11. Ong v. Roban Lending Corporation, G.R. No.

172592, July 9, 2008

Doctrine: The elements of pactum commissorium, which enables the mortgagee to acquire ownership of
the mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation, and (2) there should
be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment
of the principal obligation within the stipulated period.

Facts: On different dates from July 14, 1999 to March 20, 2000, petitioner-spouses Wilfredo N. Ong and
Edna Sheila Paguio-Ong obtained several loans from Roban Lending Corporation (respondent) in the
total amount of P4,000,000.00. These loans were secured by a real estate mortgage on petitioners’ parcels
of land located in Binauganan, Tarlac City and covered by TCT No. 297840. Petitioners and Respondent
executed an Amendment to Amended Real Estate Mortgage consolidating their loans totalling to
P5,916,117.50 and also executed Dacion in Payment agreement assigning the properties covered by TCT
No. 297840 to respondent in settlement of their total obligations wherein in the second part they have
agreed to have “Dacion in Payment” agreement which was executed and signed in favor of the first party,
Roban Lending Corporation.

Petitioners filed a complaint praying the Amendent to the Amended Real Estate Mortgage be
annulled being a pactum commissorium and to have the interest rates reduced for being unconscionable.

RTC found that there was no pactum commissorium and that the complaint was dismissed. CA
upheld RTC’s decision.

Issue: Whether or not there was pactum commissorium

Held: Yes, This Court finds that the Memorandum of Agreement and Dation in Payment
constitute pactum commissorium, which is prohibited under Article 2088 of the Civil Code which
provides:

“The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void.”

In the case at bar, the Memorandum of Agreement and the Dation in Payment contain no provisions for
foreclosure proceedings nor redemption. Under the Memorandum of Agreement, the failure by the
petitioners to pay their debt within the one-year period gives respondent the right to enforce the Dation in
Payment transferring to it ownership of the properties covered by TCT No. 297840. Respondent, in effect,
automatically acquires ownership of the properties upon petitioners’ failure to pay their debt within the
stipulated period.

WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET ASIDE. The

Memorandum of Agreement and the Dacion in Payment executed by petitioner-spouses Wilfredo N. Ong
and Edna Sheila Paguio-Ong and respondent Roban Lending Corporation on February 12, 2001 are
declared NULL AND VOID for being pactum commissorium.

12. Manila Banking Corp. v. Teodoro & Teodoro, G.R. No. L-53955, January 13, 1989
Doctrine: The character of the transaction between the parties is to be determined by their intention
regardless of what language was used or what the form of transfer was.

FACTS: defendants, together with Anastacio Teodoro, Sr., jointly and severally, executed in favor of
plaintiff a Promissory Note (No. 11487) for the sum of P10,420.00 payable in 120 days, or on August 25,
1966, at 12% interest per annum. Defendants failed to pay the said amount inspite of repeated demands
and the obligation as of September 30, 1969 stood at P15,137.11 including accrued interest and service
charge.

defendants Anastacio Teodoro, Sr. (Father) and Anastacio Teodoro, Jr. (Son) executed in favor of
plaintiff two Promissory Notes (Nos. 11515 and 11699) for P8,000.00 and P1,000.00 respectively,
payable in 120 days at 12% interest per annum. Father and Son made a partial payment on the May 3,
1966 Promissory Note but none on the June 20, 1966 Promissory Note, leaving still an unpaid balance of
P8,934.74 as of September 30, 1969 including accrued interest and service charge. The three Promissory
Notes stipulated that any interest due if not paid at the end of every month shall be added to the total
amount then due, the whole amount to bear interest at the rate of 12% per annum until fully paid.

the Son executed in favor of plaintiff a Deed of Assignment of Receivables from the Emergency
Employment Administration in the sum of P44,635.00. For failure of defendants to pay the sums due on
the Promissory Note, this action was instituted on November 13, 1969, originally against the Father, Son,
and the latter’s wife. 

the trial court rendered its judgment adverse to defendants

ISSUE whether or not the assignment of receivables has the effect of payment of all the loans contracted
by appellants from appellee bank

HELD: No. “Assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the need of
the consent of the debtor, transfers his credit and its accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could have enforced it against the
debtor. x x x It may be in the form of a sale, but at times it may constitute a dation in payment, such as
when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a
third person, or it may constitute a donation as when it is by gratuitous title; or it may even be merely by
way of guaranty, as when the creditor gives as a collateral, to secure his own debt in favor of the assignee,
without transmitting ownership.

The character that it may assume determines its requisites and effects. its regulation, and the
capacity of the parties to execute it; and in every case, the obligations between assignor and assignee will
depend upon the judicial relation which is the basis of the assignment:

13. Manila Surety and Fidelity Co. v. Velayo, G.R. No. L-21069. October 26, 1967

DOCTRINE: Where the pieces of jewelry were delivered to a surety company “as collateral security and by
way of pledge” in a contract of guaranty security, and sold at a lower price than the amount of the
principal obligation, the principal obligation was extinguished and the guarantor cannot recover the
deficiency, because Art. 2115 of the Civil Code, in its last portion, clearly establishes that the extinction
of the principal obligation supervenes by operation of imperative law that the parties cannot override; “If
the price of the sale is less, neither shall the creditor be entitled to recover the deficiency notwithstanding
any stipulation to the contrary.” The effect of this provision cannot be evaded. By electing to sell the
articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy,
and must abide by the results of the sale.

Facts: in 1953, Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond for
P2,800.00 for the dissolution of a writ of attachment obtained by one Jovita Granados in a suit against
Rodolfo Velayo in the Court of First Instance of Manila. Velayo undertook to pay the surety company an
annual premium of P112.00; to indemnify the Company for any damage and loss of whatsoever kind and
nature that it shall or may suffer, as well as reimburse the same for all money it should pay or become
liable to pay under the bond including costs and attorneys’ fees.

As “collateral security and by way of pledge” Velayo also delivered four pieces of jewelry to the
Surety Company “for the latter’s further protection”, with power to sell the same in case the surety paid or
become obligated to pay any amount of money in connection with said bond, applying the proceeds to the
payment of any amounts it paid or will be liable to pay, and turning the balance, if any, to the persons
entitled thereto, after deducting legal expenses and costs.

Judgment in favor of Granados and execution having been returned unsatisfied, surety company
was forced to pay P2,800 that sought to recoup from Velayo, and upon failure to do so, surety pledge the
said jewelry with net amount of P235.00. Hence, this case.

ISSUE: Whether or not Surety can claim against Velayo for the deficiency

Held: No. Art. 2115 of the Civil Code, in its last portion, clearly establishes that the extinction of the
principal obligation supervenes by operation of imperative law that the parties cannot override; “If the
price of the sale is less, neither shall the creditor be entitled to recover the deficiency notwithstanding any
stipulation to the contrary.” The effect of this provision cannot be evaded. By electing to sell the articles
pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must
abide by the results of the sale.

14. Paray & Espeleta v. Rodriguez, et al., G.R. No. 132287, January 24, 2006

Doctrine: Under the Civil Code, the fore-closure of a pledge occurs extrajudicially without intervention
by the courts.—Preliminarily, it must be clarified that the subject sale of pledged shares was an
extrajudicial sale, specifically a notarial sale, as distinguished from a judicial sale as typified by an
execution sale. 

Facts: Respondents were the owners, in their respective personal capacities, of shares of stock in a
corporation known as the Quirino-Leonor-Rodriguez Realty Inc. Sometime during the years 1979 to 1980,
respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and
Faustina Paray (“Parays”) the payment of certain loan obligations. When the Parays attempted to
foreclose the pledges on account of respondents’ failure to pay their loans, respondents filed complaints
with the Regional Trial Court (RTC) of Cebu City.
RTC, in its decision dated 14 October 1988, dismissed the complaint and gave “due course to the
foreclosure and sale at public auction of the various pledges subject of these two cases.” This decision
attained finality after it was affirmed by the Court of Appeals and the Supreme Court.

Respondents received notices of sale of the pledged shares to be sold at public auction. Before the
scheduled date, all of the respondents caused consignation with the RTC. It was claimed that respondents
had attempted to tender these payments to Parays, but had been rebuffed. Notwithstanding the
consignations, the public auction took place with the Petitioner Espeleta as the successful bidder for all
the pledged shares.

RTC dismissed the complaint, CA reversed the RTC decision on appeal, ruling that the consignations
extinguished the loan obligations and the subject pledge contracts and auction sale as null and void.

Issue: Whether or not the redemption exist over the personal Property

Held: No. The right of redemption over mortgaged real property sold extrajudicially is established by Act
No. 3135, as amended. The said law does not extend the same benefit to personal property. In fact, there
is no law in our statute books which vests the right of redemption over personal property. Act No. 1508,
or the Chattel Mortgage Law, ostensibly could have served as the vehicle for any legislative intent to
bestow a right of redemption over personal property, since that law governs the extrajudicial sale of
mortgaged personal property, but the statute is definitely silent on the point. And Section 39 of the 1997
Rules of Civil Procedure, extensively relied upon by the Court of Appeals, starkly utters that the right of
redemption applies to real properties, not personal properties, sold on execution.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals is SET ASIDE
and the decision of the Cebu City RTC, Branch 16, dated 18 November 1992 is REINSTATED

15. Sibal v Valdez, G.R. No. L-26278. August 4, 1927

For the purpose of attachment and execution, and for the purposes of the Chattel
Mortgage Law, "ungathered products" have the nature of personal property.

Facts: The Deputy Sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the
Court of First Instance of Pampanga, attached and sold to the defendant Emiliano J. Valdez the
sugar cane planted by the plaintiff and his tenants on seven parcels of land. Included also in
those attached were real properties wherein 8mout of the 11 parcels of land, house and camarin
which was first acquired by Macondray & Co and then later on bought by Valdez in an auction.

 Petitioner filed for preliminary injunction to stop defendant from 1) distributing the lands 2)
harvesting and selling the sugar canes, and 3) harvesting and selling the palay. The writ was
issued which prevented defendant from planting and harvesting the lands. Defendant later
appealed claiming that he was the owner of many of the alleged land thus he also owns the
crops of it. The court awarded the defendant 9,439.08 because the petitioner unduly denied the
defendant to plant in his land thus preventing him to profit thereto.

Issue: Whether or not the sugar cane in question had the nature of personal property and was not,
therefore, subject to redemption;
Held: Under the facts of the record, notwithstanding the provisions of paragraph 2 of article 334 of the
Civil Code, that growing sugar cane is considered personal property and not real property and is subject
to attachment and sale. Act No. 1508, the Chattel Mortgage Law, provides that all personal property shall
be subject to mortgage. At common law all annual crops which are raised by yearly manurance and labor
and essentially owe their existence to cultivation may be levied on as personal property. Paragraph 2 of
article 334 of the Civil Code has been modified by section 450 of the Code of Civil Procedure and by Act
No. 1508 in the sense that, for the purpose of attachment and execution and for the purposes of the
Chattel Mortgage Law, "ungathered products" have the nature of personal property.

16. Samanilla v. Cajucom, G.R. No. L-13683. March 28, 1960

Doctrine: Once a mortgage has been signed in due form, the mortgagee is entitled to its registration as a
matter of right. By executing the mortgage the mortgagor is understood to have given his consent to its
registration, and he cannot be permitted to revoke it unilaterally. The validity and fulfillment of contracts
cannot be left to the will of one of the contracting parties (Article 1254 of the -Civil Code).

Facts: sometime in February, 1956, respondents borrowed the title Title No. 0-966 to secure a loan of
P10,000.00 from her on the excuse that they needed it to segregate from the land the portion claimed by
other persons; and that thereafter, petitioner asked for the return of the title so that she could register her
mortgage, but respondents refused. Attached to the petition were the deed of mortgage and the affidavits
of petitioner and a certain Antonio G. Javier, who allegedly was the one who borrowed the title from
petitioner in behalf of respondents. Respondents opposed the petition, claiming that the mortgage in
question was void ab initio for want of consideration, and that the issues should be litigated in an ordinary
civil action. 

Lower Court find the petition well taken and ordering respondents to surrender the title to register
of deeds or to the Court.

Issue: whether or not the REM is binding between parties even if it is not registered

Held: Yes. The argument is fallacious, for a mortgage, whether registered or not, is binding
between the parties, registration being necessary only to make the same valid against third
persons (Art. 2125, New Civil Code). In other words, registration only operates as a notice of the
mortgage to others, but neither adds to its validity nor convert an invalid mortgage into a valid
one between the parties. Appellants still have the right to show that the mortgage in question is
invalid for lack of consideration in an ordinary action and there ask for the avoidance of the deed
and the cancellation of its registration. But until such action is filed and decided, it would be too
dangerous to the rights of the mortgagee to deny registration of her mortgage, because her rights
can so easily be defeated by a transfer or conveyance of the mortgaged property to an innocent
third person.

17. PNB v. Militar, G.R. No. 164801. June 30, 2006

Doctrine: Banks and financial institutions as mortgagee, whose business is impressed with public
interest, is expected to exercise more care and prudence than a private individual in its dealings, even
those involving registered lands.

Facts:

18. RCBC v. CA, G.R. No. 128833 April 20, 1998

Doctrine: It is settled that a mort-gagor and a mortgagee have separate and distinct insurable interests
in the same mortgaged property, such that each one of them may insure the same property for his own
sole benefit; The intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity

Facts: GOYU was granted credit facilities and accommodations by the RCBC initially in the amount of P
30 million. Upon GOYU’s application, the credit was increased to P50 Million, then P90 Million, then
P117 Million. As security, GOYU executed 2 REM and 2 CM in favor of RCBC, which were registered with
the RD. Under the 4 contracts, GOYU committed itself to insure the mortgaged properties with an
insurance company approved by RCBC, and subsequently endorse and deliver the insurance policies to
RCBC. GOYU then obtained 10 policies from MICO. GOYU’s buildings were gutted by fire and it claimed
indemnity from MICO but the latter denied the claim on the ground that the insurance policies were
either attached pursuant to writs of attachments/garnishments issued by various courts or that the
proceeds were also claimed by other creditors of GOYU. GOYU, alleging better rights to the proceeds,
filed for specific performance and damges before the RTC of Manila Br 3. The trial court ruled in favor of
GOYU for the fire loss claims but ordered it to pay RCBC its loan obligations. On appeal to the CA, it
affirmed the ruling with regard to the liabilities of MICO and RCBC. The trial court and appellate courts
both held that, since the endorsements do not bear the signature of any officer of GOYU, they
concluded that the endorsements are defective. The CA then ordered GOYU to pay its obligation to
RCBC without any interest, surcharges and penalties.

ISSUE: Whether or not the ruling of the appellate court is correct.

HELD: The Court held in the negative. The essence or rationale for the payment of interest or cost of
money is separate and distinct from that of surcharges and penalties. The charging of interest for loans
forms a very essential and fundamental element of the banking business.

Petitions granted.

19. Casabuena v. CA, G.R. No. 115410. February 27, 1998

Doctrine: ons; An assignment of credit is the process of transferring the right of the assignor to the
assignee, who would then be allowed to proceed against the debtor.
 FACTS: Urdaneta is one of the fortunate grantees of a parcel of land purchased by the City of
Manila and conveyed to its less privileged inhabitants, through its land reform program.  On 1

August 12, 1965, Urdaneta assigned his rights and interests in one-half (1/2) of the lot to Arsenia
Benin covering full payment of his indebtedness in the amount of five hundred pesos
(P500.00). A deed of sale with mortgage was executed, with Urdaneta undertaking to pay the
City the amount of five thousand five hundred pesos (P5,500.00) for a period of forty years in
480 equal installments. Urdaneta incurred additional indebtedness amounting top 2,000.00. C
Ciriaco executed another deed of assignment involving the whole lot, with assignee Benin agreeing to
shoulder all obligations including the payment of amortization to the City, in accordance with the contract
between it and Urdaneta. The parties verbally agreed that Urdaneta could redeem the property upon
payment of the loan within three (3) years from the date of assignment; failure to pay would transfer
physical possession of the lot to Benin for a period of fifteen (15) years, without actual transfer of title
and ownership thereto.  A Transfer Certificate of Title was issued in the name of Urdaneta, married to
6

Ofelia Ipil.
7

Meanwhile, the administration of the property was assigned to brothers Candido and Juan Casabuena, to
whom Benin had transferred her right, title and interest for a consideration of seven thousand five
hundred pesos (P7,500.00). Upon learning of the litigation between petitioner and Benin, Urdaneta asked
them to vacate the property and surrender to him possession thereof within fifteen (15) days from notice.

ISSUE: Whether or not a deed of assignment transfer ownership of property to assignee.

RULING NO. The act of assignment could not have operated to efface liens or restrictions burdening the
right assigned, because an assignee cannot acquire a greater right than that pertaining to the assignor.
At most, an assignee can only acquire rights duplicating those which his assignor is entitled by law to
exercise. In the case at bar, the Casabuenas merely stepped into Benin’s shoes, who was not so much an
owner as a mere assignee of the rights of her debtors. Not having acquired any right over the land in
question, it follows that Benin conveyed nothing to defendants with respect to the property.