Credit

 Transactions     longer   than   the   period   stipulated   or   when   the   thing   loaned   has  
  been   delivered   with   appraisal   of   its   value,   unless   there   is   a  
Concept  of  credit     stipulation   exempting   him   from   responsibility   in   case   of   a  
  fortuitous  event.  
People  v.  Concepcion    
  Pajuyo  v.  CA  
The  credit  of  an  individual  means  his  ability  to  borrow  money  by    
virtue  of  the  trust  or  confidence  reposed  by  a  lender  that  he  will   In   a   contract   of   commodatum,   one   of   the   parties   delivers   to  
pay  what  he  may  promise.   another  something  not  consumable  so  that  the  latter  may  use  the  
  same   for   a   certain   time   and   return   it.   An   essential   feature   of  
A   loan   means   the   delivery   by   one   party   and   the   receipt   by   the   commodatum   is   that   it   is   gratuitous.   The   use   of   the   thing  
other   of   a   given   sum   of   money,   upon   an   agreement,   express   or   belonging   to   another   is   for   a   certain   period   such   that   the   bailor  
implied,  to  repay  the  sum  loaned,  with  or  without  interest.   cannot   demand   the   return   of   the   thing   loaned   until   after   the  
  expiration   of   the   period   stipulated   or   after   accomplishment   of  
The  concession  of  a  credit  necessarily  involves  the  granting  of   the   use   for   which   the   commodatum   is   constituted.   If   the   bailor  
loans  up  to  the  limit  of  the  amount  fixed  in  the  credit.   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  
To   discount   a   paper   is   only   a   mode   of   loaning   money,   with   the   the  bailor,  he  can  demand  the  return  of  the  thing  at  will,  in  which  
following  distinctions:   case,  the  contractual  relation  is  a  precarium.  
   
a.  In  a  discount,  interest  is  deducted  in  advance,  while  in   Quintos  v.  Beck  
a  loan,  interest  is  taken  at  the  expiration  of  a  credit;    
b.   A   discount   is   always   on   a   double-­‐name   paper;   a   loan   is   The   bailee   is   bound   to   return   all   the   things   subject   of   the  
generally  on  a  single-­‐name  paper   commodatum   upon   demand   of   the   bailor.   He   is   not   deemed   to  
  have  complied  with  his  obligation  if  he  retains  for  himself  some  
Commodatum   of   the   things   loaned   or   when   he   merely   placed   them   at   the  
  disposal   of   the   bailor,   when   the   agreement   between   them   is   for  
Republic  v.  Bagtas   him   to   return   them   at   the   bailor’s   residence.   The   bailee   is   not  
  entitled   to   place   the   thing   on   deposit,   and   the   bailor   cannot   be  
A   contract   of   commodatum   is   essentially   gratuitous.   Ownership   compelled   to   accept   the   offer   to   return   only   some   of   things  
of  the  thing  does  not  transfer  to  the  bailee,  thus,  the  bailor  bears   loaned.  
the  risk  of  loss  due  to  force  majeure.  However,  the  bailee  is  liable    
for  loss  of  the  thing  due  to  fortuitous  event    if  he  keeps  the  thing  
A  bailee  who  breached  the  contract  of  commodatum  and  without   mortgage   was   executed   and   registered,   there   arises   a   perfected  
any   reason   refused   to   return   and   deliver   all   the   things   loaned   consensual  contract  of  loan.  
upon   the   bailor’s   demand   is   bound   to   pay   the   legal   expenses   and    
judicial   costs   which   the   bailor   would   not   have   otherwise   Since   mutual   agreement   can   create   a   contract,   mutual  
defrayed.     disagreement  by  the  parties  can  cause  its  extinguishment.  
   
Producer’s  Bank  of  the  Philippines  v.  CA     BPI  Investment  Corp.  v.  CA  
   
A   commodatum   may   have   for   its   object   a   consumable   thing   if   the   A   loan   contract   is   not   a   consensual,   but   a   real,   contract.   It   is  
consumable  goods  are  loaned  only  for  the  purpose  of  exhibition,   perfected  only  upon  the  delivery  of  the  object  of  the  contract.  
or  when  the  intention  of  the  parties  is  to  lend  consumable  goods    
and   to   have   the   very   same   goods   returned   at   the   end   of   the   A   loan   contract   involves   a   reciprocal   obligation   wherein   the  
period  agreed  upon.   obligation  or  promise  of  each  party  is  the  consideration  for  that  
  of   the   other.   Neither   party   incurs   in   delay   if   the   other   does   not  
Simple  loan  or  mutuum   comply  or  is  not  ready  to  comply  in  a  proper  manner  with  what  
  is  incumbent  upon  him.  
Garcia  v.  Thio    
  People  v.  Puig  and  Porras  
A   loan   is   a   real   contract,   not   consensual,   and   as   such   is   perfected    
only   upon   the   delivery   of   the   object   of   the   contract.   Upon   The   bank   acquires   ownership   of   the   money   deposited   by   its  
delivery  of  the  object  of  the  contract  of  loan,  the  debtor  acquires   clients.    The  relationship  between  banks  and  depositors  is  that  of  
ownership  of  such  money  or  loan  proceeds  and  is  bound  to  pay   a  creditor  and  debtor.  
the  creditor  an  equal  amount.    
    The   employees   of   the   bank   who   are   entrusted   with   the  
Delivery  is  the  act  by  which  the  res  or  substance  thereof  is  placed   possession   of   the   deposits   in   the   bank   occupy   positions   of  
within   the   actual   or   constructive   possession   or   control   of   confidence  by  virtue  of  the  confidence  reposed  in  them.  It  is  not  
another.     the  depositor-­‐client  who  is  the  real-­‐party-­‐in-­‐interest  in  a  case  for  
  qualified   theft   filed   by   the   bank   against   its   employees   who  
Saura  Inc.  v.  DBP   misappropriated  the  money  deposited  in  the  bank,  but  the  bank  
  itself,  as  it  is  now  the  owner  of  such  money.  
Where   an   application   for   a   loan   of   money   was   approved   by    
resolution   of   the   corporation   (lender)   and   the   corresponding   BPI  Family  Bank  v.  Franco  
 
The  quality  of  being  fungible  depends  upon  the  possibility  of  the   unconscionable   or   if   the   principal   obligation   has   been   partly   or  
property,   because   of   its   nature   or   the   will   of   the   parties,   being   irregularly  complied  with.  
substituted   by   others   of   the   same   kind,   not   having   a   distinct    
individuality.   Money   is   generic   and   fungible   and   bears   no   A   penalty   stipulation   is   not   necessarily   preclusive   of   interest,   if  
earmarks  of  peculiar  ownership.     there   is   an   agreement   to   that   effect,   the   two   being   distinct  
  concepts   which   may   be   separately   demanded.   What   may   justify  
The  deposit  of  money  in  banks  is  governed  by  the  provisions  on   the   court   in   reducing   penalty   or   surcharges   may   not   equally  
simple  loan.  As  there  is  a  debtor-­‐creditor  relationship  between  a   justify  non-­‐payment  or  reduction  of  interest.  
bank   and   its   depositor,   a   bank   acquires   ownership   of   the    
deposits,  but  such  ownership  is  coupled  with  an  obligation  to  pay   GSIS  v.  CA  (1986)  
him  an  equal  amount  on  demand.      
  Stipulation  in  the  Contract:  
Interest   The   rate   of   interest   shall   be   9%   per   annum   compounded  
  monthly,   and   that   any   due   and   unpaid   monthly   amortization  
Frias  v.  San  Diego-­Sison     shall  bear  interest  at  the  rate  of  9%/12%  per  month.  
   
For  a  debtor  to  continue  in  possession  of  the  principal  of  the  loan   Ratio:  
and   to   continue   to   use   the   same   after   maturity   of   the   loan   The  Usury  Law  applies  only  to  interest  by  way  of  compensation  
without   payment   of   the   monetary   interest   would   constitute   for  the  use  or  forbearance  of  money.  Interest  by  way  of  damages  
unjust   enrichment   on   the   part   of   the   debtor   at   the   expense   of   the   is  governed  by  Art.  2209.  
creditor.     Art.  2209.  If  the  obligation  consists  in  the  payment  of  a  sum  of  
  money,  and  the  debtor  incurs  in  delay,  the  indemnity  for  
Ligutan  v.  CA   damages,  there  being  no  stipulation  to  the  contrary,  shall  
  be  the  payment  of  the  interest  agreed  upon.  
A   penalty   clause   is   an   accessory   undertaking   to   assume   greater    
liability   on   the   part   of   the   obligor   in   case   of   breach   of   an   The  Civil  Code  permits  the  agreement  upon  a  penalty  apart  from  
obligation.   It   functions   to   strengthen   the   coercive   force   of   the   interest.   Should   there   be   such   agreement,   the   penalty   does   not  
obligation   and   to   provide   in   effect,   for   what   would   be   the   include   the   interest,   and   as   such   the   two   are   different   and  
liquidated   damages   resulting   from   such   a   breach.     The   obligor   distinct  things  which  may  be  demanded  separately.  
would  then  be  bound  to  pay  the  stipulated  indemnity  without  the   The   stipulation   about   payment   of   additional   rate   partakes   of  
necessity   of   proof   on   the   existence   and   on   the   measure   of   the   nature   of   a   penalty   clause,   which   is   sanctioned   by  
damages  caused  by  the  breach.  Such  stipulated  penalty  may  still   law.  
be   equitably   reduced   by   the   courts   if   iniquitous   or    
Eastern  Shipping  Lines  v.  CA  (1994)      
  Other  Obligations  
CB   Circular   416:   the   rate   of   interest   for   loan   or   forbearance   of   ·                   When   an   obligation,   not   constituting   a   loan   or  
money,  goods  or  credit,  and  the  rate  allowed  in  judgments,  in  the   forbearance   of   money,   is   breached,   an   interest   in   the  
absence  of  expressly  contract  as  to  such  rate  of  interest,  shall  be   amount   of   damages   awarded   may   be   imposed   at   the  
12%  per  annum.   discretion  of  the  court  at  the  rate  of  6%  p.a.  No  interest,  
  however,   shall   be   adjudged   on   unliquidated   claims   or  
If  the  claim  does  not  constitute  a  loan  or  forbearance,  then  CB   damages   except   when   or   until   the   demand   can   be  
Circular  416  will  not  apply.  In  this  case,  the  claim  is  one   established  with  reasonable  certainty.  
for   damages   which   is   still   unliquidated,   hence,   the   legal   o       Where   the   demand   is   established   with  
interest   to   be   paid   is   6%   on   the   amount   due   computed   reasonable   certainty,   the   interest   shall   begin   to  
from  the  decision  of  the  court  a  quo.   run  from  the  time  the  claim  is  made  judicially  or  
  extrajudicially.  
Rules  of  thumb  in  computing  interest  as  damages:   o       When   such   certainty   cannot   be   reasonably  
When   an   obligation,   regardless   of   its   source,   is   breached,   the   established   at   the   time   the   demand   is   made,   the  
contravenor  can  be  held  liable  for  damages.   interest  shall  begin  to  run  only  from  the  date  the  
With   regard   particularly   to   an   award   of   interest   in   the   concept   judgment  of  the  court  is  made.  
of  actual  and  compensatory  damages,  the  rate  of  interest,      
as  well  as  the  accrual  thereof,  is  imposed  as  follows:   When  Judgment  Final  and  Executory  
  ·                   When  the  judgment  of  the  court  awarding  a  sum  
Loan  or  Forbearance  of  Money   of  money  becomes  final  and  executor,  the  rate  of  legal  
    interest,   whether   the   case   falls   under   par.   1   or   par.   2,  
·                   With   stipulation.   When   an   obligation   is   shall   be   12%   p.a.   from   such   finality   until   its  
breached   and   it   consists   in   the   payment   of   a   satisfaction,   this   interim   period   being   deemed   to   be   by  
sum   of   money,   i.e.,   a   loan   or   forbearance   of   then  an  equivalent  to  a  forbearance  of  credit.  
money,   the   interest   due   should   be   that      
stipulated,   commencing   from   the   time   it   is   Discussion:  
judicially  demanded.   Other   Obligations   Not   Constituting   Loan   or   Forbearance   of  
·                   Without   stipulation.   In   the   absence   of   Money:  
stipulation,   the   rate   of   interest   shall   be   12%   ·                   Recovery   of   damages   for   injury   to   person   and  
per   annum   to   be   computed   from   default,   i.e.,   loss  of  property  
from   judicial   or   extrajudicial   demand   and   ·                   Recovery  of  damages  arising  from  the  collapse  of  
subject  to  the  provisions  of  Art.  1169[1].   the  building  
 ·                  Moral  and  exemplary  damages   indebiti   applies.   It   applies   to   erroneous   payment   of   undue  
·                  Damages  for  breach  of  employment  contract   interest.  
·                   Complaint   for   a   sum   of   money   as   just      
compensation  for  lands  expropriated   Requisites:  
    1.               A  payment  is  made  when  there  exists  no  binding  
Siga-­an  v.  Villanueva  (2009)                                                         relation   between   the   payor,   who   has   no   duty   to   pay,  
    and  the  person  who  received  the  payment  
Monetary  Interest   2.               The   payment   is   made   through   mistake,   and   not  
No   monetary   interest   shall   be   due   unless   it   has   been   expressly   through  liberality  of  some  other  cause  
stipulated   in   writing   (Art.   1956).   Monetar   interest   is      
compensation   fixed   by   the   parties   for   the   use   or   forbearance   of   DEPOSIT  
money.    
    Voluntary  Deposit  
Requisites  for  payment  of  monetary  interest:      
1.               An   express   stipulation   for   the   payment   of   BPI  v.  IAC  (1988)  
interest      
2.               Such   agreement   for   the   payment   of   interest   must   Zschornack   entrusted   to   COMTRUST   $3,000   cash   (greenbacks)  
be  reduced  in  writing   for   safekeeping,   and   that   the   agreement   was   embodied   in   a  
    document.  
Compensatory  Interest      
Compensatory   interest   is   interest   as   penalty   or   indemnity   for   Ratio:  
damages[2].   Interest   can   be   payable   even   in   the   absence   of   an      
express   stipulation   in   writing.   Compensatory   interest   CANNOT   The  document  and  the  subsequent  acts  of  the  parties  show  that  
be  charged  as  compensation  for  the  use  of  forbearance  of  money.   they   intended   the   bank   to   safekeep   the   foreign   exchange,   and  
The  right  to  interest  arises  only:   return   it   later   to   Zschornack.   The   parties   did   not   intend   to   sell  
·                  By  virtue  of  a  contract   the  US  dollars  to  the  Central  Bank  within  one  business  day  from  
·                   By   virtue   of   damages   for   delay   or   failure   to   pay   receipt.   Otherwise,   the   contract   of   depositum   would   never   have  
the  principal  loan  on  which  interest  is  demanded   been  entered  into  at  all.  
       
Solutio  indebiti   However,   since   safekeeping   of   greenback   is   prohibited,   both  
    parties   are   in   pari   delicto   and   Zschornack   cannot   recover   the  
Under   Art.   1960[3],   if   the   borrower   of   loan   pays   interest   when   amount.  
there   has   been   no   stipulation   therefor,   the   principle   of   solution      
Roman  Catholic  Bishop  of  Jaro  v.  De  la  Pena   Triple  V  v.  Filipino  Merchants  
       
No  one  shall  be  liable  for  events  which  could  not  be  foreseen,  or   De   Asis   availed   of   the   valet   p   arking   service   of   Triple   V   and  
which  having  been  foreseen  were  inevitable,  with  the  exception   entrusted   her   car   key   to   the   vale   counter.   The   car   and   the   key  
of  the  cases  expressly  mentioned  in  the  law  or  those  in  which  the   were  stolen.  
obligation  so  declares.      
·                   By   placing   the   money   in   the   bank   and   mixing   it   Ratio:  
with   his   personal   funds,   De   la   Pena   did   not   thereby      
assume   an   obligation   different   from   that   under   which   In  a  contract  of  deposit,  a  person  receives  an  object  belonging  to  
he  would  have  lain  if  such  deposit  had  not  been  made,   another  with  the  obligation  of  safely  keeping  it  and  returning  the  
nor   did   he   thereby   make   himself   liable   to   repay   the   same.   A   deposit   may   be   constituted   even   without   any  
money  at  all  hazards.  The  fact  that  he  placed  the  trust   consideration.   It   is   not   necessary   that   the   depositary   receives   a  
fund  in  the  bank  in  his  personal  account  does  not  add   fee   before   it   becomes   obligated   to   keep   the   item   entrusted   for  
to   his   responsibility.   The   question   here   is   not   safekeeping  and  to  return  it  later  to  the  depositor.  
negligence.      
    Discussion:  
There   was   no   law   prohibiting   him   from   depositing   it   as   he   did      
and  there  was  no  law  which  changed  his  responsibility  by  reason   Why  liable:  
of  the  deposit.   Art.   2000.   The   responsibility   referred   to   in   the   two   preceding  
    articles   shall   include   the   loss   of,   or   injury   to   the   personal  
Discussion:   property   of   the   guests   caused   by   the   servants   or   employees   of  
    the   keepers   of   hotels   or   inns   as   well   as   strangers;   but   not   that  
Ma’am   disagrees.   The   change   of   way   of   the   deposit   was   which   may   proceed   from   any   force   majeure.   The   fact   that  
unwarranted  within  the  purview  of  Art.  1973.  Change  of  way  of   travellers  are  constrained  to  rely  on  the  vigilance  of  the  keeper  of  
deposit  –  the  contract  was  converted  from  a  deposit  to  a  loan   the  hotels  or  inns  shall  be  considered  in  determining  the  degree  
·                   Art.   1973.   Unless   there   is   a   stipulation   to   the   of  care  required  of  him.    
contrary,  the  depositary  cannot  deposit  the  thing  with      
a   third   person.   If   deposit   with   a   third   person   is   Situation:   If   the   car   key   was   with   the   owner,   would   it   be   a  
allowed,   the   depositary   is   liable   for   the   loss   if   he   contract  of  deposit?  
deposited   the   thing   with   a   person   who   is   manifestly   No.  It  would  be  a  contract  of  lease  as  there  was  no  delivery  as  to  
careless  or  unfit.  The  depositary  is  responsible  for  the   constitute  deposit  and  the  owner  had  the  control  of  the  thing.  
negligence  of  his  employees.      
    CA  Agro-­Industrial  Dev’t  Corp.  v.  CA  
     o       General   Banking   Act:   The   banks   may  
The   contract   for   the   rent   of   the   safety   deposit   box   is   not   an   receive   in   custody   funds,   documents,   and  
ordinary   contract   of   lease   of   things   but   a   special   kind   of   valuable   objects,   and   rent   safety   deposit  
deposit.   boxes   for   its   safeguarding.   The   banks   shall  
·                   It   cannot   be   characterized   as   an   ordinary   perform  these  services  as  depositaries  or  as  
contract  of  lease  of  things  because  the  full  and  absolute   agents.  
possession   and   control   of   the   safety   deposit   box   was   o       The   rending   out   of   the   safety  
not  given  to  the  joint  renters.   deposit   boxes   is   not   independent  
o       The   guard   key   remained   with   the   Bank.   from,   but   related   to   or   in   conjunction  
Without   this   key,   neither   of   the   renters   with,  this  principal  function.  
could  open  the  box.      
o       On   the   other   hand,   the   Bank   cannot   Discussion:  
likewise   open   the   box   without   the   renter’s      
key.   Ma’am  disagrees.  Bailment  contract  is  a  common  law  concept  in  
    the  US.  The  2nd  par.  of  Art.  1975  means  that  the  depositary  has  
Art.   1975[4]   cannot   be   invoked   as   an   argument   against   the   no  duty  to  preserve  the  value  as  long  they  are  certificates,  bonds,  
deposit  theory.   securities   or   instruments.   The   contract   is   one   of   deposit,   not   a  
·                   Obviously,   the   first   paragraph   cannot   apply   to   a   bailment  contract.  
depositary   of   certificates,   bonds,   securities   or      
instruments   which  earn  interest   if   such   documents   are   Necessary  Deposit  
kept  in  a  rented  safety  deposit  box.  It  is  clear  that  the      
depositary   cannot   open   the   box   without   the   renter   YHT  Realty  Corporation  v.  CA  (2005)  
being  present.      
    Those   who   in   the   performance   of   their   obligations   are   guilty   of  
The   contractual   relation   between   a   commercial   bank   and   fraud,   negligence,   or   delay,   and   those   who   in   any   manner  
another   party   in   a   contract   of   rent   of   a   safety   deposit   box   with   contravene  the  tenor  thereof,  are  liable  for  damages  (Art.  1170).  
respect  to  its  contents  is  one  of  bailor  and  bailee.   The  owners  and  managers  of  an  establishment  or  enterprise  are  
·                   The  prevailing  rule  in  American  jurisprudence  is   likewise   responsible   for   damages   caused   by   their   employees   in  
that   the   relation   between   a   bank   renting   out   safe-­‐ the   service   of   the   branches   in   which   the   latter   are   employed   or  
deposit   boxes   and   its   customers   with   respect   to   the   on  the  occasion  of  their  functions  Art.  2180  (4).  
contents   of   the   box   is   that   of   a   bailor   and   bailee,   the      
bailment  being  for  hire  and  mutual  benefit.   o       Tropicana   is   guilty   of   gross   negligence.   The   guest  
·                  We  adopted  the  prevailing  rule  in  the  US.   alone   cannot   open   the   safety   deposit   box   without   the  
 assistance   of   the   management   or   its   employees.   With   separate   obligation   from   the   underlying   agreement  
more   reason   that   access   of   the   safety   box   should   be   like  for  instance  a  typical  standby  
denied   if   the   one   requesting   for   the   opening   of   the   ·                   Independence   may   only   be   as   to   the   justification  
safety  deposit  box  is  a  stranger.   aspect   like   in   a   commercial   letter   of   credit   or  
    repayment   standby,   which   is   identical   with   the   same  
The   hotel-­‐keeper   cannot   free   himself   from   responsibility   by   obligations  under  the  underlying  agreement.  
posting   notices   to   the   effect   that   he   is   not   liable   for   the   articles   In   both   cases,   the   payment   may   be   enjoined   if   in   light   of   the  
brought   by   the   guest.   Any   stipulation   between   the   hotel-­‐keeper   purpose   of   the   credit,   the   payment   of   the   credit   would   constitute  
and   the   guest   whereby   the   responsibility   of   the   former   as   set   fraudulent  abuse  of  credit.  
forth  in  articles  1998  to  2001  is  suppressed  or  diminished  shall      
be  void  (Art.  2003).   Surety  Contract  
       
Responsibility   of   the   hotel-­‐keeper   shall   extend   to   loss   of,   or   The  surety  has  no  duty  to  pay  beneficiary  until  the  latter  proves  
injury   to,   the   personal   property   of   the   guests   even   if   causes   by   the   fact   of   obligor’s   performance   in   a   litigation.   During   the  
servants  or  employees  of  the  keepers  of  hotels  or  inns  as  well  as   litigation,   the   surety   holds   the   money   and   the   beneficiary   bears  
by  strangers,  except  as  it  may  proceed  from  any  force  majeure.   most  of  the  cost  of  delay  in  performance.  
o      In  the  case  at  bar,  there  is  no  showing  that  the  act  of      
the   thief   or   robber   was   done   with   the   use   of   arms   or   Letter  of  Credit  
through   an   irresistible   force   to   qualify   the   same   as      
force  majeure.   In   a   standby   credit   case,   the   beneficiary   avoids   that   litigation  
    burden   and   receives   his   money   promptly   upon   presentation   of  
LETTERS  OF  CREDIT   the   required   document.   It   may   be   that   the   applicant   has   in   fact  
    performed  his  obligation  and  that  the  beneficiary’s  presentation  
Transfield  Phil.  v.  Luzon  Hydro  Corporation  (2004)   of   documents   is   wrongful.   In   that   case,   applicant   may   sue   the  
    beneficiary  in  tort,  contract  or  in  breach  of  warranty;  but  during  
A   letter   of   credit   is   a   written   instrument   whereby   the   writer   the  litigation,  the  beneficiary,  not  the  applicant,  holds  the  money.  
requests   or   authorizes   the   addressee   to   pay   money   or   deliver      
goods  to  a  third  person  and  assumes  responsibility  for  payment   Ratio:  
of  debt  therefor  to  the  addressee.      
    Letters  of  credit,  by  their  nature,  are  separate  transactions  from  
The  independent  nature  of  a  letter  of  credit  may  be:   the   sales   or   other   contracts   on   which   they   may   be   based.   The  
·                   Independence   in   toto   where   the   credit   is   engagement  of  the  issuing  bank  is  to  pay  the  seller  or  beneficiary  
independent   from   the   justification   aspect   and   is   a   of   the   credit   once   the   draft   and   the   required   documents   are  
presented  to  it.   Trust   receipt   transactions   are   intended   to   aid   in   financing  
·                   The   independence   principle   assures   the   seller   or   importers  and  retail  dealers  who  do  not  have  sufficient  funds  or  
the  beneficiary  of  prompt  payment  independent  of  any   resources   to   finance   the   importation   or   purchase   of  
breach  of  the  main  contract  and  precludes  the  issuing   merchandise,   and   who   may   not   be   able   to   acquire   credit   except  
bank   from   determining   whether   the   main   contract   is   through   utilization,   as   collateral,   of   the   merchandise   imported   or  
actually   accomplished   or   not.   The   beneficiary   can   purchased.  
invoke   the   independence   principle   to   justify   its      
drawing   of   the   securities   because   the   letter   of   credit   The  Trust  Receipts  Law  does  not  seek  to  enforce  payment  of  the  
was   precisely   entered   into   for   the   benefit   of   both   loan,   rather   it   punishes   the   dishonesty   and   abuse   of   confidence  
issuing  bank  and  beneficiary.   in   the   handling   of   money   or   goods   to   the   prejudice   of   another  
o       Banks   are   in   no   way   concerned   with   or   regardless  of  whether  the  latter  is  the  owner.  
bound  by  such  contracts,  even  if  any  reference      
whatsoever  to  such  contract  is  included  in  the   ·                   The   practice   of   banks   of   making   borrowers   sign  
credit.   trust  receipts  to  facilitate  collection  of  loans  and  place  
o       Banks   assume   no   responsibility   for   the   them  under  the  threats  of  criminal  prosecution  should  
form,   sufficiency   or   genuineness   of   any   they  be  unable  to  pay  it  may  be  unjust  and  inequitable,  
document   presented   to   it,   nor   does   it   assume   if  not  reprehensible.  Such  agreements  are  contracts  of  
responsibility   for   the   good/bad   faith   of   the   adhesion  which  borrowers  have  no  option  but  to  sign  
consignor.   lest  their  loan  be  disapproved.  
       
Injunction   does   not   lie   to   prevent   LHC   to   draw   on   the   letter   of   Ratio:  
credit.  To  require  that  any  dispute  must  first  be  resolved  by  the      
parties  would  convert  the  letter  of  credit  into  a  mere  guaranty.  In   The   transaction   was   a   contract   of   loan.   Petitioners   received   the  
a  letter  of  credit,  the  settlement  of  a  dispute  between  the  parties   merchandise   from   CM   Builders   on   Oct.   30.   On   the   same   day,  
is  not  a  prerequisite  for  the  release  of  funds.   ownership   over   the   merchandise   was   already   transferred   to  
·                   Furthermore,   nothing   in   the   contract   suggested   them   who   were   to   use   the   materials   for   their   construction  
that   all   disputes   regarding   delay   must   first   be   settled   project.   It   was   only   on   Oct.   31   when   they   went   to   the   bank   to  
before  LHC  can  draw  on  the  securities.   apply  for  a  loan  to  pay  for  the  merchandise.  The  situation  belies  
    what   normally   obtains   in   a   pure   trust   receipt   transaction.  
TRUST  RECEIPTS  LAW   Petitioners   are   not   importers   acquiring   the   goods   for   re-­‐sale,  
    contrary  to  the  express  provision  embodied  in  the  trust  receipt.  
Colinares  v.  CA  (2000)      
    Trust  Receipt  Transaction:  
 ·                   The   bank   acquires   a   “security   interest”   in   the   ·                   The   rationale   of   this   provision   is   to   protect  
goods   as   holder   of   a   security   title   for   the   advances   it   debtors  by  permitting  them  to  fully  appreciate  the  true  
had  made  to  the  entrustee.   cost  of  their  loan,  to  enable  them  to  give  full  consent  to  
o       The   ownership   of   the   merchandise   the  contract,  and  to  properly  evaluate  their  options  in  
continues   to   be   vested   in   the   person   who   arriving  at  business  decisions.  
had   advanced   payment   until   he   has   been   ·                   Opening   a   credit   line   does   not   create   a   credit  
paid   in   full,   or   if   the   merchandise   has   transaction   of   loan   or   mutuum,   since   the   former   is  
already   been   sold,   the   proceeds   of   the   sale   merely   a   preparatory   contract   to   the   contract   of   loan  
should   be   turned   over   to   him   by   the   or   mutuum.   The   credit   transaction   thus   occurred   not  
importer   or   by   his   representative   or   when  the  credit  line  was  opened,  but  rather  when  the  
successor  in  interest.   credit   line   was   availed   of.   The   violation   occurred   not  
    when   the   parties   executed   the   Credit   Agreement,  
·                   To  secure  that  the  bank  shall  be  paid,  it  takes  full   where   not   interest   rate   was   mention,   but   when   the  
title   to   the   goods   at   the   very   beginning   and   continues   parties   executed   the   promissory   notes,   where   the  
to  hold  that  title  as  his  indispensable  security  until  the   allegedly  offending  interest  rate  was  stipulated.  
goods  are  sold  and  the  vendee  is  called  upon  to   pay  for      
them;  hence,  the  importer  has  never  owned  the  goods   The   penalty   for   the   violation   of   the   act   is   P100   or   an   amount  
and  is  not  able  to  deliver  possession.   equal   to   twice   the   finance   charge   required   by   such   creditor   in  
o       In   a   certain   manner,   trust   receipts   connection   with   such   transaction,   whichever   is   greater,   except  
partake   of   the   nature   of   a   conditional   sale   that   such   liability   shall   not   exceed   P2,000   on   any   credit  
where   the   importer   becomes   absolute   transaction.   As   this   penalty   depends   on   the   finance   charge  
owner  of  the  imported  merchandise  as  soon   required   of   the   borrower,   the   borrower’s   cause   of   action   would  
as  he  has  paid  its  price.   only  accrue  when  such  finance  charge  is  required.  
    ·                   The   date   of   the   demand   for   payment   of   the  
Truth  in  Lending  Act   finance   charge   is   Sept.   2,   1998   while   the   foreclosure  
    was   made   on   Dec.   28,   1998.   The   filing   of   the   case   on  
UCPB  v.  Samuel  and  Beluso  (2007)   Feb.  9,  1999  is  therefore  within  the  1-­‐year  prescriptive  
    period.  
Sec.   4   of   the   Truth   in   Lending   Act   clearly   provides   that   the      
disclosure   statement   must   be   furnished   prior   to   the   Note:  Penalty  is  P26,000,  not  P2,000  à  computation  is  per  credit  
consummation   of   the   transaction.   The   promissory   notes,   the   transaction  
copies   of   which   were   presented   to   the   spouses   Beluso   after      
execution,  are  not  sufficient  notification  from  UCPB.   Usury  Law  
     debtor  incurs  in  delay,  the  debt  earns  interest  from  the  
Carpo  v.  Chua  (2005)   date  of  the  demand  (in  this  case  from  the  filing  of  the  
    complaint).   Such   interest   is   not   due   to   stipulation,   for  
Pursuant   to   the   freedom   of   contract   principle   embodied   in   there  was  none,  the  same  being  void.  Rather,  it  is  due  to  
Article  1306  of  the  Civil  Code,  contracting  parties  may  establish   the   general   provision   of   law   that   in   obligations   to   pay  
such   stipulations,   clauses,   terms   and   conditions   as   they   may   money,   where   the   debtor   incurs   in   delay,   he   has   to   pay  
deem  convenient,  provided  they  are  not  contrary  to  law,  morals,   interest  by  way  of  damages  (Art.  2209,  Civil  Code).  
good  customs,  public  order,  or  public  policy.        
·                   (lowest   interest   rate   reduced   by   the   SC)   Since  an  excessive  stipulated  interest  rate  may  be  void  for  being  
In  Ruiz   v.   Court   of   Appeals,  we   equitably   reduced   the   contrary   to   public   policy,   an   action   to   annul   said   interest   rate  
agreed   3%   per   month   or   36%   per   annum   interest   to   does  not  prescribe.  Such  indeed  is  the  remedy;  it  is  not  the  action  
1%  per  month  or  12%  per  annum  interest.     for  annulment  of  the  ancillary  real  estate  mortgage.      
       
Article   1420   provides:   "In   case   of   a   divisible   contract,   if   the   Warehouse  Receipts  Law  
illegal   terms   can   be   separated   from   the   legal   ones,   the   latter   may    
be  enforced."  In  simple  loan  with  stipulation  of  usurious  interest,   PNB  v.  Se  (1996)  
the   prestation   of   the   debtor   to   pay   the   principal   debt,   which   is      
the   cause   of   the   contract   (Article   1350),   is   not   illegal.   By   the   A   warehouseman   shall   have   a   lien   on   goods   deposited   in   his  
same  token,  since  the  mortgage  contract  derives  its  vitality  from   hands,  for  all  lawful  charges  for  storage  and  preservation  of  the  
the  validity  of  the  principal  obligation,  the  invalid  stipulation  on   goods  (Sec.  27).  A  warehouseman  having  a  lien  valid  against  the  
interest  rate  is  similarly  insufficient  to  render  void  the  ancillary   person  demanding  the  goods  may  refuse  to  deliver  the  goods  to  
mortgage  contract.   him   until   the   lien   is   satisfied   (Sec.   31).   Therefore,   while   PNB   is  
·                   The  illegality  lies  only  as  to  the  prestation  to  pay   entitled   to   the   sugar   stocks   as   the   endorsee   of   the   quedans,  
the   stipulated   interest;   hence,   being   separable,   the   delivery  to  it  shall  be  effected  only  upon  payment  of  the  storage  
latter  only  should  be  deemed  void,  since  it  is  the  only   fees.  
one  that  is  illegal.   ·                   After   being   declared   not   the   owner,   but   the  
·                  The  invalidation  of  the  interest  rates  is  congruent   warehouseman,   Noah’s   Ark   cannot   be   deprived   of   its  
with   the   rule   that   a   usurious   loan   transaction   is   not   a   right  to  enforce  its  claim  for  warehouseman’s  lien,  for  
complete  nullity  but  defective  only  with  respect  to  the   reasonable  storage  fees  and  preservation  expenses.  
agreed  interest.      
·                   The  principal  debt  remaining  without  stipulation   The   unconditional   presentment   of   the   receipts   by   PNB   for  
for   payment   of   interest   can   thus   be   recovered   by   payment  against  Noah’s  Ark  on  the  strength  of  the  provisions  of  
judicial   action.   And   in   case   of   such   demand,   and   the   the   Warehouse   Receipts   Law   carried   with   it   the   admission   of   the  
existence   and   validity   of   the   stipulations   written   on   the   face   of    A   lien   may   be   lost   where   the  
the  warehouse  receipts,  including  the  unqualified  recognition  of   warehouseman   surrenders   the  
the   payment   of   the   warehouseman’s   lien   for   storage   fees   and   possession   of   the   goods   without   requiring  
preservation  expenses.   payment   of   his   lien,   because   a  
    warehouseman’s   lien   is   possessory   in  
Imperative   is   the   right   of   a   warehouseman   to   demand   payment   nature.  
of  his  lien  at  this  juncture,  because  under  Sec.29,  the  lien  may  be    
lost   where   the   warehouseman   surrenders   the   possession   of   the   GUARANTY  AND  SURETY  
goods   without   requiring   payment   of   his   lien,   because   a    
warehouseman’s  lien  is  possessory  in  nature.   E.  ZOBEL  INC.  V.  CA  
   
  In  the  document  referred  to  as  “Continuing  Guaranty,”  E.  Zobel  Inc.  
PNB  .V  SE  (double)   obligated  itself  to  Solidbank  as  a  “surety.”  
  • A  surety  is  distinguished  from  a  guaranty  in  that  a  guarantor  
After   being   declared   not   the   owner   of   the   goods   subject   of   the   is  the  insurer  of  the  solvency  of  the  debtor  and  thus  binds  
warehouse  receipts,  but  the  warehouseman,  Noah’s  Ark  is  claiming   himself   to   pay   if   the   principal   is   unable   to   pay,   while   a  
the   right   to   a   warehouseman’s   lien   (for   payment   of   storage   fees   surety  is  the  insurer  of  the  debt,  and  he  obligates  himself  to  
and  preservation  expenses).   pay  if  the  principal  does  not  pay.  
• The   subject   warehouse   receipts   themselves   contained   a   • Surety  
stipulation   which   provides   for   Noah’s   Ark   right   to   impose   o He   is   usually   bound   with   his   principal   by   the  
and  collect  warehouseman’s  lien.   same  instrument,  executed  at  the  same  time,  and  
• Even   in   the   absence   of   such   a   stipulation,   law   and   equity   on  the  same  consideration.  
dictate  the  payment  of  the  warehouseman’s  lien  pursuant  to   o He   is   an   original   promissor   and   debtor   from   the  
Secs.  27  and  31  of  the  Warehouse  Receipts  Law.   beginning,   and   is   held,   ordinarily,   to   know   every  
o Sec.  27:  “A  warehouseman  shall  have  a  lien  on   default  of  his  principal.  
goods   deposited   in   his   hands,   for   all   lawful   o Usually,   he   will   not   be   discharged,   either   by   the  
charges   for   storage   and   preservation   of   the   mere   indulgence   of   the   creditor   to   the   principal,  
goods.”   or  by  want  of  notice  of  the  default  of  the  principal,  
o Sec.   31:   “A   warehouseman   having   a   lien   valid   no  matter  how  much  he  may  be  injured  thereby.  
against   the   person   demanding   the   goods   may   • Guarantor  
refuse   to   deliver   the   goods   to   him   until   the   o The   contract   of   guaranty   is   the   guarantor’s   own  
lien  is  satisfied.”   separate   undertaking,   in   which   the   principal   does  
not  join.  It  is  usually  entered  into  before  or  after  
 that  of  the  principal,  and  is  often  supported  on  a   • The  use  of  the  word  “guarantee”  does  not  ipso  facto  make  the  
separate   consideration   from   that   supporting   the   contract   one   of   guaranty.   The   word   is   frequently   used   in  
contract  of  the  principal.   business   transactions   to   describe   the   intention   to   be   bound  
o The   original   contract   of   his   principal   is   not   his   by  a  primary  or  an  independent  obligation.  
contract,  and  he  is  not  bound  to  take  notice  of  its    
non-­‐performance.    
o He  is  often  discharged  by  the  mere  indulgence  of   PHIL.  BLOOMING  MILLS  V.  CA  
the   creditor   to   the   principal,   and   is   usually   not    
liable   unless   notified   of   the   default   of   the   Under   a   Deed   of   Suretyship,   Ching   obligated   himself   as   surety   of  
principal.   PBM.   Later,   PBM   (with   Ching)   filed   a   petition   for   suspension   of  
• The  use  of  the  term  “guarantee”  does  not  ipso  facto  mean   payments  with  the  SEC.      
that   the   contract   is   one   of   guarantee.   “Guarantee”   is   • Creditors   may   sue   individual   sureties   of   debtor-­
frequently   employed   in   business   transactions   to   describe   not   corporations   in   a   separate   proceeding   before   regular  
the   security   of   the   debt   but   an   intention   to   be   bound   by   a   courts   despite   the   pendency   of   a   case   before   the   SEC  
primary  or  independent  obligation.   involving  a  debtor-­corporation.  
o The  contract,  albeit  denominated  as  a  “Continuing   o Being   a   nominal   party   in   the   SEC   case,   Ching’s  
Guaranty,”   is   a   contract   of   surety.   The   terms   of   properties  were  not  included  in  the  rehabilitation  
the   contract   categorically   obligates   E.   Zobel   Inc.   receivership   that   the   SEC   constituted   to   take  
as  “surety”.   custody  of  PBM’s  assets.  Therefore,  the  Bank  was  
  not   barred   from   filing   a   suit   against   Ching,   as  
  surety  for  PBM.    
INT’L  FINANCE  CORP.  V.  IMPERIAL  TEXTILE  MILLS  (ITM)    An   anomalous   situation   would   arise   if  
  individual   sureties   for   debtor-­‐
The   “Guarantee   Agreement”   provided   for   the   solidary   liability   of   corporations   may   escape   liability   by  
ITM  with  PPIC,  the  principal  debtor.   simply   co-­‐filing   with   the   corporation   a  
• If   a   person   binds   himself   solidarily   with   the   principal   petition  for  suspension  of  payments  in  the  
debtor,  the  contract  is  a  suretyship.     SEC   whose   jurisdiction   is   limited   only   to  
o When   the   “Guarantee   Agreement”   provided   for   corporations  and  their  assets.  
the  solidary  liability  of  ITM,  it  brought  ITM  to  the   • As  the  insurer  of  debt,  a  surety  is  bound  to  pay  the  debt  
level   of   PPIC   and   thus,   not   merely   secondarily   in   the   original   amount,   not   the   reduced/rehabilitated  
liable  but  primarily  liable  as  a  surety.  ITM  became   amount.  
a   surety   when   it   bound   itself   solidarily   with   the   o In   granting   the   loan   to   PBM,   the   Bank   required  
principal  debtor.   Ching’s  surety  precisely  to  insure  full  recovery  of  
 the  loan  in  case  PMB  becomes  insolvent  or  fails  to   not   mean   that   suretyship   is   withdrawn   from   the  
pay   in   full.   Thus,   Ching   cannot   use   PBM’s   failure   applicable   provisions   governing   guaranty.  
to  pay  in  full  as  justification  for  his  own  reduced   Otherwise,  there  would  be  no  difference  between  
liability.   As   surety,   Ching   agreed   to   pay   in   full   the  surety  and  the  joint  and  several  debtors.  
PBM’s   loan   in   case   it   fails   to   pay   in   full   for   any    
reason,  including  insolvency.    
  TUPAZ  IV  &  TUPAZ  V.  CA  
   
ESCANO  &  SOLIS  V.  ORTIGAS   • A   corporate   representative   signing   as   a   solidary   guarantee   in  
  his  capacity  as  corporate  representative  does  not  undertake  
• Joint  and  several  debtors  (active  solidarity)  v.  Surety   to   guarantee   personally   the   payment   of   the   corporation’s  
o Similarity:   Solidarity   signifies   that   the   creditor   debt.    
can   compel   any   one   of   the   joint   and   solidary   o Debts   incurred   by   corporate   representatives,  
debtors   or   the   surety   alone   to   answer   for   the   acting   as   such,   are   not   theirs   but   the   direct  
entirety  of  the  principal  debt.   liability   of   the   corporation.   As   an   exception,   they  
o Difference:   The   difference   lies   in   the   respective   are  personally  liable  only  if  they  so  stipulate.  
faculties   of   the   joint   and   several   debtor   and   the   • Solidary  guarantee  v.  surety  
surety  to  seek  reimbursement/indemnification.     o The   clause   “we   jointly   and   severally   agree   and  
 In  the  case  of  joint  and  several  debtors,   undertake”   refers   to   the   understanding   between  
the   solidary   debtor   who   pays   may   claim   the  2  parties  who  are  to  sign  it  or  to  the  liability  
from   his   co-­‐debtors   only   the   share   existing  between  themselves.  It  does  not  refer  to  
which   corresponds   to   each   (with   the   undertaking   between   either   one   or   both   of  
interest).   them  on  the  one  hand,  and  the  bank  on  the  other  
 In  contrast,  even  as  the  surety  is  solidarily   with  respect  to  the  liability  described  in  the  trust  
bound   with   the   principal   debtor   to   the   receipt.  
creditor,   the   surety   who   pays   has   the   o Had   there   been   more   than   one   signatory   to  
right   to   recover   the   full   amount   paid,   the   trust   receipts,   the   solidarity   liability  
and   not   just   the   proportional   share,   would  exist  between  the  guarantors.  
from  the  principal  debtor/s.   • Excussion   is   not   a   prerequisite   to   secure   judgment  
• The   rights   to   indemnification   and   subrogation   as   against  a  guarantor.    
granted  to  the  guarantor  extend  as  well  to  sureties.   o The  guarantor  can  still  demand  deferment  of  the  
o The   application   of   the   provisions   on   joint   and   execution  of  the  judgment  against  him  until  after  
solidary   obligations   on   suretyship,   however,   does  
 the  assets  of  the  principal  debtor  shall  have  been    There   should   be   a   stipulation   for  
exhausted.   automatic   appropriation   by   the  
• The  benefit  of  excussion  may  be  waived.   creditor  of  the  thing  mortgaged  in  case  
o Tupaz  waived  excussion  when  he  agreed  that  his   of   non-­payment   of   the   principal  
liability   in   the   guaranty   shall   be   direct   and   obligation   within   the   stipulated  
immediate,   without   any   need   on   the   part   of   the   period.  
bank   to   take   any   steps   or   exhaust   any   legal   o Condition  12  did  not  provide  that  the  ownership  
remedies.   over   the   leasehold   rights   would   automatically  
  pass  to  DBP  upon  Cuba’s  failure  to  pay  the  loans  
  on   time.   It   merely   provided   for   the   appointment  
PLEDGE  AND  MORTGAGE  (Common  Provisions)   of  DBP  as  attorney-­‐in-­‐fact  for  the  sale.  
  • DBP   however,   exceeded   the   authority   vested   by   Condition  
  12.  
DBP  V.  CA   o It   had,   without   foreclosure   proceedings,   whether  
  judicial   or   extrajudicial,   appropriated   Cuba’s  
Simultaneous  with  the  execution  of  the  loans  was  the  execution  of   leasehold  rights.    
Assignment   of   Leasehold   Rights   by   Cuba   in   favor   of   DBP   as    
security.   Condition   12   of   the   Assignment   provides   for   the    
appointment   of   DBP   as   attorney-­in-­fact   with   authority   to   sell   the   BUSTAMANTE  V.  ROSEL  
leasehold   rights   in   case   of   default   by   Cuba,   the   proceeds   to   be    
applied   to   the   payment   of   the   loans.   Upon   default,   DBP,   without   To  guarantee  payment  of  the  loan,  the  debtors  put  as  collateral  a  
foreclosure  proceedings,  appropriated  the  leasehold  rights.   parcel  of  land.  It  was  stipulated  that  in  the  event  they  fail  to  pay,  
• An   assignment   to   guarantee   an   obligation   is   in   effect   a   the  creditor  has  the  option  to  buy  the  collateral  for  a  pre-­arranged  
mortgage.   price  inclusive  of  the  amount  of  the  loan  and  interest.  
o The   Assignment   of   Leasehold   Rights   is   a   • A   scrutiny   of   the   stipulation   of   the   parties   reveals   a  
mortgage  contract.  It  is  by  way  of  security  for  the   subtle   intention   of   the   creditor   to   acquire   the   property  
payment  of  the  loans.   given   as   security   for   the   loan.   This   is   embraced   in   the  
• Condition  12  did  not  constitute  a  pactum  commissorium.   concept  of  pactum  commissorium.  
o Elements:   o The   debtors   are   obliged   to   dispose   of   the  
 There   would   be   a   property   mortgaged   collateral   at   the   pre-­‐arranged   consideration  
by   way   of   security   for   the   payment   of   amounting  to  practically  the  same  amount  as  the  
the  principal  obligation.   loan.  In  effect,  the  creditor  acquires  the  collateral  
in  the  event  of  non-­‐payment  of  the  loan.  
• Ma’am   comments:   It   is   pactum   commissorium   since   the   consignation   with   the   Clerk   of   Court   of   certain   amounts   which  
option   has   no   separate   consideration   independent   of   the   allegedly   were   tendered   to   Paray   beforehand.   However,   the  
price.   auction  took  place.  
  • In   order   for   consignation   to   have   the   effect   of  
  extinguishing   the   pledge,   the   amounts   should   cover   not  
ONG  V.  ROBAN  LENDING  CORP.   only  the  principal  loan  but  also  the  stipulated  interest.  
  • The   right   of   the   creditor   to   retain   possession   of   the   thing  
Ong  spouses  executed  a  promissory  note  for  their  debt  to  Roban  on   pledged  exists  only  until  the  debt  is  paid.    
the   same   day   they   signed   a   dacion   in   payment   agreement.   In   the   • The  debtor  cannot  ask  for  the  return  of  the  thing  pledged  
agreement,   Ong   would   assign   the   mortgaged   properties   to   Roban   against   the   will   of   the   creditor   unless   and   until   he   had  
in   settlement   of   their   obligation.   A   MOA   was   also   signed   on   the   paid  the  debt  and  its  interest.    
same  day,  which  provides  that  failure  of  Ong  to  pay  their  debt  on   o At   the   same   time,   the   right   of   the   pledgee   to  
time  would  give  Roban  the  right  to  enforce  the  dacion  in  payment   foreclose  pledge  is  also  established  under  the  
agreement   and   transfer   to   it   the   ownership   of   the   mortgaged   Code.   When   the   credit   has   not   been   satisfied  
properties.   in  due  time,  the  creditor  may  proceed  with  the  
• While  the  agreement  is  named  “dacion  in  payment,”  it  in   sale  by  public  auction.  
fact   constitutes   pactum   commissorium,   as   failure   of   by    
Ong   to   pay   their   debts   grants   Roban   the   right   to   REAL  ESTATE  MORTGAGE  
automatically   acquire   ownership   of   the   mortgaged    
properties.   MEDIDA  V.  CA  
o In   a   true   dacion   en   pago,   the   assignment   of    
property   extinguishes   the   monetary   debt.   Another   mortgage   was   constituted   on   the   mortgaged   properties  
Here,   Ong   still   had   to   execute   a   promissory   during  the  redemption  period.  
note   for   their   debt   on   the   same   day   as   they   • Since   the   mortgagor   remains   as   the   absolute   owner   of  
signed  the  dacion  en  pago  agreement.   the  property  during  the  redemption  period  and  has  free  
  disposal  of  his  property,  there  would  be  compliance  with  
PLEDGE   the  requisites  of  Art.  2085  for  the  constitution  of  another  
  mortgage  on  the  property.  
PARAY  &  ESPELETA  V.  RODRIGUEZ   o During   the   redemption   period,   it   cannot   be  
  said   that   the   mortgagor   is   no   longer   the  
Rodriguez   et   al.   pledged   their   shares   of   stocks   to   Paray   to   secure   owner   of   the   foreclosed   property   since   the  
certain   obligations.   Upon   their   default,   attempted   to   foreclosure   rule   is   that   the   right   of   the   purchaser   at   a  
the   pledges.   Prior   to   the   foreclosure,   Rodriguez   et   al.   caused   the   foreclosure  sale  is  merely  inchoate  until  after  
 the  period  of  redemption  has  expired  without   opposition   to   a   motion   for   issuance   of   a   writ   of   possession  
the  right  being  exercised.     after  confirmation  of  sale  by  the  court  of  the  foreclosure  sale  
o The   redemption   of   property   sold   under   a   and  the  registration  of  the  certificate  of  sale.  
foreclosure   sale   defeats   the   inchoate   right   of    
the   purchaser   and   restores   the   property   to    
the   same   condition   as   if   no   sale   had   been   Suico  v.  Philippine  National  Bank  
made.  It  does  not  give  to  the  mortgagor  a  new    
title,   which   was   never   lost,   but   merely   • It   is   true   that   statutory   provisions   governing   publication   of  
restores   to   him   the   title   freed   of   the   notice   of   mortgage   foreclosure   sales   must   be   strictly  
encumbrance  of  the  lien  foreclosed.   complied   with,   and   that   even   slight   deviations   therefrom   will  
  invalidate  the  notice  and  render  the  sale  at  least  voidable.  
  • Nonetheless,   we   must   not   also   lose   sight   of   the   fact   that   the  
HUERTA  ALBA  RESORT  V.  CA   purpose   of   the   publication   of   the   Notice   of   Sheriff’s   Sale   is   to  
  inform   all   interested   parties   of   the   date,   time,   and   place   of  
• Right  of  redemption  v.  Equity  of  redemption   the  foreclosure  sale.  
o The   right   of   redemption   –   understood   in   the   o Logically,  this  not  only  requires  that  the  correct  date,  
sense   of   a   prerogative   to   re-­‐acquire   mortgaged   time   and   place   of   the   foreclosure   sale   appear   in   the  
property   1   year   after   registration   of   the   notice,  but  also  that  any  and  all  interested  parties  be  
certificate   of   sale   –   exists   only   in   the   case   of   able  to  determine  that  what  is  about  to  be  sold  at  the  
extrajudicial  foreclosure  of  the  mortgage.     foreclosure   sale   is   the   real   property   in   which   they  
 No  such  right  is  recognized  in  a  judicial   have  an  interest.  
foreclosure   except   only   when   the   • Notices  are  given  for  the  purpose  of  securing  bidders  and  
mortgagee   is   the   PNB   or   a   bank   or   a   to  prevent  sacrifice  of  the  property.    
banking  institution.     o If  these  objectives  are  attained,  immaterial  errors  and  
o Equity   of   redemption   is   the   right   of   the   mistakes  will  not  affect  the  sufficiency  of  the  notice.  
mortgagor   in   a   judicial   foreclosure   of   the   o But   if   mistakes   or   omissions   occur   in   the   notices   of  
mortgage   to   extinguish   the   mortgage   by   paying   sale,  which  are  calculated  to  deter  or  mislead  bidders,  
the   debt   90-­120   days   from   entry   of   judgment,   to  depreciate  the  value  of  the  property,  or  to  prevent  
or   even   after   but   before   the   confirmation   of   it   from   bringing   a   fair   price,   such   mistakes   or  
sale.   omissions   will   be   fatal   to   the   validity   of   the   notice,  
•  Where   a   party   failed   to   assert   a   right   to   redeem   in   and  also  to  the  sale  made  pursuant  thereto.  
several  crucial  stages  of  the  proceedings,  it  is  too  late  in   • Non-­delivery   of   the   bid   price   or   the   surplus   in   a  
the   day   for   it   to   subsequently   invoke   such   right   in   foreclosure  sale  does  not  invalidate  the  sale.  
• If   the   mortgagee   retains   more   of   the   proceeds   of   the   sale   ISSUE:   WON   a   chattel   mortgage   can   extend   to   cover   after-­
than   he   is   entitled   to,   this   fact   alone   will   not   affect   the   incurred  obligations  
validity  of  the  sale  but  simply  give  the  mortgagor  a  cause    
of  action  to  recover  such  surplus.   HELD:   NO.   A   chattel   mortgage   can   only   cover   obligations  
• If   the   amount   of   the   loan   is   equal   to   the   amount   of   the   existing  at  the  time  the  mortgage  is  constituted.    
bid,  there  is  no  need  to  pay  the  amount  in  cash.    
o The   raison   d’etre     is   that   it   would   obviously   be   Contracts  of  security  are  either  personal1  or  real2.  
senseless   for   the   sheriff   or   the   notary   public    
conducting   the   foreclosure   sale   to   go   through   the   idle   • Contracts   of   real   security   are   subject   to   the   essential  
ceremony   of   receiving   the   money   and   paying   it   back   condition   that   if   the   obligation   becomes   due   and   the   debtor  
to  the  creditor.   defaults,  then  the  property  encumbered  can  be  alienated  for  
• The  proceeds  of  the  foreclosure  sale  shall  be  applied  to  ff   the  payment  of  the  obligation,  but  that  should  the  obligation  
in  order:   be  duly  paid,  then  the  contract  is  automatically  extinguished  
o costs  of  the  sale   proceeding  from  the  accessory  character  of  the  agreement.    
o mortgaged  debt    As   the   law   so   puts   it,   once   the   obligation   is  
o payment   to   the   junior   encumbrancers,   if   any   in   the   complied   with,   the   contract   of   security   becomes,  
order  of  priority   ipso  facto,  NULL  AND  VOID.  
o balance  to  the  mortgagor    
• The   applications   of   the   proceeds   of   the   sale   of   the   • While   a   pledge,   real   estate   mortgage,   or   antichresis   may  
mortgaged   property   to   the   mortgagor’s   obligation   is   an   exceptionally   secure   after-­‐incurred   obligations   so   long   as  
act   of   payment,   not   payment   by   dacion;   hence,   it   is   the   these   future   debts   are   accurately   described,   a   chattel  
mortgagee’s  duty  to  return  any  surplus  in  the  selling  price   mortgage,  however,  can  only  cover  obligations  existing  at  the  
to  the  mortgagor.   time  the  mortgage  is  constituted.    
o A   mortgagee   who   exercises   the   power   of   sale    Although   a   promise   expressed   in   a   chattel   mortgage   to  
contained  in  a  mortgage  is  considered  a   custodian  of   include   debts   that   are   yet   to   be   contracted   can   be   a  
the   fund   and,   being   bound   to   apply   it   properly,   is   binding   commitment   that   can   be   compelled   upon,   the  
liable  to  the  persons    entitled  thereto  if  he  fails  to  do   security   itself,   however,   does   not   come   into   existence  
so.   or   arise   until   after   a   chattel   mortgage   agreement  
  covering   the   newly   contracted   debt   is   executed  
Chattel  Mortgage   either   by   concluding   a   fresh   chattel   mortgage   or   by  
  amending   the   old   contract   conformably   with   the  
Acme   Shoe   Rubber   and   Plastic   Corp.   v.   CA   (after-­‐incurred   form  prescribed  by  the  Chattel  Mortgage  Law.    
obligations)  
  Refusal   on   the   part   of   the   borrower   to   execute   the   principal   debtor   is   secured   by   the   personal   commitment   of  
agreement   so   as   to   cover   the   after-­‐incurred   obligation   another  (the  guarantor  or  surety).    
can   constitute   an   act   of   default   on   the   part   of   the    
borrower   of   the   financing   agreement   whereon   the   In   a   contract   of   real   security,   that   fulfillment   is   secured   by   an  
promise   is   written   but,   of   course,   the   remedy   of   encumbrance  of  property.  
foreclosure   can   only   cover   the   debts   extant   at   the   time   of    in   pledge,   the   placing   of   movable   property   in   the  
constitution   and   during   the   life   of   the   chattel   mortgage   possession  of  the  creditor;    
sought  to  be  foreclosed.    in   chattel   mortgage,   by   the   execution   of   the  
  corresponding  deed  substantially  in  the  form  prescribed  
• A  chattel  mortgage  must  comply  substantially  with  the  form   by  law;    
prescribed  by  the  Chattel  Mortgage  Law  itself.      in   real   estate   mortgage,   by   the   execution   of   a   public  
 One   of   the   requisites,   under   Section   5   thereof,   is   instrument   encumbering   the   real   property   covered  
an  affidavit  of  good  faith.  While  it  is  not  doubted   thereby;    
that   if   such   an   affidavit   is   not   appended   to   the    in   antichresis,   by   a   written   instrument   granting   to   the  
agreement,   the   chattel   mortgage   would   still   be   creditor   the   right   to   receive   the   fruits   of   an   immovable  
valid   between   the   parties   (not   against   third   property   with   the   obligation   to   apply   such   fruits   to   the  
persons   acting   in   good   faith),   the   fact,   however,   payment   of   interest,   if   owing,   and   thereafter   to   the  
that   the   statute   has   provided   that   the   parties   to   principal  of  his  credit  
the   contract   must   execute   an   oath   makes   it    
obvious  that  the  debt  referred  to  in  the  law  is  a   Notes  from  Ma’am:  
current,   not   an   obligation   that   is   yet   merely   To   protect   debtor-­‐mortgagor   in   cases   where   the   agreement  
contemplated.     provides   that   the   mortgage   will   extend   to   after-­‐incurred  
 FORM  OF  OATH   obligations   (to   make   sure   that   the   mortgagee   will   undertake   to  
o "We   severally   swear   that   the   foregoing   amend  the  old  contract  or  create  a  new  one  to  include  the  after-­‐
mortgage   is   made   for   the   purpose   of   incurred   obligations),   it   is   best   to   include   an   agency  
securing   the   obligation   specified   in   the   agreement/contract.   A   third   party   may   be   hired   to   act   as   the  
conditions   thereof,   and   for   no   other   collateral   agent   of   the   parties   who   will   execute   the  
purpose,   and   that   the   same   is   a   just   and   aforementioned  on  the  parties’  behalf.    
valid   obligation,   and   one   not   entered    
into  for  the  purpose  of  fraud."   People’s   Bank   and   Trust   Company   v.   Dahican   Lumber  
  Company  (after-­‐acquired  properties)  
In   contracts   of   personal   security,   such   as   a   guaranty   or   a    
suretyship,   the   faithful   performance   of   the   obligation   by   the  
Issue:   WON   after-­acquired   properties   may   be   subject   of   a   to   criminal   prosecution   under   Article   319   par.   2   of   the  
mortgage  (in  the  case,  it  was  a  real  mortgage)   Revised  Penal  Code.  However,  even  if  no  consent  is  obtained  
Ratio:   YES.   A   stipulation   that   after-­‐acquired   properties   shall   from   the   mortgagee,   the   validity   of   the   sale   will   not   be  
immediately   become   subject   to   the   lien   of   a   mortgage   is   not   affected.  
unlawful,   as   its   purpose   is   to   maintain   the   original   value   of   the   • The   only   remedy   given   to   the   mortgagee   is   to   have   said  
properties   given   as   security.   These   stipulations   are   often   present   property   sold   at   public   auction   and   the   proceeds   of   the   sale  
in   cases   where   properties   given   as   collateral   are   perishable   or   applied   to   the   payment   of   the   obligation   secured   by   the  
subject   to   wear   and   tear   (i.e.   machineries   and   tools   bought   as   mortgagee.    
replacements,  *stocks-­‐in-­‐trade)   • Where   a   third   person   purchases   the   mortgaged   property,   he  
  automatically   steps   into   the   shoes   of   the   original   mortgagor.  
  His  right  of  ownership  shall  be  subject  to  the  mortgage  of  the  
Makati  Leasing  and  Finance  Corporation  v.  Wearever  Textile   thing  sold  to  him.    
Mills    
   
ISSUE:   WON   machinery   that   has   been   immobilized   by   Servicewide  Specialist  Inc.  v.  CA    
destination  may  be  the  subject  of  a  chattel  mortgage?    
HELD:   YES.   There   is   no   reason   why   a   machinery,   which   is    When   a   creditor-­‐mortgagee   assigns   his   credit,   he   need   not  
movable   in   its   nature   and   becomes   immobilized   only   by   get   the   consent   of   the   debtor   in   order   to   bind   the   latter.   He  
destination   or   purpose,   may   not   be   treated   as   such.   This   is   only  needs  to  give  NOTICE  of  such  assignment.    
because   one   who   has   agreed   is   estopped   from   denying   the    Legal   Basis:   Art   2128   (on   pledge):   The   mortgage  
existence  of  the  chattel  mortgage.   credit   may   be   alienated   or   assigned   to   a   third   person,  
The   characterization   of   the   machinery   as   chattel   by   the   private   in   whole   or   in   part,   with   the   formalities   required   by  
respondent   is   indicative   of   intention.   It   impresses   upon   the   law.  
property  the  character  determined  by  the  parties.   • The  provision  applies  because:  Art  2141.  The  
  provisions   on   pledge   shall   apply   to   chattel  
  mortgages   insofar   as   they   are   not   in   conflict  
Dy  v.  CA   with  the  chattel  mortgage  law  
   The   purpose   of   notice   is   to   inform   the   debtor   that  
• A  mortgagor  who  gives  his  property  as  security  under  a   from   the   date   of   the   assignment   of   credit,   he   should  
chattel  mortgage  does  not  part  with  the  ownership  of  the   make   payments   to   the   assignee   and   not   to   the  
same,   even   upon   his   default.   He   has   the   right   to   sell   such   original  creditor.    
mortgaged  property,  although  under  the  obligation  to  secure  
the  written  consent  of  the  mortgagee  lest  he  lay  himself  open  
 • Notice   is   for   the   protection   of   the   assignee   impleaded  for  the  complete  determination  and  resolution  
since   before   notice   but   after   assignment,   of  the  controversy.  
payment  to  the  original  creditor  is  valid   • In  a  suit  for  replevin,  a  clear  right  of  possession  must  be  
o The   consent   of   creditor-­mortgagee   to   alienation   of   first  established.  
mortgaged  property  by  debtor-­mortgagor  is  necessary  in   o The   replevin   in   this   case   has   been   resorted   to   in  
order  to  bind  the  former.   order   to   pave   the   way   for   the   foreclosure   of   what   is  
  covered  by  the  chattel  mortgage.  
  o The  conditions  essential  for  such  foreclosure  would  be  
Servicewide  Specialist  Inc.  v.  CA   to   show,   firstly,   the   existence   of   the   chattel   mortgage  
  and,  secondly,  the  default  of  the  mortgagor.  
(Where  right  of  possession  is  not  disputed)   • Since  the  mortgagee’s  right  of  possession  is  conditioned  
• Where  the  right  of  the  plaintiff  (applicant  for  replevin)  to   upon   the   actual   fact   of   default   which   itself   may   be  
the   possession   of   the   specified   property   is   so   conceded   controverted,   the   inclusion   of   other   parties,   like   the  
or   evident,   the   action   for   replevin   need   only   be   debtor   or   the   mortgagor   himself,   may   be   required   in  
maintained  against  him  who  possesses  the  property.   order  to  allow  a  full  and  conclusive  determination  of  the  
o In  default  of  the  mortgagor,  the  mortgagee  is  thereby   case.  
constituted   as   attorney-­in-­fact   of   the   mortgagor,   o An   adverse   possessor,   who   is   not   the   mortgagor,  
enabling   such   mortgagee   to   act   for   and   in   behalf   of   cannot  just  be  deprived  of  his  possession,  let  alone  be  
the  owner.     bound  by  the  terms  of  the  chattel  mortgage  contract,  
o That  the  defendant  is  not  privy  to  the  chattel  mortgage   simply  because  the  mortgagor  brings  up  an  action  for  
should   be   inconsequential.   By   the   fact   that   the   object   replevin.  
of   replevin   is   traced   to   his   possession,   one   properly    
can  be  a  defendant  in  an  action  for  replevin.    
  PAMECA  Wood  Treatment  Plant  v.  CA  
(Where  right  of  possession  is  disputed)    
• However,  in  case  the  right   of  possession  on  the  part  of  the    Under   Section   14   of   Act   No.   1508,   as   amended,   or   the   Chattel  
plaintiff,  or  his  authority  to  claim  such  possession  or  that   Mortgage   Law,   the   balance   from   the   proceeds   of   the   sale,   after  
of   his   principal,   is   put   to   great   doubt   (a   contending   party   paying   the   mortgage,   shall   be   paid   to   the   mortgagor   or  
may   contest   the   legal   bases   for   plaintiff’s   cause   of   action   or   an   persons  holding  under  him  on  demand.  
adverse   and   independent   claim   of   ownership   or   right   of    
possession   may   be   raised   by   that   party,   i.e.   an   adverse   and   • It   is   clear   that   the   effects   of   foreclosure   under   the   Chattel  
independent   claim   of   ownership   by   a   third   party),   it   could   Mortgage   Law   run   inconsistent   with   those   of   pledge   under  
become   essential   to   have   other   persons   involved   and   Article  2115.      
 Whereas,  in  pledge,  the  sale  of  the  thing  pledged  extinguishes   De  Barreto  v.  Villanueva  
the  entire  principal  obligation,  such  that  the  pledgor  may  no    
longer  recover  proceeds  of  the  sale  in  excess  of  the  amount  of    A   preferred   creditor’s   3rd   party   claim   to   the   proceeds   of   a  
the  principal  obligation,  Section  14  of  the  Chattel  Mortgage   judicial  foreclosure  sale  is  not  the  proceeding  contemplated  
Law   expressly   entitles   the   mortgagor   to   the   balance   of   by   law   for   the   enforcement   of   preferences   under   Art.   2242,  
the   proceeds,   upon   satisfaction   of   the   principal   unless   the   claimant   were   enforcing   a   credit   for   taxes   which  
obligation  and  costs.   enjoy   absolute   priority.   If   none   of   the   claims   is   for   taxes,   a  
  dispute   between   2   creditors   will   not   enable   the   court   to  
• Since  the  Chattel  Mortgage  Law  bars  the  creditor-­‐mortgagee   ascertain   the   pro   rate   dividend   corresponding   to   each,  
from   retaining   the   excess   of   the   sale   proceeds,   there   is   a   because   the   rights   of   other   creditors   likewise   enjoying  
corollary  obligation  on  the  part  of  the  debtor-­mortgagor   preference  under  Art.  2242  cannot  be  ascertained.    
to  pay  the  deficiency  in  case  of  a  reduction  in  the  price  at    What   the   law   contemplates,   thus,   is   a   proceeding   where   the  
public  auction.       claims   of   all   preferred   creditors   may   be   bindingly  
 As   explained   in   Manila   Trading   and   Supply   Co.   vs.   Tamaraw   adjudicated,   such   as   insolvency,   the   settlement   of   the  
Plantation  Co.:   decedent’s   estate   under   Rule   87   of   the   ROC,   and   other  
  liquidation  proceedings  of  similar  import.    
“While   it   is   true   that   section   3   of   Act   No.   1508   provides   • Art   2243   explains:   “the   claims   or   credits   enumerated   in  
that   ‘a   chattel   mortgage   is   a   conditional   sale’,   it   the   2   preceding   articles   shall   be   considered   as   mortgages  
further   provides   that   it   ‘is   a   conditional   sale   of   or  pledges  of  real  or  personal  property,  or  liens  within  the  
personal   property   as   security   for   the   payment   of   a   purview  of  legal  provisions  governing  insolvency.”  
debt,   or   for   the   performance   of   some   other   obligation   • These  proceedings  make  pro-­‐rating  fully  effective,  as  the  
specified  therein.’     preferred  creditors  are  convened  and  the  import  of  their  
  claims  ascertained.    
 IMPLICATION:   the   chattels   included   in   the   chattel   mortgage    In   the   absence   of   insolvency   proceedings,   the   conflict  
are   only   given   as   security   and   not   as   a   payment   of   the   debt,   in   between   claiming   parties   must   be   decided   according   to   the  
case  of  a  failure  of  payment.  If  the  creditor  is  not  permitted  to   principle   that   a   purchaser   in   good   faith   and   for   value   takes  
retain   the   excess,   then   the   same   token   would   require   the   registered   property   free   from   liens   and   encumbrances   other  
debtor  to  pay  the  deficiency  in  case  of  a  reduction  in  the  price   than   statutory   liens   and   those   recorded   in   the   certificate   of  
of  the  chattels.   title.    
   Privileged   creditors   must   cause   their   claims   to   be  
Antichresis   recorded   in   the   books   of   the   registry   of   Deeds   to  
Concurrence  and  Preference  of  Credits   protect   their   rights   even   outside   liquidation   or  
  insolvency  proceedings.  
o In   the   new   CC,   no   more   order   of   preference   among   preferred   • full   application   of   2241,   2242,   2249   demands   that   there  
credits,   except   for   taxes,   which   enjoy   absolute   preference.   All   must   be   some   proceeding   where   the   claims   of   all   the  
preferred   creditors   must   be   paid   prorata   in   proportion   to   preferred   creditors   may   be   bindingly   adjudicated   such  
amount   of   their   respective   credits.   Thus,   for   prorating   to   be   as:  
effective,   all   the   creditors   must   be   convened   and   the   import   o insolvency  proceedings  
of   their   claims   ascertained.   This   can   be   done   through   o settlement  of  decedent’s  estate  
liquidation  and  insolvency  proceedings.     o other  liquidation  proceedings  of  the  same  import  
  • Only   taxes   enjoy   an   absolute   preference.   All   other  
  creditors   enjoy   no   priority   among   themselves,   but   must  
J.L.  Bernardo  Construction  v.  CA   be   paid   pro   rata,   in   proportion   to   the   amount   of   their  
  respective  credits.  (Art.  2249)  
• A   statutory   lien   cannot   be   enforced   in   an   action   for    
specific  performance  and  damages.     Insolvency  Law  
• Art   2242   only   finds   application   when   there   is   a    
concurrence   of   credits,   i.e.   when   the   same   specific   Gateway  Electronics  Corp.  v.  AsianBank  Corporation  
property   of   the   debtor   is   subjected   to   the   claims   of    
several   debtors   and   the   value   of   such   property   of   the   • Under   sec.   18   of   Act   1956,   the   issuance   of   an   order  
debtor   is   insufficient   to   pay   in   full   all   the   creditors.   In   adjudicating   insolvency,   after   the   insolvency   court   finds   the  
such   a   situation,   the   question   of   preference   will   arise.   petition   for   insolvency   meritorious,   shall   stay   ALL   pending  
There  will  be  a  need  to  determine  which  of  the  creditors   civil   actions   against   insolvent’s   property.   The   claimants   must  
will  be  paid  ahead  of  the  others   seek  relief  in  the  insolvency  proceedings.    
• Due  process  dictates  that  a  statutory  lien  should  only  be   • Sec.  18,  however,  must  be  read  with  Sec.  60  of  the  same  act,  
enforced  in  the  context  of  some  kind  of  proceeding  where   which  applies  to  the  period  after  the  commencement  of  the  
the   claims   of   all   preferred   creditors   may   be   bindingly   proceedings  in  insolvency.  Thus,  the  2  provisions  should  be  
adjudicated,  such  as  insolvency  proceedings   harmonized  as  follows:  
o Art   2243:   the   claims   and   liens   enumerated   in   o Upon   the   filing   of   the   petition   for   insolvency,   pending  
2241  and  2242  shall  be  considered  mortgages  or   civil   actions   against   the   property   of   the   debtor   are  
pledges   of   real   or   personal   property,   or   liens   not   ipso   facto   stayed,   but   the   insolvent   may   apply  
within   the   purview   of   legal   provisions   governing   with  the  court  in  which  the  actions  are  pending  for  a  
insolvency   stay  of  the  actions  against  the  insolvent’s  property.  If  
  the   court   grants   it,   pending   civil   actions   against   the  
DBP  v.  CA   property   shall   be   stayed;   otherwise,   they   shall  
  continue.   Once   an   order   of   insolvency   nevertheless  
 issues,   all   civil   proceedings   against   the   debtor’s   expediency   of   attachment,   execution   or   otherwise.   As   between  
property   are   by   statutory   command,   automatically   the   creditors,   the   key   phrase   is   equality   in   equity.   Once   the  
stayed.     corporation   threatened   by   bankruptcy   is   taken   over   by   a  
• The   issuance   of   an   insolvency   order   has   the   effect   of   receiver,   all   the   creditors   ought   to   stand   on   equal   footing.   Not  
automatically  staying  all  pending  civil  actions.  Under  sec.   any   one   of   them   should   be   paid   ahead   of   the   others.   This   is  
60  of  Act  1956,  such  actions  may  only  be  justified  to  continue   precisely   the   reason   for   suspending   all   pending   claims   against  
for  purposes  of  ascertaining  the  amount  due  from  debtor.     the  corporation  under  receivership.  
• Insolvency  court  is  bereft  of  jurisdiction  over  sureties  of    
the  principal  debtor.  A  suit  against  the  surety,  insofar  as  the   NOTES:  
surety’s   liability   is   concerned,   is   not   affected   by   insolvency    Between  Benhar  and  Ruby  –  contract  TO  loan  
proceedings.   The   same   principle   holds   true   for   sureties   of   o There   is   no   true   loan   if   there   was   a   contract   OF  
distressed   corporations   undergoing   rehabilitation   loan,  the  creditor  would  have  been  Chinabank,  as  
proceedings.  Sureties  of  distressed  corporations  can  be  sued   Benhar  only  offered  Ruby  to  use  its  credit  facility  
separately  to  enforce  his  liability  as  such,  notwithstanding  an    Remember   that   it   was   Benhar   that   paid   some   of   the  
order   declaring   the   debtor   under   a   state   of   suspension   of   creditors   and   not   Ruby.   But   the   creditors   assigned   their  
payment.   rights  to  Benhar,  effectively  making  Benhar  one  of  Ruby’s  
  creditors.   And   under   the   revised   rehab   plan,   payments  
  made   by   Benhar   under   the   voided   deeds   of   assignment  
Corporate  Rehabilitation   were  recognized  as  payable  to  Benhar  under  the  revised  
  plan.  
   
Ruby  Industrial  v  CA    
  RCBC  v  IAC  
Rehabilitation   contemplates   a   continuance   of   corporate   life   and    
activities  in  an  effort  to  restore  and  reinstate  the  corporation  to   Rules  of  thumb:  
its  former  position  of  successful  operation  and  solvency.  When  a   1. All   claims   against   corporations,   partnerships,   or  
distressed   company   is   placed   under   rehabilitation,   the   associations   that   are   pending   before   any   court,   tribunal  
appointment   of   a   management   committee   follows   to   avoid   or   board,   without   distinction   as   to   whether   or   not   a  
collusion   between   the   previous   management   and   creditors   it   creditor   is   secured   or   unsecured   shall   be   suspended  
might  favor,  to  the  prejudice  of  the  other  creditors.  All  assets  of  a   effective   upon   the   appointment   of   a   management  
corporation   under   rehabilitation   receivership   are   held   in   trust   committee,   rehabilitation   receiver,   board   or   body   in  
for   the   equal   benefit   of   all   creditors   to   preclude   one   from   accordance  with  the  provisions  of  PD  902-­‐A.  
obtaining   an   advantage   or   preference   over   another   by   the  
 2. Secured   creditors   retain   their   preferences   over   Rubberworld  v  NLRC  
unsecured   creditors   but   enforcement   of   such   preference    
is   equally   suspended   upon   the   appointment   of   a    The   law   is   clear:   upon   the   creation   of   a   management  
management  committee,  rehabilitation  receiver,  board  or   committee  or  the  appointment  of  a  rehabilitation  receiver,  all  
body.   In   the   event   that   assets   of   the   corporation,   claims   for   actions   “shall   be   suspended   accordingly.”   No  
partnership   or   association   are   finally   liquidated,   exception   in   favor   of   labor   claims   is   mentioned   in   the   law.  
however,   secured   and   preferred   credits   under   the   The   law   makes   no   distinction   or   exemptions.   Ubi   lex   non  
applicable   provisions   of   the   Civil   Code   will   definitely   distinguit   nec   nos   distinguere   debemos.   Allowing   labor   cases  
have  preference  over  unsecured  ones.   to  proceed  clearly  defeats  the  purpose  of  the  automatic  stay  
  and   severely   encumbers   the   management   committee’s   time  
NOTES:  All  claims  are  treated  equally    concept  of  pari  passu   and  resources.  
   
   The   preferential   right   of   workers   and   employees   under   Art.  
Rules  of  Procedure  on  Corporate  Rehabilitation   110   of   the   Labor   Code   may   be   invoked   only   upon   the  
  institution   of   insolvency   or   judicial   liquidation   proceedings.  
LECA  Realty  Corp  v  Manuela  Corp   The   purpose   of   rehabilitation   proceedings   is   to   enable   the  
  company   to   gain   a   new   lease   on   life   and   thereby   allow  
The   amount   of   rental   is   an   essential   condition   of   any   lease   creditors   to   be   paid   their   claims   from   its   earnings.   In  
contract.   The   change   of   its   rate   (gross   discrepancy   between   the   insolvency   proceedings   on   the   other   hand,   the   company  
amounts  of  rent  agreed  upon  by  the  parties  and  those  provided   stops   operating   and   the   claims   of   creditors   are   satisfied   from  
in   the   Rehabilitation   plan)   is   not   justified   as   it   impairs   the   the   assets   of   the   insolvent   corporation.   The   present   case  
stipulation  between  the  parties.   involves  the  rehabilitation  and   not  the  liquidation.  Hence  the  
  preference  of  credit  granted  to  workers  or  employees  under  
The   Stay   Order   issued   by   the   court   directed   Manuela   to   pay   in   Art.  110  is  not  applicable.  
full   all   administrative   expenses   incurred   after   its   issuance.    
Administrative   expenses   are   costs   associated   with   the   general    
administration   of   an   organization   and   include   such   items   as   PAL  v  CA  
utilities,   rents,   salaries,   postages,   furniture   and   housekeeping    
charges.   Inasmuch   as   rents   are   considered   as   administrative   Claims   for   damages   based   on   a   breach   of   contract   of   carriage   are  
expenses   and   considering   that   the   Stay   Order   directed   also   stayed   upon   the   appointment   by   the   SEC   of   management  
respondent  Manuela  to  pay  the  rents  in  full,  then  it  must  comply   committee  or  a  rehabilitation  receiver.  
at  the  rates  agreed  upon.    
 
NOTES:   If   claims   are   stayed,   the   recourse   of   the   family   is   either   and  restructuring  of  the  distressed  corporation.  By  allowing  the  
to:   1)   file   claim   for   damages   with   the   rehabilitation   receiver;   or   proceedings,   the   HLURB   arbiter   gave   undue   preference   to  
2)   file   a   Relief   of   Stay   Order   (Sec.   10,   Rules   of   Corp.   Rehab)   Sobrejuanite  over  the  other  creditors  and  claimants  of  ASBDC.  
arguing  that  damages  need  not  be  restructured.  DO  NOT  IGNORE    
CORP.  REHAB.  PROCEEDINGS.    
  Metrobank  v  SLGT  Holdings  
   
Clarion  v  NLRC   SLGT’s  and  Dylanco’s  complaints  did  not  seek  monetary  recovery  
  or  to  touch  the  corporate  coffers  of  ASB  ahead  of  others.  They  did  
The   LA,   NLRC   or   CA   should   not   have   proceeded   to   resolve   the   not   even   consider   themselves   as   money   claimants.   All   they   ask  
complaint   for   illegal   dismissal   in   view   of   the   rehabilitation   was   for   the   enforcement   of   ASB’s   statutory   and   contractual  
proceedings.  Instead,  it  should  have  directed  the  complainant  to   obligations  as  a  condominium  developer.  Hence  their  claims  are  
lodge  her  claim  before  the  receiver  of  Clarion.  However,  to  refile   not  stayed  for  they  do  not  involve  pecuniary  consideration  unlike  
the   claim   after   8   years   lapsed,   the   Court   deems   it   most   expedient   in  the  case  of  Sobrejuanite.  
and   advantageous   for   both   parties   that   Clarion’s   liability   be    
determined   with   finality   instead   of   filing   before   liquidators   of   Also,  Sec.  24  of  the  interim  rules  limits  the  coverage  of  the  Rules  
Clarion.   on   rehabilitation   and   consequently   the   rule   of   suspension   of  
  action   to   those   who   stand   in   the   category   or   debtors   and  
  creditors.   The   relationship   between   the   petitioner   banks,   as  
Sobrejuanite  v  ASB  Devt.  Corp   mortgagor   and   respondents,   as   unit   buyers,   cannot   be   that   of   a  
  debtor-­‐creditor  so  as  to  bring  the  case  within  the  purview  of  the  
The   interim   rules   define   a   claim   as   referring   to   all   claims   or   rules  on  corporate  recovery.  
demands,   of   whatever   nature   or   character   against   a   debtor   or   its    
property,   whether   for   money   or   otherwise.   The   definition   is   all   NOTES:  
encompassing   as   it   refers   to   all   actions   whether   for   money   or    Creditor-­‐debtor    should  have  been  construed  in  a  more  
otherwise.  There  are  no  distinctions  or  exemptions.   general  concept  (as  in  obligations)  
   Claim      what   about   “money   or   otherwise”   do   you   not  
As   such   the   HLURB   arbiter   should   have   suspended   the   understand?  
proceedings   for   rescission   of   contract   and   damages   upon   the    Ruling   might   have   been   correct   but   ratiocination   was  
approval   by   the   SEC   of   the   ASB   Group   of   Companies’   dubious  
rehabilitation   plan   and   the   appointment   of   its   rehabilitation   o Should  have  focused  on  the  fact  that  condo  sellers  
receiver.   By   the   suspension   of   the   proceedings,   the   receiver   is   cannot   claim   the   units   as   their   assets   but   only  
allowed  to  fully  devote  his  time  and  efforts  to  the  rehabilitation  
 hold  them  in  trust;  hence  claims  against  the  units   The  bank  as  creditor  may  proceed  against  petitioner-­‐spouses  as  
are  not  stayed  or  suspended   sureties  despite  the  execution  of  the  MOA  which  provided  for  the  
  suspension  of  payment  and  filing  of  collection  suits  against  BMC.  
  The   bank’s   right   to   collect   payment   from   the   surety   exists  
MWSS  v  Daway   independently   of   its   right   to   proceed   directly   against   the  
  principal  debtor.  
A   letter   of   credit   is   an   engagement   by   a   bank   or   other   person    
made   at   the   request   of   a   customer   that   the   issuer   shall   honor    
drafts   or   other   demands   of   payment   upon   compliance   with   the   Metrobank  v  ASB  Holdings  
conditions  specified  in  the  credit.  It  is  an  absolute  undertaking  to    
pay  the  money  advanced  or  the  amount  for  which  credit  is  given   There  is  no  compulsion  on  the  part  of  the  bank  to  accept  a  dacion  
on  the  faith  of  the  instrument.  It  is  a  primary  obligation  and  not   en  pago  arrangement  of  the  mortgaged  properties  based  on  ASB  
an  accessory  contract.  While  it  is  a  security  arrangement,  it  is  not   Group   of   Companies’   transfer   values   and   to   condone   interests  
converted  into  a  contract  of  guaranty.   and  penalties.    
   
The   prohibition   is   on   the   enforcement   of   claims   against   The   dacion   en   pago   program   and   the   intent   of   ASB   to   ask  
guarantors   or   sureties   of   the   debtors   whose   obligations   are   not   creditors   to   waive   the   interests,   penalties   and   related   charges  
solidary  with  the  debtor.  The  participating  bank’s  obligation  are   are  not  compulsory  in  nature.  They  are  merely  proposals  for  the  
solidary   with   Maynilad   in   that   it   is   a   primary,   direct,   definite   and   creditors  to  accept.  If  the  dacion  en  pago  does  not  materialize  in  
an   absolute   undertaking   to   pay   and   is   not   conditioned   on   the   case   secured   creditors   refuse   to   agree   thereto,   the   Rehabilitation  
prior  exhaustion  of  the  debtor’s  assets.   Being  solidary,  the  claims   Plan   contemplates   to   settle   the   obligations   to   secured   creditors  
against   the   bank   can   be   pursued   separately   from   and   with  mortgaged  properties  at  selling  prices.  
independently  of  the  rehabilitation  case.    
  The  approval  of  the  Rehabilitation  Plan  by  the  SEC  Hearing  Panel  
NOTES:  Why  is  Maynilad  so  interested?  LOC  is  in  effect  a  contract   is  in  furtherance  of  the  rationale  behind  PD  902-­‐A,  as  amended,  
TO   loan;   that   when   MWSS   calls   for   the   letter   of   credit   and   the   which   is   “to   effect   a   feasible   and   viable   rehabilitation”   of   ailing  
bank   pays,   it   becomes   a   contract   OF   loan.   The   bank   becomes   corporations  which  affect  the  public  welfare.  
Maynilad’s   creditor.   If   this   is   the   case,   Maynilad   cannot   use   the    
same  defenses  against  the  bank.   NOTES:   But   isn’t   the   rehab   plan   compulsory?   (that   the   court   may  
  even  approve  it  over  the  objections  of  the  creditor)  
   
Ong  v  PCIB    
  Chas  Realty  and  Development  Corp.  v  Talavera  
  
Where   no   extraordinary   corporate   acts   (or   one   that   under   the  
law   would   call   for   a   2/3   vote)   are   contemplated   to   be   done   in  
carrying  out  the  proposed  rehabilitation  plan,  then  the  approval  
of  stockholders  would  only  be  by  a  majority,  not  necessarily  2/3  
vote,  as  long  as,  there  is  a  quorum.