E ZOBEL VS CA
One of the
Facts: Respondent Spouses Claveria, doing business
under the name “ Agro Brokers”, applied for a loan with
respondent Consolidated Bank & Trust Corp. (now
SOLID BANK) amounting to P2.875M. The loan was
granted subject to the condition that respondent spouses
execute a chattel mortgage over the 3 vessels to be
acquired and that a continuing guarantee be executed by
Ayala International Phils., Inc., now herein petitioner
E.Zobel, Inc. in SOLID BANK’s favor. The Claverias
defaulted in the payment of the entire obligation upon
maturity. Petitioner moved to dismiss the complaint
asserting that its liability as guarantor of the loan was
extinguished pursuant to Art.2080, NCC. It argued that it
has lost its right to be subrogated to the first chattel
mortgage in view of SOLIDBANK’s failure to register the
chattel mortgage with the appropriate government
agency. SOLIDBANK meantime claimed that Art.2080 is
not applicable because petitioner is not a guarantor but a
surety.
Issue: Whether or not the contract between the
petitioners is a contract of guaranty or that of a surety
Held: The contract is that of a surety. In the contract
executed by petitioner in SOLIDBANK’s favor, albeit
denominated as a “Continuing Guaranty”, is in fact a
contract of surety. The contract’s terms obligates
petitioner as “surety” to induce SOLIDBANK to extend
credit to the Claverias. The contract clearly disclose that
petitioner assumed liability to SOLIDBANK, as a regular
party the undertaking and obligated itself as an original
promissory. It bound itself jointly and severally to the
obligation with the Claverias. In fact, SOLIDBANK need
not resort to all other legal remedies or exhaust the
Claverias’ properties before it can hold petitioner liable
for the obligation. Since the petitioner is a surety,
Art.2080, NCC is inapplicable. Said article applies where
the liability is as a guaranty not as a surety. A contract of
guaranty is a separate and distinct undertaking from that
of the principal and is often supported by a separate
consideration from that of the contract of the principal, at
the case at bar the petitioner is also a party as same as
a principal to the to the contract entered into by the
Claverias. Therefore not being a separate and distinct
from the contract entered by the Claverias the contract
executed is not of a guaranty but that of a surety,
petitioner is hereby liable to the same degree as that of
the principal Claverias.
PHILIPPINE BLOOMING MILLS, INC., and ALFREDO
CHING, petitioners, vs. COURT OF APPEALS and
TRADERS ROYAL BANK, respondents.
Facts:
Ching was the Senior Vice President of PBM. In his
personal capacity and not as a corporate officer, Ching
signed a Deed of Suretyship binding himself as primary
obligor and not mere guarantor for a debt of PBM
amounting P10, 000, 000. Ching later accomplished and
delivered to TRB trust receipts, which acknowledged
receipt in trust for TRB of the merchandise subject of the
letters of credit. Under the trust receipts, PBM had the
right to sell the merchandise for cash with the obligation
to turn over the entire proceeds of the sale to TRB as
payment of PBMs indebtedness. PBM defaulted in its
payment of Trust Receipts and later filed a petition for
suspension of payments with the Securities and
Exchange Commission (SEC) which sought to suspend
payment of PBMs obligations and prayed that the SEC
allow PBM to continue its normal business operations
free from the interference of its creditors.
listed creditors of PBM was TRB. SEC placed all of
PBMs assets, liabilities, and obligations under the
rehabilitation receivership of Kalaw, Escaler and
Associates. Ten months after the SEC placed PBM
under rehabilitation receivership, TRB filed with the trial
court a complaint for collection against PBM and Ching.
PBM and Ching moved to dismiss the complaint on the
ground that the trial court had no jurisdiction over the
subject matter of the case. PBM and Ching invoked the
assumption of jurisdiction by the SEC over all of PBMs
assets and liabilities. TRB opposed the motion arguing
that Ching is being sued in his personal capacity as a
surety for PBM Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the
SEC had already issued a decision[23] approving a
revised rehabilitation plan for PBMs creditors, and that
PBM obtained the credit accommodations for corporate
purposes that did not redound to his personal benefit. He
further claimed that even as a surety, he has the right to
the defenses personal to PBM. Thus, his liability as
surety would attach only if, after the implementation of
payments scheduled under the rehabilitation plan, there
would remain a balance of PBMs debt to TRB.
[24] Although Ching admitted PBMs availment of the credit
accommodations, he did not show any proof of payment
by PBM or by him.
Issue: WON Ching is liable was liable for obligations
contracted by PBM long after the execution of the deed
of suretyship.
Held:
Yes. The law expressly allows a suretyship for
future debts. Article 2053 of the Civil Code provides that
“A guaranty may also be given as security for future
debts, the amount of which is not yet known; there can
be no claim against the guarantor until the debt is
liquidated. A conditional obligation may also be secured.”
Furthermore, this Court has ruled in Dio v. Court of
Appeals[50] that:
Under the Civil Code, a guaranty may be given to secure
even future debts, the amount of which may not be
known at the time the guaranty is executed. This is the
basis for contracts denominated as continuing guaranty
or suretyship. A continuing guaranty is one which is not
limited to a single transaction, but which contemplates a
future course of dealing, covering a series of
transactions, generally for an indefinite time or until
revoked. It is prospective in its operation and is generally
intended to provide security with respect to future
transactions within certain limits, and contemplates a
succession of liabilities, for which, as they accrue, the
guarantor becomes liable. Otherwise stated, a continuing
guaranty is one which covers all transactions, including
those arising in the future, which are within the
description or contemplation of the contract of guaranty,
until the expiration or termination thereof. A guaranty
shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing
credit to the principal debtor to be used from time to time
either indefinitely or until a certain period; especially if
the right to recall the guaranty is expressly
reserved. Hence, where the contract states that the
guaranty is to secure advances to be made from time to
time, it will be construed to be a continuing one.
In granting the loan to PBM, TRB required Chings
surety precisely to insure full recovery of the loan in case
PBM becomes insolvent or fails to pay in full. This was
the very purpose of the surety. Thus, Ching cannot use
PBMs failure to pay in full as justification for his own
reduced liability to TRB. As surety, Ching agreed to pay
in full PBMs loan in case PBM fails to pay in full for any
reason, including its insolvency.
TRB, as creditor, has the right under the surety to
proceed against Ching for the entire amount of PBMs
loan (additional)
IFC vs Imperial Textile Mills
Doctrine: The title of the contract is not the material
evidence to show that such is the nature of the contract.
The provision/s of the contract will show the intent of the
contacting parties.
FACTS:
On December 17, 1974, [Petitioner]
International Finance Corporation (IFC) and
[Respondent] Philippine Polyamide Industrial
Corporation (PPIC) entered into a loan agreement
wherein IFC extended to PPIC a loan of
US$7,000,000.00, payable in sixteen (16) semi-annual
installments of US$437,500.00 each, beginning June 1,
1977 to December 1, 1984, with interest at the rate of
10% per annum on the principal amount of the loan
advanced and outstanding from time to time. The interest
shall be paid in US dollars semi-annually on June 1 and
December 1 in each year and interest for any period less
than a year shall accrue and be pro-rated on the basis of
a 360-day year of twelve 30-day months.
On December 17, 1974, a Guarantee
Agreement was executed with Imperial Textile Mills, Inc.
(ITM), Grand Textile Manufacturing Corporation
(Grandtex) and IFC as parties thereto. ITM and Grandtex
agreed to guarantee PPICs obligations under the loan
agreement.
PPIC paid the installments due on June 1,
1977, December 1, 1977 and June 1, 1978. The
payments due on December 1, 1978, June 1, 1979 and
December 1, 1979 were rescheduled as requested by
PPIC. Despite the rescheduling of the installment
payments, however, PPIC defaulted. Hence, on April 1,
1985, IFC served a written notice of default to PPIC
demanding the latter to pay the outstanding principal
loan and all its accrued interests. Despite such notice,
PPIC failed to pay the loan and its interests.
By virtue of PPICs failure to pay, IFC, together
with DBP, applied for the extrajudicial foreclosure of
mortgages on the real estate, buildings, machinery,
equipment plant and all improvements owned by PPIC,
located at Calamba, Laguna, with the regional sheriff of
Calamba, Laguna. On July 30, 1985, the deputy sheriff
of Calamba, Laguna issued a notice of extrajudicial sale.
IFC and DBP were the only bidders during the auction
sale. IFCs bid was for P99,269,100.00 which was
equivalent to US$5,250,000.00 (at the prevailing
exchange rate of P18.9084 = US$1.00). The outstanding
loan, however, amounted to US$8,083,967.00 thus
leaving a balance of US$2,833,967.00. PPIC failed to
pay the remaining balance.
Consequently, IFC demanded ITM and
Grandtex, as guarantors of PPIC, to pay the outstanding
balance. However, despite the demand made by IFC, the
outstanding balance remained unpaid.
IFC claims that, under the Guarantee
Agreement, ITM bound itself as a surety to PPICs
obligations proceeding from the Loan Agreement. For its
part, ITM asserts that, by the terms of the Guarantee
Agreement, it was merely a guarantor and not a surety.
Moreover, any ambiguity in the Agreement should be
construed against IFC -- the party that drafted it.
ISSUE:
Whether or not ITM and Grandtex, are sureties
and therefore, jointly and severally liable with PPIC, for
the payment of the loan?
RULING:
YES. The obligations of the guarantors are
meticulously expressed in the following provision:
“The Guarantors jointly and severally,
irrevocably, absolutely and
unconditionally guarantee, as primary
obligors and not as sureties merely…”
The Agreement uses guarantee and guarantors,
prompting ITM to base its argument on those words. This
Court is not convinced that the use of the two words
limits the Contract to a mere guaranty. The specific
stipulations in the Contract show otherwise.
While referring to ITM as a guarantor, the
Agreement specifically stated that the corporation was
jointly and severally liable. To put emphasis on the
nature of that liability, the Contract further stated that ITM
was a primary obligor, not a mere surety. Those
stipulations meant only one thing: that at bottom, and to
all legal intents and purposes, it was a surety.
DBP v CA and Lydia Cuba
[G.R. No. 118342. January 5, 1998]
Facts:
Private respondent Lydia Cuba is a grantee of a
fishpond lease agreement from the Government. She
later obtained a loan from DBP in the amounts of P109,
000, P109, 000, and P98, 700 under the terms stated in
the three promissory notes. As a security for the said
loan Cuba executed a two Deed of Assignment of her
Leasehold Rights. Then she failed to pay her loan when
it became due in accordance with the terms of the
promissory notes. DBP in turn appropriated the
leasehold rights of Cuba over the fishpond, without
foreclosure proceedings, whether judicial or extrajudicial.
After appropriating the said leasehold rights DBP
executed a Deed of Conditional Sale of the Leasehold
Rights in favor of respondent Cuba over the same
fishpond, to which Cuba agreed. Respondent Cuba
failed to pay the amortizations stipulated in the Deed of
Conditional Sale, however she was able enter with DBP
a temporary arrangement with DBP for the Deferment
Notarial Rescission of Deed of Conditional Sale.
However, a Notice of Rescission thru Notarial Act was
sent the DBP to Cuba, then it took possession of the
fishpond in question. After it took possession of the said
fishpond, DBP disposed the property in favor of Agripina
Caperal through a deed of conditional sale. Then a new
fishpond lease agreement was awarded by the
Government to Caperal.
Lydia Cuba filed an action with the Regional
Trial Court of Pangasinan for the declaration of nullity of
DBP’s appropriation of her leaseholds over the subject
fishpond, for the annulment of the Deed of Conditional
Sale executed in her favor by DBP, the annulment of
DBP’s sale of the fishpond to Caperal, and the
restoration of her rights over the said fishpond and for
damages. The RTC ruled in favor of Cuba, declaring that
DBP’s taking possession and ownership of the subject
property without foreclosure was violative of Art. 2088 of
the Civil Code, and that condition No. 12 of the
Assignment of the Leasehold Rights was void for being a
clear case of pactum commissorium.
Both Cuba and DBP elevated the case to the
CA, with Cuba seeking an increase in the amount of
damages, while DBP questioned the findings of fact and
law of the RTC. The CA reversed the ruling of the RTC
with regards to the validity of the acts of DBP.
Issues:
1. Whether or not the two Deed of Assignment
executed by Cuba in favor of DBP would
operate as a mortgage or some other contract.
2. Whether or not condition No. 12 of the
Assignment of the Leasehold Rights would
operate as case of pactum commissorium
3. Whether the act of DBP in appropriating to itself
Cuba’s leasehold rights over the fishpond in
question without foreclosure proceeding was
contrary to Article 2088 of the Civil Code, and
therefore, invalid.
Held:
1. Lydia executed the 2 Deeds of Assignment as a
security for the loans that she obtained from
DBP, according the case of People’s Bank and
Trust Co. vs. Odom an assignment to
guaranty an obligation is in effect a
mortgage. And it was also indicated in the
provisions of the promissory note executed by
Cuba, that the her assigned leasehold rights
were referred to as mortgaged properties and
the instrument itself a mortgage contract.
2&3. The act of DBP under condition No. 12 of the
Assignment of Leasehold Rights did not constitute
as a case of pactum commissorium, when
appropriated for itself Cuba’s leasehold rights over
the subject fishpond, because condition No. 12 only
gave DBP the authority to sell the said property and
use the proceeds of the sale to satisfy Cuba’s
obligation, it did not operate as an automatic transfer
of ownership of the said property to DBP.
However, DBP exceeded its authority granted under
condition No. 12, when it appropriated for itself such
rights without judicial or extrajudicial foreclosure,
thereby making his acts violative of Article 2088 of
the Civil Code, which forbids a creditor from
appropriating, or disposing of, the thing given as
security for the payment of a debt.
BUSTAMANTE V. ROSEL
G. R. No. 126800 November 29, 1999
FACTS
Rosel entered into a loan agreement with
petitioner spouses Bustamante wherein the latter
borrowed P100,000 payable in 2 years. To guarantee
payment, the spouses put as collateral "70 sqm their lot
inclusive of the apartment therein. In the event of
borrowers default, contract states the lender has the
option to buy or purchase the collateral for P200,000”
When the loan was about to mature on March
1, 1989 respondents proposed to buy the said portion at
the pre-set price. Petitioners, however, refused and
requested for an extension to pay the loan. On the due
date, petitioners tendered payment of the loan to
respondents which the latter refused to accept.
On March 10, 1989, respondents sent a
demand letter asking petitioner to sell the collateral
pursuant to the option to buy embodied in the loan
agreement.
ISSUE
Whether or not the respondent is justified in
compelling petitioners to sell the portion of the lot
pursuant to the stipulation in the contract
RULING
No, doing so is tantamount to pactum
commissorium. The elements of pactum commissorium
are as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal
obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal
obligation within the stipulated period
In this case, the intent to appropriate the
property given as collateral in favor of the creditor
appears to be evident, for the debtor is obliged to
dispose of the collateral at the pre-agreed consideration
amounting to practically the same amount as the loan. In
effect, the creditor acquires the collateral in the event of
non -payment of the loan.
Ong vs ROBAN LENDING CORPORATION
G.R. No. 172592
FACTS: On various dates from July 14, 1999 to March
20, 2000, petitioner Spouses Wilfredo N. Ong and Edna
Sheila Paguio-Ong obtained several loans from
respondent Roban Lending Corporation in the total
amount of P4, 000,000. These loans were secured by
real estate mortgage on Spouses Ong‘s parcel of lands.
Later Spouses Ong and Roban executed several
agreements - an amendment to the amended Real
Estate Mortgage which consolidated their loans
amounting to P5, 916,117.50; dacion in payment wherein
spouses Ong assigned their mortgaged properties to
Roban to settle their total obligation and Memorandum of
Agreement (MOA) in which the dacion in payment
agreement will be automatically enforced in case
spouses Ong fail to pay within one year from the
execution of the agreement.
Spouses Ong filed a complaint before Regional Trial
Court of Tarlac City to declare the mortgage contract,
dacion in payment agreement, and MOA void. Spouses
Ong allege that the dacion in payment agreement is
pactum commissorium, and therefore void. In its Answer
with counterclaim, Roban alleged that the dacion in
payment agreement is valid because it is a special form
of payment recognized under Article 1245 of the Civil
Code. RTC ruled in favor of Roban, finding that there
was no pactum commissorium. The Court of Appeals
upheld the RTC decision.
ISSUE: Whether or not the dacion in payment agreement
entered into by Spouses Ong and Roban constitutes
pactum commissorium
HELD: The Court finds that the Memorandum of
Agreement and Dacion in Payment constitute pactum
commissorium, which is prohibited under Article 2088 of
the Civil Code which provides that the creditor cannot
appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the
contrary is null and void
The elements of pactum commissorium, which enables
the mortgagee to acquire ownership of the mortgaged
property without the need of any foreclosure
proceedings, are: (1) there should be a property
mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation
for automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal
obligation within the stipulated period.
Here, Memorandum of Agreement and the Dacion in
Payment contain no provisions for foreclosure
proceedings nor redemption. Under the Memorandum of
Agreement, the failure by the petitioners to pay their debt
within the one-year period gives respondent the right to
enforce the Dacion in Payment transferring to it
ownership of the properties covered by TCT No. 297840.
Respondent, in effect, automatically acquires ownership
of the properties upon Spouses Ong's failure to pay their
debt within the stipulated period.
In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.
Here, the alienation of the properties was by way of
security, and not by way of satisfying the debt. The
Dacion in Payment did not extinguish Spouses Ong's
obligation to Roban. On the contrary, under the
Memorandum of Agreement executed on the same day
as the Dacion in Payment, petitioners had to execute a
promissory note for P5, 916, 117.50 which they were to
pay within one year
SPOUSES BONIFACIO and FAUSTINA PARAY, and
VIDAL ESPELETA, Petitioners,
vs. DRA. ABDULIA C. RODRIGUEZ, MIGUELA R.
JARIOL assisted by her husband ANTOLIN JARIOL,
SR., LEONORA NOLASCO assisted by her husband
FELICIANO NOLASCO, DOLORES SOBERANO
Facts: Respondents were the owners, in their respective
personal capacities, of shares of stock in a corporation
known as the Quirino-Leonor-Rodriguez Realty
Inc.1 Sometime during the years 1979 to 1980,
respondents secured by way of pledge of some of their
shares of stock to petitioners Parays the payment of
certain loan obligations. When the Parays attempted to
foreclose the pledges on account of respondents’ failure
to pay their loans, respondents filed complaints with the
Regional Trial Court and sought for the declaration of
nullity of the pledge agreements, among others but the
complaint was dismissed by the trial court which the CA
affirmed. Respondents then received Notices of Sale
which indicated that the pledged shares were to be sold
at public auction on 4 November 1991. However, before
the scheduled date of auction, all of respondents caused
the consignation with the RTC Clerk of Court of various
amounts. It was claimed that respondents had attempted
to tender these payments to the Parays, but had been
rebuffed. The public auction took place as scheduled,
with petitioner Vidal Espeleta successfully bidding the
amount of P6,200,000.00 for all of the pledged shares.
Respondents filed a omplaint seeking the declaration of
nullity of the concluded public auction. Respondents
argued that their tender of payment and subsequent
consignations served to extinguish their loan obligations
and discharged the pledge contracts. Petitioners
countered that the auction sale was conducted pursuant
to the final and executory judgment and that the tender
of payment and consignations were made long after their
obligations had fallen due.
Issue: WON the consignations made by respondents
extinguished their respective pledge contracts in favor of
the Parays so as to enjoin the latter from auctioning the
pledged shares.
No. There is no doubt that if the principal
obligation is satisfied, the pledges should be terminated
as well. Article 2098 of the Civil Code provides that the
right of the creditor to retain possession of the pledged
item exists only until the debt is paid. Article 2105 of the
Civil Code further clarifies that the debtor cannot ask for
the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its
interest. At the same time, the right of the pledgee to
foreclose the pledge is also established under the Civil
Code. When the credit has not been satisfied in due
time, the creditor may proceed with the sale by public
auction under the procedure provided under Article 2112
of the Code. But then, Petitioners point out that while the
amounts consigned by respondents could answer for
their respective principal loan obligations, they were not
sufficient to cover the interests due on these loans,
which were pegged at the rate of 5% per month or 60%
per annum.
Medida vs CA
Doctrine: The mortgagor, whose property has been
extrajudicially foreclosed and sold at the corresponding
foreclosure sale, may validly execute a mortgage
contract over the same property in favor of a third party
during the period of redemption.
FACTS:
On October 10, 1974 plaintiff spouses, alarmed
of losing their right of redemption over lot No. 4731 from
Mr. Juan Gandioncho, purchaser of the aforesaid lot at
the foreclosure sale of the previous mortgage in favor of
Cebu City Development Bank, went to Teotimo Abellana,
president of defendant Association, to obtain a loan of
P30,000.00. Prior thereto or on October 3, 1974, their
son Teofredo Dolino filed a similar loan application for
Twenty-Five Thousand (P25,000.00) Pesos with lot No.
4731 offered as security for the Thirty Thousand
(P30,000.00) Pesos loan from defendant association.
Subsequently, they executed a promissory note in favor
of defendant association. Both documents indicated that
the principal obligation is for Thirty Thousand
(P30,000.00) Pesos payable in one year with interest at
twelve (12%) percent per annum.
When the loan became due and demandable
without plaintiff paying the same, defendant association
caused the extrajudicial foreclosure of the mortgage on
March 16, 1976. After the posting and publication
requirements were complied with, the land was sold at
public auction on April 19, 1976 to defendant association
being the highest bidder. The certificate of sale was
issued on April 20, 1976 and registered on May 10, 1976
with the Register of Deeds of Cebu.
On October 18, 1979, private respondents filed
the aforestated Civil Case No. R-18616 in the court a
quo for the annulment of the sale at public auction
conducted on April 19, 1976, as well as the
corresponding certificate of sale issued pursuant thereto.
In their complaint, private respondents, as
plaintiffs therein, assailed the validity of the extrajudicial
foreclosure sale of their property, claiming that the same
was held in violation of Act No. 3135, as amended, and
prayed, inter alia, for the cancellation of Transfer
Certificate of Title No. 68041 issued in favor of therein
defendant City Savings and Loan Association, Inc., now
known as City Savings Bank and one of the petitioners
herein.
ISSUE:
Whether or not a mortgagor, whose property
has been extrajudicially foreclosed and sold at the
corresponding foreclosure sale, may validly execute a
mortgage contract over the same property in favor of a
third party during the period of redemption?
RULING:
YES. A property sold at a public auction, while
within the period of redemption, may still be
subsequently mortgaged by the mortgagor: Since the
mortgagor remains as the absolute owner of the property
during the redemption period and has the free disposal
of his property, there would be compliance with the
requisites of Article 2085 of the Civil Code for the
constitution of another mortgage on the property.
It is undisputed that the real estate mortgage in
favor of petitioner bank was executed by respondent
spouses during the period of redemption. We reiterate
that during said period it cannot be said that the
mortgagor is no longer the owner of the foreclosed
property since the rule up to now is that the right of a
purchaser at a foreclosure sale is merely inchoate until
after the period of redemption has expired without the
right being exercised.
SPS SUICO V. PNB AND CA
G.R. No. 170215
August 28, 2007
***Di ko sure yung issue if about sa excess ng bid
price or notice of the foreclosure?
Petitioners Spouses Esmeraldo and Elizabeth Suico,
obtained a loan from the Philippine National Bank (PNB)
secured by a real estate mortgage on real properties in
the name of the former. The petitioners were unable to
pay their obligation prompting the PNB to extrajudicially
foreclose the mortgage over the subject properties.
The petitioners thereafter filed a Complaint against the
PNB for Declaration of Nullity of Extrajudicial Foreclosure
of Mortgage.
Petitioners claimed that during the foreclosure sale of the
subject properties held on 30 October 1992, PNB, as the
lone bidder, offered a bid in the amount
of P8,511,000.00. By virtue of the said bid, a Certificate
of Sale of the subject properties was issued in favor of
PNB. PNB did not pay to the Sheriff who conducted the
auction sale the amount of its bid which
was P8,511,000.00 or give an accounting of how said
amount was applied against petitioners outstanding loan,
which amounted only to P1,991,770.38. Since the
amount of the bid grossly exceeded the amount of
petitioners outstanding obligation as stated in the
extrajudicial foreclosure of mortgage, it was the legal
duty of the winning bidder, PNB, to deliver to
the Mandaue City Sheriff the bid price or what was left
thereof after deducting the amount of petitioners
outstanding obligation. PNB failed to deliver the amount
of their bid to the Mandaue City Sheriff or, at the very
least, the amount of such bid in excess of petitioners
outstanding obligation.
One year after the issuance of the Certificate of Sale,
PNB secured a Certificate of Final Sale from
the Mandaue City Sheriff and, as a result, PNB
transferred registration of all the subject properties to its
name.
PNB asserted that petitioners had other loans which had
likewise become due. PNB maintained that the
outstanding obligation of the petitioners under their
regular and export- related loans was already more than
the bid price of P8,511,000.00, contradicting the claim of
surplus proceeds due the petitioners. Petitioners were
well aware that their total principal outstanding obligation
on the date of the auction sale was P5,503,293.21. RTC
ruled in favour of the spouses. However, CA ruled in
favour of PNB.
Issue 1: Whether or not PNB is obliged to
deliver the excess?
Held: YES
Under Section 21 of Rule 39 of the Rules of Court on
extrajudicial foreclosure, is that if the amount of the loan
is equal to the amount of the bid, there is no need to pay
the amount in cash. Same provision mandates that in the
absence of a third-party claim, the purchaser in an
execution sale need not pay his bid if it does not exceed
the amount of the judgment; otherwise, he shall pay only
the excess.
The raison de etre is that it would obviously be senseless
for the Sheriff or the Notary Public conducting the
foreclosure sale to go through the idle ceremony of
receiving the money and paying it back to the creditor,
under the truism that the lawmaking body did not
contemplate such a pointless application of the law in
requiring that the creditor must bid under the same
conditions as any other bidder. It bears stressing that the
rule holds true only where the amount of the bid
represents the total amount of the mortgage debt.
Thus it has been held that if the mortgagee is retaining
more of the proceeds of the sale than he is entitled to,
this fact alone will not affect the validity of the sale but
simply give the mortgagor a cause of action to recover
such surplus.
After a careful review of the evidence on record, we find
that the same is insufficient to
support PNBs claim. Based on the Statement of Account,
petitioners principal obligation with interest/penalty and
attorneys fees as of 30 October 1992 already amounted
to P6,409,814.92.
Given that the Statement of Account from PNB, being the
only existing documentary evidence to support its claim,
shows that petitioners loan obligations to PNB as of 30
October 1992 amounted to P6,409,814.92, and
considering that the amount of PNBs bid
is P8,511,000.00, there is clearly an excess in the bid
price which PNB must return, together with the interest
computed in accordance with the guidelines laid down by
the court in Eastern Shipping Lines v. Court of
Appeals, regarding the manner of computing legal
interest
Issue 2: Whether or not there was a defect or
misrepresentation in the notice of sheriff’s sale as to
constitute fraud?
Held: NO.
Petitioners argue that since the Notice of
Sheriffs Sale stated that their obligation was
only P1,991,770.38 and PNB bidded P8,511,000.00, the
said Notice as well as the consequent sale of the subject
properties were null and void.
It is true that statutory provisions governing publication of
notice of mortgage foreclosure sales must be strictly
complied with, and that even slight
deviation therefrom will invalidate the notice and render
the sale at least voidable. Nonetheless, we must not also
lose sight of the fact that the purpose of the publication
of the Notice of Sheriffs Sale is to inform all interested
parties of the date, time and place of the foreclosure
sale of the real property subject thereof. Logically, this
not only requires that the correct date, time and place of
the foreclosure sale appear in the notice, but also that
any and all interested parties be able to determine that
what is about to be sold at the foreclosure sale is
the real property in which they have an interest.
Notices are given for the purpose of securing bidders
and to prevent a sacrifice of the property. If these objects
are attained, immaterial errors and mistakes will not
affect the sufficiency of the notice; but if mistakes or
omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the
value of the property, or to prevent it from bringing a fair
price, such mistakes or omissions will be fatal to the
validity of the notice, and also to the sale made pursuant
thereto.
All these considered, we are of the view that the Notice
of Sale in this case is valid. Petitioners failed to convince
this Court that the difference between the amount stated
in the Notice of Sale and the amount of PNBs bid
resulted in discouraging or misleading bidders,
depreciated the value of the property or prevented it from
commanding a fair price.
HUERTA ALBA RESORT INC V. COURT OF APPEALS
G.R. No. 128567 September 1, 2000
FACTS
Private respondent instituted a civil case as
mortgagee-assignee of a loan amounting to P8.5 million
obtained by petitioner from Intercon. In a complaint for
judicial foreclosure of mortgage private respondent
sought the foreclosure of (4) parcels of land mortgaged
by petitioner to Intercon Fund Resource, Inc. (“Intercon”),
which was granted by the CA. On September 6, 1994,
private respondent was declared the highest bidder
during the auction sale and the Certificate of Sale issued
in its favor was registered on October 21, 1994. in
opposition to the Motion for Issuance of Writ of
Possession, petitioner filed aMotion to Compel Private
Respondent to Accept Redemption on May 2, 1995
,invoking for the very first time its alleged right to redeem
subject properties under to Section 78 of R.A. No. 337
(General Banking Act).
Section 78 of R.A. No. 337 provides that “in
case of a foreclosure of a mortgage in favor of a bank,
banking or credit institution, whether judicially or
extrajudicially, the mortgagor shall have the right, within
one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem
the property.”
ISSUE Whether petitioner had the right of redemption or
equity of redemption over subject properties
RULING
From the various decisions, resolutions and orders a quo
, petitioner has been adjudged to have was only the
equity of redemption over subject properties. The right of
redemption in relation to a mortgage - understood in the
sense of a prerogative to re-acquire mortgaged property
after registration of the foreclosure sale - exists only in
the case of the extrajudicial foreclosure of the mortgage.
No such right is recognized in a judicial foreclosure
except only where the mortgagee is the Philippine
National Bank or a bank or banking institution. Where a
mortgage is foreclosed extrajudicially, Act 3135 grants to
the mortgagor the right of redemption within one (1) year
from the registration of the sheriff’s certificate of
foreclosure sale.
In light of the aforestated facts, it was too late in
the day for petitioner to invoke a right to redeem under
Section 78 of R.A.No. 337. Thus, the claim that petitioner
is entitled to the beneficial provisions of the said law
-since private respondent’s predecessor-in-interest is a
credit institution - is in the nature of a compulsory
counterclaim which should have been averred in
petitioner’s answer to the compliant for judicial
foreclosure. There then existed only what is known as
the equity of redemption, which is simply the right of the
petitioner to extinguish the mortgage and retain
ownership of the property by paying the secured debt
within the 90-day period after the judgment became final.
There being an explicit finding on the part of the CA -
that the petitioner failed to exercise its equity of
redemption within the prescribed period, redemption
can no longer be effected
PEOPLE'S BANK AND TRUST CO. and ATLANTIC
GULF AND PACIFIC CO. OF MANILA, vs.
DAHICAN LUMBER COMPANY, DAHICAN AMERICAN
LUMBER CORPORATION and CONNELL BROS. CO.
(PHIL.), G.R. No. L-17500 May 16, 1967
FACTS:
On September 8, 1948, Atlantic Gulf & Pacific Company
of Manila, a West Virginia corporation licensed to do
business in the Philippines — hereinafter referred to as
ATLANTIC — sold and assigned all its rights in the
Dahican Lumber concession to Dahican Lumber
Company
On September 8, 1948, Atlantic Gulf & Pacific Company
of Manila, a West Virginia corporation licensed to do
business in the Philippines sold and assigned all its
rights in the Dahican Lumber concession to Dahican
Lumber Company - hereinafter referred to as DALCO -
for the total sum of $500,000.00, of which only the
amount of $50,000.00 was paid. Thereafter, to develop
the concession, DALCO obtained various loans from the
People's Bank & Trust Company amounting, as of July
13, 1950, to P200,000.00. In addition, DALCO obtained,
through the BANK, a loan of $250,000.00 from the
Export-Import Bank of Washington D.C., evidenced by
five promissory notes of $50,000.00 each, maturing on
different dates, executed by both DALCO and the
Dahican America Lumber Corporation, a foreign
corporation and a stockholder of DALCO,
As security for the payment of the abovementioned
loans, on July 13, 1950 DALCO executed in favor of the
BANK a deed of mortgage covering five parcels of land
situated in the province of Camarines Norte together with
all the buildings and other improvements existing thereon
and all the personal properties of the mortgagor located
in its place of business in the municipalities of Mambulao
and Capalonga, Camarines Norte. On the same date,
DALCO executed a second mortgage on the same
properties in favor of ATLANTIC to secure payment of
the unpaid balance of the sale price of the lumber
concession amounting to the sum of $450,000.00. Both
deeds contained a provision extending the mortgage lien
to properties to be subsequently acquired by the
mortgagor.
Both mortgages were registered in the Office of the
Register of Deeds of Camarines Norte. In addition
thereto DALCO and DAMCO pledged to the BANK 7,296
shares of stock of DALCO and 9,286 shares of DAMCO
to secure the same obligation.
Upon DALCO's and DAMCO's failure to pay the fifth
promissory note upon its maturity, the BANK paid the
same to the Export-Import Bank of Washington D.C., and
the latter assigned to the former its credit and the first
mortgage securing it. Subsequently, the BANK gave
DALCO and DAMCO up to April 1, 1953 to pay the
overdue promissory note.c
After July 13, 1950 - the date of execution of the
mortgages mentioned above - DALCO purchased
various machineries, equipment, spare parts and
supplies in addition to, or in replacement of some of
those already owned and used by it on the date
aforesaid. Pursuant to the provision of the mortgage
deeds quoted theretofore regarding "after acquired
properties," the BANK requested DALCO to submit
complete lists of said properties but the latter failed to do
so. In connection with these purchases, there appeared
in the books of DALCO as due to Connell Bros.
Company (Philippines) - a domestic corporation who was
acting as the general purchasing agent of DALCO -the
sum of P452,860.55 and to DAMCO, the sum of
P2,151,678.34.chan
On December 16, 1952, the Board of Directors of
DALCO, in a special meeting called for the purpose,
passed a resolution agreeing to rescind the alleged sales
of equipment, spare parts and supplies by CONNELL
and DAMCO to it.
On January 13, 1953, the BANK, in its own behalf and
that of ATLANTIC, demanded that said agreements be
cancelled but CONNELL and DAMCO refused to do so.
As a result, on February 12, 1953; ATLANTIC and the
BANK, commenced foreclosure proceedings in the Court
of First Instance of Camarines Norte against DALCO and
DAMCO.
Upon motion of the parties the Court, on September 30,
1953, issued an order transferring the venue of the
action to the Court of First Instance of Manila.
On August 30, 1958, upon motion of all the parties, the
Court ordered the sale of all the machineries, equipment
and supplies of DALCO, and the same were
subsequently sold for a total consideration of
P175,000.00 which was deposited in court pending final
determination of the action. By a similar agreement one-
half (P87,500.00) of this amount was considered as
representing the proceeds obtained from the sale of the
"undebated properties" (those not claimed by DAMCO
and CONNELL), and the other half as representing those
obtained from the sale of the "after acquired properties".
ISSUE:
WON the "after acquired properties" were subject to the
deeds of mortgage mentioned heretofore. Assuming that
they are subject thereto,
WON the mortgages are valid and binding on the
properties aforesaid inspite of the fact that they were not
registered in accordance with the provisions of the
Chattel Mortgage Law.
HELD:
Under the fourth paragraph of both deeds of mortgage, it
is crystal clear that all property of every nature and
description taken in exchange or replacement, as well as
all buildings, machineries, fixtures, tools, equipments,
and other property that the mortgagor may acquire,
construct, install, attach; or use in, to upon, or in
connection with the premises - that is, its lumber
concession - "shall immediately be and become subject
to the lien" of both mortgages in the same manner and to
the same extent as if already included therein at the time
of their execution. Such stipulation is neither unlawful nor
immoral, its obvious purpose being to maintain, to the
extent allowed by circumstances, the original value of the
properties given as security.
Article 415 does not define real property but enumerates
what are considered as such, among them being
machinery, receptacles, instruments or replacements
intended by owner of the tenement for an industry or
works which may be carried on in a building or on a
piece of land, and shall tend directly to meet the needs of
the said industry or works.
On the strength of the above-quoted legal provisions, the
lower court held that inasmuch as "the chattels were
placed in the real properties mortgaged to plaintiffs, they
came within the operation of Art. 415, paragraph 5 and
Art. 2127 of the New Civil Code". In the present case,
the characterization of the "after acquired properties" as
real property was made not only by one but by both
interested parties. There is, therefore, more reason to
hold that such consensus impresses upon the properties
the character determined by the parties who must now
be held in estoppel to question it.
MAKATI LEASING and FINANCE
CORPORATION, petitioner,
vs. WEAREVER TEXTILE MILLS, INC., and
HONORABLE COURT OF APPEALS, respondents.
Facts:
In order to obtain financial accommodations
from herein petitioner Makati Leasing and Finance
Corporation, the private respondent Wearever Textile
Mills, Inc., discounted and assigned several receivables
with the former under a Receivable Purchase
Agreement. To secure the collection of the receivables
assigned, private respondent executed a Chattel
Mortgage over certain raw materials inventory as well as
a machinery described as an Artos Aero Dryer Stentering
Range. Upon private respondent's default, petitioner filed
a petition for extrajudicial foreclosure of the properties
mortgage to it. But due to failure of the deputy sheriff to
effect of the seizure, petitioner filed a complaint for
judicial foreclosure which the lower court granted but the
CA denied on the ground that the seized property is a
real property and cannot be subject to a chattel
mortgage
Issue: WON the machinery in suit is real or personal
property from the point of view of the parties and that the
chattel mortgage constituted thereon is null and void
Held:
It is considered personal and the chattel
mortgage is valid. One who has so agreed is estopped
from denying the existence of the chattel mortgage. It
must be pointed out that the characterization of the
subject machinery as chattel by the private respondent is
indicative of intention and impresses upon the property
the character determined by the parties. As stated
inStandard Oil Co. of New York v. Jaramillo, 44 Phil. 630,
it is undeniable that the parties to a contract may by
agreement treat as personal property that which by
nature would be real property, as long as no interest of
third parties would be prejudiced thereby.
Private respondent contends that estoppel
cannot apply against it because it had never represented
nor agreed that the machinery in suit be considered as
personal property but was merely required and dictated
on by herein petitioner to sign a printed form of chattel
mortgage which was in a blank form at the time of
signing. This contention lacks persuasiveness. As aptly
pointed out by petitioner and not denied by the
respondent, the status of the subject machinery as
movable or immovable was never placed in issue before
the lower court and the Court of Appeals except in a
supplemental memorandum in support of the petition
filed in the appellate court. Moreover, even granting that
the charge is true, such fact alone does not render a
contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant
to Article 1390 of the new Civil Code, by a proper action
in court.
Dy vs CA
Doctrine: The mortgagor who gave the property as
security under a chattel mortgage did not part with the
ownership over the same. He had the right to sell it
although he was under the obligation to secure the
written consent of the mortgagee
FACTS:
Wilfredo Dy purchased a truck and a farm
tractor through LIBRA which was also mortgaged with
the latter, as a security to the loan.
Petitioner, expresses his desire to purchased
his brother’s tractor in a letter to LIBRA which also
includes his intention to shoulder its mortgaged. LIBRA
approved the request. At the time that Wilfredo Dy
executed a deed of absolute sale in favor of petitioner,
the tractor and truck were in the possession of LIBRA for
his failure to pay the amortization.
When petitioner finally fulfilled its obligation to
pay the tractor, LIBRA would only release the same only
if he would also pay for the truck. In order to fulfill
LIBRA’s condition, petitioner convinced his sister to pay
for the remaining truck, to which she released a check
amounting to P22,000. LIBRA however, insisted that the
check must be first cleared before it delivers the truck
and tractor.
Meanwhile, another case penned “Gelac
Trading Inc vs. Wilfredo Dy” was pending in Cebu as a
case to recover for a sum of money (P12,269.80). By a
writ of execution the court in Cebu ordered to seize and
levy the tractor which was in the premise of LIBRA, it
was sold in a public auction to which it was purchased by
GELAC. The latter then sold the tractor to Antonio
Gonzales.
The respondents claim that at the time of the
execution of the deed of sale, no constructive delivery
was effected since the consummation of the sale
depended upon the clearance and encashment of the
check which was issued in payment of the subject
tractor.
ISSUE:
Whether or not the debtor may sell his/her
property that is subject to a mortgaged contract?
RULING:
YES. The mortgagor who gave the property as
security under a chattel mortgage did not part with the
ownership over the same. He had the right to sell it
although he was under the obligation to secure the
written consent of the mortgagee or he lays himself open
to criminal prosecution under the provision of Article 319
par. 2 of the Revised Penal Code. And even if no
consent was obtained from the mortgagee, the validity of
the sale would still not be affected.
The rule is settled that the chattel mortgagor
continues to be the owner of the property, and therefore,
has the power to alienate the same; however, he is
obliged under pain of penal liability, to secure the written
consent of the mortgagee. Thus, the instruments of
mortgage are binding, while they subsist, not only upon
the parties executing them but also upon those who later,
by purchase or otherwise, acquire the properties referred
to therein.
Thus, we see no reason why Wilfredo Dy, as
the chattel mortgagor can not sell the subject tractor.
There is no dispute that the consent of Libra Finance
was obtained in the instant case. The sale between the
brothers was therefore valid and binding as between
them and to the mortgagee, as well.
[G.R. No. 106435. July 14, 1999]
PAMECA WOOD TREATMENT PLANT, INC.,
HERMINIO G. TEVES, VICTORIA V. TEVES
and HIRAM DIDAY R. PULIDO,petitioners,
vs. HON. COURT OF APPEALS and
DEVELOPMENT BANK OF THE
PHILIPPINES, respondents.
On April 17, 1980, petitioner PAMECA Wood
Treatment Plant, Inc. (PAMECA) obtained a loan of
US$267,881.67, or the equivalent of P2,000,000.00 from
respondent Bank. By virtue of this loan, petitioner
PAMECA, through its President, petitioner Herminio C.
Teves, executed a promissory note for the said amount,
promising to pay the loan by instalment. As security for
the said loan, a chattel mortgage was also executed over
PAMECAs properties in Dumaguete City, consisting of
inventories, furniture and equipment, to cover the whole
value of the loan.
On January 18, 1984, and upon petitioner
PAMECAs failure to pay, respondent bank extrajudicially
foreclosed the chattel mortgage, and, as sole bidder in
the public auction, purchased the foreclosed properties
for a sum of P322,350.00. On June 29, 1984, respondent
bank filed a complaint for the collection of the balance of
P4,366,332.46 with Branch 132 of the RTC of Makati
City against petitioner PAMECA and private petitioners
herein, as solidary debtors with PAMECA under the
promissory note. RTC and CA ruled in favour of
respondent Bank.
Issue:Whether or not respondent bank can still collect
the balance from petitioner PAMECA?
Held: Yes. In pledge, the sale of the thing pledged
extinguishes the entire principal obligation, such that the
pledgor may no longer recover proceeds of the sale in
excess of the amount of the principal obligation, Section
 14 of the Chattel Mortgage Law expressly entitles the
mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs.
Since the Chattel Mortgage Law bars the creditor-
mortgagee from retaining the excess of the sale
proceeds there is a corollary obligation on the part of the
debtor-mortgagee to pay the deficiency in case of a
reduction in the price at public auction.
As correctly pointed out by the trial court, Article
1484 of the Civil code applies clearly and solely to the
sale of personal property the price of which is payable in
installments. Although Article 1484, paragraph (3)
expressly bars any further action against the purchaser
to recover an unpaid balance of the price, where the
vendor opts to foreclose the chattel mortgage on the
thing sold, should the vendees failure to pay cover two or
more installments, this provision is specifically applicable
to a sale on installments.
***NOTES:
Right to Surplus or Deficiency, Act. No 1508, Sec. 14
The proceeds of such sale shall be applied to the
payment:
1. first, of the costs and expenses of keeping and sale,
and then
2. to the payment of the demand or obligation secured by
such mortgage, and
3. the residue shall be paid to persons holding
subsequent mortgages in their order, and
4. the balance,
after paying the mortgage, shall
be paid to the mortgagor or persons holding
under him on demand.
Pledge Chattel Mortgage
Article 2115 Act No. 1508
the sale of the thing entitles the mortgagor to the
pledged extinguishes the balance of the proceeds,
entire principal obligation, upon satisfaction of the
such that the pledgor may principal obligation and costs
no longer recover proceeds
of the sale in excess of the
amount of the principal
obligation
ACME SHOE, RUBBER AND PLASTIC V. COURT OF
APPEALS G.R. No. 103576 August 22, 1996
FACTS
Petitioner Chua Pac, the president and general
manager of co-petitioner Acme executed a chattel
mortgage in favor of private respondent Producers Bank
as a security for a loan of P3,000,000. A provision in the
chattel mortgage agreement was to this effect:
"In case the MORTGAGOR executes
subsequent promissory note or notes either as a renewal
of the former note, as an extension thereof, or as a new
loan, or is given any other kind of accommodations such
as overdrafts, letters of credit, acceptances and bills of
exchange, releases of import shipments on Trust
Receipts, etc., this mortgage shall also stand as security
for the payment of the said promissory note or notes
and/or accommodations without the necessity of
executing a new contract and this mortgage shall have
the same force and effect as if the said promissory note
or notes and/or accommodations were existing on the
date thereof. This mortgage shall also stand as security
for said obligations and any and all other obligations of
the MORTGAGOR to the MORTGAGEE of whatever
kind and nature, whether such obligations have been
contracted before, during or after the constitution of this
mortgage."
In due time, the loan of P3,000,000.00 was
paid. Subsequently it obtained additional loan totalling
P2,700,000.00 which was also duly paid.
Another loan was again extended
(P1,000,000.00) covered by four promissory notes for
P250,000.00 each, but went unsettled prompting the
bank to apply for an extrajudicial foreclosure with the
Sheriff.
ISSUE
Whether or not it be valid and effective to have
a clause in a chattel mortgage that purports to likewise
extend its coverage to obligations yet to be contracted or
incurred
RULING
No. While a pledge, real estate mortgage, or
antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately
described, a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is
constituted. Although a promise expressed in a chattel
mortgage to include debts that are yet to be contracted
can be a binding commitment that can be compelled
upon, the security itself, however, does not come into
existence or arise until after a chattel mortgage
agreement covering the newly contracted debt is
executed either by concluding a fresh chattel mortgage
or by amending the old contract conformably with the
form prescribed by the Chattel Mortgage Law. Refusal on
the part of the borrower to execute the agreement so as
to cover the after-incurred obligation can constitute an
act of default on the part of the borrower of the financing
agreement whereon the promise is written but, of course,
the remedy of foreclosure can only cover the debts
extant at the time of constitution and during the life of the
chattel mortgage sought to be foreclosed.
SERVICEWIDE SPECIALISTS, INC. petitioner, vs.
COURT OF APPEALS, HILDA TEE, & ALBERTO M.
VILLAFRANCA, respondents.
[G.R. No. 110048. November 19, 1999]
FACTS:
On May 14, 1976, Leticia L. Laus of Quezon City
purchased on credit a Colt Galant xxx from Fortune
Motors (Phils.) Corporation. On the same date, she
executed a promissory note for the amount of
P56,028.00, inclusive of interest at 12% per annum,
payable within a period of 48 months starting August,
1976 at a monthly installment of P1,167.25 due and
demandable on the 17th day of each month It was
agreed upon, among others, that in case of default in the
payment of any installment the total principal sum,
together with the interest, shall become immediately due
and payable. The vehicle was then registered in the
name of Leticia L. Laus with the chattel mortgage
annotated on said certificate. In its complaint, plaintiff
alleged that it had superior lien over the mortgaged
vehicle; that it is lawfully entitled to the possession of the
same together with all its accessories and equipments;
(sic) that Hilda Tee was wrongfully detaining the motor
vehicle for the purpose of defeating its mortgage lien
Laus failed to pay the monthly installment for April 1977
and the succeeding 17 months. Servicewide demanded
payment of the entire outstanding balance with interests
but Laus failed to pay despite formal demands. As a
result of the failure of Leticia Laus to settle her obligation,
or at least to surrender possession of the motor vehicle
for the purpose of foreclosure, Servicewide instituted a
complaint for replevin, impleading Hilda Tee and John
Dee in whose custody the vehicle was believed to be at
the time of the filing of the suit. Laus eventually
absconded.
On August 1, 1984, Alberto Villafranca filed a third party
claim contending that he is the absolute owner of the
subject motor vehicle duly evidenced by the Bureau of
Land Transportations Certificate of Registration issued in
his name on June 22, 1984; that he acquired the said
mother vehicle from a certain Remedios D. Yang under a
Deed of Sale dated May 16, 1984; that he acquired the
same free from all lien and emcumbrances; and that on
July 30, 1984, the said automobile was taken from his
residence by Deputy Sheriff Bernardo Bernabe pursuant
to the seizure order issued by the court a quo. On March
20, 1985, Alberto Villafranca moved for the dismissal of
the complaint on the ground that there is another action
pending between the same parties before the Regional
Trial Court of Makati.
ISSUE:
Whether the mortgage authorizes the mortgagee to take
possession of the property on default, he may maintain
an action to recover possession of the mortgaged
chattels from the mortgagor or from any person in whose
hands he may find them
HELD:
YES. in default of the mortgagor, the mortgagee is
thereby constituted as attorney-in-fact of the mortgagor,
enabling such mortgagee to act for and in behalf of the
owner. That the defendant is not privy to the chattel
mortgage should be inconsequential. Since the
mortgagees right of possession is conditioned upon the
actual fact of default which itself may be controverted,
the inclusion of other parties, like the debtor or the
mortgagor himself, may be required in order to allow a
full and conclusive determination of the case. When the
mortgagee seeks a replevin in order to effect the
eventual foreclosure of the mortgage, it is not only the
existence of, but also the mortgagors default on, the
chattel mortgage that, among other things, can properly
uphold the right to replevy the property. The burden to
establish a valid justification for such action lies with the
plaintiff. An adverse possessor, who is not the mortgagor,
cannot just be deprived of his possession, let alone be
bound by the terms of the chattel mortgage contract,
simply because the mortgagee brings up an action for
replevin.
That petitioner could not locate the mortgagor, Leticia
Laus, is no excuse for resorting to a procedural short-cut.
It could have properly availed of substituted service of
summons under the Revised Rules of Court.If it deemed
such a mode to be unavailing, it could have proceeded in
accordance with Section 14 of the same Rule.
VICTORIA YAU CHU, assisted by her husband
MICHAEL CHU, petitioners,
vs. HON. COURT OF APPEALS, FAMILY SAVINGS
BANK and/or CAMS TRADING ENTERPRISES,
INC.,respondents.
Facts:
Petitioner, Victoria Yau Chu, had been
purchasing cement on credit from CAMS Trading
Enterprises, Inc. (hereafter "CAMS Trading" for brevity).
To guaranty payment for her cement withdrawals, she
executed in favor of Cams Trading deeds of assignment
of her time deposits in the total sum of P320,000 in the
Family Savings Bank (hereafter the Bank). It was
provided that the deeds of assignment serves as a
collateral or guarantee for the payment for the obligation.
Cams Trading notified the Bank that Mrs. Chu had an
unpaid account with it in the sum of P314,639.75. It
asked that it be allowed to encash the time deposit
certificates which had been assigned to it by Mrs. Chu.
After verbally advising Mrs. Chu of the assignee's
request to encash her time deposit certificates and
obtaining her verbal conformity thereto, the Bank agreed
to encash the certificates. It delivered to Cams Trading
the sum of P283,737.75 only, as one time deposit
certificate lacked the proper signatures. Upon being
informed of the encashment, Mrs. Chu demanded from
the Bank and Cams Trading that her time deposit be
restored. When neither complied, she filed a complaint to
recover the sum of P283,737.75 from them.
Issue: WON encashment of her time deposit certificates
as a pactum commissorium
Held:
No. The encashment of the deposit certificates
was not a pacto commissorio which is prohibited under
Art. 2088 of the Civil Code. A pacto commissorio is a
provision for the automatic appropriation of the pledged
or mortgaged property by the creditor in payment of the
loan upon its maturity. The prohibition against a pacto
commissorio is intended to protect the obligor, pledgor,
or mortgagor against being overreached by his creditor
who holds a pledge or mortgage over property whose
value is much more than the debt. Where, as in this
case, the security for the debt is also money deposited in
a bank, the amount of which is even less than the debt, it
was not illegal for the creditor to encash the time deposit
certificates to pay the debtors' overdue obligation, with
the latter's consent.
Chu vs CA
Doctrine: A pacto commissorio is a provision for the
automatic appropriation of the pledged or mortgaged
property by the creditor in payment of the loan upon its
maturity.
FACTS:
Since 1980, the petitioner, Victoria Yau Chu,
had been purchasing cement on credit from CAMS
Trading Enterprises, Inc. (hereafter "CAMS Trading" for
brevity). To guaranty payment for her cement
withdrawals, she executed in favor of Cams Trading
deeds of assignment of her time deposits in the total sum
of P320,000 in the Family Savings Bank (hereafter the
Bank). Except for the serial numbers and the dates of the
time deposit certificates, the deeds of assignment, which
were prepared by her own lawyer.
On July 24,1980, Cams Trading notified the
Bank that Mrs. Chu had an unpaid account with it in the
sum of P314,639.75. It asked that it be allowed to
encash the time deposit certificates which had been
assigned to it by Mrs. Chu. It submitted to the Bank a
letter dated July 18, 1980 of Mrs. Chu admitting that her
outstanding account with Cams Trading was P404,500.
After verbally advising Mrs. Chu of the assignee's
request to encash her time deposit certificates and
obtaining her verbal conformity thereto, the Bank agreed
to encash the certificates.It delivered to Cams Trading
the sum of P283,737.75 only, as one time deposit
certificate (No. 0048120954) lacked the proper
signatures. Upon being informed of the encashment,
Mrs. Chu demanded from the Bank and Cams Trading
that her time deposit be restored. When neither
complied, she filed a complaint to recover the sum of
P283,737.75 from them.
ISSUE:
Whether or not there was a pacto commissorio?
RULING:
NO. The encashment of the deposit certificates
was not a pacto commissorio which is prohibited under
Art. 2088 of the Civil Code.
A pacto commissorio is a provision for the
automatic appropriation of the pledged or mortgaged
property by the creditor in payment of the loan upon its
maturity. The prohibition against a pacto commissorio is
intended to protect the obligor, pledgor, or mortgagor
against being overreached by his creditor who holds a
pledge or mortgage over property whose value is much
more than the debt.
Where, as in this case, the security for the debt
is also money deposited in a bank, the amount of which
is even less than the debt, it was not illegal for the
creditor to encash the time deposit certificates to pay the
debtors' overdue obligation, with the latter's consent.
SPS Rabat v PNB G.R. No. 158755 June 18, 2012
***NOTE: The inadequacy of the bid price in an
extrajudicial foreclosure sale of mortgaged properties will
not per se invalidate the sale. Additionally, the
foreclosing mortgagee is not precluded from recovering
the deficiency should the proceeds of the sale be
insufficient to cover the entire debt.
Facts: On 25 August 1979, respondent spouses
Francisco and Merced Rabat (hereafter RABATs) applied
for a loan with PNB. Subsequently, the RABATs were
granted on 14 January 1980 a medium-term loan of P4.0
Million to mature three years from the date of
implementation. The RABATs signed a Credit Agreement
and executed a Real Estate Mortgage over several
parcels of land. Several availments of the loan
accommodation on various dates by the RABATs
reached the aggregate amount of P3,517,380, as
evidenced by the several promissory notes, all of which
were due on 14 March 1983. The RABATs failed to pay
their outstanding balance on due date.
RABATs requested for more time to settle their account
but was denied by PNB. For failure of the RABATs to pay
their obligation, the PNB filed a petition for the
extrajudicial foreclosure of the real estate mortgage
executed by the RABATs. After due notice and
publication, the mortgaged parcels of land were sold at a
public auction held on 20 February 1987 and 14 April
1987. The PNB was the lone and highest bidder with a
bid of P3,874,800.00.
As the proceeds of the public auction were not enough to
satisfy the entire obligation of the RABATs, the PNB sent
anew demand letters. Upon failure of the RABATs to
comply with the demand to settle their remaining
outstanding obligation which then stood
at P14,745,398.25, including interest, penalties and
other charges, PNB eventually filed on 5 May 1992 a
complaint for a sum of money before the Regional Trial
Court of Manila.
The RABATs admitted their loan availments from PNB
and their default in the payment thereof. However, they
assailed the validity of the auction sales for want of
notice to them before and after the foreclosure sales.
They further added that as residents of Mati, Davao
Oriental since 1970 up to the present, they never
received any notice nor heard about the foreclosure
proceeding in spite of the claim of PNB that the
foreclosure proceeding had been duly published in the
San Pedro Times, which is not a newspaper of general
circulation. The RABATs likewise averred that the bid
price was grossly inadequate and unconscionable.
Lastly, the RABATs attacked the validity of the
accumulated interest and penalty charges because since
their properties were sold in 1987, and yet PNB waited
until 1992 before filing the case. Consequently, the
RABATs contended that they should not be made to
suffer for the interest and penalty charges from May
1987 up to the present. Otherwise, PNB would be
allowed to profit from its questionable scheme.
Issues:
Whether or not the inadequacy of the bid price
of PNB invalidated the forced sale of the
properties?
Whether or not PNB was entitled to recover any
deficiency from the Spouses Rabat?
Ruling
1. NO
Anent the first issue, we rule against the
Spouses Rabat. We have consistently held that the
inadequacy of the bid price at a forced sale, unlike that in
an ordinary sale, is immaterial and does not nullify the
sale; in fact, in a forced sale, a low price is considered
more beneficial to the mortgage debtor because it makes
redemption of the property easier. At any rate, we
consider it notable enough that PNBs bid price
of ₱3,874,800.00 might not even be said to be
outrageously low as to be shocking to the conscience. As
the CA cogently noted in the second amended
decision, that bid price was almost equal to both
the₱4,000,000.00 applied for by the Spouses Rabat as
loan, and to the total sum of ₱3,517,380.00 of their
actual availment from PNB.
2. Yes
we rule that PNB had the legal right to recover
the deficiency amount. In Philippine National Bank v.
Court of Appeals, we held that: xxx it is settled that if the
proceeds of the sale are insufficient to cover the debt in
an extrajudicial foreclosure of the mortgage, the
mortgagee is entitled to claim the deficiency from the
debtor. For when the legislature intends to deny the right
of a creditor to sue for any deficiency resulting from
foreclosure of security given to guarantee an obligation it
expressly provides as in the case of pledges [Civil Code,
Art. 2115] and in chattel mortgages of a thing sold on
installment basis [Civil Code, Art. 1484(3)]. Act No. 3135,
which governs the extrajudicial foreclosure of mortgages,
while silent as to the mortgagees right to recover, does
not, on the other hand, prohibit recovery of
deficiency. Accordingly, it has been held that a deficiency
claim arising from the extrajudicial foreclosure is allowed.