Credit Transactions - Case Digests

I. SHORT TITLE: HERRERA V.
PETROPHIL
II. FULL TITLE: Francisco Herrera versus Petrophil Corporation, G.R. No. L-48349, December 29, 1986,
Cruz, J
III. TOPIC: Violation of Usury Law; Loan
IV. STATEMENT OF FACTS:
Herrera (Plaintiff-appellant) and ESSO Standard Eastern. Inc., (later substituted by Petrophil Corporation
as defendant-appellee) entered into a "Lease Agreement" whereby the former leased to the latter a portion
of his property for a period of twenty (20) years with the condition that the defendandt-appellee pay eight
years advance rentals. Pursuant to the said contract, the defendant-appellee paid advance rentals for the
first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as constituting
the interest or discount for the first eight years.
V. STATEMENT OF THE CASE:
Thereafter, plaintiff-appellant sued the defendant-appellee for the sum of P98,828.03, with interest,
claiming this had been illegally deducted from him in violation of the Usury Law. Judgment on the
pleadings was rendered for the defendant.
Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erred in the
computation of the interest collected out of the rentals paid for the first eight years; that such interest was
excessive and violative of the Usury Law. The defendant maintains that the correct amount of the discount
is not excessive.
VI. ISSUE: Whether or not there is violation of the Usury Law.
VII. RULING: There is no violation.
To constitute usury, "there must be loan or forbearance; the loan must be of money or something
circulating as money; it must be repayable absolutely and in all events; and something must be exacted for
the use of the money in excess of and in addition to interest allowed by law."
It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between
the parties that the money lent shall or may be returned; that for such loan a greater rate or interest that is
allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more
than the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is
safe to affirm that no case of usury can be declared.
As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is clearly
denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties
intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be
construed as a repayment of a loan because there was no grant or forbearance of money as to constitute an
indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its
obligation in advance by paying the eight years rentals, and it was for this advance payment that it was
getting a rebate or discount.
There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-
appellant, nor did it allow him to use its money already in his possession. 9 There was neither loan nor
forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to deduct
from the total payments because they were being made in advance for eight years. The discount was in
TIAMA, CREDIT TRANSACTIONS

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effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof, by
any amount, would not contravene the Usury Law.
Concerning the computation of the deductible discount, on the annual rental of P35,168.40, the deducted
12% discount was P4,220.21; and for eight years, the total rental was P281,347.20 from which was
deducted the total discount of P33,761.68, leaving a difference of P247,585.52. Subtracting from this
amount, the sum of P182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-
appellant.
VIII: DISPOSITIVE PORTION
WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee Petrophil
Corporation is ordered to pay plaintiff-appellant the amount of Sixty Five Thousand One Hundred
Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legal rate until fully paid, plus
Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against the defendant-appellee. SO ORDERED.
I. SHORT TITLE: REPUBLIC V. BAGTAS
II. FULL TITLE: Republic of the Philippines v Jose V. Bagtas, et.al, G.R. No. L-17474 October 25, 1962,
Justice Padilla
III. TOPIC: Commodatum
Jose V. Bagtas borrowed three bulls from the Republic of the Philippines through the Bureau of Animal
Industry which are: Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of
P744.46, for a period of 1 year for breeding purposes subject to a breeding fee of 10% of the book value of
the bulls. Upon the expiration, Bagtas requested for a renewal but only one bull was approved while the
others are to be returned. Then, Bagtas offered to buy the bulls at its book value less depreciation but the
Bureau refused. The Bureau said that Bagtas should either return or buy it at book value paid not later than
October 31, 1950 which he was not able to do.
An action at the CFI was commenced against Bagtas praying that he be ordered to return the 3 bulls or to
pay their book value of P3,241.45 and the unpaid breeding fee of P199.62, both with interests, and costs
but Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad peace and
order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he had
taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines, he could
not return the animals nor pay their value and prayed for the dismissal of the complaint. The RTC granted
the action. Later on, Bagtas died so Felicidad M. Bagtas, the surviving spouse, filed a motion that the 2 bulls
where returned by his son on June 26, 1952 evidenced by recipt and the 3rd bull died from gunshot wound
inflicted during a Huk raid and prayed that the writ of execution be quashed and that a writ of preliminary
injunction be issued.
VI. ISSUE: Whether or not the contract is commodatum and not a lease and the estate should be liable for
the loss due to force majeure due to delay.
VII. RULING:
YES. If contract was commodatum then Bureau of Animal Industry retained ownership or title to the bull
it should suffer its loss due to force majeure. A contract of commodatum is essentially gratuitous. If the
breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article

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1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith,
because she had continued possession of the bull after the expiry of the contract. And even if the contract
be commodatum, still the appellant is liable if he keeps it longer than the period stipulated. The estate of
the late defendant is only liable for the sum of P859.63, the value of the bull which has not been returned
because it was killed while in the custody of the administratrix of his estate. Special proceedings for the
administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the
CFI, the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of
execution but must be presented to the probate court for payment by the appellant, the administratrix
appointed by the court.
VIII. DISPOSITIVE PORTION:
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
I. SHORT TITLE: CATHOLIC VICAR vs. COURT OF APPEALS
II. FULL TITLE: Catholic Vicar Apostolic of the Mountain Province versus Court of Appeals, Heirs of
Egmidio Octaviano and Juan Valdez, GR. No. 80294-95, September 21, 1988, Gancayco J
III. TOPIC: Loan
IV. STATEMENT OF FACTS
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an application for registration
of title over Lots 1, 2, 3, and 4, said Lots being the sites of the Catholic Church building, convents, high
school building, school gymnasium, school dormitories, social hall, stonewalls, etc. The Heirs of Juan
Valdez and the Heirs of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3,
respectively, asserting ownership and title thereto since their predecessors' house was borrowed by
petitioner Vicar after the church and the convent were destroyed.. After trial on the merits, the land
registration court promulgated its Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez appealed the decision of the land registration court to the then Court of Appeals,
The Court of Appeals reversed the decision. Thereupon, the VICAR filed with the Supreme Court a
petition for review on certiorari of the decision of the Court of Appeals dismissing his application for
registration of Lots 2 and 3.
V. STATEMENT OF THE CASE
Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of
Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No.
05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No.
3607 (419) and Civil Case No. 3655 (429),
VI. ISSUE: Whether or not the failure to return the subject matter of commodatum constitutes an adverse
possession on the part of the owner?
VII. RULING
No. The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. Petitioner repudiated the trust by declaring the properties in its name for taxation purposes.
VIII. DISPOSITIVE PORTION

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WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit,
the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is
AFFIRMED, with costs against petitioner.
I. SHORT TITLE: QUINTOS vs. BECK
II. FULL TITLE: Margarita Quintos and Angelita Ansaldo versus Beck , G.R. No. L-46240 November 3,
1939, Imperial, J..
III. TOPIC: Commodatum
IV. STATEMENT OF THE FACTS:
Quintos and Beck entered into a contract of lease, whereby the la³er occupied the former’s house. On Jan
14, 1936, the contract of lease was novated, wherein the Quintos gratuitously granted to Beck the use of the
furniture, subject to the condition that Beck should return the furniture to Quintos upon demand.
hereafter, Quintos sold the property to Maria and Rosario Lopez. Beck was noted of the conveyance and
given him 60 days to vacate the premises. IN addition, Quintos required Beck to return all the furniture.
Beck refused to return 3 gas heaters and 4 electric lamps since he would use them until the lease was due to
expire. Quintos refused to get the furniture since Beck had declined to return all of them. Beck deposited
all the furniture belonging to Quintos to the sheriff.
The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him
for his use. She appealed from the judgment of the Court of First Instance of Manila which ordered that
the defendant return to her the three has heaters and the four electric lamps found in the possession of the
Sheriff of said city, that she call for the other furniture from the said sheriff of Manila at her own expense,
and that the fees which the Sheriff may charge for the deposit of the furniture be paid pro rata by both
parties, without pronouncement as to the costs.
VI. ISSUE: Whether or not Beck complied with his obligation of returning the furniture to Quintos when it
deposited the furniture to the sheriff.
VII. RULING:
Beck did not comply with his obligation to return the furniture.
The contract entered into between the parties is one of commadatum, because under it the n plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership thereof;
by this contract the defendant bound himself to return the furniture to the plaintiff, upon the demand
(clause 7 of the contract, Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation
voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand, means that he
should return all of them to the plaintiff at the latter's residence or house. The defendant did not comply
with this obligation when he merely placed them at the disposal of the plaintiff, retaining for his benefit the
three gas heaters and the four eletric lamps. As the defendant had voluntarily undertaken to return all the
furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the
expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not
entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps

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The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the
residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture
described in paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by
the delivery to and deposit of the furniture with the Sheriff shall be for the account of the defendant. The
defendant shall pay the costs in both instances. So ordered.
I. SHORT TITLE: PAJUYO VS. GUEVARRA
II. FULL TITLE : Colito T. Pajuyo versus Court of Appeals and Eddie Guevarra, G.R. No. 146364 June 3,
2004
III. TOPIC : Commodatum
Colito T. Pajuyo (petitioner) paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot
in Barrio Payatas, Quezon City. Pajuyo constructed a house of light materials in the subject lot where he
and his family lived fom 1979 to December 7, 1985. On DecembeR 8, 1985, a Kasunduan between Pajuyo
and Eddie Guevara (Guevarra) was executed. In the Kasunduan Pajuyo allowed Guevarra to stay in the
house for free provided that the cleanliness and orderliness of the house shall be maintained. Guevarra also
promised that he will vacate the house on Pajuyo’s demand. When Pajuyo demanded for the return of the
house, Guevarra refused.
Pajuyo filed an ejectment case against Guevarra in the MTC of Quezon City. In his answer, Guevarra
claimed that Pajuyo has no valid title or right of possession over the lot where the house stands because the
lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra also
pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with
him. The MTC ruled that since subject of the Kasunduan is the house and not the lot, Guevarra’s refusal to
vacate the house made his possession illegal. The RTC upheld the Kasunduan. The terms of the
Kasunduan bound Guevarra to return possession of the house on demand. On appeal, the CA held that
both Pajuyo and Guevarra are squatters. Both them illegally possessed the land which the government
owned.
VI. ISSUE: WON the Kasunduan is a contract of commodatum?
VII. RULING: No.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the
latter may use the same for a certain time and return it. An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a
certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the
bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the
thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the civil code, precarium is a kind of commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially
gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the
property in good condition. The imposition of this obligation makes the Kasunduan a contract different
from that of a commodatum. The effects of the Kasunduan are also different from that of a commodatum.
Case law on ejectment has treated relationship based on tolerance a one akin to a landlord-tenant

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relationship where the withdrawal of permission would result in the termination of the lease. The tenants
withholding of the property would then be unlawful.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14
December 2000 of the Court of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated
11 November 1996 of the Regional Trial Court of Quezon City, Branch 81 in Civil Case No. Q-96-26943,
affirming the Decision dated 15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch
31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is
deleted. No costs. SO ORDERED.
I. SHORT TITLE: PANTELEON VS. AMERICAN EXPRESS INTERNATIONAL
II. FULL TITLE: Polo S. Pantaleon vs. American Express International – G.R. No. 174269, May 8, 2009,
J. Tinga
III. TOPIC: Credit; Relationship between a bank and a depositor
Petitioner, lawyer Polo Pantaleon, together with his wife and children, joined an escorted tour of Western
Europe organized by Trafalgar Tours of Europe, Ltd., in 1991. The tour group arrived in Amsterdam on
the 2nd to the last day of the tour. As the group had arrived late in the city, they failed to engage in any
sight-seeing. Instead, it was agreed upon that they would start early the next day to see the entire city before
ending the tour. The following day, the last day of the tour, the group arrived at the Coster Diamond
House in Amsterdam and agreed that the visit to Coster should end by 9:30am, to allow enough time to
take in a guided city tour of Amsterdam. Afterwards, the group was led to the store’s showroom to allow
them to select items for purchase. Mrs. Pantaleon had already planned to purchase even before the tour
began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation that she
decided to buy. Mrs. Pantaleon also selected for purchase a pendant and a chain, all of which totaled U.S.
$13,826.00. To pay for these purchases, Pantaleon presented his American Express (AmexCard) credit card
together with his passport to the Coster sales clerk and took the card’s imprint, and asked Pantaleon to sign
the charge slip. Later on, the store clerk informed Pantaleon that his AmexCard had not yet been approved.
His son, who had already boarded the tour bus, soon returned to Coster and informed the other members
of the Pantaleon family that the entire tour group was waiting for them and was already worried about
further inconveniencing the tour group thus Pantaleon asked the store clerk to cancel the sale. The store
manager though asked plaintiff to wait a few more minutes but the store manager informed Pantaleon that
respondent had demanded bank references. Pantaleon supplied the names of his depositary banks, then
instructed his daughter to return to the bus and apologize to the tour group for the delay. Furthermore,
after Pantaleon had presented his AmexCard, Coster decided to release the items even without
respondent’s approval of the purchase. The spouses Pantaleon returned to the bus. The tour group’s visible
irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to be
canceled due to lack of remaining time, as they had to catch a ferry at Calais, Belgium to London. After the
star-crossed tour had ended, the Pantaleon family proceeded to the US before returning to Manila in 1992.
While in the US, Pantaleon continued to use his Amex card, several times without hassle or delay, but with
2 other incidents similar to the Amsterdam. After coming back to Manila, Pantaleon sent a letter through
counsel to the respondent, demanding an apology for the "inconvenience, humiliation and embarrassment
he and his family thereby suffered" for respondent’s refusal to provide credit authorization for the
aforementioned purchases. In response, respondent sent a letter, stating among others that the delay in
authorizing the purchase from Coster was attributable to the circumstance that the charged purchase of US
$13,826.00 "was out of the usual charge purchase pattern established."

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The aggrieved cardholder instituted an action for damages with the RTC of Makati. Pantaleon prayed that
he be awarded for moral damages, exemplary damages, as attorney’s fees, and litigation expenses. The RTC
rendered a decision in favor of Pantaleon. Respondent filed a Notice of Appeal, while Pantaleon moved for
partial reconsideration, praying that the RTC increase amount of moral and exemplary damages he had
prayed for. The RTC denied Pantaleon’s motion for partial reconsideration, and thereafter gave due course
to respondent’s Notice of Appeal. the CA rendered a decision reversing the award of damages in favor of
Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this petition.
VI. ISSUES:
1. WON respondent had committed a breach of its obligations to petitioner
2. WON respondent is liable for damages to petitioner
VII. RULING:
1. Yes, the findings of the RTC, to our mind, convinced this Court that defendants delay constitutes breach
of its contractual obligation to act on his use of the card abroad "with special handling." Depsite the
popular notion that credit card purchases are approved "within seconds," there really is no strict, legally
determinative point of demarcation on how long must it take for a credit card company to approve or
disapprove a customer’s purchase, much less one specifically contracted upon by the parties. Yet this is one
of those instances when "you’d know it when you’d see it," and 1 hour appears to be an awfully long,
patently unreasonable length of time to approve or disapprove a credit card purchase. It is long enough
time for the customer to walk to a bank a kilometer away, withdraw money over the counter, and return to
the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in
timely dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly, had
respondent disapproved petitioner’s purchase "within seconds" or within a timely manner, this particular
action would have never seen the light of day. Petitioner and his family would have returned to the bus
without delay – internally humiliated perhaps over the rejection of his card – yet spared the shame of being
held accountable by newly-made friends for making them miss the chance to tour the city of Amsterdam.
The culpable failure of respondent herein is not the failure to timely approve petitioner’s purchase, but the
more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that
respondent’s credit authorizers did not have sufficient basis on hand to make a judgment, we see no reason
why respondent could not have promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way, petitioner would have had informed basis
on whether or not to pursue the transaction at Coster, given the attending circumstances. Instead,
petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to
confront the wrath of foreign folk.
2. Yes, Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad
faith, and the court should find that under the circumstances, such damages are due. The findings of the
RTC are ample in establishing the bad faith and unjustified neglect of respondent, attributable in particular
to the "dilly-dallying" of respondent’s Manila credit authorizer, Edgardo Jaurique. The delay committed by
defendant was clearly attended by unjustified neglect and bad faith, since it alleges to have consumed more
than one hour to simply go over plaintiff’s past credit history with defendant, his payment record and his
credit and bank references, when all such data are already stored and readily available from its computer.
This Court also takes note of the fact that there is nothing in plaintiff’s billing history that would warrant
the imprudent suspension of action by defendant in processing the purchase.

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It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to the
particular injuries under Article 2217 of the Civil Code for which moral damages are remunerative. Moral
damages do not avail to soothe the plaints of the simply impatient, so this decision should not be cause for
relief for those who time the length of their credit card transactions with a stopwatch. The somewhat
unusual attending circumstances to the purchase at Coster – that there was a deadline for the completion of
that purchase by petitioner before any delay would redound to the injury of his several traveling
companions – gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded by the RTC. Those circumstances are fairly unusual,
and should not give rise to a general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil
Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
I. SHORT TITLE: ADVOCATES FOR TRUTH IN LENDING vs. BANGKO SENTRAL

MONETARY BOARD
II. FULL TITLE: Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer versus Bangko Sentral
Monetary Board, represented by its Chairman, Governor Amando M. Tetangco Jr, et. al., - G.R. No.
192986, January 15, 2013, J. Reyes
III. TOPIC: Loan; Suspension of Usury Law
Petitioner “Advocates for Truth in Lending, Inc.” (AFTIL) is a non-profit, non-stock corporation
organized to engage in pro bono concerns and activities relating to money lending issues. It was
incorporated on July 9, 2010, and a month later, it filed this petition, joined by its founder and president,
Eduardo B. Olaguer, suing as a taxpayer and a citizen. R.A. No. 265, which created the Central Bank (CB)
of the Philippines authorized the CB,among others, to fix the maximum rates of interest which banks may
charge for different types of loans and for any other credit operations. On March 17, 1980, the Usury Law
was amended by P.D. No. 1684, giving the CB -MB authority to prescribe different maximum rates of
interest which may be imposed for a loan or renewal thereof or the forbearance of any money, goods or
credits, provided that the changes are effected gradually and announced in advance. It includes, among
others, the authority vested in the CB-MB to prescribe the maximum rate or rates of interest for the loan or
renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates
whenever warranted by prevailing economic and social conditions. Subsequently, the CB-MB issued CB
Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular removed the
ceilings on interest rates on loans or forbearance of any money, goods or credits. On June 14, 1993,
President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas (BSP)
to replace the CB.
The petitioners skipped the hierarchy of courts and went directly to the Supreme Court to secure a writ of
certiorari, contending that the issue is of transcendental importance. Petitioners contend that under Section
1-a of Act No. 2655, as amended by P.D. No. 1684, the CB-MB was authorized only to prescribe or set the
maximum rates of interest for a loan or renewal thereof or for the forbearance of any money, goods or

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credits, and to change such rates whenever warranted by prevailing economic and social conditions, the
changes to be effected gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-
MB to lift or suspend the limits of interest on all credit transactions, when it issued CB Circular No. 905.
They further insist that under Section 109 of R.A. No. 265, the authority of the CB-MB was clearly only to
fix the banks’ maximum rates of interest, but always within the limits prescribed by the Usury Law. Thus,
according to petitioners, CB Circular No. 905, which was promulgated without the benefit of any prior
public hearing, is void because it violated Article 5 of the New Civil Code, which provides that “Acts
executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity. Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision
similar to Section 109 of R.A. No. 265, and therefore, in view of the repealing clause in Section 135 of R.A.
No. 7653, the BSP-MB has been stripped of the power either to prescribe the maximum rates of interest
which banks may charge for different kinds of loans and credit transactions, or to suspend Act No. 2655
and continue enforcing CB Circular No. 905.
VI. ISSUE:
1. WON the Central Bank has no authority to suspend the effectivity of the Usury Law.
2. WON R.A. 7653 removed the Central Bank’s authority to fix maximum rates of interest.
VII. RULING:
1. No, the Central Bank has authority to suspend the effectivity of the Usury Law. The power of the CB to effectively
suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld in many cases. As
the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 “did not
repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity;” that “a [CB]
Circular cannot repeal a law, [for] only a law can repeal another law;” that “by virtue of CB Circular No.
905, the Usury Law has been rendered ineffective;” and “Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon.” Thus, according to the
Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of contract to
agree freely on the rate of interest. It cited Article 1306 of the New Civil Code, under which the contracting
parties may establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy.
However, it is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being
contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code, these contracts are
deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the right to set up their
illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lender’s right to recover
the principal of a loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the right
to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the debtor
to pay the debt due. The debt due is considered as without the stipulated excessive interest, and a legal
interest of 12% per annum will be added in place of the excessive interest formerly imposed, following the
guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals.
2. No, R.A. No. 7653 did not remove the authority of Central Bank to fix maximum rates of interest.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other financial institutions. Had R.A. No. 7653 been
intended to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.

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Moreover, the rule is settled that repeals by implication are not favored, because laws are presumed to be
passed with deliberation and full knowledge of all laws existing pertaining to the subject. An implied repeal
is predicated upon the condition that a substantial conflict or repugnancy is found between the new and
prior laws. Thus, in the absence of an express repeal, a subsequent law cannot be construed as repealing a
prior law unless an irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws.
We find no such conflict between the provisions of Act 2655 and R.A. No. 7653.
Wherefore, premises considered the Petition for certiorari is DISMISSED.
I. SHORT TITLE: COMMONWEALTH INSURANCE CORP. VS. COURT OF APPEALS
II. FULL TITLE: COMMONWEALTH INSURANCE CORPORATION, petitioner versus COURT OF

APPEALS and RIZAL COMMERCIAL BANKING CORPORATION, respondents. G.R. No. 130886,
January 29, 2004, Second Division (Austria-Martinez, J)
III. DESCRIPTION OF THE CASE: This is a case of the liability of a surety over interest in case it
incurred default.
In 1984, respondent Rizal Commercial Banking Corporation (RCBC) granted two export loan lines, one,
for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba
Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective
credit lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05
from the case-to-case basis and trust receipts. These loans were evidenced by promissory notes and secured
by surety bonds executed by the petitioner Commonwealth Insurance Company (CIC).
Specifically, the surety bonds issued by petitioner CIC in favor of respondent to secure the obligations of
JIGS totaled P2,894,128.00 while that securing ELBAs obligation was P1,570,000.00. Hence, the total face
value of the surety bonds issued by petitioner was P4,464,128.00.
JIGS and ELBA defaulted in the payment of their respective loans. And respondent made a written
demand for petitioner to pay JIGs account to the full extent. A similar demand was also made petitioner to
pay ELBAs account to the full extent. In response to those demands, petitioner made several payments
from February 25, 1985 to February 10, 1988 in the total amount of P2,000,000.00. There having been a
substantial balance unpaid, respondent made a final demand for payment but the latter ignored it. Thus,
appellant respondent filed the Complaint for a Sum of Money.
The trial court rendered a decision dated March 5, 1993 in favor of the respondents. Thereafter,
respondents, not having been satisfied buy the RTC’s decision filed a motion for reconsideration praying
that in addition to the principal sum of P2,464,128.00, petitioner be held liable to pay interests thereon
from date of demand at the rate of 12% per annum until the same is fully paid. However, the trial court
denied the motion.
Respondent then appealed to the Court of Appeals contending that when petitioner failed to pay the
obligation upon extrajudicial demand, it incurred in delay in consequence of which it became liable to pay
legal interest. The obligation to pay such interest does not arise from the contract of suretyship but from
law as a result of delay or mora. Such an interest is not, therefore, covered by the limitation of petitioner’s
liability expressed in the contract. Petitioner refutes this argument stating that since the surety bonds
expressly state that its liability shall in no case exceed the amount stated therein, then that stipulation

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controls. Therefore, it cannot be made to assume an obligation more than what it secured to pay. The
Court of Appeals ruled in favor of the respondents is correct because it is supported by Arts. 1169 and
1170 of the Civil Code. Petitioner filed a motion for reconsideration but was denied. Hence, this petition.
VI. ISSUE: Whether or not petitioner should be held liable to pay legal interest over and above its principal
obligation under the surety bonds issued by it?
VII. RULING: The petition is DENIED.
Petitioner is liable to pay the legal interest. Petitioner’s liability under the suretyship contract is different from its
liability under the law. There is no question that as a surety, petitioner should not be made to pay more
than its assumed obligation under the surety bonds. However, petitioner’s liability for the payment of
interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its
obligation under the said agreement.
The issue of petitioner’s payment of interest is a matter that is totally different from its obligation to pay the
principal amount covered by the surety bonds it issued. Petitioner offered no valid excuse for not paying
the balance of its principal obligation when demanded by RCBC. Its failure to pay is, therefore,
unreasonable. Thus, we find no error in the appellate courts ruling that petitioner is liable to pay interest.
WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals are AFFIRMED in toto. SO ORDERED.
I. SHORT TITLE: CALDERON vs. PEOPLE
II. FULL TITLE: Elizabeth Eusebio-Calderon versus People of the Philippines, G.R. No. 158495, October
21, 2004, YNARES-SANTIAGO, J
III. TOPIC: Existence of usurious interest; Loan
Calderon visited her Aunt Teresita in Bulacan and twice borrowed money from her in the amount of P105,
000.00. Calderon also issued two Allied Bank Checks, which were both postdated. Amelia Casanova went
Calderon’s drugstore and lent her the amount of P100, 000.00, allegedly to be used for the expansion of her
business. In exchange, Calderon issued a postdated Allied Bank No. 16041982 for P100, 000.00 and six
other checks in various amounts purportedly to cover the interests. Manolito Eusebio alleges that, Calderon
borrowed money from him because she needed it for her pharmaceutical business. Manolito loaned her
P50, 000.00, for which she issued Allied Bank Check No. 16063578 covering the principal amount of the
loan, and four other postdated checks for the interests thereon. According to private complainants,
petitioner assured them that the checks will be honored upon maturity. They gave her the money because
she showed them her pieces of jewelry which convinced them that she has the ability to pay the loans.
Elizabeth Eusebio -Calderon was charged by her aunt Teresita Eusebio, Amelia Casanova, and her cousin
Manolito Eusebio with three counts of Estafa in three separate Informations. The cases were filed with the
RTC of Malolos, Bulacan. After trial, the lower court rendered a joint decision finding petitioner guilty
beyond reasonable doubt of three counts of Estafa but ruled that her liability for the "interest checks" was
only civil. Upon appeal to the CA, the CA reversed and set aside the Decision of the Regional Trial Court
acquitting the accused but ordering her to pay civil liability. A new judgment was issued ACQUITTING
the accused of the crimes charged on the ground that her guilt has not been proven beyond reasonable

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doubt. However, she is held civilly liable. Calderon argues that the transactions that transpired between her
and the private respondents covered a period lasting in years whereby private appellees charged appellant
highly usurious interests and that such interests are void.
VI. ISSUES:
1. WON the CA erred in finding the appellant civilly liable to complainants with respect to the interest in
the principal loan despite the dismissal of the interest checks by the Regional Trial Court?
2. WON interest agreed upon by the parties usurious
3. WON the private respondents should file a separate civil complaint for the claim of Sum of Money
VII. RULING: The Court found the petition meritorious and since the 1st and 3rd issues are interrelated
they were discussed jointly.
Under the Civil Code, when the accused in a criminal prosecution is acquitted on the ground that his guilt
has not been proven beyond reasonable doubt, a civil action for damages for the same act or omission may
be instituted. An accused who is acquitted of Estafa may nevertheless be held civilly liable if warranted.
Calderon is liable to the private respondents for the amount borrowed. The checks issued by Calderon as
payment for the principal loan constitute evidence of her civil liability which was deemed instituted with the
criminal action. The civil liability of Calderon includes only the principal amount of the loan. With respect
to the interest checks she issued, the same are void. There was no written proof of the payable interest
except for the verbal agreement that the loan shall earn 5% interest per month.
Under Article 1956 of the Civil Code, an agreement as to payment of interest must be in writing, otherwise
it cannot be valid. Consequently, no interest is due and the interest checks she issued should be eliminated
from the computation of her civil liability. While there was no stipulated interest, there can be legal interest
pursuant to Article 2209 of the Civil Code. After the judgment becomes final and executory until the
obligation is satisfied, the amount due shall earn interest at 12% per year.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA-G.R. CR No. 23466
is AFFIRMED with the MODIFICATION that petitioner is ordered to pay Amelia Casanova the sum of
P100,00.00; Teresita Eusebio the sum of P157,500.00; and Manolito Eusebio the sum of P50,000.00 as civil
liability with legal interest of twelve percent (12%) per annum from December 20, 1994 until its
satisfaction. Costs de oficio. SO ORDERED.
I. SHORT TITLE: EASTERN SHIPPING LINES vs. CA
II. FULL TITLE: EASTERN SHIPPING LINES, INC., petitioner, versus HON. COURT OF APPEALS
AND MERCANTILE INSURANCE COMPANY, INC., respondents. G.R. No. 97412 July 12, 1994
III. TOPIC: Claims for damages; liability of common carrier
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No.
YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the
custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order,

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which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation
received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal. On
January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the
consignee's warehouse. The latter accepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake. Plaintiff contended that the consignee suffered losses. As a consequence of
the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine
insurance policy, so that it became subrogated to all the rights of action of said consignee against
defendants
An action against the defendants shipping company, arrastre operator, broker-forwarder for damages was
filed by insurer-subrogee in the Trial Court.
The trial court ruled in favor of plaintiff an ordered defendants to pay the former with present legal interest
of 12% per annum from the date of the filing of the complaint. On appeal by defendants, the appellate
court denied the same and affirmed in toto the decision of the trial court.
VI. ISSUES:
1. Whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the customs broker;
2. Whether the payment of legal interest on an award for loss or damage is to be computed from the
time the complaint is filed or from the date the decision appealed from is rendered;
3. Whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent
(6%).
VI. RULINGS: The petition is PARTLY GRANTED.
1. YES. Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody
and to deliver them in good condition to the consignee, such responsibility also devolves upon the
CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to
deliver the goods in good condition to the consignee. The common carrier's duty to observe the
requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to
receive them
2. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
3. When the judgment awarding a sum of money becomes final and executory, the monetary award
shall earn interest at 12% per annum from the date of such finality until its satisfaction, regardless
of whether the case involves a loan or forbearance of money. The reason is that this interim period
is deemed to be by then equivalent to a forbearance of credit.
VII. DISPOSITIVE PORTION
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed

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from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in
lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the
payment thereof. SO ORDERED.
I. SHORT TITLE: MEDEL vs. COURT OF APPEALS
II. FULL TITLE: Leticia Y. Medel, Dr. Rafael Medel and Servando Franco versus Court of Appeals,
Spouses Veronica R. Gonzales and Danilo G. Gonzales, Jr., doing lending business under the trade name
and style "Gonzales Credit Enterprises" – G.R. No. 131622. November 27, 1998, J. Pardo
III. TOPIC: Article 1961; Usurious Contracts
Servando and Leticia) obtained a loan from Veronica R. Gonzales (Veronica), who was engaged in the
money lending business under the name “Gonzales Credit Enterprises,” in the amount of P50,000.00,
payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retained
P3,000.00, as advance interest for one month at 6% per month. Servando and Leticia executed a
promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986. On November 19, 1985,
Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00, payable in two
months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on
January 19, 1986. They received only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness. On June 11, 1986,
Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00, maturing in
one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay,
who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage.
Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after
a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them out of the
proceeds of the loan. Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter’s husband, Dr. Rafael Medel, consolidated all their
previous unpaid loans totalling P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They
executed a promissory note. Among the stipulations found in the note, the parties stipulated (1) that
petitioners promised to pay the P500,000.00, which is the total amount of the loans obtained from
Veronica; (2) that said amount shall earn interest at the rate of 5.5% per month plus 2% service charge per
annum from the date of the note until fully paid; (3) and that should petitioners fail to comply with their
obligation, all the other installments together with all interest accrued shall immediately be due and payable
and they will pay an additional amount equivalent 1% per month of the amount due and demandable as
penalty charges in the form of liquidated damages until fully paid, and the further sum of 25% thereof in
full, without deductions as Attorney’s Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial expenses. On maturity of the loan, the
petitioners failed to pay the indebtedness of P500,000.00, plus interests and penalties.
On February 20, 1990, private respondents filed a complaint for collection of the full amount of the loan
including interests and other charges with the RTC. The lower court ruled in favor of the respondents,
however it held that the 5.5% interest per month plus the 2% service charge and 1% penalty charge were
unconscionable and revolting to the conscience. Hence, the trial court applied the provision of the Civil
Code that the “legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum.”
On appeal, the CA ruled in favor respondents saying that the Usury law being legally inexistent, the parties
may agree on any rate of interest and that the imposition of an “additional amount equivalent to 1% per

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month of the amount due and demandable as penalty charges in the form of liquidated damages until fully
paid” was allowed by law.
VI. ISSUE: Whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious.
VII. RULING: No. The SC said that “we cannot consider the rate “usurious” because this Court has
consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the
interest ceilings prescribed by the Usury Law and that the Usury Law is now “legally inexistent.”
Nevertheless, the SC found that the interest at 5.5% per month, or 66% per annum, is iniquitous or
unconscionable, and, hence, contrary to morals, if not against the law. The stipulation is void. The courts
shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.
Wherefore, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals
promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment
REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of
Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties. No
pronouncement as to costs in this instance.
I. SHORT TITLE: SPOUSES PASCUAL V. RAMOS
II. FULL TITLE: Spouses Silvestre and Celia Pascual versus Rodrigo V. Ramos – G.R. No. 144712, July 4,
2002, C.J. Davide, Jr.
III. TOPIC: Loan
On June 3, 1987, Spouses Pascual executed a Deed of Absolute Sale with Right to Repurchase with Ramos,
in consideration of the amount of P150,000. The petitioners did not exercise their right to repurchase the
property within the stipulated one-year period; hence, respondent prayed that the title over the parcels of
land be consolidated in his favor. Petitioners aver that what was really executed between them and that the
respondent is a real estate mortgage and that there was no agreement limiting the period within which to
exercise the right to repurchase and that they have even overpaid respondent.
Respondent offered in evidence a document denominated as Sinumpaang Salaysay which had a provision of
an interest of 7% per month on the principal loan of Php 150,000 which was signed by Silvestre Pascual
and Ramos. The trial court found that the transaction between the parties was actually a loan in the amount
of P150,000, the payment of which was secured by a mortgage of the property covered by TCT No.
305626. It also found that the Pascuals had made payments in the total sum of P344,000 and that with
interest at 7% per annum, the Pascuals had overpaid the loan by P141,500.
Respondent filed a Motion for Reconsideration alleging that the interest stipulated in the Sinumpaang
Salaysay was 7% per month. The RTC ruled in favor of the respondent acknowledging that the correct
interest rate stipulated was 7% per month. However, the RTC declared that the 7% per month interest is
too burdensome and onerous and so the court unilaterally reduced the interest rate from 7% per month to
5% per month. The CA affirmed in toto the decision of the RTC. The Pascuals then filed a petition for
certiorari with the Supreme Court alleging that either 5% or 7% per month is exorbitant, unconscionable,
unreasonable, usurious and inequitable.

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The case stemmed from the petition for consolidation of title or ownership filed on 5 July 1993 with the
trial court by herein respondent Rodrigo V. Ramos against herein petitioners, Spouses Silvestre and Celia
Pascual. Ramos prayed that the title or ownership over the subject parcels of land and improvements
thereon be consolidated in his favor after the Pascuals did not exercise their right to repurchase the
property within the stipulated one-year period.
VI. ISSUE: Whether the Pascuals are liable for 5% interest per month from 3 June 1987 to 3 April 1995.
VII. RULING:
It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily
entered into by them. Parties are free to stipulate terms and conditions which they deem convenient
provided they are not contrary to law, morals, good customs, public order, or public policy.
The interest rate of 7% per month was voluntarily agreed upon by Ramos and the Pascuals. There is
nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud
when they entered into the agreement with Ramos. Neither is there a showing that in their contractual
relations with Ramos, the Pascuals were at a disadvantage on account of their moral dependence,
ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant
protection of the courts as mandated by Article 24 of the Civil Code.
With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate
the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent
exercised by Ramos on the Pascuals, the interest agreed upon is binding upon them.
WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the Court
of Appeals in CA-G.R. CV No. 52848 is AFFIRMED in toto.
I. SHORT TITLE: BARRERA VS. LORENZO
II. FULL TITLE: Spouses Felimon and Maria Barrera versus Spouses Emiliano and Maria Concepcion
Lorenzo– 389 SCRA 328, September 18, 2002, J. Sandoval-Gutierrez
III. TOPIC: Credit Transactions – Simple Loan
Spouses Felimon and Maria Barrera (Sps. Barrera) borrowed P230,000.00 from Spouses Miguel and Mary
Lazaro (Sps. Lazaro), secured by a real estate mortgage over Sps. Barrera’s residential lot at Bocaue,
Bulacan. Spouses Emiliano and Maria Concepcion Lorenzo (Sps. Lorenzo) were later substituted in the
place of the creditors Sps. Lazaro. Sps. Barrera executed another real estate mortgage over their lot in favor
of Sps. Lorenzo to secure the alleged loan of P325,000.00. The new mortgage contract provides that (1) the
new loan shall be payable within three (3) months, or until August 14, 1991; and (2) it shall earn interest at
5% per month. Sps. Barrera failed to pay their loan in full on due date. Sps. Lorenzo allowed them to
complete their payment until December 23, 1993. On this date, they made a total payment of P687,000.00.
Sps. Lorenzo demanded full payment of P325,000.00 plus interest to prevent foreclosure proceedings. Sps.
Barrera, claiming that they overpaid their obligation, responded by demanding the return of their land title
and refund of their excess payments.

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A petition for extrajudicial foreclosure was filed by Sps. Lorenzo with the office of the Ex-Officio Sheriff
of Malolos, Bulacan. Sps. Barrera, for their part, filed a complaint for the return of their land title, sum of
money, and damages, with application for a Temporary Restraining Order and Preliminary Injunction
before the Regional Trial Court (RTC) of Malolos, Bulacan. The RTC ruled for Sps. Barrera, but was
reversed by the Court of Appeals.
VI. ISSUE: Whether the 5% monthly interest on the loan was only for three (3) months (from May 14,
1991 to August 14, 1991), and not until the loan was fully paid.
VII. RULING: Yes, the monthly interest covers only three (3) months. When the terms of a contract are
clear, the literal meaning of its stipulations governs. Here, the loan shall be payable within three (3) months,
which shall earn an interest of 5% per month. When Sps. Barrera failed to pay on due date, the contract
was extended until December 23, 1993. But while the due date was extended, there was no written
agreement that the loan will continue to bear interest beyond the three (3) month period. Article 1956 of
the Civil Code is clear: “no interest shall be due unless it has been expressly stipulated in writing.”
WHEREFORE, the assailed Decision of the Court of Appeals dated June 18, 1997 and its Resolution
dated October 17, 1997 are REVERSED and SET ASIDE. The Decision of the Regional Trial Court,
Branch 17, Malolos, Bulacan dated July 31, 1995 is REINSTATED.
I.SHORT TITLE: FIRST FIL SIN vs. PADILLO
II. FULL TITLE: FIRST FIL-SIN LENDING CORPORATION VS. GLORIA PADILLO G.R. No.
160533. January 12, 2005
III. TOPIC: Loan
Respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending Corp. and
subsequently obtained another P500,000.00 loan from the same. In both instances, respondent executed a
promissory note and disclosure statement. For the first loan, respondent made 13 monthly interest
payments of P22,500.00 each before she settled the P500,000.00 outstanding principal obligation. As
regards the second loan, respondent made 11 monthly interest payments of P25,000.00 each before paying
the principal loan of P500,000.00. In sum, respondent paid a total of P792,500.00 for the first loan and
P775,000.00 for the second loan. Thereafter, respondent filed an action for sum of money against
petitioner alleging that she only agreed to pay interest at the rates of 4.5% and 5% per annum, respectively,
for the two loans, and not 4.5% and 5% per month. The trial court dismissed respondent’s complaint. On
appeal, the appellate court ruled that, based on the disclosure statements executed by respondent, the
interest rates should be imposed on a monthly basis but only for the 3-month term of the loan. Thereafter,
the legal interest rate will apply. The court also found the penalty charges pegged at 1% per day of delay
highly unconscionable as it would translate to 365% per annum. Thus, it was reduced to 1% per month or
12% per annum. Petitioner maintains that the interest rates are to be imposed on a monthly and not on a
per annum basis. However, it insists that the 4.5% and 5% monthly interest shall be imposed until the
outstanding obligations have been fully paid. As to the penalty charges, petitioner argues that the 12% per
annum penalty imposed by the Court of Appeals in lieu of the 1% per day as agreed upon by the parties
violates their freedom to stipulate terms and conditions as they may deem proper.
Respondent avers that the interest on the loans is per annum as expressly stated in the promissory notes
and disclosure statements. The provision as to annual interest rate is clear and requires no room for

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interpretation. Respondent asserts that any ambiguity in the promissory notes and disclosure statements
should not favor petitioner since the loan documents were prepared by the latter.
Before us is a petition for review under Rule 45 of the Rules of Court, seeking a reversal of the Court of
Appeals decision in CA-G.R. CV No. 75183[1] dated October 16, 2003, which reversed and set aside the
decision of the Regional Trial Court of Manila, Branch 21 in Civil Case No. 00-96235. Respondent Gloria
D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending Corp. and subsequently
obtained another P500,000.00 loan from the same. Thereafter, respondent filed an action for sum of money
against petitioner alleging that she only agreed to pay interest at the rates of 4.5% and 5% per annum,
respectively, for the two loans, and not 4.5% and 5% per month. The trial court dismissed respondent’s
complaint.
VI. ISSUE: Whether or not the applicable interest should be the legal interest of twelve percent (12%) per
annum despite the clear agreement of the parties on another applicable rate.
VII. RULING:
Perusal of the promissory notes and the disclosure statements pertinent to the loan obligations of
respondent clearly and unambiguously provide for interest rates of 4.5% per annum and 5% per annum,
respectively. Nowhere was it stated that the interest rates shall be applied on a monthly basis. Thus, when
the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the
contract. It is only in instances when the language of a contract is ambiguous or obscure that courts ought
to apply certain established rules of construction in order to ascertain the supposed intent of the parties.
WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of Appeals in CA-
G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on the July 22, 1997
and September 7, 1997 loan obligations of respondent Gloria D. Padillo from petitioner First Fil-Sin
Lending Corporation be imposed and computed on a per annum basis, and upon their respective
maturities, the interest rate of 12% per annum shall be imposed until full payment. In addition, the penalty
at the rate of 12% per annum shall be imposed on the outstanding obligations from date of default until full
payment..
I. SHORT TITLE: ESTORES vs. SUPANGAN
II. FULL TITLE: Hermojina Estores versus Spouses Arturo and Laura Supangan – G.R. No. 175139 April
18, 2012, J. Del Castillo
III. TOPIC: Loan; Imposition of interest and attorneys fees
On October 3, 1993, Hermojina Estores (Estores) and Arturo and Laura Supangan (Sps. Supangan) entered
into a Conditional Deed of Sale whereby Estores offered to sell her parcel of land located at Naic, Cavite
for the sum of P4.7 million. The parties also stipulated, (a) that the vendor Estores will secure approved
clearance from DAR and that vendee Sps. Supangan shall be informed as to the status of DAR clearance
within 10 days upon signing of the documents; (b) that Estores is responsible of seeing to it that the house
owned by Sps. Magbago located within the perimeter be moved outside the same; (c) that in case Estores
completed all necessary documents for registration of the title and the Sps. Supangan fails to complete
payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied, otherwise, failure of

Page 18 of 104
Estores to complete necessary documents within thirty days without any sufficient reason or inform the
vendee of its status will give Sps. Supangan the right to demand return of full amount of down payment; (d)
that Sps. Supangan shall be informed immediately of the approval by the LRC regarding the partition of the
lot; and (e) that Estores shall ensure peaceful transfer of ownership.
Seven years thereafter from the time of the execution of the contract and payment of P3.5 million on the
part of Sps. Supangan, Estores still failed to comply with her obligation. Hence, Sps. Supangan demanded
the return of the amount of P3.5 million within 15 days from receipt of the letter. In reply, Estores
acknowledged receipt of the said amount and promised to return the same within 120 days. Sps. Supangan
were amenable to the proposal provided an interest of 12% shall be imposed on the said amount.
When Estores still failed to return the amount despite demand, Sps. Supangan filed a Complaint for sum of
money before the Regional Trial Court (RTC) of Malabon against Estores as well as Roberto U. Arias
(Arias) who allegedly acted as petitioner’s agent with prayer for damages and payment of interest, as well as
attorneys fees and cost of suit. On May 7, 2004, the RTC rendered its Decision finding Sps. Supangan
entitled to interest but only at the rate of 6% per annum and that they are also entitled to attorneys fees.
Estores and Arias filed their appeal. On appeal, the Court of Appeals (CA) rendered the Decision affirming
the ruling of the RTC finding the imposition of 6% interest proper. However, the same shall start to run
only from September 27, 2000 when Sps. Supangan formally demanded the return of their money and not
from when the contract was executed. The CA also modified the RTCs ruling finding that Arias could not
be held solidarily liable with Estores because he merely acted as agent of the latter. The CA also found the
award by the trial court of P50,000.00 plus 20% of the recoverable amount as attorneys fees excessive and
thus reduced the same to P100,000.00.
VI. ISSUE: Whether or not the imposition of interest and attorneys fees is correct.
VII. RULING: Yes, interest may be imposed even in the absence of stipulation in the contract. Article
2210 of the Civil Code expressly provides that interest may, in the discretion of the court, be allowed upon
damages awarded for breach of contract. Moreover, Estores’ unwarranted withholding of the money which
rightfully pertains to Sps. Supangan amounts to forbearance of money which can be considered as an
involuntary loan. Thus, the applicable rate of interest is 12% per annum and should be reckoned from the
time that demand was made which was on September 27, 2000.
The award of attorney’s fees is warranted when the defendants act or omission has compelled the plaintiff
to litigate with third persons or to incur expenses to protect his interest as it perfectly fits the circumstance
provided under Article 2208 of the Civil Code.
Wherefore, the Petition for Review is DENIED. The Decision of the Court of Appeals is AFFIRMED
with modifications that the rate of interest shall be twelve percent (12%) per annum, computed from
September 27, 2000 until fully satisfied. The award of attorneys fees is further reduced to P50,000.00.
I. SHORT TITLE: MACALINAO vs. BANK OF THE PHILIPPINE ISLANDS
II. FULL TITLE: ILEANA DR. MACALINAO, Petitioner, versus BANK OF THE PHILIPPINE
ISLANDS, Respondent -- G.R. No. 175490, September 17, 2009, VELASCO, JR., J.
III. TOPIC: LOAN -- Reduction of excessive interest rate. (Art 1229 NCC)

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Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities of Bank of
the Philippine Islands (BPI). Macalinao made some purchases through the use of the said credit card and
defaulted in paying for said purchases. She subsequently received a letter dated January 5, 2004 from BPI,
demanding payment of the amount of Php 141,518.34, representing the sum total of the unpaid balances.
Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard,
the charges or balance thereof remaining unpaid after the payment due date indicated on the monthly
Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee
equivalent to another 3% per month.
For failure of Macalinao to settle her obligations, BPI filed with the Metropolitan Trial Court (MeTC) of
Makati City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao praying for
the payment of the amount of PhP 154,608.78 plus 3.25% finance charges and late payment charges
equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total
amount due as attorneys fees, and of the cost of suit. The case proceeded ex parte with only BPI submitting
its documentary evidence due to the spouses failure to submit their Reply despite receipt of the summon..
In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner
Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2%
per month.
Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City. But in its Decision
dated October 14, 2004, the RTC affirmed in toto the decision of the MeTC. Unconvinced, Macalinao filed
a petition for review with the CA. The CA affirmed with modification the Decision of the RTC reducing
the amount to be paid to Php 126, 760 plus interest and penalty charges of 3% per month from January 5,
2004 until fully paid.
In its assailed decision, the CA held that the amount of PhP 141,518.34 is clearly not the result of the re-
computation at the reduced interest rate as previous higher interest rates were already incorporated in the
said amount. Thus, the said amount should not be made as basis in computing the total obligation of
Macalinao. Further, the CA also emphasized that respondent BPI should not compound the interest in the
instant case absent a stipulation to that effect. Moreover, it explained that contracts of adhesion are not
invalid per se and are not entirely prohibited.
VI. ISSUE: Whether or not the CA was correct in reducing the Interest Rate and Penalty Charge of 3% per
Month or 36% Per Annum to 2% per Month or 24% per Annum.
VII. RULING: Yes, the Interest Rate and Penalty Charge should be reduced to 2% per Month or 24% per
Annum.
In the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a
stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this
Court has considered the interest rate of 36% per annum as excessive and unconscionable. We held in Chua
vs. Timan: We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to
morals, if not against the law.
Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence,
courts may reduce the interest rate as reason and equity demand. The same is true with respect to the
penalty charge. Pertinently, Article 1229 of the Civil Code states: The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.

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In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent
BPI, as indicated in her Billing Statements. Further, the stipulated penalty charge of 3% per month or 36%
per annum, in addition to regular interests, is indeed iniquitous and unconscionable. Thus, under the
circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to
1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per
month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the
Civil Code.
WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R.
SP No. 92031 is hereby MODIFIED with respect to the total amount due, interest rate, and penalty charge.
Accordingly, petitioner Macalinao is ordered to pay respondent BPI the following: The amount of one
hundred twelve thousand three hundred nine pesos and fifty-two centavos (PhP 112,309.52) plus interest
and penalty charges of 2% per month from January 5, 2004 until fully paid; PhP 10,000 as and by way of
attorneys fees; and Cost of suit. SO ORDERED.
I.SHORT TITLE: NACAR vs. GALLERY FRAMED AND FELIPE BORDEY JR.
II. FULL TITLE: Dario Nacar vesus. Gallery Framed and/or Felipe Bordey Jr.- G.R. No. 189871, August
13, 2013, J. Peralta
III. TOPIC: Loan
Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the
National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe
Bordey, Jr. T he Labor Arbiter rendered a Decision in favor of petitioner and found that he was dismissed
from employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay
in lieu of reinstatement in the amount of P158,919.92. Respondents appealed to the NLRC, but it was
dismissed for lack of merit in the Resolution. Accordingly, the NLRC sustained the decision of the Labor
Arbiter. Respondents filed a motion for reconsideration, but it was denied.
Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the
CA issued a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was
likewise denied in a Resolution dated May 8, 2001.7cRespondents then sought relief before the Supreme
Court.
VI. ISSUE: Whether or not the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals should
be applied with respect to the imposition of payment of interest of loan.
VII. RULING: No, the Supreme Court instead modified the landmark case of Eastern Shipping Lines, Inc.
v. Court of Appeals (G.R. No. 97412, July 12, 1994) to embody Bangko Sentral ng Pilipinas ("BSP")
Monetary Board ("MB") Circular No. 799 by imposing that the rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as
to such rate of interest, shall be six percent (6%) per annum
In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down the guidelines
regarding the manner of computing legal interest, to wit: With regard particularly to an award of interest in

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the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance
of credit.
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796
dated May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which
reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent
(6%) per annum.
Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections
4305Q.1,37 4305S.338 and 4303P.139of the Manual of Regulations for Non-Bank Financial Institutions are
hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the
rate allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of
Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and Sections
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before
its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective July 1,
2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30,
2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable.

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WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in
CA-G.R. SP No. 98591, and the Resolution dated October 9,2009are REVERSED and SET ASIDE.
I. SHORT TITLE: ECE REALTY vs. HERNANDEZ
II. FULL TITLE: ECE Realty and Development Inc. vs Haydyn Hernandez – G.R. No. 212689, August
11, 2014, J. Reyes
III. TOPIC: Legal Interest
Haydyn Hernandez filed a complaint for specific performance with damages against EMIR and ECE Realty
due to the failure of the respondents to deliver a condominium unit which he purchased from them. The
respondents allegedly promised to turn over to him the unit by December 31, 1999, but failed to do so.
Worse, he learned that the actual area was only 26 square meters, not 30 square meters as indicated in their
contract to sell, and the company refused to grant his corresponding reduction in the purchase price;
instead the companies told him to settle his arrear. He learned later that that company sold Unit 808 to a
third party. In their defense, the respondent faulted complainant for unjustifiably refusing to accept delivery
of the condominium unit; that they were forced to cancel the contract to sell because of the refusal of the
complainant to settle his past arrears.
On September 7, 2006, Haydyn Hernandez filed a Complaint for specific performance, with damages,
against Emir Realty and Development Corporation and ECE Realty and Development Incorporated (ECE)
before the HLURB. The HLURB ruled in favour of the complainant and ordered the company to
reimburse the respondent the amount of P452,551.65, plus legal interest of 6%, from the filing of the
complaint, and to pay the respondent P50,000.00 as moral damages, P50,000.00 as attorney’s fees, and
P50,000.00 as exemplary damages. The Office of the President dismissed ECE’s appeal. The CA affirmed
the decision of the OP, and added an imposable interest of 12% per annum after the judgment becomes
final and executory citing the case of Eastern Shipping Lines, Inc. v. Court of Appeals and in Fil-Estate Properties,
Inc. v. Spouses Go.
VI. ISSUE: Whether or not the CA erred in its decision insofar as the imposition of legal interest is
concerned.
VII. RULING: Yes. Notwithstanding the abovementioned cases which synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under
Art. 2209 of the Civil Code applies “when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in
general,” with the application of both rates reckoned “from the time the complaint was filed until the
[adjudged] amount is fully paid.” It is likewise well settled that from the finality of the judgment awarding a
sum of money until it is satisfied, the award shall be considered a forbearance of credit, regardless of
whether the award in fact pertained to one. But since July 1, 2013, the rate of twelve percent (12%) per
annum from finality of the judgment until satisfaction has been brought back to six percent (6%). Section 1
of Resolution No. 796 of the Monetary Board of the Bangko Sentral ng Pilipinas dated May 16, 2013
provides: “The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.” Thus, the rate of

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interest to be imposed from finality of judgments is now back at six percent (6%), the rate provided in
Article 2209 of the Civil Code.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 120738 is AFFIRMED with
MODIFICATION. Petitioner ECE Realty and Development, Inc. is hereby ordered to pay respondent
Haydyn Hernandez the amount of P452,551.65 representing the total amount he paid to petitioner ECE
Realty and Development Incorporated, plus six percent (6%) interest per annum from September 7, 2006
until finality hereof by way of actual and compensatory damages. From finality until full satisfaction, the
total amount due now compounded with interest due from September 7, 2006 up to finality, shall likewise
earn interest at six percent (6%) per annum until fully paid.
I. SHORT TITLE: PHILIPPINE NATIONAL BANK vs. COURT OF APPEALS AND PADILLA
II. FULL TITLE: PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF APPEALS
and AMBROSIO PADILLA, respondents. G.R. No. 88880. April 30, 1991. 196 SCRA 536. FIRST
DIVISION. GRINO-AQUINO, J.
III. TOPIC: Interest Rate
Ambrosio Padilla (private respondent) applied for and was granted by Philippine National Bank (petitioner)
a credit line of P1.8 million, for a term of two years, and with 18% interest per annum. Private respondent
executed in favor of petitioner a credit agreement, two promissory notes and a real estate mortgage. The
foregoing documents contained a stipulation that the interest rate may be increased within the limits allowed by
law or in accordance with law. On several occasions, the interest rate was increased three times by petitioner
over the objection of private respondent to wit, from 18% to 32%, from 32% to 41% and from 41% to
48%. This prompted private respondent to file a complaint against petitioner.
Private respondent filed a complaint with the Regional Trial Court (RTC) of Manila against petitioner. The
RTC ruled in favor petitioner. Thus, private respondent elevated the case to the Court of Appeals which
reversed the decision of the RTC. Hence, the present recourse of petitioner to the Supreme Court (SC).
VI. ISSUE: Whether or not the petitioner’s act of increasing the interest rate on the loan of private
respondent is proper.
VII. RULING: No. The reasons given by the SC are: First, although Sec. 2 of P.D. No. 116 authorizes the
Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal thereof and to
change such rate or rates whenever warranted by prevailing economic and social conditions, it expressly
provides that “such changes shall not be made oftener than once every twelve months.” In this case,
petitioner increased the interest rate on private respondent’s loan over the objection of the latter three
times without authority from the Monetary Board. These increases are null and void, for if the Monetary
Board itself was not authorized to make such changes oftener than once a year, even less so may a bank
which is subordinate to the Board.
Second, although private respondent agreed to the stipulation that the interest rate may be increased within
the limits allowed by law, no law was ever passed for that matter. In the present case, petitioner relied on its
own Board Resolution No. 681, PNB Circular No. 40-79-84, and PNB Circular No. 40-129-84, but these
resolution and circulars are neither laws nor resolutions of the Monetary Board.

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Lastly, CB Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates, but it did not
authorize petitioner, or any bank for that matter, to unilaterally and successively increase the agreed interest
rates from 18% to 48% within a span of four months, in violation of P.D. No. 116 which limits such
changes to “once every twelve months.”
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. CV No.
09791, the Court resolved to deny the petition for review for lack of merit, with costs against the petitioner.
SO ORDERED.
I.SHORT TITLE: FLORENDO vs. COURT OF APPEALS
II. FULL TITLE: SPOUSES MARIANO and GILDA FLORENDO, vs. COURT OF APPEALS and
LAND BANK OF THE PHILIPPINES G.R. No. 101771 December 17, 1996
III. TOPIC: Credit Transactions- Loan
Gilda Florendo was an employee of Land Bank of the Philippines. Just before FLorendo’s retirement, she
applied and was granted a housing loan of P148,000, payable within 25 years. The loan was given to
Florendo on her capacity as an employee of the said bank. On March 19,1985, the bank increased the
interest from 9% to 17% per annum. Florendo contested the increase in the interest, and as such she
ignored the demands of the bank.
Because of repeated demands, she (together with others) was forced to file the instant suit for injunction
and damages. Despite the demands of the bank for the increased interests, FLorendo faithfully paid and
discharged of her loan obligations. Disregarding the bank’s demand, Florendo (and others) are presently
up-to-date in the payments of the obligations under the original contract.
VI. ISSUE: WON respondent bank have a valid and legal basis to impose an increased interest rate on the
petitioners' housing loan
VII. RULING:
Paragraph (f) of the mortgage contract is clearly and indubitably an escalation provision, and therefore, the
parties were and are bound by the said stipulation that "(t)he rate of interest charged on the obligation
secured by this mortgage . . ., shall be subject, during the life of this contract, to such an increase/decrease
in accordance with prevailing rules, regulations and circulars of the Central Bank of the Philippines as the
Provident Fund Board of Trustees of the Mortgagee (respondent bank) may prescribe for its debtors . . . ."
Contrary to petitioners' allegation, there is no vagueness in the aforequoted proviso; even their own
arguments (below) indicate that this provision is quite clear to them.
In Banco Filipino Savings & Mortgage Bank vs. Navarro, this Court in essence ruled that in general there is
nothing inherently wrong with escalation clauses. In IBAA vs. Spouses Salazar, the Court reiterated the rule
that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain
the value of money in long term contracts.
What is actually central to the disposition of this case is not really the validity of the escalation clause but
the retroactive enforcement of the ManCom Resolution as against petitioner-employee. In the case at bar,

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petitioners have put forth a telling argument that there is in fact no Central Bank rule, regulation or other
issuance which would have triggered an application of the escalation clause as to her factual situation.
In Banco Filipino, this Court, speaking through Mme. Justice Ameurfina M. Herrera, disallowed the bank
from increasing the interest rate on the subject loan from 12% to 17% despite an escalation clause in the
loan agreement authorizing the bank to "correspondingly increase the interest rate stipulated in this
contract without advance notice to me/us in the event a law should be enacted increasing the lawful rates
of interest that may be charged on this particular kind of loan". In said case, the bank had relied upon a
Central Bank circular as authority to up its rates. The Court ruled that CB Circular No. 494, although it has
the effect of law, is not a law, but an administrative regulation.
In the case at bar, the loan was perfected on July 20, 1983. PD No. 116 became effective on January 29,
1973. CB Circular No. 416 was issued on July 29, 1974. CB Circ. 504 was issued February 6, 1976. CB Circ.
706 was issued December 1, 1979. CB Circ. 905, lifting any interest rate ceiling prescribed under or
pursuant to the Usury Law, as amended, was promulgated in 1982. These and other relevant CB issuances
had already come into existence prior to the perfection of the housing loan agreement and mortgage
contract, and thus it may be said that these regulations had been taken into consideration by the contracting
parties when they first entered into their loan contract. In light of the CB issuances in force at that time,
respondent bank was fully aware that it could have imposed an interest rate higher than 9% per annum rate
for the housing loans of its employees, but it did not.
In order that obligations arising from contracts may have the force of law between the parties, there must
be mutuality between the parties based on their essential equality. A contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is
void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the . . . loan agreement
between the PNB and the private respondent gave the PNB a license (although in fact there was none) to
increase the interest rate at will during the term of the loan, that license would have been null and void for
being violative of the principle of mutuality essential in contracts.
WHEREFORE, the petition is hereby GRANTED. The Court hereby REVERSES and SETS ASIDE the
challenged Decision of the Court of Appeals. The interest rate on the subject housing loan remains at nine
(9) percent per annum and the monthly amortization at P1,248.72.
I. SHORT TITLE: SPOUSES JUICO vs. CHINA BANKING CORPORATION SPOUSES JUICO
vs. CHINA BANKING CORPORATION
II. FULL TITLE: SPOUSES IGNACIO F. JUICO AND ALICE P. JUICO, petitioners, vs. CHINA
BANKING CORPORATION, respondent. G.R. No. 187678, April 10, 2013
III. TOPIC: ESCALATION CLAUSE. VALIDITY OF INTEREST RATES
Spouses Ignacio and Alice Juico (Spouses Juico) obtained a loan from China Banking Corporation (China
Bank) as evidenced by two promissory notes in the amount of P6,216,000 and P4,139,000, respectively.
The promissory notes contained an escalation provision that interest rate shall be based on the prevailing
interest rate in the market and no notice was needed for China Bank to increase the rate. However,
telephone calls were given to Spouses Juico by respondent Bank to notify them of the changes in the
prevailing interest rates. A Real Estate Mortgage secured the loan over Spouses Juico’s property. When
petitioners failed to pay the monthly amortizations, respondent demanded full payment of the outstanding
balance with accrued monthly interests. The amount due ballooned to P19,201,776.63 representing the
principal, interests, penalties and attorney’s fees. The mortgaged property was sold on public auction to

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respondent, as the highest bidder in the amount of P10,300,000. China Bank demanded for the deficiency
from Spouses Juico. The demand of respondent went unheeded thus respondent filed a collection suit in
the trial court. Petitioners admitted the existence of debt but raised the defense that complaint states no
cause of action as the principal debt was already paid when the property was foreclosed.
The trial court sided with the respondent China Bank. The appellate court, likewise, sided with the
respondent Bank. On appeal to the Supreme Court, the Spouses Juico raised the issue that the interest rates
imposed by respondent China Bank were not valid.
The case involved promissory notes issued by virtue of a loan extended by China Bank to Spouses Juico.
The interest rates as indicated in the promissory note is based on the prevailing interest rate in the market.
Thus the increase in the rate compared from the time the loan was originally entered into.
VI. ISSUE: Whether or not the interest rates imposed upon Spouses Juico by respondent Bank were valid.
VII. RULING: No. Escalation clauses refer to stipulations allowing an increase in the interest rate agreed
upon by the contracting parties. This Court has long recognized that there is nothing inherently wrong with
escalation clauses which are valid stipulations in commercial contracts to maintain fiscal stability and to
retain the value of money in long term contracts. However, an escalation clause is void where the creditor
unilaterally determines and imposes an increase in the stipulated rate of interest without the express
conformity of the debtor.
The interest rates provided in the promissory notes based on the prevailing interest rates in the market did
not give respondent Bank the sole power to increase or decrease the rates because the rates were
determined by the prevailing market interest rates and not imposed by the respondent Bank.
However, The escalation clause is still void because it grants respondent the power to impose an increased
rate of interest without a written notice to petitioners and their written consent. Respondent’s monthly
telephone calls to petitioners advising them of the prevailing interest rates would not suffice. Modifications
in the rate of interest for loans pursuant to an escalation clause must be the result of an agreement between
the parties.
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The February 20, 2009
Decision and April 27, 2009 Resolution of the Court of Appeals in CA G.R. CV No. 80338 are hereby
MODIFIED. Petitioners Spouses Ignacio F. Juico and Alice P. Juico are hereby ORDERED to pay jointly
and severally respondent China Banking Corporation P4,761,865.79 representing the amount of deficiency
inclusive of interest, penalty charge and attorney’s fees. Said amount shall bear interest at 12% per annum,
reckoned from the time of the filing of the complaint until its full satisfaction. No pronouncement as to
costs. SO ORDERED.
I. SHORT TITLE: OVERSEAS BANK OF MANILA vs. CA
II. FULL TITLE: OVERSEAS BANK OF MANILA, petitioner, vs. COURT OF APPEALS,
INTEGRATED REALTY CORPORATION, and RAUL L. SANTOS, respondents., G.R. No. L-60907
June 28, 1989, Second Division, J. Regalado
III. TOPIC: Deposit

Page 27 of 104
In G.R. No. 60705, Intergrated Realty Corporation (IRC) and Raul Santos (Santos) seek the dismissal of the
complaint filed by Philippine National Bank (PNB), or in the event that they be held liable thereunder, to
revive and affirm that portion of the decision of the trial court ordering Overseas Bank of Manila (OBM)
to pay IRC and Santos whatever amounts the latter will pay to PNB, with interest from the date of
payment. In G.R. No. 60907, OBM challenges the decision of the Court of Appeals (CA) insofar as it holds
OBM liable for interest on the Time Deposit (TD) with it of Santos corresponding to the period of its
closure by order of the Central Bank.
Raul Santos made 2 Time Deposits with OBM first in the amount of P500,000.00 and was issued a
Certificate Time Deposit (CTD) No. 2308 and second in the amount of P200,000.00 and was issued
Certificate Time Deposit No. 2367.
IRC thru Santos as its President, applied for a loan and/or credit line in the amount of P 700,000.00 with
PNB, and to secure it, Santos executed a Deed of Assignment of the 2 TD in favor of PNB. OBM gave its
conformity to the assignment through a letter. IRC executed a Deed of Conformity to Loan Conditions.
OBM did not pay PNB after the due dates of the CTD. PNB demanded payment from IRC and Santos and
from OBM.
V. STATEMENT OF CASE:
PNB filed a complaint to collect from IRC and Santos the loan of P700,000.00 with interest as well as
Attorney’s Fees.
IRC and Santos alleged that PNB has no cause of action against them because their obligation to PNB was
fully paid or extinguished upon the' irrevocable' assignment of the CTD, and that they are not answerable
for the insolvency of OBM. They filed a counterclaim for damages against PNB and a cross-claim against
OBM alleging that OBM acted fraudulently in refusing to pay the CTD to PNB resulting in the filing of the
suit against them by PNB, and that, therefore, OBM should pay them whatever amount they may be
ordered by the court to pay PNB with interest. OBM denied knowledge of the CTD because the alleged
TD of Santos 'does not appear in its books of account. Ipon IRC and Santos’ third party complaint against
the officers of OBM who allegedly received the TD of Santos and issued the certificated therefor.
Answering the third-party complaint, Ramos and Sunico alleged that IRC and Santos have no cause of
action against them because they received and signed the CTD as officers of OBM that the TD are
recorded in the subsidiary ledgers of the bank and are 'civil liabilities of OBM. OBM filed an amended or
supplemental answer to the complaint, acknowledging the CTD that it issued to Santos, and admitting its
failure to pay the same due to its distressed financial situation. As affirmative defenses, it alleged that by
reason of its state of insolvency its operations have been suspended by the Central Bank. The lower court
rendered judgment in favor of PNB and ordered IRC and Santos to pay PNB, jointly and solidarily, the
total amount of P700,000.00 plus interest rate of 9% per annum from maturity dates of the 2 Promissory
Notes (PNs) plus 1 and 1/2% additional interest and additional penalty interest of 1% per annum of the
amount of P700,000.00 from the time of maturity of the loan up to the time the P700,000.00 is actually
paid to PNB.
IRC, Santos and OBM all appealed to CA which the latter promulgated its appealed decision, with a
modification and the deletion of that portion of the judgment of the trial court ordering OBM to pay IRC
and Santos whatever amounts they will pay to PNB with interest from the date of payment.
IRC, Santos and OBM, through separate petitions, have brought the said decision to SC.
VI. ISSUES:
1. Whether or not OBM should be held liable for interests on the TDs of IRC and Santos from the
time it ceased operations until it resumed its business

Page 28 of 104
2. Whether or not OBM should reimburse IRC and Santos for whatever amounts they may be
adjudged to pay PNB by way of compensation for damages incurred, pursuant to Articles 1170 and
2201 of the Civil Code
VII. RULING:
1. NO. Unless a bank can lend money, engage in international transactions, acquire foreclosed
mortgaged properties or their proceeds and generally engage in other banking and financing
activities from which it can derive income, it is inconceivable how it can carry on as a depository
obligated to pay stipulated interest. And it can be said that all who deposit money in banks are
aware of such a simple economic proposition petition. It should be deemed read into every
contract of deposit with a bank that the obligation to pay interest on the deposit ceases the
moment the operation of the bank is completely suspended by the Central Bank.
A distinction must be made between the interest which the deposits should earn from their existence until the
bank ceased to operate, and that which they may earn from the time the bank's operations were stopped until the
date of payment of the deposits. As to the first-class, we hold that it should be paid because such interest
has been earned in the ordinary course of the bank's businesses and before the latter has been
declared in a state of liquidation. The bank being authorized by law to make use of the deposits
with the limitation stated, to invest the same in its business and other operations, it may be
presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the
dates of the claims. As to the interest which may be charged from the date the bank ceased to do
business because it was declared in a state of liquidation, we hold that the said interest should not
be paid.
Supreme Court view that it is utterly unfair to award Santos his prayer for payment of interest on
his deposit during the period that OBM was not allowed by the Central Bank to operate.
2. YES. When PNB demanded from OBM payment of the amounts due on the 2 TDs there was no
obstacle yet to the faithful compliance by OBM of its liabilities thereunder. Consequently, for
having incurred in delay in the performance of its obligation, OBM should be held liable for
damages. When Santos invested his money in TD with OBM they entered into a contract of simple
loan or mutuum, not a contract of deposit.
While it is true that under Art. 1956 CC no interest shall be due unless it has been expressly
stipulated in writing, this applies only to interest for the use of money. It does not comprehend
interest paid as damages. OBM contends that it had agreed to pay interest only up to the dates of
maturity of the CTD and that Santos is not entitled to interest after the maturity dates had expired,
unless the contracts are renewed. This is true with respect to the stipulated interest, but the
obligations consisting as they did in the payment of money, under Art. 1108 CC he has the right to
recover damages resulting from the default of OBM and the measure of such damages is interest at
the legal rate of 6% per annum on the amounts due and unpaid at the expiration of the periods
respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as
interest income stipulated in the certificates of time deposit, but as damages for failure and delay in
the payment of its obligations which thereby compelled IRC and Santos to resort to the courts.
WHEREFORE, judgment is hereby rendered, ordering:
1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National Bank, jointly and severally,
the total amount of seven hundred thousand pesos (P 700,000.00), with interest thereon at the rate of nine
percent (9%) per annum from the maturity dates of the two promissory notes on January 11 and February

Page 29 of 104
6, 1968, respectively, plus one and one-half percent (1-1/2%) additional interest per annum effective
February 28, 1968 and additional penalty interest of one percent (1%) per annum of the said amount of
seven hundred thousand pesos (P 700,000.00) from the time of maturity of said loan up to the time the said
amount of seven hundred thousand pesos (P 700,000.00) is fully paid to Philippine National Bank.
2. Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine National Bank ten
percent (10%) of the amount of seven hundred thousand pesos (P 700,000.00) as and for attorney's fees.
3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos the sum of seven
hundred thousand pesos (P 700,000.00) due under Time Deposit Certificates Nos. 2308 and 2367, with
interest thereon of six and one-half percent (6-1/2%) per annum from their dates of issue on January 11,
1967 and February 6, 1967, respectively, until the same are fully paid, except that no interest shall be paid
during the entire period of actual cessation of operations by Overseas Bank of Manila;
4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos six and one-half per
cent (6-1/2%) interest in the concept of damages on the principal amounts of said certificates of time
deposit from the date of extrajudicial demand by PNB on March 1, 1968, plus legal interest of six percent
(6%) on said interest from April 6, 1968, until fifth payment thereof, except during the entire period of
actual cessation of operations of said bank.
5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos ten thousand pesos
(P l0,000.00) as and for attorney's fees. SO ORDERED.
I.SHORT TITLE: BANK OF THE PHILIPPINE ISLANDS vs. INTERMEDIATE APPELLATE

COURT
II. FULL TITLE: Bank of the Philippine Islands, petitioner versus The Intermediate Appellate Court and
Zshornack, respondents G.R. No. L-66826, 19 August 1988, Third Division (Cortes, J.)
III. TOPIC: Deposit
Rizaldy Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current
account. An application for a dollar drat was accomplished by Virgillo Garcia branch manager of
COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion, Garcia indicated that the amount
was to be charged to the dolar savings account of the Zshornacks. There was no indication of the name of
the purchaser of the dollar draft. Comtrust issued a check payable to the order of Dizon. When Zshornack
noticed the withdrawal from his account, he demanded an explainaiton from the bank. In its answer,
Comtrust claimed that the peso value of the withdrawal was given to Atty. Ernesto Zshornack, brother of
Rizaldy. When he encashed with COMTRUST a cashiers check for P8450 issued by the Manila Banking
Corporation payable to Ernesto.
The original parties to this case were Rizaldy T. Zshornack and the Commercial Bank and Trust Company
of the Philippines [hereafter referred to as "COMTRUST."] In 1980, the Bank of the Philippine Islands
(hereafter referred to as BPI absorbed COMTRUST through a corporate merger, and was substituted as
party to the case.
Rizaldy Zshornack initiated proceedings on June 28,1976 by filing in the Court of First Instance of Rizal —
Caloocan City a complaint against COMTRUST alleging four causes of action. Except for the third cause
of action, the CFI ruled in favor of Zshornack. The bank appealed to the Intermediate Appellate Court
which modified the CFI decision absolving the bank from liability on the fourth cause of action.

Page 30 of 104
VI. ISSUE: Whether the contract between petitioner and respondent bank is a deposit.
VII. RULING: YES.
The document which embodies the contract states that the US$3,000.00 was received by the bank for
safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the
bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded the
return of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code, which reads: Art.
1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is
no deposit but come other contract.
WHEREFORE, the decision appealed from is hereby MODIFIED. Petitioner is ordered to restore to the
dollar savings account of private respondent the amount of US$1,000.00 as of October 27, 1975 to earn
interest at the rate fixed by the bank for dollar savings deposits. Petitioner is further ordered to pay private
respondent the amount of P8,000.00 as damages. The other causes of action of private respondent are
ordered dismissed. SO ORDERED.
I.SHORT TITLE: GUINGONA vs. THE CITY FISCAL OF MANILA
II. FULL TITLE: TEOFISTO GUINGONA, JR., ANTONIO I. MARTIN, and TERESITA SANTOS
vs. THE CITY FISCAL OF MANILA, HON. JOSE B. FLAMINIANO, ASST. CITY FISCAL
FELIZARDO N. LOTA and CLEMENT DAVID, G.R. No. L-60033 April 4, 1984
III. TOPIC: Deposit
From March 1979 to March 1981, Clement David made several investments with the National Savings and
Loan Association. On March 21, 1981, the bank was placed under receivership by the Bangko Sentral.
Upon David’s request, petitioners Guingona and Martin issued a joint promissory note, absorbing the
obligations of the bank. On July 17, 1981 they divided the indebtedness. David filed a complaint for estafa
and violation of Central Bank Circular No. 364 and related regulations regarding foreign exchange
transactions before the Office of the City Fiscal of Manila.
Petitioners filed the herein petition for prohibition and injunction with a prayer for immediate issuance of
restraining order and/or writ of preliminary injunction to enjoin the public respondents to proceed with the
preliminary investigation on the ground that the petitioners’ obligation is civil in nature.
VI. ISSUE: Whether or not the contract between NSLA and David is a contract of deposit or contract of
loan, which answer determines whether the City Fiscal has the jurisdiction to file a case for estafa.
VII. RULING:
When private respondent David invested his money on nine and savings deposits with the aforesaid bank,
the contract that was perfected was a contract of simple loan or mutuum and not a contract of deposit.

Page 31 of 104
Hence, the relationship between the private respondent and the Nation Savings and Loan Association is
that of creditor and debtor; consequently, the ownership of the amount deposited was transmitted to the
Bank upon the perfection of the contract and it can make use of the amount deposited for its banking
operations, such as to pay interests on deposits and to pay withdrawals. While the Bank has the obligation
to return the amount deposited, it has, however, no obligation to return or deliver the same money that was
deposited. And, the failure of the Bank to return the amount deposited will not constitute estafa through
misappropriation punishable under Article 315, par. l(b) of the Revised Penal Code, but it will only give rise
to civil liability over which the public respondents have no jurisdiction.
But even granting that the failure of the bank to pay the time and savings deposits of private respondent
David would constitute a violation of paragraph 1(b) of Article 315 of the Revised Penal Code, nevertheless
any incipient criminal liability was deemed avoided, because when the aforesaid bank was placed under
receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to
private respondent David, thereby resulting in the novation of the original contractual obligation arising
from deposit into a contract of loan and converting the original trust relation between the bank and private
respondent David into an ordinary debtor-creditor relation between the petitioners and private respondent.
Consequently, the failure of the bank or petitioners Guingona and Martin to pay the deposits of private
respondent would not constitute a breach of trust but would merely be a failure to pay the obligation as a
debtor. Moreover, while it is true that novation does not extinguish criminal liability, it may however,
prevent the rise of criminal liability as long as it occurs prior to the filing of the criminal information in
court. In the case at bar, there is no dispute that petitioners Guingona and Martin executed a promissory
note on June 17, 1981 assuming the obligation of the bank to private respondent David; while the criminal
complaint for estafa was filed on December 23, 1981 with the Office of the City Fiscal. Hence, it is clear
that novation occurred long before the filing of the criminal complaint with the Office of the City Fiscal.
Consequently, as afore stated, any incipient criminal liability would be avoided but there will still be a civil
liability on the part of petitioners Guingona and Martin to pay the assumed obligation.
WHEREFORE, THE PETITION IS HEREBY GRANTED; THE TEMPORARY RESTRAINING

ORDER PREVIOUSLY ISSUED IS MADE PERMANENT. COSTS AGAINST THE PRIVATE
RESPONDENT.
I. SHORT TITLE: BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS, REYES
II. FULL TITLE: Bank of the Philippine Island vs. Court of Appeals and Edvin Reyes, G.R. No. 116792
March 29, 1996 J. Puno
III. TOPIC: Legal compensation
Private respondent Edvin F. Reyes opened a joint savings account at Bank of the Philippine Islands (BPI)
Cubao, Shopping Center Branch with his wife, Sonia S. Reyes. Private respondent also held a joint
AND/OR Savings Account with his grandmother, Emeteria M. Fernandez and regularly deposited in this
account the U.S. Treasury Warrants payable to the order of Emeteria M. Fernandez as her monthly
pension. Emeteria M. Fernandez died without the knowledge of the U.S. Treasury Department. She was
still sent U.S. Treasury Warrant in the amount of U.S. $377.003 or P10,556.00. Private respondent
deposited the said U.S. treasury check of Fernandez in Savings Account of his grandmother. The U.S.
Veterans Administration Office in Manila conditionally cleared the check. The check was then sent to the
United States for further clearing.
Two months after, private respondent closed the account of his grandmother transferred its funds
amounting to P13,112.91 to the joint account with his wife.

Page 32 of 104
The U.S. Treasury Warrant was dishonored as it was discovered that Fernandez died three (3) days prior to
its issuance. The U.S. Department of Treasury requested petitioner bank for a refund. Private respondent
received an urgent telegram from petitioner bank requesting him to contact them. When he called up the
bank, he was informed that the treasury check was the subject of a claim by Citibank NA, correspondent of
petitioner bank. He assured petitioners that he would drop by the bank to look into the matter. He also
verbally authorized them to debit from his other joint account the amount stated in the dishonored U.S.
Treasury Warrant. Now private respondent with his lawyer Humphrey Tumaneng visited the petitioner
bank and the refund documents were shown to them. Surprisingly, private respondent demanded from
petitioner bank restitution of the debited amount. He claimed that because of the debit, he failed to
withdraw his money when he needed them.
Edvin Reyes filed a suit for Damages against petitioners before the Regional Trial Court of Quezon City,
Branch 79. He claimed that because of the debit, he failed to withdraw his money when he needed them.
Petitioners contested the complaint and counter-claimed for moral and exemplary damages. By way of
Special and Affirmative Defense, they averred that private respondent gave them his express verbal
authorization to debit the questioned amount. They claimed that private respondent later refused to execute
a written authority.
In a Decision dated January 20, 1993, the trial court dismissed the complaint of private respondent for lack
of cause of action. Private respondent appealed to the respondent Court of Appeals. CA reversed.
VI. ISSUES
1. WON private respondent validly authorized petitioner bank to debit his joint account for the
amount of the returned US treasury warrant
2. WON legal compensation is applicable with the case at bar
VII. HELD
1. YES. Petitioners were able to prove this verbal authority by preponderance of evidence. Private
respondents allegation that he did not give any verbal authorization. His testimony is
uncorroborated. Nor does he inspire credence. His past and fraudulent conduct is an evidence
against him. Worse, private respondent declared under the penalties of perjury in the withdrawal
slip that his co-depositor, Fernandez, is still living. By his acts, private respondent has stripped
himself of credibility.
2. YES. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. Article 1290 of the Civil Code provides that when all the requisites
mentioned in Article 1279 are present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the creditors and debtors are not
aware of the compensation. Legal compensation operates even against the will of the interested
parties and even without the consent of them. Since this compensation takes place ipso jure, its
effects arise on the very day on which all its requisites concur. When used as a defense, it retroacts
to the date when its requisites are fulfilled.
The elements of legal compensation are all present in the case at bar. The obligors bound
principally are at the same time creditors of each other. Petitioner bank stands as a debtor of the
private respondent, a depositor. At the same time, said bank is the creditor of the private
respondent with respect to the dishonored U.S. Treasury Warrant which the latter illegally
transferred to his joint account. The debts involved consist of a sum of money. They are due,
liquidated, and demandable. They are not claimed by a third person.

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The presence of private respondents wife does not negate the element of mutuality of parties, i.e.,
that they must be creditors and debtors of each other in their own right. The wife of private
respondent is not a party in the case at bar. She never asserted any right to the debited U.S.
Treasury Warrant. Indeed, the right of the petitioner bank to make the debit is clear and cannot be
doubted. To frustrate the application of legal compensation on the ground that parties are not all
mutually obligated would result in unjust enrichment on the part of the private respondent and his
wife who herself out of honesty has not objected to the debit.
IN VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R. CV No. 41543 dated
August 16,1994 is ANNULLED and SET ASIDE and the Decision of the trial court in Civil Case
No. Q-91-8451 dated January 20, 1993 is REINSTATED. Costs against private respondent. SO
ORDERED.
I. SHORT TITLE: CITIBANK N.A. vs. SABENIANO
II. FULL TITLE: Citybank, N.A. (Formerly First National City Bank) and Investors Finance Corporation,
doing business under the name and style of FNCB Finance v. Modestra Sabeniano – G.R. No. 156132,
October 16, 2006, J. Chico Nazario
III. TOPIC: Offsetting or Compensation of Loan
Petitioner Investors Finance Corporation, which did business under the name and style of FNCB Finance,
was an affiliate company of petitioner Citibank, a banking corporation duly authorized and existing under
the laws of the United States of America and licensed to do commercial banking activities and perform
trust functions in the Philippines specifically handling money market placements for its clients.
Respondent filed a Complaint against petitioners before the RTC of Makati City, claiming to have
substantial deposits and money market placements with the petitioners, as well as money market
placements with the Ayala Investment and Development Corporation, the proceeds of which were
supposedly deposited automatically and directly to respondent’s accounts with petitioner Citibank.
Respondent alleged that petitioners refused to return her deposits and the proceeds of her money market
placements despite her repeated demands.
Petitioners admitted that respondent had deposits and money market placements with them, including
dollar accounts in the Citibank branch in Geneva, Switzerland, alleging also that the respondent later
obtained several loans from petitioner Citibank, for which she executed Promissory Notes, and secured by
(a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her
money market placements with petitioner FNCB Finance. However, respondent failed to pay her loans
despite repeated demands so the petitioner bank exercised its right to off-set or compensate respondent’s
outstanding loans with her deposits and money market placements. Petitioners were therefore surprised
when six years later, respondent and her counsel made repeated requests for the withdrawal of respondent’s
deposits and money market placements with petitioner Citibank, including her dollar accounts with
Citibank-Geneva and her money market placements with petitioner FNCB Finance. Thus, petitioners
prayed for the dismissal of the Complaint and for the award of actual, moral, and exemplary damages, and
attorney’s fees.

Page 34 of 104
The trial court ruled that he setoff effected by the Bank was illegal, null and void and that, Respondent
Sabeniano was indebted to Citybank, ordering her to pay the amount without interest and penalty charges.
The Court of Appeals affirmed the decision of the trial court with modification with respect to Sabeniano’s
indebtedness.
VI. ISSUE: Whether or not the offsetting or compensation of the respondent’s outstanding loans with her
deposits is valid.
VII. RULING:
The liquidation of respondents outstanding loans were valid in so far as petitioner Citibank used
respondent’s savings account with the bank and her money market placements with petitioner FNCB
Finance; but illegal and void in so far as petitioner Citibank used respondents dollar accounts with
Citibank-Geneva.
As to the savings account: Petitioner Citibank was the creditor of respondent for her outstanding loans. At
the same time, respondent was the creditor of petitioner Citibank, as far as her deposit account was
concerned, since bank deposits, whether fixed, savings, or current, should be considered as simple loan or
mutuum by the depositor to the banking institution. Both debts consist in sums of money. By June 1979, all
of respondents PNs in the second set had matured and became demandable, while respondents savings
account was demandable anytime. Neither was there any retention or controversy over the PNs and the
deposit account commenced by a third person and communicated in due time to the debtor concerned.
Compensation takes place by operation of law, therefore, even in the absence of an expressed authority
from respondent, petitioner Citibank had the right to effect the partial compensation or off-set of
respondents outstanding loans with her deposit account, amounting to P31,079.14.
As to money market placements: Respondents money market placements were with petitioner FNCB
Finance, and after several roll -overs, they were ultimately covered by PNs which, by 3 September 1979, the
date the check for the proceeds of the said PNs were issued, amounted to P1,022,916.66, inclusive of the
principal amounts and interests. As to these money market placements, respondent was the creditor and
petitioner FNCB Finance the debtor; while, as to the outstanding loans, petitioner Citibank was the creditor
and respondent the debtor. Consequently, legal compensation, under Article 1278 of the Civil Code, would
not apply since the first requirement for a valid compensation, that each one of the obligors be bound
principally, and that he be at the same time a principal creditor of the other, was not met.
As to the dollar accounts: The Court finds the same exceedingly suspicious and irregular. Petitioner
Citibank failed to comply with the production of the original Declaration of Pledge. It is admitted that
Citibank-Geneva had possession of the original copy of the pledge. While petitioner Citibank in Manila and
its branch in Geneva may be separate and distinct entities, they are still incontestably related, and between
petitioner Citibank and respondent, the former had more influence and resources to convince Citibank-
Geneva to return, albeit temporarily, the original Declaration of Pledge. Petitioner Citibank did not present
any evidence to convince this Court that it had exerted diligent efforts to secure the original copy of the
pledge, nor did it proffer the reason why Citibank-Geneva obstinately refused to give it back, when such
document would have been very vital to the case of petitioner Citibank. There is thus no justification to
allow the presentation of a mere photocopy of the Declaration of Pledge in lieu of the original, and the
photocopy of the pledge presented by petitioner Citibank has nil probative value.
IN VIEW OF THE FOREGOING, the instant Petition is PARTLY GRANTED. The assailed Decision
of the Court of Appeals in CA-G.R. No. 51930, dated 26 March 2002, as already modified by its
Resolution, dated 20 November 2002, is hereby AFFIRMED WITH MODIFICATION, as follows

Page 35 of 104
1. PNs No. 23356 and 23357 are DECLARED subsisting and outstanding. Petitioner Citibank is
ORDERED to return to respondent the principal amounts of the said PNs, amounting to Three Hundred
Eighteen Thousand Eight Hundred Ninety-Seven Pesos and Thirty-Four Centavos (P318,897.34) and Two
Hundred Three Thousand One Hundred Fifty Pesos (P203,150.00), respectively, plus the stipulated interest
of Fourteen and a half percent (14.5%) per annum, beginning 17 March 1977;
2. The remittance of One Hundred Forty-Nine Thousand Six Hundred Thirty Two US Dollars and Ninety-
Nine Cents (US$149,632.99) from respondents Citibank-Geneva accounts to petitioner Citibank in Manila,
and the application of the same against respondents outstanding loans with the latter, is DECLARED
illegal, null and void. Petitioner Citibank is ORDERED to refund to respondent the said amount, or its
equivalent in Philippine currency using the exchange rate at the time of payment, plus the stipulated interest
for each of the fiduciary placements and current accounts involved, beginning 26 October 1979;
3. Petitioner Citibank is ORDERED to pay respondent moral damages in the amount of Three Hundred
Thousand Pesos (P300,000.00); exemplary damages in the amount of Two Hundred Fifty Thousand Pesos
(P250,000.00); and attorneys fees in the amount of Two Hundred Thousand Pesos (P200,000.00); and
4. Respondent is ORDERED to pay petitioner Citibank the balance of her outstanding loans, which, from
the respective dates of their maturity to 5 September 1979, was computed to be in the sum of One Million
Sixty-Nine Thousand Eight Hundred Forty-Seven Pesos and Forty Centavos (P1,069,847.40), inclusive of
interest. These outstanding loans shall continue to earn interest, at the rates stipulated in the corresponding
PNs, from 5 September 1979 until payment thereof. SO ORDERED.
I. SHORT TITLE: FINMAN vs. SALIK
II. FULL TITLE: Finman General Assurance Corporation Vs. Abdulgani Salik, Balabagan Ampilan Ali
Kuba Gandhi Pua, Davidmalanao, The Administrator, Philippine Overseas And
Employmentadministration, The Secretary Of Labor And Employment, G.R. NO. 84084, AUGUST 20,
1990.
III. TOPIC: Guaranty
Private respondents allegedly applied with Pan Pacific Overseas Recruiting Services, Inc. on April 22, 1987
and were assured employment abroad by a certain Mrs. Normita Egil. They allegedly paid fees of over P30,
000.00. But despite numerous assurances of employment abroad given by Celia Arandia and Mrs. Egil, they
were not employed.
Accordingly, they filed a joint complaint with the POEA against Pan Pacific for Violation of Articles 32
and 34(a) of the Labor Code, as amended, with claims for refund of a total amount of P30, 000.00. The
POEA motu proprio impleaded and summoned herein petitioner surety, in the latter's capacity as Pan
Pacific's bonding company. Summonses were served upon both Pan Pacific and Finman, but they failed to
answer.
During the hearing only the private respondents appeared. Despite being deemed in default for failing to
answer, both Finman and Pan Pacific were still notified of the scheduled hearing. Again they failed to
appear. Thus, ex-parte proceedings ensued.
Private respondents reiterated the allegations in their complaint that they first paid P20, 000.00 thru Hadji
Usop Kabagani for which a receipt was issued signed by Engineer Arandia and countersigned by Mrs. Egil
and a certain Imelda who are allegedly employed by Pan Pacific; that they paid another P10, 000.00 to Engr.

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Arandia who did not issue any receipt therefor; that the total payment of P30, 000.00 allegedly represents
payments for herein private respondents in the amount of P5,000.00 each, and Abdulnasser Ali, who did
not file any complaint against Pan Pacific.
Herein private respondents presented as their witness, Hadji Usop Kabaganiwho they identified as the one
who actually financed their application and who corroborated their testimonies on all material points
including the non-issuance of a receipt for P10, 000.00 by Engr. Arandia.
Herein petitioner, alleged that herein private respondents do not have a valid cause of action against it; that
petitioner is not privy to any transaction undertaken by Pan Pacific with herein private respondents; that
herein private respondents claims are barred by the statute of frauds and by the fact that they executed a
waiver; that the receipts presented by herein private respondents are mere scraps of paper; that it is not
liable for the acts of Mrs. Egil that Finman has a cash bond of P75,000.00 only which is less than the
required amount of P100,000.00; and that herein private respondents should proceed directly against the
cash bond of Pan Pacific or against Mrs. Egil .
The Secretary of Labor ruled in favor of herein respondents. Petitioner filed a motion for reconsideration,
but was denied.
VI. ISSUE: Whether or not petitioner has obligations to, and is liable to the respondents, as with the surety
agreement between petitioners Pan Pacific.
VII. RULING: Yes. Herein petitioner and Pan Pacific entered into a surety ship agreement, with the
former agreeing that the bond is conditioned upon the true and faithful performance and observance of the
bonded principal (Pan Pacific) of its duties and obligations. It was also understood that under the surety
ship agreement, herein petitioner undertook itself to be jointly and severally liable for all claims arising from
recruitment violation of Pan Pacific.
The nature of Finman's obligation under the surety ship agreement makes it privy to the proceedings
against its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a judgment
against its principal even though it was not a party to the proceedings.
In the case at bar, it can be very well said that even if herein petitioner was not impleaded in the instant
case, still it can be held jointly and severally liable for all claims arising from recruitment violation of Pan
Pacific. Moreover, as correctly stated by the Solicitor General, private respondents have a legal claim against
Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order to
provide a complete relief to private respondents, petitioner had to be impleaded in the case.
PREMISES CONSIDERED, the questioned Orders of respondent Secretary of Labor are hereby
AFFIRMED in toto. SO ORDERED.
I.SHORT TITLE: COMMONWEALTH INSURANCE vs. COURT OF APPEALS
II. FULL TITLE: Commonwealth Insurance Corporation vs. Court of Appeals and Rizal Commercial
Banking Corporation, GR. No. 130886, January 29, 2004, J. Austria-Martinez
III. TOPIC: Simple Loan

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In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines.
One, for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba
Industries, Inc. (ELBA). The two are sister corporations.
JIGS drew from its credit line the amount of P2,499,992.00, and ELBA, P998,033.37 plus P478,985.05
from the case-to-case basis and trust receipts. These loans were evidenced by promissory notes, and
secured by surety bonds executed by defendant-appellee Commonwealth Insurance Company (CIC).
JIGS and ELBA defaulted in the payment of their respective loans and RCBC made a written demand on
appellee CIC to pay JIGS’ account to the full extent of the suretyship. A similar demand was made for
appellee CIC to pay ELBA’s account to the full extend of the suretyship.
In response to those demands, appellee CIC made several payments in the total amount of P2,000,000.00.
There having been a substantial balance unpaid, appellant RCBC made a final demand for payment upon
appellee CIC but the latter ignored it. Thus, appellant RCBC filed the Complaint for a Sum of Money on
September 19, 1988 against appellee CIC.
RCBC filed a motion for reconsideration praying that in addition to the principal sum of P2,464,128.00,
defendant CIC be held liable to pay interests thereon from date of demand at the rate of 12% per annum
until the same is fully paid.
However, the trial court denied the motion and RCBC appealed to the Court of Appeals.
The CA ruled that a surety’s liability shall be limited to the amount of the bond. That if the surety pays his
obligation at maturity upon demand, then, it cannot be made to pay more than the amount of the bond.
But if the surety fails or refuses, without justifiable cause to pay his obligation upon a valid demand, then he
must pay damages or interest in consequence thereof. Even if this interest is in excess of the amount of the
bond, the defaulting surety is liable according to settled jurisprudence.
V. ISSUE: Whether or not petitioner should be held liable to pay legal interest over and above its principal
obligation under the surety bonds issued by it
VII. RULING:
Yes, the petitioner should be held liable to pay legal interest. If a surety upon demand, fails to pay, he can
be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation.
The increased liability is not because of the contract but because of the default and the necessity of judicial
collection. The Court of Appeals correctly imposed the rate of interest at 12% per annum to be computed
from the time the extra-judicial demand was made.
Wherefore, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals are AFFIRMED in toto.
I.SHORT TITLE: MANILA INSURANCE vs. AMURAO
II. FULL TITLE: The Manila Insurance Company, Inc. versus Spouses Roberto and Aida Amurao – G.R.
No. 179628, January 16, 2013, J. del Castillo
III. TOPIC: Credit

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On March 7, 2000 Spouses Roberto and Aida Amurao (Respondents) entered into a Construction Contract
Agreement (CCA) with Aegean Construction and Development Corporation (Aegean) for the construction
of a commercial building, which Aegean secured with performance bonds issued by The Manila Insurance
Company, Inc. (Petitioner), and Intra Strata Assurance Corp. (Strata). Aegean failed to complete the
project.
On November 15, 2001, respondents filed with the Regional Trial Court (RTC) a Complaint to collect on
the performance bonds issued by Strata and petitioner. Strata filed an Answer, as well as a Motion to Admit
Third Party Complaint against Aegean, Ronald D. Nicdao, and Arnel A. Mariano. Petitioner filed a Motion
to Dismiss on the grounds that the Complaint states no cause of action, and that the filing of the complaint
is premature due to failure to implead Aegean, which the RTC denied. Petitioner then filed an Answer with
Counterclaim and Cross-claim, and Third Party complaint against Aegean and Spouses Ronald and Susana
Nicdao. During pre-trial, it was discovered that the CCA between respondents and Aegean contained an
arbitration clause, thus petitioner and Strata filed a Motion to Dismiss on the grounds of lack of cause of
action, and lack of jurisdiction, which the RTC denied, along with the subsequent Motion for
Consideration. Petitioner elevated the matter to the Court of Appeals (CA) by Special Civil Action for
Certiorari. The CA dismissed the petition, stating that the presence of the arbitration clause does not merit
a dismissal of the case for it is only when there are differences in the interpretation of Article I of the CCA
that the parties can resort to arbitration, as well as ruling that the RTC committed no grave abuse of
discretion when it disregarded the fact that the CCA was not yet signed at the time the petitioner issued the
performance bond on February 29, 2000, explaining that the performance bond was intended to be co-
terminus with the construction of the building, that if the delivery of the original contract is
contemporaneous with the delivery of the surety’s obligation, each contract becomes completed at the same
time, and the consideration which supports the principal contract likewise supports the subsidiary one, and
that although the contract of surety is only an accessory to the principal contract, the surety’s liability is
direct, primary, and absolute. A subsequent Motion for Reconsideration filed by petitioner was also
dismissed. Hence, this petition.
VI. ISSUE:
1. Whether or not petitioner is a solidary guarantor.

2. Whether or not respondent has no cause of action against petitioner because at the time the latter issued
the performance bond, the CCA was not yet signed by respondent and Aegean.
3. Whether or not the Construction Industry Arbitration Commission (CIAC) has jurisdiction over the
case.
VII. RULING:
1. No, petitioner is a solidary debtor. A contract of suretyship is defined as "an agreement whereby a party,
called the surety, guarantees the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act
No. 536, as amended by Act No. 2206." We have consistently held that a surety’s liability is joint and
several, limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in
relation to the principal contract between the obligor and the obligee. It bears stressing, however, that
although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee
is nevertheless direct, primary, and absolute.
2. No, the failure to sign the CCA ahead of the issuance of the performance bond is immaterial. A careful
reading of the Performance Bond reveals that the "bond is coterminous with the final acceptance of the

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project.” Thus, the fact that it was issued prior to the execution of the CCA does not affect its validity or
effectivity.
3. Yes, the CIAC has jurisdiction. Section 4 of E.O. No. 1008 provides that: SEC. 4. Jurisdiction. – The
CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by
parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or
after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship, violation of the terms of agreement, interpretation and/or application of contractual time
and delays, maintenance and defects, payment, default of employer or contractor, and changes in contract
cost.
Excluded from the coverage of the law are disputes arising from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must concur: "first, the
dispute must be somehow connected to a construction contract; and second, the parties must have agreed
to submit the dispute to arbitration proceedings." In this case, both requisites are present.
WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the Resolution
dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are hereby ANNULLED and
SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon City, Branch 217 1s DIRECTED
to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction. SO ORDERED.
I. SHORT TITLE: RCBC vs. ARRO
II: FULL TITLE: Rizal Commercial Banking Corp. vs. Arro, 115 SCRA 777, No. L-49401, July 30, 1982
III. STATEMENT OF THE FACTS:
Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensive surety agreement to
guaranty, above all, any existing or future indebtedness of Davao Agricultural Industries Corporation
(Daicor), and/or induce the bank at any time or from time to time to make loans or advances or to extend
credit to said Daicor, provided that the liability shall not exceed at any time Php100,000.00.A promissory
note for Php100,000.00 (for additional capital to the charcoal buy and sell and the activated carbon
importation business) was issued in favor of petitioner RCBC payable a month after execution. This was
signed by Go in his personal capacity and in behalf of Daicor. Respondent Chua did not sign in said
promissory note.
IV. STATEMENT OF THE CASE:
As the note was not paid despite demands, RCBC filed a complaint for a sum of money against Daicor, Go
and Chua. The complaint against Chua was dismissed upon his motion, alleging that the complaint states
no cause of action against him as he was not a signatory to the note and hence he cannot be held liable.
This was so despite RCBC’s opposition, invoking the comprehensive surety agreement which it holds to
cover not just the note in question but also every other indebtedness that Daicor may incur from petitioner
bank. RCBC moved for reconsideration of the dismissal but to no avail. Hence, this petition.
V. ISSUE: WON respondent Chua may be held liable with Go and Daicor under the promissory note, even
if he was not asignatory to it, in light of the provisions of the comprehensive surety agreement wherein he

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bound himself with Go and Daicor, as solidary debtors, to pay existing and future debts of said
corporation.
VI. RULING:
Yes, he may be held liable. Order dismissing the complaint against respondent Chua reversed and set aside.
Case remanded to court of origin with instruction to set aside motion to dismiss and to require defendant
Chua to answer the complaint.
The comprehensive surety agreement executed by Chua and Go, as president andgeneral manager,
respectively, of Daicor, was to cover existing as well as future obligations which Daicor may incur with
RCBC. This was only subject to the proviso that their liability shall not exceed at any one time the aggregate
principal amount of Php100,000.00. (Par.1of said agreement).
The agreement was executed to induce petitioner Bank to grant any application for a loan Daicor would
request for. According to said agreement, the guaranty is continuing and shall remain in full force or effect
until the bank is notified of its termination. During the time the loan under the promissory note was
incurred, the agreement was still in full force and effect and is thus covered by the latter agreement. Thus,
even if Chua did not sign the promissory note, he is still liable by virtue of the surety agreement. The only
condition necessary for him to be liable under the agreement was that Daicor “is or may become liable as
maker, endorser, acceptor or otherwise.”
The comprehensive surety agreement signed by Go and Chua was as an accessory obligation dependent
upon the principal obligation, i.e., the loan obtained by Daicor as evidenced by the promissory note. The
surety agreement unequivocally shows that it was executed to guarantee future debts that may be incurred
by Daicor with petitioner, asa llowed under NCC Art.2053.
“A guaranty may also be given as security for future debts, the amount of which is not yet known; there can
be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured.”
In view of the foregoing, the decision (which should have been a mere "order"), dismissing the complaint is
reversed and set side. The case is remanded to the court of origin with instructions to set aside the motion
to dismiss, and to require defendant Residoro Chua to answer the complaint after which the case shall
proceed as provided by the Rules of Court. No costs. SO ORDERED.
I. SHORT TITLE: DIÑO vs. COURT OF APPEALS
II. FULL TITLE: JACINTO UY DIÑO and NORBERTO U vs. HON. COURT OF APPEALS and
METROPOLITAN BANK AND TRUST COMPANY, G.R. No. 89775 November 26, 1992, J. Davide Jr
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for
and obtained credit accommodations from Metrobank in the sum of Php700,000. This was secured by
Continuing Suretyships separately executed by petitioners Norberto Uy (who agreed to pay Php300,000)
and Jacinto Diño (who bound himself liable up to Php800,000). Uy Tiam paid the obligation under this
letter of credit in 1977. UTEFS obtained another credit accommodation in 1978, which was likewise settled
before he applied and obtained another in 1979 in the sum of Php815,600. This sum covered UTEFS’
purchase of fertilizers from Planters Producst. Uy and Diño did not sign the application for this credit and
were not asked to execute suretyshipor guarantee. UTEFS executed a trust receipt whereby it agreed to

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deliver to Metrobank the goods in the event of non-sale, and if sold, the proceeds will be delivered to
Metrobank. However, UTEFS did not comply with its obligation. As a result, Metrobank demanded
payment from UTEFS and the sureties, Uy & Diño. The sureties refused to pay on the ground that the
obligation for which they executed the continuing suretyship agreement has been paid.
METROBANK filed a complaint for collection of a sum of money (P613,339.32, as of January 31, 1982,
inclusive of interest, commission penalty and bank charges) with a prayer for the issuance of a writ of
preliminary attachment, against Uy Tiam, representative of UTEFS and impleaded Diño and Uy as parties-
defendants. The RTC dismissed the complaint.
VI. ISSUE: Whether or not the petitioners are liable for payment of the 1979 transaction under the
continuing suretyship agreement they executed in 1977. Assuming that they are, what is the extent of their
liability.
VII. RULING: Yes, The Supreme Court held that Uy & Diño are liable.
The agreement they executed in 1977 is a continuing suretyship, one which is not limited to a single
transaction but which contemplates a succession of liabilities, for which, as they accrue, the guarantor
becomes liable. The agreement that petitioners signed expressly provided that it is a continuing guaranty
and shall be in full force and effect until written notice to the bank that it has been revoked by the surety.
The petitioners are only liable up to the maximum limit fixed in thecontinuing suretyship agreements
(Php800,000 for Diño and Php300,000 for Uy). The law is clear that a guarantor may bind himself for less,
but not for more than the principal debtor, both as regards the amount and the onerous nature of the
conditions (Art. 2054). CA decision ordering petitioners to pay P2,397,883.68 which represents the amount
due inclusive of interest and charges, is modified.
WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged decision has to be
modified with respect to the extend of petitioners' liability. As modified, petitioners JACINTO UY DIÑO
and NORBERTO UY are hereby declared liable for and are ordered to pay, up to the maximum limit only
of their respective Continuing Suretyship Agreement, the remaining unpaid balance of the principal
obligation of UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES under Irrevocable Letter
of Credit No. SN-Loc-309, dated 30 March 1979, together with the interest due thereon at the legal rate
commencing from the date of the filing of the complaint in Civil Case No. 82-9303 with Branch 45 of the
Regional Trial Court of Manila, as well as the adjudged attorney's fees and costs. All other dispositions in
the dispositive portion of the challenged decision not inconsistent with the above are affirmed. SO
ORDERED.
I. SHORT TITLE: TRADERS vs. DY ENG GIOK
II. FULL TITLE: Traders Insurance and Surety Company vs. Dy Eng Giok, Pedro Lopez Dee and Pedro
Dy-Liacco G.R. No. L-9073. November 17, 1958
III. TOPIC: Guaranty; Guarantee Must be Express (Art. 2055)
From 1948 to 1952, Dy Eng Giok (Dy) worked for Destileria Lim Tuaco & Co., Inc. (Company) as a
provincial sales agent with the duty of turning over the proceeds of his sales to the principal. As of August
3, 1951, Dy had an outstanding running account in favor of the Company in the sum of P12,898.61.

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On August 4, 1961, Dy executed a surety bond, as principal, with Traders Insurance and Surety Co.
(Traders), as solidary guarantor, whereby they bound themselves, jointly and severally, in the sum of
P10,000.00 in favor of the Company. On the same date, Pedro Lopez Dee and Pedro Dy-Liacco, as
counterboundsmen and with Dy as princupal, subscribed an indemnity agreement in favor of Traders,
whereby, in consideration of its surety bond, the three agreed to be obligated to Traders.
From August 4, 1951 to August 3, 1952, Dy contracted obligations in favor of the Company for a total
amount of P41,449.93; and during the same period, he made remittances amounting to P41,864.49. The
Company, however, applied said remittances first to Dy’ outstanding balance prior to August 4, 1951.
Afterwards, it demanded payment of the remainder (P12,484.05) from Dy, and later, from Traders, to
which the latter paid P10,000.00 (the maximum of its bond) on July 17, 1953, without questioning the
demand; and then sought reimbursement from Dy Eng Giok and his counter guarantors.
Upon Dy and his counter guarantors’ failure to pay, Traders filed an action to enforce collection. The trial
court absolved the counter-guarantors since insofar as they are concerned, the payments made by Dy from
August 4, 1951 to August 3, 1952, in the sum of P41,864.49, should have been applied to his obligations
during that period, which were the ones covered by the surety bond and the counter-guaranty. It likewise
concluded that Traders incurred no liability and the counterbondsmen in turn had nothing to answer for.
The trial court, however, sentenced Dy to repay Traders the P10,000 with interest at 12% per annum, plus
P1,500 attorneys’ fee and the costs of the suit.
VI. ISSUE: Whether or not the remittances should first be applied to unsecured obligations contracted
prior to the execution of the surety agreement.
VII. RULING: NO. The remittances should have been applied first to the obligations secured by the surety
agreement for two reasons.
First, in the absence of express stipulation, a guaranty or suretyship operates prospectively and not
retroactively; it secures only the debts contracted after the guaranty takes effect. This rule is a consequence
of the statutory directive that a guaranty is not presumed, but must be express, and cannot extend to more than what is
stipulated. To apply the payments made by the principal debtor to the obligations he contracted prior to the
guaranty is, in effect, to make the surety answer for debts incurred outside of the guaranteed period, and
this cannot be done without the express consent of the guarantor. The suretyship agreement did not
guarantee the payment of any outstanding balance due from the principal debtor, Dy; but only that he
would turn over the proceeds of the sales to the "Destileria Lim Tuaco & Co., Inc.", which he has done.
There is no evidence that these remittances did not come from his sales.
Second, since the obligations of Dy between August 4, 1951 to August 4, 1952, were guaranteed, while his
indebtedness prior to that period was not secured, then in the absence of express application by the debtor,
or of any receipt issued by the creditor specifying a particular imputation of the payment (New Civil Code,
Art. 1252), any partial payments made by him should be imputed or applied to the debts that were
guaranteed, since they are regarded as the more onerous debts from the standpoint of the debtor.
Debts covered by a guaranty are deemed more onerous to the debtor than the simple obligations because,
in their case, the debtor may be subjected to action not only by the creditor, but also by the guarantor, even
before the guaranteed debt is paid by the guarantor (Art. 2071, New Civil Code); hence, the payment of the
guaranteed debt liberates the debtor from liability to the creditor as well as to the guarantor, while payment
of the unsecured obligation only discharges him from possible action by only one party, the unsecured
creditor.
VIII. DISPOSITIVE PORTION: Finding no error in the judgment appealed from, the same is affirmed.
Costs against appellant. So ordered.

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I. SHORT TITLE: ESTATE OF HEMADY vs. LUZON SURETY
II. FULL TITLE: ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., G.R. No. L-
8437. November 28, 1956, Reyes, J. B. L., J.
Luzon Surety filed a claim against the estate of K.H. Hemady based on indemnity agreements
(counterbonds) subscribed by distinct principals and by the deceased K.H. Hemady as surety (solidary
guarantor). As a contingent claim, Luzon Surety prayed for the allowance of the value of the indemnity
agreements it had executed. The lower court dismissed the claim of Luzon Surety on the ground that
“whatever losses may occur after Hemady’s death, are not chargeable to his estate, because upon his death
he ceased to be a guarantor.”
Under our law, therefore, the general rule is that a party’s contractual rights and obligations are
transmissible to the successors. The rule is a consequence of the progressive “depersonalization” of
patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of these
institutions. From the Roman concept of a relation from person to person, the obligation has evolved into
a relation from patrimony to patrimony, with the persons occupying only a representative position, barring
those rare cases where the obligation is strictly personal, i.e., is contracted intuitu personae, in consideration
of its performance by a specific person and by no other. The transition is marked by the disappearance of
the imprisonment for debt.
VI. ISSUE: Whether or not a solidary guarantor’s liability is extinguished by his death.
VII. RULING: The solidary guarantor’s liability is not extinguished by his death, and that in such event, the
Luzon Surety Co., had the right to file against the estate a contingent claim for reimbursement. The
contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being rendered
intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts themselves,
nor by provision of law, his eventual liability thereunder necessarily passed upon his death to his heirs.
Wherefore, the order appealed from is reversed, and the records are ordered remanded to the court of
origin, with instructions to proceed in accordance with law. Costs against the Administratrix - Appellee.. SO
ORDERED.
I. SHORT TITLE: BAYLON vs. COURT OF APPEALS
II. FULL TITLE: Pacionara C. Baylon, petitioner, vs. The Honorable Court of Appeals and Leonila
Tomacruz, respondent. G.R. No. 109941, August 17,1999
Sometime in 1986, Baylon introduced Tomacruz to Luanzon, who is engaged in business as a contractor
for 20 years and she invited Tomacruz to lend Luanzon money at a monthly interest rate of 5% to be used
as capital for the latter’s business. Persuaded by the assurances of Baylon that Luanzon has a stable business

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and by the highest interest rate, she agreed to lend Luanzon money in the amount of 150K. Thus, Luanzon
issued and signed a promissory note which was also signed by Baylon under the word “guarantor”.
Postdated checks were also issued in the amount of 150K payable to Tomacruz. Subsequently, Luanzon
replaced this check with another postdated checks in the amount of P7,500 each were also issued by
Luanzon and made payable to Tomacurz. Tomacruz made a written demand upon Baylon for payment but
it remained heeded.
Tomacruz filed a case for the collection of a sum of money with the RTC of Quezon City against Luanzon
and Baylon. However, summons was never served upon Luanzon. Baylon denied having guaranteed the
payment of the promissory notes issued. She claimed that Tomacruz gave Luanzon the money, not as a
loan, but rather as an investment in Art Enterprises and Construction, Inc. Also assuming that there is a
loan granted and the same was guaranteed, Tomacruz has not exhausted the property of the principal
debtor as required by law.
RTC ruled in favor of Tomacruz based on the fact that the evidence and the testimonies on record
established a fact that the transaction between them was a loan with 5% monthly interest and not an
investment. Postdated checks were issued simultaneously with the promissory notes to enable Tomacruz to
withdraw their money on a certain fixed time. This shows that they were never participants in the business
transaction of Luanzon but were creditors.
On appeal, the CA affirmed the RTC decision. Hence, this petition for review by way of certiorari.
VI. ISSUE:
1. Whether or not Tomacruz is a creditor or an investor in the said construction business.

2. Whether or not Cera Baylon was a guarantor.
3. Whether or not Tomacruz has taken steps to exhaust the property of the the principal debtor and
resorted to all the legal remedies provided by law.
VII. RULING:
1. Tomacruz is a creditor. It is clear in the promissory note whereby Luanzon promised to pay Tomacruz
the amount of 150K on or before August 22, 1987. If the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning of its stipulation shall control. Both parties
do not deny the execution and authenticity of the said promissory note. The clear terms of the promissory
note establish a creditor-debtor relationship between Luanzon and Tomacruz. Thus, the transaction is
therefore a loan, not an investment.
2. & 3. It is premature to determine whether or not Baylon is liable as a guarantor and whether she is
entitled to the right of benefit of excussion, since the most basic prerequisite is wanting – that is, no
judgment was first obtained against the principal debtor Luanzon. Although Luanzon was impleaded as
defendant, there is nothing in the records to show that summons was served upon her. Thus, the RTC
never acquired jurisdiction over the principal debtor.
IN VIEW OF THE FOREGOING, the petition is granted and the questioned Decision of the Court of
Appeals dated November 29, 1991 and Resolution dated April 27, 1993 are SET ASIDE. No
pronouncement as to costs. SO ORDERED.

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I.SHORT TITLE: SPECIAL STEEL vs. ANDRADA
II. FULL TITLE: Special Steel Products Inc., v. Lutgardo Villareal and Frederick So– G.R. No. 143304 July
8, 2004, Sandoval-Gutierrez, J.
Special Steel Products, Inc., petitioner, is a domestic corporation engaged in the principal business of
importation, sale, and marketing of BOHLER steel products. Lutgardo C. Villareal and Frederick G. So,
respondents, worked for petitioner as assistant sales manager and salesman, respectively.
Sometime in May 1993, respondent Villareal obtained a car loan from the Bank of Commerce, with
petitioner as surety, as shown by a "continuing suretyship agreement" and "promissory note" wherein they
jointly and severally agreed to pay the bank P786,611.60 in 72 monthly installments. Petitioner "sponsored"
respondent Frederick So to attend a training course in Kapfenberg, Austria conducted by BOHLER, as a
reward for respondent So’s outstanding sales performance. When So returned, the petitioner asked
respondent So to sign a memorandum to work for the company for three years. After 2 years and 4
months, So resigned from the company. Petitioner ordered respondents an accounting of the various
Christmas giveaways they received. In return, respondents also demanded payment of their separation
benefits, commissions, monetary benefits but petitioner refused and withheld the 13th month pay and
other benefits.
On April 16, 1997, respondents filed with the Labor Arbiter a complaint for payment of their monetary
benefits against petitioner and its president. The Labor Arbiter rendered in favor of respondents. On
appeal, the National Labor Relations Commission affirmed the decision but exempted the president from
any liability. Petitioner filed with the CA a petition for certiorari to which it rendered a decision dismissing
the petition and assailing the NLRC decision. Petitioner, relying on Article 2071, contends that the right to
demand security and obtain release from the guaranty it executed in favor of respondent Villareal may be
exercised even without initiating a separate and distinct action.
VI. ISSUE: Whether or not petitioner, as a guarantor, could legally withhold respondent Villareal’s
monetary benefits as a preliminary remedy pursuant to Article 2071 of the Civil Code
VII. RULING: NO. There is no guaranty involved herein and, therefore, the provision of Article 2071
does not apply.
A guaranty is distinguished from a surety in that a guarantor is the insurer of the solvency of the debtor and
thus binds himself to pay if the principal is unable to pay, while a surety is the insurer of the debt, and he obligates
himself to pay if the principal does not pay. Thus, the contract executed by petitioner and respondent Villareal (in
favor of the Bank of Commerce) is a contract of surety. In fact, it is denominated as a "continuing
suretyship agreement." Hence, petitioner could not just unilaterally withhold respondent’s wages or benefits
as a preliminary remedy under Article 2071. It must file an action against respondent Villareal. Thus, the
Appellate Court aptly ruled that petitioner "may only protect its right as surety by instituting an ‘action to
demand a security’."
WHEREFORE, the petition is DENIED. The Decision dated October 29, 1999 and Resolution dated May
8, 2000 of the Court of Appeals in CA-G.R. SP No. 50957 are hereby AFFIRMED. SO ORDERED.

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I. SHORT TITLE: NATIONAL BANK vs. VERAGUTH
II. FULL TITLE: PHILIPPINE NATIONAL BANK V. EUGENIO VERAGUTH, ET AL. – G.R. No.
L-26833, April 1, 1927, VILLAMOR, J.
Plaintiff Philippine National Bank seeks to recover from the defendants jointly and severally the sum of
P41,432.55, plus interest on the sum of P34,241.77, at 8 per cent per annum from February 16, 1925, until
fully paid. It is alleged, as grounds for this action, that on January 18, 1919, "La Union de Agricultores de
Negros y Panay, Inc.," asked for and obtained from said plaintiff a credit of P40,000 in current account,
payment of which was secured by the defendants by means of a bond Exhibit A; that on September 11,
1919, the same plaintiff granted the "La Union de Negros y Panay, Inc.," another credit of P30,000 in
current account at 8 per cent per annum, in addition to the former credit of P40,000, payment of which was
secured by bond Exhibit B; that on June 30, 1922, when "La Union de Agricultores de Negros y Panay,
Inc.," discontinued business relatios with the plaintiff, the former had an overdraft of P34,241.77 in its
current account which to this date has not been paid to the plaintiff, which overdraft, together with interest
thereon, amounts to the P41,432.55 claimed in the complaint.
The defendants, in their respective answer, deny being indebted to the plaintiff in the sum claimed, and as
special defenses allege that the obligation of P40,000 plus interest at 8 per cent per annum, secured by
Exhibit A, has already been extinguished by the payments made by the "La Union de Agricultores de
Negros y Panay, Inc.," and that, not having subscribed to the second bond for P30,000, Exhibit B, they
cannot be held liable for said obligation.
In view of this statement of facts, and of the oral evidence introduced at the trial, which evidence has not
been forwarded to this court, the trial court absolved the defendants Ricardo Nola, Eugenio Veraguth and
Emilio Gaston from the complaint, without express finding as to costs.
VI. ISSUE: Whether or not bond Exhibit B is an alteration of bond Exhibit A.
VII. RULING:
1. Yes. Article 1827 of the Civil Code provides: "Guaranty shall not be presumed; it must be express and
cannot be extended beyond its specified limits." It appearing from Exhibit A that the herein defendants
guaranteed the payment of a credit in current account not to exceed of P40,000 at 8 per cent per annum
granted by plaintiff to "La Union de Agricultores de Negros y Panay, Inc., and it further appearing from
Exhibit B that defendants did not sign a bond for the additional credit of P30,000 obtained by the said
"Union de Agricultores," their liability can in no way be extended to the payment of the said additional
credit of P30,000. Besides, the increase in the credit of P40,000 secured by the defendants by an additional
P30,000 without their consent, constitutes a material change in the principal contract
Wherefore, the judgment appealed from must be, as it is hereby, affirmed with costs against the appellant.
So ordered.

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I. SHORT TITLE: SPOUSES TOH vs. SOLIDBANK
II. FULL TITLE: Sps. Vicky Tan Toh and Luis Toh, petitioners, vs. Solid Bank Corp., First Business Paper
Corp, Kenneth Ng Li and Ma. Victoria Ng Li, G.R. No. 154183, August 7, 2003, J. Bellosillo
III. TOPIC: Guaranty; Continuing Guaranty; Credit Facility
Solid Bank extended an omnibus line credit facility worth P10 million in favor of respondent First Business
Paper Corporation (FBPC). Among the documents submitted for such purpose was a Continuing
Guaranty embodied in a public document for any and all amounts signed by petitioner-spouses Luis Toh
and Vicky Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li. Among the features of the
agreement are: 1) it defined the contract arising therefrom as a surety agreement and provided for the
solidary liability of the signatories thereto for and in consideration of loans or advances and credit in the
any other manner to, or at the request or for account of FBPC; 2) it set forth no maximum limit on the
indebtedness that respondent FBPC may incur and for which the sureties may be liable; 3) a de facto
acceleration clause; and 4) it waived rights of the sureties against delay or absence of notice or demand on
the part of respondent Bank. FBPC started to avail of the credit facility and procure letters of credit, such
that by 17 November 1993, FBPC opened thirteen (13) letters of credit and obtained loans totaling P15,
227,510.00. Solid Bank received information that respondent-spouses Kenneth Ng Li and Ma. Victoria Ng
Li had fraudulently departed from their conjugal home. Thus, the Bank served a demand letter upon FBPC
and petitioner Luis Toh invoking the acceleration clause in the trust receipts of FBPC and claimed payment
for P10, 539,758.68 as unpaid overdue accounts on the letters of credit plus interests and penalties. Sps.
Toh denied liability by saying that Luis Toh was removed as an authorized signatory for FBPC and replaced
by respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li and Redentor Padilla for all the transactions
of FBPC with respondent Bank. They even resigned from their respective positions in FBPC.
On 17 January 1994 respondent Bank filed a complaint for sum of money with ex parte application for a
writ of preliminary attachment against FBPC. On 16 May 1996 the trial court promulgated its Decision
finding respondent FBPC liable to pay respondent Solid Bank Corporation the principal of P10,539,758.68
plus twelve percent (12%) interest per annum from finality of the Decision until fully paid, but absolving
petitioner-spouses Luis Toh and Vicky Tan Toh of any liability to respondent Bank. The Bank appealed
before the Court of Appeals and the appellate court modified the Decision of the trial court and held that
by signing the Continuing Guaranty, petitioner-spouses became solidarily liable with FBPC to pay
respondent Bank the amount of P10, 539,758.68 as principal with twelve percent (12%) interest per annum
from finality of the judgment until completely paid. Hence, this petition.
I. ISSUE:
1. Whether or not the Continuing Guaranty is binding upon Sps. Toh notwithstanding the fact that
they already resigned corporate officers and stockholders of FBPC.
2. Are the spouses liable for the obligations of FBPC under the said Continuing Guaranty?
VII. RULING:
1. Yes, it is binding. The Continuing Guaranty is a valid and binding contract of petitioner-spouses as
it is a public document that enjoys the presumption of authenticity and due execution. There is no
basis for petitioners to limit their responsibility thereon so long as they were corporate officers and
stockholders of FBPC. Nothing in the Continuing Guaranty restricts their contractual undertaking
to such condition or eventuality. If petitioners intended not to be charged as sureties after their

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withdrawal from FBPC, they could have simply terminated the agreement by serving the required
notice of revocation upon the Bank as expressly allowed therein.
2. No. As much as the Sps. Toh were bound to the surety agreement they signed, the so as the Bank
to its representations, particularly as to the extension of the due dates of the letters of credit. It is
admitted in the Complaint of respondent Bank before the trial court that several letters of credit
were irrevocably extended for ninety (90) days with alarmingly flawed and inadequate consideration
- the indispensable marginal deposit of fifteen percent (15%) and the twenty-five percent (25%)
prerequisite for each extension of thirty (30) days. The foregoing extensions of the letters of credit
made by respondent Bank without observing the rigid restrictions for exercising the privilege are
not covered by the waiver stipulated in the Continuing Guaranty. Evidently, they constitute illicit
extensions prohibited under Art. 2079 of the Civil Code, [a]n extension granted to the debtor by
the creditor without the consent of the guarantor extinguishes the guaranty. This act of the Bank is
not mere failure or delay on its part to demand payment after the debt has become due, as was the
case in unpaid five (5) letters of credit which the Bank did not extend, defer or put off,[54] but
comprises conscious, separate and binding agreements to extend the due date, as was admitted by
the Bank itself. Thus, as a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky
Tan Toh are relieved of their obligations as sureties of respondent FBPC under Art. 2079 of
the Civil Code.
Wherefore, respondent Atty. Rodrigo Cera is hereby suspended from the practice of law for ONE (1)
YEAR. He is warned that a repetition of the same or similar act shall be dealt with more severely.
WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals
dated 12 December 2001 in CA-G.R. CV No. 55957, Solid Bank Corporation v. First Business Paper
Corporation, Kenneth Ng Li, Ma. Victoria Ng Li, Luis Toh and Vicky Tan Toh, holding petitioner-spouses
Luis Toh and Vicky Tan Toh solidarily liable with First Business Paper Corporation to pay Solid Bank
Corporation the amount of P10, 539,758.68 as principal with twelve percent (12%) interest per annum until
fully paid, and its Resolution of 2 July 2002 denying reconsideration thereof are REVERSED and SET
ASIDE.
The Decision dated 16 May 1996 of RTC-Br. 161 of Pasig City in Civil Case No. 64047, Solid Bank
Corporation v. First Business Paper Corporation, Kenneth Ng Li, Ma. Victoria Ng Li, Luis Toh and Vicky
Tan Toh, finding First Business Paper Corporation liable to pay respondent Solid Bank Corporation the
principal of P10,539,758.68 plus twelve percent (12%) interest per annum until fully paid, but absolving
petitioner-spouses Luis Toh and Vicky Tan Toh of any liability to respondent Solid Bank Corporation is
REINSTATED and AFFIRMED. No costs.
I. SHORT TITLE: DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS
II. FULL TITLE: DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS G.R.
No. 118367. January 5, 1998 DAVIDE, JR., J
III. TOPIC: Credit- Antichresis
Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974
from the Government; Cuba obtained loans from the Development Bank of the Philippines in the amounts
of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated
September 6, 1974; August 11, 1975; and April 4, 1977; As security for said loans, plaintiff Lydia P. Cuba
executed two Deeds of Assignment of her Leasehold Rights; Plaintiff failed to pay her loan on the

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scheduled dates thereof in accordance with the terms of the Promissory Notes; Without foreclosure
proceedings, whether judicial or extra-judicial, defendant DBP appropriated the leasehold Rights of plaintiff
Lydia Cuba over the fishpond in question; After defendant DBP has appropriated the Leasehold Rights of
plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of
Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in
question; In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP,
Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to
repurchase in a letter addressed to plaintiff dated February 1, 1982; After the Deed of Conditional Sale was
executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24,
1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding
her husband; Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale;
After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered
with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial
Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated
in temporary Arrangement dated February 23, 1982;
Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which
was received by plaintiff Lydia Cuba; After the Notice of Rescission, defendant DBP took possession of
the Leasehold Rights of the fishpond in question; That after defendant DBP took possession of the
Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public
bidding dated June 24, 1984, to dispose of the property; That the DBP thereafter executed a Deed of
Conditional Sale in favor of defendant Agripina Caperal on August 6, 1984; Thereafter, defendant Caperal
was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture
and Food.
VI. ISSUE: Whether the act of DBP in appropriating to itself CUBA's leasehold rights over the fishpond in
question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore,
invalid.
VII. RULING: AN ASSIGNMENT TO GUARANTEE AN OBLIGATION IS VIRTUALLY A

MORTGAGE.
We agree with CUBA that the assignment of leasehold rights was a mortgage contract. Simultaneous with
the execution of the notes was the execution "Assignments of Leasehold Rights" where CUBA assigned her
leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed
out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the
assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under
condition No. 22 of the deed, it was provided that "failure to comply with the terms and condition of any
of the 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, therefore, no
shred of doubt that a mortgage was intended. In People's Bank & Trust Co. vs. Odom, this Court had the
occasion to rule that an assignment to guarantee an obligation is in effect as mortgage
WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535 is hereby
REVERSED, except as to the award of P50,000 as moral damages, which is hereby sustained. The 31
January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is
MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum
commissorium and the award of actual damages; and by reducing the amounts of moral damages from
P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorneys fees, from

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P100,000 to P20,000. The Development Bank of the Philippines is hereby ordered to render an accounting
of the income derived from the operation of the fishpond in question. Let this case be REMANDED to
the trial court for the reception of the income statement of DBP, as well as the statement of the account of
Lydia P. Cuba, and for the determination of each partys financial obligation to one another.
I. SHORT TITLE: DURAN vs. INTERMEDIATE APPELLATE COURT
II. FULL TITLE: Circe S. Duran And Antero S. Gaspar vs. Intermediate Appellate Court, Erlinda B.
Marcelo-Tiangco And Restituto Tiangco- No. L-64159. September 10, 1985. J. Relova.
III. TOPIC: Civil Law- Mortages
Petitioner Circe S. Duran owned two (2) parcels of land which she had purchased from the Moja Estate.
She left the Philippines in June 1954 and returned in May 1966. On May 13, 1963, a Deed of Sale of the
two lots mentioned above was made in favor of Circe’s mother, Fe S. Duran who, on December 3, 1965,
mortgaged the same property to private respondent Erlinda B. Marcelo -Tiangco. When petitioner Circe S.
Duran came to know about the mortgage made by her mother, she wrote the Register of Deeds of
Caloocan City informing the latter that she had not given her mother any authority to sell or mortgage any
of her properties in the Philippines. Failing to get an answer from the registrar, she returned to the
Philippines. Meanwhile, when her mother, Fe S. Duran, failed to redeem the mortgage properties,
foreclosure proceedings were initiated by private respondent Erlinda B. Marcelo- Tiangco and, ultimately,
the sale by the sheriff and the issuance of Certificate of Sale in favor of the latter.
Petitioner Circe S. Duran claims that the Deed of Sale in favor of her mother Fe S. Duran is a forgery,
saying that at the time of its execution in 1963 she was in the United States. On the other hand, the adverse
party alleges that the signatures of Circe S. Duran in the said Deed are genuine and, consequently, the
mortgage made by Fe S. Duran in favor of private respondent is valid.
Petitioner filed a complaint against private respondent in the Court of First Instance of Rizal alleging that
the Deed of Sale is a forgery. The said court ruled in favor of petitioner. On appeal of the private
respondents, the appellate court held the same to be genuine because there is the presumption of regularity
in the case of a public document and the fact that Circe has not been able to satisfactorily prove that she
was in the United States at the time the deed was executed in 1963. Subsequently, the Deed of Mortgage is
valid, with respect to private respondent Tiangco. While it is true that under Art. 2085 of the Civil Code, it
is essential that the mortgagor be the absolute owner of the property mortgaged, and while as between the
daughter and the mother, it was the daughter who still owned the lots, still insofar as innocent third persons
are concerned the owner was already the mother (Fe S. Duran) inasmuch as she had already become the
registered owner. The mortgagee had the right to rely upon what appeared in the certificate of title, and did
not have to inquire further. If the rule were otherwise, the efficacy and conclusiveness of Torrens
Certificate of Titles would be futile and nugatory. Hence, this petition.
VI. ISSUE: Whether or not private respondent Erlinda B. Marcelo- Tiangco was a buyer in good faith and
for value.
VII. RULING
There is good faith where there is an honest intention to abstain from taking any unconscientious
advantage from another. Otherwise stated, good faith is the opposite of fraud and it refers to the state of
mind which is manifested by the acts of the individual concerned.

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In the case at bar, private respondents, in good faith relied on the certificate of title in the name of Fe S.
Duran and as aptly stated by respondent appellate court even on the supposition that the sale was void, the
general rule that the direct result of a previous illegal contract cannot be valid (on the theory that the spring
cannot rise higher than its source) cannot apply here for we are confronted with the functionings of the
Torrens System of Registration. The doctrine to follow is simple enough: a fraudulent or forged document
of sale may become the ROOT of a valid title if the certificate of title has already been transferred from the
name of the true owner to the name of the forger or the name indicated by the forger.
Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights
over the property, the court cannot disregard such rights and order the total cancellation of the certificate
for that would impair public confidence in the certificate of title; otherwise everyone dealing with property
registered under the torrens system would have to inquire in every instance as to whether the title had been
regularly or irregularly issued by the court. Indeed, this is contrary to the evident purpose of the law. Every
person dealing with registered land may safely rely on the correctness of the certificate of title issued
therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the
property. Stated differently, an innocent purchaser for value relying on a torrens title issued is protected. A
mortgagee has the right to rely on what appears in the certificate of title and, in the absence of anything to
excite suspicion, he is under no obligation to look beyond the certificate and investigate the title of the
mortgagor appearing on the face of said certificate.
In view of the foregoing, We find the petition without merit and hereby AFFIRMED in toto the decision
of respondent appellate court promulgated on August 12, 1981.
I. SHORT TITLE: DIZON vs. SUNTAY
II. FULL TITLE: Dominador Dizon, doing business under the firm name "Pawnshop of Dominador
Dizon" vs. Lourdes Suntay G.R. No. L-30817 September 29, 1972, FERNANDO, J.:p
III. TOPIC: Pledge
Plaintiff (Lourdes Suntay) is the owner of a three-carat diamond ring . Subsequently, plaintiff and Clarita R.
Sison entered into a transaction wherein the plaintiff's ring was delivered to Clarita R. Sison for sale on
commission. After the lapse of a considerable time without Clarita R. Sison having returned to the plaintiff
the latter's ring, the plaintiff made demands on Clarita R. Sison for the return of her ring but the latter
could not comply with the demands because, without the knowledge of the plaintiff said ring was pledged
by Melia Sison, niece of the husband of Clarita R. Sison, evidently in connivance with the latter, with the
Dizon’s pawnshop." Since what was done was violative of the terms of the agency, there was an attempt on
her part to recover possession thereof from petitioner Dizon, who refused.
She had to file an action then for its recovery. It was successful both in the lower court and thereafter in the
Court of Appeals. The matter was then elevated to us by petitioner.
VI. ISSUE: Whether or not Suntay is the lawful possessor of the subject jewelry.
VII. RULING: Suntay is the lawful possessor.
There is a fairly recent restatement of the force and effect of the governing codal norm in De Gracia v. Court
of Appeals. 4 Thus: "The controlling provision is Article 559 of the Civil Code. It reads thus: 'The possession

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of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof may recover it from the person in possession of the same.
If the possessor of a movable lost of which the owner has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.
As authoritatively interpreted in Cruz v. Pahati, the right of the owner cannot be defeated even by proof that
there was good faith in the acquisition by the possessor. There is a reiteration of this principle in Aznar v.
Yapdiangco. Thus: 'Suffice it to say in this regard that the right of the owner to recover personal property
acquired in good faith by another is based on his being dispossessed without his consent. The common law
principle that were one of two innocent persons must suffer by a fraud perpetrated by another, the law
imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to be committed,
cannot be applied in a case which is covered by an express provision of the new Civil Code, specifically
Article 559. Between a common law principle and a statutory provision, the latter must prevail in this
jurisdiction."
WHEREFORE, the decision of the Court of Appeals of May 19, 1969 is affirmed, with costs against
petitioner
I. SHORT TITLE: LLANTO vs. ALZONA
II. FULL TITLE: Mila Sales Llanto, et.al v. Ernesto Alzona, et.al. , G.R. No. 150730, January 31, 2005,
Justice Austria-Martinez III. TOPIC: Mortagage
Maria Sales was the registered owner of a parcel of land in Laguna which she acquired under a free patent.
Until they died, she and her husband (Bernardo) lived on the said land in the house w/c they constructed.
Maria died in August 1986. In January 1990, a real estate mortgage contract (REM) was purportedly
executed by Maria in favor of Dominador Alzona. Estela Pelongco (one of the daughters of Maria and
Bernardo) signed as witness. Ernesta Alzona (brother of Dominador) admitted that his name does not
appear in the REM although he was a co-mortgagee. The mortgage was foreclosed and was sold in a
mortgage sale to Ernesto. In January 1992, he executed a Consolidation of Ownership over the property
and a Transfer Certificate of Title was issued in his name. Mila Llanto (another daughter of Maria and
Bernardo) and the rest of her brothers and sisters caused the inscription of an adverse claim on the title to
the property. They filed for a complaint for Annulment of Mortgage and Auction Sale with Reconveyance
of Title.
On October 15, 1993, herein petitioners filed before the RTC of San Pedro, Laguna a complaint for
Annulment of Mortgage and of Auction Sale, with Reconveyance of Title and Damages, Respondents
Ernesto and Dominador Alzona and the Register of Deeds of Calamba, Laguna filed their answers,
respectively. However, respondent Estela Sales Pelongco failed to file her answer; as a consequence of
which, she was declared in default. After trial, the RTC dismissed the case. Petitioners filed an appeal with
the CA. CA affirmed RTC’s decision but deleting attorney’s fees. Hence this petition.
VI. ISSUE: Whether or not the Alzonas were mortgagees in good faith.
VII. RULING:
One of the essential requisites of mortgage is that the mortgagor should be the absolute owner of property
to be mortgaged, otherwise the mortgage is null and void. An exception to this is the doctrine of mortgagee

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in good faith - to be considered as mortgagees in good faith, jurisprudence require that they should take the
necessary precaution expected of a prudent man to ascertain the status and condition of properties offered
as collateral and to verify the persons they transact businesses with. This is based in the rule that all persons
dealing with property covered by a Torrens title, as buyers or mortgagees, are not required to go beyond
what appears on the face of the title.
In the case, the RTC gave credence to Ernesto’s testimony that he conducted a credit investigation before
he approved the loan sought and the property mortgaged. A perusal testimony proved that he exercised the
necessary precautions to ascertain the status of the property to be mortgaged. Llanto never disputed
Ernesto’s claim that he met the petitioners at the house built on the parcel of land. It was Estela and the
persons who represented themselves as Bernardo and Maria who perpetrated the fraud. Ernesto cannot be
faulted if he was led into believing that the old man and woman he met in November 1989 and January
1990 are 2 different persons.
WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 52951 are AFFIRMED in toto. SO ORDERED.
I. SHORT TITLE: EREÑA vs. KAUFFMAN
II. FULL TITLE: Rosana Ereña vs. Vida Dana Querrer-Kauffman GR. No. 165853; June 22, 2006, Callejo
Sr. J
III. TOPIC: Mortgage
Dana Querrer-Kauffman is the owner of a residential lot with a house in BF Resort village Las Piñas City.
The Property is covered by TCT No. T-48521. The owner’s duplicate copy and the tax declarations
covering the property were kept in a safety box in the house. Sometime in 1977, Kauffman entrusted her
minor daughter, Vida Rose, and the key to the house to her live in partner, Eduardo Victor, as she will go
to the US. Then Victor and Vida Rose also left for US and left the key to Victor’s sister, Mira Bernal.
Kauffman then asked her sister Evelyn Pares to get the house from Bernal so that she can sell it. She sent
the key to the safety deposit box. Pares wasn’t able to receive it and thus they hired a professional
locksmith to open it. Upon opening, Pares discovered that the owner’s duplicate tax declaration and pieces
of jewelry were missing. Learning this incident, Kauffman immediately returned to the Philippines. She and
Pares went to the Register of Deeds of Las Piñas and they found out that the lot has been mortgaged to a
certain Rosana Ereña. It appeared that Kauffman signed a real estate mortgage as owner mortgagor and
Jenifer Ramirez as atty-in-fact.
Kauffman and Pares were able to locate Bernal. Bernal confirmed that Ramirez, daughter of Victor, had
taken the contents of the safety deposit box. Using the key entrusted to them by Victor, they were able to
open the house and they forced open the deposit box and stole the said items. Having in their possession
the tittle, they forged the signature of Kauffman through a impostor and made a Real Estate Mortgage in
favor of Ereña. When Kauffman told Bernal that she would file suit, Bernal cried and asked for forgiveness.
She admitted that Ramirez had been in a tight financial fix and pleaded for time to return the title and the
jewelry. Kauffman however still filed a complaint against Ereña, Bernal, and Ramirez for the nullification of
Real Estate Mortgage and Damages. Ereña countered that she was a mortgagor in good faith.

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On March 12, 1998, Kauffman filed a complaint against Ereña, Bernal and Jennifer Ramirez for
Nullification of Deed of Real Estate Mortgage and Damages with prayer for a Temporary Restraining
Order and Preliminary Mandatory Injunction12 in the RTC of Las Piñas City.
VI. ISSUE: Whether or not the Real Estate Mortgage is valid.
VII. RULING: No. According to Art. 2085 (2), a pledgor or mortgagor has to be the absolute owner of the
thin pledged or mortgaged for a contract of pledge and mortgage to be valid. The lower courts found that
Kauffman is the true owner of the property and that the signatures on SPA and Real Estate Mortgage were
not hers. The evidence showed that Ramirez and her husband used an impostor who claimed that the
property was hers.
When the instruments presented for registration is forged even if accompanied by the owner’s duplicate
does not lose his title and nether does the mortgagee acquires any right to the property. In such case, the
mortgagee based on forged instruments is not even a purchaser or a mortgagee for value protected by law.
Ereña is not a mortgagee in good faith. The doctrine of mortgagee in good faith does not apply to a
situation where the title is still in the name of the rightful owner and the mortgagor is a different person
pretending to be the owner. In such case, the mortgagee is not an innocent mortgagee for value and the
registered owner will generally not lose his title.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision of the Court of
Appeals dated June 10, 2004 and Resolution dated October 28, 2004 are AFFIRMED. Costs against the
petitioner.
I. SHORT TITLE: RAMOS vs. OBISPO
II. FULL TITLE: Spouses Nilo Ramos and Eliadora Ramos versus Raul Obispo and Far East Bank and
Trust Company, G.R. No. 193804 February 27, 2013, J. Villarama
III. TOPIC: Accomodation Parties; Real Estate Mortgage
Nilo Ramos and Raul Obispo met each other while they were working in Saudi Arabia as contract workers.
They became best friends. Spouses Ramos executed a Real Estate Mortgage(REM) in favor of Far East
Bank and Trust Company (FEBTC), over their property covered by TCT No. RT-64422 (39370) of the
Registry of Deeds of Quezon City. The notarized REM secured credit accommodations extended to
Obispo in the amount of P 1,159,096.00. REM was registered and annotated on the title. Spouses Ramos
sent a letter to FEBTC informing the latter that their property to be used as collateral for a P250,000.00
loan on their behalf, had instead secured a loan for P1,159,096.00 and had failed to return their title despite
full payment by petitioners of P250,000.00. Spouses also demanded that FEBTC furnish them with
documents and papers pertinent to the mortgage failing which they will be constrained to file appropriate
legal actionagainst Obispo and FEBTC.
There being no action taken by FEBTC, petitioners filed on October 12, 1999 a complaint for annulment
of real estate mortgage with damages against FEBTC and Obispo. Petitioners alleged that they signed the
blank REM form given by Obispo who facilitated the loan with FEBTC, and that they subsequently
received the loan proceeds of P250,000.00 which they paid in full through Obispo. With their loan fully
settled, they demanded the release of their title but Obispo refused to talk or see them, as he is now hiding
from them. Upon verification with the Registry of Deeds of Quezon City, petitioners said they were
surprised to learn that their property was in fact mortgaged for P1,159,096.00. Petitioners thus prayed that

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the REM be declared void and cancelled; that FEBTC be ordered to deliver to them all documents
pertaining to the loan and mortgage of Obispo; and that FEBTC and Obispo be ordered to pay moral
damages and attorney’s fees.
VI. ISSUE: Whether or not Spouses Nilo and Eliadora Ramos are accommodation mortgagors
VII. RULING:
Spouses Nilo and Eliadora Ramos are accommodation mortgagor.
In civil cases, basic is the rule that the party making the allegations has the burden of proving them by
preponderance of evidence. As to fraud, he who alleges fraud or mistake affecting a transaction must be
substantiate his allegation since it is presumed that a person takes ordinary care of his concerns and that
private transactions have been fair and regular.
Spouses Ramos failed to convince that Obispo deceived them as to the debt secured by the REM. It was
unbelievable for them to simply accept the P250,000.00 loan proceeds without seeing any document or
voucher evidencing release of such amount by the bank containing the details of the transaction (monthly
amort., int. rate and added charges). Furthermore, petitioners accepted the loan proceeds in the form of
personal checks issued by Obispo and not by the bank itself. Another disturbing fact is why, despite having
signed the REM contract in their name as mortgagors, Spouses did not go directly to the bank to pay their
loan. They also arrived at the amount of amortization payments without having seen any document from
FEBTC pertaining to their loan account. Such conduct of petitioners in not bothering to appear before the
bank or directly dealing with it regarding their outstanding balance strongly suggests that there was no such
loan account in their name and it was really Obispo who was the borrower and petitioners were merely
accommodation mortgagors.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit. The Decision dated
January 27, 2010 of the Court of Appeals in CA-G.R. CV No. 82378 is hereby AFFIRMED and UPHELD.
With costs against the petitioners. SO ORDERED.
I. SHORT TITLE: UY TONG vs. COURT OF APPEALS
II. FULL TITLE : Spouses Uy Tong and Kho Po Giok versus Honorable Court of Appeals, Honorable
Judge Bienvenido C. Ejercito and BAYANIHAN Automotive Corporation, G.R. No. 77465, May 21, 1988
III. TOPIC : Pactum Commissorium; Mortgage
Petitioners Uy Tong and Kho Po Giok used to be the owners of Apartment No. 307 of the Ligaya
Building, together with the leasehold right for ninety-nine (99) years over the land on which the building
stands. The land is registered in the name of Ligaya Investments, Inc. as evidenced by TCT No. 79420 of
the Registry of Deeds of the City of Manila. It appears that Ligaya Investments, Inc. owned the building
which houses the apartment units but sold Apartment No. 307 and leased a portion of the land in which
the building stands to the spouses. In February, 1969, the Spouses purchased from private respondent
Bayanihan Automative, Inc. (BAYANIHAN) seven units of motor vehicles for a total amount of
P47,700.00 payable in three (3) installments. The transaction was evidenced by a written “Agreement”
wherein the terms of payment had been specified. The agreement also states that if for any reason the
vendee fails to pay, the vendor shall become automatically the owner of the apartment. After making a
downpayment of P7,700.00, the spouses failed to pay the balance of P40,000.00.

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Due to these unpaid balances, BAYANIHAN filed an action for specific performance against the
SPOUSES docketed as Civil Case No. 80420 with the Court of First Instance of Manila. On October 28,
1978, after hearing, judgment was rendered in favor of BAYANIHAN in a decision.
Pursuant to said judgment, an order for execution pending appeal was issued by the trial court and a deed
of assignment dated May 27, 1972, was executed by the SPOUSES over Apartment No. 307 of the Ligaya
Building together with the leasehold right over the land on which the building stands. The SPOUSES
acknowledged receipt of the sum of P3,000.00 more or less, paid by BAYANIHAN pursuant to the said
judgment.
VI. ISSUE: Whether or not the Deed of Assignment is null and void being in the nature of pactum
commissorium.
VII. RULING: NO.
There are two elements for a pactum commissorium to exist: (1) that there should be pledge or mortgage
wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation;
and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing
pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period.
A perusal of the terms of the questioned agreement evinces no basis for the application of the pactum
commissorium provision. First, there is no indication of ‘any contract of mortgage entered into by the
parties. It is a fact that the parties agreed on the sale and purchase of trucks.
Second, there is no case of automatic appropriation of the property by BAYANIHAN. When the spouses
defaulted in their payments of the second and third installments of the trucks they purchased,
BAYANIHAN filed an action in court for specific performance. The trial court rendered favorable
Ijudgment for BAYANIHAN and ordered the SPOUSE to pay the balance of their obligation and in case
of failure to do so, to execute a deed of assignment over the property involved in this case. The spouses
elected to execute the deed of assignment pursuant to said judgment.
There was no automatic vesting of title on BAYANIHAN because it took the intervention of the trial court
to exact fulfillment of the obligation which, by its very nature is…”anathema to the concept of pacto
commissorio”. And even granting that the original agreement between the parties had the badges of pactum
commissorium, the deed of assignment does not suffer the same fate as this was executed pursuant to a
valid judgment in Civil case No. 80420 as can be gleaned from its very terms and conditions.
VIII. DISPOSTIVE PORTION:
WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals
is AFFIRMED in toto. SO ORDERED.
I. SHORT TITLE: FRANCISCO REALTY vs. COURT OF APPEALS
II. FULL TITLE: A. Francisco Realty and Development Corporation vs. Court of Appeals and Spouses
Romulo S.A. Javillonar and Erlinda P. Javillonar – G.R. No. 125055, October 30, 1998, J. Mendoza
III. TOPIC: Pactum Commissorium

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Petitioner A. Francisco Realty and Development Corporation (AFRDC) granted a loan of P7.5 Million to
private respondents, spouses Romulo and Erlinda Javillonar, in consideration of which the latter executed
the following documents: (a) a promissory note (PN), stating an interest charge of 4% per month for 6
months; (b) a deed of mortgage over realty covered by TCT, together with the improvements thereon; and
(c) an undated deed of sale of the mortgaged property in favor of the mortgagee, petitioner A. Francisco
Realty. The interest on the said loan was to be paid in 4 installments: P900,000.00 to be paid in advance
through a deduction from the proceeds of the loan, while the balance to be paid monthly by means of post-
dated checks. The PN expressly provided that upon failure of the MORTGAGOR [private respondents] to
pay the interest without prior arrangement with the MORTGAGEE [petitioner], full possession of the
property will be transferred and the deed of sale will be registered. For this purpose, the owners duplicate
of TCT was delivered to AFRDC.
Petitioner claims that private respondents failed to pay the interest and, as a consequence, it registered the
sale of the land in its favor. As a result, the TCT was cancelled and in lieu thereof a new TCT was issued in
the name of AFRDC. Private respondents subsequently obtained an additional loan of P2.5 Million from
petitioner for which they signed a PN. Petitioner demanded possession of the mortgaged realty and the
payment of 4% monthly interest plus surcharges.
As respondent spouses refused to vacate, petitioner filed the present action for possession before the RTC
in Pasig City. In their answer, respondents admitted liability on the loan but alleged that it was not their
intent to sell the realty as the undated deed of sale was executed by them merely as an additional security
for the payment of their loan. Furthermore, they claimed that they were not notified of the registration of
the sale in favor of AFRDC and that there was no interest then unpaid as they had in fact been paying
interest even subsequent to the registration of the sale. As an alternative defense, respondents contended
that the complaint was actually for ejectment and, therefore, the RTC had no jurisdiction to try the case. As
counterclaim, respondents sought the cancellation of the new TCT as secured by petitioner and the
issuance of a new title evidencing their ownership of the property. RTC rendered a decision declaring as
legal and valid, the right of ownership of AFRDC, over the property subject of this case and now registered
in its name as owner thereof, under the new TCT. Consequently, defendants are hereby ordered to cease
and desist from further committing acts of dispossession or from withholding possession from plaintiff, of
the said property as herein described and specified. Claim for damages in all its forms, however, including
attorney’s fees, are hereby denied, no competent proofs having been adduced on record, in support thereof.
CA reversed the decision of the RTC and dismissed the complaint against them. The CA ruled that the
RTC had no jurisdiction over the case because it was actually an action for unlawful detainer which is
exclusively cognizable by MTCs. Furthermore, it ruled that, even presuming jurisdiction of the RTC, the
deed of sale was void for being in fact a pactum commissorium which is prohibited by Art. 2088 of the
Civil Code. AFRDC filed a MR, but the CA denied the motion in its resolution. Hence, this petition for
review on certiorari.
VI. ISSUE: Whether or not the CA erred in ruling that the contractual documents subject of this case are
constitutive of pactum commissorium as defined under Art. 2088, NCC
VII. RULING: No, the ruling of the CA should be affirmed. Petitioners action could not succeed because
the deed of sale on which it was based was void, being in the nature of a pactum commissorium prohibited by
Art. 2088 of the New Civil Code.
Petitioner denies, however, that the PNs contain a pactum commissorium. It contends that: "What is
envisioned by Article 2088, NCC is a provision in the deed of mortgage providing for the automatic
conveyance of the mortgaged property in case of the failure of the debtor to pay the loan (Tan v. West
Coast Life Assurance Co., 54 Phil. 361). A pactum commissorium is a forfeiture clause in a deed of mortgage
(Hechanova v. Adil, 144 SCRA 450; Montevergen v. Court of Appeals, 112 SCRA 641; Report of the Code

Page 58 of 104
Commission, 156). The contention is patently without merit. To sustain the theory of petitioner would be
to allow a subversion of the prohibition in Art. 2088. Thus, in the case at bar, the stipulations in the PNs
providing that, upon failure of respondent spouses to pay interest, ownership of the property would be
automatically transferred to AFRDC and the deed of sale in its favor would be registered, are in substance a
pactum commissorium. They embody the 2 elements of pactum commissorium as laid down in Uy Tong v. Court
of Appeals, to wit:
(1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of
security for the payment of the principal obligation; and (2) that there should be a stipulation for an
automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of
the principal obligation within the stipulated period.
The subject transaction being void, the registration of the deed of sale, by virtue of which AFRDC was able
to obtain a new TCT covering the subject lot, must also be declared void, as prayed for by respondents in
their counterclaim.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED, insofar as it dismissed petitioners
complaint against respondent spouses on the ground that the stipulations in the promissory notes are void
for being a pactum commissorium, but REVERSED insofar as it ruled that the trial court had no
jurisdiction over this case. The Register of Deeds of Pasig City is hereby ORDERED to CANCEL TCT
No. PT-85569 issued to petitioner and ISSUE a new one in the name of respondent spouses. SO
ORDERED.
I.SHORT TITLE: OLEA vs. COURT OF APPEALS
II. FULL TITLE: Thelma P. Olea versus Court of Appeals, Elena Vda. De Pacardo, et. al. – G.R. No.
109696, August 14, 1995, J. Bellosillo
III. TOPIC: Equitable Mortgage; Pactum Commisorium
In 1947 spouses Filoteo Pacardo and Severa de Pacardo executed a deed of Sale Con Pacto de Retro over
Lot No. 767 covered by Transfer Certificate of Title No. 26424 in their name for a consideration of
P950.00 in favor of Maura Palabrica, predecessor in interest of petitioner.The contract of sale with right to
repurchase was acknowledged by the vendors before Notary Public Victorio Tagamolila. Since the sale
about 40 years ago, the spouses delivered annually one-third (1/3) of the produce of the land and kept for
themselves the remaining two-thirds (2/3). On 27 January 1950, despite the lapse of three
(3) years, the Pacardo spouses did not repurchase the land. When the spouses died, their son Filoteo Jr.,
took over the possession and assumed the cultivation of the land and, like his parents, gave 1/3 of the
produce to Maura Palabrica and later to her daughter, petitioner. On 10 May 1978 Maura Palabrica sold Lot
No. 767 for P40,000.00 to one of her daughters, petitioner Thelma Olea. From then on it was petitioner
who received the one-third (1/3) share of the annual produce of the land from Filoteo Pacardo, Jr., until he
died in August 1987. His widow Elena Vda. de Pacardo however refused to give to petitioner the one-third
(1/3) share of the produce.
Hence, on 25 January 1989, petitioner filed a complaint against Elena Pacardo and the spouses Jesus and
Elizabeth Palencia for recovery of possession with damages. She alleged that she was the owner of Lot No.
767 having acquired the same from her mother Maura Palabrica through a deed of sale, who in turn

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acquired the lot from the spouses Filoteo and Severa Pacardo through a pacto de retro sale, and that due to
the failure of the spouses to redeem the property three (3) years thereafter ownership thereof passed on to
Maura Palabrica who later caused the registration of the Sale Con Pacto de Retro with the Registry of
Deeds of Iloilo and its annotation on TCT No. 26424. The RTC dismissed the complaint. Petitioner
appealed to the Court of Appeals which affirmed the judgment of the RTC. Hence, this petition.
VI. ISSUES:
1. Whether or not the transaction constitutes an equitable mortgage.

2. Whether or not a stipulation for automatic appropriation in a pacto de retro sale is valid.
3. Whether or not the action to recover the ownership and possession of the property must be
upheld.
VII. RULING:
1. Yes. The transaction is an equitable mortgage. Art. 1602 of the New Civil Code provides that the
contract of sale with right to repurchase shall be presumed to be an equitable mortgage in any of the
following cases: (a) when the price of the sale is unusually inadequate; (b) when the vendor remains in
possession as lessee or otherwise; (c) when upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is executed; (d) when the
purchaser retains for himself a part of the purchase price; (e) when the vendor binds himself to pay the
taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of
the parties is that the transaction shall secure the payment of a debt or the performance of any other
obligation. Being remedial in nature, Art. 1602 may be applied retroactively to cases prior to the effectivity
of the New Civil Code3 Hence it may apply to the instant case where the deed of sale with right to
repurchase was executed on 27 January 1947.
It has been held that a contract should be construed as a mortgage or a loan instead of a pacto de retro sale
when its terms are ambiguous or the circumstances surrounding its execution or its performance are
incompatible or inconsistent with the theory that it is a sale. Even when a document appears on its face to
be a sale with pacto de retro the owner of the property may prove that the contract is really a loan with
mortgage by raising as an issue the fact that the document does not express the true intent and agreement
of the parties. In this case, parol evidence then becomes competent and admissible to prove that the
instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof
of the truth of such allegations, the court will enforce the agreement or understanding in consonance with
the true intent of the parties at the time of execution of the contract. This principle is applicable even if the
purported Sale Con Pacto de Retro was registered in the name of the transferee and a new certificate of title
was issued in the name of the latter.
There is no dispute that when Maura Palabrica "bought" the land on 27 January 1947 the vendors, the
Pacardo spouses, remained in possession of the property and cultivated the same. Their son continued the
cultivation when the spouses died, which cultivation was continued later by his widow Elena Vda. de
Pacardo and then by his sister Elizabeth Palencia. The rule is settled that where in a contract of sale with
pacto de retro the vendor remains in physical possession of the land sold as lessee or otherwise, the
contract should be considered an equitable mortgage. The same presumption applies when the vendee was
given the right to appropriate the fruits thereof in lieu of receiving interest on the loan. It has been
consistently held that the presence of even one of the circumstances enumerated in Art. 1602 of the New
Civil Code is sufficient to declare a contract of sale with right to repurchase an equitable mortgage. This is
so because pacto de retro sales with the stringent and onerous effects that accompany them are not
favored. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as
an equitable mortgage.
2. No. Olea cannot be allowed to automatically appropriate the thing. Petitioner, to prove her claim, cannot
rely on the stipulation in the contract providing that complete and absolute title shall be vested on the

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vendee should the vendors fail to redeem the property on the specified date. Such stipulation that the
ownership of the property would automatically pass to the vendee in case no redemption was effected
within the stipulated period is void for being a pactum commissorium which enables the mortgagee to
acquire ownership of the mortgaged property without need of foreclosure. Its insertion in the contract is an
avowal of the intention to mortgage rather than to sell the property.
3. No. The action to recover must fail. There was no valid sale to Maura Palabrica. Ownership over the
property was not transferred to her for she was merely a mortgagee. There being no title to the land that
Palabrica acquired from the spouses Filoteo and Severa Pacardo, it follows that Palabrica had no title to the
same land which could be conveyed to petitioner. Hence there is no legal basis for petitioner to recover
possession of the property.
It is clear from the contract that the amount loaned to the Pacardo spouses was P950.00 and Lot No. 767
was mortgaged as security. The spouses were allowed under the contract to pay the amount of the loan on
27 January 1950 by tendering the amount of the P500.00 in cash and P450.00 cash or 18 cavans of palay at
their option. The trial court made its factual finding that from 1947 when the purported sale was executed
to 1972 alone, the spouses and their successors in interest delivered a total of 1,166 cavans of palay to
Maura Palabrica. The delivery of 1/3 of the annual produce to Palabrica and later to petitioner continued
until 1987. Under the last paragraph of Art. 1602, this produce received by the alleged vendee as rent or
otherwise should be considered as interest.
There is no dispute that the Pacardo spouses or their successors in interest failed to pay the amount of the
loan on 27 January 1950 as stipulated in the contract although they continued to deliver the produce to
Palabrica and petitioner until 1987 by way of interest on the loan. Even if we treat petitioner's action to
recover possession of Lot No. 767 as one for the enforcement of her right as mortgagee, the same has
already prescribed. Art. 1142 of the New Civil Code provides that a mortgage action prescribes after ten
(10) years. Since 27 January 1950 when the Pacardo spouses failed to pay the loan up to 1989 when the
action for recovery of possession was filed, thirty-nine (39) years had already elapsed. As a result, petitioner
is not only barred by prescription from instituting her action; she is also guilty of estoppel by laches.
WHEREFORE, the petition is DENIED and the assailed decision of the Court of Appeals dated 16
December 1992 sustaining that of the Regional Trial Court of Iloilo City is AFFIRMED. Costs against
petitioner.
I. SHORT TITLE: FORT BONIFACIO DEVELOPMENT CORPORATION vs. YLLAS

LENDING AND LAURAYA
II. FULL TITLE: FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner versus YLLAS
LENDING CORPORATION and JOSE S. LAURAYA, in his official capacity as President, Respondents.
G.R. No. 158997, October 6, 2008, First Division (CARPIO, J.)
III. TOPIC: Pledge
In 1998, petitioner executed a lease contract in favor of Tirreno, Inc. (Tirreno) over a unit at the
Entertainment Center Phase 1 of the Bonifacio Global. The parties had the lease contract notarized on the
day of its execution.
Two provisions in the lease contract are pertinent to the present case: Section 20, which is about the
consequences in case of default of the lessee, and Section 22, which is about the lien on the properties of
the lease. The pertinent portion of Section 20 reads:

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Section 20. Default of the Lessee
20.1 The LESSEE shall be deemed to be in default within the meaning of this Contract in case:
(i) The LESSEE fails to fully pay on time any rental, utility and service charge or other financial obligation of the
LESSEE under this Contract;
20.2 Without prejudice to any of the rights of the LESSOR under this Contract, in case of default of the LESSEE, the
lessor shall have the right to:
(i) Terminate this Contract immediately upon written notice to the LESSEE, without need of any judicial action or
declaration;
Section 22, on the other hand, reads:
Section 22. Lien on the Properties of the Lessee
Upon the termination of this Contract or the expiration of the Lease Period without the rentals, charges and/or damages, if
any, being fully paid or settled, the LESSOR shall have the right to retain possession of the properties of the LESSEE used
or situated in the Leased Premises and the LESSEE hereby authorizes the LESSOR to offset the prevailing value thereof as
appraised by the LESSOR against any unpaid rentals, charges and/or damages. If the LESSOR does not want to use said
properties, it may instead sell the same to third parties and apply the proceeds thereof against any unpaid rentals, charges
and/or damages.
Tirreno began to default in its lease payments in 1999. By July 2000, Tirreno was already in arrears by
P5,027,337.91. Petitioner and Tirreno entered into a settlement agreement on 8 August 2000. Despite the
execution of the settlement agreement, petitioner found need to send Tirreno a written notice of
termination dated 19 September 2000 due to Tirrenos alleged failure to settle its outstanding obligations.
On 29 September 2000, petitioner entered, occupied and appropriated the equipment left by Tirreno in the
leased premises pursuant to Section 22 of their Contract of Lease as partial payment for Tirrenos
outstanding obligations. Tirreno filed an action for forcible entry against petitioner before the Municipal
Trial Court of Taguig. Tirreno also filed a complaint for specific performance with a prayer for the issuance
of a temporary restraining order and/or a writ of preliminary injunction against petitioner before the
Regional Trial Court (RTC) of Pasig City. The RTC of Pasig City dismissed Tirrenos complaint for forum-
shopping.
On 4 March 2002, respondents caused the sheriff of Branch 59 of the trial court to serve an alias writ of
seizure against the petitioner. On the same day, petitioner served on the sheriff an affidavit of title and third
party claim. Petitioner found out that on 27 September 2001, respondents filed a complaint for Foreclosure
of Chattel Mortgage with Replevin, against Tirreno, Eloisa Poblete Todaro (Eloisa), and Antonio D.
Todaro (Antonio), in their personal and individual capacities, and in Eloisas official capacity as President.
In their complaint, respondents alleged that they lent a total of P1.5 million to Tirreno, Eloisa, and
Antonio. On 9 November 2000, Tirreno, Eloisa and Antonio executed a Deed of Chattel Mortgage in favor
of respondents as security for the loan. The following properties are covered by the Chattel Mortgage:
a. Furniture, Fixtures and Equipment of Savoia Ristorante and La Strega Bar, a restaurant owned and managed by
[Tirreno], inclusive of the leasehold right of [Tirreno] over its rented building where [the] same is presently located.
b. Goodwill over the aforesaid restaurant, including its business name, business sign, logo, and any and all interest therein.
c. Eighteen (18) items of paintings made by Florentine Master, Gino Tili, which are fixtures in the above-named restaurant.
The sheriff delivered the seized properties to respondents. Petitioner questioned the propriety of the
seizure and delivery of the properties to respondents without an indemnity bond before the trial court.
Petitioner argued that when respondents and Tirreno entered into the chattel mortgage agreement on 9
November 2000, Tirreno no longer owned the mortgaged properties as Petitioner already enforced its lien
on 29 September 2000.

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The trial court stated that the present case raises the questions of who has a better right over the properties
of Tirreno and whether petitioner has a right to intervene in respondents complaint for foreclosure of
chattel mortgage. In deciding against the petitioner, the trial court declared that Section 22 of the lease
contract between petitioner and Tirreno is void under Article 2088 of the Civil Code. Petitioner filed a
motion for reconsideration which was denied. Hence, the present petition.
VI. ISSUES:
1. Whether or not petitioner has no right of ownership over the subject properties because Section 22
of the contract of lease is void for being a pledge and a pactum commissorium.
2. Whether or not the trial court erred in denying petitioner’s intervention on the ground that its
proper remedy as third party claimant over the subject properties is to file a separate action.
3. Whether or not the petitioner was deprived of its properties without due process of law when the
trial court erroneously dismissed FBDCs third party claim, denied FBDCs intervention, and did
not require the posting of an indemnity bond for FBDCs protection.
VII. RULING: The petition has merit.
1. Petitioner has a right over the subject properties. A lease contract may be terminated without judicial
intervention. Judicial permission to cancel the agreement was not, therefore necessary because of the
express stipulation in the contract of [lease] that the [lessor], in case of failure of the [lessee] to comply
with the terms and conditions thereof, can take-over the possession of the leased premises, thereby
cancelling the contract of sub-lease. Resort to judicial action is necessary only in the absence of a
special provision granting the power of cancellation. A lease contract may contain a forfeiture clause.
By agreement between petitioner and Tirreno, the properties are answerable for any unpaid rent or
charges at any termination of the lease. Such agreement is not contrary to law, morals, good customs,
or public policy. Forfeiture of the properties is the only security that petitioner may apply in case of
Tirrenos default in its obligations.
2. The trial court erred in denying petitioner’s motion for intervention. The timing of the filing of the third party
claim is important because the timing determines the remedies that a third party is allowed to file. A
third party claimant under Section 16 of Rule 39 (Execution, Satisfaction and Effect of Judgments) of
the 1997 Rules of Civil Procedure may vindicate his claim to the property in a separate action, because
intervention is no longer allowed as judgment has already been rendered. A third party claimant under
Section 14 of Rule 57 (Preliminary Attachment) of the 1997 Rules of Civil Procedure, on the other
hand, may vindicate his claim to the property by intervention because he has a legal interest in the
matter in litigation. We allow petitioner’s intervention in the present case because petitioner satisfied
the requirements of Section 1, Rule 19 (Intervention). The trial courts objection against petitioner’s
intervention has been set aside by our ruling that Section 22 of the lease contract is not pactum
commissorium.
3. Petitioner was deprived of its properties without due process of law when the trial court erroneously dismissed FBDCs
third party claim. Petitioner exercised its lien to Tirrenos properties even before respondents and
Tirreno executed their Deed of Chattel Mortgage. Petitioner is adversely affected by the disposition of
the properties seized by the sheriff. Moreover, petitioner’s intervention in the present case will result in
a complete adjudication of the issues brought about by Tirrenos creation of multiple liens on the same
properties and subsequent default in its obligations.
WHEREFORE, we GRANT the petition. We SET ASIDE the Orders dated 7 March 2003 and 3 July
2003 of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. 01-1452 dismissing Fort
Bonifacio Development Corporations Third Party Claim and denying Fort Bonifacio Development

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Corporations Motion to Intervene and Admit Complaint in Intervention. We REINSTATE Fort Bonifacio
Development Corporations Third Party Claim and GRANT its Motion to Intervene and Admit Complaint
in Intervention. Fort Bonifacio Development Corporation may hold the Sheriff liable for the seizure and
delivery of the properties subject of this case because of the lack of an indemnity bond.
I. TITLE: PHILNICO INDUSTRIAL vs. PRIVATIZATION MANAGEMENT
II. FULL TITLE: PHILNICO INDUSTRIAL CORPORATION vs. PRIVATIZATION and

MANAGEMENT OFFICE/PRIVATIZATION and MANAGEMENT OFFICE, G.R. Nos. 199420,
199432, 27 August 2014, De Castro, J.
III. TOPIC: Existence of a Pactum Commissorium
PMO (PRIVATIZATION AND MANAGEMENT OFFICE), PIC (Philnico Industrial Corporation), and
PPC (Philnico Processing Corporation ) executed a contract, denominated as the Amended and Restated
Definitive Agreement (ARDA), which laid down the terms and conditions of the purchase and acquisition
by PIC from PMO of shares of stock of PPC. Under the ARDA, PIC agreed to pay PMO the purchase
price in instalments.
Included in the ARDA was a stipulation that as security for the payment of the purchase price, the Buyer
shall pledge the Shares to the Seller and execute a pledge agreement ") in favor of the Seller. The Buyer
shall also pledge to the Seller the Converted Shares and the New Shares as security for the payment of the
Purchase Price upon the issuance of such shares in the name of the Buyer. Also included in the ARDA, in
case of default, the title to the Existing Shares and the Converted Shares shall ipso facto revert to the Seller
without need of demand in case such payment default is not remedied by the Buyer within 90 days from
the due date of the second installment (sec 8.02).
Despite restructuring the payment of terms of the entire obligation, PMO notified PIC that the latter had
defaulted in the payment of its obligations and demanded that PIC settle its unpaid amortizations within 90
days, or else the PMO would enforce the automatic reversion of the PPC shares of stock under the ARDA.
PIC replied in a letter requesting PMO to set aside its notice of default; to not rescind the sale of the PPC
shares of stock; and to give PIC an opportunity to conclude its fund-raising efforts for its business. In
another letter to PIC, PMO clearly indicated its intention to enforce automatic reversion clause in the
ARDA should PIC fail to settle its outstanding obligations.
PIC filed before the RTC a Complaint for Prohibition against Reversion of Shares with Prayer for Writ of
Preliminary Injunction and/or TRO, Suspension of Payment and Fixing of Period of Payment, against
PMO, PPC, and the PPC Corporate Secretary. Later, PIC filed an Amended Complaint raising, among
other arguments, the need for mutual restitution in case the ARDA is rescinded by the RTC. The RTC
subsequently found that PIC entitled to the issuance of such a writ because it found that the ARDA
provided for an automatic reversion of the shares of stock in case of default, which constitutes a pactum
commissorium. PMO filed a Motion for Reconsideration of the RTC Order, insisting that the provision on
ipso facto reversion in the ARDA did not constitute pactum commissorium. PMO likewise filed a Motion
to Dismiss on the ground that the complaint of PIC did not state a cause of action. However the RTC
denied PMO’s Motion for Reconsideration
The Court of Appeals, disagreed with the finding of the RTC that the instant case involves a pactum
commissorium, but still affirmed the denial by the RTC of the motion of PMO to dissolve the Writ of
Preliminary Injunction

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VI. ISSUES:
1) WON the ARDA’s automatic reversion of the PPC shares of stock to PMO in case of default by PIC
constitutes pactum commissorium.
2) WON the Writ of Preliminary Injunction should be dissolved.
VII. RULING:
1) The Court ruled that the automatic reversion stipulation in the ARDA constitutes pactum commissorium
Pactum commissoriumis among the contractual stipulations that are deemed contrary to law. It is defined
as "a stipulation empowering the creditor to appropriate the thing given as guaranty for the fulfillment of
the obligation in the event the obligor fails to live up to his undertakings, without further formality, such as
foreclosure proceedings, and a public sale
There are two elements for pactum commissoriumto exist: (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation;
and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing
pledged or mortgaged in the event of nonpayment of the principal obligation within the stipulated period.
The elements of pactum commissorium are present in the instant case: (1) By virtue of the Pledge
Agreement dated May 2,1997, PIC pledged its PPC shares of stock in favor of PMO as security for the
fulfillment of the former’s obligations under the ARDA and the Pledge Agreement itself; and (2) There is
automatic appropriation as under Section 8.02 of the ARDA, in the event of default by PIC, title to the
PPC shares of stock shall ipso facto revert from PIC to PMO without need of demand.
2) There is no basis for dissolving the Writ of Preliminary Injunction.
The grant of the Writ of Preliminary of Injunction by the RTC and its subsequent denial of PMO’s motion
for reconsideration are interlocutory orders. Under Rule 65 of the Rules of Court, PMO only had 60 days
from notice to file with the Court of Appeals a petition for certiorari assailing said orders. However, PMO
did not file such a petition and lost the right to avail itself of the remedy.
WHEREFORE, premises considered, the Court:
(1) GRANTS the Petition for Review of PIC in G.R. No. 199420 by declaring that Section 8.02 of the
ARDA constitutes pactum commissorium and, thus, null and void;
(2) DENIES the Petition for Review of PMO in G.R. No. 199432 for lack of merit; and
(3) DIRECTS the RTC to resolve Civil Case No. 03-114 with utmost dispatch. SO ORDERED.
I. SHORT TITLE: YULIONGSU vs. PHILIPPINE NATIONAL BANK
II. FULL TITLE: DIOSDADO YULIONGSIU, plaintiff-appellant, vs. PHILIPPINE NATIONAL

BANK (Cebu Branch), defendant-appellee. February 17, 1968, G.R. No. L-19227
III. TOPIC: Claims for damages – liability of common carrier
Plaintiff-appellant Diosdado Yuliongsiu was the owner of two (2) vessels, which was purchased by him
from the Philippine Shipping Commission, by installment or on account. As of January or February, 1943,

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plaintiff had paid to the Philippine Shipping Commission only the sum of P76,500 and the balance of the
purchase price was payable at P50,000 a year, due on or before the end of the current year.
On June 30, 1947, plaintiff obtained a loan of P50,000 from the defendant Philippine National Bank, Cebu
Branch. To guarantee its payment, plaintiff pledged the M/S Surigao, M/S Don Dino and its equity in the
FS-203 to the defendant bank, as evidenced by the pledge contract.
Subsequently, plaintiff effected partial payment of the loan in the sum of P20,000. The remaining balance
was renewed by the execution of two (2) promissory notes in the bank's favor. Meanwhile, together with
the institution of the criminal action, defendant bank took physical possession of three pledged vessels
while they were at the Port of Cebu, and on April 29, 1948, after the first note fell due and was not paid.
The FS-203 was subsequently surrendered by the defendant bank to the Philippine Shipping Commission
which rescinded the sale to plaintiff on September 8, 1948, for failure to pay the remaining installments on
the purchase price thereof. 7 The other two boats, the M/S Surigao and the M/S Don Dino were sold by
defendant bank to third parties on March 15, 1951.
On April 6, 1948, the bank filed criminal charges against plaintiff and two other accused for estafa thru
falsification of commercial documents, because plaintiff had, as last indorsee, deposited with defendant
bank, from March 11 to March 31, 1948, seven Bank of the Philippine Islands checks totalling P184,000. The
drawer thereof — one of the co-accused — had no funds in the drawee bank. On July 19, 1948, plaintiff
commenced action in the Court of First Instance of Cebu to recover the three vessels or their value and
damages from defendant bank. The latter filed its answer, with a counterclaim for P202,000 plus P5,000
damages.
The lower court rendered its decision on February 13, 1960 ruling in favor of the defendant bank.
When his motion for reconsideration and new trial was denied, plaintiff brought the appeal to SC, the
amount involved being more than P200,000.00.
In support of the first assignment of error, plaintiff-appellant contends that the contract it signed with the
defendant bank is a chattel mortgage contract so that the creditor defendant could not take possession of
the chattels object thereof until after there has been default.
VI. ISSUE: Whether or not the contract was a chattel mortgage so that PNB cannot take possession of the
chattels until after there has been default.
VII. RULING: The appealed judgment is affirmed.
No. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract. Necessarily, this
judicial admission binds Yuliongsiu. Without any showing that this was made thru palpable mistake, no
amount of rationalization can offset it.
PNB as pledgee was therefore entitled to the actual possession of the vessels. While it is true that
Yuliongsiu continued operating the vessels after the pledge contract was entered into, his possession was
expressly made “subject to the order of the pledgee." The provision of Art. 2110 of the present Civil Code
being new, cannot apply to the pledge contract here which was entered into on June 30, 1947. On the other
hand, there is an authority supporting the proposition that the pledgee can temporarily entrust the physical
possession of the chattels pledged to the pledgor without invalidating the pledge. In such a case, the
pledgor is regarded as holding the pledged property merely as trustee for the pledgee.

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WHEREFORE, the appealed judgment is, as it is hereby, affirmed. Costs against plaintiff-appellant. So
ordered.
I. SHORT TITLE: CALTEX PHILIPPINES vs. COURT OF APPEALS
II. FULL TITLE: Caltex Philippines Inc. versus Court of Appeals and Security Bank and Trust Company –
G.R. No. 97753, August 10, 1992 – J. Regalado
III. TOPIC: Negotiability of an Instrument; Pledge
In 1982, Angel de la Cruz obtained certificates of time deposit (CTDs) from Security Bank and Trust
Company for the former’s deposit with the said bank amounting to P1,120,000.00. The said CTDs are
couched in the following manner:
This is to Certify that B E A R E R has deposited in this Bank the sum of PESOS:
FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos,
Philippine Currency, repayable to said depositor 731 days. after date, upon presentation and surrender of this
certificate, with interest at the rate of 16% per cent per annum.
(Sgd. Illegible) (Sgd. Illegible)
Angel de la Cruz subsequently delivered the CTDs to Caltex in connection with the purchase of fuel
products from Caltex. In March 1982, Angel de la Cruz advised Security Bank that he lost the CTDs. He
executed an affidavit of loss and submitted it to the bank. The bank then issued another set of CTDs. In
the same month, Angel de la Cruz acquired a loan of P875,000.00 and he used his time deposits as
collateral. In November 1982, a representative from Caltex went to Security Bank to present the CTDs
(delivered by Angel de la Cruz) for verification. Caltex advised Security Bank that de la Cruz delivered
Caltex the CTDs as security for purchases he made with the latter. Security Bank refused to accept the
CTDs and instead required Caltex to present documents proving the agreement made by de la Cruz with
Caltex. Caltex however failed to produce said documents. In April 1983, de la Cruz’s loan with Security
bank matured and no payment was made by the former. Security Bank eventually set-off the time deposit
to pay off the loan.
Caltex sued Security Bank to compel the bank to pay off the CTDs. Security Bank argued that the CTDs
are not negotiable instruments even though the word “bearer” is written on their face because the word
“bearer” contained therein refer to depositor and only the depositor can encash the CTDs and no one else.
VI. ISSUE: Whether or not the time deposits were negotiated to Caltex.
VII. RULING:
Under the Negotiable Instruments Law, an instrument is negotiated when it is transferred from one person
to another in such a manner as to constitute the transferee the holder thereof, and a holder may be the
payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. In the present case,
there was no negotiation in the sense of a transfer of the legal title to the CTDs in favor of petitioner in
which situation, for obvious reasons, mere delivery of the bearer CTDs would have sufficed. Here, the
delivery thereof only as security for the purchases of Angel de la Cruz could at the most constitute
petitioner only as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose

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cannot be effected by mere delivery of the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of non-payment of the principal obligation, must be
contractually provided for.
The pertinent law on this point is that where the holder has a lien on the instrument arising from contract,
he is deemed a holder for value to the extent of his lien. As such holder of collateral security, he would be a
pledgee but the requirements therefor and the effects thereof, not being provided for by the Negotiable
Instruments Law, shall be governed by the Civil Code provisions on pledge of incorporeal rights provided
for in Arts. 2095 and 2096.
Aside from the fact that the CTDs were only delivered but not indorsed, the factual findings of respondent
court quoted at the start of this opinion show that petitioner failed to produce any document evidencing
any contract of pledge or guarantee agreement between it and Angel de la Cruz. Consequently, the mere
delivery of the CTDs did not legally vest in petitioner any right effective against and binding upon
respondent bank. The requirement under Article 2096 aforementioned is not a mere rule of adjective law
prescribing the mode whereby proof may be made of the date of a pledge contract, but a rule of substantive
law prescribing a condition without which the execution of a pledge contract cannot affect third persons
adversely.
Wherefore, on the modified premises above set forth, the petition is DENIED and the appealed decision is
hereby AFFIRMED.
I.SHORT TITLE: MANILA SURETY vs. VELAYO
II. FULL TITLE: Manila Surety and Fidelity Company, Inc., versus Rodolfo R. Velayo, G.R. No. L-21069,
October 26, 1967, J. J.B.L. Reyes
III. TOPIC: Extinguishment of Pledge
In 1953, upon the request of Rodolfo Velayo, Manila Surety executed a bond for P2,800.00 for the
dissolution of a writ of attachment obtained by Jovita Granados in a suit against Velayo. Velayo undertook
to pay Manila Surety an annual premium of P112.00; to indemnify the company for the damage and loss of
whatsoever kind and nature that it shall or may suffer, as well as reimburse the same for all the money it
should pay or become liable to pay under the bond including attorney’s fees and costs.
Judgment was rendered in favor of Granados, and execution having been returned unsatisfied, the surety
company was forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon the latter's
failure to do so, the surety caused the pledged jewelry to be sold, realizing therefrom a net product of
P235.00 only.
Velayo filed an appeal to the judgment of the CFI Manila ordering Rodolfo Velayo to pay Manila Surety &
Fidelity Co., Inc. the sum of P2,565.00 with interest at 12-½% per annum from July 13, 1954; P120.93 as
premiums with interest at the same rate from June 13, 1954: attorneys' fees in an amount equivalent to 15%
of the total award, and the costs.
VI. ISSUE: Whether the sale of the pledged jewelry extinguished any further liability on Velayo’s part under
Article 2115 of the 1950 Civil Code.

Page 68 of 104
VII. RULING:
Article 2115, in its last portion, clearly establishes that the extinction of the principal obligation supervenes
by operation of imperative law that the parties cannot override: “If the price of the sale is less, neither shall
the creditor be entitled to recover the deficiency notwithstanding any stipulation to the contrary.” The
aforementioned provision is clear and unmistakable, and its effect cannot be evaded. By electing to sell the
articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and
must abide by the results of the sale. No deficiency is recoverable.
WHEREFORE, the decision under appeal is modified and the defendant absolved from the complaint,
except as to his liability for the 1954 premium in the sum of P120.93, and interest at 12-1/2% per annum
from June 13, 1954.
I. SHORT TITLE: LEONARDO vs. COURT OF APPEALS
II. FULL TITLE: Inocente Leonardo, Lorenzo Leonardo, Visitacion Leonardo, Asuncion and Margarita
Leonardo Bernal versus Court of Appeals and Troyano V. Leonardo- 220 SCRA 254, March 22, 1993, J.
Nocon
III. TOPIC: Credit Transactions – Real Estate Mortgage
On August 28, 1969, Inocente Leonardo and his wife mortgaged their Cebu City property including its
poultry building with the Development Bank of the Philippines (DBP) to secure a P60,000.00 loan.
Inocente and his wife soon received a letter from DBP demanding payment of the outstanding loan, or the
property will be foreclosed. On due date, Inocente Leonardo and his wife executed in favor of their
youngest son, Troyano V. Leonardo, a “Deed of Sale with Assumption of a Real Estate Mortgaged Plus a
Right to Repurchase”. Under the agreement, in consideration of the Vendee’s assumption of the Vendors’
obligation with DBP, the Vendors ceded one-half of the property to Troyano, while the latter granted the
Vendors a period of seven (7) years, or until January 31, 1980, to purchase the other half for the same
amounts paid by him to the DBP, including interests. Twelve (12) days after due date, Troyano received a
letter from his father signifying his intent to exercise the right to repurchase the property in question.
Troyano Leonardo filed a petition for consolidation of ownership before the Court of First Instance (CFI)
of Cebu for failure of his parents to redeem the subject property. Inocente and his other children (who
substituted Inocente’s wife after her death) argued that consolidation is improper since the contract was a
mortgage and not a pacto de retro sale. Both the CFI and the Court of Appeals ruled for Troyano.
VI. ISSUE:
1. Whether the agreement was a pacto de retro sale and not an equitable mortgage.
2. Whether Inocente et al. have the right to repurchase the property sold under a contract of sale with a
right to repurchase within 30 days from final judgment.
VII. RULING:
1. Yes, the agreement was a pacto de retro sale. Aside from the fact that there was no loan (which may be
secured by a mortgage) that was extended by Troyano to his parents, the agreement clearly conferred to his

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parents the right to repurchase half of the property for seven (7) years from Troyano. When the terms of a
contract are clear, the literal meaning of its stipulations governs.
2. No, Inocente et al. do not have such right. Article 1606 paragraph (3) of the Civil Code, applies where
the buyer a retro honestly believed that the contract was an equitable mortgage, and because of such belief,
he had not redeemed the property within the proper period, which is not present here.
WHEREFORE, finding no reversible error in the assailed decision, this petition for certiorari is hereby
DISMISSED for lack of merit. Costs petitioners.
I. SHORT TITLE: BRIONES-VASQUEZ vs COURT OF APPEALS
II. FULL TITLE: Briones-Vasquez v. CA and Ocampo G.R. No. 144882
III. TOPIC: Real Estate Mortgage
Under an agreement denominated as a pacto de retro sale, Maria Mendoza Vda. De Ocampo acquired a
parcel of land from Luisa Briones. The latter thereunder reserved the right to repurchase the parcel of land
up to December 31, 1970.
On June 14, 1990, Hipolita Ocampo Paulite and Eusebio Mendoza Ocampo, the heirs of Maria Mendoza
Vda. De Ocampo, filed a petition for consolidation of ownership, alleging that the seller was not able to
exercise her privilege to redeem the property on or before December 31, 1970. CA ruled that the contract
entered was of equitable mortgage.
This is a petition for certiorari under Rule 65 of the Rules of Civil Procedure, assailing the Resolution of the
Court of Appeals in CA-G.R. CV No. 39025, dated June 9, 2000, which denied petitioners motion for
clarificatory judgment and the Resolution of the Court of Appeals, dated August 3, 2000, which denied the
motion for reconsideration. Under an agreement denominated as a pacto de retro sale, Maria Mendoza Vda.
De Ocampo acquired a parcel of land from Luisa Briones. The latter thereunder reserved the right to
repurchase the parcel of land up to December 31, 1970.
VI. ISSUE: Whether or not the agreement was pacto de retro or equitable mortgage
VII. RULING:
Equitable mortgage. The Court of Appeals pronounced in its Decision that the contract between the
parties is an equitable mortgage. Since the contract is characterized as a mortgage, the provisions of the
Civil Code governing mortgages apply. Article 2088 of the Civil Code states:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
The private respondents do not appear to have caused the foreclosure of the mortgage much less have they
purchased the property at a foreclosure sale. Petitioner, therefore, retains ownership of the subject
property. The right of ownership necessarily includes the right to possess, particularly where, as in this case,
there appears to have been no availment of the remedy of foreclosure of the mortgage on the ground of
default or non-payment of the obligation in question.

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WHEREFORE, the petition for certiorari is DISMISSED. The parties are directed to proceed upon the
basis of the final Decision of the Court of Appeals, dated June 29, 1995, in CA-G.R. CV No. 39025, that
the contract in question was an equitable mortgage and not a sale.
I. SHORT TITLE: PRUDENTIAL BANK vs. PANIS
II. FULL TITLE: Prudential Bank versus Hon. Domingo D. Panis, Spouses Fernando Magcale and
Teodula Baluyut-Magcale – G.R. No. L-50008, August 31, 1987, J. Paras
III. TOPIC: Real Estate Mortgage – Object of contract
On November 19, 1971, spouses Fernando A. Magcale (Fernando) and Teodula Baluyut Magcale (Sps.
Magcale) secured a loan in the amount of P70,000.00 from the Prudential Bank specially securing the loan
with a deed of Real Estate Mortgage over a 2-storey semi-concrete residential building with warehouse
spaces containing a total floor area of 263 sq. meters declared in the name of Fernando with an assessed
value of P35,290.00, and the land where the building is erected including the right of occupancy on the lot.
Additionally, the mortgage was registered under Act 3344 with the Registry of Deeds of Zambales on
November 23, 1971. Within the deed, it was also stipulated that the mortgagors have already filed a
Miscellaneous Sales Application over the lot, possessory rights over which, were mortgaged.
On May 2, 1973, plaintiffs secured an additional loan from Prudential Bank in the sum of P20,000.00
securing such loan by executing another deed of Real Estate Mortgage over the same properties previously
mortgaged. The second deed of Real Estate Mortgage was likewise registered with the Registry of Deeds in
Olongapo City.
On April 24, 1973, the Secretary of Agriculture issued a Miscellaneous Sales Patent over the parcel of land
in favor of plaintiffs, possessory rights over which were mortgaged to Prudential Bank. Subsequently,
Original Certificate of Title No. P-2554 was issued in the name of Plaintiff Fernando.
For failure of plaintiffs to pay their obligation to Prudential Bank after it became due, and upon application
of said bank, the deeds of Real Estate Mortgage were extrajudicially foreclosed. Consequent to the
foreclosure was the sale of the properties therein mortgaged to Prudential Bank as the highest bidder in a
public auction sale conducted by the City Sheriff. The auction sale aforesaid was held despite written
request from Sps. Magcale through counsel for the City Sheriff to desist from going with the scheduled
public auction sale.
Respondent Court, in a Decision, declared the deeds of Real Estate Mortgage as null and void. Petitioner
filed on December 14, 1978 a Motion for Reconsideration but was denied for lack of merit. Hence, an
appeal was filed before the Supreme Court.
VI. ISSUE:
1. Whether or not a valid real estate mortgage can be constituted on the building erected on the land
belonging to another.
2. Whether or not the second mortgage was valid.
VII. RULING:

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1. Yes, the mortgage executed by Fernando on his own building which was erected on the land belonging
to the government is a valid mortgage. The original mortgage deed on the residential building was executed
and registered prior to the issuance of the final patent on the land which was issued in the name of
Fernando and before the government was divested of its title to the land.
2. No, the additional loan of P20,000.00 which was registered with the Registry of Deeds of Olongapo City
was not valid. Sections 121, 122 and 124 of the Public Land Act expressly prohibits the mortgage after the
issuance of a sale patent and Original Certificate of Title, and is therefore null and void.
Premises considered, the decision of the Court of First Instance of Zambales & Olongapo City is hereby
MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is valid but ruling that the
Deed of Real Estate Mortgage for an additional loan of P20,000.00 is null and void, without prejudice to
any appropriate action the Government may take against private respondents.
I. SHORT TITLE: MOBIL OIL vs. DIOCARES
II. FULL TITLE: Mobil Oil Philippines, Inc., Plaintiff-Appellant, Versus Ruth R. Diocares, Et Al.,
Defendants-Appellees -- G.R. No. L-26371, September 30, 1969, Fernando, J
III. TOPIC: REAL ESTATE MORTGAGE -- REGISTRATION OF INSTRUMENT (ART. 2125)
On Feb. 9, 1965 Ruth R. Diocares and Lope T. Diocares (Diocares) entered into a contract of loan and real
estate mortgage wherein Mobil Oil Philippines, Inc. (Mobil Oil) extended to the Diocares a loan of
P45,000.00 It was also agreed that the Diocares will buy from Mobil Oil, on cash basis, their petroleum
requirements in an amount of not less than 50,000 liters per month. Furthermore, the Diocares agreed to
pay to Mobil Oil 9-1/2% per annum on the diminishing balance of the amount of their loan and that the
Diocares will repay the said loan in monthly installments of P950.88 for a period of five
(5) years from February 9, 196.
In order to secure the performance of the said obligation, they executed a first mortgage on two parcels of
land covered by Transfer Certificates of Title Nos. T-27136 and T-27946, both issued by the Register of
Deeds of Bacolod City. The agreement further provided that in case of failure of the Diocares to pay any of
the installments due and purchase their petroleum requirements in the minimum amount of 50,000 liters
per month from Mobil Oil, the latter has the right to foreclose the mortgage or recover the payment of the
entire obligation or its remaining unpaid balance. And in case of foreclosure, Mobil Oil shall be entitled to
12% of the indebtedness as damages and attorney's fees.
Mobil Oil filed a complaint against the Diocares alleging that they paid only the amount of P1,901.76 and
left a balance of P43,098.24, excluding interest, on their indebtedness. It was also alleged that the Diocares
failed to buy on cash basis the minimum amount of petroleum which they agreed to purchase from Mobil
Oil. Mobil Oil, therefore, prayed that the Diocares be ordered to pay the amount of P43,098.24, with
interest at 9-1/2% per annum from the date it fell due, and in default of such payment that the mortgaged
properties be sold and the proceeds applied to the payment of obligation.
The Diocares admitted their indebtedness but denied the alleged refusal to pay. According to them, they
only sought for an extension of time to do so, inasmuch as they were not in a position to comply with their

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obligation. They further set forth that they did request Mobil Oil to furnish them with the statement of
accounts with the view of paying the same on installment basis, which request was, however, turned down
by the Mobil Oil.
Then came a motion from the plaintiff for a judgment on the pleadings, which motion was favorably acted
on by the lower court.
According to the court, the Answer of the Diocares did not raise any issue, it, in actuality, even admitted
the material allegation so of the complaint. Hence, the court ordered the Diocares to pay Mobil Oil account
of P43,098.24, with interest at the rate of 9-1/2% per annum from the date of the filing of the complaint
until fully paid, plus the amount of P2,000.00 as attorneys' fees, and the costs of the suit but denied the
sought foreclosure because of the absence of proof that the instrument had been registered thus failing to
establish the existence of the real estate mortgage.
VI. ISSUE: Whether or not a mortgage contract not registered in the Registry of Property is binding and
effective.
VII. RULING: Yes, an unregistered mortgage contract is still binding and effective as to the parties to the
instrument.
Art. 2125 of the New Civil Code provides: "In addition to the requisites stated in article 2085, it is indispensable, in
order that a mortgage may be validly constituted, that the document in which it appears be recorded in the Registry of Property.
If the instrument is not recorded, the mortgage is nevertheless binding between the parties."
The codal provision is clear and explicit. Even if the instrument were not recorded, "the mortgage is
nevertheless binding between the parties." The law cannot be any clearer. Effect must be given to it as
written. The mortgage subsists; the parties are bound. As between them, the mere fact that there is as yet
no compliance with the requirement that it be recorded cannot be a bar to foreclosure.
Equity so demands, and justice is served. There is thus full acknowledgment of the binding effect of a
promise, which must be lived up to, otherwise the freedom a contracting party is supposed to possess
becomes meaningless. It could be said of course that to allow foreclosure in the absence of such a formality
is to offend against the demands of jural symmetry. What is "indispensable" may be dispense with. Such an
objection is far from fatal. This would not be the first time when logic yields to what is fair and what is just.
To such an overmastering requirement, law is not immune.
WHEREFORE, the lower court order of February 25, 1966 is affirmed with the modification that in
default of the payment of the above amount of P43,028.94 with interests at the rate of 9-1/2% per annum
from the date of the filing of the complaint, that the mortgage be foreclosed with the properties subject
thereof being sold and the proceeds of the sale applied to the payment of the amounts due the plaintiff in
accordance with law. With costs against defendants-appellees.
I. SHORT TITL E: PHILIPPINE NATIONAL BANK vs. RAMON B. LACSON, SR. (RBL)
II. FULL TITLE: Philippine National Bank versus RBL Enterprises; Ramon B. Lacson Sr. and Spouses
Edwardo amd Hermina Ledesma, G.R. No. 149569, May 28, 2004, J. Panganiban

Page 73 of 104
Sometime in 1987, [respondents] opened a prawn hatchery in San Enrique, Negros Occidental, and for this
purpose, leased from Nelly Bedrejo a parcel of land where the operations were conducted. In order to
increase productions and improve the hatchery facilities, respondents applied for and was approved a loan
of P2,000,000.00, by [Petitioner] PNB. To secure its payment, [respondents] executed in favor of PNB, a
real estate mortgage over two (2) parcels of land, located at Bago City, Negros Occidental in the names of
respondents, and another real [estate] and chattel mortgage over the buildings, culture tanks and other
hatchery facilities located in the leased property of Nelly Bedrejo. PNB partially released to [respondents]
on several dates, the total sum of P1,000,000.00 less the advance interests, which amount [respondents]
used for introducing improvements on the leased property where the hatchery business was located. During
the mid-part of the construction of the improvements, PNB refused to release the balance of P1,000,000.00
allegedly because [respondents] failed to comply with the bank’s requirement that Nelly Bedrejo should
execute an undertaking or a ‘lessors’ conformity’ provided in Real Estate and Chattel Mortgage contract which
states It is a condition of this mortgage that while the obligations remained unpaid, the acquisition by the lessor of the
permanent improvements covered by this Real Estate Mortgage as provided for in the covering Lease Contract, shall be subject
to this mortgage. For this purpose, the mortgagor hereby undertakes to secure the lessor’s conformity hereto’. For said alleged
failure of [respondents] to comply with the additional requirement and the demand of PNB to pay the
released amount of P1,000,000.00, PNB foreclosed the mortgaged properties, to the detriment of
[respondents]. Due to the non-release of the remaining balance of the loan applied for and approved, the
productions-operations of the business were disrupted causing losses to [respondents], and thereafter, to
the closure of the business.
The Regional Trial Court (RTC) ruled that Philippine National Bank (PNB) had breached its obligation
under the Contract of Loan and should therefore be held liable for the consequential damages suffered by
respondents. Affirming the lower court, the CA held that Nelly Bedrejo, who was not a party to the
Mortgage Contract, could not be compelled to affix her signature thereto. The appellate court further ruled
that the registration of the mortgage not only revealed PNB’s intention to give full force and effect to the
instrument but, more important, gave the mortgagee ample security against subsequent owners of the
chattels. Hence, a petition was filed before the Supreme Court.
VI. ISSUE:
1. Whether or not PNB’s non-release of the loan justified?
2. Whether or not the lessor’s nonconformity to the Mortgage Contract would not cause petitioner any
undue prejudice or disadvantage, because the registration and the annotation were considered sufficient
notice to third parties that the property was subject to an encumbrance.
VII. RULING:
1. No, PNB's non-release of the loan was not justified. as held by the RTC, there is a clear and categorical
showing that when the parties have finally executed the contract of loan and the Real Estate and Chattel
Mortgage Contract, the applicant complied with the terms and conditions imposed by defendant bank on
the recommendation and approval sheet, hence, defendant bank waived its right to further require the
plaintiffs other conditions not specified in the previous agreement. Should there [appear] any obscurity
after such execution, the same should not favor the party who caused such obscurity. Therefore, such
obscurity must be construed against the party who drew up the contract. Art. 1377 of the Civil Code
applies x x x [even] with greater force [to] this type of contract where the contract is already prepared by a
big concern and [the] other party merely adheres to it.
2. Yes, the lessor’s nonconformity to the Mortgage Contract would not cause petitioner any undue
prejudice or disadvantage, because the registration and the annotation were considered sufficient notice to
third parties that the property was subject to an encumbrance.

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Article 2126 of the Civil Code describes the real nature of a mortgage: it is a real right following the
property, such that in subsequent transfers by the mortgagor, the transferee must respect the mortgage. A
registered mortgage lien is considered inseparable from the property inasmuch as it is a right in rem. The
mortgage creates a real right or a lien which, after being recorded, follows the chattel wherever it goes.
Under Article 2129 of the same Code, the mortgage on the property may still be foreclosed despite the
transfer. Indeed, even if the mortgaged property is in the possession of the debtor, the creditor is still
protected. To protect the latter from the former’s possible disposal of the property, the chattel mortgage is
made effective against third persons by the process of registration. PNB violated the Loan Agreement
when it refused to release the P1,000,000 balance. As regards the partial release of that amount, over which
respondents executed three Promissory Notes, the bank is deemed to have complied with its reciprocal
obligation. The Promissory Notes compelled them to pay that initial amount when it fell due. Their failure
to pay any overdue amortizations under those Promissory Notes rendered them liable thereunder.
WHEREFORE, the Petition is PARTLY GRANTED. The assailed Decision is hereby AFFIRMED, with
the MODIFICATION that the award of actual and exemplary damages is deleted. No costs.
I. SHORT TITLE: PHILIPPINE NATIONAL BANK vs. SPOUSES MARANON
II. FULL TITLE: Philippine National Bank vs Spouses Bernard and Cresencia Maranon GR No. 189316;
July 1 2013
III. TOPIC: Real Estate Mortgage; Extent of the Mortgage
The Spouses Maranon, owner of a piece of real property, erected with a building occupied by various
tenants. Said subject property was among the properties mortgaged by spouses Montealegre to PNB as a
security for a loan. Spouses Montealegre, through a falsified Deed of Sale, acquired title to the property and
used the property’s title which was purportedly registered in the name of Emelie Montealegre. However,
due to failure to pay the loan, said property was foreclosed by PNB, and upon auction, was thereafter
acquired by the same bank, PNB. Spouses Maranon filed before the RTC a complaint for Annulment of
Title, Reconveyance and Damages against spouses Montealegre. Judgment of RTC was rendered in favour
of spouses Maranon, but also rendered that the Real Estate Mortgage lien of PNB shall stay and be
respected. Such decision prompted PNB to also seek for entitlement to the fruits of the property such as
rentals paid by the tenants.
The spouses Marañon filed before the RTC a complaint for Annulment of Title, Reconveyance and
Damages against Spouses Montealegre, PNB, the Register of Deeds of Bacolod City and the Ex-Officio
Provincial Sheriff of Negros Occidental. The RTC rendered judgment in favor of the complainants, but
upheld the validity of the Real Estate Mortgage between PNB and the spouses Montealegre. Upon appeal,
the CA affirmed the decision of the RTC.
VI. ISSUE: Whether or not the mortgage between the PNB and the Sps. Montealegre includes the fruits of
the property such as the rentals paid by the tenants.
VII. RULING:
1. No. While it is true that under Article 2127 of the New Civil Code, the mortgage extends to the natural
accessions, to the improvements, growing fruits, and the rents or income not yet received when the

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obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person. Consequently, in case of non-payment of the
secured debt, foreclosure proceedings shall cover not only the hypothecated property but all its accessions
and accessories as well. However, the rule is not without qualifications. In Castro, Jr. v. CA the Court
explained that Article 2127 is predicated on the presumption that the ownership of accessions and
accessories also belongs to the mortgagor as the owner of the principal. After all, it is an indispensable
requisite of a valid real estate mortgage that the mortgagor be the absolute owner of the encumbered
property. Corollary, any evidence sufficiently overthrowing the presumption that the mortgagor owns the
mortgaged property precludes the application of Article 2127. Otherwise stated, the provision is irrelevant
and inapplicable to mortgages and their resultant foreclosures if the mortgagor is later on found or declared
to be not the true owner of the property, as in the instant case.
WHEREFORE, foregoing considered, the petition is hereby DENIED. The Decision dated June 18, 2008
and Resolution dated August 10, 2009 of the Court of Appeals in CA-G.R. SP No. 02513 are AFFIRMED.
I. SHORT TITLE: GARCIA vs. VILLAR
II. FULL TITLE: PABLO P. GARCIA, petitioner, vs. YOLANDA VALDEZ VILLAR, respondent. G.R. No.
158891. June 27, 2012. 675 SCRA 80. FIRST DIVISION. LEONARDO-DE CASTRO, J.
III. TOPIC: Civil Law; Credit Transactions; Mortgage
Lourdes V. Galas (Galas) is the owner of a certain real property (subject property). Galas together with
Ophelia G. Pingol (Pingol), as co-maker, obtained a loan from Yolanda Valdez Villar (respondent). Galas
executed a real estate mortgage over the subject property in favor of respondent. Thereafter, Galas and
Pingol were able to obtain another loan, but this time from Pablo P. Garcia (petitioner) in whose favor a
real estate mortgage over the same property was executed. Both mortgages were annotated at the back of
the title of Galas over the subject property. The annotations contained a statement that any subsequent
encumbrance on the subject property shall require the consent of the mortgagee.
The subject property was subsequently sold by Galas to respondent. The latter was able obtain a title over
the subject property.
The above mentioned sale prompted petitioner to file a petition for mandamus with damages before the
Regional Trial Court, Br. 92 of Quezon City (RTC) against respondent. The RTC ruled in favor of
petitioner. Respondent, thus, elevated the case to the Court of Appeals (CA) which in turn reversed the
decision of the RTC. A subsequent motion for reconsideration by petitioner was denied by the CA. Hence,
the present recourse of petitioner before the Supreme Court (SC).
VI. ISSUES:
1. Whether or not the second mortgage in favor of petitioner was valid;

2. Whether or not the sale of the subject property to respondent was valid;
3. Whether or not the sale of the subject property to respondent amounts to pactum commissorium;
4. Whether or not petitioner’s action for foreclosure can prosper.

Page 76 of 104
VII. RULING:
1. Yes. Although the annotation at the back of the title of Galas of the mortgage in favor of respondent
contained a statement that the consent of respondent, as mortgagee, is necessary for any subsequent
encumbrances, such provision was nowhere to be found in the Deed of Real Estate Mortgage. As this
Deed became the basis for the annotation on Galas’s title, its terms and conditions take precedence over
the standard, stamped annotation placed on her title. If it were the intention of the parties to impose such
restriction, they would have and should have stipulated such in the Deed of Real Estate Mortgage itself.
2. Yes. The Deed of Real Estate Mortgage merely provided for the options respondent may undertake in
case Galas or Pingol fail to pay their loan. Nowhere was it stated in the Deed that Galas could not opt to
sell the subject property to respondent, or to any other person. Such stipulation would have been void
anyway, as it is not allowed under Article 2130 of the Civil Code, to wit: “Art. 2130. A stipulation forbidding
the owner from alienating the immovable mortgaged shall be void.”
3. No. The elements of pactum commissorium are: (1) there should be a property mortgaged by way of security
for the payment of the principal obligation; and (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation
within the stipulated period.
Respondent’s purchase of the subject property did not violate the prohibition on pactum commissorium. The
power of attorney provision in the Deed of Real Estate Mortgage did not provide that the ownership over
the subject property would automatically pass to respondent upon Galas’s failure to pay the loan on time.
What it granted was the mere appointment of respondent as attorney-in-fact, with authority to sell or
otherwise dispose of the subject property, and to apply the proceeds to the payment of the loan. This
provision is customary in mortgage contracts, and is in conformity with Article 2087 of the Civil Code,
which reads: “Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things
in which the pledge or mortgage consists may be alienated for the payment to the creditor.”
4. No. The real nature of a mortgage is described in Article 2126 of the Civil Code, to wit: “Art. 2126. The
mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the
fulfillment of the obligation for whose security it was constituted.”
Simply put, a mortgage is a real right, which follows the property, even after subsequent transfers by the
mortgagor. “A registered mortgage lien is considered inseparable from the property inasmuch as it is a right
in rem.”
The sale or transfer of the mortgaged property cannot affect or release the mortgage; thus the purchaser or
transferee is necessarily bound to acknowledge and respect the encumbrance. In fact, under Article 2129 of
the Civil Code, the mortgage on the property may still be foreclosed despite the transfer, viz.: “Art. 2129.
The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured
by the property which said third person possesses, in terms and with the formalities which the law establishes.”
Since the second mortgage, of which petitioner is the mortgagee, has not yet been discharged, the said
mortgage subsists and is still enforceable. However, respondent, in buying the subject property with notice
that it was mortgaged, only undertook to pay such mortgage or allow the subject property to be sold upon
failure of the mortgage creditor to obtain payment from the principal debtor once the debt matures.
Respondent did not obligate herself to replace the debtor in the principal obligation, and could not do so in
law without the creditor’s consent. Therefore, Galas and Pingol remained to be the debtors of petitioner.
Petitioner has no cause of action against respondent in the absence of evidence to show that the second
mortgage executed in favor of petitioner has been violated by his debtors, Galas and Pingol, i.e., specifically
that petitioner has made a demand on said debtors for the payment of the obligation secured by the second
mortgage and they have failed to pay.

Page 77 of 104
WHEREFORE, this Court hereby AFFIRMS the February 27, 2003 Decision and March 8, 2003
Resolution of the Court of Appeals in CA-G.R. SP No. 72714. SO ORDERED.
I. SHORT TITLE: BOHANAN vs. COURT OF APPEALS
II. FULL TITLE: GODFREY BOHANAN, vs. COURT OF APPEALS, L & R CORPORATION and
Spouses ROSARIO & DIONISIO CABRERA, JR. G.R. No. 111654. April 18, 1996
III. TOPIC: Foreclosure
Petitioner Godfrey Bohanan obtained a loan of P200,000.00 from private respondent L & R Corporation
(hereinafter referred to as L & R) payable in sixty (60) equal monthly installments. To secure payment
petitioner executed a deed mortgaging his two lots with the four-unit apartment building thereon situated in
Sta. Ana, Manila. The deed further provided that in case petitioner failed to pay any monthly amortization
the overdue amortization or amortizations would draw monthly interest at 1-3/4% without prejudice to the
right of L & R to declare the whole indebtedness or the entire unpaid balance, as the case may be, due and
demandable. In addition, petitioner would have to pay collection charges including attorney’s fees and other
incidental expenses equivalent to 2% of the total outstanding obligation in case the matter was placed in the
hands of a lawyer for collection.
Petitioner was remiss in his fourth amortization. Consequently, the remaining unpaid obligation became
due and demandable and petitioner was given a grace period of ten (10) days within which to pay but the
latter failed. Thus L & R sent a notice of foreclosure and filed a petition in the Manila Sheriff’s Office to
commence extrajudicial foreclosure proceedings against him. L & R became the successful bidder with its
bid of P327,615.54 and was issued a certificate of sale. However, upon failure of petitioner to redeem his
property within the one-year redemption period provided by law, L & R executed an Affidavit of
Consolidation of Ownership. On 17 February 1987 L & Rs titles were in turn cancelled to give way to TCT
Nos. 172718 and 172719 in the name of Rosario Guanzon, who bought the property from L & R for
P200,000.00. petitioner filed a complaint against L & R Corporation and its vendees, the spouses Cabrera
Jr., for recovery of property with preliminary injunction contending that the sale between the Cabreras on
one hand and L & R on the other, was undertaken in fraud of a contractual commitment to him. The
appellate court concluded that there was no irregularity in the conduct of the foreclosure sale and that the
spouses Cabrera could not be considered buyers in bad faith since their act of buying the properties direct
from L & R, instead of through petitioner, did not automatically make them so.
VI. ISSUE:
1. WON he was notified of the sale;

2. WON the deputy sheriff who conducted the sale did not submit a certificate of posting to prove the
alleged posting in three (3) public places required under Act No. 3135;
VII. RULING:
1. Personal notice on the mortgagor is not required under Act No. 3135 as amended.7 All that is required
is that notice be given by posting notices of the sale for not less than twenty (20) days in at least three (3)
public places of the municipality or city where the property is situated, and publication once a week for at
least three (3) consecutive weeks in a newspaper of general circulation in the municipality or city, if the

Page 78 of 104
property is worth more than four hundred pesos.8 Therefore, any discussion into the factual issue of
whether petitioner received a notice of foreclosure sale would be an exercise in futility since it would not
have any bearing at all on the alleged validity or invalidity of the foreclosure sale in question.
2. The non-presentation of a certificate of posting does not affect the intrinsic validity of the questioned
foreclosure sale. As already stated, all that is required by Sec. 3 of Act No. 3135 is that public notice of the
place and time of the sale be posted in three (3) public places and, where the property is worth more than
P400.00, published in a newspaper of general circulation. Non-compliance constitutes a jurisdictional defect
sufficient to invalidate the sale.
However, a certificate of posting is not a statutory requirement. Rather, it is significant only in the matter of
proving compliance with the required posting of notice. And although we said in Tambunting that the
presumption of compliance with official duty has been rebutted by the failure to present proof of posting
and publication of the notice of sale, this cannot be construed to mean that a certificate of posting is
indispensable without which a questioned foreclosure sale is automatically doomed as invalid. For the fact
alone that there is no certificate of posting attached to the sheriffs records is not sufficient to prove the lack
of posting.
WHEREFORE, the questioned Decision and Resolution of respondent Court of Appeals are AFFIRMED
in toto. Costs against petitioner.
I. SHORT TITLE: CAUBANG vs. SPOUSES CRISOLOGO
II. FULL TITLE: Atty. Leo N. Caubang, Petitioner, Vs. Jesus G. Crisologo And Nanette B. Crisologo,
Respondents. G.R. No. 174581, February 04, 2015
III. TOPIC: Publication of Notice In Extrajudicial Foreclosure Sale of Real Estate Mortgage
Respondent spouses Jesus and Nanette Crisologo (Spouses Crisologo) obtained loans from PDCP
Development Bank (PDCP Bank) in the forms of Express loans and Term loans. As security for the loans,
Spouses Crisologo mortgaged their property in which promissory notes were issued to them. Under the
notes, Spouses Crisologo agreed to pay the amount of the loan through monthly installments. Respondent
spouses defaulted in the payment of amortizations. Despite several demands of PDCP Bank, respondent
spouses failed to pay. For failure to settle the account, PDCP Bank filed a Petition for the Extrajudicial
Foreclosure of Mortgage.
Petitioner Leo Caubang (Caubang), as Notary Public, prepared the Notices of Sale, announcing the
foreclosure of the real estate mortgage and the sale of the mortgaged property at public auction. e caused
the posting of said notices in three (3) public places as mandated by Act no. 3135. Publication was, likewise,
made in the Oriental Daily Examiner, one of the local newspapers in Davao City. Caubang conducted the
auction sale of the mortgaged property, with the bank as the only bidder. Thereafter, a Certificate of Sale in
favor of the bank was issued. Later, the Spouses Crisologo were surprised to learn that their mortgaged
property had already been sold to the bank. Thus, they filed a Complaint for Nullity of Extrajudicial
Foreclosure and Auction Sale and Damages against PDCP Bank and Caubang.
RTC rendered a Decision nullifying the extrajudicial foreclosure of the real estate mortgage for failure to
comply with the publication requirement but did not include any grant of damages. The Spouses Crisologo
appealed before the CA, seeking a partial modification of the RTC Decision, insofar as their claims for
moral and exemplary damages, attorney’s fees, and costs of suit were concerned which was granted.
Caubang filed a Motion for Reconsideration, but the same was denied. Hence, he filed the present petition.

Page 79 of 104
The case involved an extrajudicially foreclosed real estate mortgage upon the property of Spouses Crisologo
by virtue of a loan they contracted with PDCP Bank. The Sheriff, petitioner, caused the publication of
notice in the Oriental Daily Examiner which was not a newspaper of general circulation as mandated by
Act No. 3135 thus depriving the public of notice of the auction sale conducted.
VI. ISSUES
1. Whether or not there is proper publication.

2. Whether or not Caubang is liable for the costs.
VII. RULING
1. No.. Under Section 3 of Act No. 3135: Section 3. Notice of sale; posting; when publication required. – Notice shall
be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city
where the property is situated, and if such property is worth more than four hundred pesos, such notices shall also be published
once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city.
Caubang never made an effort to inquire as to whether the Oriental Daily Examiner was indeed a newspaper
of general circulation, as required by law. It was shown that the Oriental Daily Examiner is not even on the
list of newspapers accredited to publish legal notices, as recorded in the Davao RTC’s Office of the Clerk
of Court. Since there was no proper publication of the notice of sale, the Spouses Crisologo, as well as the
rest of the general public, were never informed that the mortgaged property was about to be foreclosed and
auctioned. As a result, PDCP Bank became the sole bidder. This allowed the bank to bid for a very low
price and go after the spouses for a bigger amount as deficiency.
Notices are given to secure bidders and prevent a sacrifice of the property. Therefore, statutory provisions
governing publication of notice of mortgage foreclosure sales must be strictly complied with and slight
deviations therefrom will invalidate the notice and render the sale, at the very least, voidable. Failure to
advertise a mortgage foreclosure sale in compliance with the statutory requirements constitutes a
jurisdictional defect, and any substantial error in a notice of sale will render the notice insufficient and will
consequently vitiate the sale.
2. Yes. Since it was Caubang who caused the improper publication of the notices, the CA aptly held that
Caubang shall be the one liable for the spouses’ claim for litigation expenses and attorney’s fees.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals, dated May 22, 2006, and
its Resolution dated August 16, 2006, in CA-G.R. CV. No. 68365, are hereby AFFIRMED. SO
ORDERED.
I. SHORT TITLE: BALUYUT vs. POBLETE
II. FULL TITLE: GUILLERMINA BALUYUT, Petitioner, vs. EULOGIO POBLETE, SALUD
POBLETE and THE HON.COURT OF APPEALS, Respondents. G.R. NO. 144435, 6 February 2007,
Third Division, J. AUSTRIA-MARTINEZ
III. TOPIC: Foreclosure Case

Page 80 of 104
Guillermina Baluyut loaned P850,000 from spouses Eulogio and Salud Poblete. As evidence of Baluyut’s
indebtedness, she signed a Promissory Note for the said amount. Under the said note, the loan shall mature
in one month. To secure the payment of her obligation, she conveyed to the spouses Poblete by way of a
Real Estate Mortgage contract, a house and lot she owns.
Upon maturity of the loan, Baluyut failed to pay her indebtedness. Spouses Poblete subsequently decided to
extra-judicially foreclose the real estate mortgage. The mortgaged property was sold on auction by the
Provincial Sheriff to spouses Poblete who were the highest bidders, as evidenced by a Certificate of Sale
issued. Baluyut failed to redeem the subject property within the redemption period prompting Eulogio
Poblete to execute an Affidavit of Consolidation of Title and said title was issued in the Eulogio’s name and
the heirs of Salud. Baluyut remained in possession of the subject property and refused to vacate the same.
Eulogio and Salud’s heirs filed a Petition for the issuance of a writ of possession with the Regional Trial
Court, which the latter granted. However, before Eulogio and Salud’s heirs could take possession of the
property, Baluyut filed an action for annulment of mortgage, extrajudicial foreclosure and sale of the
subject property, as well as cancellation of the title issued in the name of Eulogio and the heirs of Salud,
plus damages. Regional Trial Court dismissed Baluyut’s complaint.
Baluyut filed an appeal with the Court of Appeals with the latter affirming the judgment of the Regional
Trial Court. Baluyut filed a Motion for Reconsideration but the same was denied by the Court of Appeals.
Hence, the present petition.
VI. ISSUES:
1. Whether or not there was compliance with the required posting of notices in three public places and with
the required publication for three consecutive weeks in a newspaper of general circulation.
2. Whether or not Baluyut deemed that she had waived her right to be sent an Assessment Notice by the
highest bidder thirty days before the expiration of the right of legal redemption.
VII. RULING:
1. Yes. Insofar as posting and publication requirements in mortgage foreclosure sales are concerned, the
fact that newspaper publications have more far-reaching effects than posting on bulletin boards in public
places.
The object of a notice of sale is to inform the public of the nature and condition of the property to be sold,
and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to
prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not
affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from bringing
a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the sale made
pursuant thereto.
In the present case, there was sufficient evidence to prove that notices of the foreclosure sale of the subject
property were published in accordance with law and that there was no allegation, much less proof, that the
property was sold for a price which is considerably lower than its value as to show collusion between the
sheriff and spouses Poblete. Hence, even granting that the sheriff failed to post the notices of foreclosure
in at least three public places, such failure, is not a sufficient basis in nullifying the auction sale and the
subsequent issuance of title in favor of spouses Poblete.

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In the present case, the contracts of loan and mortgage are between private individuals. The governing law,
insofar as the Extrajudicial Foreclosure proceedings are concerned, is Act No. 3135. Sec. 3 of the said law
provides: “Notice shall be given by posting notices of the sale for not less than twenty days in at least three
public places of the municipality or city where the property is situated and if such property is worth more
than four hundred pesos, such notice shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or city.
2. Nothing under Act No. 3135 which requires the highest bidder or purchaser to furnish the mortgagor or
redemptioner an Assessment Notice or Notice of Redemption prior to the expiration of the period of
redemption. Even the old Rules of Court, which is the rule applicable in the present case, do not require
that the mortgagor or redemptioner be furnished by the purchaser notice of any assessments or taxes which
the latter may have paid after the purchase of the auctioned property.
Written notice of any redemption must be given to the officer who made the sale and a duplicate filed with
the Registrar of Deeds of the province, and if any assessment of taxes are paid by the redemptioner or if he
has or acquires any lien other than that upon which the redemption was made, notice thereof must in like
manner be given to the officer and filed with the Registrar of Deeds; if such notice be not filed, the
property may be redeemed without paying such assessments, taxes, or liens.
Hence, even granting, for the sake of argument, that spouses Poblete failed to comply with the directive in
the Certificate of Sale issued by the Ex-Officio Provincial Sheriff by giving a copy of statements of the
amount of assessments or taxes which they may have paid on account of the purchase of the subject
property, such failure would not invalidate the auction sale and the subsequent transfer of title over the
subject property in their favor.
The purpose for requiring the purchaser to furnish copies of the amounts of assessments or taxes which he
may have paid is to inform the mortgagor or redemptioner of the actual amount which he should pay in
case he chooses to exercise his right of redemption. If no such notice is given, the only effect is that the
property may be redeemed without paying such assessments or taxes. The fact remains, that Guillermina
Baluyut failed to redeem the subject property.
WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals are AFFIRMED in toto.
I.SHORT TITLE: PRUDENTIAL BANK vs. MARTINEZ
II. FULL TITLE: Prudential Bank, plaintiff-appellee versus Renato M. Martinez and Virginia J. Martinez,
defendants-appellant, G.R. No. L-51767, 14 September 1990, J. Medialdea
III. TOPIC: Recovery of Deficiency
The plaintiff bank alleged that defendant spouses Martinez obtained a loan from plaintiff bank in the total
sum of P48, 000 and in consideration thereof, defendants executed promissory notes in favour of the
plaintiff, promising to pay jointly and severally, partially secured by a real estate mortgage on a property;
that the loan became due and defendant defaulted despite plaintiffs demand letters; that as a consequence,
the mortgage was extrajudicially foreclosed, that the plaintiff was the highest bidder and lone bidder at the
auction sale, that after deducting therefrom the attorney's fees, registration fees, sheriffs fees, and
publication expense, there still remained a balance of P25,775.10 due to plaintiff, which plaintiff now seeks
to recover plus interest and attorney's fees. The defendants admit the allegations in the complaint, except

Page 82 of 104
paragraphs 8 and 9 thereof and alleged that plaintiff has no cause of action and therefor not entitled to
recover and pray for P3,000.00 attorney's fees plus costs of litigation in the amount of P1,000.00.
The lower court rendered judgment in favour of the plaintiff and against defendants. The Court of Appeals
in its Resolution dated August 30, 1979, for the reason that only pure questions of law are involved. The
Court of Appeals adopted the findings of fact of the trial court as follows: This is a case for sum of money
filed by plaintiff Prudential Bank against defendants Renato M. Martinez and Virginia J. Martinez, seeking
to recover a deficiency of P25,775.10 with daily interest thereon of P15.35.
VI. ISSUE: Whether or not plaintiff bank can recover the deficiency after the extra-judicial foreclosure of
mortgage.
VII. RULING: Yes. The Court ruled that extrajudicial foreclosure of mortgage, where the the proceeds of
the sale are insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the
debtor.
Article 2131 of the NCC expressly provides that 'The form, extent and consequences of a mortgage, both
as to its constitution, modification and extinguishment, and as to other matters not included in this
Chapter, shall be governed by the provisions of the Mortgage Law and of the Land Registration Law.
Under the Mortgage Law, the mortgagee has the right to claim for the deficiency resulting from the price
obtained in the sale of the real property at public auction and the outstanding obligation at the time of the
foreclosure proceedings.
In respect to pledges, Article 2115 of the new Civil Code expressly states: ... If the price of the sale is less
(than the amount of the principal obligation) neither shall the creditor be entitled to recover the deficiency,
notwithstanding any stipulation to the contrary. "Likewise in the event of the foreclosure of a chattel
mortgage on the thing sold in installments 'he (the vendor) shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void" (Article
1484, paragraph 3, Ibid). In the absence of a similar provision in Act No. 3135, it cannot be concluded that
the creditor loses his right given him under the Mortgage Law and recognized in the Rules of Court.
The fact that the mortgaged property is sold at an amount less than its actual market value should not
militate against the right to such recovery. When there is the right to redeem, inadequacy of price should
not be material, Generally, in forced sales, low prices are usually offered and the mere inadequacy of the
price obtained at the sheriffs sale unless shocking to the conscience will not be sufficient to set aside a sale
if there is no showing that in the event of a regular sale, a better price can be obtained.
Lastly, the Court find that the award of attorney's fees is proper. The efforts exerted by the lawyer in these
two separate courses of action (extrajudicial foreclosure and the deficiency suit) should be recognized.
Where the parties stipulated for a ten percent (10%) attorney's fees to be collected in the event that the
mortgage is foreclosed or a legal action is taken to foreclose the mortgage However, the proceeds in that sale were
insufficient to pay the debt contained in the appellant's promissory note. The appellee was, therefore,
constrained to file a deficiency suit, an eventuality not covered by the Deed of Real Estate Mortgage. The
basis of this case is the promissory note executed by the appellants. The note itself shows that appellants
obligated themselves to pay the sum of ten percent as attorney's fees whether incurred or not, exclusive of
cost and other expenses of collection.
ACCORDINGLY, the decision appealed from is hereby AFFIRMED. Costs against the appellants. SO
ORDERED.

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I.SHORT TITLE: BANK OF THE PHILIPPINE ISLANDS vs. AVENIDO
II. FULL TITLE: BPI FAMILY SAVINGS BANK, INC., vs. MA. ARLYN T. AVENIDO & PACIFICO
A. AVENIDO, G.R. No. 175816, December 7, 2011, LEONARDO-DE CASTRO, J.
III. TOPIC: Recovery of Deficiency
Spouses Avenido obtained from the bank a loan in the amount of P2,000,000, secured by a real estate
mortgage on a parcel of land situated in Bais City. Due to their failure to pay their loan obligation despite
demand, BPI Family instituted before the Sheriff of Bais City extrajudicial foreclosure proceedings over the
mortgaged property, in accordance with Act No. 3135, otherwise known as an Act to Regulate the Sale of
Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. A public auction was held
and BPI was declared the highest bidder for the foreclosed property. The bid price of P2,142,616 of BPI
Family was applied as partial payment of the mortgage obligation of the spouses Avenido, which had
amounted to P2,917,381.43 on the date of the public auction sale, thus, still leaving an unpaid amount of
P794,765.43. Spouses Avenido averred that they had already paid a substantial amount to BPI Family,
which could not be less than P1,000,000.00, but due to the imposition by BPI Family of unreasonable
charges and penalties on their principal obligation, their payments seemed insignificant.
BPI Family instituted a Complaint for Collection of Deficiency of Mortgage Obligation with Damages
against the spouses Avenido and prayed that the RTC order the spouses Avenido to pay the deficiency of
their mortgage obligation amounting to P794,765.43, plus legal interest thereon from the date of the filing
of the Complaint until full payment. RTC dismissed the complaint and denied the claim for deficiency of
BPI Family. Aggrieved by the RTC judgment, BPI Family filed an appeal before the Court of Appeals
which affirmed the decision of the RTC absolving Spouses Avenido from any liability corresponding to the
amount of deficiency of mortgage obligation. Court of Appeals denied the Motion for Reconsideration
filed by BPI Family.
VI. ISSUE: Whether or not BPI Family is still entitled to collect the deficiency mortgage obligation From
the spouses Avenido.
VII. RULING:
YES. It is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial
foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No.
3135, as amended, does not discuss the mortgagees right to recover the deficiency, neither does it contain
any provision expressly or impliedly prohibiting recovery. If the legislature had intended to deny the
creditor the right to sue for any deficiency resulting from the foreclosure of a security given to guarantee an
obligation, the law would expressly so provide. Absent such a provision in Act No. 3135, as amended, the
creditor is not precluded from taking action to recover any unpaid balance on the principal obligation
simply because he chose to extrajudicially foreclose the real estate mortgage.
BPI Family made an extrajudicial demand upon the spouses Avenido for the deficiency mortgage obligation
in a letter dated July 8, 2000 and received by the spouses Avenido on July 17, 2000. Consequently, we
impose the legal interest of 12% per annum on the deficiency mortgage obligation amounting to
P455,836.80 from July 17, 2000 until the finality of this Decision. Thereafter, if the amount adjudged
remains unpaid, it will be subject to interest at the rate of 12% per annum computed from the time the
judgment became final and executory until fully satisfied.

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WHEREFORE, the Petition is hereby GRANTED. The assailed Decision dated March 31, 2006 and
Resolution dated November 16, 2006 of the Court of Appeals in CA -G.R. CV No. 79008, affirming the
Decision dated November 13, 2002 of the Regional Trial Court, Branch 58 of Cebu City, in Civil Case No.
CEB-25629, is REVERSED and SET ASIDE. Respondent spouses Ma. Arlyn T. Avenido and Pacifico A.
Avenido are ORDERED to pay petitioner BPI Family Savings Bank, Inc. the deficiency of their mortgage
obligation in the amount of P455,836.80, plus legal interest of 12% per annum from July 17, 2000 until the
finality of this Decision. Thereafter, the amount adjudged shall be subject to legal interest of 12% per
annum from the finality of this Decision up to its satisfaction. No cost.
I. SHORT TITLE: SPOUSES YAP vs. SPOUSES DY
II. FULL TITLE: Spouses Francisco D. Yap and Whelma S. Yap Vs. Spouses Zosimo Dy, Sr. and
Natividad Chiu Dy, Spouses Marcelino Maxino and Remedios L. Maxino, Provincial Sheriff Of Negros
Oriental and Dumaguete Rural Bank, Inc., G.R. No. 171991 And 171868 July 27 2011 J. Villarama Jr.
III. TOPIC: Indivisibility of Mortgage; when to be applied
The subject parcels of land designated as lot 1, 3, 4, 5, 6, 8 including Lot 846 are originally owned by
Spouses Tirambulos. They executed a REM over Lots 1,4, 5,6, and 8 in favour of the Rural Bank of
Dumaguete, predecessor of Dumaguete Rural Bank Inc. (DRBI). Later, Lots 3 and 8446 were also
mortaged in favour of the same bank. Subsequently, the Tirambulos sold all & mortgaged lots to spouse Dy
without consent and knowledge of DRBI. Tirambulos failed to pay their loans so DRBI foreclosed lots 1,
4, 5, 6, and 8 and sold at public auction. DRBI was the highest bidder. Later, DRBI sold lots 1, 3, and 6 to
spouses Yap.
Roughly a month before the one-year redemption period was set to expire, the Dys and the Maxinos
attempted to redeem Lots 1, 3 and 6. They tendered the amount of P40,000.00 to DRBI and the Yaps.
Spouses Yap refused arguing that one of the characteristics of a mortgage is its indivisibility and that one
cannot redeem only some of the lots foreclosed because all the parcels were sold for a single price at the
auction sale. Therefore, the Spouses Dy and Maximo went to the Sheriff’s Office to deposit P40,000.00 for
the principal plus P10,625.29 for interests and Sheriff’s Commission to effect the redemption. The Spouses
Yap were duly notified of this redemption, yet they still refused to recognize the redemption.
On June 15, 1984, the Dys and the Maxinos filed a civil case with the Regional Trial Court of Negros
Oriental for accounting, injunction, declaration of nullity of the Deed of Sale with Agreement to Mortgage,
and damages against the Yaps and DRBI. Yaps also filed a civil Case for consolidation of ownership,
annulment of certificate of redemption, and damages against the Dys, the Maxinos, the Provincial Sheriff of
Negros Oriental and DRBI. The civil cases filed were tried jointly, and the RTC ruled in favor of Yaps. CA
reversed the RTC’s decision. Hence this petition
VI. ISSUE: WON persons to whom several mortgaged lands were transferred without the knowledge and
consent of the creditor can redeem only several parcels if all the lands were sold for a single price at the
foreclosure sale?
VII. RULING: Yes. As the SC held in the case of Philippine National Bank v. De los Reyes - The doctrine of
indivisibility of mortgage does not apply once the mortgage is extinguished by a complete foreclosure thereof as
in the instant case. The rule on the indivisibility of mortgage finds no application to the case at bar. The
particular provision of the Civil Code referred to provides: Art. 2089. A pledge or mortgage is indivisible, even
though the debt may be divided among the successors in interest of the debtor or of the creditor.

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Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of
the pledge or mortgage as long as the debt is not completely satisfied. Neither can the creditor's heir who
received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who
have not been paid. The exception, like the case herein, arises when there are several things given in mortgage
or pledge, each one of these guarantees only a determinate portion of the credit. The debtor, in this case, shall
have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is
specially answerable is satisfied. The aggregate number of the lots in the case at bar which comprise the
collaterals for the mortgage had already been foreclosed and sold at public auction. There is no partial payment
nor partial extinguishment of the obligation to speak of. The aforesaid doctrine, which is actually intended for
the protection of the mortgagee, specifically refers to the release of the mortgage which secures the satisfaction
of the indebtedness and naturally presupposes that the mortgage is existing. Once the mortgage is extinguished
by a complete foreclosure thereof, said doctrine of indivisibility ceases to apply since, with the full payment of
the debt, there is nothing more to secure.
WHEREFORE, the petitions for review on certiorari are DENIED for lack of merit. The Decision dated May
17, 2005 and Resolution dated March 15, 2006 of the Court of Appeals in CA-G.R. C.V. No. 57205 are hereby
AFFIRMED with the MODIFICATION that the case is REMANDED to the Regional Trial Court of Negros
Oriental, Branch 44, Dumaguete City, for the computation of the pro-rata value of properties covered by TCT
No. T-14777 (Lot 1) and TCT No. T-14781 (Lot 6) of the Registry of Deeds of Negros Oriental at the time of
redemption to determine if there is a deficiency to be settled by or overpayment to be refunded to respondent
Spouses Zosimo Dy, Sr. and Natividad Chiu and Spouses Marcelino C. Maxino and Remedios Lasola with
regard to the redemption money they paid.
I. SHORT TITLE: SPOUSES GASTULAO vs. YANSON
II. FULL TITLE: SPOUSES JOSE GASTULAO AND ERMILA LEONILA LIMSIACO-GATUSLAO v.
LEO RAY V. YANSON - G.R. No. 191540, January 21, 2015, J. DEL CASTILLO
III. TOPIC: Writ of Possession
Felicisimo Limsiaco, registered owner of a two parcels of land with improvements, died intestate. He
mortgaged the said lots along with the house standing thereon to PNB. Upon Limsiaco’s failure to pay, PNB
extrajudicially foreclosed on the mortgage and caused the properties’ sale at a public auction where it emerged
as the highest bidder. When the one-year redemption period expired without Limsiaco’s estate redeeming the
properties, PNB caused the consolidation of titles in its name. Ultimately, the Registry of Deeds of Bacolod
City cancelled TCT Nos. T-33429 and T-24331 and in lieu thereof issued TCT Nos. T-308818 and T-308819 in
PNB’s name on October 25, 2006.
A Deed of Absolute Sale was executed by PNB conveying the subject properties in favor of respondent. As a
consequence thereof, the Registry of Deeds of Bacolod City issued TCTs respondent’s name in lieu of PNB’s
titles.
As a registered owner in fee simple of the contested properties, respondent filed with the RTC an Ex-Parte
Motion for Writ of Possession pursuant to Section 7 of Act No. 3135, as amended by Act No. 4118.
Petitioners argued that the respondent is not entitled to the issuance of an ex- parte writ of possession under
Section 7 of Act No. 3135 since he was not the buyer of the subject properties at the public auction sale and

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only purchased the same through a subsequent sale made by PNB. Not being the purchaser at the public
auction sale, respondent cannot file and be granted an ex parte motion for a writ of possession. Petitioners also
asserted that the intestate estate of Limsiaco has already instituted an action for annulment of foreclosure of
mortgage and auction sale affecting the contested properties. They argued that the existence of the said civil suit
bars the issuance of the writ of possession and that whatever rights and interests respondent may have acquired
from PNB by virtue of the sale are still subject to the outcome of the said case.
The RTC granted the issuance of the writ of possession. Petitioners moved for reconsideration which was
denied. Then, respondent moved to execute the possessory writ while petitioners filed with this Court the
present Petition for Review on Certiorari.
VI. ISSUE: Whether or not the pending action for annulment of foreclosure of mortgage and the
corresponding sale at public auction of the subject properties operates as a bar to the issuance of a writ of
possession.
VII. RULING: NO. It is settled that the issuance of a Writ of Possession may not be stayed by a pending
action for annulment of mortgage or the foreclosure itself.
This is in line with the ministerial character of the possessory writ. Thus, in Bank of the Philippine Islands v.
Tarampi, it was held that: “To stress the ministerial character of the writ of possession, the Court has disallowed injunction to
prohibit its issuance, just as it has held that its issuance may not be stayed by a pending action for annulment of mortgage or the
foreclosure itself. Clearly then, until the foreclosure sale of the property in question is annulled by a court of competent jurisdiction,
the issuance of a writ of possession remains the ministerial duty of the trial court. The same is true with its implementation;
otherwise, the writ will be a useless paper judgment – a result inimical to the mandate of Act No. 3135 to vest possession in the
purchaser immediately.”
All told, the Court affirms the RTC’s issuance of the Writ of Possession in favor of respondent.
WHEREFORE, the Petition is hereby DENIED. The December 8, 2009 and February 26, 2010 Orders of
the Regional Trial Court of Bacolod City, Branch 49 in Cadastral Case No. 09-28 are AFFIRMED. So ordered.
I. SHORT TITLE: YULIENCO vs. COURT OF APPEALS
II. FULL TITLE: SPOUSES FELIPE YULIENCO and FLORA YULIENCO vs. HON. COURT OF
APPEALS (4TH DIVISION); HON. LUCAS P. BERSAMIN in his official capacity as Presiding Judge of the
Regional Trial Court, Branch 96, NCJR, Quezon City; DEPUTY SHERIFF JOSE G. MARTINEZ of Branch
96, RTC, Quezon City; and ADVANCE CAPITAL CORPORATION, G.R. NO. 141365, NOVEMBER 27,
2002.
III. TOPIC: Writ of Possession
Petitioner spouses Yulienco were the owners of a residential house and lot in Quezon City. They obtained a
loan of P20, 000,000 from private respondent Advance Capital Corporation (ACC) with interest at 24 percent
per annum. To secure the loan, deeds of real estate mortgage were executed on their properties in Makati City,
Benguet, and Quezon City. When petitioners failed to pay the loan in full, ACC filed a petition for extrajudicial
foreclosures of the properties pursuant to the authority provided in the deed of real estate mortgage. Auction
sale of the properties was scheduled on July 30, 1993 and notice of the sale was published in the Times Record.

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Petitioners filed in the RTC Makati a petition for injunction, reformation, and damages with prayer for
temporary restraining order and/or preliminary injunction against ACC, questioning the validity of the
promissory notes and real estate mortgages. The RTC enjoined private respondent and the sheriffs of Makati,
Quezon City, and Benguet from proceeding with the foreclosure of petitioner’s properties. ACC requested to
proceed with the auction sale of petitioners Quezon City property since, by that time, the 20-day effectivity
period of the TRO had expired. The Sheriff of Quezon City issued a Second Notice of Sheriffs Sale of the
Quezon City property, scheduling the sale on September 27, 1993. The notice was published in the Times Record.
In the meantime, the RTC Makati granted petitioners prayer for preliminary injunction as to the foreclosure of
their property in Makati City, but not as to the Quezon City and Benguet properties since the latter two are
outside its territorial jurisdiction.
The public auction was held and petitioners Quezon City property was sold to ACC as the highest bidder. A
year later, petitioners filed a second amended and supplemental petition in the case pending before the RTC of
Makati. The RTC ultimately denied petitioner’s prayer for preliminary injunction to enjoin ACC from
consolidating title. When petitioners failed to redeem the foreclosed property, ACC caused the consolidation of
its ownership and paid the necessary taxes with the Bureau of Internal Revenue.
Petitioners continued to occupy the house and lot over the property. Thus, ACC made a formal and final
demand on petitioners to vacate the subject house and lot within five days from receipt of the letter. ACC also
demanded P1, 080,000 corresponding to rental arrearages at P20,000 per month. ACC likewise filed with the
RTC of Quezon City, Branch 96, a petition for the issuance of a writ of possession over the subject property.
At the hearing, public respondent Hon. Lucas Bersamin, the presiding judge of the RTC of Quezon City,
allowed ACC to present its evidence ex parte without prejudice to any comment that may be filed by petitioners.
On September 3, 1999, the RTC of Quezon City granted the petition for writ of possession. Petitioner’s motion
for reconsideration was denied. Petitioners elevated the case to the Court of Appeals via certiorari and
prohibition with a prayer for temporary restraining order and/or writ of preliminary injunction. The CA issued
a TRO enjoining the implementation of the writ of possession issued by the RTC of Quezon City. Respondent
Court of Appeals then denied the petition for certiorari.
VI. ISSUE: Whether or not the Court of Appeals committed erred in affirming the RTC decision granting the
writ of possession to respondent corporation.
VII. RULING: No. Act 3135, otherwise known as An Act to Regulate the Sale of Property under Special
Powers Inserted in or Annexed to Real Estate Mortgages, mandates that jurisdiction over a petition for a writ of
possession lies in the court of the province, city, or municipality where the property subject thereof is situated.
Since the land subject of the controversy is located in Quezon City, the city’s RTC should rightly take
cognizance of the case, to the exclusion of other courts. The pendency of the special civil case before the
Makati RTC is also not a procedural obstacle. Said action for injunction, reformation, and damages does not
raise an issue that constitutes a prejudicial question in relation to the present case.
A prejudicial question is one that arises in a case the resolution of which is a logical antecedent of the issue
involved therein, and the cognizance of which pertains to another tribunal. It generally comes into play in a
situation where a civil action and a criminal action are both pending and there exists in the former an issue that
must be preemptively resolved before the criminal action may proceed, because howsoever the issue raised in
the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the
criminal case. The rationale behind the principle of prejudicial question is to avoid two conflicting decisions.
Here, special civil case and the present one are both civil in nature and, therefore, no prejudicial question can
arise from the existence of the two actions. The basic issue in the former is whether the promissory note and
mortgage agreement executed between petitioners and private respondent ACC are valid. In the latter case, the

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issue is whether respondent, armed with a TCT in its name, is entitled to a writ of possession. Clearly, the two
cases can proceed separately and take their own direction independently of each other.
Petitioners also cannot anchor their case on the purported interest they have as owners. They have been
stripped of their rights over the property when they failed to redeem it after foreclosure took place. A
mortgagor has only one year after registration of sale with the Register of Deeds within which to redeem the
foreclosed real estate. After that one-year period, he loses all his interests over it.
Well established is the rule that after the consolidation of title in the buyer’s name, for failure of the mortgagor
to redeem, the writ of possession becomes a matter of right. Its issuance to a purchaser in an extrajudicial
foreclosure is merely a ministerial function. The writ of possession issues as a matter of course upon the filing
of the proper motion and the approval of the corresponding bond. The judge issuing the writ following these
express provisions of law neither exercises his official discretion nor judgment. As such, the court granting the
writ cannot be charged with having acted without jurisdiction or with grave abuse of discretion.
Petitioners cite the 1987 case of Cometa vs. IAC, to bolster their argument that a writ of possession should not
be granted in the light of a pending case for annulment of the foreclosure sale wherein the properties were sold
at an unusually low price. However, this case is not on all fours with the present one.
In said case, there was a pending action where the validity of the levy and sale of the properties in question were
directly put in issue, which is not the case here. The case pending before the Makati RTC for reformation of
instrument is not the pending case as contemplated in Cometa because (1) the sale and levy of the property are
not directly put in issue, and (2) the Makati RTC could not have taken cognizance of the foreclosure
proceedings of the Quezon City property for lack of jurisdiction. A direct action for annulment of the
foreclosure sale of the subject property should have been filed in the RTC of Quezon City where the property
is located.
If only to stress the writs ministerial character, we have, in a case more recent than Cometa, disallowed
injunction prohibiting its issuance, just as we have held that its issuance may not be stayed by a pending action
for annulment of mortgage or the foreclosure itself.
WHEREFORE, the instant petition is DENIED for lack of merit. The challenged decision of the Court of
Appeals dated December 20, 1999 in CA-G.R. SP No. 54949 is AFFIRMED. Costs against petitioners.
I.SHORT TITLE: GREEN ASIA vs. COURT OF APPEALS and PCI LEASING
II. FULL TITLE: Green Asia Construction and Development Corporation and. Sps. Renato and Delia Legaspi
vs. Court of Appeals and PCI Leasing and Finance, Inc. – GR. No. 163735, November 24, 2006, J. Quisumbing
III. TOPIC: Foreclosure – Writ of Possession
On June 8, 1995, petitioner Green Asia Construction and Development Corporation (GACDC), represented by
its president, petitioner Renato Legaspi, obtained a loan of P2,600,000 from private respondent PCI Leasing
and Finance, Inc. (PCI Leasing). As security, GACDC, executed a real estate mortgage for P450,000 in favor of
PCI Leasing. The mortgage covered three parcels of land.
When GACDC failed to pay the loan on maturity, the mortgage was foreclosed extrajudicially. PCI Leasing was
the highest bidder at the foreclosure sale. A certificate of sale dated February 3, 1998 was accordingly issued to
PCI Leasing and duly registered with the Registry of Deeds.

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On April 12, 2000, PCILFI filed a petition for the issuance of a writ of possession with the RTC and it granted
PCI Leasing’s petition. GACDC filed an urgent omnibus motion and respectively praying for the setting aside
of the certificate of sale, cancellation of the writ of possession, and the suspension of the implementation of the
said writ of possession. But the RTC denied for lack of merit. GACDC elevated the case to the Court of
Appeals, which affirmed the assailed orders of the trial court.
VI. ISSUE: Whether or not the remedy availed of by Green Asia, which was for the nullification of extrajudicial
foreclosure, was proper
VII. RULING: No. An original action is not necessary to acquire possession in favor of the purchaser at an
extrajudicial foreclosure of real property. The right to possession is based simply on the purchaser’s ownership
of the property. Note that the nullity of the mortgage is nor covered by the remedy outlined under Section 8,
Act of 3135. The said provision specifically lists the following exclusive grounds for a petition to set aside the
sale and cancel the writ of possession: 1. That the mortgage was not violated; 2. That the sale was not made in
accordance with the provisions of Act. No. 3135.
Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for refusing the
issuance of a writ of possession. Indeed, regardless of whether or not there is a pending suit for annulment of
the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession.
WHEREFORE, the petition is DISMISSED. The impugned Decision dated March 18, 2004 and Resolution
dated May 26, 2004, of the Court of Appeals in CA-G.R. CV No. 78117 are AFFIRMED.
I.SHORT TITLE: SPOUSES SANTIAGO vs. MERCHANTS RURAL BANK
II. FULL TITLE: Spouses Ruben and Inocencia Santiago versus Merchants Rural Bank of Talavera, Inc. – G.R.
No. 147820, March 18, 2005, J. Callejo, Sr.
On March 12, 2000, Merchants Rural Bank of Talavera, Inc. (Respondent) filed an Ex Parte Petition with the
Regional Trial Court (RTC) for the issuance of a Writ of Possession over two parcels of land, alleging therein
that Spouses Ruben and Inocencia Santiago (Petitioners) executed a “Deed of Real Estate Mortgage”, in its
favor, over the two parcels of land and all the improvements thereon as security for the payment of their loans.
It averred that it foreclosed the properties extrajudicially when petitioners failed to pay their loan, and that the
respondent was the highest bidder at the the public auction on February 16, 1998. The sheriff then executed
certificates of sale over the properties in favor of respondent, which were subsequently registered, and were
subsequently consolidated in its favor when the petitioners failed to redeem the properties within the prescribed
period. Petitioners, although aware of the Ex Parte Petition, failed to file their comment. Instead, requested
respondent to give them more time to repurchase their properties.
On July 18, 2000, at the hearing of the petition, petitioner spouses appeared and prayed for more time to
repurchase the property. Respondent manifested that it was open to negotiation, but insisted that the petition
be submitted for the court’s resolution since a considerable amount of time had already lapsed from the time
the petition was filed, which petitioner agreed to. The RTC declared the petition submitted for resolution.
However, petitioners failed to repurchase the property.

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On September 1, 2000, the RTC granted the Writ of Possession in favor of respondent. Hence, the sheriff
requested petitioners to vacate the properties, but the latter refused. Instead, petitioners filed a Writ of
Certiorari with the Court of Appeals (CA) to nullify the Writ of Possession with prayer for injunctive relief,
alleging that the RTC committed grave abuse of discretion when it granted the Writ of Possession “without any
evidence being marked and formally offered in support of the petition.” The CA dismissed the petition for lack
of merit, and likewise denied petitioners’ subsequent Motion for Reconsideration. Hence, this petition for
review on Certiorari.
VI. ISSUE: Whether or not the failure of respondent to formally offer any documentary and testimonial
evidence to support its petition for Writ of Possession is fatal to its case.
VII. RULING:
1. No, there is no need for a party to offer any documentary and testimonial evidence. The general rule is that
for a writ of certiorari to issue, the petitioners must establish that they had no remedy of appeal or any plain,
adequate and speedy remedy in the ordinary course of law. Appeal and certiorari are mutually exclusive. In the
present case, the petitioners had the right to file a petition to set aside the sale and writ of possession issued by
the court and to appeal from an adverse ruling. The petitioners failed to file the said petition and opted to file
their petition for certiorari in the CA. Hence, they were barred from filing a petition for certiorari from the
assailed order of the trial court and the writ of possession issued by it.
The proceeding in a petition for a writ of possession is ex parte and summary in nature. It is a judicial
proceeding brought for the benefit of one party only and without notice by the court to any person adverse of
interest. It is a proceeding wherein relief is granted without an opportunity for the person against whom the
relief is sought to be heard. Hence, the RTC may grant the petition in the absence of the mortgagor, in this
case, the petitioners.
The law does not require that a petition for a writ of possession may be granted only after documentary and
testimonial evidence shall have been offered to and admitted by the court. As long as the verified petition states
the facts sufficient to entitle the petitioner to the relief requested, the court shall issue the writ prayed for. The
petitioners need not offer any documentary and testimonial evidence for the court to grant the petition.
The right of the petitioner to the possession of the property is clearly unassailable. It is founded on its right of
ownership. As the purchaser of the properties in the foreclosure sale, and to which the respective titles thereto
have already been issued, petitioner’s right over the property has become absolute, vesting upon him the right
of possession over an enjoyment of the property which the Court must aid in effecting its delivery. After such
delivery, the purchaser becomes the absolute owner of the property. As We said in Tan Soo Huat vs. Ongwico,
the deed of conveyance entitled the purchaser to have and to hold the purchased property. This means, that the
purchaser is entitled to go immediately upon the real property, and that it is the Sheriff’s inescapable duty to
place him in such possession.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners. SO ORDERED.
I. SHORT TITLE: MAKATI LEASING vs. WEAVER TEXTILE
II. FULL TITLE: Makati Leasing and Financial Corporation vs. Wearever Textile Mills, Inc. G.R. No. L-58469.
May 16, 1983.
III. STATEMENT OF FACTS:

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Wearever Textile Mills, Inc. discounted and assigned several receivables with Makati Leasing and Financial
Corp. under a Receivable Purchase Agreement so that the latter would lend money to the former. In order to
secure the collection of the receivables assigned, Wearever executed a Chattel Mortgage over certain raw
materials inventory as well as a machinery (Artos Aero Dryer Stentering Range). Upon default of Wearever in
paying what is due, Makati Leasing filed a petition for extrajudicial foreclosure of the properties mortgaged to it.
The Sheriff assigned to execute such foreclosure, however, failed to enter the premises of Wearever to effect
the seizure of the machinery.
IV. STATEMENT OF THE CASE:
Afterwhich, petitioner filed a complaint for a judicial foreclosure with the RTC of Rizal which was granted even
after the motion for reconsideration filed by the private respondent. Enforcing then the writ of seizure issued
by the lower court, the Sheriff removed the main drive motor of the machinery. Upon appeal, CA reversed the
ruling of the RTC and ordered the return of the motor to Wearever since the said machinery cannot be the
subject of a replevin and chattel mortgage for it is a real property pursuant to Art. 415 (3) of the NCC. CA
argued that the machinery is attached to the ground by means of bolts and the only way to remove it from the
respondent’s plant would be to drill out or destroy the concrete floor – which is why all that the sheriff could
do to enforce the writ was to take the main drive motor of the machinery. Hence, this petition for certiorari.
V. ISSUE: Whether the machinery is a personal property.
VI. RULING:
Yes. By destination, it is a real property but by virtue of the intention of the parties stipulated in their chattel
mortgage contract, the machinery was intended to be a personal property. The Court made reference to its
ruling in Tumalad vs. Vicencio and Standard Oil Co. of New York v. Jaramillo where it held that a real property may
be considered as a personal property for purposes of executing a chattel mortgage thereon as long as the parties
to the contract so agree and no innocent third party will be prejudiced thereby, and once the parties so agreed,
they are already stopped from claiming otherwise. Private respondent contended that its characterization of the
subject machinery as chattel in their agreement should not be appreciated against it because it had never
represented nor agreed in such as it was merely required and dictated on by the petitioner to sign a chattel
mortgage in blank form. The Court was not persuaded by its contention as the said issue was not duly raised in
the lower and appellate courts nor will the said signing in blank by the respondent make the contract void but
merely voidable by a proper action in court.
Furthermore as it was undeniable that it benefited from the chattel mortgage, it cannot be allowed to impugn its
efficacy for equity reasons.
VII: DISPOSITIVE PORTION:
WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set
aside, and the Orders of the lower court are hereby reinstated, with costs against the private respondent. SO
ORDERED.
I. SHORT TITLE: ASSOCIATED INSURANCE vs. IYA
II. FULL TITLE: Associated Insurance and Surety Company, Inc., vs. Isabel Iya, Adriano and Lucia Valino,
G.R. No. L-10837-38, 30 May 1958, Felix, J.
III. TOPIC: Chattel Mortgage

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Spouses Valino were the owners and possessors of a house constructed on a lot which they purchased on
installment basis from the Philippine Realty Corporation. To enable her to purchase on credit rice from the
NARIC, they filed a bond in the sum of P11,000.00 subscribed by the Associated Insurance and Surety Co.,
Inc. and executed an alleged chattel mortgage on the aforementioned house. Having completed payment on the
purchase price of the lot, the Valinos were able to secure on a certificate of title. Subsequently, he Valinos, to
secure payment of an indebtedness in the amount of P12,000.00, executed a real estate mortgage over the lot
and the house in favor of Isabel Iya.
Lucia A. Valino, failed to satisfy her obligation to the NARIC, the surety company was compelled to pay the
same pursuant to the undertaking of the bond. In turn, the surety company demanded reimbursement from the
spouses Valino, and as the latter likewise failed to do so, the company foreclosed the chattel mortgage over the
house. As a result thereof, a public sale was conducted wherein the property was awarded to the surety
company for P8,000.00, the highest bid received therefor.
The surety company instituted a civil case and prayed for the exclusion of the residential house from the real
estate mortgage in favor of defendant Iya and the declaration and recognition of plaintiff's right to ownership
over the same in virtue of the award given by the Provincial Sheriff of Rizal during the public auction Isabel Iya
filed a civil action against the Valinos and the surety and prayed the Court to the spouses to pay the loan with
interest thereon and if such demand may not be met and satisfied plaintiff prayed for a decree of foreclosure
and that the Valinos, the surety company and any other person claiming interest on the mortgaged properties
be barred and foreclosed of all rights, claims or equity of redemption in said properties
The Lower Court, deciding in favor of the surety company, based its ruling on the premise that as the
mortgagors were not the owners of the land on which the building is erected at the time the first encumbrance
was made, said structure partook of the nature of a personal property and could properly be the subject of a
chattel mortgage.
VI. ISSUE: Whether or not the house can be the subject of a chattel mortgage.
VII. RULING: No, Lopez v Orosa was used as a precedent here saying that the buildings as an immovable
itself, separate and distict from the land. A building is an immovable property irrespective of whether or not
said structure and the land on which it is adheres to belong to the same owner. Only personal property is
subject to chattel mortgage and since the structure in this case is an immovable it cannot be subject to chattel
mortgage. Therefore the chattel mortgage and the sale on which it was based should be declared null and void.
Wherefore the portion of the decision of the lower Court in these two cases appealed from holding the rights
of the surety company, over the building superior to that of Isabel Iya and excluding the building from the
foreclosure prayed for by the latter is reversed and appellant Isabel Iya's right to foreclose not only the land but
also the building erected thereon is hereby recognized, and the proceeds of the sale thereof at public auction (if
the land has not yet been sold), shall be applied to the unsatisfied judgment in favor of Isabel Iya. This decision
however is without prejudice to any right that the Associated Insurance and Surety Co., Inc., may have against
the spouses Adriano and Lucia Valino on account of the mortgage of said building they executed in favor of
said surety company. Without pronouncement as to costs. It is so ordered.
I.SHORT TITLE: ACME SHOE vs. COURT OF APPEALS
II. FULL TITLE: ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs. HON.
COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF OF CALOOCAN
CITY, G.R. No. 103576 August 22, 1996, Justice Vitug

Page 93 of 104
III. TOPIC: Chattel Mortgage; Concept of Chattel Mortgage (Art. 2140)
The petitioner, through its President and General Manager, Chua Pac, executed on 27 June 1978, a chattel
mortgage in favor of Producers Bank of the Philippines (bank), as a security for the petitioner’s corporate loan
of P3,000,000. The Chattel Mortgage agreement purports to extend its coverage to obligations yet to be
incurred or contracted by the petitioner. In due time, the P3,000,000 was paid by the petitioner, as well as its
subsequent loan of P2,700,000. On January 10 and 11, 1984, the bank extended yet another P1,000,000 loan to
petitioner, which the latter failed to settle in full due to financial constraints.
By virtue of such default, the bank applied for an extra judicial foreclosure of the chattel mortgage, which
prompted the petitioner file an action for injunction, with damages and a prayer for a writ of preliminary
injunction, before the Regional Trial Court. The trial court dismissed the complaint and ordered the foreclosure
of the chattel mortgage. Upon Appeal, the CA affirmed in toto the decision of the RTC.
VI. ISSUE: Whether or not the chattel mortgage agreement extending its coverage to obligations yet to be
incurred or contracted is valid and effective.
VII. RULING: NO. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage
to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the
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.
A chattel mortgage must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One
of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not doubted that if such an
affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not
against third persons acting in good faith), the fact, however, that the statute has provided that the parties to the
contract must execute an oath that — . . . (the) mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the
purpose of fraud. makes it obvious that the debt referred to in the law is a current, not an obligation that is yet
merely contemplated. In the chattel mortgage here involved, the only obligation specified in the chattel
mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section
3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void
or terminated.
WHEREFORE, the questioned decisions of the appellate court and the lower court are set aside without
prejudice to the appropriate legal recourse by private respondent as may still be warranted as an unsecured
creditor. No costs.

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I. SHORT TITLE: NORTHERN MOTORS vs. COQUIA
II. FULL TITLE: Northern Motors Inc. versus Hon. Jorge R. Coquia – G.R. No. L-40018, December 15, 1975,
J. Aquino
Manila Yellow Taxicab, executed a chattel mortgage over several taxicabs in favor of Northern Motors.
TROPICAL is a judgment creditor of Yellow Taxicab who assigned the judgment to ONG. On December 12,
1974, Sheriff then levied upon 20 taxicabs, 8 of which are security for the chattel mortgage. Northern Motors
filed an intervention on December 18, 1974; however, the levied taxicabs were sold the same day at 2pm
although agreement shows that it should have happened at 4pm. Indemnity bond was posted by TROPICAL,
but the bond was cancelled after the sale without notice to Northern Motors. The petitioner now seek
reconsideration also on the reinstatement of the bond. A second levy was made upon 35 taxicabs, 7 of which
are mortgaged to Northern Motors.
The taxies were levied and sold at an auction sale. Ong argues that the mortgagee has a better right than the
judgment creditor, but argues that the purchaser from the auction sale must have a right superior to that of the
mortgagee. The auction sale proceeded and the purchasers were of unknown addresses, hence the 8 taxicabs
cannot be recovered. The proceeds of the auction were contested because the sheriff was deducting the
expenses of the execution sale from the proceeds.
Honesto Ong in his motion invokes his supposed "legal and equity status" vis-a-vis the mortgaged taxicabs. He
contends that his only recourse was to levy upon the taxicabs which were in the possession of the judgment
debtor, Manila Yellow Taxicab Co. Inc., whereas, Northern Motors, Inc., as unpaid seller and mortgagee, "has
still an independent legal remedy" against the mortgagor for the recovery of the unpaid balance of the price.
VI. ISSUES:
1. Whether the expenses for the execution sale should be deducted from the proceeds thereof.
2. Whether the purchaser has a better right than the creditor.
3. Whether the bond should be reinstated.
VII. RULING:
1. No, it was already established that the levy on the property was illegal, it is therefore improper to deduct the
expenses of an illegal auction from the proceeds thereof. The mortgagee can only collect the proceeds from the
auction sale because the purchasers are of unknown addresses. The full proceeds of the sale are due to the
mortgagee without any unreasonable and illegal deductions.
2. No, the purchase of the auction sale merely steps in the shoes of the judgment creditor as they have been
aware of the claim of the mortgagee. The mortgagee has a better right to the possession of the taxicabs,
however, since the addresses of the purchasers are unknown, the proceeds of the sale must be delivered to the
mortgagee.
3. Yes, the bond should be reinstated, as it serves as indemnity for damages in cases that the sold taxicabs
cannot be recovered. Proceedings in the lower court would be an exercise in futility if the bond will not be
reinstated.

Page 95 of 104
WHEREFORE, private respondents' motion for reconsideration is denied and petitioner's motion for partial
reconsideration is granted. The resolution of August 29, 1975 is modified in the sense that the lower court's
orders of January 3 and 6, 1975, cancelling the indemnity bond for P240,000 (as reaffirmed in its order of
January 17, 1975), are set aside. The said indemnity bond for P240,000 is regarded as in full force and
Respondent Sheriff of Manila is further directed to deliver to Northern Motors, Inc. the entire proceeds of the
execution sale held on December 18, 1974 for the eight taxicabs which were mortgaged to that firm.
I. SHORT TITLE: FILINVEST vs. COURT APPEALS
II. FULL TITLE: Filinvest Credit Corporation, petitioner, vs. The Court of Appeals, Jose Sy Bang and
Iluminada Tan Sy Bang, respondents. GR no. 82508; September 29,1989
Spouses Sy Bang and Tan were engaged in the sale of gravel produced from crushed rocks and used for
construction purposes. In order to increase their production, they engaged the services of Mr. Ruben Mercurio,
the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr.
Mercurio referred the private respondents to the Rizal Consolidated Corporation which then had for sale of the
machineries.
The brother of the private respondent went to inspect the machine at the Rizal Consolidated’s plant site and
apparently satisfied with the machine, they signified their intent to purchase the same. However, they were
confronted with a problem-the rock crusher carried a cash price tag of 550K. Thus, they applied for a financial
assistance from the petitioner, Filinvest Credit Corporation with the following conditions – (1) that the
machinery be purchased in the petitioner’s name; (2) that it be leased to the private respondent with the option
to purchase upon the termination of the lease period; and (3) that the private respondent execute a real estate
mortgage in favor of the petitioner as security for the amount advanced by the latter. A contract of lease of
machinery was entered for two years.
It was also stipulated that at the end of the two-year period, the machine would be owned by the private
respondent thus, he issued a check in favor of the petitioner for 150K as initial rental and 24 postdated checks
for the 24 monthly rentals. In addition, to guarantee their compliance, the private respondent executed real
estate mortgage over 2 parcels of land.
When the rock crusher was delivered and used, contrary to the 20 to 40 tons per hour capacity of the machine
stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. Hence, the
private respondent demanded to make good the stipulations but despite the demands, the petitioner did not act
on them. So the private respondent stopped payment on the remaining checks.
As a consequence of the non-payment on the rentals as they fell due, the petitioner extrajudicially foreclosed
the real estate mortgage. The private respondent received a notice of Auction sale informing them that their
mortgaged properties were going to be sold at a public auction. This prompted the private respondent to file
before the RTC of Quezon a complaint for the rescission of the contract of lease, annulment of the real estate
mortgage and for injunction and damages, with prayer for the issuance of a writ of preliminary injunction. The
RTC issued a TRO commanding the sheriff and the petitioner to refrain and desist from the proceeding with
the public auction. Two years later, RTC rendered a decision in favor of the private respondents. On appeal,
CA affirmed the decision of the RTC in toto. Hence this petition for certiorari.
VI. ISSUE:

Page 96 of 104
1. Whether or not the petitioner is the seller of the subject machine.
2. Whether or not the petitioner should be held liable for the breach of warranty of the subject machine.
VII. RULING: The petition is granted.
1. Yes. While it is accepted that the petitioner is a financing institution, it is not, however, immune from any
recourse by the private respondents. Notwithstanding the testimony of private respondent that he did not
purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal
Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the
ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to
enter into the “Contract of Lease of Machinery and Equipment” with the private respondents.
2. No. In the light of Article 1484 of the NCC, the seller of movables in installments, in case the buyer fails to
pay two or more installments may elect to pursue either of the following remedies: (1) exact fulfillment by the
purchaser of the obligation; (2) cancel the sale; (3) foreclose the mortgage on the purchased property if one was
constituted thereon. The device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof.
Unfortunately, even with the foregoing findings, it however fail to find any reaon to hold petitioner liable for
the rock crusher’s failure to produce in accordance with its described capacity. According to the petitioner, it
was the private respondent who chose, inspected, and tested the subject machinery. It was only after they had
inspected and tested the machine, and found it to their satisfaction, that the private respondents sought
financial aid from the petitioner. These allegations of the petitioner had never been rebutted by the private
respondents. In fact they admitted by the private respondents in the contract they signed.
WHEREFORE, the petition is GRANTED; the Decision of the Court of Appeals dated March 17, 1988 is
hereby REVERSED AND SET ASIDE, and another one rendered DISMISSING the complaint. Costs against
the private respondents.SO ORDERED.
I.SHORT TITLE: CERNA vs. COURT OF APPEALS and LEVISTE
II. FULL TITLE: MANOLO P. CERNA vs. THE HONORABLE COURT OF APPEALS and CONRAD C.
LEVISTE, GR No. L-48359 March 30, 1993, CAMPOS, JR.,
III. TOPIC: Mortgage
Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement which was evidenced
by a promissory note. On the same date, Delgado executed a chattel mortgage over a Willy’s jeep owned by
him. And acting as the attorney-in-fact, Manolo P. Cerna, he also mortgage a “Taunus’ car owned by the latter.
The period lapsed without Delgado paying the loan.
Leviste filed a collection suit against Delgado and Cerna as solidary debtors. Cerna filed a Motion to Dismiss on
the ground of lack of cause of action against Cerna and the death of Delgado. Anent the latter, Cerna claimed
that the claim should be filed in the proceedings for the settlement of Delgado’s estate as the action did not
survive Delgado’s death. Moreover, he also stated that since Leviste already opted to collect on the note, he
could no longer foreclose the mortgage. This Motion to Dismiss was denied.

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Thereafter, petitioner filed with the Court of Appeals a special civil action for certiorari, mandamus, and
prohibition with preliminary injunction on the ground that the respondent judge committed grave abuse of
discretion in refusing to dismiss the complaint. CA denied the petition because herein petitioner failed to prove
the death of Delgado and the consequent settlement proceedings regarding the latter's estate. Neither did
petitioner adequately prove his claim that the special power of attorney in favor of Delgado was forged.
Petitioner filed his second Motion to Dismiss on the ground that the trial court, acquired no jurisdiction over
deceased defendant, that the claim did not survive, and that there was no cause of action against him. This
motion was also dismissed. Petitioner filed a motion to reconsider the said order but this was denied. Then, he
filed another petition for certiorari and prohibition with the CA which was dismissed by the said court.
Petitioner filed a petition for review on certiorari.
VI. ISSUE:
1. Whether or not a third party, who is not a debtor under the note but mortgaged his property to secure the
payment of the loan of another is solidarily liable with the principal debtor.
2. Whether or not a mortgagee who opted to collect may still foreclose the mortgage.
VII. RULING:
1. NO. A chattel mortgage may be “an accessory contract” to a contract of loan, but that fact alone does not
make a third-party mortgagor solidarily bound with the principal debtor in fulfilling the principal obligation that
is, to pay the loan. The signatory to the principal contract loan remains to be primarily bound. It is only upon
the default of the latter that the creditor may have been recourse on the mortgagors by foreclosing the
mortgaged properties in lieu of an action for the recovery of the amount of the loan. And the liability of the
third-party mortgagors extends only to the property mortgaged.
2. YES. Should there be any deficiency, the creditors have recourse on the principal debtor. The Special Power
of Attorney did not make petitioner a mortgagor. All it did was to authorize Delgado to mortgage certain
properties belonging to petitioner. Hence, Leviste, having chosen to file the collection suit, could not now run
after petitioner for the satisfaction of the debt. This is even truer in this case because of the death of the
principal debtor, Delgado. Leviste was pursuing a money claim against a deceased person. There is also no legal
provision nor jurisprudence in our jurisdiction which makes a third person who secures the fulfillment of
another’s obligation by mortgaging his own property to be solidarily bound with the principal obligor.
WHEREFORE, in view of the forgoing,, the Petition is hereby DISMISSED. With costs. SO ORDERED.
I. SHORT TITLE: INDUSTRIAL FINANCE vs. RAMIREZ
II. FULL TITLE: INDUSTRIAL FINANCE CORPORATION versus HON. PEDRO A. RAMIREZ, Judge
of the Court of First instance of Manila, and CONSUELO ALCOBA – G.R. No. L-43821, May 26, 1977,
AQUINO, J.
On December 4, 1970 Arnaldo Dizon sold to Consuelo Alcoba his 1966 model Chevrolet car for P13,157.89,
payable in eighteen monthly installments, which were secured by a chattel mortgage on the car.
On that same date, Dizon assigned for ten thousand pesos to Industrial Finance Corporation all his rights and
interest in the chattel mortgage. Consuelo Alcoba defaulted in the payment of the first four installments.

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Because of that default and by virtue of the acceleration clause in the promissory note forming part of the
mortgage, the whole obligation became due and demandable.
In its complaint Industrial Finance Corporation prayed for alternative reliefs. The main objective of its complaint
was recovery of the mortgaged car by means of a writ of replevin. It submitted a redelivery bond. Undoubtedly,
the mortgagee-assignee wanted to foreclose extrajudicially the chattel mortgage but, before it could do so, the
sheriff had to seize the car by means of the provisional remedy of an order for the delivery of personal
property.
Industrial Finance Corporation prayed that, if the car could not be recovered by means of replevin, then
Consuelo Alcoba should be ordered to pay the corporation the sum of P11,083.38, plus twelve percent interest
per annum, damages, and attorney's fees in the sum of P2,770.85. There was no prayer for the foreclosure of the
mortgage, a relief that should be invoked if the complaint had been filed under section 8, Rule 68 of the Rules
of Court.
VI. ISSUE: Whether or not the action can be enforced
VII. RULING: Yes, it can be enforced. ART. 1484. In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall have no further action against the purchaser to
recover any unpaid balance of the price. Any agreement to the contrary shall be void. (1454-A-a).
According to article 1484, it is only when there has been a foreclosure that the mortgagor is not liable for any
deficiency. In this case, there was no foreclosure. The mortgagee evidently chose the remedy of specific
performance. It levied upon the car by virtue of an execution and not as an incident of a foreclosure
proceeding. It is entitled to an alias writ of execution for the portion of the judgment that has not been satisfied.
The rule is that in installment sales, if the action instituted is for specific performance and the mortgaged
property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage.
Hence, the seller-creditor is entitled to a deficiency judgment.
WHEREFORE, the trial court's order denying the motion for a third writ of execution is reversed and set
aside. Costs against respondent Consuelo Alcoba.
I. SHORT TITLE: PCI LEASING & FINANCE vs. TROJAN METAL INDUSTRIES INC.
II. FULL TITLE: PCI LEASING AND FINANCE, INC., Petitioner, vs. TROJAN METAL INDUSTRIES
INCORPORATED, WALFRIDO DIZON, ELIZABETH DIZON, and JOHN DOE – G.R. No. 176381,
December 15, 2010, J. Carpio
Sometime in 1997, Trojan Metal Industries, Inc. (TMI) came to petitioner PCI Leasing and Finance, Inc.
(PCILF) to seek a loan. Instead of extending a loan, PCILF offered to buy various equipment TMI owned.

Page 99 of 104
Hard-pressed for money, TMI agreed. PCILF and TMI immediately executed deeds of sale evidencing TMI’s
sale to PCILF of the various equipment in consideration of the total amount of P 2,865,070.00. PCILF and
TMI then entered into a lease agreement, dated 8 April 1997, whereby the latter leased from the former the
various equipment it previously owned. To obtain additional loan from another financing company, TMI used
the leased equipment as temporary collateral. PCILF considered the second mortgage a violation of the lease
agreement. At this time, TMI’s partial payments had reached P1, 717,091.00.11. On 8 December 1998, PCILF
sent TMI a demand letter for the payment of the latter’s outstanding obligation. PCILF’s demand remained
unheeded. For their part, respondents claimed that the sale with lease agreement was a mere scheme to facilitate
the financial lease between PCILF and TMI. Respondents explained that in a simulated financial lease, property
of the debtor would be sold to the creditor to be repaid through rentals; at the end of the lease period, the
property sold would revert back to the debtor. Respondents prayed that they be allowed to reform the lease
agreement to show the true agreement between the parties, which was a loan secured by a chattel mortgage.
On 7 May 1999, PCILF filed in the Regional Trial Court (Branch 79) of Quezon City a complaint against TMI,
spouses Dizon, and John Doe (collectively referred to as "respondents" hereon) for recovery of sum of money
and personal property with prayer for the issuance of a writ of replevin.
RTC issued the writ of replevin PCILF prayed for, directing the sheriff to take custody of the leased equipment.
RTC granted the prayer of PCILF in its complaint. The RTC ruled that the lease agreement must be presumed
valid as the law between the parties even if some of its provisions constituted unjust enrichment on the part of
PCILF. Respondents appealed to the Court of Appeals, the Court of Appeals ruled that the sale with lease
agreement was in fact a loan secured by chattel mortgage. Hence, this petition.
VI. ISSUE: Whether the sale with lease agreement the parties entered into was a financial lease or a loan
secured by chattel mortgage.
VII. RULING:
Financial Leasing is defined as a mode of extending credit through a non-cancelable lease contract under which
the lessor purchases or acquires, at the instance of the lessee, machinery, equipment, motor vehicles,
appliances, business and office machines, and other movable or immovable property in consideration of the
periodic payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the
purchase price or acquisition cost. In the present case, since the transaction between PCILF and TMI involved
equipment already owned by TMI, it cannot be considered as one of financial leasing, as defined by law, but
simply a loan secured by the various equipment owned by TMI. Hence, had the true transaction between
the parties been expressed in a proper instrument, it would have been a simple loan secured by a chattel
mortgage, instead of a simulated financial leasing. Thus, upon TMI’s default, PCILF was entitled to seize the
mortgaged equipment, not as owner but as creditor-mortgagee for the purpose of foreclosing the chattel
mortgage. PCILF’s sale to a third party of the mortgaged equipment and collection of the proceeds of the sale
can be deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortgagee.
WHEREFORE, we DENY the petition. We AFFIRM with MODIFICATION the 5 October 2006 Decision
and the 23 January 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 75855. Petitioner PCI Leasing
and Finance, Inc. is hereby ORDERED to PAY respondent Trojan Metal Industries, Inc., by way of refund,
the excess amount to be computed by the Regional Trial Court based on the formula specified above, with
interest at 12% per annum from finality of this Decision until fully paid. Costs against petitioner.

Page 100 of 104
I. SHORT TITLE: DE BARRETO vs. VILLANUEVA
II. FULL TITLE: De Barreto, et al. vs. Villanueva, et. al., (1961) Reyes, J.B.L., J.:
III. TOPIC: Special Preferred Credits
Rosario Cruzado sold all her right, title, and interest and that of her children in the house and lot herein
involved to Villanueva for P19K. The purchaser paid P1,500 in advance, and executed a promissory note for
the balance. However, the buyer could only pay P5,500 On account of the note, for which reason the vendor
obtained judgment for the unpaid balance. In the meantime, the buyer Villanueva was able to secure a clean
certificate of title and mortgaged the property to appellant Barreto to secure a loan of P30K, said mortgage
having been duly recorded. Villanueva defaulted on the mortgage loan in favor of Barreto. The later foreclosed
the mortgage in her favor, obtained judgment, and upon its becoming final asked for execution. Cruzado filed a
mo±on for recogni±on for her "vendor's lien" invoking Articles 2242, 2243, and 2249 of the new Civil Code.
After hearing, the court below ordered the "lien" annotated on the back of the title, with the proviso that in
case of sale under the foreclosure decree the vendor's lien and the mortgage credit of appellant Barreto should
be paid pro rata from the proceeds.
Appellants insist that:
1. The vendor's lien, under Articles 2242 and 2243 of the new, Civil Code of the Philippines, can only become
effective in the event of insolvency of the vendee, which has not been proved to exist in the instant case; and .
2. That the Cruzado is not a true vendor of the foreclosed property. Article 2242 of the new Civil Code
enumerates the claims, mortgage and liens that constitute an encumbrance on specific immovable property, and
among them are:
a. For the unpaid price of real property sold, upon the immovable sold; and
b. Mortgage credits recorded in the Registry of Property." Article 2249 of the same Code provides that
"if there are two or more credits with respect to the same specic real property or real rights, they shall
be satisfied pro-rata after the payment of the taxes and assessment upon the immovable property or
real rights.
The Supreme Court first held that there is nothing to this argument. Note must be taken of the fact that article
2242 of the new Civil Code enumerating the preferred claims, mortgages and liens on immovables, specifically
requires that. Unlike the unpaid price of real property sold. mortgage credits, in order to be given preference,
should be recorded in the Registry of Property. If the legislative intent was to impose the same requirement in
the case of the vendor's lien, or the unpaid price of real property sold, the lawmakers could have easily inserted
the same qualification which now modifies the mortgage credits. The law, however, does not make any
distinction between registered and unregistered vendor's lien, which only goes to show that any lien of that kind
enjoys the preferred credit status.
As to the point made that the articles of the Civil Code on concurrence and preference of credits are applicable
only to the insolvent debtor, suffice it to say that nothing in the law shows any such limitation. If we are to
interpret this portion of the Code as intended only for insolvency cases, then other creditor-debtor relationships
where there are concurrence of credits would be left without any rules to govern them, and it would render
purposeless the special laws on insolvency.
Appellants, spouses Barretto, have filed a motion vigorously urging that our decision be reconsidered and set
aside, and a new one entered declaring that their right as mortgagees remain superior to the unrecorded claim of
herein appellee for the balance of the purchase price of her rights, title, and interests in the mortgaged property.

Page 101 of 104
The Supreme Court granted the motion for reconsideration that was filed by the spouses Baretto.
VI. ISSUE: Whether or not the unpaid vendor's lien in this case which was not registered should not prejudice
the said appellants' registered rights over the property.
VII. RULING: Yes. There being no insolvency or liquidation, the claim of the appellee, as unpaid vendor, did
not require the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance, and
must remain subordinate to the latter.
Thus, it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as
in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under
Article 2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority. If none of the
claims is for taxes, a dispute between two creditors will not enable the Court to ascertain the pro-rata dividend
corresponding to each, because the rights of the other creditors likewise" enjoying preference under Article
2242 can not be ascertained.
In view of the foregoing, the previous decision of this Court, promulgated on 28 January 1961, is hereby
reconsidered and set aside, and a new one entered reversing the judgment appealed from and declaring the
appellants Barretto entitled to full satisfaction of their mortgaged credit out of the proceeds of the foreclosure
sale in the hands of the Sheriff of the City of Manila. No costs.
I. SHORT TITLE: DEVELOPMENT BANK OF THE PHILIPPINES vs. NATIONAL LABOR

RELATIONS RELATION
II. FULL TITLE: Development Bank of the Philippines vs. NLRC and National Mines and Allied Workers
Union, G.R. No. 97175. May 18, 1993, J. Melo
III. TOPIC: Labor Laws; Preference of Credit
Individual complainants were all employees of respondent Midland Cement Corporation who were terminated
from employment on or about July 30, 1981 by reason of the termination of the business operations of the
Construction and Development Corporation of the Philippines (CDCP) now PNCC, which was brought about
by the expiration of the lease contract between Midland Cement Corporation and CDCP. At the time of the
separation from the service of the individual complainants, the complainant union was the certified sole and
exclusive bargaining agent. And as a consequence of said termination, the complainant union filed with the then
Ministry of Labor and Employment an opposition to the application for clearance to terminate their services
filed by CDCP.
On April 27, 1983, the Ministry of Labor and Employment thru then Deputy Minister Vicente Leogardo, Jr.,
ordered applicant CDCP to pay the 175 affected employees separation pay equivalent to one-half (1/2) month
salary for every year of service. The employees were paid only based on their length of service with CDCP from
August 1, 1975 up to July 30, 1981. The said employees were not paid with their separation pay when they were
employees of respondent Midland Cement Corporation. Later, respondent DBP foreclosed and assumed
ownership over the cement plant, including land, buildings, machineries, etc., of Midland Cement Corporation.
The individual complainants are claiming separation benefits covering the period from date of hiring up to July
31, 1975 when CDCP took over the operations of Midland Cement Corporation by virtue of lease contract.

Page 102 of 104
After hearing, the Labor Arbiter rendered a decision on January 5, 1990 finding DBP jointly and severally liable
with Midland Cement for the payment of the separation pay.
DBP appealed, contending that its acquisition of the mortgaged assets of Midland through foreclosure sale did
not make it the owner of the defunct Midland Cement, and that the doctrine of successor-employee is not
applicable in this case, since DBP did not continue the business operations of Midland. The NLRC, while
finding merit in DBP’s contention, nonetheless held DBP liable since respondent’s claim “constitutes a first
preference with respect to the proceeds of the foreclosure sale” as provided in Article 110 of the Labor Code:
Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer’s business, his
workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary
notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors
may be paid. Following the denial of its motion for reconsideration, DBP filed the instant petition.
VI. ISSUE: Whether or not DBP is jointly and severally liable for the separation pay of the affected member of
the complainant union.
VII. RULING: DBP correctly points out that its mortgage lien should not be classified as a preferred credit.
Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code
scheme on classification and preference of credits.
A distinction should be made between a preference of credit and a lien. A preference applies only to claims
which do not attach to specific properties. A lien creates a charge on a particular property. The right of first
preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the
insolvent debtor in favor of workers. It is but a preference of credit in their favor. It is a method adopted to
determine and specify the order in which credits should be paid in the final distribution of the proceeds of the
insolvent’s assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.
The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security
it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world.
It is a lien on an identified immovable property, which a preference is not. A recorded mortgage credit is a
special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference
given by Article 110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not
attached to any specific property, is an ordinary preferred credit although its impact is to move it from second
priority to first priority in the order of preference established by Article 2244 of the Civil Code.
The NLRC, therefore, erred in holding DBP liable “to the extent of the proceeds of the foreclosure sale”. And
making such liability dependent on a bankruptcy or liquidation proceedings is really beside the point, for these
proceedings are relevant only to preferred credits, which is not the situation in the case at bar. To equate DBP’s
mortgage lien with a preferred credit would be to render inutile the protective mantle of the mortgage in DPB’s
favor and thus in the process wreak havoc to commercial transactions.
Wherefore, the petition is GRANTED. The decision of the NLRC dated November 28, 1990 and the
Resolution of February 1, 1991 are hereby SET ASIDE, and a new judgment is entered absolving Development
Bank of the Philippines of any and all liabilities to private respondent and its members. No special
pronouncement is made as to costs.

Page 103 of 104
I. SHORT TITLE: REPUBLIC vs. PERALTA
II. FULL TITLE: Republic of the Philippines, represented by the Bureau of Customs and the Bureau of
Internal Revenue versus Honorable E.L. Peralta, Presiding Judge Of The Court Of First Instance Of Manila,
Branch XVII, Quality Tabacco Corporation, Francisco, Federacion Obrero De La Industria Tabaquera Y Otros
Trabajadores De Filipinas (Foitaf) Ustc Employees Association Workers Union-Ptgwo, respondents, G.R. No.
L-56568 May 20, 1987, FELICIANO, J.:
III. TOPIC: Concurrence and Preference of Credit
A voluntary insolvency proceedings was commenced by private respondent Quality Tobacco Corporation (the
"Insolvent"). In its questioned Order, the trial court held that the above-enumerated claims of USTC and
FOITAF (hereafter collectively referred to as the "Unions") for separation pay of their respective members
embodied in final awards of the National Labor Relations Commission were to be preferred over the claims of
the Bureau of Customs and the Bureau of Internal Revenue.
The trial court, in so ruling, relied primarily upon Article 110 of the Labor Code which reads thus: Article 110.
Worker preference in case of bankruptcy — In the event of bankruptcy or liquidation of an employer's business, his workers shall
enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any
provision of law to the contrary notwithstanding. Union paid wages shall be paid in full before other creditors may establish any
claim to a share in the assets of the employer..
The Republic of the Philippines seeks the review on certiorari of the Order of the Court of First Instance of
Manila entitled "In the Matter of Voluntary Insolvency of Quality Tobacco Corporation, Quality Tobacco
Corporation, Petitioner," and of the Order of the same court denying the motion for reconsideration of the
earlier Order filed by the Bureau of Internal Revenue and the Bureau of Customs for the Republic.
VI: ISSUE: Whether or not separation pay of employees is to be preferred over tax claims of the government.
VII. RULING: Tax claims must be preferred.
It is frequently said that taxes are the very lifeblood of government. The effective collection of taxes is a task of
highest importance for the sovereign. It is critical indeed for its own survival. It follows that language of a much
higher degree of specificity than that exhibited in Article 110 of the Labor Code is necessary to set aside the
intent and purpose of the legislator that shines through the precisely crafted provisions of the Civil Code.
We believe and so hold that Article 110 of the Labor Code did not sweep away the overriding preference
accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof which
constitute a lien upon properties of the Insolvent.
VIII: DISPOSITIVE PORTION:
WHEREFORE, the petition for review is granted and the Orders dated 17 November 1980 and 19 January
1981 of the trial court are modified accordingly. This case is hereby remanded to the trial court for further
proceedings in insolvency compatible with the rulings set forth above. No pronouncement as to costs. SO
ORDERED.

Page 104 of 104

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I. SHORT TITLE: HERRERA V.

III. TOPIC: Violation of Usury Law; Loan

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

VI. ISSUE: Whether or not there is violation of the Usury Law.

VII. RULING: There is no violation.

TIAMA, CREDIT TRANSACTIONS

VIII: DISPOSITIVE PORTION

I. SHORT TITLE: REPUBLIC V. BAGTAS

III. TOPIC: Commodatum

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

TIAMA, CREDIT TRANSACTIONS

VIII. DISPOSITIVE PORTION:

I. SHORT TITLE: CATHOLIC VICAR vs. COURT OF APPEALS

III. TOPIC: Loan

IV. STATEMENT OF FACTS

V. STATEMENT OF THE CASE

VIII. DISPOSITIVE PORTION

TIAMA, CREDIT TRANSACTIONS

I. SHORT TITLE: QUINTOS vs. BECK

III. TOPIC: Commodatum

IV. STATEMENT OF THE FACTS:

V. STATEMENT OF THE CASE

VIII. DISPOSITIVE PORTION

TIAMA, CREDIT TRANSACTIONS

I. SHORT TITLE: PAJUYO VS. GUEVARRA

III. TOPIC : Commodatum

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

VI. ISSUE: WON the Kasunduan is a contract of commodatum?

VII. RULING: No.

TIAMA, CREDIT TRANSACTIONS

VIII. DISPOSITIVE PORTION:

I. SHORT TITLE: PANTELEON VS. AMERICAN EXPRESS INTERNATIONAL

III. TOPIC: Credit; Relationship between a bank and a depositor

IV. STATEMENT OF FACTS:

TIAMA, CREDIT TRANSACTIONS

1. WON respondent had committed a breach of its obligations to petitioner

2. WON respondent is liable for damages to petitioner

TIAMA, CREDIT TRANSACTIONS

We sustain the amount of moral damages awarded to petitioner by the RTC.

VIII. DISPOSITIVE PORTION:

I. SHORT TITLE: ADVOCATES FOR TRUTH IN LENDING vs. BANGKO SENTRAL

III. TOPIC: Loan; Suspension of Usury Law

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

TIAMA, CREDIT TRANSACTIONS

TIAMA, CREDIT TRANSACTIONS

VIII. DISPOSITIVE PORTION:

Wherefore, premises considered the Petition for certiorari is DISMISSED.

I. SHORT TITLE: COMMONWEALTH INSURANCE CORP. VS. COURT OF APPEALS

II. FULL TITLE: COMMONWEALTH INSURANCE CORPORATION, petitioner versus COURT OF

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

TIAMA, CREDIT TRANSACTIONS

VII. RULING: The petition is DENIED.

VIII. DISPOSITIVE PORTION:

I. SHORT TITLE: CALDERON vs. PEOPLE

III. TOPIC: Existence of usurious interest; Loan

IV. STATEMENT OF FACTS:

V. STATEMENT OF THE CASE:

TIAMA, CREDIT TRANSACTIONS

2. WON interest agreed upon by the parties usurious

VIII: DISPOSITIVE PORTION

I. SHORT TITLE: EASTERN SHIPPING LINES vs. CA

III. TOPIC: Claims for damages; liability of common carrier