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CASE TABLE – CREDIT TRANSACTIONS (Prof.

Rocky Reyes | AY 2009-2010) Page 1 of 19

CREDIT TRANSACTIONS

CASE TITLE FACTS/ISSUE DOCTRINES


LOAN
Burroughs wants to remit to its parent company abroad, Burroughs was entitled to reimbursement. The tax base upon
for which it paid 15% branch profit remittance tax, which the 15% branch profit remittance tax shall be imposed is
Commission on pursuant to Sec 24(b)(2)(ii) of NIRC. Burroughs however the profit actually remitted and not on the total branch profits
Internal Revenue v asked for tax reimbursement claiming that the basis for out of which the remittance is to be made.
1 Burroughs Limited the profit remittance tax should be “amount actually
(1986; Paras, J.) remitted” and NOT the “amount before remittance tax” Rocky says: The law was amended because of this case, it now
Handled by Sycip reads “profit applied for”. Solve the problem by the language of
Issue: Is Burroughs entitled to reimbursement? Yes. the law, don’t indiscriminately cite cases. CC is more important
than cases kahit cross-eyed sila.
Venancio Concepcion, then President of PNB, granted Issue No. 1: Is the grant of credit to the copartnership a loan
special authority to the manager of Aparri branch within the meaning of Sec. 35? [Concepcion’s argument: It was
[because the latter had limited discretion in granting only a “concession of a credit”]
loans exceeding P5,000] to extend credit in favor of the - “Credit” means ability to borrow money by virtue of the
partnership of “Puno y Concepcion” [in which Venancio’s confidence or trust reposed by a lender that he will pay what he
wife owns half of the capital share]. The only security may promise
given therefor were six demand notes. Concepcion was - “Loan” means delivery by one party and the receipt by the
adjudged guilty of violating Sec 35 of Act No 2747 which other party of a given sum of money, upon an agreement,
prohibited direct or indirect loans to members of the express or implied, to repay the sum loaned with or without an
board of directors of banks nor to agents of branch banks. interest.
- “Concession of credit” necessarily involves the granting of
“loans” up to limit of the amount fixed in the “credit”
Rocky says:
- What is S en C? Issue No. 2: Was the granting of credit to copartnership a loan
- What is a double name paper? or a discount? [Concepcion’s argument: The prohibition applies
- What part of the law should you not touch? only to “loans”, not on “discounts”]
- Loans were actually granted. Why do you have to raise - Discounts are favored by bankers because of their liquid nature,
Pp v Concepcion something about concession of credit? as they grow out of an actual, live transaction. However,
2 - All arguments here were obviously palusot. Silence is discount is only a mode of loaning money. But it has several
(1922; Malcolm, J.)
better. As Balane used to say, keep your mouth shut distinctions:
rather than confirm his suspicions of the student’s DISCOUNT LOAN
idiocy. Interest is deducted in Interest is taken at the
advance expiration of the credit
Always on double- Generally on single-
name paper name paper
- The demand notes were mere evidences of indebtedness
because: 1) interest was not deducted from the face of the notes
but was paid when the notes fell due, 2) they were single-name,
not double name.

Issue No. 3: Was the granting of credit an “indirect loan”?


- The purpose of the law is to erect a wall of safety against
temptation for a director of the bank. Where personal interest
clashes with fidelity to duty the latter almost always suffers. A
loan to a partnership of which the wife of a director is a member
falls within the prohibition.
Bagtas borrowed 3 bulls from Bureau of Animal Industry. Bagtas contends that the contract was a commodatum and so
Upon expiration of the contract, he did not return but the fact that Republic retained ownership or title to the bull it
asked for extension, which was granted but only as to one should suffer its loss due to force majeure.
bull. Bagtas expressed his willingness to pay the bulls’
book value but subject to reduction for yearly A contract of commodatum is essentially gratuitous. If the
Republic v Bagtas depreciation. The Bureau refused this request and asked “breeding fee” be considered a compensation, then the contract
3
(1962; Padilla, J.) him to either return or pay the entire book value. would be a lease. Under 1671, Bagtas would be subject to the
Bagtas was unable to return the bulls because of bad responsibilities of a possessor in BF because he had continued
peace and order situation and the pending appeal of the possession after the expiry of the contract. And if the contract
case. be commodatum, he is still liable because of 1942 which
Bagtas died during pendency of case. His adminitratrix provides that bailee is liable even in case of fortuitous event if:
return two bulls because the third one had been 2. he keeps it longer than the period stipulated

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accidentally shot during a raid by the Huks. Bagtas then 3. thing loaned has been delivered with appraisal of its value,
claims that he is not liable for the loss of the bull as it was unless there is a stipulation exempting the bailee from
caused by a force majeure. responsibility in case of fortuitous event.

Issue: Is Bagtas liable to pay for the dead bull? Yes! Chi asks: It appears that the GR in case of unstipulated liability
for fortuitous event, the bailee is liable. Must the exemption be
express?
Beck is a tenant of Quintos. Quintos granted Beck the use Issue No. 1: Did Beck comply with his obligation to return the
of the furniture found in the leased house, among these furniture upon Quintos’ demand? No.
were 3 gas heaters and 4 electric lamps. Quintos sold the - The K entered into between the parties is one of commodatum,
pieces of furniture to Lopez and thereafter notified Beck because under it the plaintiff gratuitously granted the use of the
of the conveyance. Beck informed Quintos that the latter furniture to the defendant, reserving for herself the ownership
can get the furniture at the ground floor of the house. thereof, by this K, the defendant bound himself to return the
However, at a later date, Beck told Quintos that he will furniture to the plaintiff, upon the latter’s demand.
not return the furniture until after the expiration of lease - The obligation voluntarily assumed by Beck to return the
contract. When the lease contract expired, Beck furniture upon the plaintiff’s demand means that he should
deposited the furniture to Sheriff’s warehouse. return ALL of them to plaintiff AT THE BAILORS’S RESIDENCE OR
Quintos v Beck
4 HOUSE. Beck did not comply with this obligation when he merely
(1939; Imperial)
- Chi says: There’s express prohibition in CC on the placed them at the disposal of the plaintiff, retaining for his
deposit with third persons of thing given by way of benefit the 3 gas heaters and 4 electric lamps.
commmodatum. The closest would be 1942 as to liability
for loss of thing due if the bailee lends to third person not Issue No. 2: Where Quintos is bound to bear the deposit fees
member of his household. due to Sheriff? No.
- The court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture aT the defendant’s
behest. The bailee was not entitled to place the furniture on
deposit; nor was the bailor under a duty to accept the offer to
return because it was incomplete.
Saura applied for P500,000 loan with DBP (then RFC) for Issue: Is there a perfected contract of loan? If yes, did DBP
the construction of factory building and payment of breach it? Yes, there’s a perfected contract of loan. There was no
balance price of the jute mill machinery and equipment. breach though, but mutual desistance by the parties.
Saura intended to produce bags using locally grown raw - There was indeed a perfected consensual contract as
materials (the first serious attempt in history, as they recognized in 1934. There was undoubtedly offer and
would call it). There was reexamination of the loan grant acceptance, Saura applied for a loan which DBP approved by
due to the atras-abante attitude of China Engineers who resolution.
were to sign as co-makers, which even led to the - Realizing that it will not meet the two conditions, Saura asked
reduction of loan price to P300,000. But at the end of the for cancellation of mortgage. The action thus taken was in the
day, RFC granted the loan subject to two conditions: 1) nature of mutual desistance (mutuo disenso, if you feel like
raw materials needed by the Saura to carry out its invoking Manresa). Mutual disagreement by the parties can
Saura Import & operation are available in the immediate vicinity 2) there cause the contract’s extinguishment.
5 Export Co v DBP is prospect of increased production of raw materials to
(1972; Makalintal, J.) provide adequately for the requirements of the factory.

However, in view of Saura’s statement that they will have Rocky says: What is a jute sack?
to import jute to produce the bags (read: inconsistent
with the conditions), DBP refused to approve the loan.
Saura then asked for cancellation of the mortgage.

9 years later, Saura filed this suit for damages against DBP
claiming that for the latter’s failure to release the
proceeds of loan applied for and approved, it was
prevented from completing or paying its contractual
commitments in connection with the jute mill project.
The Medinas were granted a loan of P350,000 by GSIS for Issue No. 1: Was there an overpayment? No!
which they constituted a Real Estate Mortgage. - The Amendment of the Real Estate Mortgage never intended to
Thereafter, they again obtained an additional loan of completely supersede the original mortgage contract.
P230,000. Medinas defaulted and naturally GSIS - This is shown by
foreclosed. 1. prior, contemporaneous and subsequent acts of the parties
GSIS v CA
6 2. the contract itself, which:
(1986; Paras, J.)
Medinas demands refund for overpayment alleging that - recognized the existence of the previous mortgage K
the Amendment of the Real Estate Mortgage superseded - clearly stated in the last provision that “all other terms and
the original contract and failed to stipulate the condition of previous real estate mortgage continue to be in
“compounded interest” discharged them from the full force and effect.”
payment of the same. - it just being amended as to amount and amortization

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- As a matter of policy, GSIS imposes uniform terms and


conditions for all its real estate loans, particularly with respect to
compounding of interest.
- It would be contrary to human experience and to ordinary
practice for mortgagee to impose less onerous conditions on an
increased loan by the deletion of compounded interest exacted
on a lesser loan.

Issue No. 2: WON the interest rates on the loan accounts were
usurious? No!
- Interest by way of damages is governed by 2209. “If obligation
consists in payment of sum of money, and debtor incurs in delay,
the indemnity for damages there being no stipulation to
contrary, shall be the payment of the interest agreed upon.”
- CC permits agreement upon a penalty apart from the interest.
- Stipulation about payment of such additional rate partakes of
the nature of a penalty clause, which is sanctioned by law.
Spouses Ligutan obtained a loan of P120,000 from Issue No. 1: WON penalty interest unconscionable? Yes.
Security Bank and Trust Company. It contained the - CA correctly reduced the penalty interest from 5% to 3%
following stipulations as to interest: - “Penalty clause,” expressly recognized by CC1226, is an
- 15.189% per annum upon maturity accessory undertaking to assume greater liability on the part of
- Penalty clause (in case of default): 5% every month an obligor in case of breach of an obligation.
on the outstanding principal and interest - It functions [1] to strengthen the coercive force of the
- Attorney’s fees: 10% of total amount due IF: obligation AND [2] to provide for what could be the liquidated
- Matters endorsed to a lawyer for collection damages resulting from such a breach.
- Suit instituted to enforce payment - The obligor would then be bound to pay the stipulated
Upon default, bank filed a collection suit. For spouses’ indemnity without the necessity of proof on the existence and
failure to answer, judgment was rendered on default. on the measure of damages caused by the breach.
Upon MR and new evidence, it was revealed that 3 years - Altho court may not at liberty ignore freedom of parties to
after the loan, spouses executed a real estate mortgage agree on such terms and conditions as they see fit, a stipulated
which they claim to be a novation of the contract. It was penalty may be equitably reduced by court if:
even foreclosed without notification of spouses and that - it is iniquitous or unconscionable OR
the bank did not even credit them with proceeds of the - the principal obligation has been partly or irregularly
sale. (MR was denied bec it’s already their second! And complied with.
the evidence was not really new because it was known - If may even be deleted if/when:
since the commencement of the case) - there has been substantial performance in good faith
- penalty clause itself suffers from fatal infirmity
Ligutan also appeals as to the amounts of interests - exceptional circumstances so exist as to warrant it
imposable. - Whether penalty is reasonable or iniquitous can be partly
subjective and partly objective. Its resolution depend on such
Ligutan v CA
7 Chi recited this but only appreciated its value during the factors as, but not necessarily confined to, the:
(2002; Vitug, J.)
finals review when she actually read it. SAYANG!  1. type, extent and purpose of the penalty
2. nature of the obligation
3. mode of breach and its consequences
4. supervening realities
5. standing and relationship of the parties

Issue No. 2: WON stipulated interest unconscionable? No.


- The essence/rationale for the payment of interest, quite often
referred to as “cost of money,” is not exactly the same as that of
a surcharge/penalty.
- A penalty stipulation is not necessarily preclusive of interest, if
there is an agreement to that effect, the two being distinct
concepts which may be separately demanded. Judicial grounds
for disallowing imposition of full surcharges/penalties, despite
express stipulation therefor in a valid agreement, may not
equally apply in non-payment or reduction of interest.
- Indeed, interest prescribed in loan financing agreement is a
fundamental part of the banking business and the core of a
bank’s existence.

Issue No. 2: Did the subsequent execution of the real estate


mortgage for the existing loan resulted in the extinguishment
of original contract because of novation? No.

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- Mortgage is but an accessory contract to secure the loan.


- Elements of “extinctive novation”
1. previous valid obligation
2. agreement of all the parties
3. extinguishment of the obligation: must be:
[a] declared in unequivocal terms (i.e. express) or
[b] old and new obligation be on every point incompatible with
each other (i.e. incompatibility) – should take place in any of the
essential elements of obligation (i.e. juridical relation/tie, object,
subject)
4. validity of the new one
Eastern Shipping The case of the broken drums of riboflavin. See Appendix A i.e. my amazing concept map of the Eastern
8 Lines v CA Shipping Line doctrine on Rules on Interest. 
(1994; Vitug, J.)
TWO CONCEPTS ON PAYMENT OF INTEREST (from Sir Labitag’s handout)

1 Interest for the use or loan or forbearance of money, goods or credit


No interest for use or forbearance
If no stipulation on payment of interest * No interest shall be due unless it has been expressly
stipulated in writing (CC1956)

If there is express stipulation (which must be


Interest shall be 12% per annum (Sec. 2, Monetary Board
in writing to be valid CC1956) for payment of
Circular 905, 10 Dec 1982)
interests, but no rate mentioned
If there is stipulation in writing and rate of
Such interest stipulated shall not be subject to ceiling
interest is agreed upon (including
prescribed under the Usury Law (Sec. 1, Monetary Board
commissions, premiums, fees and other
Circular 905, 10 Dec 1982)
charges)

2 Interest as damages for breach or default in payment of loan or forbearance of money, goods, credit
In case of DEFAULT, loan or forbearance shall earn legal
No stipulation as to interest for use of
interest, at rate of 12% per annum from date of judicial or
money
extrajudicial demand, subject to Art 1169 (delay/mora)

Loan + stipulated interest, shall earn 12% per annum from


date of judicial demand
If rate of interest stipulated, e.g. 24% per
* Interest due shall earn legal interest from the time it is
annum
judicially demanded, although the obligation may be silent
upon this point (Art 2212)

3 If obligation NOT consisting of a loan or forbearance of money, goods or credit is breached, e.g. obligation to give, to
do, not to do
o Interest may be imposed at the discretion of court at the rate of 6% per annum.
o No interest adjudged on unliquidated claims or damages, until demand can be established with reasonable
certainty.
o After thus established with reasonable certainty, interest of 6% per annum shall begin to run from the date of
judicial or extrajudicial demand.
But if obligation cannot be established with reasonable certainty at time of demand, 6% per annum interest
shall begin to run only from date of judgment – on amount finally adjudged by court.

4 When judgment of court awarding money becomes final and executory, money judgment is A, B and C (above) shall earn
12% per annum from finality of judgment until full payment – money judgment shall be considered as forbearance of
credit
Macalinao defaulted on the payment of her credit card - SC said that the interest rate and penalty charge of 3%/mo or
dues. There was stipulation that the charges/balance shall 36%pa should be reduced to 2%/mo or 24%pa. this is not the
earn 3%/month and additional penalty fee of another first time that SC considered the 36%pa to be excessive and
3%/month. RTC reduced the 3% monthly interest to 2%. unconscionable.
Macalinao v BPI CA reversed the reduction saying that Macalinao freely - Citing 1229: In exercising this power to determine what is
9
(2009; Velasco, Jr., J.) availed herself of the CC facility offered by BPI to general iniquitous and unconscionable, courts must consider the
public ergo, contracts of adhesion are not invalid per se. circumstances of each case since what may be iniquitous and
Credit card interests and penalty charges are unconscionable in one may be totally just and equitable in
unconscionable and iniquitous at 36%! another.
- In the instant case, Macalinao made partial payments to BPI.

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Vives was asked by his friend Sanchez to deposit Bank’s Defenses: The contract between them was a simple loan
P200,000 in the name of Sterela Marketing and Services or mutuum because [1] the subject was money, there was an
(owned by Doronilla who is friend of Sanchez) for interest amounting to 12,000 and I was not privy thereto!
purposes of its incorporation and on the promise that it As regards the “subject”
will be returned after 30 days. - 1933 may seem to imply that if subject of contract is a
consumable thing, e.g. money, the contract would be a mutuum.
Vives agreed and had his wife open an account in name of However, there are exceptions to this rule where the loan is
Sterela and deposit the amount there. The authorized commodatum and not mutuum.
signatories in the passbook were Sanchez and/or Vives. - if consumable goods are loaned only for purposes of
exhibition OR
However, Vives learned that Sterela was no longer - when the intention of parties is to lend consumable goods
holding office in the address given to him. Doronilla and to have the very same goods returned at the end of the
promised to return his money and issued checks therefor. period agreed upon
The checks bounced. Vives later on found out that Atieza - Intention of parties shall be accorded primordial consideration
(the bank manager) allowed Doronilla to withdraw the in determining the actual character of a contract. In case of
money on the basis that he was the sole proprietor of doubt, the contemporaneous and subsequent acts of the parties
Producers Bank of Sterela. shall be considered.
10 the Phil v CA As regards the “interest”
(2003; Callejo, Sr., J.) Main issue: Is the bank liable to return to Vives the - Attempt to return P200,000 with additional P12,000 does not
amount withdrawn by Doronilla? Yes! convert the transaction from commodatum to muttum absent
any showing of such intention.
- In fact, the 12k corresponds to the fruits of the thing.
- 1935: bailee acquires only the USE but NOT the FRUITS.
- It was only proper for Doronilla to remit to Vives the interest
accruing to the money deposited in the bank.
As regards the “privity”
- Whether the transaction was mutuum or commodatum has no
bearing on your liability. Your liability is founded upon your
employee’s fault under 2180 (vicarious).
- Atienza was in conspiracy with Doronilla’s scheme. The
passbook in custody of Vives says that one cannot withdraw
without that passbook. How come Doronilla was able to get the
money?
- Atienza also knew very well that Vives was the owner of the
money as he was expressly told by the wife.
Carolyn Garcia gave to Rica Thio two crossed checks Issue: Who borrowed money from Carol: Rica or Malou? Rica!
payable to the order of Marilou Santiago [the scenario - A loan is a real contract, not consensual as such, is perfected
here is Carolyn  Rica  Marilou]. Thio paid faithfully at only upon the delivery of the object of the contract.
first but eventually failed to pay the loans when they fell - Delivery is the act by which the res or substance thereof is
due. No PN because Carol and Rica used to be friends placed within the actual or constructive possession or control of
then. another. Although Rica did not actually receive the proceeds of
these checks, these instruments were placed in her control and
Rica denied the loans and shifted the blame to Malou. possession, under an arrangement whereby she actually re-lent
She said that the initial payment were only to the amounts to Malou.
accommodate Carol’s request to use her own checks - Factors to support this conclusion:
Garcia v Thio instead of Malou’s. 1. Carol did not personally know Malou, why would she issue
11
(2007; Corona, J.) checks to strangers without any security whatsoever?
Rocky says: 2. Leticia (witness for both parties) said that Rica’s real plan was
- What is a cross check? to lend amounts to Malou at a higher amount.
- What do you call yung pinautang mo yung inutang mo? 3. Why would Rica issue checks to cover for loans and interest
Chi almost answered (because she was on deck at that which she did not contract. Incredible to common experience.
time) “5-6-7”, the correct answer is “relending” 4. In Malou’s petition for insolvency, Rica and not Carol was
listed as creditor.
5. Rica did not present Malou as witness.

- The interest was deleted though because there as not written


proof therefor.
Pajuyo allowed Guevarra to occupy his house made of - The Kasunduan is not a commodatum. In a commodatum, the
light materials (squatter) on the condition that Guev will parties delivers to another something not consumable so that
ensure its maintenance and orderliness and vacate the the latter may use the same for a certain time and then return it.
Pajuyo v CA
12 premises upon demand. However, Guev refused to vacate - Features of a commodatum:
(2004; Carpio, J.)
when Pajuyo asked him to saying that the latter had no - gratuitous
valid title to the house or lot as a squatter. CA said that - for a certain period
their Kasunduan was not a lease but a commodatum. - Thus, bailor cannot demand: [1] until after expiration of

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stipulated period or [2] after accomplishment of use for which


the commodatum is constituted.
- If bailor should have urgent need of the thing, he may demand
its return for temporary use.
- PRECARIUM: If use of thing is merely tolerated by the bailor, he
can demand the return of the thing at will
- the imposition of obligation to “maintain property in good
condition” makes the Kasunduan a contract different from
commodatum.
- Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord tenant relationship
where the withdrawal of permission would result in the
termination of the lease.
- There must be honor even between squatters. The agreement
is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested
property.
[1] Tevetesco opened a savings and current account with - BPI cannot unilaterally freeze Franco’s accounts and preclude
BPI-FB  P80M debited from FMIC him from withdrawing his deposits.
[2] FMIC also opened a time deposit with same branch - Art 559 on recovery of unlawfully deprived property is not
with P100M  “authority to debit” P80M to Tevetesco applicable because the same pertains to “specific/determinate
[3] Franco opened savings (500k), current (500k) and time thing” Franco’s account consists of money which is movable,
deposit (1M) with BPI-FB  all amounts traceable to generic and fungible. The quality of being fungible depends upon
check issued by Tevetesco the possibility of property, because of its NATURE or the WILL OF
THE PARTIES, to be substituted by others of the same kind, not
BPI Family Bank v
The “authority to debit” was later on found to be a having a distinct individuality.
13 Franco
forgery. However, Tevetesco had already withdrawn - BPI owns the deposited monies in the accounts of Franco, but
(2007; Nachura, J.)
several amounts from its current account amounting to not as a legal consequence of its unauthorized transfer of FMIC’s
3M + 2M of Franco deposits to Tevesteco’s account. It should not forget that
BPI-FB debit from Franco’s savings and current accounts deposits of money in banks is governed by CC provisions on
all amounts remaining therein. Franco’s checks were also mutuum.
dishonored in view of the freezing/grarnishement . - As there is a debtor-creditor relationship between bank and
FMIC claims recovery of 80M from BPI-FB. depositor, BPI-FB ultimately acquired ownership of Franco’s
deposits, but such ownership is couple with a corresponding
obligation to pay him an equal amount on demand.
Puig and Porras were bookkeeper and cashier of a bank. What is the nature of possession by the bank?
112 informations for qualified theft were filed against Cashiers, bookkeepers and other employees of a bank who come
them for their willful taking of cash deposited to the into possession of the monies deposited therein enjoy the
bank. RTC dismissed all the cases for insufficiency of confidence reposed in them by their employer. Banks, on the
allegations. Republic appeals. other hand, where the monies are deposited, are considered the
owners thereof. 1953 (person who receives loan of money
acquires ownership thereof) and 1980 (fixed, current and savings
deposit of money in banks and similar institutions shall be
Pp v Puig governed by provisions on loan) attests to this. The information
14
(2008; Chico-Nazario, J.) sufficiently allege all the essential elements constituting the
crime of Qualified Theft i.e.
1. Taking of personal property
2. Property belongs to another (bank)
3. Taking done with intent to gain
4. Taking done without owner’s consent
5. Accomplished without use of violence or intimidation
against persons, nor of force upon things
6. Done with grave abuse of confidence (nature of job)
DEPOSIT
Zaldy deposited US dollars in cash for safekeeping, but - The contract is one of deposit as the greenbacks were given
the bank sold the dollars. Bank’s defense: it credited the only for safekeeping. Zshornack demanded the return of the
proceeds to the peso account of Zaldy. money five months later.
- The bank violated its obligation as depositary. The contract is
BPI v IAC
15 void though. They are in pari delicto therefore, they shall have
(1988; Cortes, J.)
no cause of action against each other. The only remedy is one on
behalf of the State to prosecute the parties for violating the law.

Rocky says:

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- Who is Rizaldy Zschornack? An actor contemporary of FPJ and


Erap.
- Back then there was a prohibition on use of dollar to promote
the use of peso currency. BUT we need dollars to purchase oil an
plastic. Read the Constitutional case about Bataan
Petrochemical. Sige nga, makakakuha ka ban g peso equivalent
ng $200,000 in cash? There was even a time that Phil announced
to the world in a 10m telex that we do not have dollars anymore.
We need dollars because we do not have sufficient amount of
peso in circulation. At that point nakipagbarter pa tayo ng
banana with Czech for military hardware.
Bishop of Jaro sued Father dela Pena for the latter’s - Bishop of Jaro lost this case, he was unable to recover.
inability to return the amount intended for the - By placing the money in the bank and mixing it with his
construction of leper hospital. The amount was deposited personal funds, Father did not assume obligation different fromt
by Father in his own account. But when he was arrested hat under which he would have lain if such deposit had not been
by the US Army, the funds were confiscated because it made, nor did he thereby make himself liable to repay the
was purportedly for the support of the insurgent and for money at all hazards.
Bishop of Jaro v Dela
revolutionary purposes. - If the money had been forcibly taken from his pocket or from
16 Pena
his house by military forces, he would have been exempt from
(1913; Moreland, J.)
responsibility. The fact he placed the trust fund in the bank in his
personal account did not make him a debtor who must respond
for all hazards.
- There was no law prohibiting him from depositing it as he did
and there was no law which changed his responsibility by reason
of the deposit.
As a condition for sale, the two partied agreed to deposit Contract is not an ordinary contract of lease but a special kind
the TCT in an SDB. However, when the vendee was to of deposit.
resell the property, the title was no longer there. As a - Not lease because full and absolute possession and control of
result of delay of TCT reconstruction, the customer SDB was not given to the joint renters. Guard key remained with
withdrew its offer. Vendee charges bank for unrealized Bank without which renters could not open the box.
profits. - 1975 not applicable.
CA Agro-Industrial
Is the contractual relation between a commercial bank Relation created is that of bailor and bailee.
Development Corp v
17 and another party in a contract of rent of safety deposit - The prevailing rule is that the relation between a bank rention
CA
box with respect to its contents placed by the later one of out SDB and its customers with respect to the contents of the
(1993; Davide, J.)
bailor/bailee or one of lessor/lessee? box is that of a bailor and bailee, the bailment being for hire and
mutual benefit.
- CA Agro’s petition is dismissed though because there’s no
evidence that the bank is aware of the agreement between the
two renters that they cannot withdraw the contents without the
consent of the other.
De Asis loss her employer-given Mitsubishi Galant when it - Customer expected safe return of car at the end of her meal,
was given to the valet service of Kamayan. thus Triple V constituted as a depositary. It cannot evade liability
Resto’s defense: The ticket contains waiver of claims. by arguing that neither a contract of deposit nor that of
Valet parking service did not include extending a contract insurance, guaranty or surety for the loss of the car was
of insurance or warranty for the loss of the vehicle. constituted when De Asis availed of its free valet parking service.
- Parking claim stub embodying the terms and conditions of the
parking, including that of relieving petitioner from any loss or
Triple V Food v damage to the car is essentially a contract of adhesion, drafted
18 Filipino Merchants and prepared as it is by the petitioner alone with no participation
(2005) whatsoever on the part of the customers.
- De Asis deposited her car as part of Triple V’s enticement for
customers by providing them a safe parking space within the
vicinity of their restaurant. In a very real sense, a parking space is
an added attraction to petitioner’s restaurant business because
customers are thereby somehow assured that their vehicle are
safely kept, rather than parking them somewhere else at their
own risk.
McLoughlin, a philanthropist, loss his dollars during his - 2003 was incorporated in the CC as expression of public policy
stay at Copacabana. This was discovered to be the act of precisely to apply to situations such as here. The hotel business
YHT Realty his Filipina friend through the hotel employees who like common carriers is imbued with public interest.
19 Corporation v CA thought that she was his wife. - Catering to the public, hotel keepers are bound to provide not
(2005; Tinga, J.) Whether a hotel may evade liability for the loss of items only lodging for hotel guests but also security to their persons
left with it for safekeeping by its guest, by having these and belongings.
guests execute written waivers holding the establishment - It is not necessary that they be actually delivered to the

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or its employees, free from blame for such loss in light of innkeepers or their employees. It is enough that such effects are
2003 which voids such waivers? within the hotel or inn.
- CC is explicite that the responsibility of the hk shall extend to
the LOSS of or INJURY to the personal property of the guests
even if caused by servants, employees and strangers. It is loss
due to force majeure that may spare the hk from liability.
- 2002 (acts of guest, servants, family or his visitors) is not
applicable. What if the negligence of the employer or its
employees facilitated the consummation of a crime committed
by the registered guest’s visitors or relatives? 2002 presupposes
that hk is not guilty of concurrent negligence or has not
contributed to any degree to the occurrence of the loss.
- A depositary is not responsible for the loss of goods by theft,
unless his actionable negligence contributes to the loss.
SECURITY DEVICES
Claveria obtained a loan with Consolidated Bank for - Continuing guaranty is a surety! Petitioner assumed liability to
P2.875M to purchase 2 maritime barges and 1 tugboat. SOLIDBANK, as a regular party to the undertaking and obligated
As security, they constituted chattel mortgage over the itself as an original promissor. It bound itself jointly and severally
boats and executed a Continuing Guaranty by E. Zobel. to the obligation with the respondent spouses. In fact,
They defaulted so SolidBank filed a case against Claveria SOLIDBANK need not resort to all other legal remedies or
and E. Zobel. (Note: It did not foreclose.) exhaust respondent spouses' properties before it can hold
petitioner liable for the obligation.
E. Zobel’s defense: Relieved as guarantor pursuant to
2080 when it lost its right to be subrogated to chattel - 2080 does not apply where the liability is as a surety, not as a
mortgage for SolidBank’s failure to register the chattel guarantor. Even assuming that 2080 is applicable, SOLIDBANK's
mortgage with appropriate gov’t agency. failure to register the chattel mortgage did not release petitioner
from the obligation. In the Continuing Guaranty executed in
SolidBank: 2080 not applicable bec you’re a surety, not a favor of SOLIDBANK, petitioner bound itself to the contract
guarantor. irrespective of the existence of any collateral.

SURETY GUARANTY
Accessory promise by which a person Collateral undertaking to pay
binds himself for another already the debt of another in case the
bound, and agrees with the creditor latter does not pay the debt
to satisfy the obligation if the debtor
E. Zobel Inc v CA does not
20
(1998; Martinez, J.)
bound with his principal by the same guarantor's own separate
instrument, executed at the same undertaking, in which the
time, and on the same consideration principal does not join
original promissor and debtor from - usually entered into before or
the beginning, and is held, ordinarily, after that of the principal, and
to know every default of his principal is often supported on a
separate consideration from
that supporting the contract of
the principal
- original contract of his
principal is not his contract, and
he is not bound to take notice
of its non-performance
not discharged, either by the mere often discharged by the mere
indulgence of the creditor to the indulgence of the creditor to
principal, or by want of notice of the the principal, and is usually not
default of the principal, no matter liable unless notified of the
how much he may be injured thereby default of the principal
insurer of the debt, and he obligates insurer of the solvency of the
himself to pay if the principal does debtor and thus binds himself
not pay to pay if the principal is unable
to pay
PBM loaned from TRB. Ching signed Deed of Suretyship in Ching is liable for credit obligations contracted by PBM against
his personal capacity, “not as mere guarantors but as TRB before and after the execution of the 21 July 1977 Deed of
primary obligors.” Suretyship. This is evident from the tenor of the deed itself,
Philippine Blooming
PBM and Ching filed petition for suspension of payments referring to amounts PBM “may now be indebted or may
21 Mills v CA
with SEC, and eventually placed under rehabilitation hereafter become indebted” to TRB.
(2003; Carpio, J.)
receivership. Because of this, TRB dismissed complaint as
to PBM. - The law expressly allows a suretyship for "future debts". 2053
Ching’s defense: Deed of Suretyship executed in 1977 provides: “A guaranty may also be given as security for future

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could not answer for obligations not yet in existence at debts, the amount of which is not yet known; there can be no
the time of its execution. It could not answer for debts claim against the guarantor until the debt is liquidated.xxx”
contracted by PBM in 1980 and 1981. No accessory
contract of suretyship could arise without an existing - Diño v. Court of Appeals: A guaranty may be given to secure
principal contract of loan. even future debts, the amount of which may not be known at
the time the guaranty is executed. This is the basis for contracts
Rocky says: denominated as continuing guaranty or suretyship. A continuing
- Does 2053 apply even if there is no pre-existing loan? Or guaranty is one which is not limited to a single transaction, but
kailangan ba may pre-existing loan bago to mag-operate? which contemplates a future course of dealing, covering a series
of transactions, generally for an indefinite time or until revoked.
Chi recited this. Dismal.  It is prospective in its operation and is generally intended to
provide security with respect to future transactions within
certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable.

- Continuing guaranty covers all transactions, including those


arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or
termination thereof. A 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; especially if
the right to recall the guaranty is expressly reserved. Hence,
where the contract states that the guaranty is to secure
advances to be made "from time to time," it will be construed to
be a continuing one.

- In other jurisdictions, it has been held that the use of particular


words and expressions such as payment of "any debt," "any
indebtedness," or "any sum," or the guaranty of "any
transaction," or money to be furnished the principal debtor "at
any time," or "on such time" that the principal debtor may
require, have been construed to indicate a continuing guaranty.
After extrajudicially foreclosing the mortgage, there still - The Agreement uses “guarantee and guarantors,” prompting
remained deficiency so IFC asked surety to pay the ITM to base its argument on those words. SC is not convinced
outstanding balance. Issue: WON ITM a surety under the that the use of the two words limits the Contract to a mere
contract. guaranty. The specific stipulations in the Contract show
otherwise.
Rocky says: - While referring to ITM as a guarantor, the Agreement
- What on earth does “not as sureties merely” mean?! Do specifically stated that the corporation was 'jointly and severally
they mean “sureties as well” It’s redundant in Civil law liable. To put emphasis on the nature of that liability, the
pero under common law it has different meaning. Pero Contract further stated that ITM was a primary obligor, not a
IFC v Imperial Textile shempre, walang Pilipinong nagcomment sa redundancy. mere surety. Those stipulations meant only one thing: that at
22 Mills - IFC is the lending arm of the World Bank. HQ is in bottom, and to all legal intents and purposes, it was a surety.
(2005; Panganiban) Washington, so Amerikano mga lawyers nito. Hence, the - IFC was justified in taking action directly against respondent.
confusion. Yung foreign form is bangga with CC. - The use of the word guarantee does not ipso facto make the
contract one of guaranty. The word is frequently employed in
business transactions to describe the intention to be bound by a
primary or an independent obligation. The very terms of a
contract govern the obligations of the parties or the extent of
the obligor's liability. Thus, this Court has ruled in favor of
suretyship, even though contracts were denominated as a
'Guarantor's Undertaking or a 'Continuing Guaranty.

Lydia Cuba has Fishpond Lease Agreement. She assigned The assignment of leasehold rights was a mortgage contract.
the same to DBP as security for her loans (security by way - Simultaneous with the execution of the notes was the
of assignment). Upon default, DBP appropriated the execution of "Assignments of Leasehold Rights" where Cuba
Leasehold rights without foreclosure proceedings. Issue: assigned her leasehold rights and interest on a 44-hectare
DBP v CA & Cuba Is the act of DBP a violation of 2088? fishpond, together with the improvements thereon. As pointed
23
(1998; Davide, Jr., J.) out by Cuba, the deeds of assignment constantly referred to the
Rocky says: Cuba as "borrower"; the assigned rights, as mortgaged
- Why was it an issue? Because it was an “assignment” properties; and the instrument itself, as mortgage contract. 0
and not “pledge” or “mortgage” - Under condition no. 22 of the deed, it was provided that
- There was intention to sell. At best it’s equitable "failure to comply with the terms and condition of any of the

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mortgage. Round peg on a square hole. loans shall cause all other loans to become due and demandable
and all mortgages shall be foreclosed." And, condition no. 33
provided that if "foreclosure is actually accomplished, the usual
10% attorney's fees and 10% liquidated damages of the total
obligation shall be imposed."
- There is no shred of doubt that a mortgage was intended.
- In their stipulation of facts the parties admitted that the
assignment was by way of security for the payment of the loans
- People's Bank & Trust Co. vs. Odom: An assignment to
guarantee an obligation is in effect a mortgage.
BUT IT WAS NOT PACTUM COMMISSORIUM. Condition no. 12
did not provide that the ownership over the leasehold rights
would automatically pass to DBP upon CUBA's failure to pay the
loan on time. It merely provided for the appointment of DBP as
attorney-in-fact with authority, among other things, to sell or
otherwise dispose of the said real rights, in case of default by
Cuba, and to apply the proceeds to the payment of the loan. This
provision is a standard condition in mortgage contracts and is in
conformity with 2087, which authorizes the mortgagee to
foreclose the mortgage and alienate the mortgaged property for
the payment of the principal obligation.
- Bustamante spouses borrowed P100,000 from Rosel and Issue No. 1 Whether Bustamante failed to pay the loan at its
used as a guaranty 70 sqm of the 423 sqm land she owns. maturity date - NO
In case of failure to pay, Rosel is given the right to buy - The loan was due for payment on March 1, 1989. On said date,
said land at P200,000 inclusive of the P100,000 borrowed Bustamante tendered payment to settle the loan which ROSEL
amount and the interest. refused to accept, insisting that BUSTAMANTE sell to them the
- Upon maturity of loan, Rosel proposed to buy the land. collateral of the loan. When ROSELs refused to accept payment,
However, Bustamante refused to sell, but instead asked BUSTAMANTE consigned the amount with the trial court.
for extension of time to pay and offered Rosel another Issue No. 2 Whether the stipulation (sale of collateral) in the
land they could buy. loan contract was valid and enforceable - NO
- Bustamante then offered to pay the loan but Rosel - Rosel was eager to purchase the land given as guaranty, but
refused to accept payment and insisted that Bustamante Bustamante’s correlative obligation to sell is subject to
sign the prepared deed of sale of the collateral land. suspensive condition (i.e. failure to pay debt upon maturity).
- Both parties filed case against each other: Contract has the force of law between parties but this is subject
- Bustamante filed complaint for specific performance to provisions of A1306 CC that stipulations should not be
and consignation against Bustamante (for the payment of contrary to law, morals, good customs, public policy and public
the loan) order.
- Rosel filed petition for consignation and deposited - A scrutiny of the stipulation of the parties reveals a subtle
P153K with City Treasurer (for the purchase of the intention of the creditor to acquire the property given as security
collateral). When Bustamante refused to sell, Rosel for the loan. This is embraced in the concept of pactum
Bustamante v Rosel
24 consigned the amount of P47,500.00 with the trial court. commissorium, which is proscribed by law.
(1999; Pardo, J.)
In arriving at the amount deposited, Rosel considered the - ELEMENTS OF PACTUM COMMISSORIUM
principal loan of P100,000.00 and 18% interest per (1) there should be a property mortgaged by way of
annum thereon, which amounted to P52,500.00. The security for the payment of the principal obligation,
principal loan and the interest taken together amounted (2) there should be a stipulation for automatic
to P152,500.00, leaving a balance of P 47,500.00. appropriation by the creditor of the thing mortgaged
- RTC: In favor of Bustamante and payment of the loan in case of non-payment of the principal obligation
(conversely, against Rosel and sale of collateral) within the stipulated period.
- CA: Reversed in favor of Rosel - The intent to appropriate the property given as collateral in
- SC initially affirmed CA decision (saying that the contract favor of the creditor appears to be evident, for the debtor is
is the law between the parties) but reversed on MR when obliged to dispose of the collateral at the pre-agreed
Bustamante alleged that real intention of the parties to consideration amounting to practically the same amount as the
the loan was to put up the collateral as guarantee similar loan. In effect, the creditor acquires the collateral in the event of
to an equitable mortgage according to 1602. non-payment of the loan
- All persons in need of money are liable to enter into contractual
relationships whatever the condition if only to alleviate their
financial burden albeit temporarily. Hence, courts are duty
bound to exercise caution in the interpretation and resolution of
contracts lest the lenders devour the borrowers like vultures do
with their prey.
Spouses obtained several loans totaling to P4M, secured Issue: Is the DPA a pactum? Yes!
Ong v Roban
by real estate mortgage. Parties executed Dacion in - The MoA and DPA contain no provisions for foreclosure
25 Lending Corp
Payment Agreement and Memo of Agreement where the proceedings nor redemption. Under the MoA, the failure by the
(2008; Carpio-Morales)
agreed amount of indebtedness ballooned to P5.9M. petitioners to pay their debt within the one-year period gives

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respondent the right to enforce the DPA transferring to it


ownership of the properties. Roban, in effect, automatically
acquires ownership of the properties upon petitioners failure to
pay their debt within the stipulated period.
- In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.[33] In the case at bar, the
alienation of the properties was by way of security, and not by
way of satisfying the debt.[34] The Dacion in Payment did not
extinguish petitioners obligation to respondent. On the contrary,
under the Memorandum of Agreement executed on the same
day as the Dacion in Payment, petitioners had to execute a
promissory note for P5,916,117.50 which they were to pay
within one year.
Rodriguezes used their shares of stocks as pledge security 1. No right of redemption over pledged properties.
to the loans they obtained from Paray. Paray filed a 2. Foreclosure of pledge is always extrajudicial.
petition with the Court to sell the said stocks. Court
upheld Paray’s right to sell it at a public sale (though SC Does the right of redemption exist over personal property? No
notes that it was not mandatory since pledge foreclosure law or jurisprudence establishes or affirms such right. Indeed, no
is generally done extrajudicially e.g. without the need for such right exists.
any court intervention). Rodriquezes consignated with
the court their redemption money. - The right to redeem property sold as security for the
satisfaction of an unpaid obligation does not exist
preternaturally. Neither is it predicated on proprietary right,
The CA’s upholding of the “right of redemption” muddles which, after the sale of property on execution, leaves the
the case because such right only pertains to payments judgment debtor and vests in the purchaser. Instead, it is a bare
made by debtor after foreclosure and not before the statutory privilege to be exercised only by the persons named in
foreclosure sale. It should have concentrated on the the statute.
validity of the consignation which could have had the - The right of redemption over mortgaged real property sold
effect of extinguishing the principal obligation as well as extrajudicially is established by Act No. 3135, as amended. The
the accessory contract of pledge. said law does not extend the same benefit to personal property.
- Sibal v Valdez: Personal property are not subject to redemption.
They would have had a better right had they matched the
terms of the highest bidder. Under the circumstances, Can pledged properties be sold together?
Paray v Espeleta- with the high interest payments that accrued after - There is nothing in the CC governing the extrajudicial sale of
26 Rodriquez several years, respondents were even placed in a pledged properties that prohibits the pledgee of several different
(2006; Tinga, J.) favorable position by the pledge agreements, since the pledge contracts from auctioning all of the pledged properties on
creditor would be unable to recover any deficiency from a single occasion, or from the buyer at the auction sale in
the debtors should the sale price be insufficient to cover purchasing all the pledged properties with a single purchase
the principal amounts with interests. Certainly, had price. The relative insignificance of ascertaining the definite
respondents participated in the auction, there would apportionments of the sale price to the individual shares lies in
have been a chance for them to recover the shares at a the fact that once a pledged item is sold at auction, neither the
price lower than the amount that was actually due from pledgee nor the pledgor can recover whatever deficiency or
them to the Parays. That respondents failed to avail of excess there may be between the purchase price and the amount
this beneficial resort wholly accorded them by law is their of the principal obligation.
loss. Now, all respondents can recover is the amounts
they had consigned. Termination of pledge by consignation of the obligation price?
If the principal obligation is satisfied, the pledges should be
terminated as well. 2098 provides that the right of the creditor to
retain possession of the pledged item exists only until the debt is
paid. 2105 further clarifies that the debtor cannot ask for the
return of the thing pledged against the will of the creditor, unless
and until he has paid the debt and its interest. At the same time,
the right of the pledgee to foreclose the pledge is also
established under the Civil Code. When the credit has not been
satisfied in due time, the creditor may proceed with the sale by
public auction under the procedure provided under 2112.

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Core issue: WON a mortgagor, whose property has been - A subsequent mortgage could nevertheless be legally
extrajudicially foreclosed and sold at the corresponding constituted after extrajudicial foreclosure with the subsequent
foreclosure sale, may validly execute a mortgage contract mortgagee becoming and acquiring the rights of a redemptioner,
over the same property in favor of a third party during aside from his right against the mortgagor.
the period of redemption? Yes! - Since the mortgagor remains as the absolute owner of the
- What is divested from the mortgagor is only his "full property during the redemption period and has the free disposal
right as owner thereof to dispose (of) and sell the lands," of his property, there would be compliance with the requisites of
in effect, merely clarifying that the mortgagor does not 2085 for the constitution of another mortgage on the property.
have the unconditional power to absolutely sell the land To hold otherwise would create the inequitable situation
since the same is encumbered by a lien of a third person wherein the mortgagor would be deprived of the opportunity,
Medida v CA which, if unsatisfied, could result in a consolidation of which may be his last recourse, to raise funds wherewith to
27
(1992; Regalado, J.) ownership in the lienholder but only after the lapse of the timely redeem his property through another mortgage thereon.
period of redemption. What is delimited is not the - It is only upon the expiration of the redemption period, without
mortgagor's jus dispodendi, as an attribute of ownership, the judgment debtor having made use of his right of redemption,
but merely the rights conferred by such act of disposal that the ownership of the land sold becomes consolidated in the
which may correspondingly be restricted. purchaser.
- What actually is effected where redemption is seasonably
exercised by the judgment or mortgage debtor is not the
recovery of ownership of his land, which ownership he never
lost, but the elimination from his title thereto of the lien
created by the levy on attachment or judgment or the
registration of a mortgage thereon.
- PNB extrajudicially foreclosed on the mortgage. It was Notice of sale is valid. Notices are given for the purpose of
the only bidder. However, it claimed again for the securing bidders and to prevent a sacrifice of the property. If
deficiency of the proceeds of the sale. Outstanding loan these objects are attained, immaterial errors and mistakes will
was only ~P2M but the highest bid was ~P8.5M. not affect the sufficiency of the notice; but if mistakes or
- Suico demanded recovery of the surplus. It questioned omissions occur in the notices of sale, which are calculated to
the non-delivery of PNB to Sheriff of the price as well as deter or mislead bidders, to depreciate the value of the
the validity of Sheriff’s Notice which said that the amount property, or to prevent it from bringing a fair price, such
of obligation was only ~P2M. mistakes or omissions will be fatal to the validity of the notice,
- PNB denied the claim for surplus as the Suico had other and also to the sale made pursuant thereto.
loans already due which amounted to more than the
purchase price. Effect of PNB’s non-payment of cash to Sheriff. Under Section
21 of Rule 39 is that if the amount of the loan is equal to the
amount of the bid, there is no need to pay the amount in cash.
Effect of PNB’s non-delivery of surplus to Suico. The Same provision mandates that in the absence of a third-party
application of the proceeds from the sale of the claim, the purchaser in an execution sale need not pay his bid if it
Suico v PNB mortgaged property to the mortgagors obligation is an does not exceed the amount of the judgment; otherwise, he
28 shall pay only the excess.
(2007; Chico-Nazario, J.) act of payment, not payment by dacion; hence, it is the
mortgagees duty to return any surplus in the selling price - The raison de etre is that it would obviously be senseless for the
to the mortgagor. Perforce, a mortgagee who exercises Sheriff or the Notary Public conducting the foreclosure sale to go
the power of sale contained in a mortgage is considered a through the idle ceremony of receiving the money and paying it
custodian of the fund and, being bound to apply it back to the creditor, under the truism that the lawmaking body
properly, is liable to the persons entitled thereto if he did not contemplate such a pointless application of the law in
fails to do so. And even though the mortgagee is not requiring that the creditor must bid under the same conditions
strictly considered a trustee in a purely equitable sense, as any other bidder. It bears stressing that the rule holds true
but as far as concerns the unconsumed balance, the only where the amount of the bid represents the total amount of
mortgagee is deemed a trustee for the mortgagor or the mortgage debt.
owner of the equity of redemption.

If the mortgagee is retaining more of the proceeds of the


sale than he is entitled to, this alone will not affect the
validity of the sale but simply give the mortgagor a cause
of action to recover such surplus.
Main issue: WON the petitioner has the one-year right of What petitioner has been adjudged to have was only the equity of
redemption of subject properties under Section 78 of Republic redemption over subject properties.
Act No. 337 otherwise known as the General Banking Act. The right of redemption in relation to a mortgage – understood in the
sense of a prerogative to re-acquire mortgaged property after
registration of the foreclosure sale – exists only in the case of the
Huerta Alba v CA
29 extrajudicial foreclosure of the mortgage. No such right is recognized in a
(2000; Purisima, J.)
judicial foreclosure except only where the mortgagee is the PNB or a
bank or banking institution.

- Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the


mortgagor the right of redemption within 1 year from the registration of

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the sheriff's certificate of foreclosure sale.

- Where the foreclosure is judicially effected, however, no equivalent


right of redemption exists. The law declares that a judicial foreclosure
sale 'when confirmed be an order of the court. . . . shall operate to divest
the rights of all the parties to the action and to vest their rights in the
purchaser, subject to such rights of redemption as may be allowed by
law.' Such rights exceptionally 'allowed by law' (i.e., even after
confirmation by an order of the court) are those granted by the charter
of the PNB (Acts No. 2747 and 2938), and the General Banking Act (R.A.
337). These laws confer on the mortgagor, his successors in interest or
any judgment creditor of the mortgagor, the right to redeem the
property sold on foreclosure — after confirmation by the court of the
foreclosure sale — which right may be exercised within a period of 1
year, counted from the date of registration of the certificate of sale in
the Registry of Property.

But, to repeat, no such right of redemption exists in case of judicial


foreclosure of a mortgage if the mortgagee is not the PNB or a bank or
banking institution. In such a case, the foreclosure sale, 'when confirmed
by an order of the court. . . shall operate to divest the rights of all the
parties to the action and to vest their rights in the purchaser.' There then
exists only what is known as the equity of redemption. This is simply the
right of the defendant mortgagor to extinguish the mortgage and retain
ownership of the property by paying the secured debt within the 90-day
period after the judgment becomes final, in accordance with Rule 68, or
even after the foreclosure sale but prior to its confirmation.
DALCO executed real estate mortgage in favor of the Even if contract was entered into under the old CC, the pertinent
bank, which contained a stipulation as to the extension of provisions were reproduced into NCC in 2127. The "after
the security to “after acquired properties” referring to acquired properties" were purchased by DALCO in connection
properties to be subsequently acquired. DALCO with, and for use in the development of its lumber concession
purchased new properties, Bank compelled DALCO to and that they were purchased in addition to, or in replacement
register the mortgage over the properties but before of those already existing in the premises on July 13, 1950. In law,
DALCO was able to do so, the purchase contract had therefore, they must be deemed to have been immobilized, with
People’s Bank Trust
already been rescinded. the result that the real estate mortgages involved herein —
30 v Dahican Lumber
which were registered as such — did not have to be registered a
(1967; Dizon, J.)
DALCO’s arguments: second time as chattel mortgages in order to bind the "after
1. The inclusion of “after acquired properties” is void acquired properties" and affect third parties.
because they were not registered in accordance with the
Chattel Mortgage Law
2. The provision did not automatically make subject to
such mortgages the properties and it only meant the
willingness of DALCO to constitute a lien over the same
Chattel mortgage was executed over certain raw - If a house of strong materials, like what was involved in the
materials inventory and Artos Aero Dryer Stentering above Tumalad case, may be considered as personal property for
Range. Sheriff could only take out the motor because it purposes of executing a chattel mortgage thereon as long as the
was too large and they had to drill it or destroy the parties to the contract so agree and no innocent third party will
concrete floor if only to take it out. be prejudiced thereby, there is absolutely no reason why a
machinery, which is movable in its nature and becomes
Is the machinery in suit a real or personal property? In immobilized only by destination or purpose, may not be likewise
Makati Leasing v which case, what law should govern? treated as such. This is really because one who has so agreed is
31 Wearever estopped from denying the existence of the chattel mortgage.
(1983; De Castro, J.) - It must be pointed out that the characterization of the subject
machinery as chattel by the private respondent is indicative of
intention and impresses upon the property the character
determined by the parties. As stated in Standard Oil Co. of New
York v. Jaramillo, it is undeniable that the parties to a contract
may by agreement treat as personal property that which by
nature would be real property, as long as no interest of third
parties would be prejudiced thereby.
Wilfred bought a tractor through a loan from Libra, to - The mortgagor who gave the property as security under a
which he also executed a chattel mortgage. Wilfred’s chattel mortgage did not part with the ownership over the same.
brother Perfecto bought the tractor from him and He had the right to sell it although he was under the obligation
Dy v CA
32 assumed the mortgage with Libra’s consent. However to secure the written consent of the mortgagee or he lays
(1991; Gutierrez, J.)
Libra did not release the tractor immediately because of himself open to criminal prosecution under the provision of
uncleared check. The dealy resulted to the tractor’s Article 319 par. 2 of the RPC. Even if no consent was obtained
purchase by Gerlac. from the Libra, the validity of the sale would still not be affected.

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- Where a 3P purchases the mortgaged property, he


automatically steps into the shoes of the original mortgagor. His
right of ownership shall be subject to the mortgage of the thing
sold to him. In the case at bar, Perfecto was fully aware of the
existing mortgage of the subject tractor to Libra. In fact, when he
was obtaining Libra's consent to the sale, he volunteered to
assume the remaining balance of the mortgage debt of Wilfredo
Dy which Libra undeniably agreed to.
DBP foreclosed on the chattel mortgage and then claimed Issue: Can DBP recover the deficiency? Yes.
for the deficiency. PAMECA says that the book value of - Whereas, in pledge, the sale of the thing pledged extinguishes
their chattel was P2M but DBP, being the sole bidder the entire principal obligation, such that the pledgor may no
purchased it only for P322,350. longer recover proceeds of the sale in excess of the amount of
the principal obligation, S14 of Chattel Mortgage Law expressly
Rocky says: entitles the mortgagor to the balance of the proceeds, upon
- Salbahe tong DBP no? Nawalan na nga ng property, satisfaction of the principal obligation and costs.
siningil pa. Ang baba na nga ng bid tapos nagdeficiency - Since the Chattel Mortgage Law bars the creditor-mortgagee
pa. from retaining the excess of the sale proceeds there is a
Pameca Wood v CA
33 - Kinalimutan ng lawyers dito ang 2141. 2115 lang naman corollary obligation on the part of the debtor-mortgagee to pay
(1999; Gonzaga-Reyes)
ang bangga dun eh. the deficiency in case of a reduction in the price at public
- Pledge is intended to regulate pawnshops. It’s a auction.
different concept from mortgage. At tayo lang ang ganun - 1484 does not apply here because it is specifically applicable to
sa buong Asia. sale on installments.
- What’s the intention of 2088? Get the best price for
borrower. It’s okay to bid low. Sa bidding kasi may
chance, nagkataon lang na walang nagbid nang mataas.
Sa pactum kasi, yung creditor lang ang may chance
bumili.
No. Chattel mortgage must comply substantially with the
Main issue: Would it be valid and effective to have a prescribed form. The execution of the oath means that the
clause in a chattel mortgage that purports to likewise debt/obligation secured must be current and not that is yet
extend its coverage to obligations yet to be contracted or merely contemplated.
incurred? - While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these
Rocky says: future debts are accurately described, a chattel mortgage,
- What is the purpose of affidavit of good faith? Bakit sa however, can only cover obligations existing at the time the
real estate mortgage wala? mortgage is constituted. Although a promise expressed in a
chattel mortgage to include debts that are yet to be contracted
Acme Shoe v CA can be a binding commitment that can be compelled upon, the
34
(1996; Vitug, J.) security itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the newly
contracted debt is executed either by concluding a fresh chattel
mortgage OR by amending the old contract conformably with
the form prescribed by 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, 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.
Ponce bought from CR Tecson a Holden Torana and also Only notice to the debtor (Ponce) of the assignment of credit is
executed Chattel Mortgage in its favor. CR Tecson required. His consent is not required. In contrast, consent of the
assigned the credit to Filinvest with conformity of Ponce. creditor-mortgagee (Servicewide) to the alienation of the
Ponce sold the car to Tecson. Filinvest assigned its rights mortgaged property is necessary in order to bind said creditor.
to Servicewide without notice to Ponce. Servicewide sues
Ponce. Ponce files 3P complaint against Tecson. Article 2141, on the other hand, states that the provisions
Servicewide concerning a contract of pledge shall be applicable to a chattel
35 Specialist v CA ISSUES: mortgage, such as the one at bar, insofar as there is no conflict
(1999; Ynares-Santiago) - Whether the assignment of a credit requires notice to with Act No. 1508, the Chattel Mortgage Law. As provided in
the Ponce in order to bind him? 2097 in relation to 2141, a thing pledged may be alienated by the
- More specifically, is Ponce, who sold the property to pledgor or owner with the consent of the pledgee. This provision
Tecson, entitled to notice of the assignment of credit is in accordance with Act No. 1508 which provides that a
made by the Filinvest to Servicewide such that if the mortgagor of personal property shall not sell or pledge such
Ponce was not notified of the assignment, he can no property, or any part thereof, mortgaged by him without the
longer be held liable since he already alienated the consent of the mortgagee in writing on the back of the mortgage

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property? and on the margin of the record thereof in the office where such
- Conversely, is the consent of Servicewide necessary mortgage is recorded. Although this provision in the chattel
when Ponce alienated the property to Tecson? mortgage has been expressly repealed by Article 367 of the
Revised Penal Code, yet under Article 319 (2) of the same Code,
Chi recited this. Fairly okay. the sale of the thing mortgaged may be made provided that the
mortgagee gives his consent and that the same is recorded. In
any case, applying by analogy 2128 to a chattel mortgage, it
appears that a mortgage credit may be alienated or assigned to
a third person. Since the assignee of the credit steps into the
shoes of the creditor-mortgagee to whom the chattel was
mortgaged, it follows that the assignees consent is necessary in
order to bind him of the alienation of the mortgaged thing by the
debtor-mortgagor. This is tantamount to a novation. As the new
assignee, petitioners consent is necessary before respondent
spouses alienation of the vehicle can be considered as binding
against third persons. Servicewide is considered a third person
with respect to the sale with mortgage between respondent
spouses and third party defendant Conrado Tecson.
CONCURRENCE AND PREFERENCE OF CREDITS
Does unregistered unpaid vendors lien prejudice the - Only some taxes enjoy a similar absolute preference. All the
registered rights? No. remaining 13 classes enjoy no priority among themselves but
must be paid pro rata.
Where there is no insolvency or liquidation proceeding, - There must first be some proceeding [insolvency, settlement of
De Barreto v the unpaid vendor’s lien does not acquire the character decedent’s estate, other liquidation proceedings] where notice
36 Villanueva and rank of a statutory lien coequal to the recorded to all of the insolvent’s creditors may be given and where the
(1961; Gutierrez David) mortgage lien. Unpaid vendor must remain subordinate claims of preferred creditors may be bindingly adjudicated.
to recorded mortgage. [Convene them creditors first.]
- The question as to whether the CC and Insolvency Law can be
harmonized is settled by 2243. The preferences named in 2241
and 2241 are to enforced in accordance with the Insolvency Law.
Contractor’s lien - 2242 only finds application when there is a concurrence of
credits i.e. same specific property of the debtor is subjected to
Rocky says: Mortgage has its own life. It’s a lien in itself, the claims of several creditors and the value of such property of
no need for a proceeding. the debtor is insufficient to pay in full all the creditors. In such a
situation, the question of preference will arise, that is, there will
a need to determine which of the creditors will be paid ahead of
J. L. Bernardo v CA the others.
37
(2000; Gonzaga-Reyes) - Fundamental tenets of due process will dictate that this
statutory lien should then only be enforced in the context of
some kind of a proceeding where the claims of all the preferred
creditors may be bindingly adjudicated, such as insolvency
proceedings.
- The action of JL Bernardo is not for insolvency but for specific
performance and damages.
Mortgage by mining company of real estate, Reiteration of the Barretto ruling.
improvements thereon and chattel mortgage. DBP Although what was involved there was specific immovable
foreclosed but Remington claims for its lien on unpaid property, the ruling therein should equally apply in this case
purchases by the company. Who has preference? DBP. In where specific movable property is involved. As the extra-judicial
the absence of liquidation proceedings, the claim of foreclosure instituted by the PNB and DBP is not the liquidation
Remington cannot be enforced against DBP. proceeding contemplated by the CC, Remington cannot claim its
pro rata share from DBP.
Rocky says:
- Walang tunay na sale sa Pilipinas. Go to HK for cheap
DBP v CA
38 electronics.
(2001; Kapunan, J.)
- AIM means “Ayaw Ipasa ang Mic” Mag-apply sha sa
Guinness para sa mga associate nilang walang natamaan
kahit isang nota. Aba mahirap yun ah! We have natural
built-in protection. We fool ourselves into thinking that
we sound better than it actually is. That we are more
beautiful than we really are. BAsahin niyo yung The
Raven, Merchant of Venice and Picture of Dorian Gray for
your soul.

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Ruby filed Petition for Suspension of Payments with SEC. Rehabilitation contemplates the continuance of corporate life
Benhar purchase the credits of Ruby’s creditors and and activities in an effort to restore and reinstate the
mortgage Ruby’s property to get credit facilities for Ruby. corporation to its former position of successful operation and
Subrogated din si Benhar. solvency. When a distressed company is placed under
rehabilitation, the appointment of management committee
Rocky says: Redundant ang existence ni Benhar. Bakit pa follows to avoid collusion between the previous management
kailangan ng middleman? Nakinabang si Benhar eh wala and creditors it might favor, to the prejudice of the other
Ruby Industrial Corp
naman siya ginawa. creditors.
v CA
39 - Ang mga lawyers hindi pwedeng maraming pera, hindi All assets of the corporation under rehabilitation receivership are
(1998; Puno, J.)
tayo marunong magbilang eh. held in trust for the equal benefit of all creditors to preclude one
Handled by Sycip
- Rehab receiver is a good job. from obtaining an advantage or preference over another by the
expediency of attachment, execution or otherwise.
As between the creditors, the key phrase is equality in equity.
Once the corporation threatened by bankruptcy is taken over by
a receiver, all the creditors ought to stand on equal footing. Not
any one of them should be paid ahead of the others.

Should NLRC suspend the proceedings before it when - Upon creation of a management committee or the
company is under declaration of suspension of payments appointment of the rehabilitation receiver, all claims for actions
i.e. all actions for claims are suspended? “shall be suspended accordingly.” No exception in favor of labor
claims is mentioned in the law. Allowing them to proceed may
Rocky says: Distinction between suspension of payments clearly defeats the purpose of the automatic stay and severely
and corporate rehab encumbers the management committee’s time and resources.
SUSPENSION OF PAYMENTS CORPORATE - Preferential right of workers and employees under A110 of LC
REHABLITATION may be invoked only upon the institution of insolvency or judicial
Rubberworld v NLRC Foresees impossibility of meeting debts when they liquidation proceedings.
40
(1999; Panganiban, J.) due
Applicable to both natural Only corporations
and juridical entity
Initiated by the debtor only Initiated by debtor or
creditor
- Convince the court na kaya pang i-rehab.
- Eat at Esukiji, men fall in love with what they see, what
is. Women with what they

- The amount of rental is an essential condition of any lease


Rocky says: Non-impairment of contracts contract. Needless to state, the change of its rate in the
- Iba talaga ang adrenalin level namin dati kapag Rehabilitation Plan is not justified as it impairs the stipulation
nakikipagdate kasi hindi pa uso ang credit card. Wala between the parties. Rehab Plan is declared void insofar as it
pang price yung menu na para sa ladies. Kaya dapat amends the rental rates agreed upon by the parties.
- Pinakamasarap na part ng tuna yung batok. Oily yun. - PD 502-A never authorized the change or modification of
Pero hindi naman generally oily ang tuna dahil it lives in contracts entered into by the distressed corporation and its
warm water. creditors.
Leca Realty Corp v - In view of the Valentines Day tomorrow, tinamad na
41 Manuela Corp magdiscuss ng Credit Trans si Rocky. Nagbigay na lang ng
(2007; Sandoval-
dating tips. Put your money where your motives are.
Gutierrez, J.)
Parang poker lang yan. All in.
- Story about about a boy who was looking for a wife and
his mother fed three ladies with cheese.
- Bumili kayo ng ceramic knife. Parang papel o gulaman
lang lahat ng hinihiwa niyo.
- Don’t go Chinese pag date, ang dami nun. Wala kayong
magagawa. Pangfamily lang ang Chinese.

Validity of approval is in issue. Board of directors was Certification from the board of directors that filing of petition
even still being contested. has been duly authorized and that it has been confirmed

Chas Realty Dev’t Rocky says: Subject: repayment or restructuring scheme


42 Corp v Talavera - Why 2/3 vote? In a big corporation, it’s dangerous to go Extraordinary corporate action – 2/3 of stockholders outstanding
(2003; Vitug, J.) to the stockholders. Example is PLDT where mere capital stock
subscription to their services makes you a stockholder. No extraordinary corporate action – majority in a quorum
- No similar provision in present Rules.
- Is it not important enough to file petition for rehab?
43 RCBC v IAC Rules of thumb laid down by the SC

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(1999; Melo, J.) 1. All claims against corporations, partnerships or associations that are pending before any court, tribunal or board, without
distinction as to WON a creditor is secured or unsecured, shall be suspended effective upon the appointment of a
management committee, rehabilitation receiver, board, or body in accordance with the provisions of PD 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally
suspended upon the appointment of a management committee, rehabilitation receiver, board or body. In the event that the
assets of the corporation, partnership or association are finally liquidated, however, secured and preferred credits under
applicable provisions of CC will definitely have preference over unsecured ones.  All actions for claims against a distressed
corporation pending before any court, tribunal or body shall be suspended accordingly to give receiver the chance to
rehabilitate the corporation if there should still be possibility for doing so.

3. In the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to
be settled, the secured creditors shall enjoy preference over the unsecured creditors, subject only to the provisions of CC on
Concurrence and Preference of Credit.

The issue of WON preferred creditors of distressed corporations stand on equal footing with all other creditors gains
relevance and materiality only upon the appointment of management committee, rehabilitation receiver, board or body.

Company failed to deliver the condo unit upon the - The purpose of suspension of the proceedings is to prevent a
spouses’ demand. Spouses now want rescission of creditor from obtaining an advantage or preference over another
contract and refunt of payment + payment of moral and to protect and preserve the rights of party litigants as well as
damages, atty’s fees, litigation expenses, appearance fees the interest of the investing public or creditors. It is intended to
and costs of suit give enough breathing space for the management committee or
rehabilitation receiver to make business viable again, without
Issue: WON complaint for rescission with damages having to divert attention and resources to litigations in various
(specific performance) a “claim” covered by stay order? fora. It would enable the management committee/rehab
Yes, it is a claim which must be suspended. receiver to effectively exercise powers free from any
judicial/extrajudicial interference that might unduly hinder or
Rocky asks: prevent the “rescue” of the debtor company.
Sobrejuanite v ASB
44 - What is the definition of claim under present rules?
(2005; Ynares-Santiago)
Same as Interim: “all claims or demands of whatever Definitions of claim:
nature or character against a debtor or its property, - Finasia v CA: debts/demands pecuniary in nature
whether for money or otherwise.” - Arranza v BF Homes: actions involving monetary considerations
- Why do we have surnames? It’s for geographical - Interim rules: All claims or demands, of whatever nature or
security to track movement. Parang pinaglaruan yung character against a debtor or its property , whether for money or
mga apelyido natin, Santos Reyes Cruz. Hinda naman otherwise. No distinctions or exemptions.
apelyido yan sa Espanya eh. Mga Ordonez, Villalobos,
Zobel sila dun.
- First row ng bumaril kay Rizal eh Pinoy, nasa 2nd row eh
mga Espanyol na nakatutok sa Pinoy na di babaril. We kill
each other.
Condominium project mortgaged without notice to There is an undue reliance on Sobrejuanite. The claim there
owners of condominium units and without permission involved pecuniary consideration (refund + damages) while here,
from HLURB. Bank’s defense: Divisibility/separability. it was only for the enforcement of contractual obligations
Metrobank v SLGT
45 Court said that the mortgage is void in entirety because it (specific performance).
(2007; Garcia, J.)
is indivisible by nature. Dylanco demanded the delivery of - The Rules on rehabilitation and suspension of action apply only
their units free from all liens and encumbrances. to those who stand in the category of debtors and creditors,
Issue: Is it a claim covered by the stay order? which the parties in the case at bar are not.
Two minor children left by the plane. Parents seek Upon the appointment by SEC of a management committee or
indemnity for damages from PAL. Execution stage na lang rehab receiver, all actions for claims against a corp pending
ito. before any court, tribunal, board shall ipso jure be suspended in
whatever stage such actions may be found.
PAL v CA
46
(2005; Ponente, J.)
It must be stressed that what are automatically stayed or
suspended are the proceedings of a suit and not just the
payment of claims during the execution stage after the case had
become final and executory.
Clarion Printing Complaint for illegal dismissal of probationary employee. Court took judicial notice of its own acts. It even allowed Miclat
House v NLRC She was retrenched but during her retrenchment, the to recover despite the appointment of management committee
47
(2005; Carpio-Morales) petition for declaration of suspension of payments by the for the company (this time their petition for corp rehab was
Handled by UP OLA company was denied. granted).

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Spouses are surety of the corporation of which they are Despite the execution of the MoA which provided for the
the presidents and treasurers. suspension of payment and filing of collection suits against BMC,
Ong v PCIB the bank has the right to collect payment from the surety as it
48
(2005; Puno, J.) Rocky says: exists independently of its right to proceed directly against the
- Delikado maging surety, that’s the point principal debtor.

Chinese family owns a company, a dispute took place Is the appointment of management committee proper under
between the stockholders. One party moved for the the Interim Rules? No.
appointment of a management committee. Court - Upon appointment of management committee/receiver, the
granted. elected/appointed officers of the corporation are divested of the
management of such corporation in favor of the management
Rocky says: committee/receiver.
- If someone takes over, it would be hard to recover. - The creation and appointment of a management committee
There may be something wrong going on internally, but and receiver is an extraordinary and drastic remedy to be
as long as it does not affect the finances, don’t appoint exercised with care and caution; and only when the
Sy Chim v Sy Siy Ho management committee hastily. requirements under the Interim Rules are shown. It is a drastic
49
(2006; Callejo Sr., J.) - Are the two requisites still required under the present course for the benefit of the minority stockholders, the parties-
rules? litigant or the general public are allowed only under pressing
circumstances, and when there is inadequacy, ineffectual or
exhaustion of legal or otre remedies.
- In the absence of a strong showing of imminent danger of
dissipation, loss, wastage or destruction of assets or other
properties of a corporation and paralysis of its business
operations, the mere apprehension of future misconduct based
upon prior management will not authorize the appointment of a
management committee/receiver.
ASB drafted a dacion en pago in its Rehabilitation Plan. - The dacion en pago program and the intent of ASB to ask
Metrobank refuse to accept because it does not agree creditors to waive the interests, penalties and related charges
with the valuation of the properties included therein. are not compulsory in nature. They are merely proposals for the
creditors to accept. There was even an initial discussion on these
Metrobank v ASB Rocky says: proposals and the majority of the secured creditors showed their
50 (2007; Sandoval-
- Confused yung lawyer dito. Malinaw naming subject to desire to complete dacion en pago transactions, but they must
Gutierrez , J.)
approval yung rehab plan, kinwestiyon pa. Sayang ang be based on “mutually agreed upon terms.”
oras ng korte. Dapat bineberate yung mga ganitong - The purpose of rehabilitation proceedings is to enable the
abogado eh. company to gain a new lease on life and thereby allows creditors
to be paid their claims from its earnings.
Maynilad applied for Rehabilitation with Suspension of LoC is not covered by the stay order (hence, MWSS can enforce
Actions and Proceedings. It had an Irrevocable Standby its claim) because it is solidary and primary undertaking. As such,
Letter of Credit issued by Citicorp. MWSS asked for its claims against them can be pursued separately from and
encashment for payment of concession fees. Is the claim independently of the rehabilitation case (PBM v CA).
covered by the stay order?
Rocky says:
MWSS v Daway
51 - Maynilad owned by the Lopezes. Manila Water sa QC.
(2004; Azcuna, J.)
Wala bang taga-Manila dito? Homogenous talaga kayo.
- Alam niyo ba kung bakit Brand X lang ang ginagamit sa
mga local ads when in the US they bluntly say that Pepsi
is better than Coke? No of course, it’s not delecadeza. It’s
by agreement of ad companies, they have self-regulating
rules.
Colinares renovated the convent of Carmelite Sisters. To What is a trust receipt?
purchase materials for the construction, Colinares signed S4 of PD 115: any transaction by and between a person referred
a pro-forma trust receipt with PBC. After default, PBC to as the “entruster” and another person referred to as the
charged Colinares with violation of PD 115 in relation to “entrustee”, whereby the former who owns or holds absolute
A315 RPC (estafa). title or security interest over certain specified goods, documents
or instruments, releases the same to the possession of the
Defense: They believed it was only a clean loan, the trust entrustee upon the latter’s execution and delivery to the
Colinares v CA
52 receipt implication was in fine print. entruster of a signed document called a “trust receipt” wherein
(2000; Davide, J.)
the entrustee binds himself to hold the designated goods,
HELD: documents, or instruments with the obligation to turn over to
- The parties intended a simple loan and not a trust the entruster the proceeds thereof to the extent of the amount
receipt agreement. Colinares already owned the goods owing to the entruster or as appears in the trust receipt or the
when they applied for a loan for the payment of goods. goods, documents or instruments themselves if they are unsold
- Usually, goods are owned by the bank. Upon release to or not otherwise disposed of, in accordance with the terms and
entrustee, bank acquires “security interest” conditions specified in the trust receipt.

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- Moreover, Colinares are not importers acquiring the


goods for re-sale, contrary to the express provision Two possible situations in “trust receipt” transaction
embodied in the trust receipt. 1. Money received (entregaria)
2. Merchandise received (devolvera)
Rocky says:
- This may also be called “title retention security Failure of entrustee to turn over proceeds is punishable as
agreement” it’s the best type of security kasi nasa iyo na estafa, without need of proving intent to defraud.
kagad in case of bankruptcy.
- Eh bakit hindi lahat naka-trust receipt? It’s not because Policy questions:
of the risk of loss, because you can transfer it naman. - Intended to aid in financing the importers and retail traders
Magastos kasi to. Ibinebenta-benta pa, maraming tax na who do not have sufficient funds or resources to finance the
binabayaran tuloy. There’s also a limit on what the bank importation or purchase of merchandise, and who may not be
can purchase. able to acquire credit except through utilization as collateral, of
- What’s another example of “title retention” Contract to the merchandise importer or purchased.
sell. It’s better than mortgage kasi wala kang kalaban. - It does not seek the payment of the loan, but punishment of
dishonesty and abuse of confidence in handling of money/goods
to prejudice of another.
Beluso obtained a credit line from UCPB. Interest was not - The interest rate provisions are illegal not only because of the
numerically quantified but only categorically fixed [“rate CC provision on mutuality of contracts but also because it’s
indicative of DBD retail rate”]. Beluso says that it’s an violative of the Truth in Lending Act. Not disclosing the true
infringement of the mutuality of contracts. finance charges in connection with the extensions of credit is a
form of deception which We cannot countenance.
Rocky says: As to failure of Beluso to explicitly allege violation of Truth in
- Buddha died because of ulcer and bleeding. Lending Act and prescription of 1 year
- Allegations in complaint are much more controlling than its
title. It can be inferred from the allegation of “unilateral
UCPB v Beluso
53 imposition of increased interest rates”
(2007; Chico-Nazario, J.)
- Truth in Lending gives rise to both crim and civil liabilities.
- Rationale for requiring the disclosure statement to be given
prior to consummation: Protect users of credit from a lack of
awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount and the like. Fully appreciate
the true cost of loan, give full consent to the contract, and
properly evaluate their options in arriving at business decisions.
Assignment of rights executed to guarantee an obligation.
Manila Banking v - An assignment of rights, receivables, titles or interest under a contract to guarantee an obligation is in effect, a pledge or
54 Teodoro mortgage contract to guarantee an obligation is, in effect, a pledge or mortgage and NOT an absolute conveyance of title
(1989; Bidin, J.) which confers ownership on the assignee. In case of doubt as to whether a transaction is a pledge (or mortgage), or a dation
in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests.

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