Eastern Shipping vs CA Credit Digest
Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78
FACTS
Two fiber drums were shipped owned by Eastern
Shipping from Japan. The shipment as insured with
a marine policy. Upon arrival in Manila unto the
custody of metro Port Service, which excepted to
one drum, said to be in bad order and which
damage was unknown the Mercantile Insurance
Company. Allied Brokerage Corporation received
the shipment from Metro, one drum opened and
without seal. Allied delivered the shipment to the
consignee’s warehouse. The latter excepted to one
drum which contained spillages while the rest of the
contents was adulterated/fake. As consequence of
the loss, the insurance company paid the
consignee, so that it became subrogated to all the
rights of action of consignee against the defendants
Eastern Shipping, Metro Port and Allied Brokerage.
The insurance company filed before the trial court.
The trial court ruled in favor of plaintiff an ordered
defendants to pay the former with present legal
interest of 12% per annum from the date of the
filing of the complaint. On appeal by defendants,
the appellate court denied the same and affirmed in
toto the decision of the trial court.
ISSUE
Whether the applicable rate of legal interest is 12% or 6%.
Whether the payment of legal interest on the award for loss
or damage is to be computed from the time the complaint
is filed from the date the decision appealed from is
rendered.
HELD
The Court held that the legal interest is 6%
computed from the decision of the court a quo.
When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damaes awarded may be imposed at
the discretion of the court at the rate of 6% per
annum. No interest shall be adjudged on
unliquidated claims or damages except when or
until the demand can be established with
reasonable certainty.
When the judgment of the court awarding a sum of
money becomes final and executor, the rate of
legal interest shall be 12% per annum from such
finality until satisfaction, this interim period being
deemed to be by then an equivalent to a
forbearance of money.
The interest due shall be 12% PA to be computed
fro default, J or EJD.
From the date the judgment is made. Where the demand is
established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or EJ
but when such certainty cannot be so reasonably
established at the time the demand is made, the interest
shll begin to run only from the date of judgment of the court
is made.
The Court held that it should be computed from the
decision rendered by the court a quo.
G.R. No. 152071 May 8, 2009
PRODUCERS BANK OF THE PHILIPPINES, Petitioner,
vs.
EXCELSA INDUSTRIES, INC., Respondent.
DECISION
TINGA, J.:
This is a petition for review on certiorari1 under Rule 43 of
the 1997 Rules of Civil Procedure, assailing the
decision2and resolution3 of the Court of Appeals in CA-
G.R. CV No. 59931. The Court of Appeals’
decision4 reversed the decision of the Regional Trial Court
(RTC), Branch 73, Antipolo, Rizal, upholding the
extrajudicial foreclosure of the mortgage on respondent’s
properties, while the resolution denied petitioner’s motion
for reconsideration.5
As borne by the records of the case, the following factual
antecedents appear:
Respondent Excelsa Industries, Inc. is a manufacturer and
exporter of fuel products, particularly charcoal briquettes,
as an alternative fuel source. Sometime in January 1987,
respondent applied for a packing credit line or a credit
export advance with petitioner Producers Bank of the
Philippines, a banking institution duly organized and
existing under Philippines laws.6
The application was supported by Letter of Credit No.
M3411610NS2970 dated 14 October 1986. Kwang Ju
Bank, Ltd. of Seoul, Korea issued the letter of credit
through its correspondent bank, the Bank of the Philippine
Islands, in the amount of US$23,000.00 for the account of
Shin Sung Commercial Co., Ltd., also located in Seoul,
Korea. T.L. World Development Corporation was the
original beneficiary of the letter of credit. On 05 December
1986, for value received, T.L. World transferred to
respondent all its rights and obligations under the said
letter of credit. Petitioner approved respondent’s
application for a packing credit line in the amount
of P300,000.00, of which aboutP96,000.00 in principal
remained outstanding.7 Respondent executed the
corresponding promissory notes evidencing the
indebtedness.8
Prior to the application for the packing credit line,
respondent had obtained a loan from petitioner in the form
of a bill discounted and secured credit accommodation in
the amount of P200,000.00, of which P110,000.00 was
outstanding at the time of the approval of the packing
credit line. The loan was secured by a real estate
mortgage dated 05 December 1986 over respondent’s
properties covered by Transfer Certificates of Titles (TCT)
No. N-68661, N-68662, N-68663, N-68664, N-68665 and
N-68666, all issued by the Register of Deeds of Marikina.9
Significantly, the real estate mortgage contained the
following clause:
For and in consideration of those certain loans, overdraft
and/or other credit accommodations on this date obtained
from the MORTGAGEE, and to secure the payment of the
same, the principal of all of which is hereby fixed at FIVE
HUNDRED THOUSAND PESOS ONLY (P500,000.00)
Pesos, Philippine Currency, as well as those that the
MORTGAGEE may hereafter extend to the
MORTGAGOR, including interest and expenses or any
other obligation owing to the MORTGAGEE, the
MORTGAGOR does hereby transfer and convey by way of
mortgage unto the MORTGAGEE, its successors or
assigns, the parcel(s) of land which is/are described in the
list inserted on the back of this document, and/or
appended hereto, together with all the buildings and
improvements now existing or which may hereafter be
erected or constructed thereon, of which the
MORTGAGOR declares that he/it is the absolute owner,
free from all liens and encumbrances.10
On 17 March 1987, respondent presented for negotiation
to petitioner drafts drawn under the letter of credit and the
corresponding export documents in consideration for its
drawings in the amounts of US$5,739.76 and
US$4,585.79. Petitioner purchased the drafts and export
documents by paying respondent the peso equivalent of
the drawings. The purchase was subject to the conditions
laid down in two separate undertakings by respondent
dated 17 March 1987 and 10 April 1987.11
On 24 April 1987, Kwang Ju Bank, Ltd. notified petitioner
through cable that the Korean buyer refused to pay
respondent’s export documents on account of
typographical discrepancies. Kwang Ju Bank, Ltd. returned
to petitioner the export documents.12
Upon learning about the Korean importer’s non-payment,
respondent sent petitioner a letter dated 27 July 1987,
informing the latter that respondent had brought the matter
before the Korea Trade Court and that it was ready to
liquidate its past due account with petitioner. Respondent
sent another letter dated 08 September 1987, reiterating
the same assurance. In a letter 05 October 1987, Kwang
Ju Bank, Ltd. informed petitioner that it would be returning
the export documents on account of the non-acceptance
by the importer.13
Petitioner demanded from respondent the payment of the
peso equivalent of the export documents, plus interest and
other charges, and also of the other due and unpaid loans.
Due to respondent’s failure to heed the demand, petitioner
moved for the extrajudicial foreclosure on the real estate
mortgage over respondent’s properties.
Per petitioner’s computation, aside from charges for
attorney’s fees and sheriff’s fees, respondent had a total
due and demandable obligation of P573,225.60, including
interest, in six different accounts, namely:
EBP-PHO-87-1121 (US$4,585.97 x 21.212)
= P119,165.06
EBP-PHO-87-1095 (US$ 5,739.76 x
21.212) = 151,580.97
BDS-001-87 = 61,777.78
BDS-030/86 A = 123,555.55
BDS-PC-002-/87 = 55,822.91
BDS-005/87 = 61,323.33
P573,225.6014
The total approved bid price, which included the attorney’s
fees and sheriff fees, was pegged at P752,074.63. At the
public auction held on 05 January 1988, the Sheriff of
Antipolo, Rizal issued a Certificate of Sale in favor of
petitioner as the highest bidder.15 The certificate of sale
was registered on 24 March 1988.16
On 12 June 1989, petitioner executed an affidavit of
consolidation over the foreclosed properties after
respondent failed to redeem the same. As a result, the
Register of Deeds of Marikina issued new certificates of
title in the name of petitioner.17
On 17 November 1989, respondent instituted an action for
the annulment of the extrajudicial foreclosure with prayer
for preliminary injunction and damages against petitioner
and the Register of Deeds of Marikina. Docketed as Civil
Case No. 1587-A, the complaint was raffled to Branch 73
of the RTC of Antipolo, Rizal. The complaint prayed,
among others, that the defendants be enjoined from
causing the transfer of ownership over the foreclosed
properties from respondent to petitioner.18
On 05 April 1990, petitioner filed a petition for the issuance
of a writ of possession, docketed as LR Case No. 90-787,
before the same branch of the RTC of Antipolo, Rizal. The
RTC ordered the consolidation of Civil Case No, 1587-A
and LR Case No. 90-787.19
On 18 December 1997, the RTC rendered a decision
upholding the validity of the extrajudicial foreclosure and
ordering the issuance of a writ of possession in favor of
petitioner, to wit:
WHEREFORE, in Case No. 1587-A, the court hereby rules
that the foreclosure of mortgage for the old and new
obligations of the plaintiff Excelsa Industries Corp., which
has remained unpaid up to the time of foreclosure by
defendant Producers Bank of the Philippines was valid,
legal and in order; In Case No. 787-A, the court hereby
orders for the issuance of a writ of possession in favor of
Producer’s Bank of the Philippines after the properties of
Excelsa Industries Corp., which were foreclosed and
consolidated in the name of Producers Bank of the
Philippines under TCT No. 169031, 169032, 169033,
169034 and 169035 of the Register of Deeds of Marikina.
SO ORDERED.20
The RTC held that petitioner, whose obligation consisted
only of receiving, and not of collecting, the export proceeds
for the purpose of converting into Philippine currency and
remitting the same to respondent, cannot be considered as
respondent’s agent. The RTC also held that petitioner
cannot be presumed to have received the export proceeds,
considering that respondent executed undertakings
warranting that the drafts and accompanying documents
were genuine and accurately represented the facts stated
therein and would be accepted and paid in accordance
with their tenor.21
Furthermore, the RTC concluded that petitioner had no
obligation to return the export documents and respondent
could not expect their return prior to the payment of the
export advances because the drafts and export documents
were the evidence that respondent received export
advances from petitioner.22
The RTC also found that by its admission, respondent had
other loan obligations obtained from petitioner which were
due and demandable; hence, petitioner correctly exercised
its right to foreclose the real estate mortgage, which
provided that the same secured the payment of not only
the loans already obtained but also the export
advances.231avvphi1
Lastly, the RTC found respondent guilty of laches in
questioning the foreclosure sale considering that petitioner
made several demands for payment of respondent’s
outstanding loans as early as July 1987 and that
respondent acknowledged the failure to pay its loans and
advances.24
The RTC denied respondent’s motion for
reconsideration.25 Thus, respondent elevated the matter to
the Court of Appeals, reiterating its claim that petitioner
was not only a collection agent but was considered a
purchaser of the export
On 30 May 2001, the Court of Appeals rendered the
assailed decision, reversing the RTC’s decision, thus:
WHEREFORE, the appeal is hereby GRANTED. The
decision of the trial court dated December 18, 1997 is
REVERSED and SET ASIDE. Accordingly, the foreclosure
of mortgage on the properties of appellant is declared as
INVALID. The issuance of the writ of possession in favor of
appellee is ANNULLED. The following damages are
hereby awarded in favor of appellant:
Moral damages in the amount
of P100,000.00;
Exemplary damages in the amount
of P100,000.00; and
Costs.
SO ORDERED.26
The Court of Appeals held that respondent should not be
faulted for the dishonor of the drafts and export documents
because the obligation to collect the export proceeds from
Kwang Ju Bank, Ltd. devolved upon petitioner. It cited the
testimony of petitioner’s manager for the foreign currency
department to the effect that petitioner was respondent’s
agent, being the only entity authorized under Central Bank
Circular No. 491 to collect directly from the importer the
export proceeds on respondent’s behalf and converting the
same to Philippine currency for remittance to respondent.
The appellate court found that respondent was not
authorized and even powerless to collect from the importer
and it appeared that respondent was left at the mercy of
petitioner, which kept the export documents during the time
that respondent attempted to collect payment from the
Korean importer.
The Court of Appeals disregarded the RTC’s finding that
the export documents were the only evidence of
respondent’s export advances and that petitioner was
justified in refusing to return them. It opined that granting
petitioner had no obligation to return the export
documents, the former should have helped respondent in
the collection efforts instead of augmenting respondent’s
dilemma.
Furthermore, the Court of Appeals found petitioner’s
negligence as the cause of the refusal by the Korean buyer
to pay the export proceeds based on the following: first,
petitioner had a hand in preparing and scrutinizing the
export documents wherein the discrepancies were found;
and, second, petitioner failed to advise respondent about
the warning from Kwang Ju Bank, Ltd. that the export
documents would be returned if no explanation regarding
the discrepancies would be made.
The Court of Appeals invalidated the extrajudicial
foreclosure of the real estate mortgage on the ground that
the posting and publication of the notice of extrajudicial
foreclosure proceedings did not comply with
the personal notice requirement under paragraph 1227 of
the real estate mortgage executed between petitioner and
respondent. The Court of Appeals also overturned the
RTC’s finding that respondent was guilty of estoppel by
laches in questioning the extrajudicial foreclosure sale.
Petitioner’s motion for reconsideration28 was denied in a
Resolution dated 29 January 2002. Hence, the instant
petition, arguing that the Court of Appeals erred in finding
petitioner as respondent’s agent, which was liable for the
discrepancies in the export documents, in invalidating the
foreclosure sale and in declaring that respondent was not
estopped from questioning the foreclosure sale.29
The validity of the extrajudicial foreclosure of the mortgage
is dependent on the following issues posed by petitioner:
(1) the coverage of the "blanket mortgage clause;" (2)
petitioner’s failure to furnish personal notice of the
foreclosure to respondent; and (3) petitioner’s obligation as
negotiating bank under the letter of credit.
Notably, the errors cited by petitioners are factual in
nature. Although the instant case is a petition for review
under Rule 45 which, as a general rule, is limited to
reviewing errors of law, findings of fact being conclusive as
a matter of general principle, however, considering the
conflict between the factual findings of the RTC and the
Court of Appeals, there is a need to review the factual
issues as an exception to the general rule.30
Much of the discussion has revolved around who should
be liable for the dishonor of the draft and export
documents. In the two undertakings executed by
respondent as a condition for the negotiation of the drafts,
respondent held itself liable if the drafts were not accepted.
The two undertakings signed by respondent are similarly-
worded and contained respondent’s express warranties, to
wit:
In consideration of your negotiating the above described
draft(s), we hereby warrant that the said draft(s) and
accompanying documents thereon are valid, genuine
and accurately represent the facts stated therein, and
that such draft(s) will be accepted and paid in
accordance with its/their tenor. We further undertake
and agree, jointly and severally, to defend and hold you
free and harmless from any and all actions, claims and
demands whatsoever, and to pay on demand all damages
actual or compensatory including attorney’s fees, costs
and other awards or be adjudged to pay, in case of suit,
which you may suffer arising from, by reason, or on
account of your negotiating the above draft(s) because of
the following discrepancies or reasons or any other
discrepancy or reason whatever.
We hereby undertake to pay on demand the full
amount of the above draft(s) or any unpaid balance
thereof,the Philippine perso equivalent converted at the
prevailing selling rate (or selling rate prevailing at the date
you negotiate our draft, whichever is higher) allowed by the
Central Bank with interest at the rate prevailing today from
the date of negotiation, plus all charges and expenses
whatsoever incurred in connection therewith. You shall
neither be obliged to contest or dispute any refusal to
accept or to pay the whole or any part of the above
draft(s), nor proceed in any way against the drawee, the
issuing bank or any endorser thereof, before making a
demand on us for the payment of the whole or any unpaid
balance of the draft(s).(Emphasis supplied)31
In Velasquez v. Solidbank Corporation,32 where the drawer
therein also executed a separate letter of undertaking in
consideration for the bank’s negotiation of its sight drafts,
the Court held that the drawer can still be made liable
under the letter of undertaking even if he is discharged due
to the bank’s failure to protest the non-acceptance of the
drafts. The Court explained, thus:
Petitioner, however, can still be made liable under the
letter of undertaking. It bears stressing that it is a separate
contract from the sight draft. The liability of petitioner under
the letter of undertaking is direct and primary. It is
independent from his liability under the sight draft. Liability
subsists on it even if the sight draft was dishonored for
non-acceptance or non-payment.
Respondent agreed to purchase the draft and credit
petitioner its value upon the undertaking that he will
reimburse the amount in case the sight draft is dishonored.
The bank would certainly not have agreed to grant
petitioner an advance export payment were it not for the
letter of undertaking. The consideration for the letter of
undertaking was petitioner’s promise to pay respondent
the value of the sight draft if it was dishonored for any
reason by the Bank of Seoul.33
Thus, notwithstanding petitioner’s alleged failure to comply
with the requirements of notice of dishonor and protest
under Sections 8934 and 152,35 respectively, of the
Negotiable Instruments Law, respondent may not escape
its liability under the separate undertakings, where
respondent promised to pay on demand the full amount of
the drafts.
The next question, therefore, is whether the real estate
mortgage also served as security for respondent’s drafts
that were not accepted and paid by the Kwang Ju Bank,
Ltd.
Respondent executed a real estate mortgage containing a
"blanket mortgage clause," also known as a "dragnet
clause." It has been settled in a long line of decisions that
mortgages given to secure future advancements are valid
and legal contracts, and the amounts named as
consideration in said contracts do not limit the amount for
which the mortgage may stand as security if from the four
corners of the instrument the intent to secure future and
other indebtedness can be gathered.36
In Union Bank of the Philippines v. Court of Appeals,37 the
nature of a dragnet clause was explained, thus:
Is one which is specifically phrased to subsume all debts of
past and future origins. Such clauses are "carefully
scrutinized and strictly construed." Mortgages of this
character enable the parties to provide continuous
dealings, the nature or extent of which may not be known
or anticipated at the time, and they avoid the expense and
inconvenience of executing a new security on each new
transaction. A "dragnet clause" operates as a convenience
and accommodation to the borrowers as it makes available
additional funds without their
having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal
services, recording fees, et cetera.38
xxx
Petitioner, therefore, was not precluded from seeking the
foreclosure of the real estate mortgage based on the
unpaid drafts drawn by respondent. In any case,
respondent had admitted that aside from the unpaid drafts,
respondent also had due and demandable loans secured
from another account as evidenced by Promissory Notes
(PN Nos.) BDS-001-87, BDS-030/86 A, BDS-PC-002-/87
and BDS-005/87.
However, the Court of Appeals invalidated the extrajudicial
foreclosure of the mortgage on the ground that petitioner
had failed to furnish respondent personal notice of the sale
contrary to the stipulation in the real estate mortgage.
Petitioner, on the other hand, claims that under paragraph
1239 of the real estate mortgage, personal notice of the
foreclosure sale is not a requirement to the validity of the
foreclosure sale.
A perusal of the records of the case shows that a notice of
sheriff’s sale40 was sent by registered mail to respondent
and received in due course.41 Yet, respondent claims that it
did not receive the notice but only learned about it from
petitioner. In any event, paragraph 12 of the real estate
mortgage requires petitioner merely to furnish respondent
with the notice and does not oblige petitioner to ensure
that respondent actually receives the notice. On this score,
the Court holds that petitioner has performed its obligation
under paragraph 12 of the real estate mortgage.
As regards the issue of whether respondent may still
question the foreclosure sale, the RTC held that the sale
was conducted according to the legal procedure, to wit:
Plaintiff is estopped from questioning the foreclosure. The
plaintiff is guilty of laches and cannot at this point in time
question the foreclosure of the subject properties.
Defendant bank made demands against the plaintiff for the
payment of plaintiff’s outstanding loans and advances with
the defendant as early as July 1997. Plaintiff
acknowledged such outstanding loans and advances to
the defendant bank and committed to liquidate the same.
For failure of the plaintiff to pay its obligations on maturity,
defendant bank foreclosed the mortgage on subject
properties on January 5, 1988 the certificate of sale was
annotated on March 24, 1988 and there being no
redemption made by the plaintiff, title to said properties
were consolidated in the name of defendant in July 1989.
Undeniably, subject foreclosure was done in accordance
with the prescribed rules as may be borne out by the
exhibits submitted to this Court which are Exhibit "33," a
notice of extrajudicial sale executed by the Sheriff of
Antipolo, Exhibit "34" certificate posting of extrajudicial
sale, Exhibit "35" return card evidencing receipt by plaintiff
of the notice of extrajudicial sale and Exhibit "21" affidavit
of publication.
The Court adopts and approves the aforequoted findings
by the RTC, the same being fully supported by the
evidence on record.
WHEREFORE, the instant petition for review on certiorari
is GRANTED and the decision and resolution of the Court
of Appeals in CA-G.R. CV No. 59931 are REVERSED and
SET ASIDE. The decision of the Regional Trial Court
Branch 73, Antipolo, Rizal in Civil Case No. 1587-A and LR
Case No. 90-787 is REINSTATED.
SO ORDERED.
G.R. No. L-30771 May 28, 1984
LIAM LAW, plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE
CHI, defendants-appellants.
Felizardo S.M. de Guzman for plaintiff-appellee.
Mariano M. de Joya for defendants-appellants.
MELENCIO-HERRERA, J.:
This is an appeal by defendants from a Decision rendered
by the then Court of First Instance of Bulacan. The appeal
was originally taken to the then Court of Appeals, which
endorsed it to this instance stating that the issue involved
was one of law.
It appears that on or about September 7, 1957, plaintiff
loaned P10,000.00, without interest, to defendant
partnership and defendant Elino Lee Chi, as the managing
partner. The loan became ultimately due on January 31,
1960, but was not paid on that date, with the debtors
asking for an extension of three months, or up to April 30,
1960.
On March 17, 1960, the parties executed another loan
document. Payment of the P10,000.00 was extended to
April 30, 1960, but the obligation was increased by
P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS
(P6,000.00), Philippine currency shall form
part of the principal obligation to answer for
attorney's fees, legal interest, and other cost
incident thereto to be paid unto the creditor
and his successors in interest upon the
termination of this agreement.
Defendants again failed to pay their obligation by April 30,
1960 and, on September 23, 1960, plaintiff instituted this
collection case. Defendants admitted the P10,000.00
principal obligation, but claimed that the additional
P6,000.00 constituted usurious interest.
Upon application of plaintiff, the Trial Court issued, on the
same date of September 23, 1960, a writ of Attachment on
real and personal properties of defendants located at
Karanglan, Nueva Ecija. After the Writ of Attachment was
implemented, proceedings before the Trial Court versed
principally in regards to the attachment.
On January 18, 1961, an Order was issued by the Trial
Court stating that "after considering the manifestation of
both counsel in Chambers, the Court hereby allows both
parties to simultaneously submit a Motion for Summary
Judgment. 1 The plaintiff filed his Motion for Summary
Judgment on January 31, 1961, while defendants filed
theirs on February 2, 196l. 2
On June 26, 1961, the Trial Court rendered decision
ordering defendants to pay plaintiff "the amount of
P10,000.00 plus the further sum of P6,000.00 by way of
liquidated damages . . . with legal rate of interest on both
amounts from April 30, 1960." It is from this judgment that
defendants have appealed.
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to the
agreement of the parties relative to the P6,000.00
obligation, "it is presumed that it exists and is lawful,
unless the debtor proves the contrary". No evidentiary
hearing having been held, it has to be concluded that
defendants had not proven that the P6,000.00 obligation
was illegal. Confirming the Trial Court's finding, we view
the P6,000.00 obligation as liquidated damages suffered
by plaintiff, as of March 17, 1960, representing loss of
interest income, attorney's fees and incidentals.
The main thrust of defendants' appeal is the allegation in
their Answer that the P6,000.00 constituted usurious
interest. They insist the claim of usury should have been
deemed admitted by plaintiff as it was "not denied
specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation
sued shall file its answer in writing under
oath to any complaint brought or filed
against said person or corporation before a
competent court to recover the money or
other personal or real property, seeds or
agricultural products, charged or received in
violation of the provisions of this Act. The
lack of taking an oath to an answer to a
complaint will mean the admission of the
facts contained in the latter.
The foregoing provision envisages a complaint filed
against an entity which has committed usury, for the
recovery of the usurious interest paid. In that case, if the
entity sued shall not file its answer under oath denying the
allegation of usury, the defendant shall be deemed to have
admitted the usury. The provision does not apply to a case,
as in the present, where it is the defendant, not the
plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been legally non-
existent. Interest can now be charged as lender and
borrower may agree upon. 4 The Rules of Court in regards
to allegations of usury, procedural in nature, should be
considered repealed with retroactive effect.
Statutes regulating the procedure of the
courts will be construed as applicable to
actions pending and undetermined at the
time of their passage. Procedural laws are
retrospective in that sense and to that
extent. 5
... Section 24(d), Republic Act No. 876,
known as the Arbitration Law, which took
effect on 19 December 1953, and may be
retroactively applied to the case at bar
because it is procedural in nature. ... 6
WHEREFORE, the appealed judgment is hereby affirmed,
without pronouncement as to costs.
SO ORDERED.
G.R. No. L-57314 November 29, 1983
TEODORO SANCHEZ, petitioner,
vs.
HON. CARLOS R. BUENVIAJE, Presiding Judge,
Branch VII, Court of First Instance of Camarines Sur,
Iriga City, and ALEJO SANCHEZ, respondents.
Andres C. Regalado for petitioner.
The Solicitor General for respondents.
ABAD SANTOS, J.:ñé+.£ªwph!1
This is a petition to review a decision rendered by the
defunct Court of First Instance of Camarines Sur, Branch
VII, with following factual background.
On August 25, 1976, Alejo Sanchez sued Teodoro
Sanchez and Leonor Santilles in the Municipal Court of
Bato, Camarines Sur, for the recovery of P2,000.00 which
the latter had promised to pay in two notes. Said notes
also contained stipulations for interest at the rate of 10%
per month The Municipal Court rendered judgment
ordering Teodoro Sanchez only to pay to Alejo Sanchez
P2,000.00 plus interest thereon at the legal rate from the
filing of the complaint.
Teodoro appealed to the Court of First Instance of
Camarines Sur which rendered the following
judgment: têñ.£îhqwâ£
WHEREFORE, the judgment rendered by
the lower court is hereby AFFIRMED with
modification as to costs. Judgment is
hereby rendered, ordering the defendant to
pay his indebtedness to plaintiff in the total
sum of P2,000.00, plus interest thereon at
the legal rate from the firing of the complaint
in this case to actual payment. Defendant to
pay double the costs of this suit. (Rollo p.
30.)
In his petition for review, Teodoro claims that in a loan with
usurious interest both the loan and the usurious interest
are void.
Alejo was required to comment on the petition but it
appears that he died sometime in the latter part of 1980
and the early part of 1981. (Rollo, p. 42.) Accordingly, his
children were impleaded as respondents and required to
file comment which they failed to do despite notice to them.
The absence of comment on the part of the private
respondents notwithstanding, We resolve the petition
without any difficulty.
It is now well-settled that: "the Usury Law (Act No. 2655),
by its letter and spirit, does not deprive the lender of his
right to recover of the borrower the money actually loaned
this only in the case that the interest collected is usurious.
The law, as it is now, does not provide for the forfeiture of
the capital in favor of the debtor in usurious contract ...
(Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249,
275 [1925].)
True it is that in Briones vs. Cammayo, L-23559, Oct. 4,
1971; 41 SCRA 404, Chief Justice Concepcion and now
Chief Justice Fernando concurred with Justice Castro who
opined that both loan and usurious interest are void.
However, it must be emphasized that eight other justices
maintained that only the usurious interest is void but not
the principal obligation.
WHEREFORE, finding the judgment sought to be reviewed
to be in accordance with law, the petition is hereby
dismissed for lack of merit with costs against the petitioner.
SO ORDERED.1äwphï1.ñët
Concepcion, Jr., Guerrero, De Castro and Escolin JJ.,
concur.

Baron vs. David, 51 Phil. 1, Nos. 26948, October 08,
1927
G.R. Nos. L-26948 and L-26949 October 8, 1927
SILVESTRA BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
And
GUILLERMO BARON, plaintiff-appellant,
vs.
PABLO DAVID, defendant-appellant.
Jose Gutierrez David for plaintiff-appellant in case of
No. 26948.
Gregorio Perfecto for defendant-appellant in both
cases.
Francisco, Lualhati & Lopez and Jose Gutierrez David
for plaintiff-appellant in case No. 26949.
STREET, J.:
These two actions were instituted in the Court of
First Instance of the Province of Pampanga by the
respective plaintiffs, Silvestra Baron and Guillermo
Baron, for the purpose of recovering from the
defendant, Pablo David, the value of palay alleged
to have been sold by the plaintiffs to the defendant
in the year 1920. Owing to the fact that the
defendant is the same in both cases and that the
two cases depend in part upon the same facts, the
cases were heard together in the trial court and
determined in a single opinion. The same course
will accordingly be followed here.
In the first case, i. e., that which Silvestra Baron is
plaintiff, the court gave judgment for her to recover
of the defendant the sum of P5,238.51, with costs.
From this judgment both the plaintiff and the
defendant appealed.
In the second case, i. e., that in which Guillermo
Baron, is plaintiff, the court gave judgment for him
to recover of the defendant the sum of P5,734.60,
with costs, from which judgment both the plaintiff
and the defendant also appealed. In the same case
the defendant interposed a counterclaim in which
he asked credit for the sum of P2,800 which he had
advanced to the plaintiff Guillermo Baron on
various occasions. This credit was admitted by the
plaintiff and allowed by the trial court. But the
defendant also interposed a cross-action against
Guillermo Baron in which the defendant claimed
compensation for damages alleged to have Ben
suffered by him by reason of the alleged malicious
and false statements made by the plaintiff against
the defendant in suing out an attachment against
the defendant's property soon after the institution of
the action. In the same cross-action the defendant
also sought compensation for damages incident to
the shutting down of the defendant's rice mill for the
period of one hundred seventy days during which
the above-mentioned attachment was in force. The
trial judge disallowed these claims for damages,
and from this feature of the decision the defendant
appealed. We are therefore confronted with five
distinct appeals in this record.
Prior to January 17, 1921, the defendant Pablo David has
been engaged in running a rice mill in the municipality of
Magalang, in the Province of Pampanga, a mill which was
well patronized by the rice growers of the vicinity and
almost constantly running. On the date stated a fire
occurred that destroyed the mill and its contents, and it
was some time before the mill could be rebuilt and put in
operation again. Silvestra Baron, the plaintiff in the first of
the actions before us, is an aunt of the defendant; while
Guillermo Baron, the plaintiff in the other action; is his
uncle. In the months of March, April, and May, 1920,
Silvestra Baron placed a quantity of palay in the
defendant's mill; and this, in connection with some that she
took over from Guillermo Baron, amounted to 1,012
cavans and 24 kilos. During approximately the same
period Guillermo Baron placed other 1,865 cavans and 43
kilos of palay in the mill. No compensation has ever been
received by Silvestra Baron upon account of the palay
delivered by Guillermo Baron, he has received from the
defendant advancements amounting to P2,800; but apart
from this he has not been compensated. Both the plaintiffs
claim that the palay which was delivered by them to the
defendant was sold to the defendant; while the defendant,
on the other hand, claims that the palay was deposited
subject to future withdrawal by the depositors or subject to
some future sale which was never effected. He therefore
supposes himself to be relieved from all responsibility by
virtue of the fire of January 17, 1921, already mentioned.
The plaintiff further say that their palay was
delivered to the defendant at his special request,
coupled with a promise on his part to pay for the
same at the highest price per cavan at which palay
would sell during the year 1920; and they say that
in August of that year the defendant promised to
pay them severally the price of P8.40 per cavan,
which was about the top of the market for the
season, provided they would wait for payment until
December. The trial judge found that no such
promise had been given; and the incredulity of the
court upon this point seems to us to be justified. A
careful examination of the proof, however, leads us
to the conclusion that the plaintiffs did, some time in
the early part of August, 1920, make demand upon
the defendant for a settlement, which he evaded or
postponed leaving the exact amount due to the
plaintiffs undetermined.
It should be stated that the palay in question was place by
the plaintiffs in the defendant's mill with the understanding
that the defendant was at liberty to convert it into rice and
dispose of it at his pleasure. The mill was actively running
during the entire season, and as palay was daily coming in
from many customers and as rice was being constantly
shipped by the defendant to Manila, or other rice markets,
it was impossible to keep the plaintiffs' palay segregated.
In fact the defendant admits that the plaintiffs' palay was
mixed with that of others. In view of the nature of the
defendant's activities and the way in which the palay was
handled in the defendant's mill, it is quite certain that all of
the plaintiffs' palay, which was put in before June 1, 1920,
been milled and disposed of long prior to the fire of
January 17, 1921. Furthermore, the proof shows that when
the fire occurred there could not have been more than
about 360 cavans of palay in the mill, none of which by any
reasonable probability could have been any part of the
palay delivered by the plaintiffs. Considering the fact that
the defendant had thus milled and doubtless sold the
plaintiffs' palay prior to the date of the fire, it result that he
is bound to account for its value, and his liability was not
extinguished by the occurence of the fire. In the briefs
before us it seems to have been assumed by the opposing
attorneys that in order for the plaintiffs to recover, it is
necessary that they should be able to establish that the
plaintiffs' palay was delivered in the character of a sale,
and that if, on the contrary, the defendant should prove
that the delivery was made in the character of deposit, the
defendant should be absolved. But the case does not
depend precisely upon this explicit alternative; for even
supposing that the palay may have been delivered in the
character of deposit, subject to future sale or withdrawal at
plaintiffs' election, nevertheless if it was understood that
the defendant might mill the palay and he has in fact
appropriated it to his own use, he is of course bound to
account for its value. Under article 1768 of the Civil Code,
when the depository has permission to make use of the
thing deposited, the contract loses the character of mere
deposit and becomes a loan or a commodatum; and of
course by appropriating the thing, the bailee becomes
responsible for its value. In this connection we wholly reject
the defendant's pretense that the palay delivered by the
plaintiffs or any part of it was actually consumed in the fire
of January, 1921. Nor is the liability of the defendant in any
wise affected by the circumstance that, by a custom
prevailing among rice millers in this country, persons
placing palay with them without special agreement as to
price are at liberty to withdraw it later, proper allowance
being made for storage and shrinkage, a thing that is
sometimes done, though rarely.
In view of what has been said it becomes
necessary to discover the price which the
defendant should be required to pay for the
plaintiffs' palay. Upon this point the trial judge fixed
upon P6.15 per cavan; and although we are not
exactly in agreement with him as to the propriety of
the method by which he arrived at this figure, we
are nevertheless of the opinion that, all things
considered, the result is approximately correct. It
appears that the price of palay during the months of
April, May, and June, 1920, had been excessively
high in the Philippine Islands and even prior to that
period the Government of the Philippine Islands
had been attempting to hold the price in check by
executive regulation. The highest point was
touched in this season was apparently about P8.50
per cavan, but the market began to sag in May or
June and presently entered upon a precipitate
decline. As we have already stated, the plaintiffs
made demand upon the defendant for settlement in
the early part of August; and, so far as we are able
to judge from the proof, the price of P6.15 per
cavan, fixed by the trial court, is about the price at
which the defendant should be required to settle as
of that date. It was the date of the demand of the
plaintiffs for settlement that determined the price to
be paid by the defendant, and this is true whether
the palay was delivered in the character of sale with
price undetermined or in the character of deposit
subject to use by the defendant. It results that the
plaintiffs are respectively entitle to recover the
value of the palay which they had placed with the
defendant during the period referred to, with
interest from the date of the filing of their several
complaints.
As already stated, the trial court found that at the
time of the fire there were about 360 cavans of
palay in the mill and that this palay was destroyed.
His Honor assumed that this was part of the palay
delivered by the plaintiffs, and he held that the
defendant should be credited with said amount. His
Honor therefore deducted from the claims of the
plaintiffs their respective proportionate shares of
this amount of palay. We are unable to see the
propriety of this feature of the decision. There were
many customers of the defendant's rice mill who
had placed their palay with the defendant under the
same conditions as the plaintiffs, and nothing can
be more certain than that the palay which was
burned did not belong to the plaintiffs. That palay
without a doubt had long been sold and marketed.
The assignments of error of each of the plaintiffs-
appellants in which this feature of the decision is
attacked are therefore well taken; and the appealed
judgments must be modified by eliminating the
 deductions which the trial court allowed from the
plaintiffs' claims.
The trial judge also allowed a deduction from the claim of
the plaintiff Guillermo Baron of 167 cavans of palay, as
indicated in Exhibit 12, 13, 14, and 16. This was also
erroneous. These exhibits relate to transactions that
occurred nearly two years after the transactions with which
we are here concerned, and they were offered in evidence
merely to show the character of subsequent transactions
between the parties, it appearing that at the time said
exhibits came into existence the defendant had
reconstructed his mill and that business relations with
Guillermo Baron had been resumed. The transactions
shown by these exhibits (which relate to palay withdrawn
by the plaintiff from the defendant's mill) were not made
the subject of controversy in either the complaint or the
cross-complaint of the defendant in the second case. They
therefore should not have been taken into account as a
credit in favor of the defendant. Said credit must therefore
be likewise of course be without prejudice to any proper
adjustment of the rights of the parties with respect to these
subsequent transactions that they have heretofore or may
hereafter effect.
The preceding discussion disposes of all vital
contentions relative to the liability of the defendant
upon the causes of action stated in the complaints.
We proceed therefore now to consider the question
of the liability of the plaintiff Guillermo Baron upon
the cross-complaint of Pablo David in case R. G.
No. 26949. In this cross-action the defendant seek,
as the stated in the third paragraph of this opinion,
to recover damages for the wrongful suing out of an
attachment by the plaintiff and the levy of the same
upon the defendant's rice mill. It appears that about
two and one-half months after said action was
begun, the plaintiff, Guillermo Baron, asked for an
attachment to be issued against the property of the
defendant; and to procure the issuance of said writ
the plaintiff made affidavit to the effect that the
defendant was disposing, or attempting the plaintiff.
Upon this affidavit an attachment was issued as
prayed, and on March 27, 1924, it was levied upon
the defendant's rice mill, and other property, real
and personal. 1awph!l.net
Upon attaching the property the sheriff closed the
mill and placed it in the care of a deputy.
Operations were not resumed until September 13,
1924, when the attachment was dissolved by an
order of the court and the defendant was permitted
to resume control. At the time the attachment was
levied there were, in the bodega, more than 20,000
cavans of palay belonging to persons who held
receipts therefor; and in order to get this grain away
from the sheriff, twenty-four of the depositors found
it necessary to submit third-party claims to the
sheriff. When these claims were put in the sheriff
notified the plaintiff that a bond in the amount of
P50,000 must be given, otherwise the grain would
be released. The plaintiff, being unable or unwilling
to give this bond, the sheriff surrendered the palay
to the claimants; but the attachment on the rice mill
was maintained until September 13, as above
stated, covering a period of one hundred seventy
days during which the mill was idle. The ground
upon which the attachment was based, as set forth
in the plaintiff's affidavit was that the defendant was
disposing or attempting to dispose of his property
for the purpose of defrauding the plaintiff. That this
allegation was false is clearly apparent, and not a
word of proof has been submitted in support of the
assertion. On the contrary, the defendant testified
that at the time this attachment was secured he
 was solvent and could have paid his indebtedness
to the plaintiff if judgment had been rendered
against him in ordinary course. His financial
conditions was of course well known to the plaintiff,
who is his uncle. The defendant also states that he
had not conveyed away any of his property, nor
had intended to do so, for the purpose of
defrauding the plaintiff. We have before us
therefore a case of a baseless attachment,
recklessly sued out upon a false affidavit and levied
upon the defendant's property to his great and
needless damage. That the act of the plaintiff in
suing out the writ was wholly unjustifiable is
perhaps also indicated in the circumstance that the
attachment was finally dissolved upon the motion of
the plaintiff himself.
The defendant testified that his mill was accustomed to
clean from 400 to 450 cavans of palay per day, producing
225 cavans of rice of 57 kilos each. The price charged for
cleaning each cavan rice was 30 centavos. The defendant
also stated that the expense of running the mill per day
was from P18 to P25, and that the net profit per day on the
mill was more than P40. As the mill was not accustomed to
run on Sundays and holiday, we estimate that the
defendant lost the profit that would have been earned on
not less than one hundred forty work days. Figuring his
profits at P40 per day, which would appear to be a
conservative estimate, the actual net loss resulting from his
failure to operate the mill during the time stated could not
have been less than P5,600. The reasonableness of these
figures is also indicated in the fact that the twenty-four
customers who intervened with third-party claims took out
of the camarin 20,000 cavans of palay, practically all of
which, in the ordinary course of events, would have been
milled in this plant by the defendant. And of course other
grain would have found its way to this mill if it had
remained open during the one hundred forty days when it
was closed.
But this is not all. When the attachment was
dissolved and the mill again opened, the defendant
found that his customers had become scattered
and could not be easily gotten back. So slow,
indeed, was his patronage in returning that during
the remainder of the year 1924 the defendant was
able to mill scarcely more than the grain belonging
to himself and his brothers; and even after the next
season opened many of his old customers did not
return. Several of these individuals, testifying as
witnesses in this case, stated that, owing to the
unpleasant experience which they had in getting
back their grain from the sheriff to the mill of the
defendant, though they had previously had much
confidence in him.
As against the defendant's proof showing the facts above
stated the plaintiff submitted no evidence whatever. We
are therefore constrained to hold that the defendant was
damaged by the attachment to the extent of P5,600, in
profits lost by the closure of the mill, and to the extent of
P1,400 for injury to the good-will of his business, making a
total of P7,000. For this amount the defendant must
recover judgment on his cross-complaint.
The trial court, in dismissing the defendant's cross-
complaint for damages resulting from the wrongful suing
out of the attachment, suggested that the closure of the
rice mill was a mere act of the sheriff for which the plaintiff
was not responsible and that the defendant might have
been permitted by the sheriff to continue running the mill if
he had applied to the sheriff for permission to operate it.
This singular suggestion will not bear a moment's criticism.
It was of course the duty of the sheriff, in levying the
attachment, to take the attached property into his
possession, and the closure of the mill was a natural, and
even necessary, consequence of the attachment. For the
damage thus inflicted upon the defendant the plaintiff is
undoubtedly responsible.
One feature of the cross-complaint consist in the claim of
the defendant (cross-complaint) for the sum of P20,000 as
damages caused to the defendant by the false and alleged
malicious statements contained in the affidavit upon which
the attachment was procured. The additional sum of
P5,000 is also claimed as exemplary damages. It is clear
that with respect to these damages the cross-action cannot
be maintained, for the reason that the affidavit in question
was used in course of a legal proceeding for the purpose
of obtaining a legal remedy, and it is therefore privileged.
But though the affidavit is not actionable as a libelous
publication, this fact in no obstacle to the maintenance of
an action to recover the damage resulting from the levy of
the attachment.
Before closing this opinion a word should be said
upon the point raised in the first assignment of error
of Pablo David as defendant in case R. G. No.
26949. In this connection it appears that the
deposition of Guillermo Baron was presented in
court as evidence and was admitted as an exhibit,
without being actually read to the court. It is
supposed in the assignment of error now under
consideration that the deposition is not available as
evidence to the plaintiff because it was not actually
read out in court. This connection is not well
founded. It is true that in section 364 of the Code of
Civil Procedure it is said that a deposition, once
taken, may be read by either party and will then be
deemed the evidence of the party reading it. The
use of the word "read" in this section finds its
explanation of course in the American practice of
trying cases for the most part before juries. When a
case is thus tried the actual reading of the
deposition is necessary in order that the jurymen
may become acquainted with its contents. But in
courts of equity, and in all courts where judges
have the evidence before them for perusal at their
pleasure, it is not necessary that the deposition
should be actually read when presented as
evidence.
From what has been said it result that judgment of the
court below must be modified with respect to the amounts
recoverable by the respective plaintiffs in the two actions
R. G. Nos. 26948 and 26949 and must be reversed in
respect to the disposition of the cross-complaint interposed
by the defendant in case R. G. No. 26949, with the
following result: In case R. G. No. 26948 the plaintiff
Silvestra Baron will recover of the Pablo David the sum of
P6,227.24, with interest from November 21, 1923, the date
of the filing of her complaint, and with costs. In case R. G.
No. 26949 the plaintiff Guillermo Baron will recover of the
defendant Pablo David the sum of P8,669.75, with interest
from January 9, 1924. In the same case the defendant
Pablo David, as plaintiff in the cross-complaint, will recover
of Guillermo Baron the sum of P7,000, without costs. So
ordered.
Avanceña, C.J., Johnson, Malcolm, Villamor, Romualdez
and Villa-Real, JJ., concur.
Delgado vs. Bonnevie
Lessons Applicable: Simple Loan
Laws Applicable:
Facts:
December 6, 1966: Spouses Jose M. Lozano and Josefa
P. Lozano secured their loan of P75K from Philippine Bank
of Commerce (PBC) by mortgaging their property
December 8, 1966: Executed Deed of Sale with Mortgage 29, 1969 that Honesto Bonnevie first wrote respondent and
to Honesto Bonnevie where P75K is payable to PBC and offered to redeem the property.
P25K is payable to Spouses Lanzano. loan matured on December 26, 1967 so
April 28, 1967 to July 12, 1968: Honesto Bonnevie paid a when respondent Bank applied for foreclosure, the loan
total of P18,944.22 to PBC was already six months overdue. Payment of interest on
May 4, 1968: Honesto Bonnevie assigned all his rights July 12, 1968 does not make the earlier act of PBC
under the Deed of Sale with Assumption of Mortgage to his inequitous nor does it ipso facto result in the renewal of the
brother, intervenor Raoul Bonnevie loan. In order that a renewal of a loan may be effected, not
June 10, 1968: PBC applied for the foreclosure of the only the payment of the accrued interest is necessary but
mortgage, and notice of sale was published also the payment of interest for the proposed period
January 26, 1971: Honesto Bonnevie filed in the CFI of of renewal as well. Besides, whether or not a loan may be
Rizal against Philippine Bank of Commerce for the renewed does not solely depend on the debtor but more so
annulment of the Deed of Mortgage dated December 6, on the discretion of the bank.
1966 as well as the extrajudicial foreclosure made on
September 4, 1968. G.R. No. L-7097 October 23, 1912
CFI: Dismissed the complaint with costs against the
Bonnevies VICENTE DELGADO, defendant-appellee,
CA: Affirmed vs.
ISSUE: W/N the forclosure on the mortgage is validly PEDRO BONNEVIE and FRANCISCO
executed. ARANDEZ, plaintiffs-appellants.

HELD: YES. CA affirmed
A contract of loan being a consensual contract is perfected
at the same time the contract of mortgage was executed.
The promissory note executed on December 12, 1966 is
only an evidence of indebtedness and does not indicate
lack of consideration of the mortgage at the time of its
execution.
Respondent Bank had every right to rely on the certificate
of title. It was not bound to go behind the same to look for
flaws in the mortgagor's title, the doctrine of innocent
purchaser for value being applicable to an innocent
mortgagee for value.
Thru certificate of sale in favor of appellee was registered
on September 2, 1968 and the one year redemption period
expired on September 3, 1969. It was not until September
O' Brien and DeWitt, and A. V. Herrero, for appellants.
Roco and Roco, for appellee.
ARELLANO, C.J.:
When Pedro Bonnevie and Francisco Arandez formed in
Nueva Caceres, Ambos Camarines, a regular general
partnership for engaging in the business of threshing
paddy, Vicente Delgado undertook to deliver to them
paddy for this purpose to be cleaned and returned to him
as rice, with the agreement of payment them
10 centimos for eachcavan and to have returned in the rice
one-half the amount received as paddy. The paddy
received for this purpose was credited by receipts made
out in this way: "Receipt for (number) cavanes of paddy in
favor of (owner of the paddy), Nueva Caceres, (day) of
(month), 1898." And they issued to Vicente Delgado
receipts Nos. 86-99 for a total of 2,003 cavanes and a half
of paddy, from April 9 to June 8, 1898.
On February 6, 1909, Vicente Delgado appeared in the
Court of First Instance of Ambos Camarines with said
receipts, demanding return of the said 2,003 and a
half cavanes of paddy, or in the absence thereof, of the
price of said article at the rate of 3 pesos the cavan of
6,009 pesos and 50 centimos, with the interest thereon at
6 percent a year reckoning from, November 21, 905, until
complete payment, and the costs. The plaintiff asked that
the interest run from November 21, 1905, because on that
date his counsel demanded of the defendants, Bonnevie
and Arandez, their partnership having been dissolved, that
they settle the accounts in this matter.
The court decided the case by sentencing the defendant,
Pedro Bonnevie and Francisco Arandez, to pay to Vicente
Delgado two thousand seven hundred and fifty-four pesos
and 81 centimos (2,754.81), the value of 2,003
½cavanes of paddy at the rate of 11 reales the cavan and
6 percent interest on said sum reckoned from November
21, 1905, and the costs.
On appeal to this Supreme Court, the only grounds of error
assigned are: (1) Violation of articles 532 and 950 of the
Code of Commerce; (2) violation of articles 309 of the
Code of Commerce and 1955 and 1962 of the Civil Code;
and (3) violation of section 296 of the Code of Civil
Procedure.
With reference to the first assignment of error it is alleged
that the receipts in question, the form whereof has been
set forth, were all issued before July 11, 1898, and being
credit paper as defined in paragraph 2 of article 532 of the
Code of Commerce, the right of action arising therefrom
prescribed before July 11, 1901, in accordance with article
950 of the Code of Commerce.
This conclusion is not admissible. It is true that, according
to the article 950 of the Code of Commerce, actions arising
from bills of exchange, drafts, notes, checks, securities,
dividends, coupons, and the amounts of the amortization
of obligations issued in accordance with said code, shall
extinguish three years after they have fallen due; but it is
also true that as the receipts in question are not
documents of any kinds enumerated in said article, the
actions arising therefrom do not extinguish three years
from their date (that, after all, they do not fall due). It is true
that paragraph 2 of article 950 also mentions, besides
those already stated, "other instruments of draft or
exchange;" but it is also true that the receipts in this case
are not documents of draft or exchange, they are not
drafts payable to order, but they are, as the appellants
acknowledge, simple promises to pay, or rather mere
documents evidencing the receipt of some cavanes of
paddy for the purpose already stated, which is nothing
more than purely for industrial, and not for mercantile
exchange. They are documents such as would be issued
by the thousand so-called rice-mills scattered throughout
the Islands, wherein a few poor women of the people in
like manner clean the paddy by pounding it with a pestle
and return hulled rice. The contract whereby one person
receives from another a quantity of unhulled rice to return it
hulled, for a fixed compensation or renumeration, is an
industrial, not a commercial act; it is, as the appellant say,
a hire of services without mercantile character, for there is
nothing about the operation of washing clothes. Articles
532 and 950 of the Code of Commerce have not,
therefore, been violated, for they are not applicable to the
case at bar.
Neither are articles 309 of the Code of Commerce and
1955 and 1962 of the Civil Code applicable. The first of
these articles reads thus:
Whenever, with the consent of the depositor, the
depositary disposes of the articles on deposit either for
himself or for his business, or for transactions intrusted to
him by the former, the rights and obligations of the
depositary and of the depositor shall cease, and the rules
and provisions applicable to the commercial loans,
commission, or contract which took place of the deposit
shall be observed.
The appellants say that, in accordance with this legal
provision, the puddy received on deposit ceased to
continue under such character in order to remain in their
possession under the contract of hire of services, in virtue
whereof they could change it by returning rice instead of
paddy and a half less than the quantity received. They
further say that the ownership of personal property,
according to article 1955 of the Civil Code, prescribes by
uninterrupted possession for six years, without necessity of
any other condition, and in accordance with article 1962 of
the same Code real actions, with regard to personal
property, prescribe after the lapse of six years from the
loss of possession. 1awphil.net
Two questions are presented in these allegations: One
regarding the nature of the obligation contracted by the
appellants; and the other regarding prescription, not for a
period of three years, but of six years.
With reference to the first, it is acknowledged that the
obligation of the appellants arose primarily out of the
contract of deposit, but this deposit was later converted
into a contract of hire of services, and this is true. But it is
also true that, after the object of the hire of services had
been fulfilled, the rice in every way remained as a deposit
in the possession of the appellants for them to return to the
depositor at any time they might be required to do so, and
nothing has relieved them of this obligation; neither the
dissolution of the partnership that united them, nor the
revolutionary movement of a political character that seems
to have occurred in 1898, nor the fact that they may at
some time have lost possession of the rice.
With reference to the second question, or under title of
deposit or hire of services, the possession of the
appellants can in no way amount to prescription, for the
thing received on deposit or for hire of services could not
prescribe, since for every prescription of ownership the
possession must be in the capacity of an owner, public,
peaceful, and uninterrupted (Civil Code, 1941); and the
appellants could not possess the rice in the capacity of
owners, taking for granted that the depositor or lessor
never could have believed that he had transferred to them
ownership of the thing deposited or leased, but merely the
care of the thing on deposit and the use or profit thereof;
which is expressed in legal terms by saying that the
possession of the depositary or of the lessee is not
adverse to that of the depositor or lessor, who continues to
be the owner of the thing which is merely held in trust by
the depositary or lessee.
In strict law, the deposit, when it is of fungible goods
received by weight, number or measurement, becomes a
mutual loan, by reason of the authorization which the
depositary may have from the depositor to make use of the
goods deposited. (Civil Code, 1768, and Code of
Commerce, 309.) .
But in the present case neither was there for authorization
of the depositor nor did the depositaries intend to make
use of the rice for their own consumption or profit; they
were merely released from the obligation of returning the
same thing and contracted in lieu thereof the obligation of
delivering something similar to the half of it, being bound
by no fixed terms, the opposite of what happens in a
mutual loan, to make the delivery or return when and how
it might please the depositor.
In fact, it has happened that the depositaries have, with the
consent of the depositor, as provided in article 309 of the
Code of Commerce, disposed of the paddy "for
transactions he intrusted to them," and that in lieu of the
deposit there has been a hire of services, which is one
entered into between the parties to the end that one should
return in rice half of the quantity of paddy delivered by the
other, with the obligation on the latter's part of paying
10 centimosfor each cavan of hulled rice. The
consequence of this is that the rules and regulations for
contract of hire of services must be applied to the case,
one of which is that the thing must be returned after the
operation entrusted and payment of compensation, and
the other that the action for claiming the thing leased,
being personal, does not prescribe for fifteen years under
article 1964 of the Civil Code. 1awphi1.net
If the action arising from the receipts in question does not
prescribe in three years, as does that from bills of
exchange, because they are not drafts payable to order or
anything but receipts that any warehouseman would sign;
if the possession of the paddy on the part of those who
received it for threshing is not in the capacity of owner but
only in that of depositary or lessor of services and under
such character ownership thereof could not prescribe in six
years, or at any time, because adverse possession and not
mere holding in trust is required prescription; if the action
to recover the paddy so delivered is not real with regard to
personal property, possession whereof has been lost, but
a personal obligation arising from contract of lease for
recovery of possession that has not been lost but
maintained in the lessee in the name of the lessor; if
prescription of any kind can in no way be held, only
because there could not have been either beginning or end
of a fixed period for the prescription, it is useless to talk of
interruption of the period for the prescription, to which
tends the third assignment of error, wherein it is said that
the court violated article 296 of the Code of Civil Procedure
in admitting as proven facts not alleged in the complaint,
justas if by admitting them there would have been a finding
with regard to the computation of the period for timely
exercise of the action, taking into consideration the legal
interruptions of the running of the period of prescription.
The court has made no finding in the sense that this or that
period of time during which these or those facts occured
must be counted out, and therefore the action has not
prescribed, because by eliminating such period of time and
comparing such and such date the action has been
brought in due time. Prescription of three or six years
cannot be presupposed in the terms alleged, but only of
fifteen years, which is what is proper to oppose to the
exercise of a right of action arising from hire of services
and even of deposit or mutual loan, whether common or
mercantile; and such is the prescription considered
possible by the trial court, in conformity with articles 943 of
the Code of Commerce and 1964 of the Civil Code.
The trial judge confined himself to sentencing the
defendants to payment of the price of the paddy, ignoring
the thing itself, return whereof ought to have been the
subject of judgment in the first place, because the thing
itself appears to have been extinguished and its price has
taken its place. But the assigning of legal interest from
November 21, 1905, can have no other ground than the
demand made by plaintiff's counsel upon the defendants to
settle this matter. Legal interest on delinquent debts can
only be owed from the time the principal amount
constitutes a clear and certain debt, and in the present
case the principal debt has only been clear and certain
since the date of the judgment of the lower court; so the
legal interest can be owed. only since then.
The judgment appealed from is affirmed, except that the
legal interest shall be understood to be owed from the date
thereof; with the costs of this instance against the
appellants.
Torres, Mapa, Johnson and Carson, JJ., concur.
STREET, J.:
This action was instituted in the Court of First Instance of
the Province of Iloilo by Fabiola Severino, with whom is
joined her husband Ricardo Vergara, for the purpose of
recovering the sum of P20,000 from Guillermo Severino
and Enrique Echaus, the latter in the character of
guarantor for the former. Upon hearing he cause the trial
court gave judgment in favor of the plaintiffs to recover the
sum of P20,000 with lawful from November 15, 1929, the
date of the filing of the complaint, with costs. But it was
declared that execution of this judgment should issue first
against the property of Guillermo Severino, and if no
property should be found belonging to said defendant
sufficient to satisfy the judgment in whole or in part,
execution for the remainder should be issued against the
property of Enrique Echaus as guarantor. From this
judgment the defendant Echaus appealed, but his
principal, Guillermo Severino, did not.

Republic of the Philippines The plaintiff Fabiola Severino is the recognized natural
SUPREME COURT daughter of Melecio Severino, deceased, former resident
Manila of Occidental Negros. Upon the death of Melecio Severino
a number of years ago, he left considerable property and
EN BANC litigation ensued between his widow, Felicitas Villanueva,
and Fabiola Severino, on the one part, and other heirs of
G.R. No. 34642 September 24, 1931 the deceased on the other part. In order to make an end of
this litigation a compromise was effected by which
FABIOLA SEVERINO, accompanied by her husband Guillermo Severino, a son of Melecio Severino, took over
RICARDO VERGARA, plaintiffs-appellees, the property pertaining to the estate of his father at the
vs. same time agreeing to pay P100,000 to Felicitas
GUILLERMO SEVERINO, ET AL., defendants. Villanueva and Fabiola Severino. This sum of money was
ENRIQUE ECHAUS, appellant. made payable, first, P40,000 in cash upon the execution of
the document of compromise, and the balance in three
several payments of P20,000 at the end of one year; two
R. Nepomuceno for appellant.
years, and three years respectively. To this contract the
Jacinto E. Evidente for appellees.
appellant Enrique Echaus affixed his name as guarantor.
The first payment of P40,000 was made on July 11, 1924,
the date when the contract of compromise was executed;
and of this amount the plaintiff Fabiola Severino received
the sum of P10,000. Of the remaining P60,000, all as yet
unpaid, Fabiola Severino is entitled to the sum of P20,000.
It appears that at the time of the compromise agreement
above-mentioned was executed Fabiola Severino had not
yet been judicially recognized as the natural daughter of
Melecio Severino, and it was stipulated that the last
P20,000 corresponding to Fabiola and the last P5,000
corresponding to Felicitas Villanueva should retained on
deposit until the definite status of Fabiola Severino as
natural daughter of Melecio Severino should be
established. The judicial decree to this effect was entered
in the Court of First Instance of Occidental Negros on June
16, 1925, and as the money which was contemplated to be
held in suspense has never in fact been paid to the parties
entitled thereto, it results that the point respecting the
deposit referred to has ceased to be of moment.
The proof shows that the money claimed in this action has
never been paid and is still owing to the plaintiff; and the
only defense worth noting in this decision is the assertion
on the part of Enrique Echaus that he received nothing for
affixing his signature as guarantor to the contract which is
the subject of suit and that in effect the contract was
lacking in consideration as to him.
The point is not well taken. A guarantor or surety is bound
by the same consideration that makes the contract
effective between the principal parties thereto. (Pyle vs.
Johnson, 9 Phil., 249.) The compromise and dismissal of a
lawsuit is recognized in law as a valuable consideration;
and the dismissal of the action which Felicitas Villanueva
and Fabiola Severino had instituted against Guillermo
Severino was an adequate consideration to support the
promise on the part of Guillermo Severino to pay the sum
of money stipulated in the contract which is the subject of
this action. The promise of the appellant Echaus as
guarantor therefore binding. It is never necessary that the
guarantor or surety should receive any part of the benefit, if
such there be, accruing to his principal. But the true
consideration of this contract was the detriment suffered by
the plaintiffs in the former action in dismissing that
proceeding, and it is immaterial that no benefit may have
accrued either to the principal or his guarantor.
The judgment appealed from is in all respects correct, and
the same will be affirmed, with costs against the appellant.
So ordered.
Avanceña, C.J., Johnson, Malcolm, Villamor, Ostrand,
Romualdez, Villa-Real and Imperial, JJ., concur.
G.R. No. L-22108 August 30, 1967
GOVERNMENT OF THE REPUBLIC OF THE
PHILIPPINES, represented by the BUREAU OF
SUPPLY COORDINATION plaintiff-appellee,
vs.
MARCELINO TIZON, ET AL., defendants.
CAPITAL INSURANCE and SURETY CO.,
INC., defendant-appellant.
Achacoso, Nera and Ocampo for defendant-appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant
Solicitor General J.C. Borromeo and Solicitor N. P.
Eduardo for plaintiff-appellee.
ANGELES, J.:
Appeal from an order of the Court of First Instance of
Manila, dated September 11, 1963, expunging from the
record of the case the answer of the Capital Insurance &
Surety, Co., Inc. and remanding said record to the City
Court of Manila for execution against the Surety of the
decision rendered by the latter court.
It appears that in a bidding conducted by the Bureau of
Supply Coordination of the Department of General
Services, for the supply of "one (1) Baylift portable heavy-
duty truck and auto lift, fully air operated, 500 lbs. capacity,
and two (2) Baylift Ramps, U.S. manufacture", Tizon
engineering, of which Marcelino Tizon was the sole owner
and proprietor, won the bid, having offered the lowest bid
of P4,000.00. To guarantee faithful performance of the
conditions of the bid, the Bureau of Supply Coordination
required Tizon Engineering to give a bond in the sum of
P10,000.00. On September 12, 1958, the Surety issued its
bond for the said amount in favor of the Republic of the
Philippines. Tizon Engineering failed to comply with the
conditions of the bid, failing as he did to deliver the
equipment called for in the Buyer's order No. 42546 of the
Bureau of Supply, constraining the latter to purchase the
equipment from Fema Trading, the second lowest bidder,
resulting in a loss of P2,975.00 to the Government.
Notwithstanding demands made by the Bureau of Supply
on defendants Marcelino Tizon and the Surety to pay said
amount, they failed and refused. Hence, complaint was
filed in the City Court of Manila by the Republic of the
Philippines to recover the said sum with legal interests,
plus attorney's fees and costs.
Defendant Tizon averred in his answer that: (a) "the
alleged bidding conducted by the Bureau of Supply is in
utter disregard and wanton violation of the Rules and
Regulations of the said office"; (b) "that assuming that a
corresponding buyer's order was prepared, the same was
not delivered to and duly received by him, such that there
has never been a binding contract between plaintiff and
the answering defendant; furthermore, the plaintiff
deliberately failed to notify the answering defendant as to
the acceptance of his bid, thus again violating the Rules
and Regulations mentioned above"; (c) that the bond-
issued by the Surety "answers only (for) those contracts
legally entered into by the herein defendants with the
Bureau of Supply and certainly not those contracts and/or
bids which are of doubtful legality, as in the present case."
The defendant Surety, in answer to the complaint, admitted
having executed a bond in favor of the Republic of the
Philippines for the purpose as therein stated, but denied
"that it failed and refused to pay the demand (of the
plaintiff), the truth of the matter being that its co-defendant,
Marcelino Tizon, doing business under the name of Tizon
Engineering, has put it on notice not to settle the claim
because he is not in any way whatsoever liable to plaintiff."
As cross-claim against defendant Tizon, the Surety
asserted that if it is made liable to the plaintiff on its bond,
Marcelino Tizon should be ordered to make the
corresponding reimbursement, with interest of 12%, plus
attorney's fees.
After trial, judgment was rendered in favor of the plaintiff
and against the defendants, ordering the latter to
pay,jointly and severally, the sum of P2,972.00 with legal
interests from November 12, 1960, and the costs of suit.
On the cross-claim of the Surety, defendant Tizon was
ordered to reimburse the cross-plaintiff of whatever amount
the latter might have paid to the plaintiff, plus P100.00 as
attorney's fees.
Only defendant Tizon appealed from the decision to the
Court of First Instance of Manila.
Within fifteen days from receipt of notice from the clerk of
the Court of First Instance of Manila, that the case has
been received and docketed in said court, the defendants,
Tizon and the Surety, each filed separate manifestations
that they were reproducing their respective answers filed in
the City Court.
On August 29, 1963, the plaintiff filed a motion praying "(a)
To strike out the answer filed by the Surety reproducing its
answer filed in the City Court; (b) To remand the case to
the City Court, as concerns the Surety, for execution of the
judgment rendered in said court."
The Surety opposed the motion on two grounds: (a) that
although it did not appeal from the decision of the inferior
court, the appeal interposed by its co-defendant inured to
its benefit, because the obligation sued on "is so
dependent on that of the principal debtor, that the Surety is
considered in law as being the same party in relation to
whatever is adjudged, touching the obligation of its co-
defendant"; and (b) the appeal of its co-defendant, the
principal debtor, "should be considered in law as to include
the defendant Surety, in view of the latter's cross-claim
against the former." The opposition was over-ruled in the
order appealed from.
The issue at this instance is whether an appeal by one of
the parties sentenced to pay solidarily a sum of money,
inures to the benefit of the other who did not appeal. The
pronouncements in the case of Municipality of Orion vs.
Concha, 50 Phil. 682, provide ample guideposts in the
resolution of the issue at bar. In said case this Court held:
The judgment was joint and several, which means that
they are severally liable. We have made a careful
examination of numerous authorities and believe that we
are correct in saying that the effect of the appeal by one
judgment debtor upon the co-debtors depends upon the
particular facts and conditions in each case. The difference
in the apparently conflicting opinions may be well
illustrated in this very case.
Suppose, for example, that F. B. Concha, the contractor,
had appealed from the judgment of the lower court upon
the ground that he had either completed his contract within
time or that the municipality had suffered no damages
whatever, and the Supreme Court had reversed the
judgment of the lower court on his appeal. Certainly that
judgment would have the effect of relieving the bondsmen
from any liability whatever, for the reason that their liability
was consequent upon the liability of the contractor; and the
court having declared that no liability for damages had
resulted from the execution of said contract, then certainly
the bondsmen would have been relieved because their
liability depended upon the liability of the principal. That
example gives us a clear case, showing that the effect of
the appeal of the one of the judgment debtors would
necessarily have the effect of releasing his co-judgment
debtors.
xxx xxx xxx
As we have already said, whether an appeal by one of
several judgment debtors will affect the liability of those
who did not appeal must depend upon the facts in each
particular case. If the judgment can only be sustained upon
the liability of the one who appeals and the liability of the
other co-judgment debtors depends solely upon the
question whether or not the appellant is liable, and the
judgment is revoked as to that appellant, then the result of
his appeal will inure to the benefit of all. . . .
The rule is quite general that a reversal as to parties
appealing does not necessitate a reversal as to parties not
appealing, but that the judgment may be affirmed or left
undisturbed as to them. An exception to the rule exists,
however, where a judgment cannot be reversed as to the
party appealing without affecting the rights of his co-
debtor. (4 C.J. 1184)
A reversal of a judgment on appeal is binding on the
parties to the suit, but does not inure to the benefit of
parties against whom judgment was rendered in the lower
court who did not join in the appeal, unless their rights and
liabilities and those of the parties appealing are so
interwoven and dependent as to be inseparable, in which
case a reversal as to one operates as a reversal as to
all. (4 C.J., 1206; Alling vs. Wenzel, 133 Ill., 264-278.)
In the case of Brashear vs. Carlin, Curator (19 La. 395) a
judgment was rendered in the lower court against
the principal debtor and his surety to pay damages. The
principal debtor alone appealed and the judgment was
reversed. When the question of the liability of the surety
under the judgment of the lower court was raised, the court
said:
"It is obvious, that the judgment of the inferior court could
not be reversed as to the principal debtor in this case, and
continue in force against the surety. The latter could not
remain bound, after the former had been released;
although the surety had not joined in the appeal, the
judgment rendered in this court inured to his benefit. The
obligation of a surety is so dependent on that of the
principal debtor, that he is considered in law as being the
same party as the debtor in relation to whatever is
adjudged, touching the obligation of the latter; provided it
be not on grounds personal to such principal debtor; it is
for this reason, that a judgment in favor of the principal
debtor can be invoked as res judicata by the surety."
In the case of Schoenberger vs. White (75 Con. 605) a
joint judgment was rendered against husband and wife for
a sum of money in an action ex contractu. The wife
appealed. As to the effect of the appeal of the wife upon
the liability of both, the court said:
"Such a judgment is an entirety, and upon appeal to this
court must be affirmed or set aside in toto."
"That the husband was not so made a party does not vary
this rule. After the filing of the notice of appeal, he had the
right to be heard in this court as to all the questions
brought up for review. As he has not exercised this right, it
may be assumed that he is content with the judgment
against him as it stands; but he might complain of it, were
we to modify it by reducing the amount which it requires his
wife to pay, and thus reducing the amount of the
contribution which he might be able to call upon her to
make, in case he paid all that it requires of him."
In the case of Philippines International Surety Co., Inc. vs.
Commissioner of Customs, L-22790, December 17, 1966,
this Court, speaking through Chief Justice Concepcion,
sanctioned the view, albeit impliedly, that under a given set
of facts, the appeal of the principal debtor, if successful,
may inure to the benefit of the surety. Held this Court in
that case:
Although the appeal taken from said decision by the
importer (principal debtor) might have, perhaps, inured to
the benefit of the surety, if, the result of that appeal had
been favorable to said importer, the fact is he had failed in
his appeal.1äwphï1.ñët
Solution of the question posed in this appeal hinges on the
nature of the obligation assumed by the Surety under its
bond. As Article 1222 of the new Civil Code provides:
A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses which are derived from the nature of
the obligation and of those which are personal to him, or
pertain to his own share. With respect to those which
personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the
latter are responsible.
Pertinent parts of the surety bond provides:
That we, Tizon Engineering, as principal, and the Capital
Insurance & Surety Co., Inc., as surety, . . . are held and
firmly bound unto the Republic of the Philippines, in the
penal sum of P10,000.00, for the payment of which sum,
well and truly to be made, we bind ourselves, Jointly and
Severally, by these presents.
Whereas, the principal agrees to comply with all the terms
and conditions of the proposal with the Bureau of Supply;
NOW THEREFORE, the conditions of this obligations are
such that if the above bounden principal shall, in case he
becomes the successful bidder in any of the proposal of
the Bureau of Supply — (a) accept a contract with the
Republic of the Philippines, represented by the Bureau of
Supply; (b) faithfully and truly performs in good faith the
contract; (c) to pay to the Republic of the Philippines, in
case of delay and/or default in the execution of the
contract, any loss or damages which the latter may suffer
by reason thereof, not to exceed the sum of P10,000.00,
Philippine currency, then this obligation shall be void,
otherwise it shall remain in full force and effect.
It thus appears that the Surety bound itself, jointly and
severally, with the principal obligor to pay the Republic of
the Philippines any loss or damage the latter may suffer,
not exceeding P10,000.00, "in case of delay and/or default
in the execution of the contract."
However, although the defendants bound themselves in
solidum, the liability of the Surety under its bond would
arise only if its co-defendant, the principal obligor, should
fail to comply with the contract. To paraphrase the ruling in
the case of Municipality of Orion vs. Concha, the liability of
the Surety is "consequent upon the liability" of Tizon, or "so
dependent on that of the principal debtor" that the Surety
"is considered in law as being the same party as the debtor
in relation to whatever is adjudged, touching the obligation
of the latter"; or the liabilities of the two defendants herein
"are so interwoven and dependent as to be inseparable."
Changing the expression, if the defendants are held liable,
their liability to pay the plaintiff would be solidary, but the
nature of the Surety's undertaking is such that it does not
incur liability unless and until the principal debtor is held
liable.
True, it is that the Surety did not appeal the decision of the
inferior court to the Court of First Instance, and on account
of its failure to appeal, it lost its personality to appear in the
latter court or to file an answer therein. However this may
be, it is not certain at this stage of the proceeding that the
Surety's liability unto plaintiff has attached. The principal
debtor has asserted on appeal that it has no liability
whatsoever to the plaintiff, and, if this assertion be proven
and sustained, the reversal of the judgment of the inferior Liberty Insurance Corp. was the only defendant and the
court would operate as a reversal on the Surety, even decision was against said defendant alone. The third party
though it did not appeal, in view of the dependency of its defendants were impleaded as such upon the third party
obligation upon the liability of the principal debtor. The complaint filed against them by the Liberty Insurance Corp.
principal debtor might succeed in his appeal; in such And as stated in the decision in said case, "the record
eventuality, the judgment of the inferior court could not does not disclose whether the third-party defendants filed
continue in force against the Surety. Consequently, it is an answer to the third-party complaint or not." Moreover,
premature at this juncture to execute said judgment the liability of the third-party defendants to the third-party
against the Surety. plaintiff stemmed from the indemnity agreement executed
by them in favor of the Liberty Insurance Corp., and the
The situation of the Surety may be likened to that of a third-party defendants did not have privity of contract with
defaulting defendant whose right is protected under the creditor Ishar Singh.
Section 4, Rule 18 of the Rules of Court as follows:
Upon the foregoing considerations, that portion of the
Judgment When Some Defendants Answer and Others appealed order remanding the record of the case to the
make Default.—When a complaint states a common cause City Court of Manila for execution of the decision of said
of action against several defendants, some of whom court is hereby set aside, without costs.
answer, and the others fail to do so, the court shall try the
case against all upon the answer thus filed and render Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar,
judgment upon the evidence presented. The same Sanchez, Castro and Fernando, JJ., concur.
procedure applies when a common cause of action is Concepcion, C.J., is on leave.
pleaded in a counterclaim, cross-claim and third-party
claim. Republic of the Philippines
SUPREME COURT
Albeit it may not personally be allowed to file an answer in Manila
the Court of First Instance, having failed to interpose an
appeal, the Surety can rely on the answer of its co- EN BANC
defendant and derive benefit therefrom if the judgment on
appeal should turn out to be favorable to the answering G.R. No. L-12077 June 27, 1958
defendant (Castro vs. Peña, 80 Phil. 488, 502).
EMMANUEL C. ONGSIAKO, ET AL., plaintiffs,
The decision in Ishar Singh vs. Liberty Insurance Corp. vs.
and Leonardo Anne, et al., (third-party defendants in the THE WORLD WIDE INSURANCE and SURETY CO.,
third-party complaint of Liberty Insurance Corp.), L-16860, INC., ET AL., defendants.
July 31, 1963, relied upon by the appellee, is not
applicable to the facts of the case at bar. In said case,
THE WORLD WIDE INSURANCE and SURETY CO.
INC.,cross-claimant-appellant,
vs.
CATALINA DE LEON, cross-defendant-appellee.
Villareal and Amacio for appellant.
Mariano M. Magsalin and Macario L. Nicolas for appellee.
BAUTISTA ANGELO, J.:
On November 10, 1951, Catalina de Leon executed in
favor of Augusto V. Ongsiako a promissory note in the
amount of P1,200.00, payable ninety (90) days after date,
with interest at 1 per cent per month. On the same date, a
surety bond was executed by Catalina de Leon, as
principal, and the World Wide Insurance & Surety Co., Inc.,
as surety, whereby they bound to pay said amount jointly
and severally to Augusto V. Ongsiako. As the obligation
was not paid on its date of maturity either by Catalina de
Leon or by the surety notwithstanding the demands made
upon them, Ongsiako brought this action on March 6, 1953
in the Municipal Court of Manila to recover the same from
both the principal and the surety. Judgment having been
rendered for the plaintiff, both defendants appealed to the
court of first instance. In the latter court, Catalina de Leon
failed to answer and so she was declared in default. In due
time the surety company filed its answer setting up a
counterclaim against plaintiff and a cross-claim against its
co-defendant.
After hearing, the court rendered judgment ordering
Catalina de Leon to pay plaintiff the sum of P1,200.00, with
interest at the rate of 1 per cent per month from February
10, 1952, and the sum of P300.00 as attorneys' fees, and
costs. Defendant surety company was likewise ordered to
pay to plaintiff the same judgment but with the proviso that
"execution should not issue against defendant The World-
Wide Insurance & Surety Co., Inc., until a return is made
by the Sheriff upon execution against defendant Catalina
de Leon showing that the judgment against her remained
unsatisfied in whole or in part; and provided, further, that
defendant Catalina de Leon shall reimburse to defendant
Company whatever amount the latter might pay under this
judgment together with such expenses as may be
necessary to effectuate said reimbursement." From this
judgment, the surety company appealed and the case is
now before us because, as certified by the Court of
Appeals, it only involves questions of law. Augusto V.
Ongsiako, having died in the meantime, was substituted by
his special administrators Emmanuel Ongsiako and
Severino Santiangco.
The surety bond in question was executed in November
10, 1951 and among the important provisions it contains is
the following: that the principal and the surety "are held
and firmly bound unto Dr. Augusto V. Ongsiako in the sum
of One Thousand Two Hundred Pesos (P1,200.00),
Philippine Currency, for the payment of which well and
truly to be made, we bind ourselves ... jointly and severally,
firmly by these presents" (and referring to the Promissory
Note) "whose terms and conditions are made parts
hereof." In said bond there also appears a special
condition which recites: "The Liability of the World-Wide
Insurance & Surety Co., Inc. under this bond will expire on
February 10, 1952." The note therein referred to, on the
other hand, provides that the obligation is payable ninety
days from date of issue, November 10, 1951, which means
that its date of maturity is February 10, 1952. The evidence
shows that neither the principal nor the surety paid the
obligation on said date of maturity and immediately
thereafter demands for payment were made upon them.
Thus, it appears that as early as February 12, 1952, or two
days thereafter, the creditor wrote to the surety company a
letter notifying it of the failure of its principal to pay the
obligation and requesting that it make good its guaranty
under the bond (Exhibit B), which demand was reiterated
in subsequent letters (Exhibits C, D and E). To these
demands, the company merely set up the defense that it
only acted as a guarantor and as such its liability cannot
be exacted until after the property of the principal shall
have been exhausted (Exhibit G).
It therefore appears that appellant has no justification
whatever to resist the claim of the plaintiff for in the
judgment appealed from it is precisely provided that
execution of judgment should not issue against it until after
it is shown that the execution of the judgment against the
principal has been returned by the sheriff unsatisfied,
which was the only excuse given by said appellant in not
fulfilling its commitment under the bond. And yet it
appealed from said judgment just to put up the additional
defense that its liability under the bond has already expired
because of the condition that its liability shall expire on
February 10, 1952. Even if this were true, we consider
however this stipulation as unfair and unreasonable for it
practically nullifies the nature of the undertaking assumed
by appellant. It should be noted that the principal obligation
is payable ninety days from date of issue, which falls on
February 10, 1952. Only on this date can demand for
payment be made on the principal debtor. If the debtor
should fail to pay and resort is made to the surety for
payment on the next day, it would be unfair for the latter to
allege that its liability has already expired. And yet such is
the stand taken by appellant. As the terms of the bond
should be given a reasonable interpretation, it is logical to
hold that the liability of the surety attaches as soon as the
principal debtor defaults, and notice thereof is given the
surety within reasonable time to enable it to take steps to
protect its interest. This is what was done by appellee in
the present case. After all, the surety has a remedy under
the law which is to foreclose the counterbond put up by the
principal debtor. This is in effect what was done by the
lower court.
This Court has taken note of the reprehensible attitude
adopted by the surety company in this case by resorting to
improper means in an effort to evade its clear responsibility
under the law. An instance of such attitude is the insertion
in the bond of a provision which in essence tends to nullify
its commitment. This is a subtle way of making money thru
trickery and deception. Such practice should be stopped if
only to protect honest dealers or people in financial stress.
Because of such improper conduct, this Court finds no
justification for the present appeal and considers it
frivolous and unnecessary. For this appellant should be
made to pay treble costs.
Wherefore, the decision appealed from is affirmed, with
treble costs against appellant.
Bengzon, Concepcion, Reyes, J. B. L., Endencia, and
Felix, JJ., concur.
Paras, C. J., Montemayor, and Reyes, A., JJ., concur in
the result.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 42829 September 30, 1935
RADIO CORPORATION OF THE PHILIPPINES, plaintiff-
appellee,
vs.
JESUS R. ROA, ET AL., defendants.
RAMON CHAVES, ANDRES ROA and MANUEL
ROA, appellants.
M.H. de Joya and Juan de Borja for appellants.
Barrera and Reyes for appellee.
GODDARD, J.:
This is an appeal from decision of the Court of First
Instance of the City of Manila the dispositive part of which
reads:
In view of all the foregoing, judgment is hereby rendered in
favor of the plaintiff Radio Corporation of the Philippines
and against the defendants Jesus R. Roa, Ramon Chavez,
Andes Roa and Manuel Roa: (a) Ordering the defendant
Jesus R. Roa to pay the plaintiff the sum of P22,935, plus
P99.64, with legal interest thereon from the date of the
filing of the complaint until fully paid: (b) that upon failure of
the defendant Jesus Roa to pay the said sum indicated,
the chattel described in the second cause of action shall
be sold at public auction to be applied to the satisfaction of
the amount of this judgment; (c) that the defendants Jesus
R. Roa, Ramon Chavez, Andres Roa and Manuel Roa pay
jointly and severally to the plaintiff the amount of P10,000;
(d) and that Jesus R. Roa pay to the plaintiff the amount
equivalent to 10 per cent of P22,935, as attorney's fees,
and that all the defendants in this case pay the costs of
this action.
The defendants Ramon Chavez, Andres Roa and Manuel
Roa have appealed from the judgment against them for
P10,00 and costs. These appellants make the following
assignments of error:
The court below erred in not finding that the balance of the
total indebtedness became immediately due and
demandable upon the failure of the defendant Jesus R.
Roa to pay any installment on his note.
The court below erred in not finding that defendant Jesus
R. Roa defaulted in the payment of the installment due on
February 27,1932, and that plaintiff corporation gave him
an extension of time for the payment of said installment.
The court below erred in not finding that the extension of
time given to defendant Jesus R. Roa for the payment of
an overdue installment served as a release of defendant
sureties from liability on all the subsequent installments.
The court below erred in not finding that the sureties were
discharged from their bond when the plaintiff authorized
Jesus R. Roa to remove the photophone equipment from
Cagayan, Misamis Oriental, to Silay, Occidental Negros,
without the knowledge or consent of said sureties.
The court below erred in condemning Ramon Chavez,
Andres Roa and Manuel Roa to pay jointly and severally
the sum of P10,000 to the Radio Corporation of the
Philippines.
The defendant Jesus R. Roa became indebted to the
Philippine Theatrical Enterprises, Inc., in the sum of
P28,400 payable in seventy-one equal monthly
installments at the rate of P400 a month commencing thirty
days after December 11, 1931, with five days grace
monthly until complete payment of said sum. On that same
date the Philippine Theatrical Enterprises, Inc., assigned
all its right and interest in that contract to the Radio
Corporation of the Philippines.
The paragraph of that contract in which the accelerating
clause appears reads as follows:
In case the vendee-mortgagor fails to make any of the
payments as hereinbefore provided, the whole amount
remaining unpaid under this mortgage shall immediately
become due and payable and this mortgage on the
property herein mentioned as well as the Luzon Surety
Bond may be foreclosed by the vendor-mortgagee; and, in
such case, the vendee-mortgager further agrees to pay the
vendor- mortgagee an additional sum equivalent to 25 per
cent of the principal due unpaid as costs, expenses and
liquidated damages, which said sum, shall be added to the
principal sum for which this mortgage is given as security,
and shall become a part, thereof.
On March 15, 1932, Erlanger & Galinger, Inc., acting in its
capacity as attorney-in-fact of the Radio Corporation of the
Philippines wrote the following letter (Exhibit 13) to the
principal debtor Jesus R. Roa:
Mr. JESUS R. ROA
Cagayan, Oriental Misamis
Attention of Mrs. Amparo Chavez de Roa
DEAR SIR: We acknowledge with thanks the receipt of
your letter of March 9th together with your remittance of
P200 for which we enclose receipt No. 7558. We are
applying this amount to the balance of your January
installment.
We have no objection to the extension requested by you to
pay the February installment by the first week of April. We
would, however, urge you to make every efforts to bring
the account up-to date as we are given very little discretion
by the RCP in giving extension of payment.
Very truly yours,
RADIO CORP. OF THE PHIL.
By: ERLANGER & GALINGER, INC.
(Sgd.) H.N. SALET
Vice-President
Under the above assignments of error the principal
question to be decided is whether or not the extension
granted in the above copied letter by the plaintiff, without
the consent of the guarantors, the herein appellants,
extinguishes the latter's liability not only as to the
installments due at that time, as held by the trial court, but
also as to the whole amount of their obligation. Articles
1851 of the Civil Code reads as follows:
ART. 1851. An extension grated to the debtor by the
creditor, without the consent of the guarantor, extinguishes
the latter's liability.
This court has held that mere delay in suing for the
collection of the does not release the sureties. (Sons of I.
de la Rama vs. Estate of Benedicto, 5 Phil., 512; Banco
Español Filipino vs. Donaldson Sim & Co., 5 Phil., 418;
Manzanovs. Tan Suanco, 13 Phil., 183; Hongkong &
Shanghai Baking Corporation vs. Aldecoa & Co., 30 Phil.,
255.) In the case of Villa vs. Garcia Bosque (49 Phil., 126,
134, 135), this court stated:
. . . The rule that an extension of time granted to the debtor
by the creditor, without the consent of the sureties,
extinguishes the latter's liability is common both to Spanish
jurisprudence and the common law; and it is well settled in
English and American jurisprudence that where a surety is
liable for different payments, such as installments of rent,
or upon a series of promissory notes, an extension of time
as to one or more will not affect the liability of the surety for
the others. . . .
There is one stipulation in the contract (Exhibit A) which, at
first blush, suggests a doubt as to the propriety of applying
the doctrine above stated to the case before us. We refer
to clause (f) which declares that the non-fulfillment on the
part of the debtors of the stipulation with respect to the
payment of any installment of the indebtedness, with
interest, will give to the creditor the right to treat and
declare all of said installments as immediately due. If the
stipulation had been to the effect that the failure to pay any
installment when due would ipso facto cause the other
installments to fall due at once, it might be plausibly
contended that after default of the payment of one
installment the act of the creditor in extending the time as
to such installment would interfere with the right of the
surety to exercise his legal rights against the debtor, and
that the surety would in such case be discharged by the
extension of time, in conformity with article 1851 and 1852
of the Civil Code. But it will be noted that in the contract
now under consideration the stipulation is not that the
maturity of the latter installments shall be ipso
facto accelerated by default in the payment of a prior
installment, but only that it shall give the creditor a right
treat the subsequent installments as due; and in this case
it does not appear that the creditor has exercised this
election. On the contrary, this action was not instituted until
after all of the installments had fallen due in conformity with
original contract. It results that the stipulation contained in
paragraph (f) does not effect the application of the doctrine
above enunciated to the case before us.
The stipulation in the contract under consideration, copied
above, is to the effect that upon failure to pay any
installment when due the other installments ipso
facto become due and payable. In view of of the fact that
under the express provision of the contract, quoted above,
the whole unpaid balance automatically becomes due and
payable upon failure to pay one installment, the act of the
plaintiff in extending the payment of the installment
corresponding to February, 1932, to April, 1932, without
the consent of the guarantors, constituted in fact an
extension of the payment of the whole amount of the
indebtedness, as by that extension the plaintiff could not
have filed an action for the collection of the whole amount
until after April, 1932. Therefore appellants' contention that
after default of the payment of one installment the act of
the herein creditor in extending the time of payment
discharges them as guarantors in conformity with articles
1851 and 1852 of the Civil Code is correct.
It is a familiar rule that if a creditor, by positive contract with
the principal debtor, and without the consent of the surety,
extends the time of payment, he thereby discharges the
surety. . . . The time of payment may be quite as important
a consideration to the surety as the amount he has
promised conditionally to pay. . . .Again, a surety has the
right, on payment of the debt, to be subrogated to all the
rights of the creditor, and to proceed at once to collect it
from the principal; but if the creditor has tied own hands
from proceeding promptly, by extending the time of
collection, the hands of the surety will equally be bound;
and before they are loosed, by the expiration of the
extended credit, the principal debtor may have become
insolvent and the right of subrogation rendered worthless. In view of the forgoing the judgment of the trial court is
It should be observed, however, that it is really unimportant reversed as to the appellants Ramon Chavez, Andres Roa
whewther the extension given has actually proved and Manuel Roa, without costs.
prejudicial to the surety or not. The rule stated is quite
independent of the event, and the fact that the principal is Malcolm, Villa-Real, Hull, and Imperial, JJ., concur.
insolvent or that the extension granted promised to be
beneficial to the surety would give no right to the creditor to THIRD DIVISION
change the terms of the contract without the knowledge or
consent of the surety. Nor does it matter for how short a
period the time of payment may be extended. The principle
is the same whether the time is long or short. The creditor ROBERTO TOTANES, G.R. No. 179880
must be in such a situation that when the surety comes to
be substituted in his place by paying the debt, he may Petitioner,
have an immediate right of action against the principal. The Present:
suspension of the right to sue for a month, or even a day,
is as effectual to release the surety as a year or two years.
(21 R.C.L., 1018-1020.) YNARES-SANTIAGO, J.,

Plaintiff's contention that the enforcement of the Chairperson,

accelerating clause is potestative on the part of the
obligee, and not self-executing, is clearly untenable from a AUSTRIA-MARTINEZ,
versus -
simple reading of the clause copied above. What is CHICO-NAZARIO,
potestative on the part of the obligee is the foreclosure of
the mortgage and not the accelerating clause. NACHURA, and

Plaintiff-appellee contends that there was no consideration LEONARDO-DE CASTR

for the extension granted the principal debtor. Article 1277
of the Civil Code provides that "even though the
consideration should be expressed in the contract, it shall
Promulgated:
be presumed that a consideration exists and that it is licit, CHINA BANKING CORPORATION,
unless the debtor proves the contrary." It was incumbent
upon the plaintiff to prove that there was no valid Respondent.
consideration for the extension granted. January 19, 2009
x----------------------------------------------------------------------------------
--x

RESOLUTION

NACHURA, J.:

This petition for review on certiorari under Rule 45 of the

Rules of Court, filed by petitioner Roberto Totanes against
respondent China Banking Corporation, assails the Court
of Appeals (CA) Decision[1] dated June 26, 2007 and its
Resolution[2] dated September 19, 2007, in CA-G.R. CV
No. 68795.
The facts, as found by the appellate court, are as follows:
Petitioner and Manuel Antiquera (Antiquera) maintained
their individual savings and current accounts with
respondent in the latter’s Legaspi City Branch. Petitioner
and Antiquera, in conspiracy with respondent’s branch
manager Ronnie Lou Marquez (Marquez), allegedly
engaged in what is commonly known in banking as ―kiting
operation,‖ by manipulating the handling and operations of
their deposit accounts.[3] Petitioner and Antiquera,
likewise, effected transfers of funds to each other’s
accounts by drawing checks from their respective current
accounts and depositing the same with the other’s
accounts by way of debit and credit memos, all in
connivance with Marquez, to make it appear that their
respective accounts were sufficiently funded, when in truth
and in fact, they were not.[4]
On July 9, 1986, Antiquera duly executed and delivered
Promissory Note No. 2081 in favor of the respondent,
whereby he promised to pay the latter on July 16, 1986,
the sum of P150,000.00 with 24% interest per annum until
fully paid. On July 29, 1986, Antiquera executed
Promissory Note No. 2099 for another P150,000.00,
payable on August 5, 1986, with the same rate of
interest. Antiquera agreed in both promissory notes that
he would pay an additional amount by way of penalty,
equivalent to 1/10 of 1% per day of the total amount due
from date of default until full payment.[5]
To secure the aforesaid obligations, a surety agreement
form was executed and signed by Antiquera as principal
and the petitioner as surety.[6] As surety, petitioner bound
himself to pay jointly and severally with Antiquera, the
latter’s obligation with the respondent. His liability,
however, was limited to P300,000.00, plus interest.[7]
For the alleged acts of defraudation committed by
Antiquera, Marquez and the petitioner; and for failure of
Antiquera to pay his obligations covered by the promissory
notes, respondent instituted a complaint for sum of money
with damages. Antiquera and the petitioner were declared
in default, hence, ex parte hearings ensued.
After trial, the RTC rendered a Decision[8] in favor of the
respondent, but dismissed the case as against the
petitioner. On motion for reconsideration, the RTC
reversed itself but only insofar as it dismissed the case
against the petitioner.[9] Consequently, petitioner was held
jointly and severally liable with Antiquera for P300,000.00
with 22% interest per annum until fully paid.[10]
Petitioner appealed the aforesaid order to the
CA. Petitioner, however, failed to persuade the appellate
court which affirmed the RTC’s disposition. The CA
sustained the validity of the continuing surety agreement
signed by petitioner. The suretyship, according to the CA,
was not limited to a single transaction; rather, it
contemplated a future course of dealing, covering a series
of transactions, generally for an indefinite time or until
revoked.[11] To buttress its conclusion, the CA cited Atok
Finance Corporation v. Court of Appeals,[12] which it held to
be ―on-all-fours‖ with the instant case. Finally, the CA
declared that petitioner’s liability as a surety was not
negated by the trial court’s finding that he did not, in any APPROVAL BY RESPONDENT’S BOARD
way, participate in the alleged ―kiting operations‖ or OF DIRECTORS, AS REQUIRED IN
connive with Antiquera in committing the acts of RESPONDENT’S POLICY STATEMENTS
defraudation, saying that petitioner’s liability as a surety DATED OCTOBER 19, 1983 (EXHIBIT E)
was separate and distinct from the fraudulent acts of which AND SEPTEMBER 26, 1986 (EXHIBIT F).
he was found innocent.[13]

THE ASSAILED DECISION

Petitioner now comes before us in this petition for review MISINTERPRETED AND MISAPPLIED
on certiorari raising the following errors: THE RULING IN ―ATOK FINANCE
CORPORATION VS. COURT OF
APPEALS‖ WHICH CONCERNED ITSELF
WITH THE APPLICABILITY OF THE
THE ASSAILED DECISION MISTAKENLY PERFECTED SURETY AGREEMENT IN
AND UNLAWFULLY HELD PETITIONER RELATION TO FUTURE OBLIGATIONS,
LIABLE FOR THE DEBT OF ANOTHER WHILE IN THE PRESENT CASE THE
INDIVIDUAL, MANUEL ISSUE IS THE PERFECTION OF THE
ANTIQUERA. UNDER THE GENERAL CREDIT LINE AND THE SUPPORTING
RULE ON ―RELATIVITY OF CONTRACT,‖ SURETY AGREEMENT.
RESPONDENT IS NOT LIABLE FOR THE
CONTRACTUAL OBLIGATION OF
MANUEL ANTIQUERA. NONE OF THE
RECOGNIZED EXCEPTIONS APPLY TO ASSUMING THE CREDIT LINE AND THE
PETITIONER. PETITIONER IS NOT THE SUPPORTING SURETY AGREEMENT
MAKER, CO-MAKER, INDORSER, AGENT, EXIST, THE UNILATERAL LOAN
BROKER, ACCOMMODATION PARTY, EXTENSIONS GRANTED BY
GUARANTOR OR SURETY OF MANUEL RESPONDENT TO MANUEL ANTIQUERA
ANTIQUERA. HAD RESULTED IN THE
EXTINGUISHMENT OF PETITIONER’S
OBLIGATION, IF ANY, UNDER THE
SURETY AGREEMENT.[14]
RESPONDENT IS ESTOPPED FROM
ENFORCING THE LOAN TRANSACTIONS
(i.e., SURETY AGREEMENT AND
PROMISSORY NOTES) RESPONDENT
CLAIMS TO BE VOID OR
UNAUTHORIZED FOR LACK OF
In fine, the issue for resolution is whether the
petitioner may be held jointly and severally liable
with Antiquera for the latter’s unsettled obligation
with the respondent.
We rule in the affirmative.
Petitioner’s liability was based on the surety
agreement he executed and signed freely and
voluntarily. He, however, argues that said
agreement was not perfected because the principal
obligation, which is the credit line, did not
materialize. As such, being a stranger to any
contract entered into by Antiquera with the
respondent, he should not be held liable.
Both the trial and appellate courts recognized the
genuineness and due execution of the promissory
notes signed by Antiquera. We find no cogent
reason to depart from such conclusion. These
documents undoubtedly show the perfection of the
principal contract, that is, the contract of loan; and
consequently, the perfection of the accessory
contract of suretyship.
We reiterate the well-established principle that
factual findings of the trial court are conclusive on
the parties and not reviewable by this Court – and
they carry even more weight when the CA affirms
these findings, as in the present case. We are not
duty-bound to analyze and weigh all over again the
evidence already considered in the proceedings
below.[15]
From the terms of the contract, it appears that petitioner
jointly and severally undertook, bound himself and
warranted to the respondent ―the prompt payment of
alloverdrafts, promissory notes, discounts, letters of
credit, drafts, bills of exchange, and other obligations of
every kind and nature, including trust receipts and
discounts of drafts, bills of exchange, promissory notes,
etc. x x x for which the Principal(s) may now be
indebted or may hereafter become indebted to the
Creditor.‖[16]
The fact that the contract of suretyship was signed by the
petitioner prior to the execution of the promissory note
does not negate the former’s liability. The contract entered
into by the petitioner is commonly known as a continuing
surety agreement. Of course, a surety is not bound to any
particular principal obligation until that principal obligation
is born. But there is no theoretical or doctrinal impediment
for us to say that the suretyship agreement itself is valid
and binding even before the principal obligation intended
to be secured thereby is born, any more than there would
be in saying that obligations which are subject to a
condition precedent are valid and binding before the
occurrence of the condition precedent.[17]
Comprehensive or continuing surety agreements are, in
fact, quite commonplace in present day financial and
commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with Appeals dated June 26, 2007 and its Resolution dated
a particular company, normally requires the projected September 19, 2007, in CA-G.R. CV No. 68795,
principal debtor to execute a continuing surety agreement are AFFIRMED.
along with its sureties. By executing such an agreement,
the principal places itself in a position to enter into the
projected series of transactions with its creditor; with such
suretyship agreement, there would be no need to execute SO ORDERED.
a separate surety contract or bond for each financing or
credit accommodation extended to the principal debtor.[18]
FIRST DIVISION

As surety, petitioner’s liability is joint and

several. He does not insure the solvency of the CECILLEVILLE REALTY AND G.R. No. 162074
debtor, but rather the debt itself.[19] SERVICE CORPORATION,
Petitioner,
Present:

Suretyship arises upon the solidary binding of a PUNO, C.J.,

person – deemed the surety – with the principal Chairperson,
debtor, for the purpose of fulfilling an versus CARPIO,
obligation.[20] The prestation is not an original and - CORONA,
direct obligation for the performance of the surety’s LEONARDO-DE
own act, but merely accessory or collateral to the CASTRO, and
obligation contracted by the principal.[21] Although BERSAMIN, JJ.
a surety contract is secondary to the principal
obligation, the liability of the surety is direct, SPOUSES TITO ACUÑA and
primary and absolute, or equivalent to that of a OFELIA B. ACUÑA, Promulgated:
regular party to the undertaking. A surety Respondents.
becomes liable for the debt and duty of the July 13, 2009
principal obligor even without possessing a direct x------------------------------------------
or personal interest in the obligations constituted -------- x
by the latter.[22]
DECISION

CARPIO, J.:
WHEREFORE, premises considered, the petition
is DENIED for lack of merit. The Decision of the Court of
The Case
This is a petition for review[1] assailing the
Amended Decision[2] promulgated on 30 January
2004 of the Court of Appeals (appellate court) in
CA-G.R. CV No. 56623. The appellate court
affirmed the Resolution[3] dated 14 February 1997
of Branch 225, Regional Trial Court of Quezon City
(trial court) in Civil Case No. Q-96-27837 which
dismissed the complaint of petitioner Cecilleville
Realty and Service Corporation (Cecilleville)
against respondent spouses Tito and Ofelia Acuña
(Acuña spouses) on the ground of prescription.
The Facts
The trial court summarized the facts of the case as
follows:
Sometime in September 1981, the
defendants [Acuña spouses] requested the
plaintiff [Cecilleville] thru its President, Jose
A. Resurreccion, to lend to them for one (1)
year, two (2) parcels of land owned by the
plaintiff as collaterals to secure a credit line
from the Prudential Bank and Trust
Company [―Prudential‖]. On September 21,
1981, thru a secretary’s certificate and by
virtue of a board resolution, the plaintiff lent
to defendants the said owner’s copies of
certificate of title. However, on September
28, 1991, defendant Ofelia B. Acuña forged
the signature of Lucia R. Reyes as
corporate secretary. By virtue of the fake
secretary’s certificate, the defendants were
able to obtain a personal loan from
―Prudential‖ in the sum of P610,000.00 with
said certificates as collaterals and upon
signing a Real Estate Mortgage dated
September 30, 1981 and two Promissory
Notes dated October 7, 1981 and October
15, 1981. Due to the defendants’ default in
the payment of their indebtedness,
―Prudential‖ threatened to extrajudicially
foreclose the real estate mortgage on
plaintiff’s properties thru a notice of auction
sale. To avoid foreclosure proceedings on
its properties, the plaintiff was forced to
settle defendants’ obligations to ―Prudential‖
in the amount of P3,367,474.42.
Subsequently, several written demands for
reimbursement were sent by the plaintiff to
the defendants. Nevertheless, the
defendants failed to pay their
obligation. Hence, the filing of the instant
case.
In their motion, defendants contend that the
instant complaint should be dismissed on
the grounds of prescription, laches and res
judicata. The defendants insist that the
action of the plaintiff is based on fraud or
forgery of a secretary’s certificate. The
forgery allegedly happened on September
28, 1981 or fifteen (15) years
ago. Therefore, the plaintiff should have
brought the instant action within the period
provided for in Article 1146 of the Civil
Code. Moreover, the defendants argue that
the plaintiff’s inordinate delay in the filing of
the instant suit clearly shows that it has
abandoned its claim against the defendants
and therefore guilty of
laches. Consequently, the defendants aver
that the forgery issue has been passed
upon in CA-G.R. CV No. 35452. The same
was litigated in Civil Case No. Q-59789,
Branch 78, Regional Trial Court, Quezon
City ―where the plaintiff tried unsuccessfully
to have the contract of real estate mortgage
involving the same properties, between
defendant Ofelia Acuña and the Prudential
Bank and Trust Company, annulled on the
same ground raised here.‖ Hence, the
principle of res judicata applies.[4]
This Court, in its resolution in G.R. No. 109488,
affirmed the appellate court’s decision in CA-G.R.
CV No. 35452 that Cecilleville ratified the mortgage
contract between the Acuña spouses and
Prudential. The dispositive portion of the decision
in CA-G.R. CV No. 35452 reads:
WHEREFORE, the appeal of appellant
Cecilleville Realty and Service Corporation
should be, as it is
hereby, DISMISSED. Finding merit to the
appeal of Prudential Bank & Trust
Company, the writ of preliminary injunction
heretofore issued by the trial court is
hereby LIFTED, and appellant Bank can
now proceed with the foreclosure
proceedings of the mortgaged properties.
As a corollary thereto, appellant Cecilleville
is hereby ordered to pay appellant
Prudential Bank the interests, penalty and
service charges stipulated in the promissory
notes secured by the mortgage, accruing
from the time the writ of preliminary
injunction was issued until the said
promissory notes are fully paid. No costs.
SO ORDERED.[5]
After Cecilleville paid Prudential, Cecilleville filed
the present action to claim reimbursement from the
Acuña spouses.
The Ruling of the Trial Court
In its Resolution dated 14 February 1997, the trial court
dismissed Cecilleville’s complaint on the ground of
prescription. The trial court found that the complaint
expressly alleged that Cecilleville discovered the fraud on
28 September 1981. Therefore, Cecilleville had only four
years from discovery of the fraud within which to file the
appropriate action. The present action was filed on 20
June 1996, clearly beyond the prescriptive period.
The Ruling of the Appellate Court
Cecilleville lodged an appeal before the appellate court. In
its Decision promulgated on 14 January 2003, the
appellate court reversed and set aside the trial court’s
ruling and decided in favor of Cecilleville. The appellate
court stated that Cecilleville has two causes of action
against the Acuña spouses: reimbursement of a sum of
money and damages arising from fraud. Cecilleville’s
action for reimbursement was filed on 20 June 1996,
barely two months after 23 April 1996, when Cecilleville
made an extrajudicial demand to pay. Two months is well
within the five-year prescriptive period prescribed in Article
1149 of the Civil Code. On the other hand, the appellate
court declared that the complaint did not mention the date
of Cecilleville’s discovery of Ofelia Acuña’s forgery of Lucia
Reyes’ signature. The appellate court concluded that the
trial court erred in declaring Cecilleville’s claim for
damages barred by prescription and laches. The appellate
court also declared that there is no identity of parties,
subject matter and causes of action between the present
case and that of G.R. No. 109488 between Cecilleville and
Prudential. Hence, the principle of res judicata does not
apply.
The dispositive portion of the appellate court’s 14 January
2003 Decision reads:
WHEREFORE, the instant appeal is
GRANTED and the assailed resolution of
the Regional Trial Court of Quezon City,
Branch 225, in Civil Case No. Q-96-27837
is hereby REVERSED and SET ASIDE. Let
this case be remanded to the trial court for
further proceedings.
SO ORDERED.[6]
On motion for reconsideration filed by the Acuña spouses,
the appellate court promulgated an amended decision on
30 January 2004 which affirmed the trial court’s
decision. The appellate court ruled that Cecilleville’s claim
for reimbursement of its payment to Prudential is
predicated on the fraud allegedly committed by the Acuña
spouses. Without the alleged personal loan of the Acuña
spouses, there would be no foreclosure to forestall and no
basis for Cecilleville’s claim for reimbursement. Actions for
relief on the ground of fraud may be brought within four
years from discovery of the fraud. In its brief filed before
the appellate court, Cecilleville stated that it learned of the
existence of the falsified Secretary’s Certificate on 20
January 1987. Cecilleville filed the present case on 20
June 1996, or more than nine years after the discovery of
the fraud. Thus, Cecilleville’s action is barred by
prescription. The dispositive portion of the appellate
court’s amended decision reads:
WHEREFORE, the instant motion for
reconsideration is GRANTED. The
decision, dated 14 January 2003, of this
Court is accordingly, RECONSIDERED and
SET ASIDE. The assailed resolution, dated
14 February 1997, of the Regional Trial
Court of Quezon City, Branch 225, in Civil
Case No. Q-96-27837, is hereby
AFFIRMED.
SO ORDERED.[7]
The Issues
Cecilleville mentions two grounds in its appeal before this
Court. First, the appellate court gravely erred because its
amended decision is premised on a misapprehension of
facts. Cecilleville alleges that its claim for reimbursement
is not based on fraud but on a ratified third-party real
estate mortgage contract to accommodate the Acuña
spouses. Second, the appellate court’s amended decision
is not in accord with law or with this Court’s
decisions. Cecilleville theorizes that its ratification
extinguished the action to annul the real estate mortgage
and made the real estate mortgage valid and
enforceable. Thus, Cecilleville demands reimbursement
on the basis of a ratified real estate mortgage.

The Ruling of the Court
We see merit in the petition.
The facts of the case are simple: The Acuña
spouses obtained a loan from Prudential secured
by a real estate mortgage on Cecilleville’s
property. The Acuña spouses defaulted on their
loan, and Prudential initiated foreclosure
proceedings. Cecilleville tried to annul the real
estate mortgage but failed when the Court ruled
that Cecilleville had ratified the real estate
mortgage. In effect, Cecilleville became a third-
party accommodation mortgagor. Cecilleville paid
Prudential to avoid foreclosure of its mortgaged
properties. Cecilleville repeatedly asked the Acuña
spouses to reimburse what it paid Prudential, but
the Acuña spouses refused to do so.
From the facts above, we see that Cecilleville paid
the debt of the Acuña spouses to Prudential as an
interested third party. The second paragraph of
Article 1236 of the Civil Code reads:
Whoever pays for another may demand
from the debtor what he has paid, except
that if he paid without the knowledge or
against the will of the debtor, he can recover
only insofar as the payment has been
beneficial to the debtor.
Even if the Acuña spouses insist that Cecilleville’s payment
to Prudential was without their knowledge or against their
will, Article 1302(3) of the Civil Code states that Cecilleville
still has a right to reimbursement, thus:
When, even without the knowledge of the
debtor, a person interested in the fulfillment
of the obligation pays, without prejudice to
the effects of confusion as to the latter’s
share.
Cecilleville clearly has an interest in the fulfillment of the
obligation because it owns the properties mortgaged to
secure the Acuña spouses’ loan. When an interested
party pays the obligation, he is subrogated in the rights of
the creditor.[8] Because of its payment of the Acuña
spouses’ loan, Cecilleville actually steps into the shoes of
Prudential and becomes entitled, not only to recover what
it has paid, but also to exercise all the rights which
Prudential could have exercised. There is, in such cases,
not a real extinguishment of the obligation, but a change in
the active subject.[9]
Cecilleville’s cause of action against the Acuña
spouses is one created by law; hence, the action
prescribes in ten years.[10] Prescription accrues
from the date of payment by Cecilleville to
Prudential of the Acuña spouses’ debt on 5 April
1994. Cecilleville’s present complaint against the
Acuña spouses was filed on 20 June 1996, which
was almost two months from the extrajudicial
demands to pay on 9 and 23 April 1996. Whether
we use the date of payment, the date of the last
written demand for payment, or the date of judicial
demand, it is clear that Cecilleville’s cause of action
has not yet prescribed.
 Finally, considering the length of time of litigation SO ORDERED.
and the fact that the records of the case are before
this Court, we deem it prudent to declare the Acuña
spouses’ liability to Cecilleville in the following Republic of the Philippines
amounts: SUPREME COURT
Manila
a. P3,367,474.42, representing the amount paid
by Cecilleville to Prudential; and EN BANC
b. interest on the P3,367,474.42 at 16% per
annum, this being the interest rate upon G.R. No. L-5741 March 13, 1911
default on the promissory note to
Prudential to which Cecilleville is ESTANISLAUA ARENAS, ET AL., plaintiffs-appellees,
subrogated. Interest shall be vs.
calculated from 9 April 1996, the date of FAUSTO O. RAYMUNDO, defendant-appellant.
Cecilleville’s first written demand to the Acuña
spouses after its payment to Prudential.
A.D. Gibbs, for appellant.
Gabriela La O, for appellees.
The Acuña spouses shall also pay attorney’s fees to
Cecilleville equivalent to 5% of the total award.[11]
TORRES, J.:
WHEREFORE, we GRANT the petition. We SET
ASIDE the Amended Decision promulgated on 30 This is an appeal field by the defendant from a judgment of
January 2004 of the Court of Appeals in CA-G.R. conviction rendered by the Hon. Judge Araullo.
CV No. 56623. Respondent spouses Tito Acuña
and Ofelia B. Acuña shall pay petitioner Cecilleville On the date of August 31, 1908, the attorneys for the
Realty and Service Corporation the plaintiffs, Estanislaua Arenas and Julian La O, brought suit
following: P3,367,474.42, representing the amount against Fausto O. Raymundo, alleging, as a cause of
paid by Cecilleville Realty and Service Corporation action, that Estanislaua Arenas was the owner and
to Prudential Bank and Trust Company; and proprietor of the jewelry described below with the
interest on the P3,367,474.42 at 16% per respective value thereof:
annum. Interest shall be calculated from 9 April
1996 until full payment. Spouses Tito Acuña and Two gold tamborin rosaries, without bow or
Ofelia B. Acuña shall also pay attorney’s fees to reliquary at P40 each P80
Cecilleville Realty and Service Corporation
equivalent to 5% of the total award. One lady's comb for fastening the hair, made of 80
gold and silver, adorned with pearls of ordinary
size and many small pearls, one of which is
missing
One gold ring set with a diamond of ordinary size 1,000
One gold bracelet with five small diamonds and
eightbrillantitos de almendras 700
One pair of gold picaporte earrings with two
diamonds of ordinary size and two small ones 1,100
The plaintiffs alleged that the said jewelry, during the last
part of April or the beginning of May, 1908, was delivered
to Elena de Vega to sell on commission, and that the latter,
in turn, delivered it to Conception Perello, likewise to sell
on commission, but that Perello, instead of fulfilling her
trust, pledged the jewelry in the defendant's pawnshop,
situated at No. 33 Calle de Ilaya, Tondo, and appropriated
to her own use the money thereby obtained; that on July
30, 1908, Conception Perello was prosecuted for estafa,
convicted, and the judgment became final; that the said
jewelry was then under the control and in the possession
of the defendant, as a result of the pledge by Perello, and
that the former refused to deliver it to the plaintiffs, the
owners thereof, wherefore counsel for the plaintiffs asked
that judgment be rendered sentencing the defendant to
make restitution of the said jewelry and to pay the costs.
In the affidavit presented by the attorney for the plaintiffs
dated September 2, 1908, after a statement and
description of the jewelry mentioned, it is set forth that the
defendant was retaining it for the reason given in the
complaint, and that it was not sequestrated for the purpose
of satisfying any tax or fine or by reason of any attachment
issued in compliance with any judgment rendered against
the plaintiffs' property.
In discharge of the writ of seizure issued for the said
jewelry on the 2nd of September, 1908, aforementioned,
the sheriff of this city made the return that he had, on the
same date, delivered one copy of the bond and another of
the said writ to the defendant personally and, on the
petition and designation of the attorney for the plaintiffs,
proceeded to seize the jewelry described in the writ, taking
it out of the defendant's control, and held it in his
possession during the five days prescribed by law.
On the 15th of the same month and year, five days having
elapsed without the defendant's having given bond before
the court, the sheriff made delivery of all the jewelry
described in the said order to the attorney for the plaintiff to
the latter's entire satisfaction, who with the sheriff signed
the return of the writ.
After the demurrer to the complaint had been overruled the
defendant answered, setting forth that he denied each and
all of the allegations thereof which were not specifically
admitted, explained, or qualified, and as a special defense
alleged that the jewelry, the subject matter of the complaint
was pledged on his pawnshop by Conception Perello, the
widow of Pazos, as security for a loan of P1,524, with the
knowledge, consent, and mediation of Gabriel La O, a son
of the plaintiffs, as their agent, and that, in consequence
thereof, the said plaintiffs were estopped from disavowing
the action of the said Perello; the defendant therefore
prayed that the complaint be dismissed and that the
jewelry seized at the instance of the plaintiffs, or the
amount of the loan made thereon, together with the
interest due, be returned to the defendant, with the costs of
the suit against the plaintiffs.
The case came up for hearing on March 17, 1909, and
after the presentation of oral testimony by both parties, the
count, on June 23 of the same year, rendered judgment
sentencing the defendant to restore to the plaintiff spouses
the jewelry described in the complaint, the right being
reserved to the defendant to institute his action against the
proper party. The counsel for the defendant excepted to
this judgment, asked that the same be set aside, and a
new trial granted. This motion was denied, exceptions was
taken by the appellant, and the proper bill of exceptions
was duly approved certified to, and forwarded to the clerk
of this court.
This is an action for the replevin of certain jewelry
delivered by its owner for sale on commission, and
pledged without his knowledge by Concepcion Perello in
the pawnshop of the defendant, Fausto O. Raymundo,
who refuses to deliver the said jewelry unless first
redeemed.
The said Concepcion Perello, who appropriated to herself
the money derived from the pledging of the jewels before
mentioned, together with others, to the prejudice of their
owner Estanislaua Arenas, was prosecuted in the Court of
First Instance of this City in cause No. 3955 and sentenced
on July 30, 1908, to the penalty of one year eight months
and twenty-one days of prision correccional, to restore to
the offended party the jewelry specified in the complaint, or
to pay the value thereof, amounting to P8,660, or, in case
of insolvency, to suffer the corresponding subsidiary
imprisonment, and to pay the costs. This judgment is
attested by the certified copy attached under letterD to folio
26 of the record of the proceedings in the case of the same
plaintiff against Antonio Matute — the pledgee of the other
jewelry also appropriated by the said Concepcion Perello
— which record forms a part of the evidence in this cause.
Perello having pledged the jewelry in question to the
defendant Raymundo, and not having redeemed it by
paying him the amount received, it follows that the
convicted woman, now serving the sentence imposed
upon her, could not restore the jewelry as ordered in that
judgment, which has become final by the defendant's
acquiescence.
Article 120 of the Penal Code prescribes:
The restitution of the thing itself must be made, if be in the
possession of a third person, who had acquired it in a legal
manner, reserving, however, his action against the proper
person.
Restitution shall be made, even though the thing may be in
the possession of a third person, who had acquired it in a
legal manner, reserving, however, his action against the
proper person.
This provision is not applicable to a case in which the third
person has acquired the thing in the manner and with the
requisites established by law to make it unrecoverable.
The provisions contained in the first two paragraphs of the
preinserted article are based on the uncontrovertible
principle of justice that the party injured through a crime
has, as against all others, a preferential right to be
indemnified, or to have restored to him the thing of which
he was unduly deprived by criminal means.
In view of the harmonious relation between the different
codes in force in these Islands, it is natural and logical that
the aforementioned provision of the Penal Code, based on
the rule established in article 17 of the same, to wit, that
every person criminally liable for a crime or misdemeanor
is also civilly liable, should be in agreement and
accordance with the provisions of article 464 of the Civil
Code which prescribes:
The possession of personal property, acquired in good
faith, is equivalent to a title thereto. However, the person
who has lost personal property or has been illegally
deprived thereof may recover it from whoever possesses it.
If the possessor of personal property, lost or stolen, has
acquired it in good faith at a public sale, the owner can not
recover it without reimbursing the price paid therefor.
Neither can the owner of things pledged in pawnshops,
established with the authorization of the Government,
recover them, whosoever may be the person who pledged
them, without previously refunding to the institution the
amount of the pledge and the interest due.
With regard to things acquired on exchange, or at fairs or
markets or from a merchant legally established and usually
employed in similar dealings, the provisions of the Code of
Commerce shall be observed.
On January 2, 1908, this court had occasion to decide,
among other cases, two which were entirely analogous to
the present one. They were No. 3889, Varela vs. Matute,
and No. 3890, Varela vs. Finnick (9 Phil., 479, 482).
In the decisions in both cases it appears that Nicolasa
Pascual received various jewels from Josefa Varela to sell
on commission and that, instead of fulfilling the trust or
returning the jewels to their owner, she pledged some of
them in the pawnshop of Antonio Matute and others in that
of H.J. Finnick and appropriated to herself the amounts
that she received, to the detriment of the owner of the
jewelry.
Tried estafa in cause No. 2429, the said Pascual was
convicted and sentenced to the penalty of one year and
eleven months of prision correccional, to restore to Varela,
the jewelry appropriated, or to pay the value thereof, and,
in case of insolvency, to subsidiary imprisonment; this
judgment became final, whereupon the defendant began to
serve her sentence. The case just cited is identical to that
of Concepcion Perello.
Josefa Varela, in separate incidental proceedings,
demanded the restitution or delivery of possession of the
said jewelry; the pledgees, the pawnbrokers, refused to
comply with her demand, alleging, among other reasons,
that they were entitled to possession. The two cases were
duly tried, and the Court of First Instance pronounced
judgment, supporting the plaintiff's claims in each. Both
cases were appealed by the defendants, Matute and
Finnick, and this court affirmed the judgments on the same
grounds, with costs, and the decisions on appeal
established the following legal doctrines:
Crimes against property; criminal and civil liability. —
Where, in a proceeding instituted by reason of a crime
committed against property, the criminal liability of the
accused has been declared, it follows that he shall also be
held civilly liable therefor, because every person who is
criminally responsible on account of a crime or
misdemeanor is also civilly liable.
Id.; Recovery of property unlawfully in possession. —
Whoever may have been deprived this property in
consequence of a crime is entitled to the recovery thereof,
even if such property is in the possession of a third party
who acquired it by legal means other than those expressly
stated in article 464 of the Civil Code.
Personal property; title by possession. — In order that the
possession of personal property may be considered as a
title thereto it is indispensable that the same shall have
been acquired in good faith.
Id.; Ownership; prescription. — The ownership of personal
property prescribes in the manner and within the time fixed
by articles 1955 and 1962, in connection with article 464,
of the Civil Code.
In the cause prosecuted against Perello, as also in the
present suit, it was not proven that Estanislaua Arenas
authorized the former to pawn the jewelry given to her by
Arenas to sell on commission. Because of the mere fact of
Perello's having been convicted and sentenced for estafa,
and for the very reason that she is now serving her
sentence must be complied with, that is, the jewelry
misappropriated must be restored to its owner, inasmuch
as it exists and has not disappeared this restitution must
be made, although the jewelry is found in the pawnshop of
Fausto O. Raymundo and the latter had acquired it by
legal means. Raymundo however retains his right to collect
the amounts delivered upon the pledge, by bringing action
against the proper party. This finding is in accord with the
provisions of the above article 120 of the Penal Code and
first paragraph of article 464 of the Civil Code.
The aforementioned decision, No. 3890, Varela vs.
Finnick, recites among other considerations, the following:
The exception contained in paragraph 3 of said article is
not applicable to the present case because a pawnshop
does not enjoy the privilege established by article 464 of
the Civil Code. The owner of the loan office of Finnick
Brothers, notwithstanding the fact that he acted in good
faith, did not acquire the jewels at a public sale; it is not a
question of public property, securities, or other such
effects, the transfer, sale, or disposal of which is subject to
the provisions of the Code of Commerce. Neither does a
pawnshop enjoy the privilege granted to a monte de
piedad; therefore, Josefa Varela, who lost said jewels and
was deprived of the same in consequence of a crime, is
entitled to the recovery thereof from the pawnshop of
Finnick Brothers, where they were pledged; the latter can
not lawfully refuse to comply with the provisions of article
120 of the Penal Code, as it is a question of jewels which
has been misappropriated by the commission of the crime
of estafa, and the execution of the sentence which orders
the restitution of the jewels can not be avoided because of
the good faith with which the owner of the pawnshop
acquired them, inasmuch as they were delivered to the
accused, who was not the owner nor authorized to dispose
of the same.
Even supposing that the defendant Raymundo had acted
in good faith in accepting the pledge of the jewelry in
litigation, even then he would not be entitled to retain it
until the owner thereof reimburse him for the amount
loaned to the embezzler, since the said owner of the
jewelry, the plaintiff, did not make any contract with the
pledgee, that would obligate him to pay the amount loaned
to Perello, and the trial record does not disclose any
evidence, even circumstantial, that the plaintiff Arenas
consented to or had knowledge of the pledging of her
jewelry in the pawnshop of the defendant.
For this reason, and because Conception Perello was not
the legitimate owner of the jewelry which she pledged to
the defendant Raymundo, for a certain sum that she
received from the latter as a loan, the contract of pledge
entered the jewelry so pawned can not serve as security
for the payment of the sum loaned, nor can the latter be
collected out of the value of the said jewelry.
Article 1857 of the Civil Code prescribes as one of the
essential requisites of the contracts of pledge and of
mortgage, that the thing pledged or mortgaged must
belong to the person who pledges or mortgages it. This
essential requisite for the contract of pledge between
Perello and the defendant being absent as the former was
not the owner of the jewelry given in pledge, the contract is
as devoid of value and force as if it had not been made,
and as it was executed with marked violation of an express
provision of the law, it can not confer upon the defendant
any rights in the pledged jewelry, nor impose any
obligation toward him on the part of the owner thereof,
since the latter was deprived of her possession by means
of the illegal pledging of the said jewelry, a criminal act.
Between the supposed good faith of the defendant
Raymundo and the undisputed good faith of the plaintiff
Arenas, the owner of the jewelry, neither law nor justice
permit that the latter, after being the victim of the
embezzlement, should have to choose one of the two
extremes of a dilemma, both of which, without legal ground
or reason, are injurious and prejudicial to her interest and
rights, that is, she must either lose her jewelry or pay a
large sum received by the embezzler as a loan from the
defendant, when the plaintiff Arenas is not related to the
latter by any legal or contractual bond out of which legal
obligations arise.
It is true that the plaintiffs' son, attorney Gabriel La O,
intervened and gave his consent when the Concepcion
Perello pawned the jewelry in litigation with Fausto
Raymundo for P1,524? In view of the evidence offered by
the trial record, the answer is, of course, in the negative.
The parents of the attorney Gabriel La O being surprised
by the disagreeable news of the disappearance of various
jewels, amounting in value to more than P8,600, delivered
to Elena Vega for sale on commission and misappropriated
by Conception Perello, who received them from Vega for
the same purpose, it is natural that the said attorney,
acting in representation of his parents and as an interested
party, should have proceeded to ascertain the
whereabouts of the embezzled jewelry an to enter into
negotiations with the pawnshop of Fausto O. Raymundo,
in whose possession he had finally learned were to be
found a part of the embezzled jewels, as he had been
informed by the said Perello herself; and although, at first,
at the commencement of his investigations, he met with
opposition on the part of the pledgee Raymundo, who
objected to showing him the jewels that he desired to see
in order to ascertain whether they were those embezzled
and belonging to his mother, the plaintiff Arenas, thanks to
the intervention of attorney Chicote and to the fact that
they succeeded in obtaining from the embezzler, among
other papers, the pawn ticket issued by Raymundo's
pawnshop, Exhibit E, of the date of May 4, 1908, folio 19 of
the record in the case against Matute, Gabriel La O
succeeded in getting the defendant to show him the
jewelry described in the said ticket together with other
jewels that did not belong to La O's mother, that had been
given the defendant by Ambrosia Capistrano, Perello's
agent, in pledge or security for a loan of P170.
Gabriel La O, continuing the search for other missing
jewelry belonging to his mother, found that Fausto O.
Raymundo was in possession of it and had received it from
the same embezzler as security for a debt, although the
defendant Raymundo would not exhibit it until he issued
the pawn tickets corresponding to such jewels; therefore,
at Raymundo's request, Perello, by means of the
document Exhibit C, signed by herself and bearing date of
June 10, 1908, folio 28 of the record, authorized her son
Ramon to get from the defendant, in her name, the pawn
tickets of the said other jewelry, for which such tickets had
not yet been issued; Raymundo then wrote out the tickets
— Exhibits L, LL, and M, all dated June 22, 1908, and
found on folios 20, 21 and 22 of the record of the aforesaid
proceedings against Matute — in the presence of the
attorney Gabriel La O, who kept the said three pawn
tickets, after he had made sure that the jewels described
therein and which Raymundo, taking them out of his
cabinet, exhibited to him at the time, were among those
embezzled from his mother.
So that, when the three aforementioned pawn tickets,
Exhibits L, LL, and M, from the pawnshop of the defendant
were made out, the latter already, and for some time
previous, had in his possession as a pledge the jewelry
described in them, and the plaintiffs' son naturally desiring
to recover his parent's jewelry, was satisfied for the time
being with keeping the three pawn tickets certifying that
such jewelry was pawned to the defendant.
Moreover, the record discloses no proof that the attorney
Gabriel La O consented to or took any part in the delivery
of the jewelry in question to the defendant as a pledge,
and both the said defendant, Raymundo, and the
embezzler Perello, averred in their respective testimony
that the said attorney La O had no knowledge of and took
no part in the pledging of the jewelry, and Perello further
stated that she had received all the money loaned to her
by the defendant Raymundo. (Folios 13 to 14, and 76 to 80
of the record in the case against Matute.)
The business of pawnshops, in exchange for the high and
onerous interest which constitutes its enormous profits, is
always exposed to the contingency of receiving in pledge
or security for the loans, jewels and other articles that have
been robbed, stolen, or embezzled from their legitimate
owners; and as the owner of the pawnshop accepts the
same and asks for money on it, without assuring himself
whether such bearer is or is not the owner thereof, he can
not, by such procedure, expect from the law better and
more preferential protection than the owner of the jewels or
other articles, who was deprived thereof by means of a
crime and is entitled to be excused by the courts.
Antonio Matute, the owner of another pawnshop, being
convinced that he was wrong, refrained from appealing
from the judgment wherein he was sentenced to return,
without redemption, to the plaintiffs, another jewel of great
value which had been pledged to him by the same Perello.
He undoubtedly had in mind some of the previous
decisions of this court, one of which was against himself.
For the foregoing reasons, whereby the errors attributed to
the judgment of the Court of First Instance have been
discussed and decided upon, and the said judgment being
in harmony with the law, the evidence and the merits of the
case, it is proper, in our opinion, to affirm the same, as we
hereby do, with the costs against the appellant. So
ordered.
Arellano, C.J., and Mapa, J., concur.
Carson, Moreland, and Trent, JJ., concur in the result.
G.R. No. 3227 March 22, 1907
PEDRO ALCANTARA,Plaintiff-Appellee, vs. AMBROSIO
ALINEA, ET AL.,Defendants-Appellants.
S.D. Reyes for appellants.
J. Gerona for appellee.
TORRES, J.:
On the 13th day of March, 1905, the plaintiff filed a
complaint in the Court of First Instance of La Laguna,
praying that judgment be rendered in his behalf ordering
the defendants to de liver to him the house and lot
claimed, and to pay him in addition thereto as rent the sum
of 8 pesos per month from February of that year, and to
pay the costs of the action; and the plaintiff alleged in
effect that on the 29th day of February, 1904, the
defendants, Ambrosio Alinea and Eudosia Belarmino,
borrowed from him the sum of 480 pesos, payable in
January of said year 1905 under the agreement that if, at
the expiration of the said period, said amount should not
be paid it would be understood that the house and lot, the
house being constructed of strong materials, owned by the
said defendants and located in the town of San Pablo on
the street of the same name, Province of La Laguna, be
considered as absolutely sold to the plaintiff for the said
sum; that the superficial extent and boundaries of said
property are described in the complaint; and that,
notwithstanding that the time for the payment of said sum
has expired and no payment has been made, the
defendants refuse to deliver to plaintiff the said property,
openly violating that which they contracted to do and
depriving him to his loss of the rents which plaintiff should
received, the same counting from February,
1905.chanroblesvirtualawlibrary chanrobles virtual law
library
The defendants, after the overruling of a demurrer to the
complaint herein, answered denying generally and
specifically all the allegations contained in the complaint,
except those which were expressly admitted, and alleged
that the amount claimed included the interest; and that the
principal borrowed was only 200 pesos and that the
interest was 280 pesos, although in drawing the document
by mutual consent of the parties thereto the amount of
indebtedness was made to appear in the sum of 480
pesos; and that as their special defense defendants
alleged that they offered to pay the plaintiff the sum of 480
pesos, but the plaintiff had refused to accept the same,
therefore they persisted in making said offer and tender of
payment, placing at the disposal of the plaintiff the said
480 pesos first tendered; and defendants asked for the
costs of action.chanroblesvirtualawlibrary chanrobles
virtual law library
After having taken the evidence of both parties and
attaching the documents presented in evidence to the
record, the judge on November 27, 1905, rendered a
judgment ordering the defendants to deliver to the plaintiff
the house and lot, the object of this litigation, and to pay
the costs of the action, not making any finding upon the
question of loss or damages by reason of the absence of
proof on these points. The defendants duly took exception
to this decision, and asked for a new trial of the case on
the ground that the findings of the court below in its
decision were plainly contrary to law, which motion was
overruled and from which ruling defendants also
excepted.chanroblesvirtualawlibrary chanrobles virtual law
library
We have in this case a contract of loan and a promise of
sale of a house and lot, the price of which should be the
amount loaned, if within a fixed period of time such amount
should not be paid by the debtor-vendor of the property to
the creditor-vendee of
same.chanroblesvirtualawlibrary chanrobles virtual law
library
Either one of the contracts are perfectly legal and both are
authorized respectively by articles 1451, 1740, and 1753,
and those following, of the Civil Code. The fact that the
parties have agreed at the same time, in such a manner
that the fulfillment of the promise of sale would depend
upon the nonpayment or return of the amount loaned, has
not produced any charge in the nature and legal conditions
of either contract, or any essential defect which would tend
to nullify the same.chanroblesvirtualawlibrary chanrobles
virtual law library
If the promise of sale is not vitiated because, according to
the agreement between the parties thereto, the price of the
same is to be the amount loaned and not repaid, neither
would the loan be null or illegal, for the reason that the
added agreement provides that in the event of failure of
payment the sale of property as agreed will take effect, the
consideration being the amount loaned and not paid. No
article of the Civil Code, under the rules or regulations of
which such double contract was executed, prohibits
expressly, or by inference from any of its provisions, that
an agreement could not be made in the form in which the
same has been executed; on the contrary, article 1278 of
the aforesaid code provides that "contracts shall be
binding, whatever may be the form in which they may have
been executed, provided the essential conditions required
for their validity exist." This legal prescription appears
firmly sustained by the settled practice of the
courts.chanroblesvirtualawlibrary chanrobles virtual law
library
The property, the sale of which was agreed to by the
debtors, does not appear mortgaged in favor of the
creditor, because in order to constitute a valid mortgage it
is indispensable that the instrument be registered in the
Register of Property, in accordance with article 1875 of the
Civil Code, and the document of contract, Exhibit A, does
not constitute a mortgage, nor could it possibly be a
mortgage, for the reason of said document is not vested
with the character and conditions of a public
instrument.chanroblesvirtualawlibrary chanrobles virtual
law library
By the aforesaid document, Exhibit A, said property could
not be pledged, not being personal property, and
notwithstanding the said double contract the debtor
continued in possession thereof and the said property has
never been occupied by the
creditor.chanroblesvirtualawlibrary chanrobles virtual law
library
Neither was there ever nay contract of antichresis by
reason of the said contract of loan, as is provided in
articles 1881 and those following of the Civil Code,
inasmuch as the creditor-plaintiff has never been in
possession thereof, nor has he enjoyed the said property,
nor for one moment ever received its rents; therefore, there
are no proper terms in law, taking into consideration the
terms of the conditions contained in the aforesaid contract,
whereby this court can find that the contract was null, and
under no consideration whatever would it be just to apply
to the plaintiff articles 1859 and 1884 of the same
code.chanroblesvirtualawlibrary chanrobles virtual law
library
The contract ( pactum commissorium) referred to in Law
41, title 5, and law 12, title 12, of the fifth Partida, and
perhaps included in the prohibition and declaration of
nullity expressed in articles 1859 and 1884 of the Civil
Code, indicates the existence of the contracts of mortgage
or of pledge or that of antichresis, none of which have
coincided in the loan indicated
herein.chanroblesvirtualawlibrary chanrobles virtual law
library
It is a principle in law, invariably applied by the courts in
the decisions of actions instituted in the matter of
compliance with obligations, that the will of the contracting
parties is the law of contracts and that a man obligates
himself to that to which he promises to be bound, a
principle in accordance with Law 1, title 1, book 10 of
the Novisima Recopilacion, and article 1091 of the Civil
Code. That which is agreed to in a contract is law between
the parties, a doctrine established, among others, in
judgments of the supreme court of Spain of February 20,
1897, and February 13,
1904.chanroblesvirtualawlibrary chanrobles virtual law
library
It was agreed between plaintiff and defendants herein that
if defendants should not pay the loan of 480 pesos in
January, 1905, the property belonging to the defendants
and described in the contract should remain sold for the
aforesaid sum, and such agreement must be complied
with, inasmuch as there is no ground in law to oppose the
compliance with that which has been agreed upon, having
been so acknowledged by the obligated
parties.chanroblesvirtualawlibrary chanrobles virtual law
library
The supreme court of Spain, applying the aforementioned
laws of Spanish origin to a similar case, establishes in its
decision of January 16, 1872, the following legal doctrine:
Basing the complaint upon the obligation signed by the
debtor, which judicially recognized his signature; and after
confessing to have received from the plaintiff a certain
amount, binding himself to return same to the satisfaction
of the plaintiff within the term of four years, or in case of
default to transfer direct domain of the properties described
in the obligation and to execute the necessary sale; and
the term having expired and the aforesaid amount not
having been paid, said plaintiff has his right free from
impediment to claim same against the heirs of the debtor.
The document of contract has been recognized by the
defendant Alinea and by the witnesses who signed same
with him, being therefore an authentic and efficacious
document, in accordance with article 1225 of the Civil
Code; and as the amount loaned has not been paid and
continues in possession of the debtor, it is only just that the
promise of sale be carried into effect, and the necessary
instrument be executed by the
vendees.chanroblesvirtualawlibrary chanrobles virtual law
library
Therefore, by virtue of the reasons given above and
accepting the findings given in the judgment appealed
from, we affirm the said judgment herein, with the costs
against the
appellants.chanroblesvirtualawlibrary chanrobles virtual
law library
After expiration of twenty days from the date of the
notification of this decision let judgment be entered in
accordance herewith and ten days thereafter let the case
be remanded to the court from whence it came for proper
action. So ordered.chanroblesvirtualawlibrary chanrobles
virtual law library
Arellano, C.J., Mapa, Johnson, and Tracey, JJ., concur. both cases mentioned in the caption, orders "the spouses
Basilio Bautista and Sofia de Rosas to execute a deed of
Republic of the Philippines sale covering the property in question in favor of Ruperto
SUPREME COURT Soriano and Olimpia de Jesus upon payment by the latter
Manila of P1,650.00 which is the balance of the price agreed
upon, that is P3,900.00, and the amount previously
EN BANC received by way of loan by the said spouses from the said
Ruperto Soriano and Olimpia de Jesus, to pay the sum of
G.R. No. L-15752 December 29, 1962 P500.00 by way of attorney's fees, and to pay the costs.

RUPERTO SORIANO, ET AL., plaintiffs-appellees, Appellants Basilio Bautista and Sofia de Rosas have
vs. adopted in their appeal brief the following factual findings
BASILIO BAUTISTA, ET AL., defendants. of the trial court:
BASILIO BAUTISTA and SOFIA DE ROSAS, defendants-
appellants. Spouses Basilio Bautista and Sofia de Rosas are the
absolute and registered owners of a parcel of land,
--------------------------------- situated in the municipality of Teresa, province of Rizal,
covered by Original Certificate of Title No. 3905, of the
G.R. No. L-17457 December 29, 1962 Register of Deeds of Rizal and particularly described as
follow:
BASILIO BAUTISTA, ET AL., plaintiffs,
BASILIO BAUTISTA and SOFIA DE ROSAS, plaintiffs- A parcel of land (lot No. 4980) of the Cadastral Survey of
appellants, Teresa; situated in the municipality of Teresa; bounded on
vs. the NE. by Lot No. 5004; on the SE. by Lots Nos. 5003
RUPERTO SORIANO, ET AL., defendants appellees. and 4958; on the SW. by Lot 4949; and the W. and NW by
a creek .... Containing the area of THIRTY THOUSAND
TWO HUNDRED TWENTY TWO (30,222) square meters,
Amado T. Garrovillas, Ananias C. Ona, Norberto A.
more or less. Date of Survey, December 1913-June, 1914.
Ferrera and Pedro N. Belmi for appellants Basilio Bautista
(Full technical description appears on Original Certificate of
and Sofia de Rosas.
Title No. 3905.)lawphil.net
Javier and Javier for appellees Ruperto Soriano, et al.
That, on May 30, 1956, the said spouses for and in
MAKALINTAL, J.:
consideration of the sum of P1,800, signed a document
entitled "Kasulatan Ng Sanglaan" in favor of Ruperto
The judgment appealed from, rendered on March 10, 1959 Soriano and Olimpia de Jesus, under the following terms
by the Court of First Instance of Rizal, after a joint trial of and conditions:
Na ang sanglaang ito ay magpapatuloy lamang hanggang
dalawang (2) taon pasimula sa araw na lagdaan ang
kasunduang ito, at magpapalampas ng dalawang
panahong ani o ani agricola.
Na ang aanihin ng bukid na isinangla ay mapupunta sa
pinagsanglaan bilang pakinabang ng nabanggit na
halagang inutang.
Na ang buwis sa pamahalaan ng lupang ito ay ang
magbabayad ay ang Nagsangla o mayari.
Na ang lupang nasanglang ito ay hindi na maaaring
isangla pang muli sa ibang tao ng walang pahintulot ang
Unang Pinagsanglaan.
Na pinagkasunduan din dinatnan na sakaling magkaroon
ng kakayahan ang Pinagsanglaan ay maaaring bilhin ng
patuluyan ng lupang nasanglang ito kahit anong araw sa
loob ng taning na dalawang taon ng sanglaan sa halagang
Tatlong Libo at Siam na Raan Piso (P3,900.00), salaping
Pilipino na pinagkaisahan.
Na sakaling ang pagkakataon na ipinagkaloob ng
Nagsangla sa sinundang talata ay hindi maisagawa ng
Pinagsanglaan sa Kawalan ng maibayad at gayon din
naman ang Nagsangla na hindi magbalik ang halagang
inutang sa taning na panahon, ang sanglaan ito ay
lulutasin alinsunod sa itinatagubilin ng batas sa bagay-
bagay ng sanglaan, na ito ay ang tinatawag na
(FORECLOSURE OF MORTGAGES, JUDICIAL OR
EXTRA JUDICIAL). Maaring makapili ng hakbang ang
Pinagsanglaan, alinsunod sa batas o kaya naman ay
pagusapan ng dalawang parte ang mabuting paraan ng
paglutas ng bagay na ito.
That simultaneously with the signing of the aforementioned
deed, the spouses Basilio Bautista and Sofia de Rosas
transferred the possession of the said land to Ruperto
Soriano and Olimpia de Jesus who have been and are still
in possess of the said property and have since that date
been and cultivating the said land and have enjoyed and
are still enjoying the produce thereof to the exclusion of all
other persons. Sometimes after May 30, 1956, the
spouses Basilio Bautista and Sofia de Rosas received from
Ruperto Soriano and Olimpia de Jesus, the sum of
P450.00 pursuant to the condition agreed upon in the
aforementioned document for which no receipt issued and
which was returned by the spouses sometime on May 31,
1958. On May 13, 1958, a certain Atty. Angel O. Ver wrote
a letter to the spouses Bautista whose letter has been
marked Annex 'B' of the stipulation of facts informing the
said spouses that his clients Ruperto Soriano and Olimpia
de Jesus have decided to buy the parcel of land in
question pursuant to paragraph 5 of the document in
question, Annex "A".
The spouses inspite of the receipt of the letter refused
comply with the demand contained therein. On May 31,
1958, Ruperto Soriano and Olimpia de Jesus filed before
this Court Civil Case No. 5023, praying that plaintiffs be
allowed to consign or deposit with the Clerk of Court the
sum of P1,650 as the balance of the purchase price of the
parcel of land question and that after due hearing,
judgment be rendered considering the defendants to
execute an absolute deed of sale of said property in their
favor, plus damages.
On June 9, 1958, spouses Basilio Bautista and Sofia
Rosas filed a complaint against Ruperto Soriano and
Olimpia de Jesus marked as Annexed 'B' of the Stipulation
of Facys, which case after hearing was dismissed for lack
of jurisdiction On August 5, 1959, the spouses Bautista
and De Rosas again filed a case in the Court of First
Instance against Soriano and De Jesus asking this Court
to order the defendants to accept the payment of the
principal obligation and release the mortgage and to make
an accounting of the harvest for the harvest seasons
(1956-1957). The two cases, were by agreement of the
parties assigned to one branch so that they can be tried
jointly.
The principal issue in this case is whether, having
seasonably advised appellants that they had decided to be
the land in question pursuant to paragraph 5 of the
instrument of mortgage, appellees are entitled to special
performance consisting of the execution by appellants the
corresponding deed of sale. As translated, paragraph 5
states: "That it has likewise been agreed that if the
financial condition of the mortgagees will permit, they may
purchase said land absolutely on any date within the two-
year term of this mortgage at the agreed price of
P3,900.00."
Appellants contend that, being mortgagors, they can not
be deprived of the right to redeem the mortgaged property,
because such right is inherent in and inseparable from this
kind of contract. The premise of the contention is not
entirely accurate. While the transaction is undoubtedly a
mortgage and contains the customary stipulation
concerning redemption, it carries the added special
provision aforequoted, which renders the mortgagors' right
to redeem defeasible at the election of the mortgagees.
There is nothing illegal or immoral in this. It is simply an
option to buy, sanctioned by Article 1479 of the Civil Code,
which states: "A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable. An
accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the
price."
In this case the mortgagor's promise to sell is supported by
the same consideration as that of the mortgage itself,
which is distinct from that which would support the sale, an
additional amount having been agreed upon to make up
the entire price of P3,900.00, should the option be
exercised. The mortgagors' promise was in the nature of a
continuing offer, non-withdrawable during a period of two
years, which upon acceptance by the mortgagees gave
rise to a perfected contract of purchase and sale.
Appellants cite the case of Iñigo vs. Court of Appeals, L-
5572, O.G. No. 11, 5281, where we held that a stipulation
in a contract of mortgage to sell the property to the
mortgagee does not bind the same but creates only a
personal obligation on the part of the mortgagor. The
citation instead of sustaining appellant's position, confirms
that of appellees, who are not here enforcing any real right
to the disputed land but are rather seeking to obtain
specific performance of a personal obligation, namely, the
execution of a deed of sale for the price agreed upon, the
corresponding amount to cover which was duly deposited
in court upon the filing of the complaint.
Reference is made in appellants' brief to the fact that they
tendered the sum of P1,800.00 to redeem mortgage before
they filed their complaint in civil case No. 99 in the Justice
of the Peace Court of Morong, Rizal. That tender was
ineffective for the purpose intended. In the first place it
must have been made after the option to purchase had
been exercised by appellees (Civil Case No. 99 was filed
on June 9, 1958, only to be dismissed for lack of
jurisdiction); and secondly, appellants' to redeem could be
defeated by appellees' preemptive right to purchase within
the period of two years from May 30, 1956. As already
noted, such right was availed of appellants were
accordingly notified by letter dated May 13, 1958, which
was received by them on the following May 22. Offer and
acceptance converged and gave to a perfected and
binding contract of purchase and sale.
The judgment appealed from is affirmed, with costs.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion,
Reyes, J.B.L., Barrera, Paredes, Dizon and Regala,
JJ.,concur.
G.R. No. L-49940 September 25, 1986
GEMMA R. HECHANOVA, accompanied by her
husband, NICANOR HECHANOVA, JR., and
PRESCILLA R. MASA, accompanied by her husband,
FRANCISCO MASA, petitioners,
vs.
HON. MIDPANTAO L. ADIL, Presiding Judge, Branch II,
Court of First Instance of Iloilo, THE PROVINCIAL
SHERIFF OF ILOILO, and PIO SERVANDO, respondents.
YAP, J.:
Petitioners seek the annulment of various orders issued by
the respondent Presiding Judge of Branch II, Court of First
Instance of Iloilo, in Civil Case No. 12312 entitled "Pio
Servando versus Jose Y. Servando et al." A temporary
restraining order was issued by this Court on May 9, 1979,
staying until further orders the execution of the decision
rendered by the respondent Judge in said case.
The case under review is for the annulment of a deed of
sale dated March 11, 1978, executed by defendant Jose Y.
Servando in favor of his co-defendants, the petitioners
herein, covering three parcels of land situated in Iloilo City.
Claiming that the said parcels of land were mortgaged to
him in 1970 by the vendor, who is his cousin, to secure a
loan of P20,000.00, the plaintiff Pio Servando impugned
the validity of the sale as being fraudulent, and prayed that
it be declared null and void and the transfer certificates of
title issued to the vendees be cancelled, or alternatively, if
the sale is not annulled, to order the defendant Jose
Servando to pay the amount of P20,000.00, plus interests,
and to order defendants to pay damages. Attached to the
complaint was a copy of the private document evidencing
the alleged mortgage (Annex A), which is quoted
hereunder:
August 20, 1970
This is to certify that I, Jose Yusay Servando, the sole
owner of three parcel of land under Tax Declaration No.
28905, 44123 and 31591 at Lot No. 1, 1863-Portion of
1863 & 1860 situated at Sto. Nino St., Arevalo, Compania
St. & Compania St., Interior Molo, respectively, have this
date mortgaged the said property to my cousin Pio
Servando, in the amount of TWENTY THOUSAND PESOS
(P20,000.00), redeemable for a period not exceeding ten
(10) years, the mortgage amount bearing an interest of
10% per annum.
I further certify that in case I fail to redeem the said
properties within the period stated above, my cousin Pio
Servando, shall become the sole owner thereof.
(SGD.) JOSE YUSAY SERVANDO
WITNESSES:
(Sgd) Ernesto G. Jeruta
(Sgd) Francisco B. Villanueva
The defendants moved to dismiss the complaint on the
grounds that it did not state a cause of action, the alleged
mortgage being invalid and unenforceable since it was a
mere private document and was not recorded in the
Registry of Deeds; and that the plaintiff was not the real
party in interest and, as a mere mortgagee, had no
standing to question the validity of the sale. The motion
was denied by the respondent Judge, in its order dated
June 20, 1978, "on the ground that this action is actually
one for collection."
On June 23, 1978, defendant Jose Y. Servando died. The
defendants filed a Manifestation and Motion, informing the
trial court accordingly, and moving for the dismissal of the
complaint pursuant to Section 21 of Rule 3 of the Rules of
Court, pointing out that the action was for. recovery of
money based on an actionable document to which only the
deceased defendant was a party. The motion to dismiss
was denied on July 25, 1978, "it appearing from the face of
the complaint that the instant action is not purely a money
claim, it being only incidental, the main action being one
for annulment and damages."
On August 1, 1978, plaintiff filed a motion to declare
defendants in default, and on the very next day, August 2,
the respondent Judge granted the motion and set the
hearing for presentation of plaintiff's evidence ex-parte on
August 24, 1978.
On August 2, 1978, or the same day that the default order
was issued, defendants Hechanova and Masa filed their
Answers, denying the allegations of the complaint and
repeating, by way of special and affirmative defenses, the
grounds stated in their motions to dismiss.
On August 25, 1978, a judgment by default was rendered
against the defendants, annulling the deed of sale in
question and ordering the Register of Deeds of Iloilo to
cancel the titles issued to Priscilla Masa and Gemma
Hechanova, and to revive the title issued in the name of
Jose Y. Servando and to deliver the same to the plaintiff.
The defendants took timely steps to appeal the decision to
the Court of Appeals by filing a notice of appeal, an appeal
bond, and a record on appeal. However, the trial court
disapproved the record on appeal due to the failure of
defendants to comply with its order to eliminate therefrom
the answer filed on August 2, 1978 and accordingly,
dismissed the appeal, and on February 2, 1978, issued an
order granting the writ of execution prayed for by plaintiff.
We find the petition meritorious, and the same is hereby
given due course.
It is clear from the records of this case that the plaintiff has
no cause of action. Plaintiff has no standing to question the
validity of the deed of sale executed by the deceased
defendant Jose Servando in favor of his co-defendants
Hechanova and Masa. No valid mortgage has been
constituted plaintiff's favor, the alleged deed of mortgage
being a mere private document and not registered;
moreover, it contains a stipulation (pacto comisorio) which
is null and void under Article 2088 of the Civil Code. Even
assuming that the property was validly mortgaged to the
plaintiff, his recourse was to foreclose the mortgage, not to The Chief Legal Counsel for PNB.
seek annulment of the sale.
Public Assistance Office for Francisco Peria.
WHEREFORE, the decision of the respondent court dated
August 25, 1973 and its Order of February 2, 1979 are set Ruben O. Fruto, Bonifacio M. Abad and David C. Frez for
aside, and the complaint filed by plaintiff dated February 4, DBP Laoag Branch.
1978 is hereby dismissed.

SO ORDERED.
FERNAN, C.J.:
Narvasa, Melencio-Herrera, * Paras and Feliciano, concur.
In this petition for review on certiorari, petitioners spouses
Cruz, J., is on leave. Dionisio Fiestan and Juanita Arconada owners of a parcel
of land (Lot No. 2B) situated in Ilocos Sur covered by TCT
T-13218 which they mortgaged to the Development Bank
of the Philippines (DBP) as security for their P22,400.00
Republic of the Philippines loan, seek the reversal of the decision of the Court of
SUPREME COURT Appeals 1 dated June 5, 1987 affirming the dismissal of
Manila their complaint filed against the Development Bank of the
Philippines, Laoag City Branch, Philippine National Bank,
THIRD DIVISION Vigan Branch, Ilocos Sur, Francisco Peria and the Register
of Deeds of Ilocos Sur, for annulment of sale, mortgage,
G.R. No. 81552 May 28, 1990 and cancellation of transfer certificates of title.

DIONISIO FIESTAN and JUANITA Records show that Lot No. 2-B was acquired by the DBP
ARCONADO, petitioners as the highest bidder at a public auction sale on August 6,
vs. 1979 after it was extrajudicially foreclosed by the DBP in
COURT OF APPEALS; DEVELOPMENT BANK OF THE accordance with Act No. 3135, as amended by Act No.
PHILIPPINES, LAOAG CITY BRANCH; PHILIPPINE 4118, for failure of petitioners to pay their mortgage
NATIONAL BANK, VIGAN BRANCH, ILOCOS SUR, indebtedness. A certificate of sale was subsequently
FRANCISCO PERIA and REGISTER OF DEEDS OF issued by the Provincial Sheriff of Ilocos Sur on the same
ILOCOS SUR, respondents. day and the same was registered on September 28, 1979
in the Office of the Register of Deeds of Ilocos Sur. Earlier,
Pedro Singson Reyes for petitioners. or on September 26, 1979, petitioners executed a Deed of
Sale in favor of DBP which was likewise registered on
September 28, 1979.
Upon failure of petitioners to redeem the property within
the one (1) year period which expired on September 28,
1980, petitioners' TCT T-13218 over Lot No. 2-B was
cancelled by the Register of Deeds and in lieu thereof TCT
T-19077 was issued to the DBP upon presentation of a
duly executed affidavit of consolidation of ownership.
On April 13,1982, the DBP sold the lot to Francisco Peria
in a Deed of Absolute Sale and the same was registered
on April 15, 1982 in the Office of the Register of Deeds of
Ilocos Sur. Subsequently, the DBP's title over the lot was
cancelled and in lieu thereof TCT T-19229 was issued to
Francisco Peria.
After title over said lot was issued in his name, Francisco
Peria secured a tax declaration for said lot and accordingly
paid the taxes due thereon. He thereafter mortgaged said
lot to the PNB Vigan Branch as security for his loan of
P115,000.00 as required by the bank to increase his
original loan from P49,000.00 to P66,000.00 until it finally
reached the approved amount of P115,000.00. Since
petitioners were still in possession of Lot No. 2-B, the
Provincial Sheriff ordered them to vacate the premises.
On the other hand, petitioners filed on August 23, 1982 a
complaint for annulment of sale, mortgage and
cancellation of transfer certificates of title against the DBP-
Laoag City, PNB Vigan Branch, Ilocos Sur, Francisco Peria
and the Register of Deeds of Ilocos Sur, docketed as Civil
Case No. 3447-V before the Regional Trial Court of Vigan,
Ilocos Sur.
After trial, the RTC of Vigan, Ilocos Sur, Branch 20,
rendered its decision 2 on November 14, 1983 dismissing
the complaint, declaring therein, as valid the extrajudicial
foreclosure sale of the mortgaged property in favor of the
DBP as highest bidder in the public auction sale held on
August 6, 1979, and its subsequent sale by DBP to
Francisco Peria as well as the real estate mortgage
constituted thereon in favor of PNB Vigan as security for
the P115,000.00 loan of Francisco Peria.
The Court of Appeals affirmed the decision of the RTC of
Vigan, Ilocos Sur on June 20, 1987.
The motion for reconsideration having been denied 3 on
January 19, 1988, petitioners filed the instant petition for
review on certiorari with this Court. Petitioners seek to
annul the extrajudicial foreclosure sale of the mortgaged
property on August 6, 1979 in favor of the Development
Bank of the Philippines (DBP) on the ground that it was
conducted by the Provincial Sheriff of Ilocos Sur without
first effecting a levy on said property before selling the
same at the public auction sale. Petitioners thus
maintained that the extrajudicial foreclosure sale being null
and void by virtue of lack of a valid levy, the certificate of
sale issued by the Provincial Sheriff cannot transfer
ownership over the lot in question to the DBP and
consequently the deed of sale executed by the DBP in
favor of Francisco Peria and the real estate mortgage
constituted thereon by the latter in favor of PNB Vigan
Branch are likewise null and void.
The Court finds these contentions untenable.
The formalities of a levy, as an essential requisite of a valid
execution sale under Section 15 of Rule 39 and a valid
attachment lien under Rule 57 of the Rules of Court, are
not basic requirements before an extrajudicially foreclosed
property can be sold at public auction. At the outset,
distinction should be made of the three different kinds of
sales under the law, namely: an ordinary execution sale, a
judicial foreclosure sale, and an extrajudicial foreclosure
sale, because a different set of law applies to each class of
sale mentioned. An ordinary execution sale is governed by
the pertinent provisions of Rule 39 of the Rules of Court.
Rule 68 of the Rules of Court applies in cases of judicial
foreclosure sale. On the other hand, Act No. 3135, as
amended by Act No. 4118 otherwise known as "An Act to
Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages" applies
in cases of extrajudicial foreclosure sale.
The case at bar, as the facts disclose, involves an
extrajudicial foreclosure sale. The public auction sale
conducted on August 6, 1979 by the Provincial Sheriff of
Ilocos Sur refers to the "sale" mentioned in Section 1 of Act
No. 3135, as amended, which was made pursuant to a
special power inserted in or attached to a real estate
mortgage made as security for the payment of money or
the fulfillment of any other obligation. It must be noted that
in the mortgage contract, petitioners, as mortgagor, had
appointed private respondent DBP, for the purpose of
extrajudicial foreclosure, "as his attorney-in-fact to sell the
property mortgaged under Act No. 3135, as amended, to
sign all documents and perform any act requisite and
necessary to accomplish said purpose .... In case of
foreclosure, the Mortgagor hereby consents to the
appointment of the mortgagee or any of its employees as
receiver, without any bond, to take charge of the
mortgaged property at once, and to hold possession of the
same ... 4
There is no justifiable basis, therefore, to apply by analogy
the provisions of Rule 39 of the Rules of Court on ordinary
execution sale, particularly Section 15 thereof as well as
the jurisprudence under said provision, to an extrajudicial
foreclosure sale conducted under the provisions of Act No.
3135, as amended. Act No. 3135, as amended, being a
special law governing extrajudicial foreclosure
proceedings, the same must govern as against the
provisions on ordinary execution sale under Rule 39 of the
Rules of Court.
In that sense, the case of Aparri vs. Court Of Appeals, 13
SCRA 611 (1965), cited by petitioners, must be
distinguished from the instant case. On the question of
what should be done in the event the highest bid made for
the property at the extrajudicial foreclosure sale is in
excess of the mortgage debt, this Court applied the rule
and practice in a judicial foreclosure sale to an extrajudicial
foreclosure sale in a similar case considering that the
governing provisions of law as mandated by Section 6 of
Act No. 3135, as amended, specifically Sections 29, 30
and 34 of Rule 39 of the Rules of Court (previously
Sections 464, 465 and 466 of the Code of Civil Procedure)
are silent on the matter. The said ruling cannot, however,
be construed as the legal basis for applying the
requirement of a levy under Section 15 of Rule 39 of the
Rules of Court before an extrajudicially foreclosed property
can be sold at public auction when none is expressly
required under Act No. 3135, as amended.
Levy, as understood under Section 15, Rule 39 of the
Rules of Court in relation to execution of money
judgments, has been defined by this Court as the act
whereby a sheriff sets apart or appropriates for the
purpose of satisfying the command of the writ, a part or the
whole of the judgment-debtor's property. 5
In extrajudicial foreclosure of mortgage, the property
sought to be foreclosed need not be identified or set apart
by the sheriff from the whole mass of property of the
mortgagor for the purpose of satisfying the mortgage
indebtedness. For, the essence of a contract of mortgage
indebtedness is that a property has been identified or set
apart from the mass of the property of the debtor-
mortgagor as security for the payment of money or the
fulfillment of an obligation to answer the amount of
indebtedness, in case of default of payment. By virtue of
the special power inserted or attached to the mortgage
contract, the mortgagor has authorized the mortgagee-
creditor or any other person authorized to act for him to sell
said property in accordance with the formalities required
under Act No. 3135, as amended.
The Court finds that the formalities prescribed under
Sections 2, 3 and 4 of Act No. 3135, as amended, were
substantially complied with in the instant case. Records
show that the notices of sale were posted by the Provincial
Sheriff of Ilocos Sur and the same were published in Ilocos
Times, a newspaper of general circulation in the province
of Ilocos Sur, setting the date of the auction sale on August
6, 1979 at 10:00 a.m. in the Office of the Sheriff, Vigan,
Ilocos Sur. 6
The nullity of the extrajudicial foreclosure sale in the instant
case is further sought by petitioners on the ground that the
DBP cannot acquire by purchase the mortgaged property
at the public auction sale by virtue of par. (2) of Article
1491 and par. (7) of Article 1409 of the Civil Code which
prohibits agents from acquiring by purchase, even at a
public or judicial auction either in person or through the
mediation of another, the property whose administration or
sale may have been entrusted to them unless the consent
of the principal has been given.
The contention is erroneous.
The prohibition mandated by par. (2) of Article 1491 in
relation to Article 1409 of the Civil Code does not apply in
the instant case where the sale of the property in dispute
was made under a special power inserted in or attached to
the real estate mortgage pursuant to Act No. 3135, as
amended. It is a familiar rule of statutory construction that,
as between a specific statute and general statute, the
former must prevail since it evinces the legislative intent
more clearly than a general statute does. 7 The Civil Code
(R.A. 386) is of general character while Act No. 3135, as
amended, is a special enactment and therefore the latter
must prevail. 8
Under Act No. 3135, as amended, a mortgagee-creditor is
allowed to participate in the bidding and purchase under
the same conditions as any other bidder, as in the case at
bar, thus:
Section 5. At any sale, the creditor, trustee, or other person
authorized to act for the creditor, may participate in the
bidding and purchase under the same conditions as any
other bidder, unless the contrary has been expressly
provided in the mortgage or trust deed under which the
sale is made.
In other words, Section 5 of Act No. 3135, as amended,
creates and is designed to create an exception to the
general rule that a mortgagee or trustee in a mortgage or
deed of trust which contains a power of sale on default
may not become the purchaser, either directly or through
the agency of a third person, at a sale which he himself
makes under the power. Under such an exception, the title
of the mortgagee-creditor over the property cannot be
impeached or defeated on the ground that the mortgagee
cannot be a purchaser at his own sale.
Needless to state, the power to foreclose is not an ordinary
agency that contemplates exclusively the representation of
the principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter's own
protection. It is an ancillary stipulation supported by the
same cause or consideration for the mortgage and forms
an essential and inseparable part of that bilateral
agreement. 9 Even in the absence of statutory provision,
there is authority to hold that a mortgagee may purchase at
a sale under his mortgage to protect his own interest or to
avoid a loss to himself by a sale to a third person at a price
below the mortgage debt. 10 The express mandate of
Section 5 of Act No. 3135, as amended, amply protects the
interest of the mortgagee in this jurisdiction.
WHEREFORE, in view of the foregoing, the petition is
DENIED for lack of merit and the decision of the Court of
Appeals dated June 20, 1987 is hereby AFFIRMED. No
cost.
SO ORDERED.
G.R. No. L-24016 July 31, 1970
SPOUSES JESUS RUIZ and AMPARO SAMBENITO
RUIZ, Petitioners-Appellants, v.SHERIFF OF MANILA and
THE BANK OF THE PHILIPPINE
ISLANDS, Respondents-Appellees.
Sevilla, Daza & Associates for petitioners-appellants.
Aviado & Aranda for respondents-appellees.
MAKALINTAL, J.:
This appeal from the decision of the Court of First Instance
of Manila was taken originally to the Court of Appeals but
was subsequently certified to this Court, there being no
question of fact
involved.chanroblesvirtualawlibrarychanrobles virtual law
library
On January 18, 1961 the spouses Jesus Ruiz and Amparo
Sambenito Ruiz executed in favor of the Bank of the
Philippine Islands a real estate mortgage covering a parcel
of land situated in Sta. Ana, Manila, as security for a loan
of P15,000.00 which they obtained from said bank. The
mortgage contract provided, among other things, the
following:
WHEREAS, the parties of the FIRST PART, jointly and
severally, has/have applied for and jointly and severally
obtained from the party of the SECOND PART, a loan in
the sum of FIFTEEN THOUSAND PESOS (P 15,000.00),
Philippine currency, to be amortized at the rate of not less
than P300.00, including interest on unpaid balance, at the
rate of 8% per annum, said interest and capital
amortization to be effected at the end of each month.
Failure to pay two successive monthly amortizations will
cause this loan to be automatically due and payable in its
entirety. Notwithstanding the foregoing, this loan shall not
run for more than 5 years.
In view of the default of the mortgagors in the payment of
twelve (12) successive monthly amortizations (December
1961 up to and including November 1962) notwithstanding
several demands made on them, the mortgagee asked the
Sheriff of Manila to foreclose the mortgage extrajudicially.
Accordingly, the Sheriff the auction sale of the mortgaged
property for February 7, 1963 and notice thereof was
published in the "Daily Record." Upon receipt of a copy of
the notice of sale the mortgagors requested the mortgagee
to cause the postponement of the auction sale and to give
them time until March 15, 1963 within which to pay their
obligation, as well as the cost of the new publication of the
sheriff's notice of sale, if any. Granting the request, the
mortgagee in turn made representations with the Sheriff to
postpone the sale, whereupon a new notice was issued,
resetting it for March 18, 1963 at 10: 00 o'clock in the
morning. Said notice was again published in the "Daily
Record."chanrobles virtual law library
Upon failure of the mortgagors to comply with their promise
to pay, the Sheriff proceeded to sell the mortgaged
property on March 18, 1963, as scheduled, with the
mortgagee as the highest bidder. Since the mortgagee's
bid of P15,173.74 represented the total mortgage
indebtedness, the Sheriff did not collect cash but merely
applied the same to the amount of
bid.chanroblesvirtualawlibrarychanrobles virtual law library
On March 30, 1963 the mortgagors filed with the lower
court an amended petition forcertiorari, injunction, and/ or
prohibition seeking, as principal relief, the annulment of the
foreclosure sale. After proper hearing the trial court
rendered its decision dismissing the case for being "devoid
of any merit." Thereupon, the appellants instituted the
instant appeal.chanroblesvirtualawlibrarychanrobles virtual
law library
In seeking the reversal of the decision of the lower court
the appellants assign two errors, namely: (1) in not
declaring the foreclosure of the real estate mortgage
premature and therefore illegal; and (2) in not declaring the
said foreclosure sale null and void for failure to comply with
the requirements prescribed by
law.chanroblesvirtualawlibrarychanrobles virtual law library
With respect to the first assigned error, the appellants lay
stress on, the following last two sentences of the provision
of the mortgage contract quoted above, to wit:
.... Failure to pay two successive monthly amortizations will
cause this loan to be automatically due and payable in its
entirety. Notwithstanding the foregoing, this loan shall not
run for more than 5 years.
Interpreting the above stipulation, the appellants claim that
despite the acceleration clause they had five years from
January 18, 1961 within which to pay their mortgage debt
because of the phrase "notwithstanding the foregoing" in
the last sentence. Since the five-year period had not yet
expired when the mortgage was foreclosed, said
foreclosure, they point out, was
premature.chanroblesvirtualawlibrarychanrobles virtual law
library
The appellants' interpretation is totally without merit. To
ascertain the meaning of the provision of the mortgage
contract relied upon by the appellants, its entirety must be
taken into account and not merely its last two sentences. A
reading of the entire provision will readily show that while
the appellants were allowed to amortize their loan at the
rate of not less than P300.00 a month, they were under
obligation to liquidate the same within a period of not more
than five (5) years from the date of the execution of the
contract; but if they should fall to pay two successive
monthly amortizations, then the entire loan would be due
and payable. It is obvious that the phrase "notwithstanding
the foregoing" does not refer to the acceleration clause but
to the stipulation that the loan had to be "amortized at the
rate of not less than P300.00, including interest on unpaid
balance, at the rate of 8% per annum, said interest and
capital amortization to be effected at the end of each
month." There is nothing inconsistent between the
acceleration clause and the last sentence. All that the
parties meant is that while monthly amortizations could be
as little as P300.00 the loan should anyway be paid within
5 years; and that failure to pay two successive
amortizations would render the entire loan due and
payable. Consequently, default leaving been committed for
twelve months, the foreclosure of the mortgage was not
premature.chanroblesvirtualawlibrarychanrobles virtual law
library
Under the second assignment of error, the appellants
challenge the validity of the foreclosure sale on two
grounds, namely: (1) that the "Daily Record" wherein the
notice of sheriff's sale was published was not a newspaper
of general circulation; and (2) that the appellee bank
should have paid cash for its bid since Section 5 of Act No.
3135 expressly requires that the creditors must bid "under
the same condition as any other bidder."chanrobles virtual
law library
Neither of the grounds is meritorious. For purposes of
extrajudicial foreclosure of mortgage the party alleging
non-compliance with the requisite publication has the
burden of proving the same. In the instant case the
appellants did not present evidence to show that the "Daily
Record" was not a newspaper of general circulation. As
correctly stated by the lower court:
.... But, the presumption is that the sheriff had complied
with his official duty according to law and this presumption
includes the presumption that the sheriff had caused the
notice of sale to be published in a newspaper of general
circulation so that, if the "Daily Record" is not a newspaper
of general circulation as petitioners claim, it is incumbent
upon them to prove such fact, which they failed to do.
As to the second ground, it was not necessary for the
appellee, as the highest bidder, to pay cash to 'the sheriff,
since the amount of its bid represented the total mortgage
debt. It would serve no purpose for, the sheriff "to go
through the ceremony of receiving the money and paying it
back to the creditor." Certainly the law-making body did not
contemplate such a senseless application of the law
requiring that the creditor must bid "under the same
condition as any other bidder."chanrobles virtual law library
WHEREFORE, the decision appealed from is hereby
affirmed, with costs against the appellants.
Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Castro,
Fernando, Teehankee, Barredo and Villamor, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING
DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS
BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and
SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao
for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null
and void the decision of the Court of Appeals, in C.A.-G.R.
No. 52253-R dated February 11, 1977, modifying the
decision dated February 15, 1972 of the Court of First
Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary
injunction.
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who,
as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in
Cubo, Las Nieves, Agusan, and covered by TCT No. T-
305, and which mortgage was annotated on the said title
the next day. The approved loan application called for a
lump sum P80,000.00 loan, repayable in semi-annual
installments for a period of 3 years, with 12% annual
interest. It was required that Sulpicio M. Tolentino shall use
the loan proceeds solely as an additional capital to develop
his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the
P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory
note for P17,000.00 at 12% annual interest, payable within
3 years from the date of execution of the contract at semi-
annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period
amounting to P4,800.00 was deducted from the partial
release of P17,000.00. But this pre-deducted interest was
refunded to Sulpicio M. Tolentino on July 23, 1965, after
being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47,
rec.). The Bank, thru its vice-president and treasurer,
promised repeatedly the release of the P63,000.00
balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central
Bank, after finding Island Savings Bank was suffering
liquidity problems, issued Resolution No. 1049, which
provides:
In view of the chronic reserve deficiencies of the Island
Savings Bank against its deposit liabilities, the Board, by
unanimous vote, decided as follows:
To prohibit the bank from making new loans and
investments [except investments in government
securities] excluding extensions or renewals of
already approved loans, provided that such
extensions or renewals shall be subject to review
by the Superintendent of Banks, who may impose
such limitations as may be necessary to insure
correction of the bank's deficiency as soon as
possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding
thatIsland Savings Bank failed to put up the required
capital to restore its solvency, issued Resolution No. 967
which prohibited Island Savings Bank from doing business
in the Philippines and instructed the Acting Superintendent
of Banks to take charge of the assets of Island Savings
Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-
payment of the P17,000.00 covered by the promissory
note, filed an application for the extra-judicial foreclosure of
the real estate mortgage covering the 100-hectare land of
Sulpicio M. Tolentino; and the sheriff scheduled the
auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition
with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with
preliminary injunction, alleging that since Island Savings
Bank failed to deliver the P63,000.00 balance of the
P80,000.00 loan, he is entitled to specific performance by
ordering Island Savings Bank to deliver the P63,000.00
with interest of 12% per annum from April 28, 1965, and if
said balance cannot be delivered, to rescind the real estate
mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a
P5,000.00 surety bond, issued a temporary restraining
order enjoining the Island Savings Bank from continuing
with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in
intervention praying for the dismissal of the petition of
Sulpicio M. Tolentino and the setting aside of the
restraining order, filed by the Central Bank and by the
Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the
merits rendered its decision, finding unmeritorious the
petition of Sulpicio M. Tolentino, ordering him to pay Island
Savings Bank the amount of PI 7 000.00 plus legal interest
and legal charges due thereon, and lifting the restraining
order so that the sheriff may proceed with the foreclosure
(pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by
Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M.
Tolentino's petition for specific performance, but it ruled
that Island Savings Bank can neither foreclose the real
estate mortgage nor collect the P17,000.00 loan pp. 30-
:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
Can the action of Sulpicio M. Tolentino for specific
performance prosper?
Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt
covered by the promissory note?
If Sulpicio M. Tolentino's liability to pay the P17,000.00
subsists, can his real estate mortgage be foreclosed to
satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino
entered into an P80,000.00 loan agreement on April 28,
1965, they undertook reciprocal obligations. In reciprocal
obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110
SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1
[1969]); and when one party has performed or is ready and
willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to
perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the
consideration for the obligation of Island Savings Bank to
furnish the P80,000.00 loan. When Sulpicio M. Tolentino
executed a real estate mortgage on April 28, 1965, he
signified his willingness to pay the P80,000.00 loan. From
such date, the obligation of Island Savings Bank to furnish
the P80,000.00 loan accrued. Thus, the Bank's delay in
furnishing the entire loan started on April 28, 1965, and
lasted for a period of 3 years or when the Monetary Board
of the Central Bank issued Resolution No. 967 on June 14,
1968, which prohibited Island Savings Bank from doing
further business. Such prohibition made it legally
impossible for Island Savings Bank to furnish the
P63,000.00 balance of the P80,000.00 loan. The power of
the Monetary Board to take over insolvent banks for the
protection of the public is recognized by Section 29 of R.A.
No. 265, which took effect on June 15, 1948, the validity of
which is not in question.
The Board Resolution No. 1049 issued on August 13,1965
cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00
balance because said resolution merely prohibited the
Bank from making new loans and investments, and
nowhere did it prohibit island Savings Bank from releasing
the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the
contract, nor does it constitute any defense to a decree of
specific performance (Gutierrez Repide vs. Afzelius and
Afzelius, 39 Phil. 190 [1918]). And, the mere fact of
insolvency of a debtor is never an excuse for the non-
fulfillment of an obligation but 'instead it is taken as a
breach of the contract by him (vol. 17A, 1974 ed., CJS p.
650)
The fact that Sulpicio M. Tolentino demanded and
accepted the refund of the pre-deducted interest
amounting to P4,800.00 for the supposed P80,000.00 loan
covering a 6-month period cannot be taken as a waiver of
his right to collect the P63,000.00 balance. The act of
Island Savings Bank, in asking the advance interest for 6
months on the supposed P80,000.00 loan, was improper
considering that only P17,000.00 out of the P80,000.00
loan was released. A person cannot be legally charged
interest for a non-existing debt. Thus, the receipt by
Sulpicio M. 'Tolentino of the pre-deducted interest was an
exercise of his right to it, which right exist independently of
his right to demand the completion of the P80,000.00 loan.
The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-
valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire
P80,000.00 loan. 'This Court previously ruled that bank
officials and employees are expected to exercise caution
and prudence in the discharge of their functions (Rural
Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It
is the obligation of the bank's officials and employees that
before they approve the loan application of their
customers, they must investigate the existence and
evaluation of the properties being offered as a loan
security. The recent rush of events where collaterals for
bank loans turn out to be non-existent or grossly over-
valued underscore the importance of this responsibility.
The mere reliance by bank officials and employees on their
customer's representation regarding the loan collateral
being offered as loan security is a patent non-performance
of this responsibility. If ever bank officials and employees
totally reIy on the representation of their customers as to
the valuation of the loan collateral, the bank shall bear the
risk in case the collateral turn out to be over-valued. The
representation made by the customer is immaterial to the
bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of' Sulpicio M.
Tolentino, had enjoined petitioners from presenting proof
on the alleged over-valuation because of their failure to
raise the same in their pleadings (pp. 198-199, t.s.n. Sept.
15. 1971). The lower court's action is sanctioned by the
Rules of Court, Section 2, Rule 9, which states that
"defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived." Petitioners,
thus, cannot raise the same issue before the Supreme
Court.
Since Island Savings Bank was in default in fulfilling its
reciprocal obligation under their loan agreement, Sulpicio
M. Tolentino, under Article 1191 of the Civil Code, may
choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is
now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific
performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule,
however, that rescission is only for the P63,000.00 balance
of the P80,000.00 loan, because the bank is in default only
insofar as such amount is concerned, as there is no doubt
that the bank failed to give the P63,000.00. As far as the
partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the
bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory
note gave rise to Sulpicio M. Tolentino's reciprocal
obligation to pay the P17,000.00 loan when it falls due. His
failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall
belong to the aggrieved party, that is, Island Savings Bank.
If Tolentino had not signed a promissory note setting the
date for payment of P17,000.00 within 3 years, he would
be entitled to ask for rescission of the entire loan because
he cannot possibly be in default as there was no date for
him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of
their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish
the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both
parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be
equitably tempered by the courts. WE rule that the liability
of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino
for damages, in the form of penalties and surcharges, for
not paying his overdue P17,000.00 debt. The liability of
Sulpicio M. Tolentino for interest on his PI 7,000.00 debt
shall not be included in offsetting the liabilities of both
parties. Since Sulpicio M. Tolentino derived some benefit
for his use of the P17,000.00, it is just that he should
account for the interest thereon.
WE hold, however, that the real estate mortgage of
Sulpicio M. Tolentino cannot be entirely foreclosed to
satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate
mortgage is the same as that of the principal contract
(Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the
debtor, the consideration of his obligation to pay is the
existence of a debt. Thus, in the accessory contract of real
estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid,
voidable, or unenforceable debt (Art. 2086, in relation to
Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real
estate mortgage, no consideration was then in existence,
as there was no debt yet because Island Savings Bank
had not made any release on the loan, does not make the
real estate mortgage void for lack of consideration. It is not
necessary that any consideration should pass at the time
of the execution of the contract of real mortgage (Bonnevie
vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is
subsequent to the mortgage, the mortgage can take effect
only when the debt secured by it is created as a binding
contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583,
cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6).
And, when there is partial failure of consideration, the
mortgage becomes unenforceable to the extent of such
failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in
Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness
actually owing to the holder of the mortgage is less than
the sum named in the mortgage, the mortgage cannot be
enforced for more than the actual sum due (Metropolitan
Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th
ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00
balance of the P8O,000.00 loan, the real estate mortgage
of Sulpicio M. Tolentino became unenforceable to such
extent. P63,000.00 is 78.75% of P80,000.00, hence the
real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The
mortgage covering the remainder of 21.25 hectares
subsists as a security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a P17,000.00
debt.
The rule of indivisibility of a real estate mortgage provided
for by Article 2089 of the Civil Code is inapplicable to the
facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt
may be divided among the successors in interest of the
debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the
debt can not ask for the proportionate extinguishment of
the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who have received his share
of the debt return the pledge or cancel the mortgage, to the
prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by
Article 2089 above-quoted presupposes several heirs of
the debtor or creditor which does not obtain in this case.
Hence, the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF
APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND
SULPICIO M. TOLENTINO IS HEREBY ORDERED TO
PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17.000.00, PLUS P41,210.00 REPRESENTING 12%
INTEREST PER ANNUM COVERING THE PERIOD
FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12%
INTEREST ON THE TOTAL AMOUNT COUNTED FROM
AUGUST 22, 1985 UNTIL PAID;
IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS
REAL ESTATE MORTGAGE COVERING 21.25
HECTARES SHALL BE FORECLOSED TO SATISFY HIS
TOTAL INDEBTEDNESS; AND
THE REAL ESTATE MORTGAGE COVERING 78.75
HECTARES IS HEREBY DECLARED UNEN
FORCEABLE AND IS HEREBY ORDERED RELEASED
IN FAVOR OF SULPICIO M. TOLENTINO.
The "Compañia Agricola Filipina" bought a considerable
quantity of rice-cleaning machinery company from the
defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase
price. It included in the mortgage deed the building of
strong materials in which the machinery was installed,
without any reference to the land on which it stood. The
indebtedness secured by this instrument not having been
paid when it fell due, the mortgaged property was sold by
the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company.
The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery
company in satisfaction of the mortgage was annotated in
the same registry on December 29, 1913.

NO COSTS. SO ORDERED. A few weeks thereafter, on or about the 14th of January,

1914, the "Compañia Agricola Filipina" executed a deed of
Republic of the Philippines sale of the land upon which the building stood to the
SUPREME COURT machinery company, but this deed of sale, although
Manila executed in a public document, was not registered. This
deed makes no reference to the building erected on the
EN BANC land and would appear to have been executed for the
purpose of curing any defects which might be found to
exist in the machinery company's title to the building under
G.R. No. L-11658 February 15, 1918
the sheriff's certificate of sale. The machinery company
went into possession of the building at or about the time
LEUNG YEE, plaintiff-appellant, when this sale took place, that is to say, the month of
vs. December, 1913, and it has continued in possession ever
FRANK L. STRONG MACHINERY COMPANY and J. G. since.
WILLIAMSON, defendants-appellees.
At or about the time when the chattel mortgage was
Booram and Mahoney for appellant. executed in favor of the machinery company, the
Williams, Ferrier and SyCip for appellees. mortgagor, the "Compañia Agricola Filipina" executed
another mortgage to the plaintiff upon the building,
CARSON, J.: separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the
plaintiff under a contract for the construction of the
building. Upon the failure of the mortgagor to pay the
amount of the indebtedness secured by the mortgage, the
plaintiff secured judgment for that amount, levied execution
upon the building, bought it in at the sheriff's sale on or
about the 18th of December, 1914, and had the sheriff's
certificate of the sale duly registered in the land registry of
the Province of Cavite.
At the time when the execution was levied upon the
building, the defendant machinery company, which was in
possession, filed with the sheriff a sworn statement setting
up its claim of title and demanding the release of the
property from the levy. Thereafter, upon demand of the
sheriff, the plaintiff executed an indemnity bond in favor of
the sheriff in the sum of P12,000, in reliance upon which
the sheriff sold the property at public auction to the plaintiff,
who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover
possession of the building from the machinery company.
The trial judge, relying upon the terms of article 1473 of the
Civil Code, gave judgment in favor of the machinery
company, on the ground that the company had its title to
the building registered prior to the date of registry of the
plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different
vendees, the ownership shall be transfer to the person
who may have the first taken possession thereof in good
faith, if it should be personal property.
Should it be real property, it shall belong to the person
acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the
person who first took possession of it in good faith, and, in
the absence thereof, to the person who presents the oldest
title, provided there is good faith.
The registry her referred to is of course the registry of real
property, and it must be apparent that the annotation or
inscription of a deed of sale of real property in a chattel
mortgage registry cannot be given the legal effect of an
inscription in the registry of real property. By its express
terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole
purpose and object of the chattel mortgage registry is to
provide for the registry of "Chattel mortgages," that is to
say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of
strong materials in which the rice-cleaning machinery was
installed by the "Compañia Agricola Filipina" was real
property, and the mere fact that the parties seem to have
dealt with it separate and apart from the land on which it
stood in no wise changed its character as real property. It
follows that neither the original registry in the chattel
mortgage of the building and the machinery installed
therein, not the annotation in that registry of the sale of the
mortgaged property, had any effect whatever so far as the
building was concerned.
We conclude that the ruling in favor of the machinery
company cannot be sustained on the ground assigned by
the trial judge. We are of opinion, however, that the
judgment must be sustained on the ground that the agreed
statement of facts in the court below discloses that neither
the purchase of the building by the plaintiff nor his
inscription of the sheriff's certificate of sale in his favor was
made in good faith, and that the machinery company must
be held to be the owner of the property under the third
paragraph of the above cited article of the code, it
appearing that the company first took possession of the
property; and further, that the building and the land were
sold to the machinery company long prior to the date of the
sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article
1473 of the Civil Code require "good faith," in express
terms, in relation to "possession" and "title," but contain no
express requirement as to "good faith" in relation to the
"inscription" of the property on the registry, it must be
presumed that good faith is not an essential requisite of
registration in order that it may have the effect
contemplated in this article. We cannot agree with this
contention. It could not have been the intention of the
legislator to base the preferential right secured under this
article of the code upon an inscription of title in bad faith.
Such an interpretation placed upon the language of this
section would open wide the door to fraud and collusion.
The public records cannot be converted into instruments of
fraud and oppression by one who secures an inscription
therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of
him who enters such inscription; and rights created by
statute, which are predicated upon an inscription in a
public registry, do not and cannot accrue under an
inscription "in bad faith," to the benefit of the person who
thus makes the inscription.
Construing the second paragraph of this article of the
code, the supreme court of Spain held in its sentencia of
the 13th of May, 1908, that:
This rule is always to be understood on the basis of the
good faith mentioned in the first paragraph; therefore, it
having been found that the second purchasers who record
their purchase had knowledge of the previous sale, the
question is to be decided in accordance with the following
paragraph. (Note 2, art. 1473, Civ. Code, Medina and
Maranon [1911] edition.)
Although article 1473, in its second paragraph, provides
that the title of conveyance of ownership of the real
property that is first recorded in the registry shall have
preference, this provision must always be understood on
the basis of the good faith mentioned in the first paragraph;
the legislator could not have wished to strike it out and to
sanction bad faith, just to comply with a mere formality
which, in given cases, does not obtain even in real
disputes between third persons. (Note 2, art. 1473, Civ.
Code, issued by the publishers of the La Revista de los
Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the
plaintiff, when he bought the building at the sheriff's sale
and inscribed his title in the land registry, was duly notified
that the machinery company had bought the building from
plaintiff's judgment debtor; that it had gone into possession
long prior to the sheriff's sale; and that it was in possession
at the time when the sheriff executed his levy. The
execution of an indemnity bond by the plaintiff in favor of
the sheriff, after the machinery company had filed its sworn
claim of ownership, leaves no room for doubt in this
regard. Having bought in the building at the sheriff's sale
with full knowledge that at the time of the levy and sale the
building had already been sold to the machinery company
by the judgment debtor, the plaintiff cannot be said to have
been a purchaser in good faith; and of course, the
subsequent inscription of the sheriff's certificate of title
must be held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the
inscription of the sheriff's certificate of sale to the plaintiff
was not made in good faith, we should not be understood
as questioning, in any way, the good faith and
genuineness of the plaintiff's claim against the "Compañia
Agricola Filipina." The truth is that both the plaintiff and the
defendant company appear to have had just and righteous
claims against their common debtor. No criticism can
properly be made of the exercise of the utmost diligence by
the plaintiff in asserting and exercising his right to recover
the amount of his claim from the estate of the common
debtor. We are strongly inclined to believe that in procuring
the levy of execution upon the factory building and in
buying it at the sheriff's sale, he considered that he was
doing no more than he had a right to do under all the
circumstances, and it is highly possible and even probable
that he thought at that time that he would be able to
maintain his position in a contest with the machinery
company. There was no collusion on his part with the
common debtor, and no thought of the perpetration of a
fraud upon the rights of another, in the ordinary sense of
the word. He may have hoped, and doubtless he did hope,
that the title of the machinery company would not stand the
test of an action in a court of law; and if later developments
had confirmed his unfounded hopes, no one could
question the legality of the propriety of the course he
adopted.
But it appearing that he had full knowledge of the
machinery company's claim of ownership when he
executed the indemnity bond and bought in the property at
the sheriff's sale, and it appearing further that the
machinery company's claim of ownership was well
founded, he cannot be said to have been an innocent
purchaser for value. He took the risk and must stand by the
consequences; and it is in this sense that we find that he
was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect
or lack of title in his vendor cannot claim that he has
acquired title thereto in good faith as against the true
owner of the land or of an interest therein; and the same
rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with
the defects in the title of his vendor. A purchaser cannot
close his eyes to facts which should put a reasonable man
upon his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the
vendor. His mere refusal to believe that such defect exists,
or his willful closing of his eyes to the possibility of the
existence of a defect in his vendor's title, will not make him
an innocent purchaser for value, if afterwards develops
that the title was in fact defective, and it appears that he
had such notice of the defects as would have led to its
discovery had he acted with that measure of precaution
which may reasonably be acquired of a prudent man in a
like situation. Good faith, or lack of it, is in its analysis a
question of intention; but in ascertaining the intention by
which one is actuated on a given occasion, we are
necessarily controlled by the evidence as to the conduct
and outward acts by which alone the inward motive may,
with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes
good faith implies a "freedom from knowledge and
circumstances which ought to put a person on inquiry," and
so it is that proof of such knowledge overcomes the
presumption of good faith in which the courts always
indulge in the absence of proof to the contrary. "Good faith,
or the want of it, is not a visible, tangible fact that can be This cause is before us upon demurrer interposed by the
seen or touched, but rather a state or condition of mind respondent, Joaquin Jaramillo, register of deeds of the City
which can only be judged of by actual or fancied tokens or of Manila, to an original petition of the Standard Oil
signs." (Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Company of New York, seeking a
Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; Pinkerton peremptory mandamus to compel the respondent to record
Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.) in the proper register a document purporting to be a chattel
mortgage executed in the City of Manila by Gervasia de la
We conclude that upon the grounds herein set forth the Rosa, Vda. de Vera, in favor of the Standard Oil Company
disposing part of the decision and judgment entered in the of New York.
court below should be affirmed with costs of this instance
against the appellant. So ordered. It appears from the petition that on November 27, 1922,
Gervasia de la Rosa, Vda. de Vera, was the lessee of a
Arellano, C.J., Johnson, Araullo, Street and Malcolm, parcel of land situated in the City of Manila and owner of
JJ., concur. the house of strong materials built thereon, upon which
Torres, Avanceña and Fisher, JJ., took no part. date she executed a document in the form of a chattel
mortgage, purporting to convey to the petitioner by way of
Republic of the Philippines mortgage both the leasehold interest in said lot and the
SUPREME COURT building which stands thereon.
Manila
The clauses in said document describing the property
EN BANC intended to be thus mortgage are expressed in the
following words:
G.R. No. L-20329 March 16, 1923
Now, therefore, the mortgagor hereby conveys and
THE STANDARD OIL COMPANY OF NEW transfer to the mortgage, by way of mortgage, the following
YORK, petitioner, described personal property, situated in the City of Manila,
vs. and now in possession of the mortgagor, to wit:
JOAQUIN JARAMILLO, as register of deeds of the City
of Manila, respondent. All of the right, title, and interest of the mortgagor in
and to the contract of lease hereinabove referred
Ross, Lawrence and Selph for petitioner. to, and in and to the premises the subject of the
City Fiscal Revilla and Assistant City Fiscal Rodas for said lease;
respondent.
The building, property of the mortgagor, situated on
STREET, J.: the aforesaid leased premises.
After said document had been duly acknowledge and
delivered, the petitioner caused the same to be presented
to the respondent, Joaquin Jaramillo, as register of deeds
of the City of Manila, for the purpose of having the same
recorded in the book of record of chattel mortgages. Upon
examination of the instrument, the respondent was of the
opinion that it was not a chattel mortgage, for the reason
that the interest therein mortgaged did not appear to be
personal property, within the meaning of the Chattel
Mortgage Law, and registration was refused on this ground
only.
We are of the opinion that the position taken by the
respondent is untenable; and it is his duty to accept the
proper fee and place the instrument on record. The duties
of a register of deeds in respect to the registration of
chattel mortgage are of a purely ministerial character; and
no provision of law can be cited which confers upon him
any judicial or quasi-judicial power to determine the nature
of any document of which registration is sought as a
chattel mortgage.
The original provisions touching this matter are contained
in section 15 of the Chattel Mortgage Law (Act No. 1508),
as amended by Act No. 2496; but these have been
transferred to section 198 of the Administrative Code,
where they are now found. There is nothing in any of these
provisions conferring upon the register of deeds any
authority whatever in respect to the "qualification," as the
term is used in Spanish law, of chattel mortgage. His
duties in respect to such instruments are ministerial only.
The efficacy of the act of recording a chattel mortgage
consists in the fact that it operates as constructive notice of
the existence of the contract, and the legal effects of the
contract must be discovered in the instrument itself in
relation with the fact of notice. Registration adds nothing to
the instrument, considered as a source of title, and affects
nobody's rights except as a specifies of notice.
Articles 334 and 335 of the Civil Code supply no absolute
criterion for discriminating between real property and
personal property for purpose of the application of the
Chattel Mortgage Law. Those articles state rules which,
considered as a general doctrine, are law in this
jurisdiction; but it must not be forgotten that under given
conditions property may have character different from that
imputed to it in said articles. It is undeniable that the
parties to a contract may by agreement treat as personal
property that which by nature would be real property; and it
is a familiar phenomenon to see things classed as real
property for purposes of taxation which on general
principle might be considered personal property. Other
situations are constantly arising, and from time to time are
presented to this court, in which the proper classification of
one thing or another as real or personal property may be
said to be doubtful.
The point submitted to us in this case was determined on
September 8, 1914, in an administrative ruling
promulgated by the Honorable James A. Ostrand, now a
Justice of this Court, but acting at that time in the capacity
of Judge of the fourth branch of the Court of First Instance
of the Ninth Judicial District, in the City of Manila; and little
of value can be here added to the observations contained
in said ruling. We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the
property described in the document in question is real or
personal; the discussion may be confined to the point as to
whether a register of deeds has authority to deny the
registration of a document purporting to be a chattel
mortgage and executed in the manner and form prescribed
by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law
(Act No. 1508), his Honor continued:
The demurrer is overruled; and unless within the period of
five days from the date of the notification hereof, the
respondent shall interpose a sufficient answer to the
petition, the writ of mandamus will be issued, as prayed,
but without costs. So ordered.

Based principally upon the provisions of section quoted the Araullo, C.J., Malcolm, Avanceña, Ostrand, Johns, and
Attorney-General of the Philippine Islands, in an opinion Romualdez, JJ., concur
dated August 11, 1909, held that a register of deeds has
no authority to pass upon the capacity of the parties to a Republic of the Philippines
chattel mortgage which is presented to him for record. A SUPREME COURT
fortiori a register of deeds can have no authority to pass Manila
upon the character of the property sought to be
encumbered by a chattel mortgage. Of course, if the SECOND DIVISION
mortgaged property is real instead of personal the chattel
mortgage would no doubt be held ineffective as against G.R. No. L-68010 May 30, 1986
third parties, but this is a question to be determined by the
courts of justice and not by the register of deeds. FILIPINAS MABLE CORPORATION, petitioner,
vs.
In Leung Yee vs. Frank L. Strong Machinery Co. and THE HONORABLE INTERMEDIATE APPELLATE
Williamson (37 Phil., 644), this court held that where the COURT, THE HONORABLE CANDIDO VILLANUEVA,
interest conveyed is of the nature of real, property, the Presiding Judge of Br. 144, RTC, Makati,
placing of the document on record in the chattel mortgage DEVELOPMENT BANK OF THE PHILIPPINES (DBP),
register is a futile act; but that decision is not decisive of BANCOM SYSTEMS CONTROL, INC. (Bancom), DON
the question now before us, which has reference to the FERRY, CASIMERO TANEDO, EUGENIO PALILEO,
function of the register of deeds in placing the document ALVARO TORIO, JOSE T. PARDO, ROLANDO
on record. ATIENZA, SIMON A. MENDOZA, Sheriff NORVELL R.
LIM, respondents.
In the light of what has been said it becomes unnecessary
for us to pass upon the point whether the interests Vicente Millora for petitioner.
conveyed in the instrument now in question are real or
personal; and we declare it to be the duty of the register of Jesus A. Avencena and Bonifacio M. Abad for
deeds to accept the estimate placed upon the document respondents.
by the petitioner and to register it, upon payment of the
proper fee.
GUTIERREZ, JR., J.:
This petition for review seeks to annul the decision and
resolution of the appellate court which upheld the trial
court's decision denying the petitioner's prayer to enjoin
the respondent from foreclosing on its properties.
On January 19, 1983, petitioner Filipinas Marble
Corporation filed an action for nullification of deeds and
damages with prayer for a restraining order and a writ of
preliminary injunction against the private respondents. In
its complaint, the petitioner alleged in substance that it
applied for a loan in the amount of $5,000,000.00 with
respondent Development Bank of the Philippines (DBP) in
its desire to develop the fun potentials of its mining claims
and deposits; that DBP granted the loan subject, however,
to sixty onerous conditions, among which are: (a) petitioner
shall have to enter into a management contract with
respondent Bancom Systems Control, Inc. [Bancom]; (b)
DBP shall be represented by no less than six (6) regular
directors, three (3) to be nominated by Bancom and three
(3) by DBP, in Filipinos Marble's board, one of whom shall
continue to be the chairman of the board; (c) the key
officers/executives [the President and the officers for
finance, marketing and purchasing] to be chosen by
Bancom for the corporation shall be appointed only with
DBP's prior approval and all these officers are to be made
directly responsible to DBP; DBP shall immediately
designate Mr. Alvaro Torio, Assistant Manager of DBP's
Accounting Department as DBP's Comptroller in the firm
whose compensation shall be borne by Filipinas Marble;
and (d) the $5 Million loan shall be secured by: 1) a final
mortgage on the following assets with a total approved
value of P48,630,756.00 ... ; 2) the joint and several
signatures with Filipinas Marble of Mr. Pelagio M. Villegas,
Sr., Trinidad Villegas, and Jose E. Montelibano and 3)
assignment to DBP of the borrower firm's right over its
mining claims; that pursuant to these above- mentioned
and other "take it or leave it" conditions, the petitioner
entered into a management contract with Bancom whereby
the latter agreed to manage the plaintiff company for a
period of three years; that under the management
agreement, the affairs of the petitioner were placed under
the complete control of DBP and Bancom including the
disposition and disbursement of the $5,000,000 or
P37,600,000 loan; that the respondents and their
directors/officers mismanaged and misspent the loan, after
which Bancom resigned with the approval of DBP even
before the expiration date of the management contract,
leaving petitioner desolate and devastated; that among the
acts and omissions of the respondents are the following.
(a) failure to purchase all the necessary machinery and
equipment needed by the petitioner's project for which the
approved loan was intended; (b) failure to construct a
processing plant; (c) abandonment of imported machinery
and equipment at the pier, (d) purchase of unsuitable lot
for the processing plant at Binan; (e) failure to develop
even a square meter of the quarries in Romblon or Cebu;
and (f) nearly causing the loss of petitioner's rights over its
Cebu claims; and that instead of helping petitioner get
back on its feet, DBP completely abandoned the
petitioner's project and proceeded to foreclose the
properties mortgaged to it by petitioner without previous
demand or notice.
In essence, the petitioner in its complaint seeks the
annulment of the deeds of mortgage and deed of
assignment which it executed in favor of DBP in order to
secure the $5,000,000.00 loan because it is petitioner's
contention that there was no loan at all to secure since
what DBP "lent" to petitioner with its right hand, it also got
back with its left hand; and that, there was failure of
consideration with regard to the execution of said deeds as
the loan was never delivered to the petitioner. The
petitioner further prayed that pending the trial on the merits
of the case, the trial court immediately issue a restraining
order and then a writ of preliminary injunction against the
sheriffs to enjoin the latter from proceeding with the
foreclosure and sale of the petitioner's properties in Metro
Manila and in Romblon.
Respondent DBP opposed the issuance of a writ of
preliminary injunction stating that under Presidential
Decree No. 385, DBP's right to foreclose is mandatory as
the arrearages of petitioner had already amounted to
P123,801,265.82 as against its total obligation of
P151,957,641.72; that under the same decree, no court
can issue any restraining order or injunction against it to
stop the foreclosure since Filipinas Marble's arrearages
had already reached at least twenty percent of its total
obligations; that the alleged non-receipt of the loan
proceeds by the petitioner could, at best, be accepted only
in a technical sense because the money was received by
the officers of the petitioner acting in such capacity and,
therefore, irrespective of whoever is responsible for placing
them in their positions, their receipt of the money was
receipt by the petitioner corporation and that the complaint
does not raise any substantial controversy as to the
amount due under the mortgage as the issues raised
therein refer to the propriety of the manner by which the
proceeds of the loan were expended by the petitioner's
management, the allegedly precipitate manner with which
DBP proceeded with the foreclosure, and the capacity of
the DBP to be an assignee of the mining lease rights.
After a hearing on the preliminary injunction, the trial court
issued an order stating:
The Court has carefully gone over the evidence presented
by both parties, and while it sympathizes with the plight of
the plaintiff and of the pitiful condition it now has found
itself, it cannot but adhere to the mandatory provisions of
P.D. 385. While the evidence so far presented by the
plaintiff corporation appears to be persuasive, the same
may be considered material and relevant to the case.
Hence, despite the impressive testimony of the plaintiff's
witnesses, the Court believes that it cannot enjoin the
defendant Development Bank of the Philippines from
complying with the mandatory provisions of the said
Presidential Decree. It having been shown that plaintiff's
outstanding obligation as of December 31, 1982 amounted
to P151,957,641.72 and with arrearages reaching up to 81
% against said total obligation, the Court finds the
provisions of P.D. 385 applicable to the instant case. It is a
settled rule that when the statute is clear and
unambiguous, there is no room for interpretation, and all
that it has to do is to apply the same.
On appeal, the Intermediate Appellate Court upheld the
trial court's decision and held:
While petitioner concedes 'that Presidential Decree No.
385 applies only where it is clear that there was a loan or
where the loan is not denied' (p. 14-petition), it disclaims
receipt of the $5 million loan nor benefits derived therefrom
and bewails the onerous conditions imposed by DBP
Resolution No. 385 dated December 7, 1977, which
allegedly placed the petitioner under the complete control
of the private respondents DBP and Bancom Systems
Control Inc. (Bancom, for short). The plausibility of
petitioner's statement that it did Dot receive the $5 million
loan is more apparent than real. At the hearing for
injunction before the counsel for DBP stressed that
$2,625,316.83 of the $5 million loan was earmarked to
finance the acquisition of machinery, equipment and spare
parts for petitioner's Diamond gangsaw which machineries
were actually imported by petitioner Filipinas Marble
Corporation and arrived in the Philippines. Indeed, a
summary of releases to petitioner covering the period June
1978 to October 1979 (Exh. 2, Injunction) showed
disbursements amounting to millions of pesos for working
capital and opening of letter of credits for the acquisition of
its machineries and equipment. Petitioner does not dispute
that releases were made for the purchase of machineries
and equipment but claims that such imported machineries
were left to the mercy of the elements as they were never
delivered to it.
xxxxxxxxx
Apart from the foregoing, petitioner is patently not entitled
to a writ of preliminary injunction for it has not
demonstrated that at least 20% of its outstanding
arrearages has been paid after the foreclosure
proceedings were initiated. Nowhere in the record is it
shown or alleged that petitioner has paid in order that it
may fall within the exception prescribed on Section 2,
Presidential Decree No. 385.
Dissatisfied with the appellate court's decision, the
petitioner filed this instant petition with the following
assignments of errors:
There being 'persuasive' evidence that the $5 million
proceeds of the loan were not received and did not benefit
the petitioner per finding of the lower court which should
not be disturbed unless there is grave abuse of discretion,
it must follow that PD 385 does not and cannot apply;
If there was no valid loan contract for failure of
consideration, the mortgage cannot exist or stand by itself
being a mere accessory contract. Additionally, the chattel
mortgage has not been registered. Therefore, the same is
null and void under Article 2125 of the New Civil Code; and
PD 385 is unconstitutional as a 'class legislation', and
violative of the due process clause.
With regard to the first assignment of error, the petitioner
maintains that since the trial court found "persuasive
evidence" that there might have been a failure of
consideration on the contract of loan due to the manner in
which the amount of $5 million was spent, said court
committed grave abuse of discretion in holding that it had
no recourse but to apply P.D. 385 because the application
of this decree requires the existence of a valid loan which,
however, is not present in petitioner's case. It likewise
faults the appellate court for upholding the applicability of
the said decree.
Sections 1 and 2 of P.D. No. 385 respectively provide:
Section 1. It shall be mandatory for government financial
institutions after the lapse of sixty (60) days from the
issuance of this Decree, to foreclose the collaterals and/or
securities for any loan, credit accommodation, and/or
guarantees granted by them whenever the arrearages on
such account, including accrued interest and other
charges, amount to at least twenty (20%) of the total
outstanding obligations, including interest and other
charges, as appearing in the book of accounts and/or
related records of the financial institution concerned. This
shall be without prejudice to the exercise by the
government financial institution of such rights and/or
remedies available to them under their respective contracts
with their debtors, including the right to foreclose on loans,
credits, accommodations, and/or guarantees on which the
arrearages are less than twenty percent (20%).
Section 2. No restraining order, temporary or permanent
injunction shall be issued by the court against any
government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure
provided in Section 1 hereof, whether such restraining
order, temporary or permanent injunction is sought by the
borrower(s) or any third party or parties, except after due
hearing in which it is established by the borrower, and
admitted by the government financial institution concerned
that twenty percent (20%) of the outstanding arrearages
has been paid after the filing of foreclosure proceedings.
Presidential Decree No. 385 was issued primarily to see to
it that government financial institutions are not denied
substantial cash inflows, which are necessary to finance
development projects all over the country, by large
borrowers who, when they become delinquent, resort to
court actions in order to prevent or delay the government's
collection of their debts and loans.
The government, however, is bound by basic principles of
fairness and decency under the due process clause of the
Bill of Rights. P.D. 385 was never meant to protect officials
of government lending institutions who take over the
management of a borrower corporation, lead that
corporation to bankruptcy through mismanagement or
misappropriation of its funds, and who, after ruining it, use
the mandatory provisions of the decree to avoid the
consequences of their misdeeds.
The designated officers of the government financing
institution cannot simply walk away and then state that
since the loans were obtained in the corporation's name,
then P.D. 385 must be peremptorily applied and that there
is no way the borrower corporation can prevent the
automatic foreclosure of the mortgage on its properties
once the arrearages reach twenty percent (20%) of the
total obligation no matter who was responsible.
In the case at bar, the respondents try to impress upon this
Court that the $5,000,000.00 loan was actually granted
and released to the petitioner corporation and whatever
the composition of the management which received the
loan is of no moment because this management was
acting in behalf of the corporation. The respondents also
argue that since the loan was extended to the corporation,
the releases had to be made to the then officers of that
borrower corporation.
Precisely, what the petitioner is trying to point out is that
the DBP and Bancom people who managed Filipinas
Marble misspent the proceeds of the loan by taking
advantage of the positions that they were occupying in the
corporation which resulted in the latter's devastation
instead of its rehabilitation. The petitioner does not
question the authority under which the loan was delivered
but stresses that it is precisely this authority which enabled
the DBP and Bancom people to misspend and
misappropriate the proceeds of the loan thereby defeating
its very purpose, that is, to develop the projects of the
corporation. Therefore, it is as if the loan was never
delivered to it and thus, there was failure on the part of the
respondent DBP to deliver the consideration for which the
mortgage and the assignment of deed were executed.
We cannot, at this point, conclude that respondent DBP
together with the Bancom people actually misappropriated
and misspent the $5 million loan in whole or in part
although the trial court found that there is "persuasive"
evidence that such acts were committed by the
respondent. This matter should rightfully be litigated below
in the main action. Pending the outcome of such litigation,
P.D. 385 cannot automatically be applied for if it is really
proven that respondent DBP is responsible for the
misappropriation of the loan, even if only in part, then the
foreclosure of the petitioner's properties under the
provisions of P.D. 385 to satisfy the whole amount of the
loan would be a gross mistake. It would unduly prejudice
the petitioner, its employees and their families.
Only after trial on the merits of the main case can the true
amount of the loan which was applied wisely or not, for the
benefit of the petitioner be determined. Consequently, the
extent of the loan where there was no failure of
consideration and which may be properly satisfied by
foreclosure proceedings under P.D. 385 will have to await
the presentation of evidence in a trial on the merits. As we
have ruled in the case of Central Bank of the Philippines
vs. Court of Appeals, (1 39 SCRA 46, 5253; 56):
When Island Savings Bank and Sulpicio M. Tolentino
entered into an P80,000.00 loan agreement on April 28,
1965, they undertook reciprocal obligations, the obligation
or promise of each party is the consideration for that of the
othe. (Penacio vs. Ruaya, 110 SCRA 46 [1981]; ...
xxxxxxxxx
The fact that when Sulpicio M. Tolentino executed his real
estate mortgage, no consideration was then in existence,
as there was no debt yet because Island Savings Bank
had not made any release on the loan, does not make the
real estate mortgage void for lack of consideration. It is not
necessary that any consideration should pass at the time
of the execution of the contract of real mortgage (Bonnevie
vs. Court of Appeals, 125 SCRA 122 [1983]. It may either
be a prior or subsequent matter. But when the
consideration is subsequent to the mortgage, the mortgage
can take effect only when the debt secured by it is created
as a binding contract to pay (Parks vs. Sherman, Vol. 2,
pp. 5-6). And, when there is partial failure of consideration,
the mortgage becomes unenforceable to the extent of such
failure (Dow, et al. vs. Poore Vol. 172 N.E. p. 82, cited in
Vol. 59, 1974 ed. C.J.S. p. 138). ...
Under the admitted circumstances of this petition, we,
therefore, hold that until the trial on the merits of the main
case, P.D. 385 cannot be applied and thus, this Court can
restrain the respondents from foreclosing on petitioner's
properties pending such litigation.
The respondents, in addition, assert that even if the $5
million loan were not existing, the mortgage on the
properties sought to be foreclosed was made to secure
previous loans of the petitioner with respondent and
therefore, the foreclosure is still justified.
This contention is untenable. Two of the conditions
imposed by respondent DBP for the release of the $5
million loan embodied in its letter to petitioner dated
December 21, 1977 state:
The interim loan of $289,917.32 plus interest due
thereon which was used for the importation of one
Savage Diamond Gangsaw shall be liquidated out
of the proceeds of this $5 million loan. In addition,
FMC shall also pay DBP, out of the proceeds of
above foreign currency loan, the past due amounts
on obligation with DBP.
xxxxxxxxx
Conversion into preferred shares of P 2 million of
FMCs total obligations with DBP as of the date the
legal documents for this refinancing shall have
been exempted or not later than 90 days from date
of advice of approval of this accommodation.
The above conditions lend credence to the petitioner's
contention that the "original loan had been converted into
'equity shares', or preferred shares; therefore, to all intents
and purposes, the only 'loan' which is the subject of the
foreclosure proceedings is the $5 million loan in 1978. "
As regards the second assignment of error, we agree with
the petitioner that a mortgage is a mere accessory contract
and, thus, its validity would depend on the validity of the
loan secured by it. We, however, reject the petitioner's
argument that since the chattel mortgage involved was not
registered, the same is null and void. Article 2125 of the
Civil Code clearly provides that the non-registration of the
mortgage does not affect the immediate parties. It states:
Art. 2125. In addition to the requisites stated in article
2085, it is indispensable, in order that a mortgage may be
validly constituted that the document in which it appears be
recorded in the Registry of Property. If the instrument is not
recorded, the mortgage is nevertheless binding between
the parties.
xxxxxxxxx
The petitioner cannot invoke the above provision to nullify
the chattel mortgage it executed in favor of respondent
DBP.
We find no need to pass upon the constitutional issue
raised in the third assignment of error. We follow the rule
started in Alger Electric, Inc. vs. Court of Appeals, (135
SCRA 37, 45).
We see no necessity of passing upon the constitutional
issues raised by respondent Northern. This Court does not
decide questions of a constitutional nature unless
absolutely necessary to a decision of a case. If there exists
some other grounds of construction, we decide the case
on a non- constitutional determination. (See Burton vs.
United States, 196 U.S. 283; Siler vs. Luisville & Nashville
R. Co., 123 U.S. 175; Berta College vs. Kentucky, 211
U.S. 45).
WHEREFORE, IN VIEW OF THE FOREGOING, the
petition is GRANTED. The orders of the Intermediate
Appellate Court dated April 17, 1984 and July 3, 1984 are
hereby ANNULLED and SET ASIDE. The trial court is
ordered to proceed with the trial on the merits of the main
case. In the meantime, the temporary restraining order
issued by this Court on July 23, 1984 shall remain in force
until the merits of the main case are resolved.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Paras, JJ.,
concur.