BONNEVIE et al., v COURT OF APPEALS and PBC | G.R. No.

L-49101 / 125 SCRA 122

FACTS:
Honesto Bonnevie, one of the petitioner filed a complaint against, mortgagee, Philippine
Bank of Commerce for the annulment of the mortgage dated 06 December 1966 executed by
Spouses Jose and Josefa Lozano and to declare null and void the extrajudicial foreclosure made
on 04 September 1968. Bonnevie alleged that (a) the Deed of Mortgage lacks consideration and
(b) the mortgage was executed by one who was not the owner of the mortgaged property. In
addition he alleged that the property in question was foreclosed pursuant to Act No. 3135 as
amended, without, however, complying with the condition imposed for a valid foreclosure.
Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that
respondent Bank should have accepted petitioner's offer to redeem the property under the
principle of equity said justice.
On the other hand, the defendant Bank, raised the following defenses: (a) that the
defendant has not given its consent, much less the requisite written consent, to the sale of the
mortgaged property to plaintiff and the assumption by the latter of the loan secured thereby; (b)
that the demand letters and notice of foreclosure were sent to Jose Lozano at his address; (c) that
it was notified for the first time about the alleged sale after it had foreclosed the Lozano
mortgage; (d) that the law on contracts requires defendant's consent before Jose Lozano can be
released from his bilateral agreement with the former and doubly so, before plaintiff may be
substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured
by mortgage, after two renewals remain unpaid despite countless reminders and demands; of that
the property in question remained registered in the name of Jose M. Lozano in the land records
of Rizal and there was no entry, notation or indication of the alleged sale to plaintiff; (g) that it is
an established banking practice that payments against accounts need not be personally made by
the debtor himself; and (h) that it is not true that the mortgage, at the time of its execution and
registration, was without consideration as alleged because the execution and registration of the
securing mortgage, the signing and delivery of the promissory note and the disbursement of the
proceeds of the loan are mere implementation of the basic consensual contract of loan.
Subsequently, petitioner Raoul SV Bonnevie filed a motion for intervention. The
intervention was premised on the Deed of Assignment executed by petitioner Honesto Bonnevie
in favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner
HonestoBonnevie over the subject property. The intervention was ultimately granted in order
that all issues be resolved in one proceeding to avoid multiplicity of suits. RTC dismissed the
complaint. CA affirmed the decision of the RTC

ISSUE:
Whether the real estate mortgage executed by the spouses Lozano in favor of respondent
bank was validly and legally executed
RULING:
Yes, the Court ruled that real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
The Court highlighted that a contract of loan being a consensual contract is perfected at
the same time the contract of mortgage was executed. Here, the loan matured on December 26,
1967 so when respondent Bank applied for foreclosure, the loan was already six months overdue.
Payment of interest on July 12, 1968 does not make the earlier act of PBC inequitous nor does it
ipso facto result in the renewal of the loan. In order that a renewal of a loan may be effected, not
only the payment of the accrued interest is necessary but also the payment of interest for the
proposed period of renewal as well. Besides, whether or not a loan may be renewed does not
solely depend on the debtor but more so on the discretion of the bank.
Moreover, the fact that the latter did not collect from the respondent Bank the
consideration of the mortgage on the date it was executed is immaterial. As stated, a contract of
loan being a consensual contract, the herein contract of loan was perfected at the same time the
contract of mortgage was executed. The promissory note executed on 12 December 1966 is only
an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the
time of its execution.

Central Bank vs. CA, 139 SCRA 46

FACTS:
On April 28, 1965, Island Savings Bank approved the loan application for P80,000.00 of
Sulpicio M. Tolentino repayable in semi-annual installments for a period of 3 years, with 12%
annual interest. As a security of the loan, he entered a real estate mortgage over his 100-hectare
land located in Cubo, Las Nieves, Agusan and which mortgage was annotated on the said title
the next day.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by
the Bank. 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. 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
was refunded to Sulpicio M. Tolentino, after being informed by the Bank that there was no fund
yet available for the release of the P63,000.00 balance. The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00 balance.
On August 13, 1965, the Monetary Board of the Central Bank issued Resolution No.
1049, which prohibits the bank from making new loans and investments [except investments in
government securities] excluding extensions or renewals of already approved loans. On June 14,
1968, the Board, after finding that Island 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. 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 made by Sulpicio M. Tolentino; and the
sheriff scheduled the auction for January 22, 1969.
Two days after, 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. That 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.
On January 21, 1969, the trial court, issued a temporary restraining order enjoining the
Island Savings Bank from continuing with the foreclosure of the mortgage. On February 15,
1972, the trial court, finds the petition of Sulpicio M. Tolentino unmeritorious, ordering him to
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.
On February 11, 1977, the Court of Appeals 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. Hence, this petition by the Central Bank.

ISSUES:
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?

RULING:
1. No, the action of Sulpicio M. Tolentino for specific performance prosper.
 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.

2. Yes, Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the
promissory note.
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.
3. No, his real estate mortgage cannot be foreclosed to satisfy said amount. 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 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.
Republic of the Philippines v. Jose Balagtas, Felicidad Balagtas
Facts:
Jose Balagtas borrowed on May 8, 1948 from the Republic through the Bureau of Animal
Industry three bulls: a Red Sindhi with a book value of P1, 176.46, a Bhagnari, of P1, 320.56 and
a Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding
purposes with a breeding charge of 10% of the value of the bulls. When the contract expired,
Balagtas asked for a renewal for another year but only one bull was allowed and the return of the
other two was demanded by the Agriculture and Natural Resources. On March 25, 1950,
Balagtas wanted to pay the value of the three bulls with a deduction of yearly depreciation, but
Animal Industry rejected it and desired the return or payment of their value not later than
October 1950. Balagtas failed to pay and return the bull. Subsequently, a case was filed with the
CFI and the latter ordered the return and payment of the book value of the bulls. Felicidad
succeeded Jose after his death and said that the two bulls were returned and the other one was
killed by a gunshot wound during a Huk. Further, Felicidad claimed that it is the Republic that
should bear the loss because the killing was due to force majeure and that the contract is
commodatum which attributes the loss to the Republic, having retained the title or ownership of
the bull.

Issue:
Whether the contract is commodatum and the defendant is not liable for the bull killed
due to force majeure.

Ruling:
Balagtas’estate is liable for P859.63, which represents the value of the other bull.
A contract of commodatum is essentially gratuitous. If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil
Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she
had continued possession of the bull after the expiry of the contract. And even if the contract be
commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a
bailee in a contract of commodatum — is liable for loss of the things, even if it should be
through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one
bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept
and used the bull until November 1953 when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each
an appraised book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the
Sahiniwal at P744.46. It was not stipulated that in case of loss of the bull due to fortuitous event
the late husband of the appellant would be exempt from liability.
RP (Bureau of Lands) vs. CA, Heirs of Domingo Baloy, G.R. No. L-46145, November 26,
1986.

Facts:
Domingo Baloy is the owner of a parcel of land whose title to the land dates back to
Spanish times. On November 26, 1902 pursuant to the executive order of the President of the
U.S., the area was declared within the U.S. Naval Reservation. Under Act 627 as amended by
Act 1138, a period was fixed within which persons affected thereby could file their application,
(that is within 6 months from July 8, 1905) otherwise the said lands or interests therein will be
conclusively adjudged to be public lands and all claims on the part of private individuals for such
lands or interests therein not to presented will be forever barred. The U.S. Navy did occupy the
land for some time as a recreation area. After the U.S. Navy abandoned the land, Baloy came in
and asserted title once again, only to be troubled by first Crispiniano Blanco who however in due
time, quitclaimed in favor of applicants, and then by private oppositors now, apparently
originally tenants of Blanco. Baloy filed an application for land registration, but this was denied.
CA reversed.
Issue:
Whether possession of land not in the concept of owner is a commodatum.
Ruling:
The court grant the petition.
Private land could be deemed to have become public land only by virtue of a judicial
declaration after due notice and hearing. It runs contrary therefore to the contention of petitioners
that failure to present claims set forth under Sec. 2 of Act 627 made the land ipso facto public
without any need of judicial pronouncement. Petitioner in making such declaration relied on Sec.
4 of Act 627 alone. But in construing a statute the entire provisions of the law must be
considered in order to establish the correct interpretation as intended by the law-making body.
Act 627 by its terms is not self-executory and requires implementation by the Court of Land
Registration. Act 627, to the extent that it creates a forfeiture, is a penal statute in derogation of
private rights, so it must be strictly construed so as to safeguard private respondents' rights.
Significantly, petitioner does not even allege the existence of any judgment of the Land
Registration court with respect to the land in question. Without a judgment or order declaring the
land to be public, its private character and the possessory information title over it must be
respected. Since no such order has been rendered by the Land Registration Court it necessarily
follows that it never became public land thru the operation of Act 627. To assume otherwise is to
deprive private respondents of their property without due process of law. In fact it can be
presumed that the notice required by law to be given by publication and by personal service did
not include the name of Domingo Baloy and the subject land, and hence he and his land were
never brought within the operation of Act 627 as amended. The procedure laid down in Sec. 3 is
a requirement of due process. "Due process requires that the statutes under which it is attempted
to deprive a citizen of private property without or against his consent must, as in expropriation
cases, be strictly complied with, because such statutes are in derogation of general rights."
(Arriete vs. Director of Public Works, 58 Phil. 507, 508,511).
The finding of respondent court that during the interim of 57 years from November 26,
1902 to December 17, 1959 (when the U.S. Navy possessed the area) the possessory rights of
Baloy or heirs were merely suspended and not lost by prescription, is supported by Exhibit "U,"
a communication or letter No. 1108-63, dated June 24, 1963, which contains an official
statement of the position of the Republic of the Philippines with regard to the status of the land in
question. Said letter recognizes the fact that Domingo Baloy and/or his heirs have been in
continuous possession of said land since 1894 as attested by an "Informacion Possessoria" Title,
which was granted by the Spanish Government. Hence, the disputed property is private land and
this possession was interrupted only by the occupation of the land by the U.S. Navy in 1945 for
recreational purposes. The U.S. Navy eventually abandoned the premises. The heirs of the late
Domingo P. Baloy, are now in actual possession, and this has been so since the abandonment by
the U.S. Navy. A new recreation area is now being used by the U.S. Navy personnel and this
place is remote from the land in question. Clearly, the occupancy of the U.S. Navy was not in the
concept of owner. It partakes of the character of a commodatum. It cannot therefore militate
against the title of Domingo Baloy and his successors-in-interest. One's ownership of a thing
may be lost by prescription by reason of another's possession if such possession be under claim
of ownership, not where the possession is only intended to be transient, as in the case of the U.S.
Navy's occupation of the land concerned, in which case the owner is not divested of his title,
although it cannot be exercised in the meantime.
HERRERA
FACTS:
On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (Petrophil
Corporation) entered into a "Lease Agreement" whereby the former leased to the latter a portion
of his property for a period of twenty (20) years from said date. On December 31, 1969, pursuant
to the said contract, the PETROPHIL CORPORATION paid to the HERRERA advance rentals
for the first eight years, subtracting therefrom the amount of P101,010.73, the amount it
computed as constituting the interest or discount for the first eight years, in the total sum
P180,288.47. On August 20, 1970, the defendant-appellee, explaining that there had been a
mistake in computation, paid to the appellant the additional sum of P2,182.70, thereby reducing
the deducted amount to only P98,828.03. On October 14, 1974, the plaintiff-appellant sued the
defendant-appellee for the sum of P98,828.03, with interest, claiming this had been illegally
deducted from him in violation of the Usury Law. Plaintiff-appellant now prays for a reversal of
that judgment, insisting that the lower court erred in the computation of the interest collected out
of the rentals paid for the first eight years; that such interest was excessive and violative of the
Usury Law; and that he had neither agreed to nor accepted the defendant-appellant's computation
of the total amount to be deducted for the eight years advance rentals. The defendant maintains
that the correct amount of the discount is P98,828.03 and that the same is not excessive and
above that allowed by law.
ISSUE:
Whether or not the contract is a loan
HELD: No
As its title plainly indicates, the contract between the parties is one of lease and not of loan. It is
clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing
that the parties intended a loan rather than a lease. The provision for the payment of rentals in
advance cannot be construed as a repayment of a loan because there was no grant or forbearance
of money as to constitute an indebtedness on the part of the lessor. On the contrary, the
defendant-appellee was discharging its obligation in advance by paying the eight years rentals,
and it was for this advance payment that it was getting a rebate or discount. There is no usury in
this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor
did it allow him to use its money already in his possession. 9 There was neither loan nor
forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to
deduct from the total payments because they were being made in advance for eight years. The
discount was in effect a reduction of the rentals which the lessor had the right to determine, and
any reduction thereof, by any amount, would not contravene the Usury Law.
PASCUAL
FACTS:
On March 12, 1874, Francisco Fontanilla acquired a lot in the center of the town of
Laoag, the capital of the Province of Ilocos Norte. This has been awarded to him through its
purchase at a public auction held by the alcalde mayor of that province. His brother, Andres
Fontanilla, built a warehouse on a part of the said lot to which he consented.

When Francisco and Andres Fontanilla died their respective heirs inherited their
properties. Plaintiffs, Alejandro Mina, et al., were recognized as the heirs of the former while the
defendants, the children of Ruperta Pascual, were recognized as heirs of the latter. As agreed
upon by both parties it is said that, the plaintiffs and the defendants are considered as virtually
the owners of the warehouse; while the plaintiffs are undoubtedly, the owners of the part of the
lot occupied by that building, as well as of the remainder thereof.

On May 6, 1909, Ruperta Pascual petitioned the Court of First Instance of Ilocos Norte
for authorization to sell "the six-sevenths of the one-half of the warehouse, of 14 by 11 meters,
together with its lot." The plaintiffs opposed the petition because the latter had included therein
the lot occupied by the warehouse, which they claimed was their exclusive property. Further they
requested the court to decide the question of the ownership of the lot before it pass upon the
petition for the sale of the warehouse. But the court before determining the matter of the
ownership of the lot occupied by the warehouse, ordered the sale of the building. Thus, the
warehouse, together with the lot on which it stands, was sold to Cu Joco. Nonetheless, it decided
that land belonged to the owner of the warehouse which had been built thereon thirty years
before. The plaintiffs appealed and the SC reversed the judgment of the lower court and held that
the appellants were the owners of the lot in question. This however was annulled by trial court
for the reason that it affected Cu Joco, who had not been a party to the suit in which that writ was
served.

It was then that the plaintiffs filed the present action for the purpose of having the sale of the said
lot declared null and void and of no force and effect.

Issue
Whether the contract between Francisco and Andres is in the nature of commodatum?

Ruling:
No. It is an essential feature of commodatum that the use of the thing belonging to
another shall be for a certain period. The parties never fixed a definite period during which
Andres could use the lot and afterwards return it.

Although both litigating parties may have agreed in their idea of the commodatum, on
account of its not being, as indeed it is not, a question of fact but of law, yet that denomination
given by them to the use of the lot granted by Francisco Fontanilla to his brother, Andres
Fontanilla, is not acceptable. Contracts are not to be interpreted in conformity with the name that
the parties thereto agree to give them, but must be construed, duly considering their constitutive
elements, as they are defined and denominated by law.

As stated in the Civil Code, it is an essential feature of the commodatum that the use of
the thing belonging to another shall be for a certain period. Francisco Fontanilla did not fix any
definite period or time during which Andres Fontanilla could have the use of the lot whereon the
latter was to erect a stone warehouse of considerable value, and so it is that for the past thirty
years of the lot has been used by both Andres and his successors in interest.