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Carodan v. China Banking Corporation

G.R. No. 21 0542. February 24, 201 6

Loan transactions in banking institutions usually entail the execution of loan documents, typically a promissory
note, covered by a real estate mortgage and/or a surety agreement.

In Belo v. PNB, we had the occasion to declare:

An accommodation mortgage is not necessarily void simply because the accommodation mortgagor
did not beneCt from the same. The validity of an accommodation mortgage is allowed under Article
2085 of the New Civil Code which provides that (t)hird persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own property.

An accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be
contrary to his designation as such.

Article 2047 of the Civil Code in this wise:

Art. 2047. By guaranty a person, called a guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of
this Book shall be observed. In such case the contract is called a suretyship.

A contract of suretyship (second paragraph of Article 2047) has been juxtaposed against a contract of
guaranty (first paragraph of Article 2047) as follows:

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship
is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated
differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees
that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is
unable to pay. A surety binds
himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other
hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety
undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a
guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor.

In Inciong, Jr. v. CA, we elucidated further in this wise:

While a guarantor may bind himself solidarily with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor. Thus, Tolentino explains:

A guarantor who binds himself in solidum with the principal debtor under the provisions of
the second paragraph does not become a solidary co-debtor to all intents and purposes.
There is a difference between a solidary co-debtor, and a Cador in solidum (surety), The
latter, outside of the liability he assumes to pay the debt before the property of the principal
debtor has been exhausted, retains all the other rights, actions and beneCts which pertain

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to him by reason of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code.

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under
Art. 1 207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that
the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a
solidary liability only when the obligation expressly so states, when the law so provides or when the nature of
the obligation so requires.

Further discussion on the same legal concept proceeded thusly:

A contract of surety is an accessory promise by which a person binds himself for another already
bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of
guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter
does not pay the debt.

Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both.
However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by
the same instrument, executed at the same time, and on the same consideration. He is an original promissor
and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will
not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the
default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of
guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered
into before or after that of the principal, and is often supported on a separate consideration from that
supporting the contract of the principal.

The original contract of his principal is not his contract, and he is not bound to take notice of its
nonperformance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually
not liable unless noticed of the default of the principal.

Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the
debtor and thus binds himself to pay is the principal is unable to pay while a surety is the insurer of the debt,
and he obligates himself to pay if the principal does not pay.

A mortgage is simply a security for, and not a satisfaction of indebtedness. If the proceeds of the sale are
insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the
deCciency from the debtor. We have already recognized this rule:

While Act No. 31 35, as amended, does not discuss the mortgagee's right to recover the deficiency,
neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature had
intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a
security given to guarantee an obligation, the law would expressly so provide. Absent such a provision
in Act No. 31 35, as amended, the creditor is not precluded from taking action to recover any unpaid
balance on the principal obligation singly because he chose to extrajudicially foreclose the real estate
mortgage.

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In PNB v. Manila Surety, the Court en banc declared the surety discharged from liability on account of the
creditor's negligence. In that case, the creditor failed to collect the amounts due to the debtor contrary to the
former's duty to make collections as holder of an exclusive and irrevocable power of attorney. The negligence
of the creditor allowed the assigned funds to be exhausted without notice to the surety and ultimately resulted
in depriving the latter of any possibility of recourse against that security.

Also, in PNP v. Luzon Surety, the Court hinted at the possibility of the surety's discharge from liability. It was
recognized in that case that in this jurisdiction, alteration can be a ground for release. The Court clariCed,
though, that this principle can only be successfully invoked on the condition that the alteration is material.
Failure to comply with this requisite means that the surety cannot be freed from liability. Applying this doctrine
in that case, the Court ruled that the alterations in the form of increases in the credit line with the full consent
of the surety did not suffice to release the surety.

Meanwhile, in Palmares v. CA, the Court ruled:

It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the
creditor without change in the time when the debt might be demanded, does not constitute an
extension of the time of payment, which would release the surety. In order to constitute an extension
discharging the surety, it should appear that the extension of the time was for a deCnite period,
pursuant to an enforceable agreement between the principal and the creditor, and that it was made
without the consent of the surety or with the reservation of rights with respect to him. The contract
must be one which precludes the creditor from, or at least hinders him in, enforcing the principal
contract with the period during which he could otherwise have enforced it, and which precludes the
surety from paying the debt. (Citations omitted)

In E. Zobel, Inc. v. CA, etal., the Court upheld the validity of the provision on the continuing guaranty — which
we had earlier interpreted as a surety consistent with its contents and intention of the parties. The Court
upheld the validity of the provision despite the insistence of the surety that he should be released from liability
due to the failure of the creditor to register the mortgage. In particular, the Court decreed:

SOLIDBANK's failure to register the chattel mortgage did not release petitioner
from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound
itself to the contract irrespective of the existence of any collateral. It even released SOLIDBANK from
any fault or negligence that may impair the contract. The pertinent portions of the contract so
provides:

the undersigned (petitioner) who hereby agrees to be and remain bound upon this
guaranty, irrespective of the existence, value or condition of any collateral, and
notwithstanding any such change, exchange, settlement, compromise, surrender,
release, sale, application, renewal or extension, and notwithstanding also that all
obligations of the Borrower to you outstanding and unpaid at any time(s) may
exceed the aggregate principal sum herein above prescribed.

This is a Continuing Guaranty and shall remain in force and effect until written notice shall have been received
by you that it has been revoked by the undersigned, but any such notice shall not be released the
undersigned from any liability as to any instruments, loans, advances or other obligations hereby guaranteed,
which may be held by you, or in which you may have any interest, at the time of the receipt of such notice. No

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act or omission of any kind on your part in the premises shall in any event affect or impair this guaranty, nor
shall same be affected by any change which may arise by reason of the death of the undersigned, of any
partner(s) of the undersigned, or of the Borrower, or of the accession to any such partnership of any one or
more new partners.

Another illustrative case is Gateway Electronics Corporation and Geronimo delos Reyes v. Asianbank, in
which the surety similarly asked for his discharge from liability. He invoked the creditor's repeated extensions
of maturity dates to the principal debtor's request, without the surety's knowledge and consent. Still, this Court
ruled:

Such contention is unacceptable as it glosses over the fact that the waiver to be noticed of
extensions is embedded in surety document itself, built in the ensuing provision:

In case of default by any/or all of the DEBTOR(S) to paythe whole part of said
indebtedness herein secured at maturity,I/WE jointly and severally, agree and
engage to the CREDITOR, its successors and assigns, the prompt payment, without
demand or notice from said CREDITOR of such notes, drafts, overdrafts and other
credit obligations on which the DEBTOR(S) may now be indebted or may hereafter
become indebted to the CREDITOR, together with interest, penalty and other bank
charges as may accrue thereon and all expenses which may be incurred by the
latter in collecting any or all such instruments.

Cua Lai Chu v. Hon. Hilario L. Laqui

G.R. No. 1 691 90. February 11, 2010

In Bustos v. Court of Appeals, the Court simply ruled that the issue of possession was intertwined
with the issue of ownership in the consolidated cases of unlawful detainer and accion reinvindicatoria.
In Vda. De Legaspi v. Avendaño, the Court merely stated that in a case of unlawful detainer, physical
possession should not be disturbed pending the resolution of the issue of ownership. Neither case
involved the right to possession of a purchaser at an extrajudicial foreclosure of a mortgage.

Banco Filipino Savings andMortgage Bankv. Pardo squarely ruled on the right
to possession of a purchaser at an extrajudicial foreclosure of a mortgage. This case involved a real
estate mortgage as security for a loan obtained from a bank. Upon the mortgagor's default, the bank
extrajudicially foreclosed the mortgage. At the auction sale, the bank was the highest bidder. A
certiBcate of sale was duly issued and registered. The bank then applied for the issuance of a writ of
possession, which the lower court dismissed. The Court reversed the lower court and held that the
purchaser at the auction sale was entitled to a writ of possession pending the lapse of the
redemption period upon a simple motion and upon the posting of a bond.

In Navarra v. Court of Appeals, the purchaser at an extrajudicial foreclosure sale applied for a writ of
possession after the lapse of the one-year redemption period. The Court ruled that the purchaser at
an extrajudicial foreclosure sale has a right to the possession of the property even during the one-

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year redemption period provided the purchaser Bles an indemnity bond. After the lapse of the said
period with no redemption having been made, that right becomes absolute and may be demanded by
the purchaser even without the posting of a bond. Possession may then be obtained under a writ
which may be applied for exparte pursuant to Section 7 of Act No. 31 35, as amended by Act No. 41
1 8, thus:

SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the
Court of First Instance of the province or place where the property or any part thereof is
situated, to give him possession thereof during the redemption period, furnishing bond in an
amount equivalent to the use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under oath and Bled
in form of an ex parte motion . . . and the court shall, upon approval of the bond, order that a
writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.

Moreover, once ownership has been consolidated, the issuance of the writ of
possession becomes a ministerial duty of the court, upon proper application and proof of title.

The right of private respondent to the possession of the property was thus founded on its right
of ownership. As the purchaser of the property at the foreclosure sale, in whose name title
over the property was already issued, the right of private respondent over the property had
become absolute, vesting in it the corollary right of possession.

Any question regarding the validity of the extrajudicial foreclosure sale and the
resulting cancellation of the writ may be determined in a subsequent proceeding as outlined
in Section 8 of Act No. 31 35, as amended. Such question should not be raised as a
justification for opposing the issuance of a writ of possession since under Act No. 31 35, as
amended, the proceeding for this is exparte. Further, the right to possession of a purchaser at
an extrajudicial foreclosure sale is not affected by a pending case questioning the validity of
the foreclosure
proceeding. The latter is not a bar to the former. Even pending such latter proceeding, the
purchaser at a foreclosure sale is entitled to the possession of the foreclosed property.

Lastly, we rule that petitioners' claim of forum shopping has no basis. Under Act
No. 31 35, as amended, a writ of possession is issued ex parte as a matter of course upon
compliance with the requirements. It is not a judgment on the merits that can amount to res
judicata, one of the essential elements in forum shopping.

Sps. Ong v. Roban Lending Corporation

G.R. No. 172592. July 9, 2008

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

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The creditor cannot appropriate the things given by way of pledge or

mortgage, or dispose of them. Any stipulation to the contrary is null and void."

The elements of pactum commissorium, which enables the mortgagee to acquire

ownership of the mortgaged property without the need of any foreclosure
proceedings, are:

(1) there should be a property mortgaged by way of security for the payment of the
principal obligation, and

(2) there should be a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.

In a true dacion en pago, the assignment of the property extinguishes the monetary debt.

A summary judgment is permitted only if there is no genuine issue as to any material fact and a
moving party is entitled to a judgment as a matter of law. A summary judgment is proper if, while the
pleadings on their face appear to raise issues, the affidavits, depositions, and admissions presented
by the moving party show that such issues are not genuine. A genuine issue, as opposed to a
fictitious or contrived one, is an issue of fact that requires the presentation of evidence.

But neither is a judgment on the pleadings proper. A judgment on the pleadings may be rendered
only when an answer fails to tender an issue or otherwise admits the
material allegations of the adverse party's pleadings.

People’s Bank and Trust Co. v. Dahican Lumber Company

G.R. No. L-17500. May 16, 1967

1. REAL ESTATE MORTGAGE; STIPULATION INCLUDING IN THE LIEN AFTER ACQUIRED

PROPERTIES; VALIDITY THEREOF. — A stipulation including in the mortgage lien after acquired
properties is common and logical in all cases where the properties given as collateral are perishable
or subject to inevitable wear and tear or were intended to be sold, or to be used — thus becoming
subject to the inevitable wear and tear — but with the understanding that they shall be replaced with
others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its
obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the
properties given as securities.

2. ID.; ID.; ID.; MACHINERIES INTENDED FOR AN INDUSTRY; NATURE THEREOF. — Under
Articles 334 and 1 877 of the old Civil Code substantially reproduced in Articles 41 5 and 21 27
respectively of the new Civil Code, the properties in question being machinery, receptacles,
instruments or replacements intended by the owner of the tenement for an industry or works which
may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of the
said industry or
works, are classified as immovable properties, therefore not covered by the Chattel
Mortgage Law.

3. ID.; ID.; ID.; ID; ID.; SUPPLIERS NOT FINANCIERS CONSIDERED UNPAID SELLERS. —
Unpaid sellers who were the suppliers or vendors of the after acquired properties and not the

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financiers, like the defendants herein can claim a right superior to the lien constituted on said
properties by virtue of the deeds of mortgage under foreclosure.

4. ID.; ID.; ID.; ID.; ID.; FORECLOSURE PRIOR TO MATURITY OF PROMISSORY NOTE; WHEN
PROPER. — Although an extension of time was given to the debtor, considering that when this
complaint was Eled the debtor was insolvent, it follows that the debtor thereby lost the benefit of the
period unless he gives a guaranty or securityfor the debt (Art. 1 1 98, New Civil Code). Whereas in
this case the guaranty given was plainly inadequate, then the foreclosure was proper because the
collection of the notes were not premature.

(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil
Code (old) gives the character of real property to machinery, liquid containers, instruments or
replacements intended by the owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the requirements of such
trade or industry.

(2) In Cu Unjieng Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted
on a sugar central includes not only the land on which it is built but also the buildings, machinery and
accessories installed at the time the mortgage was constituted as well as the buildings, machinery
and accessories belonging to the mortgagor, installed after the constitution thereof.

In law, therefore, they must be deemed to have been immobilized, with the result that the real estate
mortgages involved herein — which were registered as such — did not have to be registered a
second time as chattel mortgages in order to bind the "after acquired properties" and affect third
parties.

The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the
present. In the former, the Davao Sawmill Company, Inc. had repeatedly treated the machinery
therein involved as personal property by executing chattel mortgages thereon in favor of third parties,
while in the present case the parties had treated the "after acquired properties" as real properties by
expressly and unequivocally agreeing that they shall automatically become subject to the lien of the
real estate mortgages executed by them. In the Davao Sawmill decision it was, in fact, stated that
"the characterization of the property as chattels by the appellant is indicative of intention and
impresses upon the property the character determined by the parties" (61 Phil. 71 2). In the present
case, the characterization of the "after acquired properties" as real property was made not only by
one but by both interested parties. There is, therefore, more reason to hold that such consensus
impresses upon the properties the character determined by the parties who must now be held in
estoppel to question it.

Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia Inc. (225 U.S.
58) where it was held that while under the general law of Puerto Rico machinery placed on property
by a tenant does not become immobilized, yet, when the tenant places it there pursuant to contract
that it shall belong to the owner, it then becomes immobilized as to that tenant and even as against
his
assignees and creditors who had sufficient notice of such stipulation. In the case at bar it is not
disputed that DALCO purchased the "after acquired properties" to be placed on, and be used in the
development of its lumber concession, and agreed further that the same shall become immediately
subject to the lien constituted by the questioned mortgages. There is also abundant evidence in the
record that DAMCO and CONNELL had full notice of such stipulation and had never thought of
disputing its validity until the present case was filed. Consequently, all of them must be deemed

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barred from
denying that the properties in question had become immobilized.

Makati Leasig and Finance Corporation v. Wearever Textile Mills Inc.

G.R. No. L-58469. May 16, 1983

1 . REMEDIAL LAW; PETITION FOR REVIEW; NOT RENDERED MOOT AND

ACADEMIC; WHERE RIGHT TO QUESTION DECISION, TIMELY RESERVED. — The contention of
private respondent is without merit. When petitioner returned the subject motor drive, it made itself
unequivocably clear that said action was without prejudice to a motion for reconsideration of the Court
of Appeals' decision, as shown by the receipt duly signed by respondent's representative.
Considering that petitioner has reserved its right to question the propriety of the Court of Appeals'
decision, the contention of private respondent that this petition has been mooted by such return may
not be sustained.

2. CIVIL LAW; PROPERTY; MACHINERY THOUGH IMMOBILIZED BY DESTINATION IF TREATED

BY THE PARTIES AS A PERSONALTY FOR PURPOSES OF A CHATTEL MORTGAGE LEGAL,
WHERE NO THIRD PARTY IS PREJUDICED. — The next and the more crucial question to be
resolved in this petition is whether the machinery in suit is real or personal property from the point of
view of the parties. Examining the records of the instance case, the Supreme Court found no logical
justification to exclude and rule out, as the appellate court did, the present case from the application
of the pronouncement in the TUMALAD v. VICENCIO CASE (41 SCRA 1 43) where a similar, if not
identical issue was raised. If a house of strong materials, like what was involved in the Tumalad case
may be considered as personal property for purposes of executing a chattel mortgage thereon as
long as the parties to the contract so agree and no innocent third party will be prejudiced thereby,
there is absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is really
because one who has so agreed is estopped from denying the existence of the chattel mortgage.

3. ID.; ID.; ID.; COURT SHOULD NOT MAKE DISTINCTIONS, WHERE THE LAWDOES NOT. — In
rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays
stress on the fact that the house involved therein was built on a land that did not belong to the owner
of such house. But the law makes no distinction with respect to the ownership of the land on which
the house is built and the Supreme Court should not lay down distinctions not contemplated by law.

4. ID.; ID.; ID.; CHARACTERIZATION OF PROPERTY, INDICATIVE OF THE INTENTION OF THE

PARTIES. — It must be pointed out that the characterization of the subject machinery as chattel by
the private respondent is indicative of intention and impresses upon the property the character
determined by the parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is
undeniable that the parties to a contract may by agreement treat as personal property that which by
nature would
be real property, as long as no interest of third parties would be prejudiced thereby.

5. CIVIL LAW; ESTOPPEL; REPRESENTING OR AGREEING ON THE CONSTITUTION OF A

PROPERTY AS CHATTEL; A CASE THEREOF. — Private respondent contends that estoppel
cannot apply against it because it had never represented nor agreed that the machinery in suit he
considered as personal property but was merely required and dictated on by herein petitioner to sign

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a printed form of chattel mortgage which was in a blank format the time of signing. This contention
lacks
persuasiveness. As aptly pointed out by petitioner and not denied by the respondent, the status of the
subject machine as movable or immovable was never placed in issue before the lower court and the
Court of Appeals except ins supplemental memorandum in support of the petition filed in the
appellate court.

6. ID.; CONTRACT; TREATING A MACHINERY AS A CHATTEL; AGREEMENT DEEMED VALID

UNLESS ANNULLED OR VOIDED IN A PROPER ACTION. — Moreover, even granting that the
charge is true, such fact alone does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable or annullable pursuant to Article 1 390 of the new Civil Code, by a
proper action in court. There is nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same.

7. ID.; ID.; UNDUE BENEFIT OVER A CONTRACT AT THE EXPENSE OF ANOTHER NOT
COUNTENANCED BY EQUITY. — On the other hand, as pointed out by petitioner and again not
refuted by respondent, the latter has indubitably benefited from said contract. Equity dictates that one
should not benefit at the expense of another. Private respondent could not now therefore, he allowed
to impugn the efficacy of the chattel mortgage after it has benefited therefrom.

Victoria Yao Chu v. CA

G.R. No. 78519. September 26, 1989

The Court of Appeals found that the deeds of assignment were contracts of pledge, but, as the
collateral was also money or an exchange of "peso for peso," the provision in Article 21 1 2 of the
Civil Code for the sale of the thing pledged at public auction to convert it into money to satisfy the
pledgor's obligation, did not have to be followed. All that had to be done to convert the pledgor's time
deposit certificates into cash was to present them to the bank for encashment after due notice to the
debtor.

The encashment of the deposit certificates was not a pacto commissorio which is prohibited under
Art. 2088 of the Civil Code. A pacto commissorio is a provision for the automatic appropriation of the
pledged or mortgaged property by the creditor in payment of the loan upon its maturity. The
prohibition against a pacto commissorio is intended to protect the obligor, pledgor, or mortgagor
against being overreached by his creditor who holds a pledge or mortgage over property whose value
is much more than the debt. Where, as in this case, the security for the debt is also money deposited
in a bank, the amount of which is even less than the debt, it was not illegal for the creditor to encash
the time deposit certificates to pay the debtors' overdue obligation, with the latter's consent.

Perefecto Dy Jr v. CA
G.R. No. 92989. July 8, 1 991

1 . CIVIL LAW; SPECIAL CONTRACTS; CHATTEL MORTGAGE; RIGHT OF MORTGAGOR TO

SELL THE PROPERTY MORTGAGED; RULE. — The mortgagor who gave the property as security
under a chattel mortgage did not part with the ownership over the same. He had the right to sell it
although he was under the obligation to secure the written consent of the mortgagee or he lays
himself open to criminal prosecution under the provision of Article 319 par. 2 of the Revised Penal
Code. And even if no consent was obtained from the mortgagee, the validity of the sale would still not
be affected.

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2. ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. — We see no reason why Wifredo Dy, as the
chattel mortgagor can not sell the subject tractor. There is no dispute that the consent of Libra
Finance was obtained in the instant case. In a letter dated August 27, 1979, Libra allowed the
petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale between the
brothers was therefore valid and binding as between them and to the mortgagee, as well.

3. ID.; ID.; ID.; REMEDY OF MORTGAGEE IN CASE MORTGAGOR FAILED TO PAY THE DEBT.
— It was Libra Finance which was in possession of the subject tractor due to Wilfredo's failure to pay
the amortization as a preliminary step to foreclosure. As mortgagee, he has the right of foreclosure
upon default by the mortgagor in the performance of the conditions mentioned in the contract of
mortgage. The law implies that the mortgagee is entitled to possess the mortgaged property because
possession is necessary in order to enable him to have the property sold. While it is true that Wilfredo
Dy was not in actual possession and control of the subject tractor, his right of ownership was not
divested from him upon his default. Neither could it be said that Libra was the owner of the subject
tractor because the mortgagee cannot become the owner of or convert and appropriate to himself the
property mortgaged (Article 2088, Civil Code). Said property continues to belong to the mortgagor.
The only remedy given to the mortgagee is to have said property sold at public auction and the
proceeds of the sale applied to the payment of the obligation secured by the mortgagee (See
Martinez vs. PNB, 93 Phil. 765, 767 [1 953]). There is no showing that Libra Finance has already
foreclosed the mortgage and that it was the new owner of the subject tractor. Undeniably, Libra gave
its consent to the sale of the subject tractor to the petitioner. It was aware of the transfer of rights to
the petitioner.

4. ID.; ID.; ID.; PURCHASER OF MORTGAGED PROPERTY STEPS INTO THE SHOES OF THE
MORTGAGOR. — Where a third person purchases the mortgaged property, he automatically steps
into the shoes of the original mortgagor (See Industrial Finance Corp. vs. Apostol, 1 77 SCRA 521 [1
989]). His right of ownership shall be subject to the mortgage of the thing sold to him. In the case at
bar, the petitioner was fully aware of the existing mortgage of the subject tractor to Libra. In fact,
when he was obtaining Libra's consent to the sale, he volunteered to assume the remaining balance
of the mortgage debt of Wilfredo Dy which Libra undeniably agreed to.

5. ID.; ID.; SALE; DELIVERY OF PROPERTY VESTS OWNERSHIP TO THE VENDEE. — Article 1
496 of the Civil Code states that the ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Articles 1497 to 1501 or in any other
manner signifying an agreement that the possession is transferred from the vendor to the vendee. We
agree with the petitioner that Articles 1498 and 1499are applicable in the case at bar.

6. ID.; ID.; ID.; ID.; RULE ON CONSTRUCTIVE DELIVERY. — In the instant case, actual delivery of
the subject tractor could not be made. However, there was constructive delivery already upon the
execution of the public instrument pursuant to Article 1 498 and upon the consent or agreement of the
parties when the thing sold cannot be immediately transferred to the possession of the vendee
(Article 1 499).

7. ID.; ID.; ID.; CONSUMMATION OF SALE; NOT DEPENDENT ON THE ENCASHMENT OF

CHECK. — The payment of the check was actually intended to extinguish the mortgage obligation so
that the tractor could be released to the petitioner. It was never intended nor could it be considered as
payment of the purchase price because the relationship between Libra and the petitioner is not one of
sale but still a mortgage. The clearing or encashment of the check which produced the effect of
payment determined the full payment of the money obligation and the release of the chattel
mortgage. It was not determinative of the consummation of the sale. The transaction between the
brothers is distinct and apart from the transaction between Libra and the petitioner. The contention,

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therefore, that the consummation of the sale depended upon the encashment of the check is
untenable.

8. REMEDIAL LAW; CIVIL PROCEDURE; EXECUTION OF JUDGMENT; EXTENDS ONLY OVER

PROPERTIES BELONGING TO THE JUDGMENT DEBTOR NOT EXEMPT BY LAW. — The sale of
the subject tractor was consummated upon the execution of the public instrument on September 4, 1
979. At this time constructive delivery was already effected. Hence, the subject tractor was no longer
owned by Wilfredo Dy when it was levied upon by the sheriff in December, 1 979. Well settled is the
rule that only properties unquestionably owned by the judgment debtor and which are not exempt by
law from execution should be levied upon or sought to be levied upon. For the power of the court in
the execution of its judgment extends only over properties belonging to the judgment debtor
(Consolidated Bank and Trust Corp. vs. Court of Appeals, G.R. No. 78771 , January 23, 1 991 ).

9. ID.; EVIDENCE; FRAUD; MUST BE ESTABLISHED BY CLEAR CONVINCING EVIDENCE. —

There is no sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and
creditors. While it is true that Wilfredo and Perfecto are brothers, this fact alone does not give rise to
the presumption that the sale was fraudulent. Relationship is not a badge of fraud (Goquiolay vs.
Sycip, 9 SCRA 663 [1 963]). Moreover, fraud cannot be presumed; it must be established by clear
convincing evidence.

Manuel D. Medida v. CA
G.R. No. 98334. May 8, 1 992

1 . REMEDIAL LAW; CIVIL PROCEDURE; EXECUTION OF JUDGMENT; REDEMPTIONER;

DEFINED. — A redemptioner is defined as a creditor having a lien by attachment, judgment or
mortgage on the property sold, or on some part thereof, subsequent to the judgment under which the
property was sold. Of course, while in extrajudicial foreclosure the sale contemplated is not under a
judgment but the proceeding pursuant to which the mortgaged property was sold, a subsequent
mortgage could nevertheless be legally constituted thereafter with the subsequent mortgagee
becoming and acquiring the rights of a redemptioner, aside from his right against the mortgagor.

2. ID.; ID.; APPEAL; EFFECT ON PARTY NOT APPEALING FROM THE DECISION OF
THELOWER COURT. — An appellee who has not himself appealed cannot obtain from the appellate
court any affirmative relief other than the ones granted in the decision of the court below. He cannot
impugn the correctness of a judgment not appealed from by him. He cannot assign such errors as are
designed to have the judgment modified. All that said appellee can do is to make a counter-
assignment of errors or to argue on issues raised at the trial only for the purpose of sustaining the
judgment in his favor, even on grounds not included in the decision of the court aquo nor raised in the
appellant's assignment of errors or arguments.

3. CIVIL LAW; SPECIAL CONTRACTS; MORTGAGE; RIGHT OF ABSOLUTE OWNERSHIP OVER

THE MORTGAGED PROPERTY BY MORTGAGOR; REMAINS DURING THE PERIOD OF
REDEMPTION. — Since the mortgagor remains as the absolute owner of the property during the
redemption period and has the free disposal of his property, there would be compliance with the
requisites of Article 2085 of the Civil Code for the constitution of another mortgage on the property.
To hold otherwise would create the inequitable situation wherein the mortgagor would be deprived of
the opportunity, which may be his last recourse, to raise funds wherewith to timely redeem his
property through another mortgage thereon. Coming back to the present controversy, it is undisputed
that the real estate mortgage in favor of petitioner bank was executed by respondent spouses during
the period of redemption. We reiterate that during said period it cannot be said that the mortgagor is
no longer the owner of the foreclosed property since the rule up to now is that the right of a purchaser

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at a foreclosure sale is merely inchoate until after the period of redemption has expired without the
right being exercised. The title to land sold under mortgage foreclosure remains in the mortgagor or
his grantee until the expiration of the redemption period and conveyance by the master's deed. To
repeat, the rule has always been that it is only upon the expiration of the redemption period, without
the judgment debtor having made use of his right of redemption, that the ownership of the land sold
becomes consolidated in the purchaser. Parenthetically, therefore, what actually is effected where
redemption is seasonably exercised by the judgment or mortgage debtor is not the recovery of
ownership of his land, which ownership he never lost, but the elimination from his title thereto of the
lien created by the levy on attachment or judgment or the registration of a mortgage thereon. The
American rule is similarly to the effect that the redemption of property sold under a foreclosure sale
defeats the inchoate right of the purchaser and restores the property to the same condition as if no
sale had been attempted. Further, it does not give to the mortgagor a new title, but merely restores to
him the title freed of the encumbrance of the lien foreclosed.
Development Bank of the Philippines v. CA
G.R. No. 118342. January 5, 1998

1 . CIVIL LAW; OBLIGATIONS AND CONTRACTS; MORTGAGE; AN ASSIGNMENT TO

GUARANTEE AN OBLIGATION IS VIRTUALLY A MORTGAGE; CASE AT BAR. — We agree with
CUBA that the assignment of leasehold rights was a mortgage contract. Simultaneous with the
execution of the notes was the execution "Assignments of Leasehold Rights" where CUBA assigned
her leasehold rights and interest on a 44- hectare fishpond, together with the improvements thereon.
As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as
"borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage
contract. Moreover, under condition No. 22 of the deed, it was provided that "failure to comply with
the terms and condition of any of the loans shall cause all other loans to become due and
demandable and all mortgages shall be foreclosed." And, condition No. 33 provided that if
"foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of
the total obligation shall be imposed." There is, therefore, no shred of doubt that a mortgage was
intended. In People's Bank & Trust Co. vs. Odom, this Court had the occasion to rule that an
assignment to guarantee an obligation is in effect as mortgage.

2. ID.; ID.; ID.; ASSIGNMENT OF RIGHTS COMPLEMENTED AND DID NOT

NOVATE THE PROMISSORY NOTES. — We ?nd no merit in DBP's contention that the assignment
novated the promissory notes in that the obligation to pay a sum of money the loans (under the
promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed
of assignment). As correctly pointed out by CUBA, the said assignment merely complemented or
supplemented the notes; both could stand together. The former was only an accessory to the latter.
Contrary to DBP's submission, the obligation to pay a sum of money remained, and the assignment
merely served as security for the loans were granted. Also, the last paragraph of the
assignment stated: "The assignor further reiterates and states all terms, covenants, are conditions
stipulated in the promissory note or notes covering the proceeds of this loan, making said promissory
note or notes, to all intent and purposes, an integral part hereof".

3. ID.; ID.; PAYMENT BY CESSION; DOES NOT APPLY WHERE THERE IS ONLY ONE
CREDITOR. — Neither did the assignment amount to payment by cession under Article 1 255 of the
Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article 1 255
contemplates the existence of two or more creditors and involves the assignment of all the debtor's
property.

4. ID.; ID.; DATION IN PAYMENT; DOES NOT APPLY WHERE ASSIGNMENTWAS A MERE
SECURITY AND NOT IN SATISFACTION OF INDEBTEDNESS. — Nor did the assignment
constitute dation in payment under Article 1 245 of the Civil Code, which reads: "Dation in payment,

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whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by
the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was but a
security and not a satisfaction of indebtedness.

5. ID.; ID.; PACTUM COMMISSORIUM; ELEMENTS. — The elements of pactum commissorium are
as follows: (1) there should be a property mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of
the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.

6. ID.; ID.; ID.; NOT PRESENT WHERE THERE IS NO AUTOMATIC APPROPRIATION BY THE
CREDITOR OF THE THING MORTGAGED; CASE AT BAR. — Condition No. 1 2 did not provide that
the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay
the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority,
among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA,
and to apply the proceeds to the payment of the loan. This provision is a standard condition in
mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the
mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the
principal obligation. DBP, however, exceeded the authority vested by condition No. 1 2 of the deed of
assignment. As admitted by it during the pre-trial, it had "[w]ithout, foreclosure proceedings, whether
judicial or extrajudicial . . . appropriated the [l]easehold rights of plaintiff Lydia Cuba over the fishpond
in question." Its contention that it limited itself to mere administration by posting caretakers is further
belied by the deed of conditional sale it executed in favor of CUBA. DBP cannot take refuge in
condition No. 1 2 of the deed of assignment to justify its act of appropriating the leasehold rights. As
stated earlier, condition No. 12 did not provide that CUBA's default would operate to vest in DBP
ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present
case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the
assignee.

7. ID.; ID.; MORTGAGE; CREDITOR CANNOT APPROPRIATE THE THING GIVEN AS SECURITY;
CASE AT BAR. — At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of
Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of the thing
given as security for the payment of a debt. Instead of taking ownership of the questioned real rights
upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in
condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure.
Yet, in its letter dated 26 October 1 997, addressed to the Minister of Agriculture and Natural
Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP
declared that it "had foreclosed the mortgage and enforced the assignment of leasehold rights on
March 21 , 1 979 for failure of said spouses (CUBA spouses) to pay their loan amortizations." This
only goes to show that DBP was aware of the necessity of foreclosure proceedings. In view of the
false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries
cancelled CUBA's original lease permit, approved the deed of conditional sale, and issued a new
permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the
subsequent acts emanating from DBP's appropriation of the leasehold rights, should therefore be set
aside. To validate these acts would open the Loodgates to circumvention of Article 2088 of the Civil
Code. Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify
the consequent auction sale for failure to comply with the requirements laid down by law, such as Act
No. 31 35, as amended. With more reason that the sale of property given as security for the payment
of a debt be set aside if there was no prior foreclosure proceeding.

8. REMEDIAL LAW; ACTIONS; ESTOPPEL; CANNOT GIVE VALIDITY TO AN ACT PROHIBITED

BY LAW. — The fact that CUBA offered and agreed to purchase her leasehold rights from DBP did

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not stop her from questioning DBP's act of appropriation. Estoppel is unvailing in this case as held by
this Court in some cases estoppel cannot give validity to an act that is prohibited by law or against
public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the
Civil Code and to public policy, cannot be deemed validated by estoppel.

9. CIVIL LAW; DAMAGES; ACTUAL OR COMPENSATORY DAMAGES; MUST BE DULY PROVED.

— Actual or compensatory damages cannot be presumed, but must be proved with reasonable
degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and
amount of damages, but must dependupon competent proof that they have been suffered by the
injured party and on the best obtainable evidence of the actual amount thereof. It must point out
specific facts which
could afford a basis for measuring whatever compensatory or actual damages' are borne.

10. ID.; ID.; ID.; ID.; CASE AT BAR. — In the present case, the trial court awarded in favor of CUBA
P1 ,067,500 as actual damages consisting of P550,000which represented the value of the alleged
lost articles of CUBA and P51 7,500 which represented the value of the 230,000 pieces of bangus
allegedly stocked in 1 979 when DBP first ejected CUBA from the fishpond and the adjoining house.
This award was affirmed by the Court of Appeals. We find that the alleged loss of personal
belongings
and equipment was not proved by clear evidence. Other than the testimony of CUBA and her
caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in
question. With regard to the award of P51 7,000 representing the value of the alleged 230,000 pieces
of bangus which died when DBP took possession of the fishpond in March 1 979, the same was not
called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably.
From 1 979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the
attention of DBP the alleged loss. The award of actual damages should, therefore, be struck down for
lack of sufficient basis.

11 . ID.; ID.; MORAL DAMAGES; AWARD PROPER WHERE ASSAILED ACT IS CONTRARY TO
LAW. — In view, however, of DBP's act of appropriating CUBA's leasehold rights which was contrary
to law and public policy, as well as its false representation to the then Ministry of Agriculture and
Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the amount
of P50,000 is in order conformably with Article 221 9(1 0), in relation to Article 21 , of the Civil Code.

12. ID.; ID.; EXEMPLARY OR CORRECTIVE DAMAGES; AWARDED IN CASE AT BAR. —

Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of
example or correction for the public good.

13. ID.; ID.; ATTORNEY'S FEE; RECOVERABLE WHERE THERE IS AWARD OF

EXEMPLARY DAMAGES. — There being an award of exemplary damages, attorney's fees are also
recoverable.

E. Zobel, Inc. v. CA
G.R. No. 113931. May 6, 1998

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF GUARANTY AND CONTRACT

OF SURETY; DISTINGUISHED. — A contract of surety is an accessory promise by which a person
binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the
debtor does not. A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt
of another in case the latter does not pay the debt. Strictly speaking, guaranty and surety are nearly
related, and many of the principles are common to both. However, under our civil law, they may be

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distinguished thus: A surety is usually bound with his principal by the same instrument, executed at
the same time, and on the same consideration. He is an original promissor and debtor from the
beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be
discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the
default of the principal, no matter how much he may be injured thereby. On the other hand, the
contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join.
It is usually entered into before or after that of the principal, and is often supported on a separate
consideration from that supporting the contract of the principal. The original contract of his principal is
not his contract, and he is not bound to take notice of its non-performance. He is often discharged by
the mere indulgence of the creditor to the principal, and is usually not liable unless noti7ed of the
default of the principal. Simply put, a surety is distinguished from a guaranty in that a guarantor is the
insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay
while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.

2. ID.; ID.; CONTRACT OF SURETY; CASE AT BAR. — Based on the aforementioned de7nitions, it
appears that the contract executed by petitioner in favor of SOLIDBANK, albeit denominated as a
"Continuing Guaranty," is a contract of surety. The terms of the contract categorically obligates
petitioner as "surety" to induce SOLIDBANK to extend credit to respondent spouses. The contract
clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking
and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with
the respondent spouses. In fact, SOLIDBANK need not resort to all other legal remedies orexhaust
respondent spouses' properties before it can hold petitioner liable for the obligation.

3. ID.; ID.; ID.; THE USE OF THE TERM "GUARANTEE" DOES NOT IPSO FACTO MEAN THAT
THE CONTRACT IS ONE OF GUARANTY. — The use of the term "guarantee" does not ipso facto
mean that the contract is one of guaranty. Authorities recognize that the word "guarantee" is
frequently employed in business transactions to describe not the security of the debt but an intention
to be bound by a primary or independent obligation. As aptly observed by the trial court, the
interpretation of a contract is not limited to the title alone but to the contents and intention of the
parties.

4. ID.; ID.; ARTICLE 2080 OF THE CIVIL CODE NOT APPLICABLE. — Having thus established that
petitioner is a surety, Article 2080 of the Civil Code, relied upon by petitioner, 7nds no application to
the case at bar. In Bicol Savings and Loan Saving Association vs. Guinhawa, we have ruled that
Article 2080 of the New Civil Code does not apply where the liability is as a surety, not as a
guarantor.

5. ID.; ID.; PETITIONER NOT RELEASED FROM OBLIGATION; CASE AT BAR. — But even
assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel mortgage did not
release petitioner from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK,
petitioner bound itself to the contract irrespective of the existence of any collateral. It even released
SOLIDBANK from any fault or negligence that may impair the contract.

Acme Shoe and Rubber and Plastic Corp. v. CA

G.R. No. 1 03576. August 22, 1 996

1 . REMEDIAL LAW; ACTIONS; APPEALS; APPEAL FROM JUDGMENT OF LOWER COURTS,

NOT A MATTER OF RIGHT BUT OF SOUND JUDICIAL DISCRETION. — Except in criminal cases
where the penalty of reclusion perpetua or death is imposed which the Court so reviews as a matter
of course, an appeal from judgments of lower courts is not a matter of right but of sound judicial

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discretion. The circulars of the Court prescribing technical and other procedural requirements are
meant to weed out unmeritorious petitions that can unnecessarily clog the docket and needlessly
consume the time of the Court. These technical and procedural rules, however, are intended to help
secure, not suppress, substantial justice. A deviation from the rigid enforcement of the rules may thus
be allowed to attain the prime objective for, after all, the dispensation of justice is the core reason for
the existence of courts.

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS OF SECURITY, CONSTRUED. —

Contracts of security are either personal or real. In contracts of personal security, such as a guaranty
or a suretyship, the faithful performance of the obligation by the principal debtor is secured by the
personal commitment of another (the guarantor or surety). In contracts of real security, such as a
pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property — in
pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the
execution of the corresponding deed substantially in the form prescribed by law; in real estate
mortgage, by the execution of a public instrument encumbering the real property covered thereby;
and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an
immovable property with the obligation to apply such fruits to the payment of interest, if owing, and
thereafter to the principal of his credit — upon the essential condition that if the principal obligation
becomes due and the debtor defaults, then the property encumbered can be alienated for the
payment of the obligation, but that should the obligation be duly paid, then the contract is
automatically extinguished proceeding from the accessory character of the agreement. As the law so
puts it, once the obligation is complied with, then the contract of security becomes, ipso facto, null
and void

3. ID.; ID.; CONTRACTS OF SECURITY; CHATTEL MORTGAGE; COVERS OBLIGATION

EXISTING AT TIME MORTGAGE IS CONSTITUTED; EFFECT OF PROMISE TO INCLUDE DEBTS
THAT ARE TO BE CONTRACTED. — While a pledge, real estate mortgage, or antichresis may
exceptionally secure after-incurred obligations so long as these future debts are accurately described,
a chattel mortgage, however, can only cover obligations existing at the time the mortgage is
constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be
contracted can be a binding commitment that can be compelled upon, the security itself, however,
does not come into existence or arise until after a chattel mortgage agreement covering the newly
contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal on the part of
the borrower to execute the agreement so as to cover the after incurred obligation can constitute an
act of default on the part of the borrower of the financing agreement whereon the promise is written
but, of course, the remedy of foreclosure can only cover the debts extant at the time of constitution
and during the life of the chattel mortgage sought to be foreclosed. In the chattel mortgage here
involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan
which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the
payment of the obligation automatically rendered the chattel mortgage void or terminated. (Belgian
Catholic Missionaries, Inc ., vs. Magallanes Press, Inc., et al .) The significance of the ruling to the
instant problem would be that since the 1 978 chattel mortgage had ceased to exist coincidentally
with the full payment of the P3,000,000.00 loan, there no longer was any chattel mortgage that could
cover the new loans that were concluded thereafter.

4. ID.; CHATTEL MORTGAGE LAW; EXECUTION OF AFFIDAVIT OF GOOD

FAITH, A CLEAR MANIFESTATION THAT DEBT REFERRED TO IS CURRENT. — A chattel
mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the
Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good
faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel
mortgage would still be valid between the parties (not against third persons acting in good faith), the

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fact, however, that the statute has provided that the parties to the contract must execute an oath
makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely
contemplated.

5. ID.; DAMAGES; MORAL DAMAGES; NOT RECOVERABLE BY A JURIDICAL PERSON. — We

find no merit in petitioner corporation's other prayer that the case should be remanded to the trial
court for a specific finding on the amount of damages it has sustained "as a result of the unlawful
action taken by respondent bank against it." This prayer is not reflected in its complaint which has
merely asked for the amount of P3,000,000.00 by way of moral damages. In LBC Express, Inc . vs.
Court of Appeals , we have said: "Moral damages are granted in recompense for physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical
suffering and mental anguish. Mental suffering can be experienced only be one having a nervous
system and it flows from real ills, sorrows, and griefs of life — all of which cannot be suffered by
respondent bank as an artificial person." While Chua Pac is included in the case, the complaint,
however, clearly states that he has merely been so named as a party in representation of petitioner
corporation.

6. LEGAL ETHICS; ATTORNEYS; SHOULD BE CIRCUMSPECT IN DEALING WITH COURTS. —

Petitioner corporation's counsel could be commended for his zeal in pursuing his client's cause. It
instead turned out to be, however, a source of disappointment for this Court to read in petitioner's
reply to private respondent's comment on the petition his so-called "One Final Word;" viz: "In simply
quoting in toto the patently erroneous decision of the trial court, respondent Court of Appeals should
be required to justify its decision which completely disregarded the basic laws on obligations and
contracts, as well as the clear provisions of the Chattel Mortgage Law and well-settled jurisprudence
of this Honorable Court; that in the event that its explanation is wholly unacceptable, this Honorable
Court should impose appropriate sanctions on the erring justices. This is one positive step in ridding
our courts of law of incompetent and dishonest magistrates especially members of a superior court of
appellate jurisdiction. The statement is not called for. The Court invites counsel's attention to the
admonition in Guerrero vs. Villamor; thus: "(L)awyers . . . should bear in mind their basic duty 'to
observe and maintain the respect due to the courts of justice and judical officers and . . . (to) insist on
similar conduct by others.' This respectful attitude towards the court is to be observed, 'not for the
sake of the temporary incumbent of the judical office, but for the maintenance of its supreme
importance.' And it is 'through a scrupulous preference for respectful language that a lawyer best
demonstrates his observance of the respect due to the courts and judicial officers . . .'" The virtues of
humility and of respect and concern for others must still live on even in an age of materialism. Atty.
Francisco R. Sotto, counsel for petitioners, is admonished to be circumspect in dealing with the
courts.

Servicewide Specialist Inc. v. CA

G.R. No. 116363. December 10, 1999

1 . CIVIL LAW; CHATTEL MORTGAGE; ASSIGNEE'S CONSENT IS NECESSARY INORDER TO

BIND HIM OF THE ALIENATION OF THE MORTGAGED THING BY THE DEBTORMORTGAGOR.
— When the credit was assigned to petitioner, only notice to but not the consent of the debtor-
mortgagor was necessary to bind the latter. Applying Article 1627 of the Civil Code, the assignment
made to petitioner includes the accessory rights such as the mortgage. Article 2141, on the other
hand, states that the provisions concerning a contract of pledge shall be applicable to a chattel
mortgage, such as the one at bar, insofar as there is no conflict with Act No. 1 508, the Chattel
Mortgage Law. As provided in Article 2096 in relation to Article 21 41 of the Civil Code, a thing

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pledged may be alienated by the pledgor or owner "with the consent of the pledgee." This provision is
in accordance with Act No. 1508 which provides that "a mortgagor of personal property shall not sell
or pledge such property, or any part thereof, mortgaged by him without the consent of the mortgagee
in writing on the back of the mortgage and on the margin of the record thereof in the place where
such mortgage is recorded." Although this provision in the chattel mortgage has been expressly
repealed by Article 367 of the Revised Penal Code, yet under Article 31 9 (2) of the same Code, the
sale of the thing mortgaged may be made provided that the mortgagee gives his consent and that the
same is recorded. In any case, applying by analogy Article 21 28 of the Civil Code to a chattel
mortgage, it appears that a mortgage credit may be alienated or assigned to a third person. Since the
assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel was
mortgaged, it follows that the assignee's consent is necessary in order to bind him of the alienation of
the mortgaged thing by the debtor-mortgagor. This is tantamount to a novation. As the new assignee,
petitioner's consent is necessary before respondent spouses' alienation of the vehicle can be
considered as binding against third persons. Petitioner is considered a third person with respect to
the sale with mortgage between respondent spouses and third party defendant Conrado Tecson.

2. REMEDIAL LAW; EVIDENCE; IN CIVIL CASES, THE BURDEN IS ON THE PARTY WHO
WOULD BE DEFEATED IF NO EVIDENCE IS GIVEN ON EITHER SIDE. — When Tecson
Enterprises assigned the promissory note and the chattel mortgage to Filinvest, it was made with
respondent spouses' tacit approval. When Filinvest in turn, as assignee, assigned it further to
petitioner, the latter should have noticed the respondent spouses of the assignment in order to bind
them. This, they failed to do. The testimony of petitioner's witness that notice of assignment was sent
to respondent spouses was stricken off the record. Having asserted the affirmative on the issue of
notice, petitioner should have substantiated its allegations in order to obtain a favorable judgment. In
civil cases, the burden is on the party who would be defeated if no evidence is given on either side.
Being the plaintiff in the trial below, petitioner must establish its case, relying on the strength of its
own evidence and not upon the weakness of that of its opponent. The consent to the assignment
given by respondent spouses to Filinvest cannot be construed as the spouses' knowledge of the
assignment to petitioner precisely because at the time of the assignment to the latter, the spouses
had earlier sold the vehicle to another.

Sps. Bonifacio v. Dra. Abdulia C. Rodriguez

G.R. No. 1 32287. January 24, 2006

1 . CIVIL LAW; PLEDGE; EXTRAJUDICIAL SALE OF PLEDGED PROPERTY

DISTINGUISHED FROM JUDICIAL SALE. — Preliminary, it must be clarified that the subject sale of
pledged shares was an extrajudicial sale, specifically a notarial sale, specifically a notarial sale, as
distinguished from a judicial sale as typified by an execution sale. Under the Civil Code, the
foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All the creditor needs
to do, if the credit has not been satisfied in due time, is to proceed before a Notary Public to the sale
of the thing pledged.

2. ID.; ID.; THERE IS NO LAW WHICH VESTS THE RIGHT OF REDEMPTION OVER PERSONAL
PROPERTY SOLD EXTRAJUDICIALLY; JUSTIFIED. — The right of redemption as affirmed under
Rule 39 of the Rules of Court applies only to execution sales, more precisely execution sales of real
property. The right to redeem property sold as security for the satisfaction of an unpaid obligation
does not exist preternaturally. Neither is it predicated on proprietary right, which, after the sale of
property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is a bare
statutory privilege to be exercised only by the persons named in the statute. The right of redemption
over mortgaged real property sold extrajudically is established by Act No. 31 35, as amended. The
said law does not extend the same bene?t to personal property. In fact, there is no law in our statute

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books which vests the right of redemption over personal property. Act No. 1 508, 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. Obviously, since there is no right to
redeem personal property, the rights of ownership vested unto the purchaser at the foreclosure sale
are not entangled in any suspensive condition that is implicit in a redemptive period.

3. ID.; ID.; EXTRAJUDICIAL SALE OF PLEDGED PROPERTY; CONDUCT IN CASE TWO OR

MORE THINGS ARE PLEDGED, EXPLAINED. — Under the Civil Code, it is the pledgee, and not the
pledgor, who is given the right to choose which of the items should be sold if two or more things are
pledged. No similar option is given to pledgors under the Civil Code. Moreover, there is nothing in the
Civil Code provisions governing the extrajudicial sale of pledged properties that prohibits the pledges
of several different pledge contracts from auctioning all of the pledged properties on a single
occasion, or from the buyer at the auction sale in purchasing all the pledged properties with a single
purchase price. The relative insignificance of ascertaining the definite apportionments of the sale
price to the individual shares lies in the fact that once a pledged item is sold at auction, neither the
pledgee nor the pledgor can recover whatever deficiency or excess there may be between the
purchase price and the amount of the principal obligation. A different ruling though would obtain if at
the auction, a bidder expressed the desire to bid on a determinate number or portion of the pledged
shares. In such a case, there may lie the need to ascertain with particularity which of the shares are
covered by the bid price, since not all of the shares may be sold at the auction and correspondingly
not all of the pledge contracts extinguished. The same situation also would lie if one or some of the
owners of the pledged shares participated in the auction, bidding only on their respective pledged
shares.

4. ID.; ID.; RIGHT OF CREDITOR TO RETAIN POSSESSION OF PLEDGED ITEM

EXISTS ONLY UNTIL THE DEBT IS PAID. — There is no doubt that if the principal obligation is
satisfied, the pledges should be terminated as well. Article 2098 of the Civil Code provides that the
right of the creditor to retain possession of the pledged item exists only until the debt is paid. Article
21 05 of the Civil Code further clari?es that the debtor cannot ask for the return of the thing pledged
against the will of the creditor, unless and until he has paid the debt and its interest. At the same time,
the right of the pledgee to foreclose the pledge is also established under the Civil Code. When the
credit has not been satisfied in due time, the creditor may proceed with the sale by public auction
under the procedure provided under Article 2112 of the Code.

Pameca Wood Treatment Plant Inc. v. CA

G.R. No. 106435. July 14, 1999

1 . CIVIL LAW; CHATTEL MORTGAGE LAW (ACT NO. 1 508, AS AMENDED);

DEBTOR-MORTGAGOR BARRED FROM RETAINING EXCESS OF SALE PROCEEDS AND
OBLIGED TO PAY DEFICIENCY IN CASE OF REDUCTION IN PRICE AT PUBLIC AUCTION. — It
is clear from Section 1 4 of Act No. 1 508, as amended that the effects of foreclosure under the
Chattel Mortgage Law run inconsistent with those of pledge under Article 21 1 5. Whereas, in pledge,
the sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may no
longer recover proceeds of the sale in excess of the amount of the principal obligation, Section 1 4 of
the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon
satisfaction of the principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-
mortgagee from retaining the excess of the sale proceeds there is a corollary obligation on the part of
the debtor-mortgagee to pay the deficiency in case of a reduction in the price at public auction.
(Manila Trading and Supply Co. vs. Tamaraw Plantation Co., cited in Ablaza vs. Ignacio, G.R. No. L-

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11466, May 23, 1958 [unpublished]). We find no reason to disturb the ruling in Ablaza vs. Ignacio,
and the cases reiterating. it.

2. ID.; CIVIL LAW; ARTICLE 1 484 CLEARLY APPLIES TO SALE OF PERSONAL PROPERTY IN
INSTALLMENT BASIS. — Neither do We find tenable the application by analogy of Article 1 484 of
the Civil Code to the instant case. As correctly pointed out by the trial court, the said article applies
clearly and solely to the sale of personal property the price of which is payable in installments.
Although Article 1 484, paragraph (3) expressly bars any further action against the purchaser to
recover an unpaid balance of the price, where the vendor opts to foreclose the chattel mortgage on
the thing sold, should the vendee's failure to pay cover two or more installments, this provision is
specifically applicable to sale on installments.

3. ID.; EQUITY; APPLIED ONLY IN ABSENCE OF STATUTORY LAW OR JUDICIAL RULES OF

PROCEDURE. — To accommodate petitioners' prayer even on the basis of equity would be to
expand the application of the provisions of Article 1 484 to situations beyond its specific purview, and
ignore the language and intent of the Chattel Mortgage Law. Equity, which has been aptly described
as "justice outside legality", is applied only in the absence of, and never against, statutory law or
judicial rules of procedure.

4. REMEDIAL LAW; ACTIONS; APPEALS; PARTIES MAY NOT BRING ON APPEAL ISSUES NOT
RAISED ON TRIAL. — We are also unable to find merit in petitioners' submission that the public
auction sale is void on grounds of fraud and inadequacy of price. Petitioners never assailed the
validity of the sale in the RTC, and only in the Court of Appeals did they attempt to prove inadequacy
of price through the documents, i.e., the "Open-End Mortgage on Inventory" and inventory dated
March 31, 1 980, likewise attached to their Petition before this Court. Basic is the rule that parties
may not bring on appeal issues that were not raised on trial.

5. ID.; EVIDENCE; PRESUMPTION OF REGULARITY IN CONDUCT OF PUBLIC SALE; CASE AT

BAR. — Furthermore, the mere fact that respondent bank was the sole bidder for the mortgaged
properties in the public sale does not warrant the conclusion that the transaction was attended with
fraud. Fraud is a serious allegation that requires full and convincing evidence, and may not be
inferred from the lone circumstance that it was only respondent bank that bid in the sale of the
foreclosed properties. The sparseness of petitioners' evidence in this regard leaves Us no discretion
but to uphold the presumptionof regularity in the conduct of the public sale.

6. ID.; ID.; FINDINGS OF FACT OF TRIAL COURT ON JOINT AND SOLIDARY

LIABILITY OF PETITIONER CORPORATION IN LOAN AFFIRMED ON APPEAL; CASE AT BAR. —
We likewise a:rm private petitioners' joint and several liability with petitioner corporation in the loan.
As found by the trial court and the Court of Appeals, the terms of the promissory note unmistakably
set forth the solidary nature of private petitioners' commitment. From the foregoing, it is clear that
private petitioners intended to bind themselves solidarily with petitioner PAMECA in the loan. As
correctly submitted by respondent bank, private petitioners are not made to answer for the corporate
act of petitioner PAMECA, but are made liable because they made themselves co-makers with
PAMECA under the promissory note. DACIH c

Natalia P. Bustamante v. Sps. Rosel

G.R. No. 1 26800. November 29, 1 999

1 . CIVIL LAW; CONDITIONAL OBLIGATION; SALE OF COLLATERAL IS OBLIGATION WITH

SUSPENSIVE CONDITION; CASE AT BAR. — The sale of the collateral is an obligation with a
suspensive condition. It is dependent upon the happening of an event, without which the obligation to

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sell does not arise. Since the event did not occur, respondents do not have the right to demand
fulfillment of petitioner's obligation, especially where the same would not only be disadvantageous to
petitioner but would also unjustly enrich respondents considering the inadequate consideration
(P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City.

2. ID.; CONTRACTS; HAVE THE FORCE OF LAW BETWEEN THE CONTRACTING PARTIES;
EXCEPTION. — Respondents argue that contracts have the force of law between the contracting
parties and must be complied with in good faith. There are, however, certain exceptions to the rule,
specifically Article 1 306 of the Civil Code, which provides: "Article 1306. The contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public policy."

3. ID.; ID.; LOAN; PACTUMCOMMISSORIUM; ELEMENTS. — The elements of pactum

commissorium are as follows: (1 ) there should be a property mortgaged by way of security for the
payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation
by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the
stipulated period.

4. ID.; ID.; ID.; ID.; CONSTRUED IN CASE AT BAR. — A significant task in contract interpretation is
the ascertainment of the intention of the parties and looking into the words used by the parties to
project that intention. In this case, the intent to appropriate the property given as collateral in favor of
the creditor appears to be evident, for the debtor is obliged to dispose of the collateral at the pre-
agreed consideration amounting to practically the same amount as the loan. In effect, the creditor
acquires the collateral in the event of non-payment of the loan. This is within the concept of pactum
commissorium. Such stipulation is void.
Sps. Suico v. PNB
G.R. No. 170215. August 28, 2007

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these
objects are attained, immaterial errors and mistakes will not affect the sufficiency of the notice; but if mistakes
or omissions occur in the notices of sale, which are calculated to deter or mislead bidders, to depreciate the
value of the property, or to prevent it from bringing a fair price, such mistakes or omissions will be fatal to the
validity of the notice, and also to the sale made pursuant thereto.

The case of Community Savings and Loan Association, Inc. v. Court of Appeals is also inapplicable, because
the said case refers to an extrajudicial foreclosure tainted with fraud committed by therein petitioners, which
denied therein respondents the right to redeem the property. It actually has no reference to a Notice of Sale.

..after payment of the costs of suit and satisfaction of the claim of the first mortgagee/senior mortgagee, the
claim of the second mortgagee/junior mortgagee may be satisfied from the surplus proceeds. The application
of the proceeds from the sale of the mortgaged property to the mortgagor's obligation is an act of payment,
not payment by dacion; hence, it is the mortgagee's duty to return any surplus in the selling price to the
mortgagor. Perforce, a mortgagee who exercises the power of sale contained in a mortgage is considered a
custodian of the fund and, being bound to apply it properly, is liable to the persons entitled thereto if he fails to
do so. And even though the mortgagee is not strictly considered a trustee in a purely equitable sense, but as
far as concerns the unconsumed balance, the mortgagee is deemed a trustee for the mortgagor or owner of
the equity of redemption.

Thus it has been held that if the mortgagee is retaining more of the proceeds of the sale than he is entitled to,
this fact alone will not affect the validity of the sale but simply give the mortgagor a cause of action to recover
such surplus.

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Eastern Shipping Lines v. Court of Appeals , regarding the manner of computing legal interest, viz:

II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:

1 . When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 1 2% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to theprovisions of Article 1 1 69 of the Civil Code.

ES
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code)

but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 1 2% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.

In Philippine National Bank v. Court of Appeals, it was held that: The rate of 1 2% interest
referred to in Cir. 41 6 applies only to:

Loan or forbearance of money, or to cases where money is transferred from one person to another and the
obligation to return the same or a portion thereof is adjudged. Any other monetary judgment which does not
involve or which has nothing to do with loans or forbearance of any, money, goods or credit does not
fall within its coverage for such imposition is not within the ambit of the authority granted to the Central Bank.
When an obligation not constituting a loan or forbearance of money is breached then an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum in
accordance with Art. 2209 of the Civil Code. Indeed, the monetary judgment in favor of private respondent
does not involve a loan or forbearance of money, hence the proper imposable rate of interest is six (6%) per
cent.

Using the above rule as yardstick, since the responsibility of PNB arises not from a loan or forbearance of
money which bears an interest rate of 1 2%, the proper rate of interest for the amount which PNB must return
to the petitioners is only 6%. This interest according to Eastern Shipping shall be computed from the time of
the filing of the complaint. However, once the judgment becomes final and executory, the "interim period from

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the finality of judgment awarding a monetary claim and until payment thereof, is deemed to be equivalent to a
forbearance of credit." Thus, in accordance with the pronouncement in Eastern Shipping, the rate of 1 2% per
annum should be imposed, to be computed from the time the judgment becomes final and executory until fully
satisfied.

Philippine Blooming Mills v. CA

G.R. No. 142381, October 15, 2003

1 . CIVIL LAW; GUARANTY; EXTENT OF GUARANTY; RESPONDENT IS LIABLE FOR CREDIT

OBLIGATIONS CONTRACTED AFTER THE EXECUTION OF THE DEED OF SURETYSHIP; IT IS EVIDENT
FROM THE TENOR OF THE DEED ITSELF, REFERRING TO AMOUNTS PETITIONER "MAY NOW BE
INDEBTED OR MAY HEREAFTER BECOME INDEBTED TO." — Ching is liable for credit obligations
contracted by PBM against TRB before and after the execution of the 21 July 1 977 Deed of Suretyship. This
is evident from the tenor of the deed itself, referring to amounts PBM "may now be indebted or may hereafter
become indebted" to TRB. The law expressly allows a "suretyship for future debts" . Article 2053 of the Civil
Code provides: A guaranty may also be given as security for future debts, the amount of which is not yet
known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may
also be secure.

2. ID.; OBLIGATIONS; JOINT AND SOLIDARY OBLIGATIONS; AS CREDITOR, RESPONDENT BANK HAS
THE RIGHT UNDER THE SURETY TO PROCEED AGAINST RESPONDENT FOR THE ENTIRE AMOUNT
OF PETITIONER'S LOAN. — In granting the loan to PBM, TRB required Ching's surety precisely to insure full
recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was the very purpose of the
surety. Thus, Ching cannot use PBM's failure to pay in full as justification for his own reduced liability to TRB.
As surely, Ching agreed to pay in full PBM's loan in case PBM fails to pay in full for any reason, including its
insolvency. TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of
PBM's loan. This is clear from Article 1216 of the Civil Code: ART. 1216. The creditor may proceed against
any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt
has not been fully collected.

3. ID.; RESPONDENT IS LIABLE FOR THE AMOUNTS STATED IN THE LETTERS OF CREDIT COVERED
BY THE TRUST RECEIPTS. — Ching is still liable for the amounts stated in the letters of credit covered by
the trust receipts. Other than his bare allegations, Ching has not shown proof of payment or settlement with
TRB. Atty. Vicente Aranda, TRB's corporate secretary and First Vice President of its Human Resource
Management Department, testified that the conditions in the TRB board resolution presented by Ching were
not met or implemented. Ching also claims that TRB prevented PBM from fulfilling its obligations under the
trust receipts when TRB, together with other creditor banks, took hold of PBM's inventories, including the
goods covered by the trust receipts. Ching asserts that this act of TRB released him from liability under the
suretyship. Ching forgets that he executed, on behalf of PBM, separate Undertakings for each trust receipt
expressly granting to TRB the right to take possession of the goods at any time to protect TRB's interests.
TRB may exercise such right without waiving its right to collect the full amount of the loan to PBM. The
Undertakings also provide that any suspension of payment or any assignment by PBM for the benefit of
creditors renders the loan due and demandable. Presidential Decree No. 1 1 5 ("PD No. 1 1 5"), otherwise
known as the Trust Receipts Law, expressly allows TRB to take possession of the goods covered by the trust
receipts. Thus, even though TRB took possession of the goods covered by the trust receipts, PBM and Ching
remained liable for the entire amount of the loans covered by the trust receipts.

International Finance Corporation v. Imperial Textile Mills, Inc.

G.R. No. 160324. November 15, 2005

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The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified by the
term "jointly and severally," the use of the word "guarantor" to refer to a "surety" does not violate the law. As
Article 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the principal obligor.
Likewise, the phrase in the Agreement — "as primary obligor and not merely as surety" — stresses that ITM
is being placed on the same level as PPIC. Those words emphasize the nature of their liability, which the law
characterizes as a suretyship. The use of the word "guarantee" does not ipso facto make the contract one of
guaranty. This Court has recognized that the word is frequently employed in business transactions to describe
the intention to be bound by a primary or an independent obligation. The very terms of a contract govern the
obligations of the parties or the extent of the obligor's liability. Thus, this Court has ruled in favor of suretyship,
even though contracts were denominated as a "Guarantor's Undertaking" or a "Continuing Guaranty."

Contracts have the force of law between the parties, who are free to stipulate any matter not contrary to law,
morals, good customs, public order or public policy. None of these circumstances are present, much less
alleged by respondent. Hence, this Court cannot give a different meaning to the plain language of the
Guarantee Agreement.

.. the Court stresses that a suretyship is merely an accessory or a collateral to a principal obligation. Although
a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and
absolute; or equivalent to that of a regular party to the undertaking. A surety becomes liable to the debt and
duty of the principal obligor even without possessing a direct or personal interest in the obligations constituted
by the latter.

A surety is considered in law to be on the same footing as the principal debtor in relation to whatever is
adjudged against the latter.

United Overseas Bank of the Philippines v. The Board of Commissioner-HLURB

G.R. No. 182133. June 23, 2015

In Far East Bank & Trust Co. v. Marquez , the Court sustained the HLURB when it declared the mortgage
entered into between the subdivision developer and the bank as unenforceable against the lot buyer for
failure of the developer to obtain the prior written approval of the HLURB. However, we were categorical that
the HLURB acted beyond bounds when it nullified the mortgage covering the entire parcel of land, of
which the lot subject of the buyer's complaint is merely a part of.

In Far East Bank, the Court held that:

Acts executed against the provisions of mandatory or prohibitory laws shall be void. Hence, the mortgage
over the lot is null and void insofar as private respondent is concerned.

The remedy granted by the HLURB and sustained by the Office of the President is proper only insofar as it
refers to the lot of respondent. In short, the mortgage contract is void as against him. Since there is no law
stating the specifics of what should be done under the circumstances, that which is in accord with equity,
should be ordered. The remedy granted by the HLURB in the first and the second paragraphs of the
dispositive portion of its Decision insofar as it referred to respondent's lot is in accord with equity. The
HLURB, however, went overboard in its disposition in paragraphs 3 and 4, which pertained not only to the lot
but to the entire parcel of land mortgaged. Such ruling was improper. The subject of this litigation is limited
only to the lot that respondent is buying, not to the entire parcel of land. He has no personality or standing to
bring suit on the whole property, as he has actionable interest over the subject lot only. (Citations omitted and
underscoring ours)

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In Metropolitan Bank and Trust Co., Inc. v. SLGT Holdings, Inc., however, the Court nullified the entire
mortgage contract executed between the subdivision developer and the bank albeit the fact that only two units
or lot buyer/s filed a case for declaration of nullity of mortgage. In the said case, the entire mortgage contract
was nullified on the basis of the principle of indivisibility of mortgage as provided in Article 2089 of the New
Civil Code. This notwithstanding, in the fairly recent case of Philippine National Bank v. Lim, the Court
reverted to our previous ruling in Far East Bank that a unit buyer has no standing to seek for the complete
nullification of the entire mortgage, because he has an actionable interest only over the unit he has bought.
Hence, in the said case, the mortgage was nullified only insofar as it affected the unit buyer. We find the
recent view espoused in Philippine National Bank to be in accord with law and equity. While a mortgage may
be nullified if it was in violation of Section 1 8 of P.D. No. 957, such nullification applies only to the interest of
the complaining buyer. It cannot extend to the entire mortgage. A buyer of a particular unit or lot has no
standing to ask for the nullification of the entire mortgage.

More importantly, it should be understood that the prior approval requirement is intended to protect buyers of
condominium units from fraudulent manipulations perpetrated by unscrupulous condominium sellers and
operators, such as their failure to deliver titles to the buyer or titles free from lien and encumbrances. This is
pursuant to the intent of P.D. No. 957 to protect hapless buyers from the unjust practices of unscrupulous
developers which may constitute mortgages over condominium projects sans the knowledge of the former
and the consent of the HLURB. Thus, failure to secure the HLURB'S prior written approval as required by
P.D. No. 957 will not annul the entire mortgage between the condominium developer and the creditor bank,
otherwise the protection intended for condominium buyers will inadvertently be extended to the condominium
developer even though, by failing to secure the government's prior approval, it is the party at fault. To rule
otherwise would certainly affect the stability of large-scale mortgages, which is prevalent in the real estate
industry. To be sure, mortgagee banks would be indubitably placed at risk if condominium developers are
empowered to unilaterally invalidate mortgage contracts based on their mere failure to secure prior written
approval of the mortgage by the HLURB, which could be easily caused by inadvertence or by deliberate intent

Huerta Alba Resort, Inc. v. CA

G.R. No. 128567. September 1, 2000

1 . REMEDIAL LAW; SPECIAL CIVIL ACTIONS; FORECLOSURE OF REAL ESTATE MORTGAGE; EQUITY
OF REDEMPTION AND RIGHT OF REDEMPTION; DISTINGUISHED. — On the distinction between the
equity of redemption and right of redemption, the case of Gregorio Y. Limpin vs. Intermediate Appellate
Court , comes to the fore. Held the Court in the said case: "The equity of redemption is, to be sure, different
from and should not be confused with the right of redemption . The right of redemption in relation to a
mortgage — understood in the sense of a prerogative to re-acquire mortgaged property after registration of
the foreclosure sale — exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosed of the mortgage. No such right is recognized in a judicial foreclosed except
only where the mortgagee is the Philippine National Bank or a bank or banking institution. Where a mortgage
is foreclosed extrajudicially, Act 31 35 grants to the mortgagor the right of redemption within one (1 ) year
from the registration of the sheriff's certificate of foreclosure sale. Where the foreclosure is judicially effected ,
however, no equivalent right of
redemption exists. The law declares that a judicial foreclosure sale, when confirmed by an order of the court,
shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject
to such rights of redemption as may be allowed by law. Such rights exceptionally 'allowed by law' (i.e., even
after confirmation by an order of the court) are those granted by the charter of the Philippine National Bank
(Acts No. 2747 and 2938), and the General Banking Act (R.A. 337). These laws confer on the mortgagor, his
successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on
foreclosure — after confirmation by the court of the foreclosure sale — which right may be exercised within a
period of one (1) year, counted from the date of registration of the certificate of sale in the Registry of

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Property. But, to repeat, no such right of redemption exists in case of judicial foreclosure of a mortgage if the
mortgagee is not the PNB or a bank or banking institution. In such a case, the foreclosure sale, 'when
confirmed by an order of the court. . . . shall operate to divest the rights of all the parties to the action and to
vest their rights in the purchaser.' There then exists only what is known as the equity of redemption . This is
simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property
by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with
Rule 68, or even after the foreclosure sale but prior to its confirmation.

2. ID.; ID.; ID.; BENEFICIAL PROVISIONS OF SECTION 78 OF GENERAL BANKING ACT MUST BE
RAISED AS COMPULSORY COUNTERCLAIM. — A]t the earliest opportunity, when it submitted its answer
to the complaint for judicial foreclosure, petitioner should have alleged that it was entitled to the beneficial
provisions of Section 78 of R.A. No. 337 but again, it did not make any allegation in its answer regarding any
right thereunder. It bears stressing that the applicability of Section 78 of R.A. No. 337 hinges on the factual
question of whether or not private respondent's predecessor in interest was a credit institution. As was held in
Limpin, a judicial foreclosure sale, "when confirmed by an order of the court, . . . shall operate to divest the
rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of
redemption as may be allowed by law," which confer on the mortgagor, his successors in interest of any
judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by
the court of the judicial foreclosure sale. Thus, the claim that petitioner is entitled to the beneficial provisions
of Section 78 of R.A. No. 337 — since private respondent's predecessor-in-interest is a credit institution — is
in the nature of a compulsory counterclaim which should have been averred in petitioner's answer to the
complaint for judicial foreclosure.

3. ID.; ID.; ID.; ID.; NOT ALLEGED BY PETITIONER IN EARLY STAGES OF PROCEEDINGS. — [I]t was too
late in the day for petitioner to invoke a right to redeem under Section 78 of R.A. No. 337. Petitioner failed to
assert a right to redeem in several crucial stages of the proceedings. For instance, on September 7, 1 994,
when it filed with the trial court an Ex-parte Motion for Clarification, petitioner failed to allege and prove that
private respondent's predecessor in interest was a credit institution . . . So also, when it presented before the
trial court an Exception to the Order and Motion to Set Aside said Order dated October 1 3, 1 994, petitioner
again was silent on its alleged right under Section 78 of R.A. No. 337 . . . Then, too, nothing was heard from
petitioner on its alleged right under Section 78 of R.A. No. 337 and of the predecessor in interest of private
respondent as a credit institution, when the trial court came out with an order on February 1 0, 1 995,
confirming the sale of subject properties in favor private respondent and declaring that all pending incidents
with respect to the Order dated September 26, 1 994 had become moot and academic. Similarly, when
petitioner filed on February 27, 1 995 a Motion for Clarification with the Court of Appeals, seeking
"clarification" of the date of commencement of the one (1 ) year redemption period for the subject
properties . . . If petitioner were really acting in good faith, it would have ventilated, before the Court of
Appeals in CA-G.R. No. 35086 its alleged right under Section 78 of R.A. No. 337; but petitioner never did do
so.

4. ID.; ID.; ID.; ID.; ID.; PRINCIPLE OF ESTOPPEL APPLIES. — The failure of petitioner to seasonably
assert its alleged right under Section 78 of R.A. No. 337 precludes it from so doing at this late stage of the
case. Estoppel may be successfully invoked if the party fails to raise the question in the early stages of the
proceedings. Thus, "a party to a case who failed to invoke his claim in the main case, while having the
opportunity to do so, will be precluded, subsequently, from invoking his claim, even if it were true, after the
decision has become final, otherwise the judgment may be reduced to a mockery and the administration of
justice may be placed in disrepute."

5. ID.; CIVIL PROCEDURE; COUNTERCLAIM; ELUCIDATED. — ". . . A counterclaim is, most broadly, a
cause of action existing in favor of the defendant against the plaintiff. More narrowly, it is a claim which, if
established, will defeat or in some way qualify a judgment or relief to which plaintiff is otherwise entitled. It is
sometimes defined as any cause of action arising in contract available against any action also arising in

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FINALS CASES

contract and existing at the time of the commencement of such an action. It is frequently defined by the codes
as a cause of action arising out of the contract or transaction set forth in the complaint as the foundation of
the plaintiff's claim, or connected with the subject of the action." "The counterclaim is in itself a distinct and
independent cause of action, so that when properly stated as such, the defendant becomes, in respect to the
matters stated by him, an actor, and there are two simultaneous actions pending between the same parties,
wherein each is at the same time both a plaintiff and a defendant. Counterclaim is an offensive as well as a
defensive plea and is not necessarily confined to the justice of the plaintiffs claim. It represents the right of the
defendant to have the claims of the parties counterbalanced in whole or in part, and judgment to be entered in
excess, if any. A counterclaim stands on the same footing, and is to be tested by the same rules, as if it were
an independent action."

6. ID.; ID.; ID.; PURPOSE. — ". . . The rules of counterclaim are designed to enable the disposition of a whole
controversy of interested parties' conflicting claims, at one time and in one action, provided all parties' be
brought before the court and the matter decided without prejudicing the rights of any party.”

7. ID.; ID.; EXECUTION OF JUDGMENT; ERRONEOUS FOR THE TRIAL COURT TO ALLOW A PARTY AT
THIS STAGE TO INTRODUCE EVIDENCE AND OVERRULE THE LAW OF THE CASE. — [T]he trial court
erred in still allowing petitioner to introduce evidence that private respondent's predecessor-in-interest was a
credit institution, and to thereafter rule that the petitioner was entitled to avail of the provisions of Section 78 of
R.A. No. 337. In effect, the trial court permitted the petitioner to accomplish what the latter failed to do before
the Court of Appeals, that is, to invoke its alleged right under Section 78 of R.A. 337 although the Court of
Appeals in CA-G.R. No. 35086 already found that 'the question of whether the Syndicated Management
Council Group, Inc. is a bank or credit institution was never brought before (the Court of Appeals) squarely."
The said pronouncement by the Court of Appeals unerringly signified that petitioner did not make a timely
assertion of any right under Section 78 of R.A. No. 337 in all the stages of the proceedings below.

8. ID.; ID.; ID.; LAW OF THE CASE; REMAINS AS IT IS, WHETHER OR NOT IT IS ERRONEOUS IS
IMMATERIAL. — There is merit in private respondent's contention that to allow petitioner to belatedly invoke
its right under Section 78 of R.A. No. 337 will disturb the "law of the case." However, private respondent's
statement of what constitutes the "law of the case" is not entirely accurate. The "law of the case" is not simply
that the defendant possesses an equity of redemption. As the Court has stated, the "law of the case" holds
that petitioner has the equity of the redemption without any qualification whatsoever, that is, without the right
of redemption afforded by Section 78 of R.A. No. 337. Whether or not the "law of the case" is erroneous is
immaterial, it still remains the "law of the case." A contrary rule will contradict both the letter and spirit of the
rulings of the Court of Appeals in CA-G.R. SP No. 35086, CA-G.R. CV No. 39243, and CAG.R. 38747, which
clearly saw through the repeated attempts of petitioner to forestall so simple a matter as making the security
given for a just debt to answer for its payment.

9. ID.; SPECIAL CIVIL ACTIONS; FORECLOSURE OF REAL ESTATE MORTGAGE; EQUITY OF

REDEMPTION CAN NO LONGER BE EFFECTED FOR FAILURE TO EXERCISE WITHIN THE
PRESCRIBED PERIOD. — [T]he sale of the subject properties, as confirmed by the Order dated February 1
0, 1 995 of the trial court in Civil Case No. 89-5424 operated to divest the rights of all the parties to the action
and to vest their rights in private respondent. There then existed only what is known as the equity of
redemption, which is simply the right of the petitioner to extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90-day period after the judgment became final. There being an
explicit finding on the part of the Court of Appeals in its Decision of September 30, 1 994 in CA-G.R. No.
35086 — that the herein petitioner failed to exercise its equity of redemption within the prescribed period,
redemption can no longer be effected. The confirmation of the sale and the issuance of the transfer
certificates of title covering the subject properties to private respondent was then, in order. The trial court
therefore, has the ministerial duty to place private respondent in the possession of subject properties.

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