless. or another property. “By misappropriating or convening to the prejudice of another. it is not a trust receipt transaction penalized under the RPC. as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction.5. the transactions in the instant case are not trust receipts transactions but contracts of simple loan. Following the principle of stare decisis. This transaction becomes a mere loan. or on commission. where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. or under any other obligation involving the duty to make delivery of or to return the same. or for administration. 6. goods. when both parties enter into an agreement knowing fully well that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee.” . goods or any other personal property received by the offender in trust. [1] With abuse of confidence. or by denying having received such money. money. even though such obligation be totally or partially guaranteed by a bond.

day term. The 60-day credit term lapsed without Gloria paying her obligation under the Trust Receipt/SCS.00 for a 60. Gloria executed three more documents subsequently. (PPI) a regular credit line of P200. Inocencio E. PPI alleged that Gloria had violated the "fiduciary undertaking in the Trust Receipt agreement covering product withdrawals under the Special Credit Scheme which were subsequently charged to defendant dealer’s regular credit line. Dela Cruz is civilly liable. On November 17. 5.. fertilizer or agricultural chemicals) she received "upon the trust" of PPI. Hence. This transaction becomes a mere loan." indicating the invoice number. an agricultural supply store in Aliaga. Dela Cruz and Gloria Dela Cruz. where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. The products were released to Gloria under the supervision of Cristina G. PPI would file civil and criminal cases against her based on the Trust Receipts. Gloria signed in the presence of the PPI distribution officer/assistant sales representative two documents labelled "Trust Receipt/Special Credit Scheme. which culminated in a final demand letter stating that her total accountability was 156. 115.Sps. On August 28. sent her on June 8. DOCTRINE: When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee. 1981. 4. they agreed to require the execution of a trust agreement by the farmer-participants in their favor. PLANTERS PRODUCTS FEB. In the event that Gloria cannot deliver to the farmer-participants all the inputs required.755 pesos plus interest and penalty charges. 2. she is not liable for estafa. then such will be charged to their credit lines. Nueva Ecija engaged in the distribution and sale of fertilizers and agricultural chemical products.205. 28. The first issue is whether or not a creditor-debtor relationship existed between the parties.e. Spouses Quirino V. FACTS: 1. and names of the agricultural inputs (i. quantity. PPI District Distribution Manager. the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. PPI warned that should she fail to do so.000. 1978. Inc. However. Hence. therefore. (2013) SPOUSES DELA CRUZ v. petitioners herein. Inc.D. which they will then assign in favor of PPI. . operated the Barangay Agricultural Supply. For several dates PPI continued to send Gloria credit notes. 6. Gloria’s obligation is summed up as she agreeing to hold the goods in trust for PPI with liberty to deliver and sell the same for PPI’s account. value. Dela Cruz vs. On March 23. Receiving no response from her. they defaulted on their obligations. 1978. The Court said yes by looking at four instances enumerated below. hence this suit by PPI. PPI wrote collection letters to her on several dates. Planters Products. In all. which was granted. 2013 | Bersamin. 7. 1979 a demand letter on her "long overdue account" of P191. 25. Ortega. | Trust Receipts SUMMARY: Spouses Dela Cruz applied for a regular credit line with PPI using trust receipts as collaterals. Gloria also agreed that in case of deliver and sale. However. in favor of farmers accepted to participate in PPI’s Special Credit Scheme within 60 days from receipt of inputs from PPI. Quirino and Gloria submitted a list of their assets in support of her credit application for participation in the Special Credit Scheme (SCS) of PPI. 3. with trust receipts as collaterals. Gloria applied for and was granted by respondent Planters Products. Gloria filled up customer order forms for fertilizer and agricultural chemical products. J. it is not a trust receipt transaction penalized under Section 13 of P. Llanera of PPI. PPI brought against Quirino and Gloria a complaint for the recovery of a sum of money with prayer for a writ of preliminary attachment.

Whether the two transaction documents signed by Gloria expressed the intent of the parties to establish a creditor-debtor relationship between them? Yes 2. The Court cited 4 instances which showed that the parties intended to enter a creditor-debtor relationship: (1) The credit line of P200. of the merchandise imported or purchased. RTC: based on the terms and conditions of the SCS Program. Gloria. not being themselves parties to the contractual documents signed by Gloria.000. indicating her having received PPI products on various dates. These established circumstances comprised by the contemporaneous and subsequent acts of Gloria and Quirino that manifested their intention to enter into the creditor-debtor relationship with PPI show that the CA properly held the petitioners fully liable to PPI. were not thereby liable. as "dealer.00 that they tendered to PPI "to support our credit application in connection with our participation to your Special Credit Scheme. indicating that a trust receipt would serve as collateral for the credit line. Gloria argued that the farmers-participants alone were obliged to pay for the goods delivered to them by Gloria. CA: Denied spouses’ appeal. and who may not be able to acquire credit except through utilization. ISSUES/HELD: 1." Under the notion of relativity of contracts. A trust receipt is "a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise. RATIO: 1. 1978.000.00 that commenced the business relationship between the parties. but not for estafa. civilly. (2) The offer by Gloria of trust receipts as her collateral for securing the loans that PPI extended to her." It is a security agreement that "secures an indebtedness and there can be no such thing as security interest that secures no obligation. a close look at the Trust Receipt/SCS indicates that the farmer-participants were mentioned therein only with respect to the duties and responsibilities that Gloria personally assumed to undertake in holding goods "in trust for PPI. Whether or not Gloria is liable? Yes. their contemporaneous and subsequent acts shall be principally considered. ." Gloria further signed the Trust Receipt/SCS documents defining her obligations under the agreement. 1978. a creditor-debtor relationship was created between Gloria and PPI. Gloria signed the list of the properties involved as "dealer. b. that her liability was predicated on Section 4 of the Trust Receipts Law 9. The law of contracts provides that in determining the intention of the parties. 8. A credit line is really a loan agreement between the parties. the farmer-participants." thereby ineluctably manifesting that Gloria considered herself a dealer of the products delivered by PPI under the credit line. as collateral. and also the invoices pursuant to the agreement with PPI. (4) The fourth circumstance had to do with the undertakings under the trust receipts." signed together with Quirino the list of their assets having a total value of P260." It charged that Gloria did not return the goods indicated in the invoices and did not remit the proceeds of sales. On August 4. However." (3) The offer of Gloria and Quirino to have their conjugal real properties beef up the collaterals for the credit line. she is guilty of fraudulently misapplying or converting to her own use the items delivered to her as contained in the invoices. Parties entered into a creditor-debtor relationship a. Gloria signed the application for credit facilities on March 23.

355. general property rights in such goods. 2. it could have then done so. Under Section 4 of the Trust Receipts Law. Section 13 of the Trust Receipts Law considers the "failure of an entrustee to turn over the proceeds of the sale of the goods. the term with recourse confirms the obligation of a general indorser. Gloria made herself directly liable to PPI for the value of the inputs delivered to the farmer-participants. e. whether raw or processed. it brought this collection suit. In all trust receipt transactions. c. or (2) when the entrustee fails to return the goods under trust. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. who has the same liability as the original obligor. The second is covered by the provision referring to merchandise received under the obligation to return it (devolverla) to the owner. had PPI intended to charge Gloria with estafa. has. because the indorsement is without qualification. if they are not disposed of in accordance with the terms of the trust receipts. documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods. To be clear. retaining title or other interest as security for the payment of the purchase price. the sale of goods by a person in the business of selling goods for profit who. (Not liable for estafa) a. in turn. Thus. The contract. she would assign "in favor of PPI with recourse" in case of delivery and sale to the farmer- participants. Accordingly.10. its label notwithstanding. 115) such that its breach would render Gloria criminally liable for estafa. 115. to wit: There are two obligations in a trust receipt transaction. as against the buyer.D. both obligations on the part of the trustee exist in the alternative – the return of the proceeds of the sale or the return or recovery of the goods. was not a trust receipt transaction in legal contemplation or within the purview of the Trust Receipts Law (Presidential Decree No. does not constitute a trust receipt transaction and is outside the purview and coverage of the law: b. As the assignor "with recourse" of the Trust Agreement executed by the farmer participating in the SCS. The term recourse as thus used means "resort to a person who is secondarily liable after the default of the person who is primarily liable. or who sells the goods to the buyer on credit. This transaction becomes a mere loan. Ruling: Petition denied. under the Trust Receipts Law. It is not amiss to point out that the RTC even erred in citing Section 4 of the Trust Receipts Law as its basis for ordering Gloria to pay the total amount of P240. d. for instance. the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. the obligation assumed by Gloria under the Trust Receipt/SCS involved "the execution of a Trust Agreement by the farmer-participants" in her favor. the signature of the representative of PPI found in the demand letters Gloria sent to the farmer- participants only indicated that the Trust Agreement was part of the SCS of PPI. it is not a trust receipt transaction penalized under Section 13 of P. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee. supra. In Land Bank v. where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster. Spouses are liable. makes the indorser a general indorser. which. at the outset of the transaction. documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt" as constituting the crime of estafa under Article 315 (b) of the Revised Penal Code. Instead. . the Court has elucidated on the coverage of Section 4." An indorsement "with recourse" of a note. Obviously. a clear indication that the trust receipts were only collaterals for the credit line as agreed upon by the parties. therefore. However. Perez.

| Real Estate Mortgage G. 3. (DRBI) herein represented by Mr. the Dys and the Maxinos attempted to redeem Lots 1.000 plus interest to DRBI and the Yaps but both refused. 4. 3 and 6. 2011 | VILLARAMA. No. Tirambulos failed to pay their loans so DRBI foreclosed lots 1. injunction. CA reversed. A 2nd loan for P28K was obtained which was secured by another REM (second mortgage) over Lots 3 and 846. they executed a REM (first mortgage) over Lots 1. there is nothing more to secure. This sale was subject to 1-year redemption but the certificate of sale was only registered in June 1983. 171868 PETITIONERS: SPOUSES FRANCISCO D. and they were placed in possession of Lots 1. 5. 8. 4. and NATIVIDAD CHIU DY. but they refused to recognize it. 4. 6 and 8 in favor of Dumaguete Rural Bank (DRBI) to secure a P105K loan. The Yaps were duly notified of the redemption. They tendered P40. J. SR. SPOUSES MARCELINO MAXINO and REMEDIOS L. 171991 PETITIONERS: DUMAGUETE RURAL BANK. 3. and damages while the Yaps filed for consolidation of ownership. 4. The civil cases filed were tried jointly. DRBI sold lots 1. Yaps refused arguing that one of the characteristics of a mortgage is its indivisibility and that one cannot redeem only some of the lots foreclosed because all the parcels were sold for a single price at the auction sale.040. 5.4. The Tirambulos sold the 7 mortgaged lots to the Dys without consent and knowledge of DRBI.000.000. declaration of nullity of the Deed of Sale with Agreement to Mortgage.93 plus interest. 6. FACTS: 1. 8 as well as Lot 846 are originally owned by Spouses Tirambulos. 3 and 6 to Spouses Yap. SC held that the doctrine of indivisibility of mortgage does not apply once the mortgage is extinguished by a complete foreclosure thereof as in the instant case. July 6. DRBI was declared the highest bidder. and 846). Spouses Tirambulos were the registered owners of 7 parcels of land in Negros Oriental (Lots 1. and NATIVIDAD CHIU DY. SPOUSES MARCELINO MAXINO and REMEDIOS MAXINO. Later. INC. In 1976. 1984 (a month before the 1-year period was to expire): the Dys and Maxinos attempted to redeem Lots 1. 5.R. They tendered P40. with the full payment of the debt. YAP SUMMARY: Lots 1. said doctrine of indivisibility ceases to apply since. Spouses Tirambulos sold the 7 mortgaged lots to Spouses Dy and Spouses Maxino without the consent and knowledge of DRBI. predecessor of DRBI. 3. JR. contending the redemption should be for the full amount of the winning bid of P216. No. PROVINCIAL SHERIFF OF NEGROS ORIENTAL and DUMAGUETE RURAL BANK. and 8 in favor of the Rural Bank of Dumaguete. Nothing in the law prohibits the piecemeal redemption of properties sold at one foreclosure proceeding. DOCTRINE: Once the mortgage is extinguished by a complete foreclosure thereof. 6. and 6 to the Yaps. 3. So the Dys and Maxinos went to the Sheriff to effect the redemption. and SPOUSES FRANCISCO D. Noticing Lot 3 was not included in the foreclosure proceedings. Dichoso RESPONDENTS: SPOUSES ZOSIMO DY.00 to DRBI and the Yaps. YAP and WHELMA S. SR. 1983: DRBI sold Lots 1. YAP RESPONDENTS: SPOUSES ZOSIMO DY. The motion was granted. and damages.00 + interests.S. DRBI extrajudicially foreclosed the 1st mortgage and sold the 5 lots at public auction in March 1982. 3 and 6. the . 3 and 6. and the Dys and Maxinos can effect the redemption of even only two of the five properties foreclosed. About 1 month before the one-year redemption period was set to expire. They executed a REM over Lots 1. William D.R. May 22. and 8 and sold at public auction wherein DRBI was the highest bidder. 2. and the RTC ruled in favor of Yaps. YAP v DY July 27. 4. YAP and WHELMA S. the Dys and Maximos went to the Sheriff’s Office to deposit P40. 6. MAXINO. 5. Important: Lot 3 was not part of the 1st mortgage foreclosed. Lots 3 and 8446 were also mortgaged. The Yaps filed a Motion for Writ of Possession alleging the 1-year period has already lapsed. INC G. Therefore. The Dys and the Maxinos filed a civil case for accounting.6. 5. The mortgages became due and because of the Tirambulos’ failure to pay. annulment of certificate of redemption.

373.850. It was proven that Lot 3 was merely inserted by the bank in the Sheriff’s Certificate of Title as Lot 3 and Lot 846 were included beyond the “xxx” that marked the end of the enumeration of the lots foreclosed. 2.25 representing the balance of the purchase price the Yaps still owed DRBI.50 . 5. The Dys and Maxinos validly redeemed Lots 1 and 6. declaration of nullity of Deed of Sale for Lot 3. In Litonjua vs. DRBI: the sale by Tirambulos to Dys and Maxinos was without the Bank’s consent. together with the amount of any assessments or taxes which the purchaser may have paid thereon after the purchase. or for him to the officer who made the sale. They also prayed the redemption of Lots 1 and 6 be declared valid and binding. 1293. the doctrine of indivisibility of mortgage does not apply once the mortgage is extinguished by a complete foreclosure thereof as in the instant case RATIO: 1. also with 1% interest on such last named amount → . they attempted to pay to DRBI/Yaps but both refused so they tendered it with the Sheriff. SC: consolidated petitions 1. 31. when they deposited P50. The Bank acted in bad faith for including Lot 3 in the sale while estoppel and unjust enrichment operate against the Yaps since they had already withdrawn the redemption money.42 with the Provincial Sheriff.850. The Yaps turned over the possession of Lot 3 to the Maxinos but contended that since there was no redemption effected for Lots 1 and 6. redemption of Lots 1 and 6 is valid. the sale by mortgagor of the mortgaged property to a third person notwithstanding the lack of written consent by the mortgagee was declared valid. the Yaps also filed a motion to withdraw from the Sheriff the redemption money earlier given by the Dys and Maxinos. 3. CA: sale of Lot 3 by DRBI to Yaps is null and void (corroborated by the Sheriff). as per Art. Sheriff issued a Certificate of Redemption only for Lots 1 and 6. 1984. TC-MR: there was improper redemption as only about P50K was deposited and the amount due was P216K 9. 1984. up to the time of redemption. TC: the Yaps are the owners of Lots 1 and 6 for failure to redeem by the Dys and Maxinos 8. They also consigned to the sheriff an additional sum of P83. and the right of the third person to redeem was recognized (as he stepped into the shoes of the mortgagor). ISSUES/HELD: Whether persons to whom several mortgaged lands were transferred without the knowledge and consent of the creditor redeem only several parcels if all the lands were sold together for a single price at the foreclosure sale-- Yes. and damages against the Yaps and DRBI. injunction. The Dys and Maxinos filed a case for accounting. They have legal personality to redeem despite the fact that the sale to them by the Tirambulos was without DRBI’s consent. 6. when they deposited an additional P83. “payments may be made to the purchaser or redemptioner. arguing that a mortgage is indivisible. Lot 3 was not among the foreclosed properties. This was backed by a case filed by the Yaps for annulment of certificate of redemption. thus. However. Rule 39 of ROC. 2.040. Yaps: no valid redemption as P40K was not a valid tender of redemption as the amount of the auction sale was P216. a. L&R. 7.50 plus sheriff’s commission fee of P419. The Yaps were notified of the redemption but they refused to take the redemption money. According to Sec. 10. plus 1% interest per month thereon in addition. Both were within the 1-year period reckoned from June 1983 – registration of the foreclosure sale (2) Payment of the purchase price of the property involved. the Yaps are entitled to the ownership.” The Dys and Maxinos complied with this as well within the 1-year period. and on June 19. one cannot redeem only some of the foreclosed lots as there were 5 parcels sold for a single price. It was not included in the application for foreclosure nor in the auction itself.93. The requisites of a valid redemption are present: (1) The redemption must be made within 12 months from time of registration of sale in Office of Register of Deeds → Redemption was effected on May 24. the Dys and Maxinos cannot be considered the debtors and they cannot effect the redemption.

1984) was more than 60% of the total purchase price for the five foreclosed properties. said doctrine ceases to apply since with the full payment of the debt. They are not required to pay P216. DRBI is liable for damages for maliciously including Lots 3 and 846 in the Sheriff’s Certificate of sale even if they were not included in the foreclosure as they form a separate mortgage. As such the Dys and Maxinos can effect the redemption of only 2 of 5 foreclosed properties. to think the Dys and Maxinos were only redeeming two properties. 1984 plus P83.92 (P50. .93. There is a need to remand for computation of pro-rata value of Lots 1 and 6 based on true values at time of redemption. In fact.50 paid on June 19. the amount they paid P134.040.850. The present situation is not within its purview since the aggregate number of lots comprising the collateral had already been foreclosed and sold at public auction.223. Philippine National Bank v. Nothing in the law prohibits the piecemeal redemption of properties sold at 1 foreclosure proceeding. De los Reyes: The doctrine of indivisibility of mortgage does not apply. there is nothing more to secure.42 paid on May 28.373. The doctrine refers to the release of the mortgage. but once the mortgage is extinguished by a complete foreclosure. (3) Written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the Register of Deeds of the province → Sheriff was properly notified of redemption since the money was deposited with him after DRBI and the Yaps refused 4. There is no partial payment nor partial extinguishment.