Professional Documents
Culture Documents
The chattel mortgage on the crops growing on Before the check became stale, Petitioner
appellant's land simply stood as a security for the gave Respondent the TCT and the Deed of
fulfillment of appellant's obligation covered by Absolute Sale of the land.
the five promissory notes, and the loss of the
crops did not extinguish his obligation to pay, Subsequently, Respondent decided not to
because the account could still be paid from purchase the property and notified Petitioner
other sources aside from the mortgaged crops. of this reminding the latter that the amount of
P2 million should be considered as a loan
payable within six months as stipulated in the
Frias vs San Diego-Sison MOA with interest computed from such
G.R. No. 155223 April 4, 2007 notification.
2. Petitioner will receive P3 million from Whether or not the interest should be limited to
respondent as downpayment. the 1st six months as contained in the MOA?
3. In light of the downpayment,
respondent had 6 months (1st) to notify Ruling:
the Petitioner of her intention to
purchase the land. However, the No. SC ruled in favour of Respondent.
balance is to be paid within another 6
months. The SC opined that if the terms of an
agreement are clear and leave no doubt as to
4. Prior to the first six months, the the intention of the contracting parties, the
Petitioner may still offer the cited land literal meaning of its stipulations shall prevail.
to other persons provided that the P3 It is further required that the various
million downpayment shall be returned stipulations of a contract shall be interpreted
to the Respondent including interest together.
based on prevailing compounded bank
interest. In this case, the phrase "for the last six
months only" should be taken in the context
5. Nevertheless, in case there are no of the entire agreement.
other buyers within the first 6 months,
no interest shall be charged on the P3 The MOA speaks of 2 periods of six months
million.
each.
6. However, in the event that on the 6th
o The 1st six-months was given to
month the Respondent does not
Respondent to make up her mind
purchase the land, the Petitioner has a
- The parties entered into a contract Held: Respondents have failed to adduce any
wherein it is stipulated that 350 pairs of cogent argument to persuade the Court to
ballet shoes will be sold by Co and that Co reconsider its Resolution at bar that the Tapia
had 9 days from delivery of the shoes to ruling is fully applicable to the non-payment of
A significant development of the case, the 1) Whether or not the Purchase Agreement
Government Service Insurance System (GSIS) has entered into by the Parties is a debt
acquired ownership of 99.93% of the outstanding instrument?
capital stock of COMBANK. The Court's Resolution 2) If so, Is Basilio liable as surety?
manifestly redounds to the benefit of another 3) Whether or not Lirag is liable for the
government institution, the GSIS, and to the interest as liquidated damages?
preservation of the banking system.
USURY LAW
Topic: Simple Loan or Mutuum; Article 1960
Velez v. Balzarra G.R. No. 128990 September 21, 2000
FACTS:
INVESTORS FINANCE
Plaintiff Velez filed a complaint for the CORPORATION, petitioner,
return of parcels of land sold by Defendant vs.
to Plaintiff’s husband. She further alleged AUTOWORLD SALES CORPORATION, and PIO
that defendants had remained in BARRETTO REALTY DEVELOPMENT
possession of said land under Contract of CORPORATION,respondents.
Lease but for over 2 years defendants had
not paid the agreed rentals.
FACTS:
Defendant alleged that the real agreement
was a loan secured by a mortgage of
those lands. Petitioner Investors Finance Corporation, then
Trial court found that the payments made known also as FNCB Finance (now doing business
under the name of Citytrust Finance Corporation),
by defendants were not made by way of
is a financing company doing business with
interest but as payments for the principal.
private respondent Autoworld Sales Corporation
Defendant overpaid therefore Plaintiff
(AUTOWORLD) since 1975. Anthony Que,
should return excess.
president of AUTOWORLD, also held the same
position at its affiliate corporation, private
SECTRANS 2010/ ATTY. AGUINALDO 7
respondent Pio Barretto Realty Corporation (1) Contract to Sell whereby BARRETTO
(BARRETTO). sold a parcel of land to AUTOWORLD,
situated in San Miguel, Manila, together
Sometime in August 1980 Anthony Que, in behalf with the improvements thereon, covered
of AUTOWORLD, applied for a direct loan with by TCT No. 129763 for the price of
FNCB. However, since the Usury Law imposed an P12,999,999.60 payable in sixty (60)
interest rate ceiling at that time, FNCB informed consecutive and equal monthly
Anthony Que that it was not engaged in direct installments of P216,666.66.
lending; consequently, AUTOWORLD's request for
loan was denied. (2) Deed of Assignment whereby
BARRETTO assigned and sold in favor of
But sometime thereafter, FNCB's Assistant Vice FNCB all its rights, title and interest to all
President, Mr. Leoncio Araullo, informed Anthony the money and other receivables due from
Que that although it could not grant direct loans AUTOWORLD under the Contract to Sell,
it could extend funds to AUTOWORLD by subject to the condition that the assignee
purchasing any of its outstanding receivables at a (FNCB) has the right of recourse against
discount. After a series of negotiations the parties the assignor (BARRETTO) in the event that
agreed to execute an Installment Paper Purchase the payor (AUTOWORLD) defaulted in the
("IPP") transaction to enable AUTOWORLD to payment of its obligations.
acquire the additional capital it needed. The
mechanics of the proposed "IPP" transaction was (3) Real Estate Mortgage whereby
— BARRETTO, as assignor, mortgaged the
property subject of the Contract to Sell to
(1) First, Pio Barretto (BARRETTO) would FNCB as security for payment of its
execute a Contract to Sell a parcel of land obligation under the Deed of Assignment.
in favor of AUTOWORLD for
P12,999,999.60 payable in sixty (60) equal After the three (3) contracts were concluded
monthly installments of P216,666.66. AUTOWORLD started paying the monthly
Consequently, BARRETTO would acquire installments to FNCB.
P12,999,999.60 worth of receivables from
AUTOWORLD; On 18 June 1982 AUTOWORLD transacted with
FNCB for the second time obtaining a loan of
(2) FNCB would then purchase the P3,000,000.00 with an effective interest rate of
receivables worth P12,999,999.60 from 28% per annum. AUTOWORLD and BARRETTO, as
BARRETTO at a discounted value of co-makers, then signed a promissory note in
P6,980,000.00 subject to the condition favor of FNCB worth P5,604,480.00 payable in
that such amount would be "flowed back" sixty (60) consecutive monthly installments of
to AUTOWORLD; P93,408.00. To secure the promissory note,
AUTOWORLD mortgaged a parcel of land located
(3) BARRETTO, would in turn, execute a in Sampaloc, Manila, to FNCB. Thereafter,
Deed of Assignment (in favor of FNCB) AUTOWORLD began paying the installments.
obliging AUTOWORLD to pay the
installments of the P12,999,999.60 In December 1982, after paying nineteen (19)
purchase price directly to FNCB; and monthly installments of P216,666.66 on the first
transaction ("IPP" worth P6,980,000.00) and three
(4) Lastly, to secure the payment of the (3) monthly installments of P93,408.00 on the
receivables under the Deed of second transaction (loan worth P3,000,000.00),
Assignment, BARRETTO would mortgage AUTOWORLD advised FNCB that it intended to
the property subject of the sale to FNCB. preterminate the two (2) transactions by paying
their outstanding balances in full. It then
On 17 November 1980 FNCB informed requested FNCB to provide a computation of the
AUTOWORLD that its Executive Committee remaining balances. FNCB sent AUTOWORLD its
approved the proposed "IPP" transaction. The computation requiring it to pay a total amount of
lawyers of FNCB then drafted the contracts P10,026,736.78, where P6,784,551.24 was the
needed and furnished Anthony Que with copies amount to settle the first transaction while
thereof. P3,242,165.54 was the amount to settle the
second transaction.
On 9 February 1981 the parties signed three (3)
contracts to implement the "IPP" transaction: On 20 December 1982 AUTOWORLD wrote FNCB
that it disagreed with the latter's computation of
SECTRANS 2010/ ATTY. AGUINALDO 8
its outstanding balances. On 27 December 1982 contracts and required FNCB to reimburse
FNCB replied that it would only be willing to AUTOWORLD P2,586,035.44 as excess interest
reconcile its accounting records with payments over the 12% ceiling rate. However,
AUTOWORLD upon payment of the amounts with regard to the second transaction, the
demanded. Thus, despite its objections, appellate court ruled that at the time it was
AUTOWORLD reluctantly paid FNCB executed the ceiling rates imposed by the Usury
P10,026,736.78 through its UCPB account. Law had already been lifted thus allowing the
parties to stipulate any rate of interest.
On 5 January 1983 AUTOWORLD asked FNCB for a
refund of its overpayments in the total amount of ISSUE:
P3,082,021.84. According to AUTOWORLD, it
overpaid P2,586,035.44 to settle the first We stress at the outset that this petition concerns
transaction and P418,262.00 to settle the second itself only with the first transaction involving the
transaction. alleged' "IPP" worth P6,980,000.00, which was
implemented through the three (3) contracts of 9
The parties attempted to reconcile their February 1981. As to the second transaction,
accounting figures but the subsequent which involves the P3,000,000.00 loan, we agree
negotiations broke down prompting AUTOWORLD with the appellate court that it was executed
to file an action before the Regional Trial Court of when the ceiling rates of interest had already
Makati to annul the Contract to Sell, the Deed of been removed, hence the parties were free to fix
Assignment and the Real Estate Mortgage all any interest rate.
dated 9 February 1981. It likewise prayed for the
nullification of thePromissory Note dated 18 June The pivotal issue therefore is whether the three
1982 and the Real Estate Mortgage dated 24 June (3) contracts all dated 9 February 1981 were
1982. executed to implement a legitimate Installment
Paper Purchase ("IPP") transaction or merely to
In its complaint, AUTOWORLD alleged that the conceal a usurious loan.
aforementioned contracts were only perfected to
facilitate a usurious loan and therefore should be HELD:
annulled
The three (3) contracts were executed to conceal
FNCB argued that the contracts dated 9 February a usurious loan.
1981 were not executed to hide a usurious loan.
Instead, the parties entered into a legitimate Generally, the courts only need to rely on the
Installment Paper Purchase ("IPP") transaction, or face of written contracts to determine the
purchase of receivables at a discount, which intention of the parties. "However, the law will
FNCB could legally engage in as a financing not permit a usurious loan to hide itself behind a
company. With regard to the second transaction, legal form. Parol evidence is admissible to show
the existence of a usurious interest rate had no that a written document though legal in form was
bearing on the P3,000,000.00 loan since at the in fact a device to cover usury. If from a
time it was perfected on 18 January 1982 Central construction of the whole transaction it becomes
Bank Circular No. 871 dated 21 July 1981 had apparent that there exists a corrupt intention to
effectively lifted the ceiling rates for loans having violate the Usury Law, the courts should and will
a period of more than three hundred sixty-five permit no scheme, however ingenious, to becloud
(365) days. the crime of usury." The following circumstances
show that such scheme was indeed employed:
On 11 July 1988 the Regional Trial Court of Makati
ruled in favor of FNCB declaring that the parties First, petitioner claims that it was never a party
voluntarily and knowingly executed a legitimate to the Contract to Sell between AUTOWORLD and
"IPP" transaction or the discounting of BARRETTO. As far as it was concerned, it merely
receivables. AUTOWORLD was not entitled to any purchased receivables at a discount from
reimbursement since it was unable to prove the BARRETTO as evidenced by the Deed of
existence of a usurious loan. Assignment dated 9 February 1981. Whether
the Contract to Sell was fictitious or not would
The Court of Appeals modified the decision of the have no effect on its right to claim the
trial court and concluded that the "IPP" receivables of BARRETTO from AUTOWORLD since
transaction, comprising of the three (3) contracts the two contracts were entirely separate and
perfected on 9 February 1981, was merely a distinct from each other.
scheme employed by the parties to disguise a
usurious loan. It ordered the annulment of the
SECTRANS 2010/ ATTY. AGUINALDO 9
Curiously however, petitioner admitted that its the documents it required. And as previously
lawyers were the ones who drafted all the three mentioned, one of the required documents was a
(3) contracts involved which were executed on letter agreement between BARRETTO and
the same day. Also, petitioner was the one who AUTOWORLD stipulating that the P6,980,000.00
procured the services of the Asian Appraisal should be "flowed back" to AUTOWORLD. If it
Company to determine the fair market value of were a genuine "IPP" transaction then petitioner
the land to be sold way back in September of would not have designated the money to be
1980 or six (6) months prior to the sale. If it were released as "loan proceeds" and BARRETTO would
true that petitioner was never privy to have been the end recipient of such proceeds
the Contract to Sell, then why was it interested in with no obligation to turn them over to
appraising the lot six (6) months prior to the sale? AUTOWORLD.
And why did petitioner's own lawyers prepare the
Contract to Sell? Obviously, petitioner actively Fourth, after the interest rate ceilings were lifted
participated in the sale to ensure that the on 21 July 1981 petitioner extended on 18 June
appraised lot would serve as adequate collateral 1982 a direct loan of P3,000,000.00 to
for the usurious loan it gave to AUTOWORLD. AUTOWORLD. This time however, with no more
ceiling rates to hinder it, petitioner imposed a
Second, petitioner insists that the 9 February 28% effective interest rate on the loan. And no
1981 transaction was a legitimate "IPP" longer having a need to cloak the exorbitant
transaction where it only bought the receivables interest rate, the promissory note evidencing the
of BARRETTO from AUTOWORLD amounting to second transaction glaringly bore the 28%
P12,999,999.60 at a discounted price of interest rate on its face. We are therefore of the
P6,980,000.00. However, per instruction of impression that had there been no interest rate
petitioner in its letter to BARRETTO dated 17 ceilings in 1981, petitioner would not have
November 1980 the whole purchase price of the resorted to the fictitious "IPP" transaction;
receivables was to be "flowed back" to instead, it would have directly loaned the money
AUTOWORLD. And in its subsequent letter of 24 to AUTOWORLD with an interest rate higher than
February 1981 petitioner also gave instructions 12%.
on how BARRETTO should apply the proceeds
worth P6,980,000.00. Thus, although the three (3) contracts seemingly
show at face value that petitioner only entered
It can be seen that out of the nine (9) items of into a legitimate discounting of receivables, the
appropriation stated (in the letter), Item Nos. 2-8 circumstances cited prove that the P6,980,000.00
had to be returned to petitioner. Thus, in was really a usurious loan extended to
compliance with the aforesaid letter, BARRETTO AUTOWORLD.
had to yield P4,058,468.47 of the P6,980,000.00
to petitioner to settle some of AUTOWORLD's Petitioner anchors its defense on Sec. 7 of the
previous debts to it. Any remaining amount after Usury Law which states —
the application of the proceeds would then be
surrendered to AUTOWORLD in compliance with Provided, finally, That nothing herein
the letter of 17 November 1980; none went to contained shall be construed to prevent
BARRETTO. the purchase by an innocent purchaser of
a negotiable mercantile paper, usurious or
The foregoing circumstances confirm that the otherwise, for valuable consideration
P6,980,000.00 was really an indirect loan before maturity, when there has been no
extended to AUTOWORLD so that it could settle intention on the part of said purchaser to
its previous debts to petitioner. Had petitioner evade the provisions of the Act and said
entered into a legitimate purchase of receivables, purchase was not a part of the original
then BARRETTO, as seller, would have received usurious transaction. In any case however,
the whole purchase price, and free to dispose of the maker of said note shall have the right
such proceeds in any manner it wanted. It would to recover from said original holder the
not have been obliged to follow the "Application whole interest paid by him thereon and, in
of Proceeds" stated in petitioner's letter. any case of litigation, also the costs and
such attorney's fees as may be allowed by
Third, in its 17 November 1980 letter to the court.
BARRETTO, petitioner itself designated the
proceeds of the "IPP" transaction as a "loan." In Indeed, the Usury Law recognizes the legitimate
that letter, petitioner stated that the "loan purchase of negotiable mercantile paper by
proceeds" amounting to P6,980,000.00 would be innocent purchasers. But even the law has
released to BARRETTO only upon submission of anticipated the potential abuse of such
In the case at bar, the attending factors G.R. No. 125944 June 29, 2001
surrounding the execution of the three (3)
contracts on 9 February 1981 clearly establish Facts:
that the parties intended to transact a usurious
Petitioner-spouses executed 3 real estate
loan. These contracts should therefore be
mortgages on a parcel of land situated in
declared void. Having declared the transaction
Bulacan, in favor of the same Respondent
between the parties as void, we are now tasked
Salazar to secure payment of loans of P60 K,
to determine how much reimbursement
P136 K and P230 K payable within 4 months,
AUTOWORLD is entitled to. The Court of Appeals,
1 year, and 4 months in that order, with 6%
adopting the computation of AUTOWORLD in its
monthly interest on the first loan, and legal
plaintiff-appellant's brief, ruled —
interests on the others.
This action was initiated by the Petitioner-
According to plaintiff-appellant, defendant-
spouses to prevent the foreclosure of the
appellee was able to collect
mortgaged property.
P3,921,217.78 in interests from appellant.
This is not denied by the appellee.
They alleged that they obtained only one loan
Computed at 12% the effective interest
should have been P1,545,400.00. Hence, from the Respondent which was the P60 K
appellant may recover secured by the first mortgage. Also, Petitioner-
P2,586,035.44, representing overpayment spouses opined that the 6% monthly interest
arising from usurious interest rate charged was unconscionable.
by appellee.
The subsequent mortgages were merely
continuations of the first one, which is null
While we do not dispute the appellate court's
and void.
finding that the first transaction was a usurious
loan, we do not agree with the amount of
reimbursement awarded to AUTOWORLD. Indeed, Moreover, the Respondent assured them that
it erred in awarding only the interest paid in he will not foreclose the mortgage as long as
excess of the 12% ceiling. In usurious loans, the they pay the stipulated interest upon maturity
creditor can always recover the principal or within a reasonable time thereafter.
debt. However, the stipulation on the interest is Petitioner-spouses substantially paid the loans
considered void thus allowing the debtor to claim with interest but were unable to pay it in full.
the whole interest paid. In a loan of P1,000.00
with interest at 20% per annum or P200.00 per On the other hand, the Respondent claimed
year, if the borrower pays P200.00, the whole that the mortgages were executed to secure 3
P200.00 would be considered usurious interest, separate loans of and that the first two loans
not just the portion thereof in excess of the were paid, but the last one was not.
interest allowed by law.
He denied having represented that he will not
In the instant case, AUTOWORLD obtained a loan foreclose the mortgage as long as the
of P6,980,000.00. Thereafter, it paid nineteen Petitioner-spouses pay interest.
(19) consecutive installments of P216,666.66
amounting to a total of P4,116,666.54, and
FACTS: Petitioners executed a Deed of Absolute With the suspension of the Usury Law and the
Sale with Right to Repurchase with respondent, in removal of interest ceiling, the parties are free to
consideration of Php 150,000. The petitioners did stipulate the interest to be imposed on loans.
not exercise their right to repurchase the property Absent any evidence of fraud, undue influence, or
within the stipulated one-year period; hence, any vice of consent exercised by RAMOS on the
respondent prayed that the title over the parcels PASCUALs, the interest agreed upon is binding
of land be consolidated in his favor. Petitioners upon them. This Court is not in a position to
aver that what was really executed between them impose upon parties contractual stipulations
and the respondent is a real estate mortgage and different from what they have agreed upon
that there was no agreement limiting the period
within which to exercise the right to repurchase
REFORMINA V. TOMOL
and that they have even overpaid respondent.
EASTERN SHIPPING v CA
Respondent offered in evidence a document
denominated as Sinumpaang Salaysay which had
a provision of an interest of 7% per month on the FACTS:
principal loan of Php 150,000. RTC ruled that the
transaction was actually a loan and the payment - 2 Fiber drums of Riboflavin were shipped
from Japan for delivery vessel owned by
SECTRANS 2010/ ATTY. AGUINALDO 12
Eastern Shipping (P) and that the claim is made
shipment was insured by Mercantile (judicially/extrajudicially)
Insurance (R) o But if it cannot be reasonably
- Upon arrival in Manila, it was discharged established at the time demand
unto the custody of Metro Port, which it was made = interest to run from
stated in its survey that 1 drum was in bad date of judgment of the court
order. - If judgment becomes Final and Executory
- It was then received by Allied Brokerage o Rate of legal interest = 12%
wherein it stated in its survey that one o From finality to satisfaction
drum was opened and without seal o Why? It is already considered as
- Allied then delivered it to the consignee’s forbearance
W/H, which it excepted that 1 drum
contained spillages while the rest was
adulterated/fake
- R then filed claims against P for the losses EASTERN ASSURANCE AND SURETY
sustained by the consignee (which R CORPORATION (EASCO), vs. Court of
subrogated). Appeals
- LC ruled in favor of R and ordered P to pay
damages, however, it failed to state when
the interest rate should commence – from
Facts:
date of filing of complaint at 12% or from
date of judgment of TC at 6%
1) On April 9, 1981, private respondent
ISSUE: When should the interest rate commence Vicente Tan insured his building in
and at what rate Dumaguete City against fire with
petitioner Eastern Assurance and Surety
SC: 6% from the date of decision and 12% from Corporation (EASCO) for P250,000.00.
date of finality of judgment until payment 2) On June 26, 1981, the building was
destroyed by fire. As his claim for
- This case laid down the rules on the indemnity was refused, private respondent
interest rates: filed a complaint for breach of contract
- A) when an obligation regardless of its with damages against petitioner. The RTC
source, is breached, the contravenor can Court, decided in favour of Vicente Tan. In
be held liable for damages its ruling, the RTC court imposed the rate
- B) with regard particularly to an award of of interest at 12% per annum, and
interest in the concept of actual and decided that EASCO to pay immediately to
compensatory damages, the rate of Vicente Tan the unpaid balance of interest
interest, as well as the accrual thereof, of the principal amount of P250,000.00
shall be as follows: equivalent to 6% per annum from June 26,
- If it consists of payment of money 1981 to September 30,1994.
(loan/forbearance)
o Interest due imposed = as 3) Petitioner EASCO appealed to the Court of
stipulated in writing and the Appeals, which, on July 30, 1993, affirmed
o Interest due = earn legal interest the decision of the trial court. The CA, on
from the time it is judicially the authority of prior case, Eastern
demanded Shipping Lines, Inc. v. Court of Appeals,
o No stipulation = 12% per annum that the interest rate on the amount due
from date of default (judicial/extra should be 6% per annum from June 26,
judicial) 1981 to August 24, 1993, and 12% per
- If it is not loan/forbearance annum beginning August 25, 1993 until
o Interest on amount of damages = the money judgment is paid.
imposed by discretion of court at
6% 4) Thereafter, petitioner EASCO tendered
o No interest shall be ordered on payment of the money judgment in the
unliquidated claims/damages until amount of P250,000.00 plus interest of 6%
demand can be established with per annum from June 26, 1981 to July 30,
reasonable certainty 1993.
o When demand is established with
reasonable certainty, interest shall 5) However, private respondent refused to
begin to run from the time the accept payment on the ground that the
applicable legal rate of interest was 12%
SECTRANS 2010/ ATTY. AGUINALDO 13
per annum. Subsequently, private Unquestionably, this case falls under the rule
respondent brought the matter to the stated in paragraph 3. The question is whether
Insurance Commission. this rule can be applied to this case.
6) Then in, 1995, the parties agreed before The prior Eastern Shipping Lines, case. did not lay
the hearing officer of the commission that down any new rules because it was just a a
the interest should be computed from June comprehensive summary of existing rules on the
26, 1981 to September 30, 1994. computation of legal interest.
Petitioner would file with the trial court a
motion to fix the legal rate of interest As to the "cut-off date" for the payment of legal
attaching thereto a check in the amount of interest:
P250,000.00 with 6% interest per annum.
The trial court's finding on this point is binding.
7) In its appeal EASCO to the SC, it Hence, the payment of 12% legal interest per
contended that the CA wrongfully applied annum should commence from August 25, 1993,
the aforecited paragraph 3 of the the date the decision of the trial court became
suggested rules of thumb for future final, up to September 30, 1994, the agreed "cut-
guidance [as formulated in Eastern off-date" for the payment of legal interest. The
Shipping Lines, Inc. v. Court of Appeals, decision of the CA is affirmed.
and unlawfully ignored or disregarded the
agreed cut-off date for the payment of the
legal rate.
PILIPINAS BANK, petitioner,
Issue: When the judgment of the court vs.
awarding a sum of money becomes final THE HONORABLE COURT OF APPEALS, and
and executory what is the rate to be LILIA R. ECHAUS, respondents.
imposed?
Facts: private respondent filed a complaint
Held: Petitioner's contentions are without against petitioner and its president, Constantino
merit. Bautista, for collection of a sum of money. The
complaint alleged: (1) that petitioner and
The prior Eastern Shipping Lines, Inc. v. Court of Greatland executed a "Dacion en Pago," wherein
Appeals, was held: Greatland conveyed to petitioner several parcels
of land in consideration of the sum of
I. When an obligation, regardless of its P7,776,335.69; (2) that Greatland assigned
source, i.e., law, contracts, quasi- P2,300,000.00 out of the total consideration in
contracts, delicts or quasi-delicts, is favor of private respondent; and (3) that
breached, the contravener can be held notwithstanding her demand for payment,
liable for damages. The provisions under petitioner refused and failed to pay the said
"Damages" of the Civil Code govern in amount assigned to her.
determining the measure of recoverable
damages. Petitioner claimed: (1) that its former president
had no authority (2) that it never ratified the
II. With regard particularly to an award of same; and (3) that assuming arguendo that the
interest in the concept of actual and agreement was binding, the conditions stipulated
compensatory damages, the rate of therein were never fulfilled.
interest, as well as the accrual thereof, is
imposed, as follows: The trial court ruled in favor of private
respondent.
Par. 3: When the judgment of the court awarding
a sum of money becomes final and executory, Court of Appeals modified the Order dated April
the rate of legal interest, whether the case falls 3, 1985, by limiting the execution pending appeal
under paragraph 1 or paragraph 2, above, shall against petitioner to P5,517.707.00
be 12% per annum from such finality until its
satisfaction, this interim period being deemed to Trial court granted the new motion for execution
be by then an equivalent to a forbearance of pending appeal. Petitioner complied with the writ
credit. of execution pending appeal by issuing two
manager's checks in the total amount of
P5,517,707.00
Issues:
BISHOP OF JARO V. DELA PENA
1. Whether or not the disputed contract is an
CA Agro-Industrial vs CA
ordinary contract of lease?
G.R. No. 90027 March 3, 1993
2. Whether or not the provisions of the cited
contract are valid?
Facts
Thereafter, Petitioner and spouses placed the The guard key of the box remained with the
titles in SDB of Respondent Security Bank and Respondent Bank; without this key, neither
signed a lease contract which substantially of the renters could open the box and vice
states that the Bank will not assume liability versa.
for the contents of the SDB.
In this case, the said key had a duplicate
Subsequently, 2 renter's keys were given to which was made so that both renters could
the renters — one to the Petitioner and the have access to the box.
other to the Pugaos. A guard key remained in
the possession of the Respondent Bank. The Moreover, the renting out of the SDBs is
SDB can only be opened using these 2 keys not independent from, but related to or in
simultaneously. conjunction with, the principal function of a
contract of deposit the receiving in
Afterwards, a certain Mrs. Ramos offered to custody of funds, documents and other
buy from the Petitioner the 2 lots that would valuable objects for safekeeping.
yield a profit of P285K.
2. NO. SC opined that it is void.
Mrs. Ramos demanded the execution of a
deed of sale which necessarily entailed the Generally, the Civil Code provides that the
production of the certificates of title. Thus, depositary (Respondent Bank) would be
Petitioner with the spouses went to liable if, in performing its obligation, it is
Respondent Bank to retrieve the titles. found guilty of fraud, negligence, delay or
contravention of the tenor of the
However, when opened in the presence of the agreement.
Bank's representative, the SDB yielded no
such certificates. In the absence of any stipulation, the
diligence of a good father of a family is to
Because of the delay in the reconstitution of be observed.
the title, Mrs. Ramos withdrew her earlier
offer to purchase the lots; as a consequence, Hence, any stipulation exempting the
the Petitioner allegedly failed to realize the depositary from any liability arising from
expected profit of P285K. the loss of the thing deposited on account
of fraud, negligence or delay would be
Hence, Petitioner filed a complaint for void for being contrary to law and public
damages against Respondent Bank. policy (which is present in the disputed
contract)
SECTRANS 2010/ ATTY. AGUINALDO 18
Said provisions are inconsistent with the G.R. Nos. L-26948 and L-26949
Respondent Bank's responsibility as a October 8, 1927
depositary under Section 72(a) of the
General Banking Act. SILVESTRA BARON, plaintiff-appellant,
vs.
3. NO. SC ruled that:
PABLO DAVID, defendant-appellant.
no competent proof was presented to And
show that Respondent Bank was aware of GUILLERMO BARON, plaintiff-appellant,
the private agreement between the
Petitioner and the Pugaos that the Land vs.
titles were withdrawable from the SDB PABLO DAVID, defendant-appellant.
only upon both parties' joint signatures,
FACTS:
and that no evidence was submitted to - The defendant owns a rice mill, which was
reveal that the loss of the certificates of well patronized by the rice growers of the
title was due to the fraud or negligence of vicinity.
the Respondent Bank. - On January 17, 1921, 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.
ART. 1977. OBLIGATION NOT TO MAKE USE - Silvestra Baron (P1) and Guillermo Baron
OF THING DEPOSITED UNLESS AUTHORIZED. (P2) each filed an action for the recovery
of the value of palay from the defendant
JAVELLANA VS. LIM (D), alleged that:
o The palay have been sold by both
FACTS: Defendants executed a document in favor plaintiffs to the D in the year 1920
of plaintiff-appellee wherein it states that they o Palay was delivered to D at his
have received, as a deposit, without interest, special request, with a promise of
money from plaintiff-appellee and agreed upon a compensation at the highest price
date when they will return the money. Upon the per cavan
stipulated due date, defendants asked for an - D claims that the palay was deposited
extension to pay and binding themselves to pay subject to future withdrawal by the
15% interest per annum on the amount of their depositors or to some future sale, which
indebtedness, to which the plaintiff-appellee was never effected. D also contended that
acceded. The defendants were not able to pay in order for the plaintiffs to recover, it is
the full amount of their indebtedness necessary that they should be able to
notwithstanding the request made by plaintiff- establish that the plaintiffs' palay was
appellee. The lower court ruled in favor of delivered in the character of a sale, and
plaintiff-appellee for the recovery of the amount that if, on the contrary, the defendant
due. should prove that the delivery was made
in the character of deposit, the defendant
ISSUE: Whether the agreement entered into by should be absolved.
the parties is one of loan or of deposit? ISSUE: WoN there was deposit
SC: NO
HELD: The document executed was a contract of
loan. Where money, consisting of coins of legal - Art. 1978. When the depositary has
tender, is deposited with a person and the latter permission to use the thing deposited, the
is authorized by the depositor to use and dispose contract loses the concept of a deposit
of the same, the agreement is not a contract of and becomes a loan or commodatum,
deposit, but a loan. A subsequent agreement except where safekeeping is still the
between the parties as to interest on the amount principal purpose of the contract. The
said to have been deposited, because the same permission shall not be presumed, and its
could not be returned at the time fixed therefor, existence must be proved.
does not constitute a renewal of an agreement of - The case does not depend precisely upon
deposit, but it is the best evidence that the this explicit alternative; for even
original contract entered into between therein supposing that the palay may have been
was for a loan under the guise of a deposit. delivered in the character of deposit,
subject to future sale or withdrawal at
plaintiffs' election, nevertheless if it was
SECTRANS 2010/ ATTY. AGUINALDO 19
understood that the defendant might mill they remained in his possession. With the
the palay and he has in fact appropriated understanding that he would, for it has no other
it to his own use, he is of course bound to purpose.
account for its value.
- In this connection we wholly reject the The certificate of deposit in question is not
defendant's pretense that the palay negotiable because only instruments payable to
delivered by the plaintiffs or any part of it order are negotiable. Hence, this instrument not
was actually consumed in the fire of being to order but to bearer, it is not negotiable.
January, 1921. Nor is the liability of the
defendant in any wise affected by the As for the argument that the depositary may use
circumstance that, by a custom prevailing or dispose oft he things deposited, the depositor's
among rice millers in this country, persons consent is required thus, the rights and
placing palay with them without special obligations of the depositary and of the depositor
agreement as to price are at liberty to shall cease and the rules and provisions
withdraw it later, proper allowance being applicable to commercial loans, commission, or
made for storage and shrinkage, a thing contract which took the place of the deposit shall
that is sometimes done, though rarely. be observed. Igpuara however has shown no
authorization whatsoever or the consent of the
depositary for using or disposing of the P2,498.
UNITED STATES, vs. IGPUARA That there was not demand on the same or the
next day after the certificate was signed, does
Facts: The defendant Jose igpuara was entrusted not operate against the depositor, or signify
with the amount of P2,498 by Montilla and anything except the intention not to press it.
Veraguth. Without the consent of Montilla and Failure to claim at once or delay for sometime in
Veraguth however, Igpuara used the said amount demanding restitution of the things deposited,
for his own ends. Thus, igpuara was charged and which was immediately due, does not imply such
convicted with estafa, for having swindled Juana permission to use the thing deposited as would
Montilla and Eugenio Veraguth out of P2,498 convert the deposit into a loan.
which he had taken as deposit from the former to
be at the his disposal. Igpuara was sentenced to Judgment appealed from is affirmed
pay Juana Montilla P2,498 . The instrument for
the deposit reads:
Ruling: Assignable is different from tranferrability. The Court ruled that the hotel owner
Negotiable instruments can be indorsed. Non should be liable for the loss of the revolver, pants
negotiable instrumets can be assigned. and bag of the guest.
Therefore, non negotiable instrument can be
assigned. Deposit
The petitioner, a corporation duly organized in After due hearing the Court of Tax Appeals
accordance with law, is operating a sugar central ordered the CIR to refund to respondent
in the City of Silay, Occidental Negros. It produces Hawaiian-Philippine Company the amount of
centrifugal sugar from sugarcane supplied by P8,411.99 representing fixed and percentage
planters. The processed sugar is divided between taxes assessed against it and which the latter had
the planters and the petitioner in the proportion deposited with the City Treasurer of Silay,
stipulated in the milling contracts, and thereafter Occidental Negros
is deposited in the warehouses of the latter. (Pp.
4-5, t.s.n.) For the sugar deposited by the ISSUE:
planters, the petitioner issues the corresponding
warehouse receipts of "quedans". It does not Whether or notpetitioner is a warehouseman
collect storage charges on the sugar deposited in liable for the payment of the fixed and
its warehouse during the first 90 days period percentage taxes prescribed in Sections 182 and
counted from the time it is extracted from the 191 of the National Internal Revenue Code
sugarcane. Upon the lapse of the first ninety days
and up to the beginning of the next milling HELD:
season, it collects a fee of P0.30 per picul a
month. Henceforth, if the sugar is not yet YES.
withdrawn, a penalty of P0.25 per picul or fraction
thereof a month is imposed. (Exhibits "B-1", "C-
1", "D-1", "B-2", "C-2", p. 10, t.s.n.) Respondent disclaims liability under the
provisions quoted above, alleging that it is not
engaged the business of storing its planters'
The storage of sugar is carried in the books of the sugar for profit; that the maintenance of its
company under Account No. 5000, denominated warehouses is merely incidental to its business of
"Manufacturing Cost Ledger Control"; the storage manufacturing sugar and in compliance with its
fees under Account No. 521620; the expense obligation to its planters. We find this to be
accounts of the factory under Account No. 5200; without merit.
and the so-called "Sugar Bodega Operations"
under Account No. 5216, under which is a Sub-
Account No. 20, captioned, "Credits". (Pp. 16-17, It is clear from the facts of the case that, after
t.s.n., Exhibit "F".) The collections from storage manufacturing the sugar of its planters,
after the lapse of the first 90 days period are respondent stores it in its warehouses and issues
entered in the company's books as debit to CASH, the corresponding "quedans" to the planters who
and credit to Expense Account No. 2516-20 (p. own the sugar; that while the sugar is stored free
18, t.s.n.). during the first ninety days from the date the it
"quedans" are issued, the undisputed fact is that,
upon the expiration of said period, respondent
The credit for storage charges decreased the charger, and collects storage fees; that for the
deductible expense resulting in the corresponding period beginning 1949 to 1957, respondent's
increase of the taxable income of the petitioner. total gross receipts from this particular enterprise
This is reflected by the entries enclosed in amounted to P212,853.00.
parenthesis in Exhibit "G", under the heading
"Storage Charges". (P. 18, t.s.n.) The alleged
reason for this accounting operation is that, A warehouseman has been defined as one who
inasmuch as the "Sugar Bodega Operations" is receives and stores goods of another for
considered as an expense account, entries under compensation (44 Words and Phrases, p. 635).
it are "debits". Similarly, since "Storage Charges" For one to be considered engaged in the
constitute "credit", the corresponding figures (see warehousing business, therefore, it is sufficient
Exhibit "C") are enclosed in parenthesis as they that he receives goods owned by another for
decrease the expenses of maintaining the sugar storage, and collects fees in connection with the
warehouses. same. In fact, Section 2 of the General Bonded
Warehouse Act, as amended, defines a
SECTRANS 2010/ ATTY. AGUINALDO 24
warehouseman as "a person engaged in the Before the fire, Go Tiong had been accepting
business of receiving commodity for storage." deliveries of palay from other depositors and
at the time of the fire, there were 5,847 sacks
That respondent stores its planters' sugar free of of palay in the warehouse, in excess of the
charge for the first ninety days does not exempt 5,000 sacks authorized under his license.
it from liability under the legal provisions under
consideration. Were such fact sufficient for that After the burning of the warehouse, the
purpose, the law imposing the tax would be depositors of palay, including Plaintiff, filed
rendered ineffectual. their claims with the Bureau of Commerce.
Valero is president of the Luzon Sugar Co. while This is an appeal from a decision of the Court of
appellant Cruz had a share amounting to First Instance of Nueva Ecija which orders the
1,544.38 piculs export centrifugal sugar, which defendant to pay to the plaintiff the sum of
was exchanged for an equal amount of domestic P3,000, with interest thereon at the rate of 6%
centrifugal sugar. Cruz deposited in the Luzon per annum from June 26, 1940, and the costs of
Sugar Company's warehouse within its action.
compound, with the obligation on its part to
deliver it to the appellant on demand, that the ESTRADA V. CAR
appellant was entitled to 238.20 piculs of
domestic centrifugal sugar as his share in the DMG INC. vs CONSOLIDATED TERMINALS
1940-1941 crop. On different dates, the appellant INC.
had withdrawn several piculs of sugar, reducing 63 OG 10
reducing the number of gallons of molasses.
Facts:
Cruz claims that on December 1941, the Luzon
Sugar Company (LSC) did not have in its DMG ordered replacement parts for diesel
warehouse the sugar he had stored in its conversion engine from Germany.
warehouse for safekeeping and the number of Upon arrival in Manila, the shipment was
gallons of molasses he had left in its possession placed in the warehouse of Consolidated
contained in cylindrical tanks, because the Valero Terminals.
had disposed of the same without the knowledge When DMG demanded for the delivery of the
and consent of appellant and that when the goods, Consolidated stated that it was already
appellant wanted to withdraw his sugar from the released and delivered to DMG through a
warehouse of LSC, the amount of sugar stored in delivery permit which was presented by a
the warehouse was not manufactured by the certain Sandoval authorized by Alteza.
Luzon Sugar Company but by a different DMG contends that it has no such employees.
company. It demanded for the payment of such goods.
Ruling: No. CTI had no cause of action. It was not However, it was found that the tobacco
the owner of the cotton. It was not a real party of had come from Isabela and not from Cagayan,
and the bank’s claim was disputed by other
SECTRANS 2010/ ATTY. AGUINALDO 29
creditors of the insolvent on the ground that, Defendant claimed that the warehouse
among others, that the tobacco claimed, being receipt covering the palay which was
Isabela tobacco, was not correctly described in given as security having been endorsed in
the warehouse receipt and that, therefore, the blank in favour of the bank and the palay
receipt was ineffective as against the general having been lost or disappeared, he
creditors. thereby became relieved of liability.
Issue: Whether the use of the word “Cagayan” ISSUE: Whether the surrender of the warehouse
instead of “Isabela” in describing the tobacco in receipt covering 2000 cavans of palay given as
the quedan renders the quedan null and void as security, endorsed in blank, to PNB, has the effect
negotiable warehouse receipt for the tobacco of transferring their title or ownership OR it
intended to be covered by it. should be considered merely as a guarantee to
secure the payment of the obligation of
Ruling: Defendant?
ISSUE
MARTINEZ V. PNB
Whether or not the Quedans endorsed in blank
Siy Cong Bien vs HSBC gave the HSBC rightful and valid title to the
goods?
FACTS
HELD
Plaintiff is a corporation engaged in business YES. SC ruled in favour of Defendant HSBC.
generally, and that the Defendant HSBC is a
foreign bank authorized to engage in the It may be noted,
banking business in the Philippines. o first, that the quedans in question
On June 25, 1926, Otto Ranft called the office were negotiable in form;
of the Plaintiff to purchase hemp (abaca), and o second, that they were pledged by
he was offered the bales of hemp as Otto Ranft to the Defendant bank to
described in the contested negotiable secure the payment of his preexisting
quedans. debts to said bank;
The parties agreed to the aforesaid price, and o third, that such of the quedans as were
on the same date the quedans, together with issued in the name of the Plaintiff were
the covering invoice, were sent to Ranft by duly endorsed in blank by the Plaintiff
the Plaintiff, without having been paid for the and by Otto Ranft;
hemp, but the Plaintiff's understanding was o and fourth, that the two remaining
o that the payment would be made quedans which were duly endorsed in
against the same quedans, blank by him.
o and it appear that in previous The bank had a perfect right to act as it did,
transaction of the same kind between and its action is in accordance with sections
the bank and the Plaintiff, quedans 47, 38, and 40 of the Warehouse Receipts Act
were paid one or two days after their
However, the pertinent provision regarding
delivery to them.
the rights the Defendant bank acquired over
Immediately these Quedans were pledged by
the aforesaid quedans after indorsement and
Otto Ranft to the Defendant HSBC to secure delivery to it by Ranft, is found in section 41
the payment of his preexisting debts to the of the Warehouse Receipts Act (Act No. 2137):
latter.
The baled hemp covered by these warehouse o SEC. 41. Rights of person to whom a
receipts was worth P31,635; 6 receipts were receipt has been negotiated. — A
endorsed in blank by the Plaintiff and Otto person to whom a negotiable receipt
Ranft, and 2 were endorsed in blank, by Otto has been duly negotiated acquires
Ranft alone thereby:
On the evening of the said delivery date, Otto (a) Such title to the goods as the
Ranft died suddenly at his house in the City of person negotiating the receipt to
Manila. him had or had ability to convey to
When the Plaintiff found out, it immediately a purchaser in good faith for value,
demanded the return of the quedans, or the and also such title to the goods as
In the answer of Sy and Ng, they alleged that the PNB v SAYO, JR.
transaction between them and Noah’s,
concerning the quedans, was bogus and FACTS
simulated. It was part of a complex banking
scheme and financial maneuvers to avoid VAT - Noah’s Ark Sugar Refinery (Noah’s) issued
payment and other BIR assessments. several warehouse receipts (quedans),
SC: YES
Facts: IFC extended to PPIC a loan of Issue: is there a consideration for the guaranty?
US$7,000,000.00, payable in sixteen (16)
semi-annual installments of Ruling: a guarantor or surety is bound by the
US$437,500.00 each, beginning June 1, same consideration that makes the contract
1977 to December 1, 1984. On December effective between the principal parties thereto.
17, 1974, a “Guarantee Agreement” was The compromise and dismissal of lawsuit is
executed with Imperial Textile Mills, Inc. recognized in law as a valuable consideration;
(ITM). ITM agreed to guarantee PPIC's and the dismissal of the action which c instituted
obligations under the loan agreement. against d was an adequate consideration to
PPIC paid the installments due on June 1, support the promise on the part of d to pay the
1977, December 1, 1977 and June 1, sums stipulated in the contract subject of the
1978. Despite the rescheduling of the action
installment payments, however, PPIC
defaulted. IFC demanded ITM and It is neither necessary that the guarantor or
Grandtex, as guarantors of PPIC, to pay surety should receive any part of the benefit, if
the outstanding balance. However, the such there be accruing to his principal. The true
outstanding balance remained unpaid. consideration of this contract was the detriment
suffered by c in the former action in dismissing
Issue: The issue is whether ITM is a surety, and the proceeding and it is immaterial that no
thus solidarily liable with PPIC for the payment of benefit may have accrued either to the principal
the loan. or his guarantor
F: upon the death of x, who left considerable On March 26, 1979 Charles Lee, Chua Siok Suy,
property, a litigation ensued between c, x’s Mariano Sio, Alfonso Yap and Richard Velasco, in
widow, and other heirs of x. a compromise was their personal capacities executed a Surety
effected by which d, a son of x, took over the Agreement in favor of PBCom whereby the
property pertaining to the estate of x at the same petitioners jointly and severally, guaranteed the
time agreeing to pay P100k to c, payable, first in prompt payment on due dates of overdrafts,
Upon maturity of all credit availments obtained The court ruled that it is proven that MICO
by MICO from PBCom, the latter made a demand received the proceeds of the loan and that
for payment. For failure of petitioner MICO to pay PBCom has the right to to believe that Chua Siok
the obligations incurred despite repeated Suy based on the Certificate issued by the
demands, private respondent PBCom Sectretary of MICO.
extrajudicially foreclosed MICO’s real estate
mortgage and sold the said mortgaged properties The court ruled that as regards petitioners-
in a public auction sale held on November 23, sureties contention that they obtained no
1982 and PBCom won and applied the proceeds consideration whatsoever on the surety
of the purchase price at public auction of Three agreements, the court pointed that the
Million Pesos to the expenses of the foreclosure, consideration for the sureties is the very
interest and charges and part of the principal of consideration for the principal obligor, MICO, in
the loans, leaving an unpaid balance of Five the contracts of loan.
Million Four Hundred Forty-One Thousand Six
Hundred Sixty-Three Pesos and Ninety Centavos In the case of Willex Plastic Industries
exclusive of penalty and interest charges. Corporation vs. Court of Appeals, we ruled that
the consideration necessary to support a
Aside from the unpaid balance, MICO likewise had surety obligation need not pass directly to
another standing obligation and PBCom then the surety, a consideration moving to the
The provincial board, passing upon Graciano This is so particularly with respect to the sureties,
Napa's protest and acting under the authority because suretyship cannot exist without a valid
which, in its opinion, was granted to it by section obligation.
2233 of the Administrative Code, held that
resolution No. 161, series of 1930, by virtue of Guaranty is not presumed.
which the municipal council of Gasan rejected
Graciano Napa's bid and accepted that of Miguel The elimination of the obligation for which said
Marasigan, notwithstanding the fact that the sureties desired to answer with their bond also
latter offered to pay less, was invalid, and rendered the bond also eliminated.
suggested that the privilege should be, awarded
to Graciano Napa who, in its opinion, appeared to SMITH BELL v PNB
be the highest bidder in accordance with the
provisions of sections 2323 and 2319 of the FACTS
Administrative Code (Exhibit 9). The Executive
Bureau, concurring with the provincial board's On April 1918, Fred M. Harden applied to
points of view, declared, in turn, that the Smith, to buy 8 Anderson expellers end drive,
concession made to Marasigan was illegal in view latest model, for the price of P80,000, to be
of the fact that Graciano Napa was the highest paid on delivery. This would be used for the
bidder (Exhibit 13). extraction of coconut oil.
It was understood that these expellers would
The plaintiff municipality decided to award the be manufactured in the US and delivery would
privilege of gathering whitefish spawn within its be in the month of February or March of the
waters to Graciano Napa, giving him a period of ensuing year.
seven days, from January 8, 1931 (Exhibit 19-A),
to deposit the sum of P500.
In order to assure the prompt payment of the
price upon delivery, an arrangement was
Graciano Napa not only failed to make the made between Harden and the Philippine
deposit required by the plaintiff but he formally National Bank (PNB) whereby the latter bound
declared, through his duly authorized itself to Smith, Bell & Co. for the payment of
representative, that he yielded the privilege the contract price, but provided that the
granted him to Miguel Marasigan or to any other expellers would delivered to them and must
person selected by the municipal authorities. be new and in first class working order.
This case is about SIGS and ELBA borrowing After making partial payment, Marquez defaulted
money from RCBC worth P4m. Commonwealth in the payment of the other installments. Plaintiff
being the surety. SIGS and ELBA defaulted so demanded from defendants Marquez and Plaridel
RCBC went after Commonwealth. Commonwealth Surety & Insurance Company, payment of their
insists on not paying. Lower Court ruled in favor outstanding obligation. The claim, therefore, of
of RCBC and ordered Commonwealth to pay the defendant Plaridel Surety & Insurance Company
principal debt plus interest. Commonwealth that they never received a demand for payment
refused. Commonwealth appealed to CA and from plaintiff must necessarily fail, considering
questions the ruling of the lower court awarding that it is clearly shown in registry return receipts
interest. (focus on interest) that the same had been received by the
Issue: WoN Commonwealth whould pay principal addressee.
and interest
Ruling: Obviously, Commonwealth is obliged to ISSUES: Whether the surety's liability can exceed
pay the principal being the surety. Regarding the the sum of P12,000.00.
interest, generally no. However because
Commonwealth refused to pay the principal when RULING: Yes
the lower court ordered it to do so, it is now While the guarantee was for the original amount
bound to pay the interest. of the debt of Gabino Marquez, the amount of the
judgment by the trial court in no way violates the
NAMARCO v MARQUEZ rights of the surety. The judgment on the principal
was only for P10,000.00, while the remaining
FACTS: Properties, rights, obligations, and P9,990.91 represent the moratory interest due on
contracts of the Philippine Relief and Trade account of the failure to pay the principal
Rehabilitation Administration (PRATRA) had been obligation from and after the same had fallen
transferred to the Price Stabilization Corporation due, and default had taken place. Appellant
(PRISCO) and subsequently all rights and surety was fully aware that the obligation earned
contracts of the PRISCO involving real estate, interest, since the note was annexed to its
fixed assets and stock in trade had been assumed contract, Exhibit "C".
by herein plaintiff, the NAMARCO.
Marquez secured from the PRATRA one tractor The contract of guaranty executed by the
and one rice thresher, with a total value of appellant Company nowhere excludes this
P20,000.00 for which the said defendant paid interest, and Article 2055, paragraph 2, of
SECTRANS 2010/ ATTY. AGUINALDO 43
the Civil Code of the Philippines is clearly If any agency was established, it was one
applicable. between Perlas and Pagulayan only, this
being the logical conclusion from the use
If it (the guaranty) be simple of the singular “I” in said clause, in
or indefinite, it shall comprise not conjunction with the fact that the part of
only the principal obligation but also the receipt in which the clause appears
all its accessories, including judicial bears only the signature of Pagulayan.
costs, provided with respect to the To warrant anything more than a mere
latter, that the guarantor shall only conjecture that the receipt also
be liable for those costs incurred constituted Vizconde the agent of Perlas
after he has been judicially required for the same purpose of selling the ring,
to pay. the cited clause should at least have used
the plural “we,” or the text of the receipt
Compensated sureties are not entitled to have containing that clause should also have
their contracts interrupted strictissimi juris in carried Vizconde’s signature.
their favor The joint and several undertaking
assumed by Vizconde in a separate writing
VIZCONDE v IAC below the main body of the receipt,
FACTS: Exhibit “A,” merely guaranteed the civil
Perlas called Vizconde and asked her to obligation Pagulayan to pay Perlas the
sell an 8 carat diamond ring on a value of the ring in the event of her
commission for P85k (Pagulayan’s) failure to return said article.
Vizconde later returned the ring. What is clear from Exh A is that the ring
Afterwards, Vizconde called on Perlas and was entrusted to Pagulayan to be sold on
claimed that there was a “sure buyer” for commission; there is no mention therein
the ring, Pilar Pagulayan that it was simultaneously delivered to
and received by Vizconde for the same
Pagulayan gave a post-dated check; Perlas
purpose or, therefore, that Vizconde was
and Vizconde signed a receipt (Exh. A)
constituted, or agreed to act as, agent
The check was dishonoured. After 9 days,
jointly with Pagulayan for the sale of the
Pagulayan paid Perlas P5k against the ring.
value of the ring and gave 3 Certificates of
What Vizconde solely undertook was to
Title to guarantee delivery of the balance
guarantee the obligation of Pagulayan to
of such value (Exh D)
return the ring or deliver its value; and
Perlas filed a complaint against Pagulayan
that guarantee created only a civil
and Vizconde for estafa. obligation, without more, upon default of
TC and CA – Vizconde and Pagulayan had the principal.
assumed a joint agency in favour of Perlas Upon the evidence, Vizconde was a mere
for the sale of the latter’s ring, which guarantor, a solidary one to be sure, of the
rendered them criminally liable, upon obligation assumed by Pagulayan to
failure to return the ring or deliver its complainant Perlas for the return of the
agreed value, under Art 315, par 1(b) of latter’s ring or the delivery of its value.
the Revised Penal Code Whatever liability was incurred by
SOL GEN – disagreed; Vizconde can’t be Pagulayan for defaulting on such
convicted of estafa based on the Exhibits obligation – and this is not inquired into –
presented that of Vizconde consequent upon such
default was merely civil, not criminal.
ISSUE: Whether Vizconde was considered as
agent of Perlas or mere guarantor of obligation of ESTATE OF HEMADY v LUZON SURETY
Pagulayan?
FACTS:
HELD: Mere guarantor The Luzon Surety Co. had filed a claim against the
Nothing in the language of the receipt, Estate based on twenty different indemnity
Exh A, or in the proven circumstances agreements, or counter bonds, each subscribed
attending its execution can logically be by a distinct principal and by the deceased K. H.
considered as evidencing the creation of Hemady, a surety solidary guarantor) in all of
an agency between Perlas, as principal, them, in consideration of the Luzon Surety Co.’s
and Vizconde as agent, for the sale of the of having guaranteed, the various principals in
former’s ring. favor of different creditors.
There is no doubt that under POA, Tanglao FACTS: Defendant Barbosa executed a real estate
empowered David, in his name, to enter into a mortgage for the only purpose of guaranteeing –
contract of suretyship and a contract of as surety and/or guarantor – the payment of the
mortgage of the property described in the debt of one Alfredo Brillantes in favor of Southern
document, with Wise & Co. Motors, Inc. due to the failure of Brillantes to
settle his obligation; plaintiff filed an action
However, David used said power of attorney against defendant to foreclose the real estate
only to mortgage the property and did not mortgage. Defendant filed an answer alleging
enter into contract of suretyship. that the plaintiff has no right of action against
him because the plaintiff did not intent to exhaust
all recourses to collect from the true debtor
ISSUE (Brillantes), notwithstanding the fact that the
latter is solvent and has many properties within
Whether or not Atty. Tanglao is liable? the Province of Iloilo.
Although an ordinary personal guarantor – not a ISSUE: Whether or not the order of sale of such
mortgagor or pledgor – may demand exhaustion property was proper?
of the properties of the principal debtor, the
creditor may, prior thereto, secure HELD:
judgment against said guarantor, who shall
be entitled, however, to a deferment of the It is contended that since the petitioner is
execution of said judgment against him not the debtor and as she, on the other
until after the properties of the principal hand is the owner of the mortgaged realty,
debtor shall have been exhausted to satisfy she merely acted as surety to Rafael
the obligation involved in the case. Martinez, the principal debtor, and as such
she entitled to the benefit of the
exhaustion of the property of the principal
debtor, in accordance with the provision of
SAAVEDRA v PRICE article 1830 of the Civil Code.
FACTS:
This is a proceeding instituted by the We are of the opinion that this last
petitioner to annul the order of May 8, contention is likewise unfounded and
1939, entered by the Court of First untenable.
Instance of Leyte, which provided for the o In the first place, this alleged defense
sale at public auction of the real property should have been interposed before
described in Transfer Certificate of Title the judgment was rendered in this
No. 395 issued in favor of the petitioner, case and it is too late to raise it for the
so that the proceeds thereof may be first time as a ground for opposing the
applied to the payment of the credit of the motion to sell the real property in
respondent W.S. Price in the sum of question.
P15,000 o In the second place, the contention
that the mortgaged real property
belonging to the petitioner cannot be
In civil case No. 3707 of the Court of First sold to pay the debt for the reason that
Instance of Leyte, W.S. Price, plaintiff vs. she is a mere surety of Rafael
Ceferino Ibañez et al., defendants, said Martinez, finds no support in the law.
court rendered judgment ordering the
defendants to pay the plaintiff within
ninety days the sum of P15,000, with the It is true that the petitioner is a surety
legal interest thereon from January 16, with regard to Rafael Martinez and as such
1934, and in case of default on their part, surety she is entitled to resort to the
that the real property subject matter of actions and remedies against him which
the mortgage be sold at public auction so the law affords her, but we should not lose
that the proceeds thereof may be applied sight of the fact that she was sued not as
to the payment of the sum in question and a surety but as a mortgage debtor for
the interest thereon. being the owner of the mortgaged
property
D) Article 2059(5) of the Civil Code thus finds Issue: Whether or not MCS should be held liable
application and precludes petitioner from for the remaining 40% of the balance due?
interposing the defense of excussion. We quote:
Held:
(5) If it may be presumed that an
execution on the property of the principal No, the bond of 3,000 filed by PI responded for
debtor would not result in the satisfaction the obligation of MT up to the some of 3,000,
of the obligation. inasmuch as the bond of 2,000 filed by MCS
responded for the obligation of MT only insofar as
it might exceed 3,000 and up to 5,000.
E) Petition is DENIED.
The provision in the NCC with regard to several
ONG v PCIB sureties of only one debtor for the same debt
does not apply in this case. Although the two
FACTS: Cho Siong entered into contract of agency bonds on their face appear to guarantee the
for distribution of petroleum products, assumed same debt coextensively up to 2,000 – that of PI
liability of former agent Tong Kuan. His agency alone extending beyond that sum up to 3,000 – it
bond was secured by Ong Guan Can. Defaulted in was pleaded and conclusively proven that in
the amount of P64.00 reality said bonds, or the two sureties, do not
guarantee the same debt because PI guarantees
DOCTRINE: Under the terms of the bond signed only the first 3,000 while MCS only the excess up
by the surety, he did not answer for the principal to 5,000.
obligor save for the Latter’s acts by virtue of the
contract of agency. He cannot be held liable for
SECTRANS 2010/ ATTY. AGUINALDO 49
CACHO v VALLES Compania and Tuason. If tuason paid Manila
compania, no litigation expenses will be paid.
Facts: On October 29, 1920, the National Sporting
Club, of Manila, obligated itself by a promissory
note payable at four months to pay to Jose Ma. AUTOCORP v INTRA STRATA
Cacho. Below the signature of said National
Sporting Club, as signed by the proper officers of FACTS: Autocorp Group, represented by its
the Club, the following personal guaranty was President, petitioner Peter Y. Rodriguez, secured
written: "We guarantee this obligation." (Sgd.) J. two ordinary re-export bond from private
A. Valles, J. L. Mateu, G. J. Heffting, Ed. Chesley, respondent Intra Strata Assurance Corporation
Baldomero Roxas. This note was not paid at (ISAC) in favor of public respondent Bureau of
maturity. An action was instituted thereon against Customs (BOC) to guarantee the re-export of one
the National Sporting Club and the guarantors. unit of Hyundai Excel 4-door 1.5 LS and Hyundai
Baldomero Roxas interposed a defence claiming Sonata 2.4 GLS, and/or to pay the taxes and
the right of division as among the co-sureties, duties thereon.
and asking that in case he should be found liable
that he should be held responsible only for his Petitioners executed and signed two Indemnity
aliquot part of the debt. Agreements with identical stipulations in favor of
ISAC, agreeing to act as surety of the subject
Issue: W/N in case of the insolvency of one or bonds. Petitioner Rodriguez signed the Indemnity
more of several simple sureties, those who Agreements both as President of the Autocorp
remain solvent can be made to pay the entire Group and in his personal capacity.
debt?
In sum, ISAC issued the subject bonds to
Ruling: None of the sureties, so far as this record guarantee compliance by petitioners with their
shows, has been declared bankrupt. The benefit undertaking with the BOC to re-export the
of division therefore has not been lost, and the imported vehicles within the given period and pay
rule declaring each surety liable only for his the taxes and/or duties due thereon. In turn,
aliquot part of the guaranteed debt, must hold. petitioners agreed, as surety, to indemnify ISAC
The obligation of the surety cannot be extended for the liability the latter may incur on the said
beyond its specified limits. A co-surety is entitled bonds.
to the benefit of division from the very moment
that he contracts the obligation, except where Petitioner Autocorp Group failed to re-export the
there is stipulation to the contrary. items guaranteed by the bonds and/or liquidate
the entries or cancel the bonds, and pay the
taxes and duties pertaining to the said items
TUASON v MACHUCA despite repeated demands made by the BOC, as
well as by ISAC. By reason thereof, the BOC
F: Universal Trading Company was going to considered the two bonds, with a total face value
withdraw goods from the Bureau of Customs to of P1,034,649.00, forfeited.
be delivered to BPI. To withdraw, they gave a
bond executed by Manila Compania de Seguros. Failing to secure from petitioners the payment of
That bond was secured solidarily by Tuason Co. the face value of the two bonds, despite several
and Machuca of Universal Trading. It was to be demands sent to each of them as surety under
paid whether or not Manila Compania already the Indemnity Agreements, ISAC filed with the
paid CIR. Manila Compania demanded payment RTC on 24 October 1995 an action against
from Tuason. Manila Compania filed a case petitioners.
against tuason. Tuason later payed but incurred
litigation expenses. Tuason now demands Petitioners contend that their obligation to ISAC is
payment from Machuca. Tuason filed a case for not yet due and demandable. They cannot be
collection of money from Machuca. The lower made liable by ISAC in the absence of an actual
court ruled that Machuca should pay the debt and forfeiture of the subject bonds by the BOC and/or
the expenses incurred by Tuason in the case for an explicit pronouncement by the same bureau
collection of money. that ISAC is already liable on the said bonds.
Issue: Won Machuca should pay the expenses
incurred by Tuason in its case vs. Manila ISSUES: Whether actual forfeiture of the subject
Compania bonds is necessary for the petitioners to be liable
to ISAC under the Indemnity Agreements?
Ruling: NO! it was not Machuca’s fault why tuason
incurred expenses in the litigation of Manila RULING: The liability of the guarantor
already triggers the liability of the debtor.
SECTRANS 2010/ ATTY. AGUINALDO 50
any proceedings by the creditor and from the
Autocrop’s liability danger of insolvency of the debtor.
Actual forfeiture of the subject bonds is not
necessary for petitioners to be liable thereon to Rodriguez’s liability
ISAC as surety under the Indemnity Agreements. Petitioner Rodriguez posits that he is merely a
guarantor, and that his liability arises only when
Petitioners' obligation to indemnify ISAC became the person with whom he guarantees the credit,
due and demandable the moment the bonds Autocorp Group in this case, fails to pay the
issued by ISAC became answerable for obligation. Petitioner Rodriguez invokes Article
petitioners' non-compliance with its undertaking 2079 of the Civil Code on Extinguishment of
with the BOC. Stated differently, petitioners Guaranty, which states:
became liable to indemnify ISAC at the same time Art. 2079. An extension granted to the debtor by
the bonds issued by ISAC were placed at the risk the creditor without the consent of the guarantor
of forfeiture by the BOC for non-compliance by extinguishes the guaranty. The mere failure on
petitioners with its undertaking. the part of the creditor to demand payment after
the debt has become due does not of itself
It is worthy to note that petitioners did not constitute any extension of time referred to
impugn the validity of the stipulation in the herein.
Indemnity Agreements allowing ISAC to proceed
against petitioners the moment the subject bonds The use of the term guarantee in a contract does
become due and demandable, even prior to not ipso facto mean that the contract is one of
actual forfeiture or payment thereof. Even if they guaranty. It thus ruled that both petitioners
did so, the Court would be constrained to uphold assumed liability as a regular party and obligated
the validity of such a stipulation for it is but a themselves as original promissors, i.e., sureties.
slightly expanded contractual expression of
Article 2071 of the Civil Code which provides, The provisions of the Civil Code on Guarantee,
inter alia, that the guarantor may proceed other than the benefit of excussion, are
against the principal debtor the moment applicable and available to the surety. [22] The
the debt becomes due and demandable. Court finds no reason why the provisions of
Article 2079 would not apply to a surety.
Art. 2071. The guarantor, even before having
paid, may proceed against the principal This, however, would not cause a reversal of the
debtor: Decision of the Court of Appeals. The Court of
Appeals was correct that even granting arguendo
(1) When he is sued for the payment; that there was a modification as to the effectivity
of the bonds, petitioners would still not be
(2) In case of insolvency of the principal debtor; absolved from liability since they had authorized
ISAC to consent to the granting of any extension,
(3) When the debtor has bound himself to relieve modification, alteration and/or renewal of the
him from the guaranty within a specified period, subject bonds
and this period has expired;
(4) When the debt has become demandable, SAENZ v YAP CHUAN
by reason of the expiration of the period for FACTS:
payment; Engracio Palanca – a judicial administrator
gave bond to guarantee his administration
(5) After the lapse of ten years, when the of the estate of Margarita Jose
principal obligation has no fixed period for its The bond was executed by Engracio,
maturity, unless it be of such nature that it Plaintiff Saenz and two others in favour of
cannot be extinguished except within a period the government for the sum of P60k
longer than ten years; On the same date, Engracio and 5 others
executed a bond in favour of Saenz; Yap
(6) If there are reasonable grounds to fear that Chuan P20k and the other 4 P5k each
the principal debtor intends to abscond; TC ordered Saenz, as surety in solidum of
the ex-administrator Engracio to pay the
(7) If the principal debtor is in imminent danger of
estate the sum of P41k
becoming insolvent.
Saenz paid to the administrator of the
In all these cases, the action of the guarantor is estate P8k; He filed sut against 5 sureties
to obtain release from the guaranty, or to who executed the bond
demand a security that shall protect him from
SPOUSES BELO v PNB ISSUE: whether or not the SPA the real estate
mortgage contract, the foreclosure proceedings
FACTS: and the subsequent auction sale involving
Eduarda Belo's property are valid. And assuming
SECTRANS 2010/ ATTY. AGUINALDO 60
they are valid, whether or not the petitioners are G) PNB has no claim against accommodation
required to pay, as redemption price, the entire mortgagor Eduarda Belo inasmuch as she only
claim of respondent PNB in the amount of mortgaged her property to accommodate the
P2,779,978.72 as of the date of the public auction Eslabon spouses who are the loan borrowers of
sale on June 10, 1991. the PNB. The principal contract is the contract of
loan between the Eslabon spouses, as
HELD: borrowers/debtors, and the PNB as lender. The
accommodation real estate mortgage which
A) The validity of the SPA and the mortgage secures the loan is only an accessory contract.
contract cannot anymore be assailed due to Thus, the term "mortgagor" in Section 25 of P.D.
petitioners Belo failure to appeal the same after No. 694 pertains only to a debtor-mortgagor and
the trial court rendered its decision affirming their not to an accommodation mortgagor.
validity.
H) Moreover, the mortgage contract provides that
B) Also, the SPA executed by Eduarda Belo in ". . . the mortgagee may immediately foreclose
favor of the respondents spouses Eslabon and the this mortgage judicially in accordance with the
Real Estate Mortgage executed by the Rules of Court or extrajudicially in accordance
respondents spouses in favor of respondent PNB with Act No. 3135, as amended and Presidential
are valid. It is stipulated in paragraph three (3) of Decree No. 385 “ Thus, since the mortgage
the SPA that Eduarda Belo appointed the Eslabon contract in this case is in the nature of a contract
spouses "to make, sign, execute and deliver any of adhesion as it was prepared solely by
contract of mortgage or any other documents of respondent, it has to be interpreted in favor of
whatever nature or kind . . . which may be petitioners.
necessary or proper in connection with the loan
herein mentioned, or with any loan which my J) While the petitioners, as assignees of Eduarda
attorney-in-fact may contract personally in his Belo, are not required to pay the entire claim of
own name” respondent PNB against the principal debtors,
they can only exercise their right of redemption
C) ThisSPA was not meant to make her a co- with respect to the parcel of land belonging to
obligor to the principal contract of loan between Eduarda Belo, the accommodation mortgagor.
respondent PNB, as lender, and the spouses Thus, they have to pay the bid price less the
Eslabon, as borrowers. Eduarda Belo consented to corresponding loan value of the foreclosed 4
be an accommodation mortgagor in the sense residential lots of the spouses Eslabon. Thus,
that she signed the SPA to authorize respondents petitioners are allowed to redeem only the
spouses Eslabons to execute a mortgage on her property registered in the name of Eduarda Belo,
land. by paying only the bid price less the
corresponding loan value of the foreclosed (4)
residential lots of the respondents spouses
D) An accommodation mortgage isn’t void simply Eslabon.
because the accommodation mortgagor did not
benefit from the same. The validity of an
accommodation mortgage is allowed under
Article 2085 of the New Civil Code which provides BUSTAMANTE v ROSEL
that "(t)hird persons who are not parties to the
principal obligation may secure the latter by ALCANTARA v ALINEA
pledging or mortgaging their own property." Facts:
FACTS:
Meanwhile, together with the institution of the
criminal action, defendant took physical FBDC executed a lease contract in favor of
possession of the 2 vessels and transferred the
Tirreno, Inc. (Tirreno) over a unit at the
equity on FS-203 to the defendant. Later on, the
Entertainment Center - Phase 1 of the
2 vessels were sold by defendant to third parties.
Bonifacio Global City in Taguig, Metro
Manila
Two provisions in the lease contract are
pertinent to the present case: Section 20,
Plaintiff commenced an action for recovery on the
which is about the consequences in case
pledged items, and alleges, among others, that
of default of the lessee, and Section 22,
the contract executed was a chattel mortgage so
which is about the lien on the properties of
the creditor defendant could not take possession
the lease.
of the chattel object thereof until after there has
been default.
Tirreno began to default in its lease
payments in 1999. By July 2000, Tirreno
was already in arrears by P5,027,337.91.
ISSUE: Whether the contract entered into FBDC and Tirreno entered into a
between plaintiff and defendant is a chattel settlement agreement on 8 August 2000.
mortgage or a valid contract of pledge? Despite the execution of the settlement
agreement, FBDC found need to send
Tirreno a written notice of termination
dated 19 September 2000 due to Tirreno's
HELD: It’s a contract of pledge. The contract itself alleged failure to settle its outstanding
provides that it is a contract of pledge and the obligations
judicial admission that it is a pledge contract
cannot be offset without showing of palpable FBDC entered and occupied the leased
mistake. premises. FBDC also appropriated the
equipment and properties left by Tirreno
pursuant to Section 22 of their Contract of
Lease as partial payment for Tirreno's
The pledgee defendant was therefore entitled to outstanding obligations.
the actual possession of the vessels. The
plaintiff’s continued operation of the vessels after Yllas Lending Corporation and Jose S.
the pledge contract was entered into places his Lauraya, in his official capacity as
possession subject to the order of the pledge. The President, (respondents) caused the sheriff
pledge can temporarily entrust the physical of Branch 59 of the trial court to serve an
possession of the chattels pledged to the pledgor alias writ of seizure against FBDC. On the
without invalidating the pledge. In this case, the same day, FBDC served on the sheriff an
affidavit of title and third party claim
SECTRANS 2010/ ATTY. AGUINALDO 66
Despite FBDC's service upon him of an FACTS:
affidavit of title and third party claim, the Laureano Atendido (LA) obtained from PNB (P) a
sheriff proceeded with the seizure of loan payable in 120 days with interest. To
certain items from FBDC's premises guarantee its payment LA pledge to the bank
2,000 cavans of palay which were deposited in a
The sheriff delivered the seized properties warehouse and to that effect endorsed in favor of
to respondents. FBDC questioned the the bank the corresponding WH receipt. Before
propriety of the seizure and delivery of the the maturity of the loan, the cavans of rice
properties to respondents without an dissappeared from the WH. LA failed to pay the
indemnity bond before the trial court. loan upon matrity and so the present action was
FBDC argued that when respondents and instituted. LA set up the defense that the quedan
Tirreno entered into the chattel mortgage covering the palay which was given as security
agreement on 9 November 2000, Tirreno having been endorsed in blank in favor of the
no longer owned the mortgaged properties bank and the palay having been lost or
as FBDC already enforced its lien on 29 disappeared, he thereby became relieved of
September 2000. liability.
VIOLA v EPCIB
ISSUE: whether the mortgage contract also
FACTS: Via a contract denominated as “CREDIT secured the penalty fee per month on the
LINE AND REAL ESTATE MORTGAGE AGREEMENT outstanding amount as stipulated in the Credit
FOR PROPERTY LINE” (Credit Line Agreement) Line Agreement.
executed on March 31, 1997, Leo-Mers
Commercial, Inc., as the Client, and its officers RULING: A mortgage must “sufficiently
spouses Leopoldo and Mercedita Viola describe the debt sought to be secured,
(petitioners) obtained a loan through a credit line which description must not be such as to
facility in the maximum amount of P4,700,000.00 mislead or deceive, and an obligation is not
from the Philippine Commercial International secured by a mortgage unless it comes
Bank (PCI Bank), which was later merged with fairly within the terms of the mortgage.
Equitable Bank and became known as Equitable
PCI Bank, Inc. In the case at bar, the parties executed two
separate documents on March 31, 1997 – the
To secure the payment of the loan, petitioners Credit Line Agreement granting the Client a loan
executed also on March 31, 1997 a “Real Estate through a credit facility in the maximum amount
Mortgage” in favor of PCIBank over their two of P4,700,000.00, and the Real Estate Mortgage
parcels of land. contract securing the payment thereof.
Undisputedly, both contracts were prepared by
Petitioners availed of the full amount of the loan. respondent and written in fine print, single space.
Subsequently, they made partial payments and
made no further payments and despite demand, The provision of the mortgage contract does not
they failed to pay their outstanding obligation. specifically mention that, aside from the principal
loan obligation, it also secures the payment of “a
penalty fee of three percent (3%) per month of
SECTRANS 2010/ ATTY. AGUINALDO 70
the outstanding amount to be computed from the property he then might have and on those
day deficiency is incurred up to the date of full he might acquire in the future.
payment thereon,” which penalty was expressly
stipulates in the Credit Line Agreement. ISSUE: WON such a stipulation constitute a valid
mortgage on the 5 other parcels of land which LM
Since an action to foreclose “must be limited to subsequently acquired?
the amount mentioned in the mortgage” and the
penalty fee of 3% per month of the outstanding HELD: NO
obligation is not mentioned in the mortgage, it LM could not legally mortgage any
must be excluded from the computation of the property he did not yet own. In order that
amount secured by the mortgage. a mortgage may be validly constituted the
instrument by which it is created must be
Penalty fee” is entirely different from “bank recorded in the Registry of Deeds and so
charges.” The phrase “bank charges” is normally far as the additional parcels of land are
understood to refer to compensation for services. concerned, the registration of Deed of
A “penalty fee” is likened to a compensation for Mortgage did not affect and could not
damages in case of breach of the obligation. have affected them because they were not
Being penal in nature, such fee must be specific specifically described therein.
and fixed by the contracting parties, unlike in the
present case which slaps a 3% penalty fee per PBCOM v MACADAEG
month of the outstanding amount of the
obligation. FACTS:
4) On August 21, 1920, Mariano Veloso, in turn, C) The Civil Code imposes the obligation of the
sold the property, with the improvements thereon debtor to pay the debt stand although the
for P100,00 to Joaquin Serna, who agreed to property mortgaged to secure the payment of
respect the mortgage of the property in favor of said debt may have been transferred to a third
the plaintiff and to assume Mariano Veloso's person.
obligation to pay the plaintiff the balance due of
the price of the estate on the respective dates
when payments should be made according to the
contract between Mariano Veloso and the SANTIAGO v DIONISIO
plaintiff.
DOCTRINE: All persons having or claiming an
5) Veloso paid P50,000 on account of the interest in the mortgaged premises subordinate
P650,000, and Serna made several payments up in right to that of the holder of the mortgage
to the total sum of P250,000. Subsequently, should be made defendants in the action for the
however, neither Veloso, nor Serna, made any foreclosure of the mortgage. Intervening as a
payment upon the last installments, by virtue of subordinate lienholder in a foreclosure case
which delay, the whole obligation became due, merely to oppose the confirmation of the sale
and Veloso lost the right to the installments upon learning that such a sale had been made, is
stipulated in his contract with the plaintiff. no the same as being a party to the suit to the
extent of being bound by the judgement in the
6) Upon a liquidation of the debt of Mariano foreclosure suit.
Veloso in favor of the plaintiff, including the
interest due, with the result that Veloso owed The effect of the failure to implead a
exactly P510,047.34. Thus, the plaintiff brings subordinate lienholder or subsequent purchaser
this action to recover of the defendant the sum or both is to render the foreclosure ineffective as
due of P510,047.34. The defendant contends against them, with the result that there remains
however that having sold the property to Serna, in their favor the unforeclosed equity of
and the latter having assumed the obligation to redemption.
pay the plaintiff the unpaid balance of the price
secured by the mortgage upon the property, he
no more obligation and it is upon Serna to pay
the plaintiff. PADERES v CA
Facts:
HELD:
Manila International Construction Corporation
(MICC) mortgaged 21 properties in favor of
A) The mortgage is merely an encumbrance upon Banco Filipino (BF) for a loan of P1.8M. The
the property and does not extinguish the title of
SECTRANS 2010/ ATTY. AGUINALDO 74
mortgaged was registered with the Registry of Five Thousand Pesos (P3,255,000.00) loan and an
Deeds. additional loan of Five Million Sixty-Two Thousand
2 of the lots were later sold to Spouses
Pesos (P5,062,000.00) on October 5, 1967, to
Paderes and Spouses Bergardo.
MICC failed to pay the loan.
finance a piggery project. Alta Farms defaulted in
Without any redemption having been made the payment because of this that Alta Farms
within the reglementary period, Banco Filipino executed a Deed of Sale With Assumption of
foreclosed the properties extra judicially. Mortgage with Asian Engineering Corporation on
BF won as the highest bidder in the auction July 10, 1969 but without the previous consent or
sale. approval of the GSIS and in direct violation of the
Paderes and Bergardo filed a petition stating provisions of the mortgage contracts. Even without
that their right is superior than BF since they the approval of the Deed of Sale With Assumption
are buyers in good faith and are still entitled
to redeem. of Mortgage by the GSIS, Asian Engineering
Corporation executed an Exclusive Sales Agency,
Issue: WON Paderes and Bergardo has still rights Management and Administration Contract in favor
over the properties? of Laigo Realty Corporation, with the intention of
converting the piggery farm into a subdivision.
Held:
After developing the area, on December 4, 1969,
No. Sale or transfer cannot affect or release the Laigo entered into a contract with Amable
mortgage. A purchaser is necessarily bound to Lumanlan, one of the petitioners, to construct for
acknowledge and respect the encumbrance to the home buyers, 20 houses on the subdivision.
which is subjected the purchased thing and which Petitioner Lumanlan allegedly constructed 20
is at the disposal of the creditor in order that he, houses for the home buyers and for which he claims
under the terms of the contract, may recover the
amount of his credit therefrom.
a balance of P309,187.76 from the home buyers and
Laigo. Out of his claim, petitioner Lumanlan admits
For a recorded real estate mortgage is a right in that Mrs. Rhody Laigo paid him in several checks
rem, a lien on the property whoever its owner totalling P124,855.00 but which checks were all
may be because the personality of the owner is dishonoured. On December 29, 1969, Laigo entered
disregarded. The mortgage subsists
into a contract with petitioner Pepito Velasco to
notwithstanding changes of ownership. The last
transferee is just as much of a debtor as the first construct houses for the home buyers who agreed
one. A mortgage lien is inseparable from the with Velasco on the prices and the downpayment.
property mortgaged. All subsequent purchasers Petitioner Velasco constructed houses for various
thereof must respect the mortgage, whether the home buyers, who individually agreed with Velasco,
transfer to them be with or without the consent of as to the prices and the downpayment to be paid by
the mortgagee. For the mortgage until
discharged, follows the property.
the individual home buyers.When neither Laigo nor
the individual home buyers paid for the home
With regard to the redemption period, it is settled constructed, Velasco wrote the GSIS to intercede for
that the buyer in a foreclosure sale becomes the the unpaid accounts of the home buyers.
absolute owner of the property purchased if it is
not redeemed during the period of one year after
Issue: W/N GSIS is liable to the petitioners for the
the registration of the sale. As such, he is entitled
to the possession of the said property and can cost of the materials and labor furnished by them in
demand it any time following the consolidation of construction of the 63 houses now owned by the
ownership in his name and the issuance to him of GSIS?
a new TCT. If the buyer demands the possession
of the property before the expiration period, he Ruling: Yes. GSIS should pay the petitioners. GSIS
has to post a bond. No bond is required after the
redemption period if the property is not assumed ownership of the houses built by
redeemed. petitioners and was benefited by the same. Art.
2127, the mortgage extends to the natural
accessions, to the improvements, growing fruits,
VELASCO v CA rents.
BANTSA and BAIL on several occasions granted On the same date, DALCO executed a second
three major multi-million United States (US) mortgage on the same properties in favor of
Dollar loans to the following corporate borrowers ATLANTIC to secure payment of the unpaid
and which are foreign affiliates of private balance of the sale price of the lumber
respondent. 3 concession.
Due to the default in the payment of the loan Both deeds contained the following provision
amortizations, BANTSA and the corporate extending the mortgage lien to properties to be
borrowers signed and entered into restructuring subsequently acquired — referred to hereafter as
agreements. As additional security for the "after acquired properties" — by the mortgagor:
restructured loans, private respondent ARC
(American Realty) as third party mortgagor All property of every nature and
executed two real estate mortgages, over its description taken in exchange or
parcels of land including improvements thereon, replacement, and all buildings, machinery,
located at Bulacan. fixtures, tools equipment and other
property which the Mortgagor may
Eventually, the corporate borrowers defaulted in hereafter acquire, construct, install,
the payment of the restructured loans prompting attach, or use in, to, upon, or in
petitioner BANTSA to file civil actions before connection with the premises, shall
foreign courts for the collection. This includes the immediately be and become subject to the
property of American Realty. Petitioners already lien of this mortgage in the same manner
filed collection cases in foreign courts. It also filed and to the same extent as if now included
an extrajudicial foreclosure on the property in therein, and the Mortgagor shall from time
Bulacan in which American Realty question to time during the existence of this
because the petitioners cannot file a case for mortgage furnish the Mortgagee with an
collection and a case for extrajudicial foreclosure accurate inventory of such substituted and
at the same time. subsequently acquired property.
Upon DALCO's and DAMCO's failure to pay the 1. it is crystal clear that all property of every
fifth promissory note upon its maturity, the BANK
nature and description taken in exchange
paid the same to the Export-Import Bank of
Washington D.C., and the latter assigned to the or replacement, as well as all buildings,
former its credit and the first mortgage securing machineries, fixtures, tools, equipments,
it. Subsequently, the BANK gave DALCO and and other property that the mortgagor
DAMCO up to April 1, 1953 to pay the overdue may acquire, construct, install, attach; or
promissory note. use in, to upon, or in connection with the
premises — that is, its lumber concession
After July 13, 1950 — the date of execution of the — "shall immediately be and become
mortgages mentioned above — DALCO purchased
various machineries, equipment, spare parts and subject to the lien" of both mortgages in
supplies in addition to, or in replacement of some the same manner and to the same extent
of those already owned and used by it on the as if already included therein at the time
date aforesaid. Pursuant to the provision of the of their execution.
mortgage deeds quoted theretofore regarding Such stipulation is neither unlawful nor
"after acquired properties," the BANK requested immoral, its obvious purpose being to
DALCO to submit complete lists of said properties maintain, to the extent allowed by
but the latter failed to do so. circumstances, the original value of the
properties given as security. Indeed, if
The alleged sales of equipment, spare parts and such properties were of the nature already
supplies by CONNELL and DAMCO to It, was referred to, it would be poor judgment on
subsequently rescinded by the parties. the part of the creditor who does not see
to it that a similar provision is included in
The BANK, in its own behalf and that of ATLANTIC, the contract.
demanded that said agreements be cancelled but 2. the chattels were placed in the real
CONNELL and DAMCO refused to do so. As a properties mortgaged to plaintiffs, they
result, ATLANTIC and the BANK commenced came within the operation of Art. 415,
foreclosure proceedings. paragraph 5 and Art. 2127 of the New Civil
Code. It is not disputed in the case at bar
Main contentions of plaintiffs as appellants are
the following: that the "after acquired properties" that the "after acquired properties" were
were subject to the deeds of mortgage mentioned purchased by DALCO in connection with,
heretofore; that said properties were acquired and for use in the development of its
from suppliers other than DAMCO and CONNELL; lumber concession and that they were
that even granting that DAMCO and CONNELL purchased in addition to, or in
were the real suppliers, the rescission of the sales replacement of those already existing in
to DALCO could not prejudice the mortgage lien
the premises on July 13, 1950. In Law,
in favor of plaintiffs.
therefore, they must be deemed to have
The defendants-appellants contend that the been immobilized, with the result that the
mortgages aforesaid were null and void as real estate mortgages involved herein —
regards the "after acquired properties" of DALCO which were registered as such — did not
because they were not registered in accordance have to be registered a second time as
with the Chattel Mortgage Law. chattel mortgages in order to bind the
"after acquired properties" .
ISSUES:
Yes. The mortgage contract states that petitioner CHIENG v SPOUSE SANTOS
may resort to either judicial or extrajudicial
foreclosure in case of default. Petitioner opted for FIRST MARBELLA v GATMAYTAN
extrajudicial foreclosure. However, both the trial FACTS:
court and the CA declared that the extrajudicial R is the registered owner of Fontavilla No.
foreclosure void for being premature. For all 501 (condo unit), Marbella I Condominium,
intents and purposes, there has been no Roxas Blvd under CCT No. 1972
foreclosure. Therefore, this Court or any court P filed a Petition for Extradudicial
cannot issue a writ of execution to judicially foreclosure of the condominium unit of R
foreclose the property. and alleged that P is a duly organized
association of the tenants and
FIESTAN v CA homeowners of Marbella I Condominium;
that R is a member thereof but has unpaid
Facts: Dionisio Fiestan and Juanita Arconada association dues amounting to P3.2mill;
that R refused to to pay his dues despite
owners of a parcel of land (Lot No. 2B) situated in demand
Ilocos Sur covered by TCT T-13218 which they P - that it is expressly provided under
mortgaged to the Development Bank of the Section 20 of Republic Act (R.A.) No. 4726
Philippines (DBP) as security for their P22,400.00 that it has the right to cause the
loan. Lot No. 2-B was acquired by the DBP as the extrajudicial foreclosure of its annotated
highest bidder at a public auction sale on August 6, lien on the condominium unit. Its petition
then is cognizable by the RTC under
1979 after it was extrajudicially foreclosed by the Administrative Matter No. 99-10-05
DBP in accordance with Act No. 3135, as amended R – objected to P's right to file the petition
by Act No. 4118, for failure of petitioners to pay for extra-judicial foreclosure, pointing out
their mortgage indebtedness. On April 13,1982, the that the latter does not hold a real estate
DBP sold the lot to Francisco Peria in a Deed of mortgage on the condominium unit or a
Absolute Sale. Francisco Peria mortgaged said lot to special power of attorney to cause the
extra-judicial foreclosure sale of said unit.
the PNB Vigan Branch as security for his loan of - there is even a pending litigation
P115,000.00 as required by the bank to increase his regarding the validity of petitioner's
original loan from P49,000.00 to P66,000.00 until it constitution as a homeowners
finally reached the approved amount of association and its authority to assess
P115,000.00. Since petitioners were still in association dues, annotate unpaid
assessments on condominium titles
possession of Lot No. 2-B, the Provincial Sheriff and enforce the same through
ordered them to vacate the premises. extrajudicial foreclosure sale
Clerk of Court, as Ex-Officio Sheriff,
Issue: W/N there was a valid extrajudicial recommended to RTC Exec. Judge :
foreclosure sale?
SECTRANS 2010/ ATTY. AGUINALDO 81
Under the facts given, no mortgage exists No. 1972 in accordance with Section 20 of
between the petitioner and respondent. R.A. No. 4726. However, neither
Evidently, it is not one of those annotation nor law vests it with sufficient
contemplated under Act 3135 as amended authority to foreclose on the property
by Act 4118. The allegation simply does The notice of assessment contains no
not show a mortgagor-mortgagee provision for the extrajudicial foreclosure
relationship since respondent liability of the condominium unit. All that it states
arises from his failure to pay dues, is that the assessment of petitioner
assessments and charges due to the against respondent for unpaid association
petitioner. dues constitutes a "first lien against [the]
condominium unit
As clearly stated, the authority of the Section 20 of RA 4726 does not grant P
Executive Judge under Administrative special authority to foreclose. It merely
Matter No. 99-10-05-0, as amended dated prescribes the procedure by which
March 1, 2001, covers extra-judicial petitioner's claim may be treated as a
foreclosure of real estate mortgages under superior lien - i.e., through the annotation
R.A. No. 3135 and chattel mortgages thereof on the title of the condominium
under P.D. No. 1508. There is nothing in unit.
the above mentioned Circular which While the law also grants petitioner the
authorizes the Executive Judge and/or the option to enforce said lien through either
Ex-Officio Sheriff to extra judicially the judicial or extrajudicial foreclosure sale
foreclose properties covered by of the condominium unit, Section 20 does
obligations other than the said mortgages. not by itself, ipso facto, authorize judicial
Hence, the subject petition is not proper as extra-judicial foreclosure of the
for extra-judicial foreclosure under the condominium unit. Petitioner may avail
supervision of the Executive Judge. itself of either option only in the manner
Dismissal of the subject petition is provided for by the governing law and
recommended rules. As already pointed out, A.M. No. No.
99-10-05-0, as implemented under
TC – denied request for extrajudicial Circular No. 7-2002, requires that
foreclosure of the subject condo unit and petitioner furnish evidence of its special
dismissed the petition; It not within the authority to cause the extrajudicial
authority of Exec. Judge to supervise and foreclosure of the condominium unit.
approve the extrajudicial foreclosures of
mortgage LANGKAAN REALTY v UCPB
ISSUE: 1. WON PERSONAL NOTICE TO ISSUE: WoN the foreclosure sale was valid despite
RESPONDENT IS A CONDITION SINE QUA NON TO lack of publication
THE VALIDITY OF THE FORECLOSURE
PROCEEDINGS? SC: NO!
- Act 3135, governing EJF of mortgages on
2. WON PETITIONER’S NON-COMPLIANCE real property is specific with regard to the
WITH THE POSTING REQUIREMENT IS FATAL TO posting and publication requirements of
THE VALIDITY OF THE FORECLOSURE the notice of sale, which requires:
PROCEEDINGS? o Posting of notices of sale in 3 public
places
o Publication of the same in a
newspaper of general circulation.
HELD: o FAILURE TO PUBLISH the notice of
sale constitutes a jurisdictional
1. Section 3 of Act no. 3135 only requires: (1) defect, which INVALIDATES the
the posting of notices of sale in three sale.
public places, and (2) the publication of - RE: WAIVER OF PUBLICATION
the same in a newspaper of general REQUIREMENTS
circulation. Personal notice to the o PNB and R have absolutely NO
mortgagor is not necessary. Nevertheless, RIGHT to waive the posting and
the parties are not precluded from publication requirements of the
exacting additional requirements. In the law.
case at bar, it was stipulated that notice o The principal object of a notice of
should be served to the mortgagor. When sale in a foreclosure of mortgage is
petitioner failed to send the notice of not so much to notify the
foreclosure sale to respondent, he mortgagor as to inform the public
committed a contractual breach sufficient generally of the nature and
to render the foreclosure sale null and condition of the property to be
void. sold, and of the time, place and
2. The general rule is that non-compliance terms of the sale
with the posting requirement is fatal to the - Notice is given to secure bidders and
validity of the foreclosure proceedings. prevent a sacrifice of the property
The Olizon case was an exception due to - Statutory requirement of Publication is
the unusual nature of the attendant facts mandatory not for the mortgagor’s
and peculiarity of the confluent benefit, but for the public or 3rd persons.
circumstances which are not present in
the instant case. While the law recognizes PNB v SPOUSES CABATINGAN
the right of the bank to foreclose a FACTS:
mortgage upon the mortgagor’s failure to
pay his obligation, it is important that such 1) Respondent spouses Cabatingan obtained two
right be exercised according to its clear loans, secured by a real estate mortgage, in the
total amount of P421,200 from petitioner PNB.
SECTRANS 2010/ ATTY. AGUINALDO 83
They were unable to fully pay their obligation
despite having been granted more than enough MONZON v RELOVA
time to do so.
DOCTRINE: Any person having a lien on the
2) Thus, PNB extrajudicially foreclosed on the property subsequent to the mortgage or deed of
mortgage. Thereafter, a notice of extrajudicial trust under which the property is sold, may
sale was issued. Pursuant to this, the properties redeem the same at any time within the term of
were sold at public auction on November 5, 1991. one year from and after the date of sale.
PNB was the highest bidder.
Even if, for the sake of argument, Rule 68
3) On March 16, 1993, respondent is to be applied to extrajudicial foreclosure of
spouses filed in the RTC a complaint for mortgages, such right can only be given to
annulment of extrajudicial foreclosure of second mortgagees who are made parties to the
real estate mortgage and the November (judicial) foreclosure. While a second mortgagee
5, 1991 auction sale. is a proper and in a sense even a necessary party
to a proceeding to foreclose a first mortgage on
4) Petitioners claimed that the provisions of ACT real property, he is not an indispensable party,
no. 3135 must be observed strictly. Thus, because a valid decree may be made, as between
because the public auction of the foreclosed the mortgagor and the first mortgagee, without
properties was held for only 20 minutes (instead regard to the second mortgagee; but the
of seven hours as required by law), the consequence of a failure to make the second
consequent sale was void. Thus, the RTC issued mortgagee a party to the proceeding is that the
an order annulling the sale at public auction. lien of the second mortgagee on the equity of
redemption is not affected by the decree of
ISSUE: Whether a sale at public auction, to be foreclosure.
valid, must be conducted the whole day from
9:00 a.m. until 4:00 p.m. of the scheduled auction SAGUAN v PBCOM
day. Facts:
1. WON the assignment of credit by the ISSUE: WoN R may levy the jalousies
creditor-mortgagee quires the notice and
consent of the debtor- mortgagor? SC: NO!
2. WON the assignment of credit by the - When the glass and wooden jalousies were
debtor- mortgagor requires the notice and delivered and installed in the leased
consent of the creditor-mortgagee? premises, P became the owner thereof,
due to the contract between P and Capitol
in which it stated that all permanent
HELD: improvements made by lessee shall
belong to the lessor and that said
1. Only notice to the debtor-mortgagor of improvements hav been considered as
the assignment of credit is required. His part of the monthly rentals.
consent is not required. - The fact that Capitol failed to pay R the
2. In contrast, consent of the creditor- purchase price of the items levied upon
mortgagee to the alienation of the did not prevent the transfer of ownership
mortgaged property is necessary in order to Capitol and then to P.
to bind said creditor. Since the assignee of
the credit steps into the shoes of the
creditor-mortgagee to whom the chattel UY v ZAMORA
was mortgaged, it follows that the
assignee's consent is necessary in order to FACTS:
bind him of the alienation of the
mortgaged thing by the debtor-mortgagor.
This is tantamount to a novation. As the 1) At the instance of plaintiff Uy, the MTC ordered
new assignee, petitioner's consent is the attachment of a vehicle belonging to Zamora.
necessary before respondent spouses' The writ was levied on the vehicle on August 11,
2) While the case was pending appeal, the Allied CORDOVA v REYES
Finance, Inc. intervene. According to it, the
vehicle, which was attached by the Sheriff, had CENTRAL BANK v MORFE
previously been mortgaged to it by Zamora to
secure the payment of a loan and that at the time Facts:
of the filing of the complaint in intervention, a
balance of P2,451.93 remained in its favor. Allied, The Monetary Board found the Fidelity
prayed that Zamora be ordered to pay P2,451.93 Savings Bank to be insolvent. The Board
as principal. directed the Superintendent of Banks to take
charge of its assets, forbade it to do business
3) On January 12, 1961, Uy and Zamora, and instructed the Central Bank Legal Counsel
submitted to the court a compromise agreement to take legal actions.
wherein Zamora admitted being indebted to Uy. Prior to the institution of the liquidation
Since the motor vehicle had already been sold on proceeding but after the declaration of
order of the Court for P2,500 to prevent insolvency, the spouses Elizes filed a
depreciation, defendant Zamora agreed to have complaint in the CFI against the Fidelity
plaintiff Uy's credit paid out of the proceeds of Savings Bank for the recovery of the balance
the sale. of their time deposits.
In the judgment rendered in that case, the
4) The court found defendant Zamora to be liable Fidelity Savings Bank was ordered to pay the
to plaintiff Uy in the amount of P2,500, and to the Elizes spouses the sum plus accumulated
intervenor in the amount of P2,451.93, plus interest.
interest. Uy claims preference on the basis of a In another case, the spouses Padilla secured a
lien arising from the attachment of the vehicle on judgment against the Fidelity Savings Bank for
August 11, 1960. On the other hand, allied bases the sums as the balance of their time
its claim to preference on a Deed of Chattel deposits, plus interests, moral and exemplary
Mortgage covering the same motor vehicle. damages and attorney's fees.
The lower court (having cognizance of the
ISSUE: Which of the two credits is preferred? liquidation proceeding), upon motions of the
Elizes and Padilla spouses and over the
HELD: opposition of the Central Bank, directed the
latter as liquidator, to pay their time deposits
A) Considering the fact that Allied Finance, Inc. as preferred judgments, evidenced by final
registered its mortgage only on August 24, 1960, judgments, within the meaning of article
or subsequent to the date of the writ of 2244(14)(b) of the Civil Code.
attachment obtained by plaintiff Uy on August 11, Central Bank contends that the final
1960, the credit of the intervenor cannot prevail judgments secured by the Elizes and Padilla
over that of the plaintiff. spouses do not enjoy any preference because
(a) they were rendered after the Fidelity
Savings Bank was declared insolvent and (b)
B) The SC disagreed with the lower court’s
under the charter of the Central Bank and the
decision upheld Allied’s credit on the ground that,
General Banking Law, no final judgment can
being embodied in a public instrument of an
be validly obtained against an insolvent bank.
earlier date (June 20, 1960), it should take
precedence over plaintiff's lien by attachment
(August 11, 1960), pursuant to Article 2244 of the
Issue: Whether a final judgment for the payment
Civil Code, for the reason that, as already stated,
of a time deposit in a savings bank which
the credit of the Allied cannot be considered as
judgment was obtained after the bank was
preferred until the same has been recorded in the
declared insolvent, is a preferred claim against
Motor Vehicles Office.
the bank?
C) A mortgage of motor vehicles, in order to Held:
affect third persons, should not only be registered
in the Chattel Mortgage Registry, but the same No. It should be noted that fixed, savings, and
should also be recorded in the Motor Vehicles current deposits of money in banks and similar
SECTRANS 2010/ ATTY. AGUINALDO 98
institutions are not true deposits. They are C filed an action against the spouses to collect
considered simple loans and, as such, are not the unpaid cost of construction. As x and y did
preferred credits. not have any properties to satisfy the judgment
rendered in his favor, c demanded from psb a pro
The aforequoted section 29 of the Central Bank's rata share in the value of the duplex apartment in
charter explicitly provides that when a bank is accordance with article 2242.
found to be insolvent, the Monetary Board shall
forbid it to do business and shall take charge of Issue: is c entitled to claim pro rata share in the
its assets. Evidently, one purpose in prohibiting value of the property in question.
the insolvent bank from doing business is to
prevent some depositors from having an undue or Ruling: no. the action filed by c to collect the
fraudulent preference over other creditors and unpaid cost of the construction of the duplex
depositors. apartment is far from being a general liquidation
of the estate of x and y.
We are of the opinion that such judgments cannot
be considered preferred and that article 2244(14) Although the lower court found that there were
(b) does not apply to judgments for the payment no known creditors other than c and psb, this
of the deposits in an insolvent savings bank cannot be conclusive. It will not bar other
which were obtained after the declaration of creditors in the event they show up and present
insolvency. their claims against psb, claiming they have also
preferred claims against the property.
In the Rohr case, the general principle of equity Consequently, the transfer certificate of title
that the assets of an insolvent are to be issued to psb which is supposed to be
distributed ratably among general creditors indefeasible would remain constantly unstable
applies with full force to the distribution of the and questionable. Such could not have been the
assets of a bank. A general depositor of a bank is intention of article 2243 of the civil code although
merely a general creditor, and, as such, is not it considers claims and credits under article 2242
entitled to any preference or priority over other as statutory liens. Neither does the de barreto
general creditors. caes sanction such instability.