CREDIT TRANSACTIONS (Case Digests) Held: Qualified No. Affirmed.
RP vs. Jose V. Bagtas, G.R. No. L-17474, October 25,
1962 (6 SCRA 262)
Facts: Jose V. Bagtas borrowed from the RP through
the Bureau of Animal Industry three bulls, a Red Sindhi,
a Bhagnari, and a Sahiniwal, for a period of one year
from 8
May 1948 to 7 May 1949 for breeding purposes subject to
a government charge of breeding fee of 10% of the book
value of the bulls. Upon the expiration on 7 May 1949 of
the contract, the borrower asked for a renewal for
another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal
thereof of only one bull for another year from 8 May
1949 to 7 May 1950 and requested the return of the
other two.
On 25 March 1950 Jose V. Bagtas wrote to the
Director of Animal Industry that he would pay the value of
the three bulls. On 17 October 1950 he reiterated his
desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor
General. On 19 October 1950 the Director of Animal
Industry advised him that the book value of the three bulls
could not be reduced and that they either be returned or
their book value paid not later than 31 October 1950.
Jose V. Bagtas failed to pay the book value of the
three bulls or to return them. So, on 20 December 1950 in
the CFI of Manila, the RP commenced an action against him
praying that he be ordered to return the three bulls
loaned to him or to pay their book value in the total sum
of P3,241.45 and the unpaid breeding fee in the sum of
P499.62, both with interests, and costs.
Bagtas countered that because of the bad peace
and order situation in Cagayan Valley, and of the
pending appeal he had taken to the Secretary of
Agriculture and Natural Resources and the President of
the Philippines from the refusal by the Director of Animal
Industry to deduct from the book value of the bulls
corresponding yearly depreciation of 8% from the date
of acquisition, to which depreciation the Auditor
General did not object, he could not return the animals nor
pay their value and prayed for the dismissal of the
complaint.
The Court ruled in favor of the RP. The RP
moved ex parte for a writ of execution which was
granted. The surviving spouse of the now deceased Jose V.
Bagtas filed a motion praying for the quashal of the writ of
execution alleging that 2 bulls had already been returned
while the third bull died from gunshot wounds inflicted
during a Huks raid on Hacienda Felicidad Intal. The court
denied her motion.
Issue: Whether a bailee in commodatum is absolved of
the obligation to return the thing if it is lost due to force
majeure
Ratio: The loan by the appellee to the late defendant Jose
V. Bagtas of the three bulls for breeding purposes for a
period of one year from 8 May 1948 to 7 May 1949,
later on renewed for another year as regards one bull, was
subject to the payment by the borrower of breeding fee of
10% of the book value of the bulls. The appellant contends
that the contract was commodatum and that, for that
reason, as the appellee retained ownership or title to the
bull it should suffer its loss due to force majeure A contract
of commodatum is essentially gratuitous. If the breeding
fee were considered a compensation, then the contract
would be a lease of the bull. Under article 1671 of the
Civil Code, the lessee would be subject to the
responsibilities of a possessor in bad faith, because she
had continued possession of the bull after the expiry of the
contract. And even if the contract be commodatum, still
the appellant is liable, because article 1942 of the Civil
Code provides that a bailee in a contract of commodatum
is liable for loss of the thing, even if it should be through a
fortuitous event: (2) If he keeps it longer than the period
stipulated or (3) If the thing loaned has been delivered
with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a
fortuitous event.
The original period of the loan was from 8 May
1948 to 7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But the
appellant kept and used the bull until November 1953
when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased
husband of the appellant, the bulls had each an appraised
book value, to wit: the Sindhi, at P1,176.46; the Bhagnari,
at P1,320.56 and the Sahiniwal; at P744.46. It was not
stipulated that in case of loss of the bull due to fortuitous
event the late husband of the appellant would be exempt
from liability.
Special proceedings for the administration and
settlement of the estate of the deceased José V. Bagtas
having been instituted in the Court of First Instance of
Rizal (Q-
200), the money judgment rendered in favor of the
appellee cannot be enforced by means of a writ of
execution but must be presented to the probate court
for payment by the appellant, the administratrix
appointed by the court.
RP (Bureau of Lands) vs. CA, Heirs of Domingo
Baloy, G.R. No. L-46145, November 26, 1986. (146
SCRA 15)
Facts: Domingo Baloy is the owner of a parcel of land
whose title to the land dates back to Spanish times.. On
November 26, 1902 pursuant to the executive order
of the President of the U.S., the area was declared
within the U.S. Naval Reservation. Under Act 627 as
amended by Act 1138, a period was fixed within which
1
persons affected thereby could file their application, (that
is within 6 months from July 8, 1905) otherwise the said
lands or interests therein will be conclusively adjudged to
be public lands and all claims on the part of private
individuals for such lands or interests therein not to
presented will be forever barred. The U.S. Navy did
occupy the land for some time as a recreation area. After
the U.S. Navy abandoned the land, Baloy came in and
asserted title once again, only to be troubled by first
Crispiniano Blanco who however in due time,
quitclaimed in favor of applicants, and then by private
oppositors now, apparently originally tenants of Blanco.
Baloy filed an application for land registration, but this
was denied. CA reversed.
Issue: Whether possession of land not in the concept of
owner is a commodatum.
Held: Yes. Affirmed.
Ratio: Private land could be deemed to have become
public land only by virtue of a judicial declaration after
due notice and hearing. It runs contrary therefore to the
contention of petitioners that failure to present claims set
forth under Sec. 2 of Act 627 made the land ipso facto
public without any need of judicial pronouncement.
Petitioner in making such declaration relied on Sec. 4 of
Act 627 alone. But in construing a statute the entire
provisions of the law must be considered in order to
establish the correct interpretation as intended by the law-
making body. Act 627 by its terms is not self- executory
and requires implementation by the Court of Land
Registration. Act 627, to the extent that it creates a
forfeiture, is a penal statute in derogation of private
rights, so it must be strictly construed so as to
safeguard private respondents' rights. Significantly,
petitioner does not even allege the existence of any
judgment of the Land Registration court with respect to
the land in question. Without a judgment or order
declaring the land to be public, its private character and
the possessory information title over it must be respected.
Since no such order has been rendered by the Land
Registration Court it necessarily follows that it never
became public land thru the operation of Act 627. To
assume otherwise is to deprive private respondents of
their property without due process of law. In fact it can be
presumed that the notice required by law to be given by
publication and by personal service did not include the
name of Domingo Baloy and the subject land, and hence
he and his land were never brought within the operation
of Act
627 as amended. The procedure laid down in Sec. 3 is a
requirement of due process. "Due process requires that
the statutes under which it is attempted to deprive a
citizen of private property without or against his consent
must, as in expropriation cases, be strictly complied with,
because such statutes are in derogation of general rights."
(Arriete vs. Director of Public Works, 58 Phil. 507, 508,
511).
The finding of respondent court that during
the interim of 57 years from November 26, 1902 to
December 17, 1959 (when the U.S. Navy possessed the
area) the possessory rights of Baloy or heirs were merely
suspended and not lost by prescription, is supported by
Exhibit "U," a communication or letter No. 1108-63, dated
June 24, 1963, which contains an official statement of the
position of the Republic of the Philippines with regard to
the status of the land in question. Said letter recognizes
the fact that Domingo Baloy and/or his heirs have been
in continuous possession of said land since
1894 as attested by an "Informacion Possessoria" Title,
which was granted by the Spanish Government. Hence, the
disputed property is private land and this possession was
interrupted only by the occupation of the land by the U.S.
Navy in 1945 for recreational purposes. The U.S. Navy
eventually abandoned the premises. The heirs of the late
Domingo P. Baloy, are now in actual possession, and this
has been so since the abandonment by the U.S. Navy. A
new recreation area is now being used by the U.S. Navy
personnel and this place is remote from the land in
question.
Clearly, the occupancy of the U.S. Navy was not in
the concept of owner. It partakes of the character of a
commodatum. It cannot therefore militate against the title
of Domingo Baloy and his successors-in-interest. One's
ownership of a thing may be lost by prescription by reason
of another's possession if such possession be under claim
of ownership, not where the possession is only intended to
be transient, as in the case of the U.S. Navy's occupation of
the land concerned, in which case the owner is not
divested of his title, although it cannot be exercised in the
meantime.
Margarota Quintos & Angel A. Ansaldo vs. Beck,
G.R. No. 46240, November 3,
1939 (69 Phil 108)
Facts: The defendant was a tenant of the plaintiff and
occupied the latter's house on M. H. del Pilar street, No.
1175. On January 14, 1936, upon the novation of the
contract of lease between the plaintiff and the defendant,
the former gratuitously granted to the latter the use of the
furniture, subject to the condition that the defendant
would return them to the plaintiff upon the latter's
demand. The plaintiff sold the property to Maria Lopez
and Rosario Lopez, and on September 14, 1936, these
three notified the defendant of the conveyance, giving him
60 days to vacate the premises under one of the clauses of
the contract of lease. Thereafter, the plaintiff required the
defendant to return all the furniture transferred to him for
his use. The defendant answered that she may call for
them in the house where they are found. On November 5,
1936, the defendant, through another person, wrote to the
plaintiff reiterating that she may call for the furniture in
the ground floor of the house. On the 7th of the same
month, the defendant wrote another letter to the plaintiff
2
informing her that he could not give up the three gas
heaters and the four electric lamps because he would use
them until the 15th of the same month when the lease is
due to expire. The plaintiff refused to get the furniture in
view of the fact that the defendant had declined to deliver
all of them. On November 15th, before vacating the
house, the defendant deposited with the Sheriff all the
furniture belonging to the plaintiff and they are now on
deposit in the warehouse situated at No. 1521, Rizal
Avenue in the custody of the said sheriff.
The plaintiff filed suit for the return of the
furniture. The lower court ordered the return of the
furniture which were already in the possession of the
sheriff at the plaintiff’s expense and the payment of any
fees for the deposit of the furniture to be share pro rata
between the parties.
Issue: Whether a bailee in commodatum is obligated to
return the thing loaned at the premises of the bailor.
Held: Yes. Reversed.
Ratio: The contract entered into between the parties is
one of commodatum, because under it the plaintiff
gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof; by
this contract the defendant bound himself to return the
furniture to the plaintiff, upon the latter's demand.
The obligation voluntarily assumed by the defendant to
return the furniture upon the plaintiff's demand, means
that he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not comply
with this obligation when he merely placed them at the
disposal of the plaintiff, retaining for his benefit the three
gas heaters and the four electric lamps. The provisions of
article 1169 of the Civil Code cited by counsel for the
parties are not squarely applicable. The trial court,
therefore, erred when it came to the legal conclusion
that the plaintiff failed to comply with her obligation to get
the furniture when they were offered to her.
As the defendant had voluntarily undertaken to
return all the furniture to the plaintiff, upon the latter's
demand, the Court could not legally compel her to bear
the expenses occasioned by the deposit of the furniture at
the defendant's behest. The latter, as bailee, was not
entitled to place the furniture on deposit; nor was the
plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the
three gas heaters and the four electric lamps.
As to the value of the furniture, we do not
believe that the plaintiff is entitled to the payment thereof
by the defendant in case of his inability to return some of
the furniture, because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to
nor admitted the correctness of the said value. Should the
defendant fail to deliver some of the furniture, the value
thereof should be later determined by the trial court
through evidence which the parties may desire to present.
The costs in both instances should be borne by the
defendant because the plaintiff is the prevailing party
(section 487 of the Code of Civil Procedure). The
defendant was the one who breached the contract of
commodatum, and without any reason he refused to return
and deliver all the furniture upon the plaintiff's demand.
In these circumstances, it is just and equitable that he
pay the legal expenses and other judicial costs which
the plaintiff would not have otherwise defrayed.
The Consolidated Bank & Trust Corp (Solidbank)
vs. CA, Continental Cement
Corp, Gregory T. Lim & Spouse, G.R. No. 114286, April
19, 2001. (356 SCRA 671)
Facts: On July 13, 1982, respondents Continental Cement
Corporation (hereinafter, respondent Corporation) and
Gregory T. Lim (hereinafter, respondent Lim) obtained
from petitioner Consolidated Bank and Trust
Corporation Letter of Credit No. DOM-
23277 in the amount of P1,068,150. On the same date,
respondent Corporation paid a marginal deposit of
P320,445 to petitioner. The letter of credit was used to
purchase around five hundred thousand liters of bunker
fuel oil from Petrophil Corporation, which the latter
delivered directly to respondent Corporation in its
Bulacan plant. In relation to the same transaction, a trust
receipt for the amount of P1,001,520.93 was executed
by respondent Corporation, with respondent Lim as
signatory.
Claiming that respondents failed to turn over
the goods covered by the trust receipt or the proceeds
thereof, petitioner filed a complaint for sum of money with
application for preliminary attachment before the RTC of
Manila. In answer to the complaint, respondents averred
that the transaction between them was a simple loan and
not a trust receipt transaction, and that the amount
claimed by petitioner did not take into account payments
already made by them. Respondent Lim also denied any
personal liability in the subject transactions. In a
Supplemental Answer, respondents prayed for
reimbursement of alleged overpayment to petitioner of the
amount of P490,228.90.
The trial court dismissed the complaint and
granted the respondents’ counterclaim. CA partially
modified the decision with respect to the award of the
counterclaim.
Issue: Whether a provision of a floating interest rate which
has no reference rate is valid.
Held: No. Affirmed.
3

Ratio: There is no error in setting aside the floating rate
of interest in the trust receipt. The provision on interest
states: “I, WE jointly and severally agree to any increase
or decrease in the interest rate which may occur after July
1, 1981, when the Central Bank floated the interest rate,
and to pay additionally the penalty of 1% per month
until the amount/s or installment/s due and unpaid under
the trust receipt on the reverse side hereof is/are fully
paid.”
The foregoing stipulation is invalid, there being
no reference rate set either by it or by the Central Bank,
leaving the determination thereof at the sole will and
control of petitioner. While it may be acceptable, for
practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a
loan not be fixed and instead be made dependent upon
prevailing market conditions, there should always be a
reference rate upon which to peg such variable interest
rates. An example of such a valid variable interest rate
was found in Polotan, Sr. v. Court of Appeals. In that
case, the contractual provision stating that “if there
occurs any change in the prevailing market rates, the
new interest rate shall be the guiding rate in
computing the interest due on the outstanding obligation
without need of serving notice to the Cardholder other
than the required posting on the monthly statement
served to the Cardholder” was considered valid. The
aforequoted provision was upheld notwithstanding that it
may partake of the nature of an escalation clause, because
at the same time it provides for the decrease in the interest
rate in case the prevailing market rates dictate its
reduction. In other words, unlike the stipulation subject
of the instant case, the interest rate involved in the Polotan
case is designed to be based on the prevailing market
rate. On the other hand, a stipulation ostensibly
signifying an agreement to “any increase or decrease in
the interest rate,” without more, cannot be accepted by
this Court as valid for it leaves solely to the creditor the
determination of what interest rate to charge against an
outstanding loan.
Petitioner has also failed to convince us that its
transaction with respondent Corporation is really a trust
receipt transaction instead of merely a simple loan, as
found by the lower court and the Court of Appeals. The
recent case of Colinares v. Court of Appeals appears to be
foursquare with the facts obtaining in the case at bar.
There, we found that inasmuch as the debtor received
the goods subject of the trust receipt before the trust
receipt itself was entered into, the transaction in question
was a simple loan and not a trust receipt agreement. Prior
to the date of execution of the trust receipt, ownership
over the goods was already transferred to the debtor. This
situation is inconsistent with what normally obtains in a
pure trust receipt transaction, wherein the goods belong
in ownership to the bank and are only released to the
importer in trust after the loan is granted.
In the case at bar, as in Colinares, the delivery to
respondent Corporation of the goods subject of the trust
receipt occurred long before the trust receipt itself was
executed. More specifically, delivery of the bunker fuel oil
to respondent Corporation’s Bulacan plant commenced on
July 7, 1982 and was completed by July 19, 1982. Further,
the oil was used up by respondent Corporation in its
normal operations by August, 1982. On the other hand, the
subject trust receipt was only executed nearly two
months after full delivery of the oil was made to
respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a
trust receipt transaction was explained in Colinares, to wit:
The Trust Receipts Law does not seek to enforce payment
of the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the
owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of
confidence in the handling of money to the prejudice of
PBC. Petitioners continually endeavored to meet their
obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan. The Information
charges Petitioners with intent to defraud and
misappropriating the money for their personal use. The
mala prohibita nature of the alleged offense
notwithstanding, intent as a state of mind was not proved
to be present in Petitioners’ situation. Petitioners
employed no artifice in dealing with PBC and never did
they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms
precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are
not importers acquiring the goods for re-sale, contrary to
the express provision embodied in the trust receipt. They
are contractors who obtained the fungible goods for their
construction project. At no time did title over the
construction materials pass to the bank, but directly to the
Petitioners from CM Builders Centre. This impresses
upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal
prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign
trust receipts to facilitate collection of loans and place
them under the threats of criminal prosecution should
they be unable to pay it may be unjust and inequitable, if
not reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to sign lest
their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks,
and is prone to misinterpretation, as had happened in this
case. Eventually, PBC showed its true colors and
admitted that it was only after collection of the money,
as manifested by its Affidavit of Desistance.
Oscar D. Ramos & Luz Agudo vs. CA, Adelaida Ramos &
Lazaro E. Meneses, G.R. No. 42108, December 29, 1989
(180 SCRA 635)
4
Facts: Sometime in January, 1959, private respondent
Adelaida Ramos borrowed from her brother, petitioner
Oscar D. Ramos, the amounts of P5,000.00 and P9,000.00
in connection with her business transaction with one
Flor Ramiro, Fred Naboa and Atty. Ruperto Sarandi
involving the recovery of a parcel of land in Tenejeros,
Malabon. The said amount was used to finance the trip to
Hawaii of Ramiro, Naboa and Atty. Sarandi. As security for
said loan, private respondent Adelaida Ramos executed in
favor of petitioners two (2) deeds of conditional sale dated
May 27, 1959 and August 30, 1959, of her rights, shares,
interests and participation respectively over Lot No. 4033
covered by Original Certificate of Title No. 5125
registered in the name of their parents, Valente Ramos
and Margarita Denoga, now deceased, and Lot No. 4221
covered by Transfer Certificate of Title No. 10788 then
registered in the names of Socorro Ramos, Josefina Ramos
and Adelaida Ramos.
Upon the failure of said private respondent as
vendor a retro to exercise her right of repurchase within
the redemption period, aforenamed petitioner filed a
petition for consolidation and approval of the conditional
sale of Lot No. 4033 in Special Proceedings No. 5174,
entitled "Intestate Estate of the late Margarita Denoga,"
and a petition for
approval of the pacto de retro sale of Lot No. 4221 in the be sales with pacto de retro; however, since the same
former Court of First Instance of Tarlac acting as a were actually executed in consideration of the aforesaid
cadastral court. The probate court and cadastral court loans said contracts are indubitably equitable
granted the petitions. mortgages. The rule is firmly settled that whenever it is
Private respondents had been and remained in clearly shown that a deed of sale with pacto de retro,
possession of these properties until sometime in 1964 regular on its face, is given as security for a loan, it must be
when petitioner took possession thereof. regarded as an equitable mortgage.
On February 28, 1968, private respondent filed
Civil Case No. 4168 with the then Court of First Instance of
Tarlac for declaration of nullity of orders, reformation of
instrument, recovery of possession with preliminary
injunction and damages. The complaint therein alleged
that the deeds of conditional sale, dated May 27, 1959 and
August 30, 1959, are mere mortgages and were vitiated by
misrepresentation, fraud and undue influence and that the
orders dated January 22, 1960 and April 18, 1960,
respectively issued by the probate and cadastral courts,
were null and void for lack of jurisdiction. The court
ruled that the contract between the parties is a loan
secured by a real estate mortgage, and set aside the
titles issued in favor of the petitioner. CA affirmed.

Issue: Whether a loan contract which is made to appear

as a conditional sale can be interpreted as an equitable
mortgage.

Held: Yes. Affirmed.

Ratio: Several undisputed circumstances persuade this

Court that the questioned deeds should be construed as
equitable mortgages: (1) plaintiff vendor remained in
possession until 1964 of the properties she allegedly sold
in 1959 to defendants; (2) the sums representing the
alleged purchase price were actually advanced to plaintiff
by way of loans; and (3) the properties allegedly
purchased by defendant Oscar Ramos and his wife have
never been declared for taxation purposes in their names.
Such a conclusion is buttressed by the other circumstances
catalogued by respondent court especially the undisputed
fact that the two deeds were executed by reason of the
loan extended by petitioner Oscar Ramos to private
respondent Adelaida Ramos and that the purchase price
stated therein was the amount of the loan itself.
The above-stated circumstances are more than
sufficient to show that the true intention of the parties is
that the transaction shall secure the payment of said debt
and, therefore, shall be presumed to be an equitable
mortgage under Paragraph 6 of Article
1602 herein before quoted. Settled is the rule that to create
the presumption enunciated by Article 1602, the
existence of one circumstance is enough. The said
article expressly provides therefor "in any of the following
cases," hence the existence of any of the circumstances
enumerated therein, not a concurrence nor an
overwhelming number of such circumstances, suffices to
give rise to the presumption that the contract with the
right of repurchase is an equitable mortgage.
On the faces thereof, the contracts purport to
Article 1602 of the Civil Code is designed in writing before the commissioner within ninety days; and
primarily to curtail the evils brought about by contracts of ordered the publication, as was in fact done, of the order
sale with right of repurchase, such as the circumvention of containing all these provisions, for two consecutive weeks
the laws against usury and pactum commissorium. In the in two newspapers of general circulation in the City of
present case before us, to rule otherwise would Manila, at the expense of the aforesaid bank. After these
contravene the legislative intent to accord the vendor a publications, and within the period of ninety days, the
retro maximum safeguards for the protection of his legal following creditors, among others, presented their claims:
rights under the true agreement of the parties. Tiong Chui Gion, Gopoco Grocery, Tan Locko, Woo & Lo &
Co., Sy Guan Huat, and La Bella Tondeñ a.
In re Liquidation of the Mercantile Bank of China. To better resolve not only these claims but also the
Gopoco Grocery (Gopoco) et al. vs. Pacific Coast many others which were presented against the bank, the
Biscuit Co., et al., G.R. No. 43697 and 44200, March lower court, on July 15, 1932, appointed Fulgencio
31, 1938 (65 Borromeo as commissioner and referee to receive the
Phil 443) evidence which the interested parties may desire to
present; and the commissioner and referee thus named,
Facts: The Bank Commissioner, on petition, found, after after qualifying for the office and receiving the evidence
an investigation, that the Mercantile Bank of China could presented to him, resolved the aforesaid six claims by
not continue operating as such without running the risk recommending that the same be considered as an ordinary
of suffering losses and prejudicing its depositors and credit only, and not as a preferred credit as the interested
customers. With the requisite approval of the parties wanted, because they were at the same time debtors
corresponding authorities, he took charge of all the of the bank. The lower court approved all the
assets thereof. The CFI of Manila declared the said bank recommendations of the commissioner and referee.
in liquidation; approved all the acts theretofore executed Not agreeable to the decision of the lower court,
by the commissioner; prohibited the officers and agents of each of the interested parties appealed therefrom.
the bank from interfering with said commissioner in the
possession of the assets thereof, its documents, deeds, Issue: Whether bank deposits are considered preferred
vouchers, books of account, papers, memorandums, notes, credits.
bonds, bonds and accounts, obligations or securities and
its real and personal properties; required its creditors and
all those who had any claim against it, to present the same

Held: No. Affirmed.
Ratio: The parties themselves admit that the bank had
been paying them interest and that even now the bank
owes them interest which should have been paid to them
before it was declared in a state of liquidation. This fact
undoubtedly destroys the character which they would
impress upon their deposits on current account, and
nullifies their contention that

the same be considered as irregular deposits, because the resolved the case of the claimant Tan Tiong Tick. The
payment of interest only takes place in the case of loans. circumstances in these two cases are certainly the same as
On the other hand, as we stated with respect to the those in the said case with reference to the said question.
claim of Tan Tiong Tick (In re Liquidation of Mercantile the Mercantile Bank of China owes to each of the appellants
Bank of China, G. R. No. 43682), the provisions of the Code the interest claimed by them, corresponding to the year
of Commerce, and not those of the Civil Code, are, ending December 4, 1931, the date it was declared in a
applicable to cases of the nature of those at bar, which state of liquidation, but not those which the
have to do with parties who are both merchants. (Articles
303 and 309, Code of Commerce.) We there said, and it is
not amiss to repeat now, that the so-called current account
and savings deposits have lost their character of deposits,
properly so-called, and are converted into simple
commercial loans because, in cases of such deposits, the
bank has made use thereof in the ordinary course of its
transactions as an institution engaged in the banking
business, not because it so wishes, but precisely because
of the authority deemed to have been granted to it by the
appellants to enable them to collect the interest which
they had been and they are now collecting, and by virtue
further of the authority granted to it by section 125 of the
Corporation Law (Act No. 1459), as amended by Acts Nos.
2003 and 3610 and section 9 of the Banking Law (Act No.
3154), without considering of course the provisions of
article 1768 of the Civil Code. Wherefore, it is held that the
deposits on current account of the appellants in the bank
under liquidation, with the right on their part to collect
interest, have not created and could not create a juridical
relation between them except that of creditors and debtor,
they being the creditors and the bank the debtor.
The question of set-off raised by them cannot be
resolved except in the same way that we resolved a like
question in the said case, G. R. No. 43672, entitled "In re
Liquidation of Mercantile Bank of China. Tan Tiong Tick,
claimant." It is proper that set- offs be made, inasmuch as
the appellants and the bank being reciprocally debtors
and creditors, the same is only just and according to law
(art. 1195, Civil Code), particularly as none of the
appellants falls within the exceptions mentioned in section
58 of the Insolvency Law (Act No. 1956) which states, “(i)n
all cases of mutual debts and mutual credits between the
parties, the account between them shall be stated, and one
debt set off against the other, and the balance only shall be
allowed and paid. But no set-off or counterclaim shall be
allowed of a claim in its nature not provable against
the estate: Provided, That no set-off or counterclaim shall
be allowed in favor of any debtor to the insolvent of a
claim purchased by or transferred to such debtor within
thirty days immediately preceding the filing, or after the
filing of the petition by or against the insolvent.”
The question of whether they are entitled to
interest should be resolved in the same way that we
appellants claim should be earned by their deposits after the Mercantile Bank of China was declared in a state of
said date and until the full amounts thereof are paid to liquidation, that is, on December 4, 1931, for then there
them. And with respect to the question of set-off, this was already a reciprocal concurrence of debts, with
should be deemed made, of course, as of the date when respect to said bank and the appellants.
parties do not bargain on equal footing, the weaker
party’s participation being reduced to the alternative “to
United Coconut Planters Banks vs. Sps. Samuel and take it or leave it”. Such a contract is a veritable trap for
Odette Beluso, G.R. No. the weaker party whom the courts of justice must protect
159912, August 17, 2007 (530 SCRA 567) against abuse and imposition.
The provision stating that interest rate shall be at
Facts: On April 16, 1996, UCPB granted spouses Beluso a the rate indicative of DBD retail rate or as determined by
Promissory Notes Line under a Credit Agreement whereby the Branch Head is indeed dependent solely on the
the latter could avail from the former credit of up to a will of
maximum amount of P1.2 million for 1 year. A real estate
mortgage was executed as an additional security. The
credit agreement was subsequently amended to increase
the amount to a maximum of P2.35 million and to
extend the term to Feb. 28, 1998. The spouses Beluso
fully availed of the credit at varying times and upon
execution of promissory notes, although they would later
deny the receipt of P350,000. UCPB applied interest rates
on the different promissory notes ranging from 18% to
34%. The spouses Beluso were able to pay the total
sum of P763,692 up to Feb. 28, 1998. They were
unable to pay afterwards. Their loans were still being
charged interest at varying rates from 28% to 33%.
On September 2, 1998, UCPB demanded the
payment of the total obligation of P2,932,543 plus 25%
atty’s fees. On December 28 1998, UCPB foreclosed the
properties mortgaged by the spouses Beluso due to the
non-payment of their debt which had ballooned to
P3,784,603.
On February 9, 1999, the spouses Beluso filed a
Petition for Annulment, Accounting and Damages against
UCPB with the RTC of Makati City. RTC ruled in favor of
the spouses Beluso, although they were still made to pay
P1,560,308 to the bank. CA affirmed.

Issue: Whether a provision that sets the interest at the

rate “indicative of DBD retail rate or as determined by the
Branch Head” is void.

Held: Yes. Modified.

Ratio: The promissory notes stated that the interest

thereon shall be “at the rate indicative of DBD retail rate or
as determined by the Branch Head.”
In the case of PNB vs. CA (196 SCRA 536), in order
that obligations arising from contracts may have the force
of law between the parties, there must be a mutuality
between the parties based on their essential equality. A
contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties, is void. Hence,
even assuming that the loan agreement between the PNB
and the private respondent gave PNB a license to
increase the interest rate at will during the term of the
loan, that license would have been null and void for
being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement
with the character of a contract of adhesion, where the
UCPB. Under such provision, UCPB has 2 choices on a full disclosure of such cost with a view of preventing the
what interest rate shall be: (1) a rate indicative of the uninformed use of credit to the detriment of the national
DBD retail rate; or (2) a rate as determined by the branch economy. Moreover, while the spouses Beluso indeed
head. As UCPB is given this choice, the rate should be agreed to renew the credit line, the offending provisions
categorically determined in both choices. If either of these are found in the promissory notes themselves, not in the
2 choices presents an opportunity for UCPB to fix the rate credit line. In fixing the interest rates in the promissory
at will, the bank can easily choose such an option, thus notes to cover the renewed credit line, UCPB still reserved
making the entire interest rate provision violative of the to itself the same two options – (1) a rate indicative of the
principle of mutuality of contracts. DBD retail rate; or (2) a rate as determined by the Branch
Not just one, but rather both, of these choices are Head.
dependent solely on the will of UCPB. Clearly, a rate “as
determined by the Branch Head” gives the latter
unfettered discretion on what the rate may be. The
Branch Head may choose any rate he or she desires. As
regards the rate “indicative of the DBD retail rate,” the
same cannot be considered as valid for being akin to a
“prevailing rate” or “prime rate” allowed by this Court in
Polotan vs CA (296 SCRA 247). The interest rate in Polotan
reads: The Cardholder agrees to pay interest per annum at
3% plus the prime rate of Security Bank and Trust
Company. In this provision in Polotan, there is a fixed
margin over the reference rate: 3%. Thus, the parties
can easily determine the interest rate by applying simple
arithmetic. On the other hand, the provision in the case
at bar does not specify any margin above or below the
DBD retail rate. UCPB can peg the interest at any
percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest
rate.
The stipulation in the promissory notes subjecting
the interest rate to review does not render the imposition
by UCPB of interest rates on the obligations of the
spouses Beluso valid. It should be pointed out that the
authority to review the interest rate was given UCPB
alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes.
As worded in the above provision, UCPB may give as
much weight as it desires to each of the following
considerations: (1) the prevailing financial and
monetary condition; (2) the rate of interest and charges
which other banks or financial institutions charge or
offer to charge for similar accommodations; and/or (3)
the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the
spouses Beluso). Again, as in the case of the interest rate
provision, there is no fixed margin above or below these
considerations.
The interest rate provisions in the case at bar are
illegal not only because of the provisions of the Civil Code
on mutuality of contracts, but also, as shall be discussed
later, because they violate the Truth in Lending Act. Not
disclosing the true finance charges in connection with the
extensions of credit is, furthermore, a form of deception
which we cannot countenance. It is against the policy of
the State as stated in the Truth in Lending Act: Sec. 2.
Declaration of Policy. – It is hereby declared to be the
policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring
As for the claim of UCPB that, in lieu of the bank’s UCPB’s contention that this action to recover the
interest rate, legal interest rate should apply, the court penalty for the violation of the Truth in Lending Act has
upheld this claim. The excess amount in such a demand already prescribed is likewise without merit. The penalty
does not nullify the demand itself, which is valid with for the violation of the act is P100 or an amount equal to
respect to the proper amount. A contrary ruling would twice the finance charge required by such creditor in
put commercial transactions in disarray, as validity of connection with such transaction, whichever is greater,
demands would be dependent on the exactness of the except that such liability shall not exceed P2,000.00 on
computations thereof, which are too often contested. any credit transaction. As this penalty depends on the
There being a valid demand on the part of UCPB, albeit finance charge required of the borrower, the borrower’s
excessive, the spouses Beluso are considered in default cause of action would only accrue when such finance
with respect to the proper amount and, therefore, the charge is required. In the case at bar, the date of the
interests and the penalties began to run at that point. As demand for payment of the finance charge is 2 September
regards the award of 12% legal interest in favor of 1998, while the foreclosure
petitioner, the RTC actually recognized that said legal
interest should be imposed, thus: “There being no valid
stipulation as to interest, the legal rate of interest shall be
charged.” It seems that the RTC inadvertently overlooked
its non-inclusion in its computation.
The contract stipulation providing the
compounding of interest is likewise upheld because it was
neither nullified by the lower court nor assailed by the
spouses Beluso.
The penalty imposed by UCPB, ranging from
30.41% to 36% was held to be iniquitous. It was reduced
to 12% per annum.
Since both parties were compelled to litigate and
both parties were legally entitled to atty’s fees, their claims
are set off and neither are given any award for such.
The foreclosure is valid because there was a valid
demand on the spouses Beluso, although excessive, and
the spouses Beluso were in default. The proceeds of the
foreclosure sale should be applied to the extent of the
amounts to which UCPB is rightfully entitled. The grounds
for the proper annulment of the foreclosure sale are not
present in this case such as (1) fraud, collusion, accident,
mutual mistake, breach of trust or misconduct by the
purchase; (2) sale had not been fairly and regularly
conducts; or (3) the price was inadequate and the
inadequacy was so great as to shock the conscience of the
court.
The fine of P26,000 issued against UCPB for
violation of RA 3765 of the Truth in Lending Act is
affirmed. Even though the spouses Beluso did not
categorically charge UCPB of violating such Act in their
complaint, the allegations in the complaint, much more
than the title thereof, are controlling. The allegation that
the promissory notes grant UCPB the power to unilaterally
fix the interest rates certainly also means that the
promissory notes do not contain a “clear statement in
writing” of “(6) the finance charge expressed in terms of
pesos and centavos; and (7) the percentage that the
finance charge bears to the amount to be financed
expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.” Furthermore, the
spouses Beluso’s prayer “for such other reliefs just and
equitable in the premises” should be deemed to include
the civil penalty provided for in Section 6(a) of the Truth in
Lending Act.
was made on 28 December 1998. The filing of the case on in Lending Act. Once more, we disagree. Section 4 of the
9 February 1999 is therefore within the one-year Truth in Lending Act clearly provides that the disclosure
prescriptive period. statement must be furnished prior to the consummation of
UCPB argues that a violation of the Truth in the transaction. The rationale of this provision is to protect
Lending Act, being a criminal offense, cannot be inferred users of credit from a lack of awareness of the true cost
nor implied from the allegations made in the complaint. thereof, proceeding from the experience that banks are able
As can be gleaned from Section 6(a) and (c) of the Truth in to conceal such true cost by hidden charges, uncertainty of
Lending Act, the violation of the said Act gives rise to both interest rates, deduction
criminal and civil liabilities. Section 6(c) considers a
criminal offense the willful violation of the Act, imposing
the penalty therefor of fine, imprisonment or both.
Section 6(a), on the other hand, clearly provides for a civil
cause of action for failure to disclose any information of
the required information to any person in violation of the
Act. In the case at bar, therefore, the civil action to recover
the penalty under Section 6(a) of the Truth in Lending Act
had been jointly instituted with (1) the action to declare
the interests in the promissory notes void, and (2) the
action to declare the foreclosure void. This joinder is
allowed under Rule 2, Section 5 of the Rules of Court.
Petitioner further posits that it is the
Metropolitan Trial Court which has jurisdiction to try and
adjudicate the alleged violation of the Truth in Lending
Act, considering that the present action allegedly involved
a single credit transaction as there was only one
Promissory Note Line. We disagree. We have already
ruled that the action to recover the penalty under Section
6(a) of the Truth in Lending Act had been jointly instituted
with (1) the action to declare the interests in the
promissory notes void, and (2) the action to declare the
foreclosure void. There had been no question that the
above actions belong to the jurisdiction of the RTC.
Furthermore, opening a credit line does not create a credit
transaction of loan or mutuum, since the former is
merely a preparatory contract to the contract of loan or
mutuum. Under such credit line, the bank is merely
obliged, for the considerations specified therefor, to lend
to the other party amounts not exceeding the limit
provided. The credit transaction thus occurred not
when the credit line was opened, but rather when the
credit line was availed of. In the case at bar, the
violation of the Truth in Lending Act allegedly occurred
not when the parties executed the Credit Agreement,
where no interest rate was mentioned, but when the
parties executed the promissory notes, where the allegedly
offending interest rate was stipulated.
UCPB further argues that since the spouses Beluso
were duly given copies of the subject promissory notes
after their execution, then they were duly notified of the
terms thereof, in substantial compliance with the Truth
of interests from the loaned amount, and the like. The belated discovery of the true cost of credit will too often
law thereby seeks to protect debtors by permitting them not be able to reverse the ill effects of an already
to fully appreciate the true cost of their loan, to enable consummated business decision.
them to give full consent to the contract, and to properly There was no forum shopping when the spouses
evaluate their options in arriving at business decisions. Beluso first filed an action for injunction which was
Upholding UCPB’s claim of substantial compliance would dismissed due to improper venue and later filed an
defeat these purposes of the Truth in Lending Act. The action for
annulment. Even assuming there was forum shopping, that the applicable rate of interest is 12% per annum.
the rule that the later action should be dismissed is not Petitioner argues that the applicable law is Article
absolute. The more appropriate case may prevail. 2209 of the Civil Code, not the Central Bank Circular No.
416. Said Article 2209 provides that if the obligation
Pilipinas Bank vs. CA & Lilia R. Echaus, G.R. No. consists in the payment of a sum of money, and the
97873, August 12, 1993 (225 debtor incurs in delay, the indemnity for damages, there
SCRA 268) being no stipulation to the contrary, shall be the payment
of the interest
Facts: The petitioner and Greatland Realty Corporation
(Greatland) executed a "Dacion en Pago," wherein
Greatland conveyed to petitioner several parcels of land in
consideration of the sum of P7,776,335.69. Greatland
assigned P2,300,000.00 out of the total consideration of
the Dacion en Pago, in favor of private respondent.
Notwithstanding her demand for payment, petitioner, in
bad faith, refused and failed to pay the said amount
assigned to her. Private respondent sued.
Petitioner, while admitting the execution of the
Dacion en Pago, claimed: (1) that its former president
had no authority to enter into such agreement; (2)
that it never ratified the same; and (3) that assuming
arguendo that the agreement was binding, the conditions
stipulated therein were never fulfilled.
Trial court ruled in favor of private
respondent. The case was appealed. A motion for
execution pending appeal was filed and approved by the
lower court. The CA modified the execution pending
appeal by deferring the execution of the award for moral,
exemplary and nominal damages to await the final
judgment of the main case. The SC affirmed the CA.
The CA eventually ruled in favor of private
respondent. The decision awarded interest at the legal
rate from the date when the demand was first made.
The decision became final and executory.
The petitioner sought for payment of interest at
the rate of 6% per annum only. The private respondent
sought for interest at the rate of 12% per annum pursuant
to CB Circular No. 416. The court ruled that the proper
interest rate was 12%. A clarification was sought with the
CA which ruled that the proper interest rate was 12%.

Issue: Whether an obligation arising from a contract of

sale is such a forbearance that would merit an award for
interest of 12% per annum.

Held: No. Reversed.

Ratio: The Court of Appeals was of the theory that the

action in Civil Case No. 239-A filed by private respondent
against petitioner "involves forbearance of money, as the
principal award to plaintiff-appellee (private respondent)
in the amount of P2,300,000.00 was the overdue debt of
defendant-appellant to her since July 1981. The case is, in
effect, a simple collection of the money due to plaintiff-
appellee, as the unpaid creditor from the defendant bank,
the debtor" (Resolution, p. 3; Rollo, p. 33). Applying
Central Bank Circular No. 416, the Court of Appeals held
agreed upon, and in the absence of stipulation, the legal Michael, Inc., G.R. No. L-59096, October 11, 1985 (139
interest, which is six per cent per annum. SCRA 260)
In Reformina v. Tomol, Jr., 139 SCRA 260 [1985],
the Court held that the judgments spoken of and referred Facts: The Reforminas lost a boat and its equipment as a
to in Circular No. 416 are "judgments in litigation result of a fire. They sued Shell and Michael, Inc. The CFI
involving loans or forbearance of any money, goods or ruled in their favor and awarded legal interest from the
credits. Any other kind of monetary judgment which has filing of the complaint. The CA modified the decision, but
nothing to do with nor involving loans or forbearance of still granted legal interest. The decision became final, and
any money, goods or credits does not fall within the the case was remanded to the CFI for execution.
coverage of the said law for it is not, within the ambit of
the authority granted to the Central Bank."
Reformina was affirmed in Philippine Virginia
Tobacco Administration v. Tensuan, 188 SCRA 628 [1990],
which emphasized that the "judgments" contemplated in
Circular No. 417 "are judgments involving said loans or
forbearance only and not in judgments in litigation that
have nothing to do with loans . . ."
We held that Circular No. 416 does not apply to
judgments involving damages (Reformina v. Tomol, Jr.,
supra; Philippine Virginia Tobacco Administration v.
Tensuan, supra) and compensation in expropriation
proceedings (National Power Corporation v. Angas, 208
SCRA 542 [1992]). We also held that Circular No. 416
applies to judgments involving the payment of
unliquidated cash advances to an employee by his
employer (Villarica v. Court of Appeals, 123 SCRA 259
[1983]) and the return of money paid by a buyer of a
leasehold right but which contract was voided due to
the fault of the seller (Buisier v. Court of Appeals, 154
SCRA 438 [1987]).
What then is the nature of the judgment ordering
petitioner to pay private respondent the amount of
P2,300,000.00?
The said amount was a portion of the
P7,776,335.69 which petitioner was obligated to pay
Greatland as consideration for the sale of several parcels
of land by Greatland to petitioner. The amount of
P2,300,000.00 was assigned by Greatland in favor of
private respondent. The said obligation therefore arose
from a contract of purchase and sale and not from a
contract of loan or mutuum. Hence, what is applicable is
the rate of
6% per annum as provided in Article 2209 of the Civil
Code of the Philippines and not the rate of 12% per
annum as provided in Circular No. 416.

Pacita F. Reformina & Heirs of Francisco Reformina

vs. Honorable Valeriano P. Tomol, Jr., CFI Judge, Br XI,
Cebu City, Shell Refining Company (Phils.), Inc. &
The Reforminas claim that the legal interest should be at 6%.
12% per annum pursuant to CB Circular No. 416. Shell
and Michael, Inc. claim that that the interest should be Issue: Whether the legal interest rate for a judgment
6% as stated in Art. 2209 NCC in relation to Art. 2210 and involving damages to property is
2211 NCC. The CFI ruled that the interest rate should be 12%.
Held: No. Affirmed. interest to be charged for loans. It merely grants the power
to prescribe the maximum interest rate, leaving it to the
Ratio: Central Bank Circular No. 416 which took effect on contracting parties to determine within the allowable limit
July 29, 1974 was issued and promulgated by the what precisely the interest rate will be. In other words, the
Monetary Board pursuant to the authority granted to the provision presupposes that the parties to the loan
Central Bank by P.D. No. 116, which amended Act No. agreement are free to fix the interest rate, the ceiling
2655, otherwise known as the Usury Law. The said law prescribed by the Central Bank operating merely to
states that the Monetary Board is hereby authorized to
prescribe the maximum rate or rates of interest for the
loan or renewal thereof or the forbearance of any money,
goods or credits, and to change such rate or rates
whenever warranted by prevailing economic and social
conditions: Provided, That such changes shall not be made
oftener than once every twelve months.
Acting pursuant to this grant of authority, the
Monetary Board increased the rate of legal interest from
that of six (6%) percent per annum originally allowed
under Section
1 of Act No. 2655 to twelve (12%) percent per annum.
Act No. 2655 deals with interest on (1) loans;
(2) forbearances of any money, goods, or credits; and
(3) rate allowed in judgments. The judgments spoken
of and referred to are judgments in litigations involving
loans or forbearance of any money, goods or credits. Any
other kind of monetary judgment which has nothing to do
with, nor involving loans or forbearance of any money,
goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority
granted to the Central Bank. The Monetary Board may not
tread on forbidden grounds. It cannot rewrite other laws.
That function is vested solely with the legislative
authority. It is axiomatic in legal hermeneutics that
statutes should be construed as a whole and not as a
series of disconnected articles and phrases. In the absence
of a clear contrary intention, words and phrases in
statutes should not be interpreted in isolation from one
another. A word or phrase in a statute is always used in
association with other words or phrases and its meaning
may thus be modified or restricted by the latter. Another
formidable argument against the tenability of petitioners'
stand are the whereases of PD No. 116 which brought
about the grant of authority to the Central Bank.
The decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons
and loss of property and does not involve any loan, much
less forbearances of any money, goods or credits. As
correctly argued by the private respondents, the law
applicable to the said case is Article 2209 NCC.

Plana, concurring& dissenting: The Usury Law does not

empower the Central Bank to fix the specific rate of
restrict the parties' freedom to stipulate. So viewed, Sec. basis for its issuance Sec. 1, rather than Sec. 1-a, of the
1-a cannot include a provision on interest to be allowed Usury Law.
in judgments, which is not the subject of contractual By purpose and operative effect, Sec. 1 of the
stipulations and therefore cannot logically be made Usury Law is different from Sec. 1- a. This section
subject to interest ceiling, which is all that Sec. 1-a covers. envisages two situations: (a) a loan or forbearance of
Note that Central Bank Circular 416 itself invokes as the money, goods or
credit, where the parties agreed on the payment of approved by this Honorable Supreme Court.
interest but failed to fix the rate thereof; and (b) a The CA affirmed the lower court decision in toto.
litigation that has ended in a final judgment for the
payment of money. In either case, the role of Section 1 is to Issue: Whether a person who has deposited money to a
fix the specific rate of interest or legal interest (6%) to be bank whose operations have been suspended by the Central
charged. It also impliedly delegates to the Central Bank the Bank is entitled to the payment of interest.
power to modify the said interest rate. Thus, the interest
rate shall be 6% per annum or "such rate as may be
prescribed by the Monetary Board of the Central Bank”.
The authority to change the legal interest that has
been delegated to the Central Bank under the quoted
Section 1 is absolute and unqualified. It is true that Section
1 says that the rate of interest shall be 6% per annum or
"such rate as may be prescribed by the Monetary Board of
the Central Bank... in accordance with the authority
hereby granted." But neither in the said section nor in any
other section of the law is there a guideline or limitation
imposed on the Central Bank. The determination of what
the applicable interest rate shall be, as distinguished from
interest rate ceiling, is completely left to the judgment of
the Central Bank. In short, there is a total abdication
of legislative power, which renders the delegation void.

The Overseas Bank of Manila vs. CA & Tony Tapia, in

his capacity as atty-in-fact of
Enrique Michel de Champourcin, G.R. No. L-49353,
June 11, 1981 (105 SCRA 49)

Facts: Tapia, in behalf of Enrique de Champourcin,

instituted an action against the Overseas Bank of Manila
to enforce collection of the proceeds of a time deposit
for which TOBM had issued a certificate for P100,000.00,
with an interest rate of 4 1/2% per annum. The lower
court ruled for Tapia. TOBM appealed.
During the pendency of the appeal, TOBM was
excluded by the Central Bank under Monetary Board
Resolution No. 1263 from inter-bank clearing, and its
operations were suspended by a Central Bank resolution.
In another resolution, the Central Bank forbade TOBM to
do business preparatory to its forcible liquidation. These
Resolutions were, however, annulled and set aside by the
Supreme Court in its decision in Ramos vs. Central Bank, L-
29350, promulgated October 4, 1971. To assure maximum
protection to its depositors, creditors and the public
interest, the rehabilitation, normalization and stabilization
thereof was also ordered by the Supreme Court.
Nevetheless, the CB resolution suspending TOBM's
business operations had actually been implemented
starting 2 August 1968, before it was annulled, and that as
of this writing TOBM has yet to resume operations in
accordance with the aforesaid program of rehabilitation
 Phil. 395, the Supreme Court has held that the appellant is
Held: No. Reversed. not entitled to charge interest on the amounts of his
claims. Upon this point a distinction must be made
Ratio: In the case of Chinese Grocer's Association, et al. between the interest which the deposits should earn
vs. American Apothecaries, 65 from their existence until the bank ceased to

operate, and that which they may earn from the time the authority under the law, it would be, to put it tritely,
bank's operations were stopped until the date of payment "squeezing blood out of turnip" for Us to grant private
of the deposits. As to the first class, we hold that it should respondent's demand.
be paid because such interest has been earned in the Parenthetically, We may add for the guidance of
ordinary course of the bank's business and before the those who might be concerned, and so that unnecessary
latter has been declared in a state of liquidation. Moreover, litigations may be avoided from further clogging the
the bank being authorized by law to make use of the dockets of the courts, that in the light of the
deposits, with the limitation stated, to invest the same in considerations expounded in the above opinion, the
its business and other operations, it may be presumed that same formula that exempts petitioner from the payment of
it bound itself to pay interest to the depositors as in fact it interest to its depositors during the whole period of factual
paid interest prior to the dates of the said claims. As to the stoppage of its operations by orders of the Central Bank,
interest which may be charged from the date the bank modified in effect by the decision as well as the approval of
ceased to do business because it was declared in a state a formula of rehabilitation by
of liquidation, we hold that the said interest should not be
paid.
It is a matter of common knowledge, which We
take judicial notice of, that what enables a bank to pay
stipulated interest on money deposited with it is that thru
the other aspects of its operation it is able to generate
funds to cover the payment of such interest. Unless a bank
can lend money, engage in international transactions,
acquire foreclosed mortgaged properties or their proceeds
and generally engage in other banking and financing
activities from which it can derive income, it is
inconceivable how it can carry on as a depository
obligated to pay stipulated interest. Conventional wisdom
dictates this inexorable fair and just conclusion. And it
can be said that all who deposit money in banks are
aware of such a simple economic proposition.
Consequently, it should be deemed read into every
contract of deposit with a bank that the obligation to pay
interest on the deposit ceases the moment the operation
of the bank is completely suspended by the duly
constituted authority, the Central Bank.
We consider it of trivial consequence that the
stoppage of the bank's operation by the Central Bank has
been subsequently declared illegal by the Supreme Court,
for before the Court's order, the bank had no alternative
under the law than to obey the orders of the Central Bank.
Whatever be the juridical significance of the subsequent
action of the Supreme Court, the stubborn fact remained
that the petitioner was totally crippled from then on from
earning the income needed to meet its obligations to its
depositors. If such a situation cannot, strictly speaking, be
legally denominated as "force majeure", as maintained by
private respondent, We hold it is a matter of simple equity
that it be treated as such.
As We have explained earlier, the complete factual
suspension of petitioner's operation as a bank disabled
it to commit itself to the payment of such interest.
Hopefully, petitioner may be able to resume operations
and recover its standing as a normal bank. But it is almost
vain to expect that within the forseeable future, it would
be in a position to pay in full even at least the
deposits themselves, not to mention the interest
thereon. In justice and equity, having been subjected to
what the Supreme Court has found to be an unfortunate
excess or abuse by the Central Bank of the exercise of its
this court, should be, as a matter of consistency, applicable OBM vs. CA and Tony Tapia.
or followed in respect to all other obligations of petitioner To solve the impasse, COMBANK and the Central
which could not be paid during the period of its actual Bank agreed to abide by any clarificatory ruling the
complete closure. Supreme Court may render on the matter. The
Supreme Court ruled that the bank is not liable for
The Overseas Bank of Manila vs. Vicente Cordero, interest on the Central Bank loans and advances during
G.R. No. L-33582, March 30, the period of its closure. Central Bank moved to
1982 (113 SCRA 303) reconsider.

Facts: Respondent Cordero made a time deposit of

P80,000 with The Overseas Bank of Manila. However, due
to its distressed financial condition, petitioner was unable
to pay Cordero his said time deposit together with the
interest. Cordero filed a case. TOBM raised as a defense
the suspension of its operations by order of the Central
Bank. The lower court ruled for Cordero on the issues of
the payment of the principal and interest, but did not
award attorney’s fees. CA affirmed. The principal amount
of the deposit was later paid, leaving only the interest and
attorney’s fees unpaid.

Issue: Whether attorney’s fees can be awarded against a

bank which did not pay a depositor due to the suspension
of its operations.

Held: No. Modified.

Ratio: Neither can respondent Cordero recover attorney's

fees. The trial court found that herein petitioner's refusal
to pay was not due to a wilful and dishonest refusal to
comply with its obligation but to restrictions imposed by
the Central Bank. Since respondent did not appeal from
this decision, he is now barred from contesting the same.

Emerito M. Ramos vs. Central Bank of the

Philippines, Commercial Bank of
Manila, G.R. No. L-29352, July 22, 1985 (137 SCRA 685)

Facts: The operations of Overseas Bank of Manila were

suspended by the Central Bank. During the suspension of
its operations, the Central Bank loaned some funds to the
TOBM. The suspension order was later set aside by the
Supreme Court, and the rehabilitation of TOBM was
ordered. The rehabilitation program did not succeed.
And so, the Central Bank called for bidders to recapitalize
OBM. It was at this point that the Investment and
Underwriting Corporation of the Philippines (IUCP)
acquired controlling interest in OBM. IUCP specifically
agreed to pay the 6% interest on the aforestated liabilities
to the Central Bank.
In 1981, OBM reopened business under its
new corporate name, Commercial Bank of Manila
(COMBANK). On April 13, 1981, COMBANK paid
Central Bank partial interests from August 1, 1968 to
January 7, 1981 on the P63M advances of the Central
Bank to OBM. However, it refused further payment of
interest when the Supreme Court rendered its decision in
Issue: Whether a bank is obligated to pay the Central not be paid during the period of its complete closure" (p.
Bank for loans it gives to the bank during its period of 62) is prefaced by the term "parenthetically."
closure. Moreover, interest payment on the loans and
advances made by the Central Bank was the subject of
Held: No. Affirmed. explicit agreement between the parties at a time when the
OBM had already been closed, the rehabilitation plan
Ratio: In the Tapia ruling (105 SCRA 49, June 11, 1981), already agreed upon and, in fact, was one of the terms and
the Court held that "the obligation to pay interest on the conditions for the resumption of normal banking
deposit ceases the moment the operation of the bank is operations of OBM (now COMBANK). Significantly, too, as
completely suspended by the duly constituted authority, brought out during the hearing, held on October 23,
the Central Bank," and that "for the guidance of those who 1984, the interest due has been determined and the
might be concerned, and so that unnecessary litigations moneys therefor held in escrow.
may be avoided from further clogging the dockets of the
courts, that in the light of the considerations expounded in
the above opinion, the same formula that exempts
petitioner from the payment of interest to its depositors
during the whole period of factual stoppage of its
operations by orders of the Central Bank, modified in
effect by the decision as well as the approval of a formula
of rehabilitation by this Court, should be, as a matter of
consistency, applicable or followed in respect to all other
obligations of petitioner which could not be paid during
the period of its actual complete closure."
The Tapia ruling is fully applicable to the non-
payment of interest, during the period of the bank's
forcible closure, on loans and advances made by
respondent Central Bank. Respondent Central Bank itself
when it was then managing the Overseas Bank of Manila
(now Commercial Bank of Manila) under a holding trust
agreement. It should be further noted that the respondent
Central Bank when called upon to deal with commercial
banks and extend to them emergency loans and advances,
deals with them not as an ordinary creditor engaged in
business, but as the ultimate monetary authority of
government charged with the supervision and
preservation of the banking system.
The Court's Resolution of October 19, 1982
manifestly redounds to the benefit of another government
institution, the GSIS, which has acquired 99.93% of the
outstanding capital stock of the COMBANK and to the
preservation of the banking system.

Aquino,dissenting: Court has no jurisdiction.

Melencio-Herrera, dissenting: I agree with the Solicitor

General that loans and advances made by the Central Bank
to the then Overseas Bank of Manila (OBM) cannot be
treated in the same manner as deposits made by
ordinary depositors. The Tapia ruling, to my mind, is
doctrinal only insofar as it holds that payment of interest
on deposits ceases the moment the operation of the bank
is completely suspended by the Central Bank, but not
when it applies said ruling to interest on loans and
advances made by the Central Bank, that point not having
been in issue since the Central Bank was not a party
therein. As a matter of fact, the paragraph extending its
application "to all other obligations of OBM which could
COMBANK. When the GSIS bought the controlling interest
Plana, dissenting: Ramos vs. Central Bank was decided in COMBANK, the vendor (IUCP/Herdis Group) together
by this Court way back on October 4, 1971 on the issue with the Emerito Ramos Group placed in escrow with the
of the validity of the OBM closure. The case did not involve INTERBANK the amount of P47.2 million to answer for the
any question as to the liability of OBM for interest on interest liability of COMBANK in case the Supreme Court
deposits or any other obligation. Surprisingly, however, rules that the latter is liable therefor. On the other hand,
on February 17, 1982 — more than 10 years after the however, should the Supreme Court decide that COMBANK
entry of judgment in Ramos vs. Central Bank — is not liable, the amount held in escrow would be returned
COMBANK filed a motion to intervene in said case as well to the IUCP/Herdis Group and the Emerito Ramos Group. It
as a motion praying for a clarificatory ruling on the is therefore clear that neither the GSIS
liability of OBM to pay interest on Central Bank loans and
advances.
In a Minute Resolution dated October 19, 1982,
this Court ruled that OBM is not liable to pay interest on
Central Bank loans and advances during the period of its
closure. The motion of the Central Bank under
consideration seeks a reconsideration of that ruling.
There are cogent reasons why OBM (now
COMBANK) should be held liable for the payment of
interests on CB loans and advances. (a) The loans and
advances in question were granted by the Central Bank to
OBM before the latter's closure in 1968 to enable it to
meet its obligations to its depositors whose money
(deposits) it had been able to use in the generation of
income. (b) For the period during which OBM
stopped banking operations, it collected interests on
loans granted by it to its clients. (Actually, the Central
Bank closure order was limited only to normal banking
operations; it did not prohibit the collection of OBM
receivables, including interests due.) If OBM thus collected
interests on loans granted by it, why should it not pay
interest on loans and advances given to it by the Central
Bank to meet its liquidity problems? Is it not enough that
OBM has already been exempted from the payment of
interests on bank deposits? (c) Money does not come
gratuitously to the Central Bank. It has cost. This is now of
common knowledge because the JOBO bills and the high
interests rates they carry are familiar to all. But even
before the advent of JOBO bills, the Central Bank was
borrowing money locally and/or from external sources
and paying interests on borrowed funds. By all relevant
standards, it is only fair and proper that the Central Bank
should be allowed to recover its investment and the cost
thereof. (d) I do not think that the liability or non-
liability of the OBM (COMBANK) for interest payment
on CB loans and advances would either prejudice or
benefit the GSIS, the government instrumentality which
owns 99.93% of the outstanding capital stock of
nor COMBANK will be affected, one way or the other, should the Supreme Court hold that COMBANK is not
by any ruling of the Supreme Court on the issue at bar. liable to pay interest on CB pre-1968 loans and advances
But certainly, the Central Bank and the Philippine from which OBM has unquestionably benefited.
Government stand to lose some P47 million in interests
Bank of the Philippine Islands, Inc. vs. Sps. Norman the debtor incident to the extension of credit." The
and Angelina Yu and Tuanson lender may provide for a penalty clause so long as the
Builders Corporation represented by Norman Yu, amount or rate of the charge and the conditions under
G.R. No. 184122, January 20, which it is to be paid are disclosed to the borrower
2010 (610 SCRA 412) before he enters into the credit agreement. In this case,
although BPI failed to state the penalty charges in the
Facts: Spouses Yu, doing business as Tuanson Trading and disclosure statement, the promissory note that the Yus
Tuanson Builders Corporation, borrowed various sums signed, on the same date as the disclosure statement,
totaling P75 million from Far East Bank and Trust contained a penalty clause that said: "I/We jointly and
Company. For collateral, they executed real estate severally, promise to further pay a late payment
mortgages over several of their properties including charge on any overdue amount herein at the rate of 3%
certain lands in Legazpi City owned by Tuanson Trading. per month." The promissory note is an acknowledgment
Unable to pay their loans, they requested a loan
restructuring which the bank, now merged with BPI,
granted. By this time, the balance of the loan was P33.4
million. Despite the restructuring, the Yus still had
difficulty paying the loan. The Yus asked BPI to release
some of the mortgaged lands since their total appraised
value far exceeded the amount of the remaining debt.
When BPI ignored their request, they withheld payment of
their amortizations. Thus, BPI extrajudicially foreclosed
the mortgaged properties. The Yus countered by filing an
annulment case of the foreclosure sale against BPI and the
winning bidder, Magnacraft Development Corporation.
The Yus and Magnacraft were able to reach a
compromise agreement that affirmed Magnacraft’s
ownership of three (3) of the ten (10) lots that were
auctioned. The court, therefore, dismissed the case
against Magnacraft, without prejudice to any case being
filed against BPI.
The Yus filed a case against BPI for excessive
penalty charges, attorney’s fees, and foreclosure expenses
that the bank caused to be incorporated in the price of the
auctioned properties. In the alternative, the Yus claimed
that BPI is in estoppel to claim more than the amount
stated in the published notices, therefore, they must
turnover the excess bid amounts worth over P6 million.
Initially, the RTC, in a partial summary judgment, reduced
the penalty charges from 36% to 12% and the
attorney’s fees from
25% to 10%. Upon motion for reconsideration of the Yus
on the ground that the penalty charges were violative of
the Truth in Lending Act (R.A. 3765) as BPI did not
disclose the rate of penalties for late amortizations, the
court deleted the penalty charges and reduced Attorney’s
Fees to 1%. CA affirmed.

Issue: Whether a penalty rate contained in the promissory

note is sufficient disclosure to charge the borrower a
penalty. Whether attorney’s fees can be reduced to 1%.

Held: Yes. Yes. Affirmed with modification on the penalty.

Ratio: Penalty charge, which is liquidated damages
resulting from a breach, falls under item (6) of Section 4 of
R.A. 3765 (Truth in Lending Act) or finance charge. A
finance charge "represents the amount to be paid by
of a debt and commitment to repay it on the date and following reasons: (1) attorney’s fee is not essential to
under the conditions that the parties agreed on. It is a valid the cost of borrowing, but a mere incident of collection;
contract absent proof of acts which might have vitiated (2) 1% is just and adequate because BPI had already
consent. charged foreclosure expenses; (3) attorney’s fee of
The question is whether or not the reference to 10% of the total amount due is onerous considering
the penalty charges in the promissory note constitutes the rote effort that goes into extrajudicial foreclosures.
substantial compliance with the disclosure requirement of
the Truth in Lending Act. The RTC and CA relied on the
Asian Construction and Development Corporation
ruling in New Sampaguita as authority that the non-
vs. Cathay Pacific Steel
disclosure of the penalty charge renders its imposition
Corporation (Capasco), G.R. No. 167942, June 29, 2010
illegal. But New Sampaguita is not attended by the same
()
circumstances. What New Sampaguita disallowed, because
it was not mentioned either in the disclosure statement or
in the promissory note, was the unilateral increase in Facts: On several occasions between June and July of
the rates of penalty charges that the creditor imposed 1997, Asian Construction and
on the borrower. Here, however, it is not shown that BPI Development Corp. purchased from Cathay Pacific Steel
increased the rate of penalty charge that it collected from Corp. various reinforcing steel
the Yus.
The ruling that is more in point is that laid down
in The Consolidated Bank and Trust Corporation v.
Court of Appeals, a case cited in New Sampaguita.
The Consolidated Bank ruling declared valid the penalty
charges that were stipulated in the promissory notes.
What the Court disallowed in that case was the collection
of a handling charge that the promissory notes did not
contain.
The Court has affirmed that financial charges are
amply disclosed if stated in the promissory note in the
case of Development Bank of the Philippines v. Arcilla, Jr.
The Court there said, "Under Circular 158 of the
Central Bank, the lender is required to include the
information required by R.A. 3765 in the contract covering
the credit transaction or any other document to be
acknowledged and signed by the borrower. In addition,
the contract or document shall specify additional charges,
if any, which will be collected in case certain stipulations
in the contract are not met by the debtor." In this case,
the promissory notes signed by the Yus contained data,
including penalty charges, required by the Truth in
Lending Act. They cannot avoid liability based on a rigid
interpretation of the Truth in Lending Act that contravenes
its goal.
Nonetheless, the courts have authority to
reduce penalty charges when these are unreasonable
and iniquitous. Considering that BPI had already
received over P2.7 million in interest and that it seeks to
impose the penalty charge of 3% per month or 36% per
annum on the total amount due—principal plus interest,
with interest not paid when due added to and becoming
part of the principal and also bearing interest at the same
rate
—the Court finds the ruling of the RTC in its original
decision reasonable and fair. Thus, the penalty charge of
12% per annum or 1% per month is imposed.
As for the award of attorney’s fee, it being part
of a party’s liquidated damages, the same may likewise be
equitably reduced. The CA correctly affirmed the RTC
Order to reduce it from 10% to 1% based on the
bars worth P2,650,916.40 covered by a total of 12 Power Plant, “petitioner is presumed to have full
invoices. On November 21, 1997, ACDC made a partial knowledge and to have acted with due care or, at the very
payment of P2,159,211.49, and on March 2, 1998, another least, to have been aware of the terms and conditions of the
partial payment of P250,000, leaving a balance of contract. Petitioner was free to contract the services of
P214,704.91. Capasco sent two demand letters dated another supplier if respondent’s terms were not
May 12, 1998, and August 10, 1998, respectively, but no acceptable”. By contracting with respondent for the
payment was made by ACDC. On November 24, 1998, supply of the reinforcing steel bars and not interposing any
Capasco filed a complaint for a sum of money and objection to the stipulations in the sales
damages.
The trial court ruled for Capasco and held ACDC
liable to pay for the balance of their account with interest
and with an additional 2% interest per month and to pay
attorney’s fees. The CA affirmed with some modifications
on the amount of the balance and the attorney’s fees which
was set at 10%.

Issue: Whether an interest rate of 24% per annum as

penalty stated in the sales invoice is a valid stipulation.
Whether a 25% attorney’s fees as penalty in the sales
invoice is a valid stipulation.

Held: Yes. Yes. Affirmed with modification of the

attorney’s fees.

Ratio: Article 1306 of the Civil Code provides that 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.”
In the present case, the sales invoices expressly
stipulated the payment of interest and attorney’s fees in
case of overdue accounts and collection suits, to wit:
“Interest at
24% per annum is to be charged to all accounts overdue
plus 25% additional on unpaid invoice for attorney’s fees
aside from court cost, the parties expressly submit
themselves to the venue of the courts in Rizal, in case of
legal proceeding.” The sales invoices are in the nature of
contracts of adhesion. ”The court has repeatedly held that
contracts of adhesion are as binding as ordinary
contracts. Those who adhere to the contract are in
reality free to reject it entirely and if they adhere, they give
their consent. It is true that in some occasions the Court
struck down such contracts as void when the weaker
party is imposed upon in dealing with the dominant party
and is reduced to the alternative of accepting the contract
or leaving it, completely deprived of the opportunity to
bargain on equal footing.” Considering that petitioner is
not a small time construction company, having such
construction projects as the MRT III and the Mauban
invoice, petitioner did not only bind itself to pay the In the present case, the invoices stipulate for 25%
stated selling price, it also bound itself to pay (1) interest of the overdue accounts as attorney’s fees. The overdue
of account in this case amounts to P241,704.91, 25% of
24% per annum on overdue accounts and (2) 25% of the which is P60,426.23. This amount is not excessive or
unpaid invoice for attorney’s fees. Thus, the lower courts unconscionable, hence, the court sustained the amount
did not err in using the invoices as basis for the award of attorney’s fees as stipulated by the parties.
of interest.
that in Medel, the defendant-spouses were never able to
Jocelyn M. Toledo vs. Marilou M. Hyden, G.R. No. pay their indebtedness from the very beginning and when
172139, December 8, 2010 () their obligations ballooned into a staggering sum, the
creditors filed a collection case against them. In this case,
Facts: Jocelyn M. Toledo, who was then the Vice- there was no urgency of the need for money on the part of
President of the College Assurance Plan (CAP) Phils., Inc., Jocelyn, the debtor, which compelled her to enter into said
obtained several loans from respondent Marilou M. Hyden loan transactions. She used the money from the loans to
amounting to P290,000 with between 6-7% interest per make advance payments for prospective clients of
month. From August 15, 1993 up to December 31, 1997, educational plans offered by her employer. In this way,
Jocelyn had been religiously paying Marilou the her sales production would increase, thereby entitling
stipulated monthly interest by issuing checks and her to 50% rebate on her sales. This is the reason why
depositing sums of money in the bank account of the she did not mind the 6% to 7% monthly interest.
latter. However, the total principal amount of P290,000.00 Notably
remained unpaid. Thus, in April 1998, Marilou visited
Jocelyn in her office at CAP in Cebu City and asked Jocelyn
and the other employees who were likewise indebted to
her to acknowledge their debts. A document entitled
"Acknowledgment of Debt" for the amount of P290,000.00
was signed by Jocelyn with two of her subordinates as
witnesses. The said amount represents the principal
consolidated amount of the aforementioned previous
debts due on December
25, 1998. Also on said occasion, Jocelyn issued five checks
to Marilou representing renewal payment of her five
previous loans. The first check that was about to be due
was recalled by Jocelyn and replaced by five (5) checks
with staggered amounts. After honoring three (3) of
these (5) replacement checks, Jocelyn ordered the stop
payment on the remaining checks. She then filed a
complaint against Marilou regarding the loan.
The lower court ruled in favor of Marilou and
ordered the payment of the loaned amount plus interest of
12% per annum or 1% per month. CA affirmed.

Issue: Whether 6%-7% interest rate per month can be

validly contracted.

Held: Yes. Affirmed.

Ratio: In view of Central Bank Circular No. 905 s. 1982,

which suspended the Usury Law ceiling on interest
effective January 1, 1983, parties to a loan agreement have
wide latitude to stipulate interest rates. Nevertheless, such
stipulated interest rates may be declared as illegal if the
same is unconscionable. There is certainly nothing in
said circular which grants lenders carte blanche authority
to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their
assets. In fact, in Medel v. Court of Appeals, we annulled
a stipulated 5.5% per month or 66% per annum
interest with additional service charge of 2% per annum
and penalty charge of 1% per month on a P500,000.00
loan for being excessive, iniquitous, unconscionable and
exorbitant.
In this case, however, we cannot consider the
disputed 6% to 7% monthly interest rate to be
iniquitous or unconscionable vis-à -vis the
principle laid down in Medel. Noteworthy is the fact
too, a business transaction of this nature between Jocelyn actually be covered by the available funds in said account.
and Marilou continued for more than five years. Jocelyn She then caught Marilou by surprise when she
religiously paid the agreed amount of interest until she surreptitiously filed a case for declaration of nullity of the
ordered for stop payment on some of the checks issued to document and for damages.
Marilou. The checks were in fact sufficiently funded when
she ordered the stop payment and then filed a case Banco Filipino Savings and Mortgage Bank vs. Judge
questioning the imposition of a 6% to 7% interest Miguel Navarro, CFI Manila, Br. XXXI & Florante del
rate for being allegedly iniquitous or unconscionable Valle, G.R. No. L-46591, July 28, 1987 (152 SCRA 346)
and, hence, contrary to morals.
It was clearly shown that before Jocelyn availed of Facts: On May
said loans, she knew fully well that the same carried with it
an interest rate of 6% to 7% per month, yet she did not
complain. In fact, when she availed of said loans, an
advance interest of 6% to 7% was already deducted from
the loan amount, yet she never uttered a word of protest.
After years of benefiting from the proceeds of the loans
bearing an interest rate of
6% to 7% per month and paying for the same, Jocelyn
cannot now go to court to have the said interest rate
annulled on the ground that it is excessive, iniquitous,
unconscionable, exorbitant, and absolutely revolting to the
conscience of man. "This is so because among the maxims
of equity are (1) he who seeks equity must do equity, and
(2) he who comes into equity must come with clean hands.
The latter is a frequently stated maxim which is also
expressed in the principle that he who has done
inequity shall not have equity. It signifies that a litigant
may be denied relief by a court of equity on the ground
that his conduct has been inequitable, unfair and
dishonest, or fraudulent, or deceitful as to the controversy
in issue."
We are convinced that Jocelyn did not come to
court for equitable relief with equity or with clean hands.
It is patently clear from the above summary of the facts
that the conduct of Jocelyn can by no means be
characterized as nobly fair, just, and reasonable. This
Court likewise notes certain acts of Jocelyn before filing
the case with the RTC. In September 1998, she requested
Marilou not to deposit her checks as she can cover the
checks only the following month. On the next month,
Jocelyn again requested for another extension of one
month. It turned out that she was only sweet-talking
Marilou into believing that she had no money at that
time. But as testified by Serapio Romarate, an
employee of the Bank of Commerce where Jocelyn is one
of their clients, there was an available balance of
P276,203.03 in the latter’s account and yet she ordered
for the stop payments of the seven checks which canrespondent Florante del Valle
20, 1975,
obtained a loan secured by a real estate mortgage from Bank.
petitioner BANCO FILIPINO in the sum of Forty-one Stamped on the promissory note evidencing the
Thousand Three Hundred (P41,300.00) Pesos, payable loan is an Escalation Clause, reading as follows: “I/We
and to be amortized within fifteen (15) years at twelve hereby authorize Banco Filipino to correspondingly
(12%) per cent interest annually. Hence, the LOAN still increase the interest rate stipulated in this contract
had more than 730 days to run by January 2, 1976, the without advance notice to me/us
date when CIRCULAR No. 494 was issued by the Central
in the event a law should be enacted increasing the
lawful rates of interest that may be charged on this Held: No. Affirmed.
particular kind of loan."
The Escalation Clause is based upon Central
Bank CIRCULAR No. 494 issued on January 2, 1976, the
pertinent portion of which reads: "3. The maximum rate of
interest, including commissions, premiums, fees and other
charges on loans with maturity of more than seven
hundred thirty (730) days, by banking institutions,
including thrift banks and rural banks, or by financial
intermediaries authorized to engage in quasi- banking
functions shall be nineteen per cent (19%) per annum.”
CIRCULAR No. 494 was issued pursuant to
the authority granted to the Monetary Board by
Presidential Decree No. 116 which states “The Monetary
Board is hereby authorized to prescribe the maximum rate
or rates of interest for the loan or renewal thereof or the
forbearance of any money, goods or credits, and to
change such rate or rates whenever warranted by
prevailing economic and social conditions: Provided, that
such changes shall not be made oftener than once every
twelve months.
On the strength of CIRCULAR No. 494 BANCO FILIPINO
gave notice to the
BORROWER on June 30, 1976 of the increase of interest
rate on the LOAN from 12% to
17% per annum effective on March 1, 1976.
Contending that CIRCULAR No. 494 is not the
law contemplated in the Escalation Clause of the
promissory note, the BORROWER filed suit against
BANCO FILIPINO for "Declaratory Relief" with
respondent Court, praying that the Escalation Clause be
declared null and void and that BANCO FILIPINO be
ordered to desist from enforcing the increased rate of
interest on the BORROWER's real estate loan.
The lower court nullified the Escalation Clause
and ordered BANCO FILIPINO to desist from enforcing the
increased rate of interest on the BORROWER's loan. It
reasoned out that P.D. No. 116 does not expressly grant
the Central Bank authority to maximize interest rates
with retroactive effect and that BANCO FlLIPINO cannot
legally impose a higher rate of interest before the
expiration of the 15-year period in which the loan is to be
paid other than the 12% per annum in force at the time
of the execution of the loan.

Issue: Whether an escalation clause that bases the

increase in the interest rate on changes in the law can be
used to increase the interest rate based on a Central Bank
Circular.
 It is clear from the stipulation between the
parties that the interest rate may be increased "in the
event a law should be enacted increasing the lawful rate
of interest that may be charged on this particular kind of
loan." The Escalation Clause was dependent on an
increase of rate made by "law" alone.
CIRCULAR No. 494, although it has the effect of
law, is not a law. Although a circular duly issued is not
strictly a statute or a law, it has, however, the force and
effect of law. An administrative regulation adopted
pursuant to law has the force and effect of

Ratio: Undoubtedly, the escalation clause is valid. What

should be resolved is whether BANCO FILIPINO can
increase the interest rate on the LOAN from 12% to
17% per annum under the Escalation Clause. It is our
considered opinion that it may not.
law. That administrative rules and regulations have the provided for the maximum yearly interest of 12% for loans
force of law can no longer be questioned. secured by a mortgage upon registered real estate (Section
The distinction between a law and an 2), and a maximum annual interest of 14% for loans
administrative regulation is recognized in the Monetary covered by security other than mortgage upon registered
Board guidelines quoted in the letter to the BORROWER of real estate (Section 3). Significant is the separate treatment
Ms. Paderes of September 24, 1976 (supra). According of registered real estate loans and other loans not secured
to the guidelines, for a loan's interest to be subject to by mortgage upon registered real estate. It appears clear in
the increases provided in CIRCULAR No. 494, there must the Usury Law that the policy is to make interest rates for
be an Escalation Clause allowing the increase "in the event loans guaranteed by registered real estate lower than those
that any law or Central Bank regulation is promulgated for loans guaranteed by properties other than registered
increasing the maximum interest rate for loans." The realty.
guidelines thus presuppose that a Central Bank regulation On January 29, 1973, P.D. No. 116 was promulgated
is not within the term "any law." amending the Usury Law. The Decree gave
The distinction is again recognized by P.D. No. 1684,
promulgated on March 17,
1980, adding section 7-a to the Usury Law, providing that
parties to an agreement pertaining to a loan could
stipulate that the rate of interest agreed upon may be
increased in the event that the applicable maximum rate of
interest is increased "by law or by the Monetary Board."
It is now clear that from March 17, 1980,
escalation clauses to be valid should specifically provide:
(1) that there can be an increase in interest if increased by
law or by the Monetary Board; and (2) in order for such
stipulation to be valid, it must include a provision for
reduction of the stipulated interest "in the event that
the applicable maximum rate of interest is reduced by law
or by the Monetary Board."
While P.D. No. 1684 is not to be given
retroactive effect, the absence of a de- escalation clause
in the Escalation Clause in question provides another
reason why it should not be given effect because of its one-
sidedness in favor of the lender.
The Escalation Clause specifically stipulated that
the increase in interest rate was to be "on this particular
kind of loan, " meaning one secured by registered real
estate mortgage. Paragraph 7 of CIRCULAR No. 494
specifically directs that "loans or renewals continue to
be governed by the Usury Law, as amended." So do
Circular No.
586 of the Central Bank, which superseded Circular
No. 494, and Circular No. 705, which superseded
Circular No. 586. The Usury Law, as amended by Acts
Nos. 3291,
3998 and 4070, became effective on May 1, 1916. It
authority to the Monetary Board "to prescribe
maximum rates of interest for the loan or renewal thereof
or the forbearance of any money, goods or credits, and to
change such rate or rates whenever warranted by
prevailing economic and social conditions. In one section,
the Monetary Board could prescribe the maximum rate of
interest for loans secured by mortgage upon registered
real estate or by any document conveying such real
estate or an interest therein and, in another separate
section, the Monetary Board was also granted authority
to fix the maximum interest rate for loans secured by
types of security other than registered real property.
 Apparent then is that the separate treatment for
the two classes of loans was maintained. Yet, CIRCULAR
No. 494 makes no distinction as to the types of loans that it
is applicable to unlike Circular No. 586 dated January 1,
1978 and Circular No. 705 dated December 1, 1979, which
fix the effective rate of interest on loan transactions with
maturities of more than 730 days to not exceeding 19%
per annum (Circular No. 586) and not exceeding 21% per
annum (Circular No. 705) "on both secured and
unsecured loans as defined by the Usury Law, as
amended."
In the absence of any indication in CIRCULAR
No. 494 as to which particular type of loan was meant
by the Monetary Board, the more equitable construction
is to limit CIRCULAR No. 494 to loans guaranteed by
securities other than mortgage upon registered realty.
rate of my mortgage loan be from 18% to 21%".
On July 4, 1984, private respondent paid PNB
P360,000.00. On July 18, 1984, private respondent
reiterated in writing his request that "the increase in the
rate of interest from 18% be fixed at 21% or 24%. On
July 26, 1984, private respondent made an additional
payment of P100,000.
On August 10, 1984, PNB informed private
respondent that "we can not give due course to your
request for preferential interest rate in view of the
following reasons:

Philippine National Bank vs. CA & Ambrosio Padilla,

G.R. No. 88880, April 30,
1991 (196 SCRA 535)

Facts: In July 1982, the private respondent applied for,

and was granted by petitioner PNB, a credit line of 321.8
million, secured by a real estate mortgage, for a term of
two (2) years, with 18% interest per annum. Private
respondent executed in favor of the PNB a Credit
Agreement, two (2) promissory notes in the amount of
P900,000.00 each, and a Real Estate Mortgage Contract.
The Promissory Notes, in turn, uniformly authorized the
PNB to increase the stipulated 18% interest per annum
"within the limits allowed by law at any time
depending on whatever policy it [PNB] may adopt in
the future; Provided, that, the interest rate on this
note shall be correspondingly decreased in the event
that the applicable maximum interest rate is reduced
by law or by the Monetary Board." The Real Estate
Mortgage Contract likewise provided that the rate of
interest shall be subject during the life of this contract to
such an increase within the rate allowed by law, as the
Board of Directors of the MORTGAGEE may prescribe
for its debtors.
Four (4) months advance interest and incidental
expenses/charges were deducted from the loan, the net
proceeds of which were released to the private
respondent by crediting or transferring the amount to his
current account with the bank.
On June 20, 1984, PNB informed the private
respondent that (1) his credit line of P1.8 million "will
expire on July 4, 1984,"(2) "if renewal of the line for
another year is intended, please submit soonest possible
your request," and (3) the "present policy of the Bank
requires at least 30% reduction of principal before your
line can be renewed." Complying, private respondent on
June 25, 1984, paid PNB P540,000 (30% of P1.8 million)
and requested that "the balance of P1,260,000.00 be
renewed for another period of two (2) years under the
same arrangement" and that "the increase of the interest
28
Existing Loan Policies of the bank requires 32% for loan of whenever warranted by prevailing economic and social
more than one year; our present cost of funds has conditions, it expressly provides that "such changes
substantially increased." shall not be made oftener than once every twelve
On August 17, 1984, private respondent further months."
paid PNB P150,000.00. In a letter dated August 24, In this case, PNB, over the objection of the private
1984 to PNB, private respondent announced that he respondent, and without authority from the Monetary
would "continue making further payments, and instead of Board, within a period of only four (4) months,
a 'loan of more than one year,' I shall pay the said loan increased the 18% interest rate on the private
before the lapse of one year or before July 4, 1985. I respondent's loan obligation three (3) times: (a) to
reiterate my request that the increase of my rate of 32% in July 1984; (b) to 41% in October 1984; and (c) to
interest from 18% 'be fixed at 21% or 24%.'". On 48% in November 1984. Those increases were null and
September 12, 1984, private respondent paid PNB void, for if the Monetary Board itself was not authorized to
P160,000.00. make
In letters dated September 12, 1984 and
September 13, 1984, PNB informed private respondent R
that "the interest rate on your outstanding line/loan is a
hereby adjusted from 32% p.a. to 41% p.a. (35% prime t
rate + 6%) effective September 6, 1984;" and further i
explained "why we can not grant your request for a lower o
rate of 21% or 24%." :
In a letter dated September 24, 1984 to PNB,
private respondent registered his protest against the I
increase of interest rate from 18% to 32% on July 4, n
1984 and from
32% to 41% on September 6, 1984. On October 15, 1984, t
private respondent reiterated his request that the interest h
rate should not be increased from 18% to 32% and from e
32% to 41%. He also attached (as payment) a check for
P140,000.00. f
Like rubbing salt on the private respondent's i
wound, the petitioner informed private respondent on r
October 29, 1984, that "the interest rate on your s
outstanding line/loan is hereby adjusted from 41% p.a. to t
48% p.a. (42% prime rate plus 6% spread) effective 25
October 1984." p
In November 1984, private respondent paid l
PNB P50,000.00 thus reducing his principal loan a
obligation to P300,000.00. c
On December 18, 1984, private respondent filed in the e
Regional Trial Court of ,
Manila a complaint against PNB to question the unilateral
increase in the interest rates. a
On March 31, 1985, the private respondent paid l
the P300,000 balance of his obligation to PNB. t
The trial court rendered judgment on April 14, h
1986, dismissing the complaint because the increases of o
interest were properly made. CA reversed. u
g
Issue: Whether a bank may unilaterally change or h
increase the interest rate stipulated therein at will and as
often as it pleased. S
e
c
Held: No. Affirmed
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29
such changes oftener than once a year, even less so may stipulated in writing." The debtor herein never agreed in
a bank which is subordinate to the Board. writing to pay the interest increases fixed by the PNB
Secondly, as pointed out by the Court of Appeals, beyond 24% per annum, hence, he is not bound to pay a
while the private respondent- debtor did agree in the Deed higher rate than that.
of Real Estate Mortgage that the interest rate may be
increased during the life of the contract "to such increase Development Bank of the Philippines & Privatization
within the rate allowed by law, as the Board of Directors of and Management Office (formerly Asset Privatization
the MORTGAGEE may prescribe" or "within the limits Trust) vs. CA, Philippine United Foundry & Machinery
allowed by law", no law was ever passed in July to Shop & Philippine Iron Manufacturing Co., Inc., G.R.
November 1984 increasing the interest rates on loans or No. 138703, June
renewals thereof to 32%, 41% and 48% (per annum), and 30, 2006 (494 SCRA 25)
no documents were executed and delivered by the debtor
Facts: Sometime in from its issuance for an
to effectuate the increases.
March 1968, the amount that was 25%
The PNB relied on its own Board Resolution No.
Development Bank of less than its face value.
681 (Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and
the Philippines (DBP) On September
PNB Circular No. 40-129-84 (Exh. 15), but those resolution
granted to respondents 10, 1975, the outstanding
and circulars are neither laws nor resolutions of the
Philippine United accounts of respondents
Monetary Board. CB Circular No.
Foundry and with DBP were
905, Series of 1982 (Exh. 11) removed the Usury Law
Machineries Corporation restructured in view of
ceiling on interest rates, but it did not authorize the PNB,
and Philippine Iron their failure to pay. Thus,
or any bank for that matter, to unilaterally and
Manufacturing Company, the outstanding
successively increase the agreed interest rates from 18%
Inc. an industrial loan in principal balance of the
to 48% within a span of four (4) months, in violation of
the amount of loans and advances
PD. 116 which limits such changes to "once every twelve
P2,500,000 consisting of amounting to
months."
P500,000 in cash and P4,655,992.35 were
Besides violating PD. 116, the unilateral action of
P2,000,000 in DBP consolidated into a single
the PNB in increasing the interest rate on the private
Progress Bonds. The account. The
respondent's loan, violated the mutuality of contracts
loan was evidenced by a restructured loan was
ordained in Article 1308 of the Civil Code. In order that
promissory note dated evidenced by a new
obligations arising from contracts may have the force of
June 26, 1968 and promissory note dated
law between the parties, there must be mutuality between
secured by a mortgage November 12, 1975
the parties based on their essential equality. A contract
executed by respondents payable within seven
containing a condition which makes its fulfillment
over their present and years, with partial
dependent exclusively upon the uncontrolled will of one
future properties such as payments on the
of the contracting parties, is void (Garcia vs. Rita Legarda,
buildings, permanent principal to be made
Inc., 21 SCRA 555). Hence, even assuming that the P1.8
improvements, various beginning on the third
million loan agreement between the PNB and the private
machineries and year plus a 12% interest
respondent gave the PNB a license (although in fact there
equipment for per annum payable every
was none) to increase the interest rate at will during the
manufacture. month.
term of the loan, that license would have been null and
Subsequently, Notwithstanding
void for being violative of the principle of mutuality
DBP granted to the restructuring,
essential in contracts. It would have invested the loan
respondents another respondents were still
agreement with the character of a contract of adhesion,
loan in the form of a five- unable to comply with
where the parties do not bargain on equal footing, the
year revolving guarantee the terms and
weaker party's (the debtor) participation being reduced to
amounting to P1,700,000 conditions of the new
the alternative "to take it or leave it" (Qua vs. Law Union &
which was reflected in promissory notes. As a
Rock Insurance Co., 95 Phil. 85). Such a contract is a
the amended mortgage result, respondents
veritable trap for the weaker party whom the courts of
contract. According to requested DBP to
justice must protect against abuse and imposition.
respondents, the loan refinance the matured
PNB'S successive increases of the interest rate on
guarantee was extended obligation. The request
the private respondent's loan, over the latter's protest,
to them when they was granted by DBP,
were arbitrary as they violated an express provision of the
encountered difficulty in pursuant to which three
Credit Agreement (Exh. 1) Section 9.01 that its terms
negotiating the DBP foreign currency
"may be amended only by an instrument in writing signed
Progress Bonds. denominated loans
by the party to be bound as burdened by such
Respondents were only sourced from DBP’s own
amendment." The increases imposed by PNB also
able to sell the bonds in foreign borrowings were
contravene Art. 1956 of the Civil Code which provides that
1972 or about five years extended to respondents
"no interest shall be due unless it has been expressly
30
on various dates remitted to DBP to obtain the annulment
between 1980 and 1981. approximately Held: Yes. Modified. of a contract on account
Sometime in P5,300,000 to repay of factors such as
October 1985, DBP their original debt. Ratio: As correctly mistake, violence,
initiated foreclosure Additionally, pointed out by PMO, the intimidation, undue
proceedings upon its respondents assert that original loans alluded to influence and fraud
computation that since the loans were by respondents had been which vitiate consent.
respondents’ loans were procured for the Self- refinanced and However, the fact that
in arrears by Reliant Defense Posture restructured in order to the representatives were
P62,954,473.68. Program of the Armed extend their maturity "forced" to sign the
According to DBP, this Forces of the dates. Refinancing is an promissory notes and
figure already took Philippines (AFP), the exchange of an old debt mortgage contracts in
into account the latter’s breach of its for a new debt, as by order to have
intermittent payments commitment to negotiating a different respondents’ original
made by respondents purchase military interest rate or term or loans restructured and to
between 1968 and armaments and by repaying the existing prevent the foreclosure
1981 in the aggregate equipment from loan with money of their properties does
amount of respondents amounts acquired from a new not amount to vitiated
P5,150,827.71. to a failure of loan. On the other consent. The financial
However, the consideration that hand, restructuring, as condition of respondents
foreclosure proceedings would justify the applied to a debt, implies may have motivated
were suspended on annulment of the not only a postponement them to contract with
twelve separate mortgage on of the maturity but also a DBP, but undue
occasions from October respondents? modification of the influence cannot be
1985 to December 1986 properties. essential terms of the attributed to DBP simply
upon the The RTC issued a TRO debt (e.g., conversion of because the latter had
representations of and Writ of debt into bonds or into lent money. The concept
respondents that a Preliminary Injunction. equity, or a change in or of undue influence is
financial rehabilitation It then ruled against amendment of collateral defined as follows: There
fund arising from a DBP. CA affirmed. security) in order to is undue influence when
contract with the make the account of the a person takes improper
military was debtor current. advantage of his power
forthcoming. On The reason over the will of another,
December 23, 1986, respondents seek to be depriving the latter of a
before DBP could excused from fulfilling reasonable freedom of
proceed with the their obligation under choice. The following
foreclosure proceedings, the second batch of circumstances shall be
respondents instituted promissory notes is that considered: the
the present suit for first, they allegedly had confidential, family,
injunction. "no choice" but to sign spiritual and other
Respondents’ the documents in order relations between the
cause of action arose to have the loan parties or the fact that
from their claim that restructured and thus the person alleged to
DBP was collecting from avert the foreclosure of have been unduly
them an unconscionable their properties, and influenced was suffering
if not unlawful or second, they never from mental weakness,
usurious obligation of received any proceeds or was ignorant or in
P62,954,473.68 as of from the same. This financial distress.
September 30, 1985, out reasoning cannot be While
of a mere P6,200,000 sustained. Respondents’ respondents were
loan. Primarily, allegation that they had purportedly financially
respondents contended no "choice" but to sign is distressed, there is no
that the amount claimed tantamount to saying clear showing that those
by DBP is erroneous that DBP exerted undue acting on their behalf had
since they have influence upon them. been deprived of their
The Court is mindful that free agency when they
Issue: Whether a be paid at the exchange executed the promissory
foreign currency rate prevailing at the the law grants an
aggrieved party the right notes representing
denominated loan shall time of the payment. respondents’ refinanced
31
obligations to DBP. For The alleged lingering
undue influence to be financial woes of a debtor
present, the influence per se
exerted must have so cannot be equated with
overpowered or the presence of undue
subjugated the mind of a influence.
contracting party as to Corollarily, the
destroy the latter’s threat to foreclose the
free agency, making mortgage would not in
such party express the itself vitiate consent as
will of another rather it is a threat to enforce
than its own. a just or legal claim
through competent
authority. It bears
emphasis that the
foreclosure of
mortgaged properties in
case of default in
payment of a debtor is
a legal remedy given
by law to a creditor.
In the event of default
by the mortgage debtor
in the performance of
the principal obligation,
the mortgagee
undeniably has the right
to cause the sale at
public auction of the
mortgaged property for
payment of the
proceeds to the
mortgagee.
It is likewise of relation of the parties for
no moment that they unequivocally
respondents never express the terms and
physically received the conditions of the parties’
proceeds of the foreign loan agreement, which
currency loans. When are binding and
the loan was refinanced conclusive between
and restructured, the them. Parties are free
proceeds were to enter into
understandably not stipulations, clauses,
actually given by DBP to terms and conditions
respondents since the they may deem
transaction was but a convenient; that is, as
renewal of the first or long as these are not
original loan and the contrary to law, morals,
supposed proceeds were good customs, public
applied as payment for order or public policy. As
the latter. a rule, a court in such a
It also bears case has no alternative
emphasis that the but to enforce the
second set of contractual stipulations
promissory notes in the manner they have
executed by been agreed upon and
respondents must written. Courts, whether
govern the contractual trial or appellate,
generally have no power currency and were to be
to relieve parties from paid in its peso
obligations voluntarily equivalent after they had
assumed simply because already given their
their contract turned out consent to such terms.
to be disastrous or There is no legal
unwise investments. impediment to having
Thus, respondents obligations or
cannot be absolved from transactions paid in a
their loan obligations on foreign currency as long
the basis of the failure as the parties agree to
of the AFP to fulfill its such an arrangement. In
commitment under the fact, obligations in
manufacturing foreign currency may be
agreement entered by discharged in Philippine
them allegedly upon the currency based on the
prompting of certain AFP prevailing rate at the
and DBP officials. While time of payment.
it is true that the DBP
representatives appear Emma R. Geniza,
to have been aware that Aurelio Geniza, Lorenzo
the proceeds from the Rivera, Catalina
sale to the AFP were Carreon Rivera &
supposed to be applied Zacarias Rivera vs.
to the loan, the records Henry Sy & Asia
are bereft of any proof Mercantile
that would show that Corporation, G.R. No. L-
DBP was a party to the 17165, July 31, 1962 (5
contract itself or that SCRA 754)
DBP would condone
respondents’ credit if the Facts: On July 8, 1959,
contract did not Catalina Carreon, with
materialize. Even the consent
assuming that the AFP
defaulted in its
obligations under the
manufacturing
agreement, respondents’
cause of action lies with
the AFP, and not with
DBP or PMO. The loan
contract of respondents
is separate and distinct
from their
manufacturing
agreement with the AFP.
Again, as a rule,
courts cannot intervene
to save parties from
disadvantageous
provisions of their
contracts if they
consented to the same
freely and voluntarily.
Thus, respondents
cannot now protest
against the fact that
the loans were
denominated in foreign
32
of her husband Zacarias
Rivera, mortgaged to
the defendant Asia
Mercantile Corporation
Lot No. 551 of the
Piedad estate
subdivision for
P50,000.00, payable
within a period of thirty
days with interest at
the rate of 12% per
annum. Paragraph 4, of
the contract provides
that upon failure of the
mortgagor to pay the
indebtedness and the
interest when due, the
mortgage shall become
due and demandable,
and without necessity
of demand the
mortgagee may
immediately foreclose
the mortgage, judicially
or extrajudicially, and
for this purpose the
mortgagor appoints the
mortgagee as his
attorney-in-fact to sell
the properties and to
sign

33
all documents and perform any act requisite and provisions of Articles 1227 and 1229 of the Civil Code of
necessary to accomplish said purpose. It was further the Philippines. We do not agree with counsel for
expressly agreed that in case of foreclosure the plaintiffs-appellants that the contract was a usurious
mortgagor binds himself to pay the mortgagee 30% of the contract there being no allegation of fact that the
sum owing and unpaid as attorney's fees and liquidated mortgagee's intention was to exact a usurious interest, nor
damages, exclusive of costs and expenses of the sale. On evidence to that effect. Neither is there any allegation or
the same date another mortgage was executed by claim that the mortgage is contra bonos mores, so that we
plaintiffs Emma R. Geniza, Aurelio Geniza and Lorenzo may assume that he demanded the insertion of the
Rivera over two parcels of registered land for the sum of iniquitous clause or 30% damages to cover a usurious
P50,000.00, and with the same conditions as the mortgage deal. Under these circumstances we cannot sustain the
executed by the spouses Catalina Carreon and Zacarias claim of the plaintiffs-appellants that the agreement was
Rivera. a usurious one; so that we hold that the trial court was
The mortgagors in both mortgage contracts fully justified in considering the provision only as an
defaulted in the payment of their respective obligations.
The mortgage executed by Catalina Carreon Rivera and R
Zacarias Rivera was foreclosed extra-judicially and the a
proceeds of the sale of the land amounting to P68,567.57 t
was disposed of by the mortgagee. i
Plaintiffs brought this action to obtain a judicial o
declaration that the stipulation in the deeds of mortgage :
fixing the amount of 30% as attorney's fees and
liquidated damages is excessive, unconscionable and I
iniquitous and that the same should be reduced to P200.00 n
(or 1%). The complainants also asked for P5,000.00 as
attorney's fees for bringing this action. The defendants set r
up the defense that the complaint states no cause of e
action; that the mortgage executed by Emma R. Geniza and d
Aurelio Geniza has not yet been foreclosed; that the u
mortgagors are estopped from alleging that the stipulation c
regarding liquidated damages and attorney's fees is i
excessive and unreasonable. n
CFI dismissed the action of plaintiffs Emma Geniza g
and Aurelio Geniza as premature and ordered the
defendant Asia Mercantile Corporation to return to t
plaintiff Catalina C. Rivera the sum of P13,567.57 which h
represents the excess of the total obligations of the e
mortgagor. It is against the above judgment that the
plaintiffs have prosecuted the appeal to this Court, 3
claiming that the lower court erred in not reducing the 0
liquidated damages and the attorney's fees to not more
than P500.00 and in not declaring the stipulation exacting p
attorney's fees and liquidated damages as a usurious e
stipulation, by reason of which plaintiffs (appellants r
herein) should be entitled to attorney's fees amounting
to P5,000.00. c
e
Issue: Whether the reduction of a 30% stipulated atty’s n
fees and litigation damages to 5% t
by a lower court judge is justified.
a
t
Held: Yes. Affirmed.
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34
iniquitous clause subject to reduction. We also find the
reduced liquidated damages and attorney's fees to be fair
and we find no reason for disturbing the discretion of the
court below in this respect.
Dominador Nicolas & Olimpia Matias vs. Vicenta
Matias, Amado Cornejo, Jr., Jose
Policarpio, & Matilde Manuel, G.R. No. L-8093, October
29, 1955 (97 Phil 795)
chose the latter alternative and, accordingly, rendered
judgment "ordering defendants to pay plaintiffs the
amount of P2,000, Philippine currency, with interest at
six per cent (6%) a year, from June 29, 1945, up to the
date when it is actually paid."
Issue: Whether a stipulation that makes the loan payable
after liberation will cause the application of the currency at
that time. (Peso for Peso)

Facts: By an instrument dated June 29, 1944, Vicenta Held: Yes. Reversed.
Matias Vda. de Cornejo, and her son, Amado Cornejo, Jr.,
mortgaged to the spouses Dominador Nicolas and Olimpia
Matias, four (4) parcels of land, situated in San Roque,
municipality of Gapan, Province of Nueva Ecija, to
guarantee the payment of the sum of P30,000 — then lent
by the mortgagees to the mortgagors and received by
the latter, in Japanese military notes — one (1) year after
the expiration of five (5) years from said date, with
interest thereon, at the rate of six per cent (6%) per
annum. On July 15, 1944, said mortgagors offered to pay
the debt, with interest for five (5) years, but the
mortgagees rejected the offer. Whereupon, in August,
1944, the mortgagors deposited judicially the sum of
P39,000 — representing the principal (P30,000), plus
interest for five (5) years, at the stipulated rate
— and instituted Civil Case No. 156 of the Court of First
Instance of Nueva Ecija for the purpose of compelling the
mortgagees to accept said amount and to discharge the
mortgage. Although holding that the mortgagees were not
justified in rejecting the tender of payment made by the
mortgagors, said court rendered judgment, on August 12,
1946, declaring the consignation invalid for failure of the
mortgagors to give previous notice thereof, and sentencing
the mortgagors to pay the mortgagees the sum of P2,000
— as the equivalent in Philippine currency, pursuant to the
Ballantyne schedule, of P30,000 in Japanese military notes
— with interest, at the legal rate, from June 29, 1944.
The CA held the consignation valid and the obligation
guaranteed by the mortgage fully discharged. The
mortgagees, however, brought the case, for review by
writ of certiorari, to this Court, which held that the
mortgagors could not, without the mortgagees' consent,
accelerate the date of maturity of the obligation in
question, which is payable after the fifth year from June
29, 1944; that the mortgagees cannot be compelled to
accept payment prior to the expiration of said fifth year;
and that the judicial consignation made by the mortgagors
is, consequently, invalid, except as regards the amount
corresponding to the interest for one (1) year from June
29, 1944.
Soon thereafter, or on August 22, 1951, the
mortgagees instituted the present action for foreclosure of
said mortgage. The only issue raised in the lower court
was whether the sum of P30,000, lent by the
mortgagees in Japanese war notes, should be paid by the
mortgagors in Philippine currency, peso for peso, or in
accordance with the Ballantyne schedule. The lower court
35
 1945, and thereupon Ang Lam presented a claim against
Ratio: In Cruz vs. Del Rosario (G. R. No. L-4859) decided her estate for the full amount of the indebtedness.
on July 24, 1951, it was held that if according to the Judgment having been rendered thereon for P1,000, the
stipulation of the parties, the money to be paid by the equivalent thereof according to the Ballantyne Conversion
debtor to the creditor, or by the vendor with pacto to the Table, Ang Lam has prosecuted this appeal, contending
creditor to redeem the property mortgaged, or sold, shall that as the currency in which the indebtedness was to
be due and payable after liberation as agreed upon by the be paid was not agreed upon or stipulated in the
parties in the present case, it shall be paid in legal tender contract of loan, this should be in the legal tender on
or Philippine currency at par value or at the rate of one December 25, 1945, or one year
Philippine peso for each peso in Japanese military notes; I
but if it shall be due and payable before liberation it shall t
be paid after the liberation in Philippine currency in
accordance with the Ballentyne schedule. This ruling i
was reiterated in Arevalo vs. Barreto (89 Phil. 633) s
decided on July 31, 1951. To the same effect was the
conclusion reached in the case of Wilson vs. t
Berkenkotter (49 Off. Gaz., p. 1401). The foregoing view h
has been consistently applied by this Court in a u
number of other cases, among which the following may s
be mentioned: Ilusorio vs. Busuego, 84 Phil., 630; Roñ o
vs. Gomez, 46 Off. Gaz., Supp. No. 11, 339; Gomez vs. Tabia, s
47 Off. Gaz., 641, Ponce de Leon vs. Syjuco, 90 Phil., 311; e
Garcia vs. De los Santos, 49 Off. Gaz., 4830. What is t
more, the strong dissents written in some of the cases t
cited indicated that adherence to said view was effected l
upon thorough consideration of the different aspects e
thereof, that said doctrine is now in the nature of stare d
decisis and that the issue is now close as regards this
Court. t
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36
from the date of the loan, because both parties had
elected to subject their rights to a contingency, i.e., the
change in the intrinsic value and purchasing power of the
currency.
Issue: Whether a stipulation that makes the loan payable
within the 1-year period when the liberation occurred will
cause the application of the currency at the time prior to
the liberation. (Ballantyne scale)
Held: Yes. Affirmed.
and such amount shall bear interest at the highest rate
permitted by law from the date of default until full
payment thereof plus liquidated damages at the rate of
two (2%) percent per month compounded quarterly on
the unpaid balance and accrued interests together with
all the penalties, fees, expenses or charges thereon until
the unpaid balance is fully paid, plus attorney’s fees
equivalent to twenty-five (25%) percent of the sum sought
to be recovered, which in no case shall be less than
Twenty Thousand Pesos ( P20,000.00) if the services of a
lawyer were hired.
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37
 Este del Sol executed several documents as the time the contract was made and entered into, govern
security, including a Real Estate Mortgage and Suretyship it. More significantly, Central Bank Circular No. 905 did
Agreement. They also executed an Underwriting not repeal nor in any way amend the Usury Law but
Agreement whereby petitioner FMIC shall underwrite on a simply suspended the latter’s effectivity. The illegality of
best-efforts basis the public offering of One Hundred usury is wholly the creature of legislation. A Central Bank
Twenty Thousand (120,000) common shares of Circular cannot repeal a law. Only a law can repeal
respondent Este del Sol’s capital stock for a one-time another law. Thus, retroactive application of a Central
underwriting fee of Two Hundred Thousand Pesos Bank Circular cannot, and should not, be presumed.
(P200,000.00).
Since respondent Este del Sol failed to meet the R
schedule of repayment in accordance with a revised a
Schedule of Amortization, it appeared to have incurred a t
total obligation of P12,679,630.98. Accordingly, petitioner i
FMIC caused the extrajudicial foreclosure of the real estate o
mortgage on June 23, 1980. At the public auction, :
petitioner FMIC was the highest bidder of the mortgaged
properties for Nine Million Pesos (P9,000,000.00). F
Failing to secure from the individual respondents, i
as sureties, the payment of the alleged deficiency balance, r
a collection case was filed for the payment of s
P6,863,297.73 plus interest thereon at twenty-one (21%) t
percent per annum from June 24, 1980 until fully paid, ,
and twenty-five (25%) percent thereof as and for
attorney’s fees and costs. t
The lower court ruled for the creditor FMIC. CA h
reversed. The appellate court found and declared that the e
fees provided for in the Underwriting and Consultancy r
Agreements were mere subterfuges to camouflage the e
excessively usurious interest charged by the petitioner
FMIC on the loan of respondent Este del Sol; and that the i
stipulated penalties, liquidated damages and attorney’s s
fees were “excessive, iniquitous, unconscionable and
revolting to the conscience,” and declared that in lieu n
thereof, the stipulated one time twenty (20%) percent o
penalty on the amount due and ten (10%) percent of the
amount due as attorney’s fees would be reasonable and m
suffice to compensate petitioner FMIC for those items. e
Thus, the appellate court dismissed the complaint as r
against the individual respondents sureties and ordered i
petitioner FMIC to pay or reimburse respondent Este del t
Sol the amount of P971,000 representing the difference
between what is due to the petitioner and what is due to t
respondent Este del Sol, based on the following o
computation.
p
Issue: Whether a contract that has usurious interest rate e
shall be deemed as having no interest at all. t
i
t
Held: Yes. Affirmed.
i
o
n
e
r

F
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I
38
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39
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40
u h
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o t
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a U
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41
l need to rely on the face which were executed
e of written contracts to simultaneously were set
m determine the intention to mature or shall remain
e of the parties. However, effective during the same
n this rule is not without period of time.
t exception. The form of b) The
a the contract is not Loan Agreement dated
r conclusive for the law January 31, 1978
y will not permit a stipulated for the
usurious loan to hide execution and delivery of
r itself behind a legal form. an underwriting
u Parol evidence is agreement and
l admissible to show that specifically mentioned
e a written document that such underwriting
though legal in form was agreement is a condition
o in fact a device to cover precedent for petitioner
f usury. If from a FMIC to extend the loan
construction of the to respondent Este del
c whole transaction it Sol, indicating and as
o becomes apparent that admitted by petitioner
n there exists a corrupt FMIC’s employees, that
t intention to violate the such Underwriting
r Usury Law, the courts Agreement is “part and
a should and will permit parcel of the Loan
c no scheme, however Agreement.”
t ingenious, to becloud the c) Respondent Este
s crime of usury. del Sol was billed by
In the instant petitioner on February
t case, several facts and 28, 1978 One Million
h circumstances taken Three Hundred Thirty
a altogether show that the Thousand Pesos
t Underwriting and (P1,330,000.00) as
Consultancy Agreements consultancy fee despite
t were simply cloaks or the clear provision in the
h devices to cover an Consultancy Agreement
e illegal scheme employed that the said agreement
by petitioner FMIC to is for Three Hundred
l conceal and collect Thirty-Two Thousand
a excessively usurious Five Hundred Pesos
w interest, and these are: (P332,500.00) per
s a) T annum for four (4) years
, he Underwriting and and that only the first
Consultancy year consultancy fee shall
i Agreements are both be due upon signing of
n dated January 31, the said consultancy
1978 which is the same agreement.
f date of the Loan d) The
o Agreement. Underwriting,
r Furthermore, under the Supervision and
c Underwriting Agreement Consultancy fees in the
e payment of the amounts of Two Hundred
supervision and Thousand Pesos
a consultancy fees was set (P200,000.00), Two
t for a period of four (4) Hundred Thousand Pesos
years to coincide (P200,000.00) and One
Second, when a such document is ultimately with the term Million Three Hundred
contract between two ordinarily the best of the Loan Agreement. Thirty Thousand Pesos
(2) parties is evidenced evidence of the terms of This fact means that all (P1,330,000.00),
by a written instrument, the contract. Courts only the said agreements respectively, were billed
42
by petitioner to
respondent Este del Sol
on February 22, 1978,
that is, on the same
occasion of the first
partial release of the
loan in the amount of
Two Million Three
Hundred Eighty-Two
Thousand Five Hundred
Pesos (P2,382,500.00).
It is from this first
partial release of the
loan that the said
corresponding bills for
f) Petitioner FMIC
failed to comply with its
obligation under the
Consultancy Agreement,
aside from the fact that
there was no need for a
Consultancy Agreement,
since respondent Este
del Sol’s officers
appeared to be more
competent to be
consultants in the
development of the
projected sports/resort
complex.
All the
foregoing established
facts and circumstances
clearly belie the
contention of petitioner
FMIC that the Loan,
Underwriting, ostensibly unrelated
Supervision and contract providing for Facts: On 20 December
Consultancy fees were payment by the 1984, the herein
deducted and borrower for the petitioner filed a
apparently paid, thus, lender’s services which complaint against the
reverting back to are of little value or private respondent
petitioner FMIC the which are not in fact to Herminia Patinio and one
total amount of One be rendered, such as in John Doe before the
Million Seven Hundred the instant case. In this Regional Trial Court of
Thirty Thousand Pesos connection, Article 1957 Pasay City, docketed
(P1,730,000.00) as part of the New Civil Code therein as Civil Case No.
of the amount loaned to clearly provides that 2546-P, for collection of a
respondent Este del Sol. Contracts and sum of money amounting
e) Petitioner FMIC stipulations, under any to P60,500.00, which said
was in fact unable to cloak or device Herminia Patinio had
organize an whatever, intended to allegedly borrowed from
underwriting/selling circumvent the laws him but failed to pay
syndicate to sell any against usury shall be when it became due,
share of stock of void. The borrower may notwithstanding
respondent Este del Sol recover in accordance demands.
and much less to with the laws on usury. Answering,
supervise such a In usurious Herminia Patinio
syndicate, thus failing to loans, the entire admitted having obtained
comply with its obligation does not loans from the petitioner
obligation under the become void because of but claimed that the
Underwriting an agreement for amount borrowed by her
Agreement. Besides, usurious interest; the was very much less than
there was really no unpaid principal debt the amount demanded in
need for an still stands and remains the complaint, which
Underwriting valid but the stipulation amount she had already
Agreement since as to the usurious paid or settled, and that
respondent Este del Sol interest is void, the petitioner had
had its own licensed consequently, the debt is exacted or charged
marketing arm to sell its to be considered without interest on the loan
shares and all its shares stipulation as to the ranging from 10% to
have been sold through interest. Thus, the nullity 12% per month, which is
its marketing arm. of the stipulation on the exorbitant and in gross
usurious interest does violation of the Usury
Underwriting and not affect the lender’s Law. Wherefore she
Consultancy Agreements right to receive back the prayed that
are separate and principal amount of the
independent loan. With respect to the
transactions. The debtor, the amount paid
Underwriting and as interest under a
Consultancy Agreements usurious agreement is
which were executed recoverable by him,
and delivered since the payment is
contemporaneously with deemed to have been
the Loan Agreement on made under restraint,
January 31, 1978 were rather than voluntarily.
exacted by petitioner
FMIC as essential Wilfredo Verdejo vs
conditions for the grant CA, Judge Sofronio G.
of the loan. An Sayo, RTC Br III, Pasay
apparently lawful loan is City & Herminia
usurious when it is Patimo, et al., G.R. No.
intended that additional 77735, January 29,
compensation for the 1988 (157 SCRA 743)
loan be disguised by an
43
she be reimbursed the attorney’s fees. A guarantee checks was attorney’s fees, was
usurious interests notice of appeal was that each time a check P2,807,784.20. A case
charged and paid. She filed through mail. A matures the defendant was filed with the RTC.
also asked for damages, motion for execution would exchange it with The lower court ruled
attorney's fees and was filed claiming that cash. Although, that the defendant
costs of suit. there was no valid admittedly, defendant should pay the debt, but
The lower appeal. The court made several payments, also ruled that the
court dismissed the denied the appeal and the same were not amount of interest was
suit, but granted the ordered the execution. enough and she always unconscionable,
counterclaim ordering A petition for certiorari defaulted whenever her iniquitous, and in
the refund of P13,980 before the CA was filed, loans matured. As of violation of Act No.
and the payment of but it was dismissed. August 16, 1991, the 2655. In so doing, the
total unpaid amount, court pronounced
Issue: Whether only the the proper time. including accrued Section I, Central Bank
usurious portion of the interest, penalties and Circular No. 905, series
interest shall be M
reimbursed and not the o
legal or lawful portion of r
the interest. e
o
Held: Yes. Reversed. v
e
Ratio: The case involves r
an alleged violation of ,
the Usury Law, where
the petitioner was found i
by the trial court to have t
charged and collected
usurious interests from a
the private respondent p
on loans which were p
first obtained on 15 e
February 1982, later a
renewed, and finally r
culminated with the s
execution by private
respondent of the t
Deed of Sale with Right h
of Repurchase on 17 a
November 1983. This t
Court has ruled in one
case that with the t
promulgation of Central h
Bank Circular No. 905, e
series of 1982, usury has
become "legally c
inexistent" as the lender o
and the borrower can m
agree on any interest p
that may be charged on u
the loan. This Circular t
was also given a
retroactive effect. But, t
whether or not this i
Circular should also be o
given retroactive effect n
and applied in this case
is yet to be determined o
by the appellate court at f
44
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t e
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45
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n
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49
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50
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s a
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o t
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d o
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f a
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a n
n 55
d s
o
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b a
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f o
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i o
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c
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d %
e
d p
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t r
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r
e T
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f a
r r
o r
m a
n
d 57
g
e
m
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t

b
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w
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p
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58
of 1982 to be of no force and legal effect, it having been
promulgated by the Monetary Board of the Central Bank of
the Philippines with grave abuse of discretion amounting
to excess of jurisdiction. The lower court reduced the
interest rate to 28% per annum. CA affirmed.
Issue: Whether the court can reduce usurious interest rate
to a lower interest rate of its discretion.
Held: Yes. Affirmed.
attorney’s fees is different from that mentioned in and
regulated by the Rules of Court. “Rather, the attorney’s
fees here are in the nature of liquidated damages and the
stipulation therefor is aptly called a penal clause.” So
long as the stipulation does not contravene the law,
morals, public order or public policy, it is binding upon
the obligor. It is the litigant, not
R
a
t
i
o
:

T
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t
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the counsel, who is the judgment creditor entitled to Issue: Whether the charging of 3% interest and penalty
enforce the judgment by execution. charges by a credit card company is usurious. Whether
Nevertheless, it appears that petitioner’s failure to the court can reduce a usurious interest rate and penalty
comply fully with her obligation was not motivated by ill charge to whatever rate is reasonable and equitable.
will or malice. The twenty-nine partial payments she made
were a manifestation of her good faith. Again, Article 1229 Held: Yes. Yes. Modified.
of the Civil Code specifically empowers the judge to reduce
Ratio: The Interest
the civil penalty equitably, when the principal obligation
Rate and Penalty
has been partly or irregularly complied with. Upon this
Charge of 3% Per
premise, we hold that the RTC’s reduction of attorney’s
Month or 36% Per
fees -- from 25 percent to 10 percent of the total amount
Annum Should Be
due and payable -- is reasonable.
Reduced to
Petitioner contends that the case against her
2% Per Month or 24%
should have been dismissed, because her husband was not
Per Annum. In its
included in the proceedings before the RTC. We are not
Complaint, respondent
persuaded. The husband’s non-joinder does not
BPI originally imposed
warrant dismissal, as it is merely a formal
the interest and penalty
requirement that may be cured by amendment. Since
charges at the rate of
petitioner alleges that her husband has already passed
9.25% per month or
away, such an amendment has thus become moot.
111% per annum. This
was declared as
Ileana DR. Macalinao vs. Bank of the Philippine unconscionable by the
Islands, G.R. No. 175490, September 17, 2009 lower courts for being
clearly excessive, and
Facts: Macalinao was an approved cardholder of BPI was thus reduced to 2%
Mastercard. She made some purchases through the use of per month or 24% per
the said credit card and defaulted in paying for said annum. On appeal, the
purchases. She subsequently received a letter dated CA modified the rate of
January 5, 2004 from BPI, demanding payment of the interest and penalty
amount of PhP 141,518.34. Under the Terms and charge and increased
Conditions Governing the Issuance and Use of the BPI them to 3% per month
Credit and BPI Mastercard, the charges or balance thereof or 36% per annum based
remaining unpaid after the payment due date indicated on the Terms and
on the monthly Statement of Accounts shall bear interest Conditions Governing
at the rate of 3% per month and an additional penalty fee the Issuance and Use of
equivalent to another 3% of the amount due for every the BPI Credit Card,
month or a fraction of a month’s delay. which governs the
For failure of Macalinao to settle her obligations, transaction between
BPI filed with the MeTC of Makati City a complaint for a petitioner Macalinao and
sum of money against her and her husband, Danilo SJ. respondent BPI.
Macalinao. In said complaint, BPI prayed for the Indeed, in the
payment of the amount of PhP Terms and Conditions
154,608.78 plus 3.25% finance charges and late payment Governing the Issuance
charges equivalent to 6% of the amount due from and Use of the BPI Credit
February 29, 2004 and an amount equivalent to 25% of the Card, there was a
total amount due as attorney’s fees, and of the cost of suit. stipulation on the 3%
The Macalinao failed to file an Answer. In its decision, the interest rate.
MeTC ruled for BPI and ordered the Macalinaos to pay the Nevertheless, it should
amount of P141,518.34 plus interest and penalty charges be noted that this is not
of 2% per month. Macalinao appealed to the RTC, but the the first time that this
RTC affirmed the decision in toto. The Macalinaos filed a Court has considered the
petition for review with the CA, but the CA affirmed with interest rate of 36% per
modifications the RTC Decision by ordering the payment annum as excessive and
of the principal amount of P126, 706.70 plus interest and unconscionable as held
penalty charges of 3% per month from date of demand in Chua vs. Timan. Since
unti fully paid. The Motion for Reconsideration was the stipulation on the
denied, hence this case that was filed by Macalinao. interest rate is void, it is
Mariano Aquino vs. 43
Tomas Deala, G.R. 30
No. October 21, 4,
1936 (63 Phil 582)
as if there was no express
contract thereon. Hence,
courts may reduce the
interest rate as reason
and equity demand.
The same is true
with respect to the
penalty charge. Notably,
under the Terms and
Conditions Governing the
Issuance and Use of the
BPI Credit Card, it was
also stated therein that
respondent BPI shall
impose an additional
penalty charge of 3% per
month. Pertinently,
Article 1229 of the Civil
Code states that the judge
shall equitably reduce
the penalty when the
principal obligation has
been partly or irregularly
complied with by the
debtor. Even if there has
been no performance, the
penalty may also be
reduced by the courts if it
is iniquitous or
unconscionable. In
exercising this power to
determine what is
iniquitous and
unconscionable, courts
must consider the
circumstances of each
case since what may be
iniquitous and
unconscionable in one
may be totally just and
equitable in another.
43
 lease the property from f
Facts: The defendant Mariano Aquino for the i
approached Mariano sum of P40 per month. n
Aquino, the plaintiff's The instrument was d
father, to solicit a later novated, the only s
P4,000 loan secured by alteration being the
the real property on price and the rent – i
which a house of strong P4,500 and P45, t
materials was built. respectively. It was
Mariano Aquino novated again to change e
acceded on condition the price and rent to q
that the transaction be P5,200 and P52, u
evidenced by a deed of respectively. Then again i
sale with a 4 year right to P6,600 and P49.50 t
of repurchase, and extending the a
obligation to build a period or repurchase to b
house, and obligation to April 20, 1933. l
T e
h
u t
s o
,
r
u e
n d
d u
e c
r e

t t
h h
e e

c i
i n
r t
c e
u r
m e
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t t
a
n r
c a
e t
s e
,
p
t e
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e
C d
o
u b
r y
t
t

44
h e
e d

C b
A y

a t
t h
e
1
. C
5 A
%
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m t
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c t
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x 2

45
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r
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p o
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46
 a
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47
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c o
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48
c i
a o
l n
i
n c
a o
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d
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h b
e e
r
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o
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a b
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49
n 3
0
r 9
e ,
c 5
o 2
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d
. A
n
T t
h o
e n
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p o
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c
i A
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e

50
s
t
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51
 The defendant was able to get permission from therefore, the creditor required the debtor to amplify it by
the Department of Engineering and Public Works to build constructing another additional house on the lot given
a 2-storey house, and he completed the building of the as security. Had it been the intention of the parties to
house in 2 years. make this new house a part of the subject matter of the
Mariano Aquino, sometime in 1933, had the said sale, a stipulation regarding payment of additional
consolidation of the property registered with the registry rent would have been inserted in the contract inasmuch as
of deeds, and a transfer certificate of title was issued to a rental of P40 a month was fixed for the use and
him. He died sometime later. His son, as special occupation of the house already existing on the property
administrator, instituted the ejectment proceeding. The which is the subject matter of the contract. It is
municipal court ordered the defendant to vacate the
property. The CFI affirmed. R
a
Issue: Whether a contract of deposit which has a t
stipulation for the payment of interest is actually a loan. i
o
:
Held: Yes. Reversed. Case dismissed
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true that under paragraph 10 this sum of P40 was for P5,200, the rent was likewise increased to P52 in order to
the rent not only of the house already existing but also continue maintaining the rate of interest at 12 per cent. It
of that which the defendant undertook to construct, but was only when said contract was novated for the last time
this part of the contract is clearly fictitious, because if the on April 20, 1931, and the so-called selling price was
rent of P40 covered the two houses, it is not explained why increased to P6,600 that the rent was reduced to P49.50 a
the lessee should agree to pay rent for the occupation of month because Mariano Aquino had acceded to reduce the
an inexistent house which he himself was to construct rate of interest to 9 per cent. The new house on the lot in
with his own money and how the lessor should accept rent question had just been finished about June 23, 1928, and it
of only P40 for two houses of strong materials, one of is strange that the fluctuations of the amount of the rent
which consists of two stories. had nothing to do with the construction of said new house
Paragraph 6 and paragraph 10, subparagraph (d) but with the successive increases of the so-called selling
imposed upon the vendor the obligation to insure against price, or the amount of the loan. In other words, the rent
fire the buildings constructed on the property which is went up or down not because of the improvement or
the subject matter of the contract, for not less than
P3,000, the payment of the premiums thereof being to
the account of said vendor who was obliged to indorse the
policy immediately to the purchaser and to pay, also for
his own account and responsibility, the land tax and any
other taxes imposed or that might thereafter be imposed
upon the property. When a property is insured, the
indemnity, in case of loss, is paid to the owner because the
insurable interest is his. This being so, the correlative
obligation to pay for the insurance premiums should
devolve upon the owner and not upon the lessee or
vendor with right of repurchase who, with the
exception of his right of redemption, should have
considered all other juridical relations with the property
sold extinguished after the contract. The same is true with
respect to the payment of the land tax. This lien should
have been shouldered by the owner and not by the lessee.
Under paragraph 10, subparagraph (e), the
expenses for the conservation of the property should
likewise be for the account of the defendant. However,
these expenses are ordinarily for the account of the lessor
(article 1554, Civil Code).
It appears that Mariano Aquino desired to obtain a
net income of 12 per cent per annum from his investment
and for this reason he caused the defendant to assume
the obligation to pay not only the land tax and insurance of
the property but also the expenses for its conservation. If
Mariano Aquino had assumed these obligations which
strictly belong to the owner of the property, instead of
imposing them upon the defendant, he would not have
been able to realize said net income of 12 per cent per
annum on his capital, because he would have had to
deduct therefrom the sum represented by the insurance,
the land tax and the expenses for the conservation of the
property. On the other hand, had he assumed such
obligations and compensated these liens by charging
interest in excess of 12 per cent he would have openly
violated the Usury Law.
When the alleged sale price was increased to
P4,500 in the first novation of the contract on December
26, 1926, the rent of the property was increased to P45, in
spite of the fact that said property had suffered no change,
in order to maintain the rate of interest at 12 per cent. amplification of the
When the contract was novated for the second time on leased property but increase of the
May 31, 1927, by increasing the so-called selling price to because of the amount of the loan
and the rate of the
46
interest agreed
upon by the parties.
The term of the
right of redemption,
under the original deed,
was supposed to expire
and it expired on
September 25, 1930.
However, the so-called
purchaser, far from
having the consolidation
of his ownership
registered in the
registry of deeds,
executed Exhibit 5, on
April 20, 1931,
"extending" the already
expired original term of
four years stipulated in
Exhibit 1 to April 20,
1933. This shows that,
notwithstanding the
form of the contract,
Mariano Aquino always
considered the
transaction as a simple
loan. The affirmation
made in paragraph 3 of
the deed Exhibit 5 that
"as the term of the
contract had expired on
September 25, 1930, the
same remaining in
status quo, etc."
excludes every idea that
the parties intended to
enter into a contract of
sale. In fact, once the
period for the right have
been exercised, it could
not be said, if the
contract were on of sale
with pacto de retro, that
"the contract has
remained in status quo",
because failure to
exercise the right of
redemption, in such
contract, automatically
produces the effect of
consolidating the
ownership of the
purchaser without the
necessity of any other
act on his part, the fact
on which his ownership
was temporarily
conditioned not having
been realized.
In Padilla vs.
Linsangan (19 Phil., 65),
we stated that "the court
will not construe an
instrument to be one of a
sale con pacto de retro,
with the stringent and
onerous effects that
follow, unless the terms
of the instrument and all
the circumstances
positively require it.
Whenever, under the
terms of the writing, any
other construction can
fairly and reasonably be
made, such construction
will be adopted. Sales
with a right to
repurchase, as defined
by the Civil Code, are not
favored, and the contract
will be construed as a
mere loan unless the
court can see that, if
enforced according to its
terms, it is not an
unconscionable one."
It may be
contended that "the
contracting parties may
establish any
agreements, terms and
conditions that may
deem advisable,
provided they are not
contrary to law, morals,
or public order." (Art.
1255, Civil Code.)
However, we do not
declare herein the nullity
of the agreements
contained in Exhibit 1
and in its various
novations. None of said
agreements is contrary
to law, morals, or public
order, and all of them
should therefore be
maintained out of
respect to the will of the
contracting parties. The
validity of these
agreements, however, is
one thing, while the
juridical qualification of
the contract resulting
therefrom is very
distinctly another. Such
agreements, in our
opinion, change the
status of the sale with
pacto de retro and give
rise to juridical relations
of a different nature.
Similar thereto is a
contract of
commodatum wherein
payment of
compensation by the
person acquiring the
use of the thing is
stipulated. This
stipulation is valid but
the commodatum,
although so termed,
ceases to exist and it
converted into another
contract with different
effects (art.
who consumes all the
fruits of the thing
subject to use, and the
person having the right
of habitation who
occupies the whole
house, are considered
usufructuaries (art.
527).
AngelJavellanavs.JoseL
im,etal.,G.R.No.4015,Au
gust24,
1908(11Phil141)
Facts: The defendants
received from the
plaintiff the sum of
P2,686.58 as a deposit
without interest
sometime in 1897 which
was to be returned,
jointly and severally, in
1898. When the
obligation became due,
the defendants begged
the plaintiff for an
1741). The same thing
happens with the
contract of depositum.
Although it would
seem that article 1760
of the Civil Code
indirectly authorizes
the constitution of an
onerous deposit, when
there is an express
stipulation to that
effect, this court has
repeatedly held that
the deposit should be
considered a loan
when it contains a
stipulation for
payment of interest.
(Garcia Gavieres vs.
Pardo de Tavera, 1 Phil.,
71; Barretto vs. Reyes,
10 Phil.,
489; In re
Guardianship of the
minors Tamboco, 36
Phil., 939, 941.) In
order not to multiply
the examples, we shall
cite the cases of use
and habitation wherein
the usuary
extension of time for the
payment thereof, binding
themselves to pay
interest at the rate of 15
per cent on the amount of
their indebtedness, to
which the plaintiff
acceded. On May 15,
1902, the debtors paid
interest of P1,000 and
then made no other
payments.
The plaintiff filed a
case. CFI found the
defendants liable
jointly and severally.
Issue: Whether a
contract denominated as
a deposit but which did
not require the return of
exactly the same coins
and which eventually
provided for the payment
of interest is actually a
loan.
47
Held: Yes. Affirmed. be sued for or sentenced t
to pay the amount of h
capital and interest e
together with his co-
debtor. s
a
m
Bank of the Philippine
e
Islands vs. IAC &
Rizaldy T. Zshornack,
c
G.R. No. L-66826,
o
August 19, 1988 (164
i
SCRA 630)
n
s
Facts: Rizaldy Zshornack
and his wife, Shirley r
Gorospe, maintained in e
COMTRUST, Quezon City c
Branch, a dollar savings e
account and a peso i
current account. v
e
R d
a
t a
i n
o d
:
o
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h
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u e
r d
n
c
48
o d
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e
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, y

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t d
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49
y I
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b
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50
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51
o t
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52
f e
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a s
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c t
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53
e
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f p
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, a
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b a
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54
d
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J e
o
s s
e h
o
L u
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m d

f n
r o
o t
m
On October 27, Zshornack noticed the
c 1975, an application for withdrawal of
o a dollar draft was US$1,000.00 from his
m accomplished by Virgilio account, he demanded an
p V. Garcia, Assistant explanation from the
l Branch Manager of bank. In answer,
y COMTRUST Quezon City, COMTRUST claimed that
i payable to a certain the peso value of the
n Leovigilda D. Dizon in withdrawal was given to
g the amount of $1,000.00. Atty. Ernesto Zshornack,
In the application, Garcia Jr., brother of Rizaldy, on
w indicated that the October 27,1975 when
i amount was to be he (Ernesto) encashed
t charged to Dollar with COMTRUST a
h Savings Acct. No. 25- cashier's check for
4109, the savings P8,450.00 issued by the
h account of the Manila Banking
i Zshornacks; the charges Corporation payable to
s for commission, Ernesto.
documentary stamp tax In its desperate
o and others totalling attempt to justify its act
b P17.46 were to be of withdrawing from its
l charged to Current Acct. depositor's savings
i No. 210-465- 29, again, account, the bank has
g the current account of adopted inconsistent
a the Zshornacks. There theories. First, it still
t was no indication of the maintains that the peso
i name of the purchaser of value of the amount
o the dollar draft. withdrawn was given to
n On the same Atty. Ernesto Zshornack,
date, October 27, 1975, Jr. when the latter
i COMTRUST, under the encashed the Manilabank
n signature of Virgilio V. Cashier's Check. At the
Garcia, issued a check same time, the bank
o payable to the order of claims that the
r Leovigilda D. Dizon in withdrawal was made
d the sum of US$1,000 pursuant to an
e drawn on the Chase agreement where
r Manhattan Bank, New Zshornack allegedly
York, with an indication authorized the bank to
t that it was to be charged withdraw from his
h to Dollar Savings Acct. dollar savings account
a No. 25-4109. such amount which,
t When when converted to pesos,
55
would be needed to fund Jr., possesses a f
his peso current personality distinct and
account. separate from Rizaldy t
Zshornack also Zshornack. Payment h
entrusted to made to Ernesto cannot e
COMTRUST, thru Garcia, be considered payment
US$3,000.00 cash to Rizaldy. As to the b
(popularly known as second explanation, a
greenbacks) for even if we assume that n
safekeeping. Despite there was such an k
demand, the bank agreement, the evidence
refused to return the do not show that the a
money. COMTRUST withdrawal was made r
averred that the pursuant to it. Instead, e
US$3,000 was credited the record reveals that
to Zshornack's peso the amount withdrawn u
current account at was used to finance a n
prevailing conversion dollar draft in favor of a
rates. Leovigilda D. Dizon, and v
BPI later not to fund the current a
absorbed COMTRUST. account of the i
Zshornack filed a case Zshornacks. There is no l
against BPI. The trial proof whatsoever that i
court ruled for peso Current Account n
Zshornack. No. 210-465-29 was g
ever .
Issue: Whether money
that is given to the bank W
for safekeeping is a i
deposit. t
h
Ratio: Yes. Modified.
r
e
R
g
a
a
t
r
i
d
o
:
t
o
T
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t
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f
p
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l
r
a
s
n
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t
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p
n
l
s
a
n
o
a
56
t o
i l
o v
n i
, n
g
p
e t
t h
i e
t
i c
o a
n s
e h
r i
e
b r
a '
n s
k
c
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a e
s c
k
n
o i
t s

s r
h e
o l
w a
n t
e
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o
w t
o
t
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e h
e
t
r t
a r
n a
s n
a s
c a
t c
i t
o i
n o
n
i
n i
v n
57
v w
o i
l t
v h
i d
n r
g a
w
t a
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e
f
d r
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l m
l
a R
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s
i
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a
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i n
z t
o .
n
T
f h
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n
a t
n w
c o
e
d t
r
b a
y n
s
t a
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i
58
o n
n e
s s
t
a o
p
p Z
e s
a h
r o
r
e n
n a
t c
i k
r ,
e
l credited with the peso requires all persons to
y equivalent of the sell to the Central Bank
US$1,000.00 withdrawn all foreign exchange
i on October 27, 1975 received within one
n from Dollar Savings business day following
d Account No. 25-4109. such receipt. This was
e The modified by CB Circular
p arrangement between No. 281 which limited the
e the bank and Zshoranck restriction to Philippine
n is that contract defined residents.
d under Article 1962, New The document
e Civil Code -- A deposit is and the subsequent acts
n constituted from the of the parties show that
t moment a person they intended the bank to
receives a thing safekeep the foreign
o belonging to another, exchange, and return it
f with the obligation of later to Zshornack, who
safely keeping it and of alleged in his complaint
e returning the same. If that he is a Philippine
a the safekeeping of the resident. The parties did
c thing delivered is not the not intend to sell the US
h principal purpose of the dollars to the Central
contract, there is no Bank within one business
o deposit but some other day from receipt.
t contract. Otherwise, the contract
h Note that the of depositum would
e object of the contract never have been entered
r between Zshornack and into at all. Since the
. COMTRUST was foreign mere safekeeping of the
exchange. Hence, the greenbacks, without
M transaction was covered selling them to the
o by Central Bank Circular Central Bank within one
r No. 20, Restrictions on business day from
e Gold and Foreign receipt, is a transaction
o Exchange Transactions, which is not authorized
v promulgated on by CB Circular No. 20, it
e December 9, must be considered as
r 1949, which was in force one which falls under the
, at the time the parties general class of
entered into the prohibited transactions.
E transaction involved in Hence, pursuant to
r this case. The circular Article 5 of the Civil Code,
59
it is void, having been uncle. In the months of o
executed against the March, April, and May,
provisions of a 1920, Silvestra Baron J
mandatory/prohibitory placed a quantity of a
law. More importantly, it palay in the defendant's n
affords neither of the mill; and this, in u
parties a cause of action connection with some a
against the other. that she took over from r
We thus rule that Guillermo Baron, y
Zshornack cannot amounted to 1,012
cavans and 24 kilos. 1
recover under the
During approximately 7
second cause of ,
action. the same period
Guillermo Baron placed 1
other 1,865 cavans and 9
43 kilos of palay in the 2
mill. No compensation 1
has ever been received ,
by Silvestra Baron upon
account of the palay t
thus placed with the h
defendant. As against e
the palay delivered by
Guillermo Baron, he has d
received from the e
defendant f
advancements e
amounting to P2,800; n
but apart from this he d
has not been a
compensated. Both the n
plaintiffs claim that the t
palay which was
delivered by them to the P
defendant was sold to a
the defendant; while the b
defendant, on the other l
hand, claims that the o
palay was deposited
D
Silvestra Baron vs. Pablo David; Guillermo Baron vs. a
Pablo David, G.R. Nos. 26948 v
& 26949, October 8, 1927 (51 Phil 1) i
d
F
h
a
a
c
d
t
s
b
:
e
e
P
n
r
i
e
o
n
r
g
a
t
g
60
e i
d n

i t
n h
e
r
u P
n r
n o
i v
n i
g n
c
a e

r o
i f
c
e P
a
m m
i p
l a
l n
g
i a
n ,

t a
h
e m
i
m l
u l
n
i w
c h
i i
p c
a h
l
i w
t a
y s

o w
f e
l
M l
a
g p
a a
l t
a r
n o
g n
, i
z
61
e y
d
r
b u
y n
n
t i
h n
e g
.
r
i O
c n
e
t
g h
r e
o
w d
e a
r t
s e

o s
f t
a
t t
h e
e d
,
v
i a
c
i f
n i
i r
t e
y
o
a c
n c
d u
r
a r
l e
m d
o
s t
t h
a
c t
o
n d
s e
t s
a t
n r
t o
l y
62
e h
d e

t m
h i
e l
l
m
i c
l o
l u
l
a d
n
d b
e
i
t r
s e
b
c u
o i
n l
t t
e
n a
t n
s d
,
p
a u
n t
d
i
i n
t
o
w p
a e
s r
a
s t
o i
m o
e n

t a
i g
m a
e i
n
b .
e
f S
o i
r l
e v
e
t s
63
t
r t
a h
e
B
a d
r e
o f
n e
, n
d
t a
h n
e t
;
p
l w
a h
i i
n l
t e
i
f G
f u
i
i l
n l
e
t r
h m
e o

f B
i a
r r
s o
t n
,
a
c t
t h
i e
o
n p
, l
a
i i
s n
t
a i
n f
f
a
u i
n n
t
t
o h
f e
64
 commodatum; and of affected by the
o course by appropriating circumstance that, by a
t the thing, the bailee custom prevailing
h becomes responsible for among rice millers in
e its value. In this this country, persons
r connection we wholly placing palay with them
reject the defendant's without special
a pretense that the palay agreement as to price
c delivered by the are at liberty to
t plaintiffs or any part of withdraw it later, proper
i it was actually allowance being made
o consumed in the fire of for storage and
n January, 1921. Nor is shrinkage, a thing that is
, the liability of the sometimes done, though
defendant in any wise rarely.
i
s
R
a
h
t
i
i
s
o
subject to future not made, but gave :
withdrawal by the judgment in favor of the
depositors or subject to plaintiffs for the I
some future sale which recovery of the sums of t
was never effected. He P5,238.51 and
therefore supposes P5,734.60. Both parties s
himself to be relieved appealed. h
from all responsibility o
by virtue of the fire of Issue: Whether the u
January 17, 1921, deposit of things with l
already mentioned. the object of allowing the d
The plaintiffs depositary to use them is
further say that their actually a loan. b
palay was delivered to e
the defendant at his Held: Yes. Affirmed with
special request, coupled s
modifications.
with a promise on his t
part to pay for the same a
at the highest price per t
cavan at which palay e
would sell during the d
year 1920; and they say
that in August of that t
year the defendant h
promised to pay them a
severally the price of t
P8.40 per cavan, which
was about the top of the t
market for the season, h
provided they would e
wait for payment until
December. p
A case was filed a
against the defendant. l
The court ruled that the a
alleged promise to pay y
at the highest price was
65
i
n m
i
q l
u l
e
s w
t i
i t
o h
n
t
w h
a e
s
u
p n
l d
a e
c r
e s
d t
a
b n
y d
i
t n
h g
e
t
p h
l a
a t
i
n t
t h
i e
f
f d
s e
f
i e
n n
d
t a
h n
e t

d w
e a
f s
e
n a
d t
a
n l
t i
' b
s e
66
r r
t e
y .

t T
o h
e
c
o m
n i
v l
e l
r
t w
a
i s
t
a
i c
n t
t i
o v
e
r l
i y
c
e r
u
a n
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d i
n
d g
i
s d
p u
o r
s i
e n
g
o
f t
h
i e
t
e
a n
t t
i
h r
i e
s
s
p e
l a
e s
a o
s n
u ,
67
 s
a
n r
d i
c
a e
s
w
p a
a s
l
a b
y e
i
w n
a g
s
c
d o
a n
i s
l t
y a
n
c t
o l
m y
i
n s
g h
i
i p
n p
e
f d
r
o b
m y

m t
a h
n e
y
d
c e
u f
s e
t n
o d
m a
e n
r t
s
t
a o
n
d M
a
a n
68
i l
l a
a i
, n
t
o i
r f
f
o s
t '
h
e p
r a
l
r a
i y
c
e s
e
m g
a r
r e
k g
e a
t t
s e
, d
.
i
t I
n
w
a f
s a
c
i t
m
p t
o h
s e
s
i d
b e
l f
e e
n
t d
o a
n
k t
e
e a
p d
m
t i
h t
e s

p t
69
h
a v
t i
e
t w
h
e o
f
p
l t
a h
i e
n
t n
i a
f t
f u
s r
' e

p o
a f
l
a t
y h
e
w
a d
s e
f
m e
i n
x d
e a
d n
t
w '
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t
h a
c
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a v
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t
o i
f e
s
o
t a
h n
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r
s t
. h
e
I
n w
70
a i
y t

i i
n s

w q
h u
i i
c t
h e

t c
h e
e r
t
p a
a i
l n
a
y t
h
w a
a t
s
a
h l
a l
n
d o
l f
e
d t
h
i e
n
p
t l
h a
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n
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f f
e f
n s
d '
a
n p
t a
' l
s a
y
m ,
i
l w
l h
, i
c
71
h e
d
w
a o
s f

p l
u o
t n
g
i
n p
r
b i
e o
f r
o
r t
e o

J t
u h
n e
e
f
1 i
, r
1 e
9
2 o
0 f
,
J
h a
a n
d u
a
b r
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e
n 1
7
m ,
i
l 1
l 9
e 2
d 1
.
a
n F
d u
r
d t
i h
s e
p r
o m
s o
72
r
e n
, o
t
t
h h
e a
v
p e
r
o b
o e
f e
n
s
h m
o o
w r
s e

t t
h h
a a
t n

w a
h b
e o
n u
t
t
h 3
e 6
0
f
i c
r a
e v
a
o n
c s
c
u o
r f
r
e p
d a
l
t a
h y
e
r i
e n

c t
o h
u e
l
d m
73
i
l b
l e
, e
n
n
o a
n n
e y

o p
f a
r
w t
h
i o
c f
h
t
b h
y e

a p
n a
y l
a
r y
e
a d
s e
o l
n i
a v
b e
l r
e e
d
p
r b
o y
b
a t
b h
i e
l
i p
t l
y a
i
c n
o t
u i
l f
d f
s
h .
a
v C
e o
74
n o
s u
i b
d t
e l
r e
i s
n s
g
s
t o
h l
e d

f t
a h
c e
t
p
t l
h a
a i
t n
t
t i
h f
e f
s
d '
e
f p
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d a
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n
t p
r
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a o
d r

t t
h o
u
s t
h
m e
i
l d
l a
e t
d e

a o
n f
d
t
d h
75
e e
,
f
i a
r n
e d
,
h
i i
t s

r l
e i
s a
u b
l i
t l
s i
t
t y
h
a w
t a
s
h
e n
o
i t
s
e
b x
o t
u i
n n
d g
u
t i
o s
h
a e
c d
c
o b
u y
n
t t
h
f e
o
r o
c
i c
t u
s r
r
v e
a n
l c
u e
76
 l
o i
f v
e
t r
h e
e d

f i
i n
r
e t
. h
E e
v
e c
n h
a
s r
u a
p c
p t
o e
s r
i
n o
g f

t d
h e
a p
t o
s
t i
h t
e ,

p s
a u
l b
a j
y e
c
m t
a
y t
o
h
a f
v u
e t
u
b r
e e
e
n s
a
d l
e e
77
 w
o a
r s

w u
i n
t d
h e
d r
r s
a t
w o
a o
l d

a t
t h
a
p t
l
a t
i h
n e
t
i d
f e
f f
s e
' n
d
e a
l n
e t
c
t m
i i
o g
n h
, t

n m
e i
v l
e l
r
t t
h h
e e
l
e p
s a
s l
a
i y
f
a
i n
t d

78
h r
e s
e
h
a b
s o
u
i n
n d

f t
a o
c
t a
c
a c
p o
p u
r n
o t
p
r f
i o
a r
t
e i
d t
s
i
t v
a
t l
o u
e
h .
i
s U
n
o d
w e
n r

u a
s r
e t
, i
c
h l
e e

i 1
s 7
6
o 8
f
o
c f
o
u t
79
h s
e e

C o
i f
v
i t
l h
e
C
o t
d h
e i
, n
g
w
h d
e e
n p
o
t s
h i
e t
e
d d
e ,
p
o t
s h
i e
t
a c
r o
y n
t
h r
a a
s c
t
p
e l
r o
m s
i e
s s
s
i t
o h
n e

t c
o h
a
m r
a a
k c
e t
e
u r
80
 be paid by the defendant, of his mill by plaintiff
o and this is true whether Guillermo Baron. The
f the palay was delivered ground used by the
in the character of sale plaintiff was clearly
m with price undetermined unjustified, and it caused
e or in the character of the defendant damages
r deposit subject to use resulting from the
e by the defendant. It closure of his mill for
results that the plaintiffs several months and the
d are respectively entitled loss of good will of his
e to recover the value of customers.
p the palay which they had
o placed with the John, dissenting and
s defendant during the concurring: The amount
i period referred to, with of palay is not in
t interest from the date dispute, and the
of the filing of their defendant admits that it
a several complaints. was delivered to his mill,
n As already stated, the but he claims that he kept
d trial court found that it on deposit and as
at the time of the fire bailee without hire for
b there were about the plaintiffs and at their
e 360 cavans of palay in own risk, and that the
c the mill and that this mill was burned down,
o palay was destroyed. His and that at the time of
m Honor assumed that this the fire, plaintiffs' palay
e was part of the palay was in the mill. The lower
s delivered by the court found as a fact that
plaintiffs, and he held there was no merit in
a that the defendant that defense, and that
should be credited with there was but little, if
l said amount. His Honor any, palay in the mill at
o therefore deducted from the time of the fire and
a the claims of the that in truth and in fact
n plaintiffs their respective that defense was based
proportionate shares of upon perjured testimony.
o this amount of palay. We Both plaintiffs testified to
r are unable to see the the making of the
propriety of this feature respective contracts as
a of the decision. There alleged in their
were many customers of complaint; to wit, that
In view of what approximately correct. the defendant's rice mill
has been said it becomes The plaintiffs made they delivered the palay
who had placed their to the defendant with the
necessary to discover demand upon the palay with the defendant
the price which the defendant for settlement express
under the same
defendant should be in the early part of conditions as the
required to pay for the August; and, so far as we plaintiffs, and nothing
plaintiffs' palay. Upon are able to judge from can be more certain than
this point the trial judge the proof, the price of that the palay which
fixed upon P6.15 per P6.15 per cavan, fixed by was burned did not
cavan; and although we the trial court, is about belong to the plaintiffs.
are not exactly in the price at which the That palay without a
agreement with him as defendant should be doubt had long been sold
to the propriety of the required to settle as of and marketed.
method by which he that date. It was the The defendant
arrived at this figure, we date of the demand of is, however, entitled to
are nevertheless of the the plaintiffs for an award for his cross-
opinion that, all things settlement that complaint arising from
considered, the result is determined the price to the wrongful attachment
81
understanding and offered no other defendant would have payment, and the costs.
agreement that he evidence on that any customers left. He The plaintiff asked that
would pay them for the question. That is to say, is not entitled to any the interest run from
palay the highest we have the evidence of compensation for the November 21, 1905,
market price for the both Silvestra Baron loss of goodwill, and because on that date, his
season, and to the and Guillermo Baron to P5,000 should be the counsel demanded of
making of the second the making of those very limit of the amount the defendants,
contract about the first contracts, which is of his damages for the Bonnevie and Arandez,
of August, in which they denied by the defendant wrongful attachment, their partnership having
had a settlement, and only. Plaintiffs' evidence and upon that point I been dissolved, that
that the defendant then is also corroborated by vigorously dissent. In all they settle the accounts
agreed to pay them the usual and other respects, I agree in this matter.
P8.40 per cavan, such customary manner in with the majority The lower court ruled in
payment to be made on which the growers sell opinion. favor of the plaintiff.
December first. The their palay. That is to
defendant denied the say, it is their custom to
Issue: Whether a
making of either one of sell the palay at or
deposit which is
those contracts, and
converted to another
about the time it is dissent from the contract loses its nature
delivered at the mill and majority opinion. as a deposit.
as soon as it is made I frankly
ready for market in the concede that the Vicente Delgado vs. Pedro Bonnevie & Francisco
form of rice. Yet, strange attachment was Arandez, G.R. No. 7097, October
as it may seem, both the wrongful, and that it Phil 308)
lower court and this should never have been
court have found as a levied. The majority F
fact that upon the opinion also allowed the a
question of the alleged defendant P1,400 "for c
contracts, the evidence injury to the goodwill of t
for the defendant is true his business." The very s
and entitled to more fact that after a delay of :
weight than the about four years, both of
evidence of both the plaintiffs were P
plaintiffs which is false. compelled to bring e
In the very nature of their respective actions d
things, if defendant's against the defendant to r
evidence upon that recover from him on a o
point is true, it stands to just and meritorious
reason that, following claim, as found by this B
the custom of growers, court and the lower o
the plaintiffs would court, and the further n
have sold their palay fact that after such long n
during the period of delay, the defendant has e
high prices, and would sought to defeat the v
not have waited until it actions by a sham and i
dropped from P8.50 per manufactured defense, e
cavan to P6.15 per cavan as found by this and the
about the first of August. lower court, would a
Upon that question, both arouse the suspicion of n
the weight and the any customers the d
credibility of the defendant ever had, and
evidence is with the shake their confidence in F
plaintiffs, and they his business honor and r
should have judgment integrity, and destroy a
for the full amount of any goodwill which he n
their palay on the basis ever did have. Under c
of P8.40 per cavan. For such conditions, it would i
such reason, I vigorously be strange that the s
82
c g
o
i
A n
r
a t
n h
d e
e
z b
u
f s
o i
r n
m e
e s
d s

a o
f
r
e t
g h
u r
l e
a s
r h
i
g n
e g
n
e p
r a
a d
l d
y
p .
a
r V
t i
n c
e e
r n
s t
h e
i
p D
e
f l
o g
r a
d
e o
n
g u
a n
g d
i e
n r
83
t d
o
o a
k n
d
t
o r
e
d t
e u
l r
i n
v e
e d
r
t
t o
o
h
t i
h m
e
m a
s
p
a r
d i
d c
y e
,
f
o w
r i
t
t h
h
i t
s h
e
p
u a
r g
p r
o e
s e
e m
e
t n
o t

b o
e f

c p
l a
e y
a i
n n
e g
84
 c
t e
h
e o
m n
e
1 -
0 h
a
c l
e f
n
t t
i h
m e
o
s a
m
f o
o u
r n
t
e
a r
c e
h c
e
c i
a v
v e
a d
n
a
a s
n
d p
a
t d
o d
y
h .
a
v R
e e
c
r e
e i
t p
u t
r s
n
e w
d e
r
i e
n
g
r i
i v
85
e e
n n
t
o e
u
t D
e
t l
o g
a
e d
v o
i
d a
e p
n p
c e
e a
r
t e
h d
e
i
t n
r
a t
n h
s e
a
c C
t o
i u
o r
n t
.
O o
n f

F F
e i
b r
r s
u t
a
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s
6 t
, a
n
1 c
9 e
0
9 o
, f

V A
i m
c b
86
o i
s d

C 2
a ,
m 0
a 0
r 3
i
n a
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s d

w a
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l
s f
a
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e s
i
p o
t f
s
, p
a
d d
e d
m y
a ,
n
d o
i r
n
g i
n
r
e t
t h
u e
r
n a
b
o s
f e
n
t c
h e
e
t
s h
a e
87
r
e t
o h
f e
,
c
o a
f v
a
t n
h
e o
r
p
r 6
i ,
c 0
e 0
9
o
f p
e
s s
a o
i s
d
a
a n
r d
t
i 5
c 0
l
e c
e
a n
t t
i
t m
h o
e s
,
r
a w
t i
e t
h
o
f i
n
3 t
e
p r
e e
r s
s t
o
n t
s h
88
e ,
r
e u
o n
n t
i
a l
t
c
6 o
m
p p
e l
r e
t
c e
e or rather mere
n Held: No. Affirmed. documents evidencing
t the receipt of some
cavanes of paddy for the
Ratio: It is true that,
a purpose already stated,
according to article 950
which is nothing more
of the Code of
y than purely for
Commerce, actions
e industrial, and not for
arising from bills of
a mercantile exchange.
exchange, drafts, notes,
r The contract whereby
checks, securities,
one person receives from
dividends, coupons, and
r another a quantity of
the amounts of the
e unhulled rice to return it
amortization of
c hulled, for a fixed
obligations issued in
k compensation or
accordance with said
o remuneration, is an
code, shall extinguish
n industrial, not a
three years after they
i commercial act; it is, as
have fallen due; but it is
n the appellants say, a hire
also true that as the
g of services without
receipts in question are
mercantile character, for
not documents of any of
f there is nothing
the kinds enumerated in
r mercantile about it, just
said article, the actions
o as there is nothing
arising therefrom do not
m mercantile about the
extinguish three years
operation of washing
from their date (that,
N clothes.
after all, they do not fall
o Neither are
due). It is true that
v articles 309 of the Code
paragraph 2 of article
e of Commerce and 1955
950 also mentions,
m and 1962 of the Civil
besides those already
b Code applicable. It is
stated, "other
e acknowledged that the
instruments of draft or
r obligation of the
exchange;" but it is also
appellants arose
true that the receipts in
2 primarily out of the
this case are not
1 contract of deposit, but
documents of draft or
, this deposit was later
exchange, they are not
converted into a contract
drafts payable to order,
1 of hire of services, and
but they are, as the
9 this is true. But it is also
appellants acknowledge,
0 true that, after the object
simple promises to pay,
5 of the hire of services had
89
been fulfilled, the rice in
every way remained as a
deposit in the
possession of the
appellants for them to
return to the depositor
at any time they might
be required to do so, and
nothing has relieved
them of this obligation;
neither the dissolution
of the partnership that
united them, nor the
revolutionary
movement of a political
character that seems to
have occurred in 1898,
nor the fact that they
may at some time have
lost possession of the
rice.
Under title of
deposit or hire of
services, the possession
of the appellants can in
no way amount to
prescription, for the
thing received on
deposit or for hire of
services could not
prescribe, since for
every prescription of
ownership the
possession must be in
the capacity of an
owner, public, peaceful,
and uninterrupted (Civil
Code, 1941); and the
appellants could not
possess the rice in the
capacity of owners,
taking for granted that
the depositor or lessor
never could have
believed that he had
transferred to them
ownership of the thing
deposited or leased, but
merely the care of the
thing on deposit and the
use or profit thereof;
which is expressed in
legal terms by saying
that the possession of
the depositary or of the
lessee is not adverse to
that of the depositor or
lessor,
who continues to be the returning the same thing
owner of the thing and contracted in lieu
which is merely held in thereof the obligation of
trust by the depositary delivering something
or lessee. similar to the half of it,
In strict law, being bound by no fixed
the deposit, when it is of terms, the opposite of
fungible goods received what happens in a
by weight, number, or mutual loan, to make the
measurement, becomes delivery or return when
a mutual loan, by reason and how it might please
of the authorization the depositor.
which the depositary
may have from the Nicolas Lizares vs.
depositor to make use Rosendo Hernaez &
of the goods deposited. Enrica Alunan Viuda
(Civil Code, de Lizares, G.R. No.
1768, and Code of 14977, March 30, 1920
Commerce, 309.) But in (40 Phil 981)
the present case
neither was there Facts: The plaintiff,
authorization of the Nicolas Lizares, and the
depositor nor did the defendant, Rosendo
depositaries intend to Hernaez, entered into a
make use of the rice for contract, whereby the
their own consumption former became the
or profit; they were lessee of the two
merely released from haciendas Panaogao and
the obligation of Matagoy No. 2. Among
the improvements
existing upon the
hacienda Panaogao, and
which the plaintiff was
entitled to use, was a
large iron-roofed
camarin, containing
furnaces, boilers, mills,
engines, and other
apparatus for the
manufacture of sugar.
At about 7 p. m.,
on March 16, 1918, a fire
of unknown origin
occurred at this sugar
mill, which destroyed
the camarin and greatly
damaged the sugar-
milling apparatus. Upon
the actual occasion of
the fire in question the
plaintiff was absent on
business in the city of
Iloilo, having left
Amando Ereñ eta in
charge of the hacienda.
The latter had left the
camarin at about 5 pm
on the date referred to;
and when the fire
occurred, he was at the
corral where the
carabaos were kept, a
short distance away
from the camarin.
Instead of hastening to
the fire at once, after the
alarm was given, he
remained a little while
in the corral in order
to get the animals into
a place of safety. Felipe
Beldua, apparently next
in authority to Amando
Ereñ eta, and who was
engaged in the sugar-
boiling department,
had left the camarin
at about 4 pm in order
to get something to
eat. As he was
returning to the
camarin, and while yet a
short distance away, he
discerned the flames
rising from a pile of
bagasse at the north
side of the camarin. He
was the first person to
see the fire and at once
gave alarm. It should be
noted that the fire did
not originate in that part
of the bagasse which
was lying in closest
proximity to the
stoking-stands but a
little distance away
where it was unnoticed
by the stokers.
When Felipe
Beldua left the camarin,
two of his assistants
remained on duty, and
the evidence shows that
other employees, such
as the stokers, machine-
cleaners, and sugar
boilers, were busy at
work. The stoker Lucas
Bendado was on duty at
the cabcacan
immediately in front of
the opening of the
furnaces at the time the
fire occurred. Amando
Ereneta, who was first
in charge of the camarin
90
at the time, was the fire and answerable
employed by the for the damage R
plaintiff to look after the occasioned thereby. a
animals, and his duties These antagonistic t
were not such as to views presently i
require him to be culminated in the o
continually inside the litigation now before us. :
camarin. A case was filed
Soon after the by the lessee to rescind I
fire the plaintiff the contract and to t
informed the defendant recover a sum of money
of the calamity and as damages by reason of m
made demand upon him the failure of the u
for the reconstruction of defendant to comply s
the camarin. The with certain obligations t
defendant refused to incumbent upon him
recognize the existence under the contract. The b
of any obligation on his trial court rescinded e
part to reconstruct the the contract, found the
camarin, insisting that lessor liable for a
the plaintiff, being the damages, and found the d
lessee, and not himself, lessee indebted for rent. m
as lessor, was The i
responsible for t
trial court found that the t
we find nothing to the e
fire which destroyed the contrary in the
camarin was of d
Spanish Civil Code.
unknown and accidental Article 1183 declares
origin and that no fault t
that when a thing is h
or negligence was lost while in the
attributable to the a
possession of the t
plaintiff in regard debtor it shall be
either to the conditions presumed that the w
antecedent to the fire or loss occurred by his
the manner in which the h
fault and not by e
flames were resisted. He fortuitous event in the
was, therefore, of the n
absence of proof to the
opinion that the loss contrary. But where it
caused by the fire was a
is found, and the fact
due to casus fortuitus, is indisputable, this is
for the consequences of l
equivalent to a finding o
which no one was that the fire was not
responsible. s
attributable to the s
fault of the defendant
Issue: Whether a loss of and negatives every o
a thing under lease idea of negligence on f
which could not have its part with reference
been prevented should to the origin of the t
be borne by the lessee. fire. This was casus h
Whether the loss of a fortuitus such as to e
thing deposited which exempt the defendant
could not have been from liability. Article l
prevented should be 1183 e
borne by depositary. a
s
Held: No. No. Affirmed, e
but award for damages d
reversed.
91
p
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o h
p i
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s o
t f

t p
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l f
e
s t
s h
e a
e t
,
92
t e
h r
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t
l h
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s r
s e

h h
a a
p s
p
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d n

w f
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f
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m
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t b
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w
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t
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93
e i
l n
a
t t
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o e
n
l
w i
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t h
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o o
t f
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p
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C u
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p
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.
a
s U
n
94
d o
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a e
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b
1 l
5 e
6
1 f
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f a
b
l l
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n
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s a
u
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s e
;
n
95
a h
n e
d
a
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a n
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d ,

t n
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e
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t
96
l e
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b e
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f a
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97
r o
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p a
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t t
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98
f
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, i
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b ,
u
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99
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9
h shall be obliged, upon his This is merely a
i own account and risk, to statement of the
s make all repairs upon obligation imposed by
the improvements law generally upon all
p existing on the haciendas lessees; and the duty thus
o which were the subject defined is to be
i of the lease, and to bear understood as subject
n the expense of the same to the limitations and
t without right to exceptions recognized
reimbursement. by law. There is nothing
t The obligation in this provision which
h fixed upon the lessee by deprives the lessee of the
e the special provision of defense arising from the
the contract is also destruction of the
c limited to repairs property without his
i (composiciones). From fault.
v an examination of the It results in our
i two provisions it is opinion that there was no
l evident that the two positive duty on the part
different Spanish words of either the lessor or
a used in the sense of lessee to reconstruct the
n repairs (reparaciones, camarin after it had been
d composiciones) are totally destroyed by fire;
exactly equivalent; and it neither can therefore be
c is seen that the held liable to the other
o obligation imposed by for any damages which
m the code on the lessor is may supposedly have
m transferred by the resulted from the failure
o contract to the lessee. In to reconstruct. The
n both cases, however, the judgment of the trial
obligation is limited to court must therefore be
l the making of repairs, modified by eliminating
a which is a very different the item of P1,736.01,
w thing from which was awarded to
reconstruction in case of the plaintiff as damages
a total loss. The Spanish for the failure of the
r terms "reparaciones" defendant to promptly
e and "composiciones," reconstruct the camarin.
like the English word
a "repairs" in its ordinary
g acceptation, must be
r understood to apply to
e the restoration of things
e after injury or partial
d destruction, without
; complete loss of identity
in the thing repaired. (34
a Cyc., 1336, 1337.)
n In subsection
d (d) of paragraph 4 of the
contract it is declared to
must be construed in without the fault of the be the duty of the lessee
relation with the next debtor. to maintain the
preceding article We now pass to improvements on the
(1182), which says the consideration of a haciendas in good
that the obligation to special clause found in condition and to deliver
deliver a thing is the contract of lease them in the same state to
extinguished when the (paragraph 4, [b] ), the lessor upon the
thing is destroyed declaring that the lessee termination of the lease.
11
0
a fire broke out in said saved. a
warehouse which at Of the 1,052 n
that time contained cavanes saved from the
thousands of cavanes of warehouse, 170 were i
palay, the exact number distributed by way of n
being disputed, and 568 remuneration among d
cavanes outside. 1,052 those who helped to u
cavanes of palay stored save them. The s
in the warehouse were remaining 882 cavanes t
saved, and that the 568 of palay were hulled r
cavanes of palay and sold, yielding the i
outside of the net sum of P2,238.98. a
warehouse were all l

La Sociedad Dalisay vs. Januario de los p

Reyes, G.R. No. a
452) r
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11
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11
3
2 judgment appealed from Facts: The plaintiff
3 is affirmed without made an arrangement
, express pronouncement for the pasturing of
On October 3, “Dalisay” was ordered to of costs. So ordered. eighty-one head of
1924, Ramon Bartolazo deliver to the depositors cattle, in return for
brought an action their proportionate AnicetaPalaciovs.Dionisi which she was to give
against the "Sociedad share of the palay which oSudario,G.R.No.2980,Ja one-half of the calves
Dalisay" for the return was stored in the nuary 2,1907(7Phil275) that might be born and
of 1,158 cavanes of warehouse at the time of was to
palay and 27 cavanes of the fire.
rice or the value thereof, R
amounting to P6,073.50, Issue: Whether a a
plus P1,500 as damages, depositary is liable for t
and the costs. The the loss of the deposit i
“Dalisay” denied the due to fire which broke o
charge. On February 18, out without any fault or :
1926, the "Dalisay" negligence on its part.
brought an action I
against Januario de los Held: No. Modified. t
Reyes in the same court
for the return of the i
goods or, in default s
thereof, for the payment
of their cash value. In c
this latter case, Domingo o
Zavalla filed a third- n
party claim against the t
plaintiff entity and the e
defendant Januario de n
los Reyes, praying that d
the "Dalisay" be ordered e
to deliver to him the d
palay belonging to him
according to the books t
of said entity, or, in lieu h
thereof, its value at P5 a
per cavan, with legal t
interest and that
Januario de los Reyes be t
ordered to render an h
account of the palay e
sold, and to deliver to
him the balance a
according to the account p
to be rendered. p
The trial court e
failed to find that the l
fire was intentional, or l
was caused by the a
negligence of the n
officials of the plaintiff t
company, and from
these findings no appeal h
proper in form has been a
taken, for which reason, s
they must be accepted
as indisputable. n
Nonetheless, the o
11
4
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11
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11
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11
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12
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n pay the defendant one- bank by the military

e half peso for each calf authorities by virtue of
t branded. On demand for such order, was
the whole, forty- eight confiscated and turned
p head of cattle were over to the
r afterwards returned to Government.
o her and this action is The plaintiff
c brought to recover the filed this case to
e remaining thirty-three. recover the confiscated
e It is claimed as a money from the estate
d defense that the thirty- of Fr. de la Peñ a. The
s three cows either died of lower court ruled for
disease or were the plaintiff.
o drowned in a flood. As
f to this point, on which
Issue: Whether the
the trial court has made
depositary is liable for
t no specific finding, the
unforeseeable and
h proof is conflicting in
inevitable events that
e many particulars and
lead to the loss of the
indicates that at least
thing deposited.
p some of these cattle
a were living at the time of
l the surrender of the
a forty-eight head. The
y defendant's witnesses
swore that of the cows
s that perished, six die
a from overfeeding, and
v they failed to make clear
e the happening of any
d flood sufficient to
. destroy the others. The
lower court ruled for the
I plaintiff.
n
Issue: Whether the
a depositary has the
l burden of explaining the
l loss of the thing
deposited.
o
t Held: Yes. Affirmed.
h
e R
r a
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12
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14
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14
1
 h
h e
i forcibly taken from his
m Held: No. Reversed. pocket or from his house
by the military forces of
f one of the combatants
Ratio: The branch of the
o during a state of war, it is
law know in England
r clear that under the
and America as the law
provisions of the Civil
of the trusts had no exact
r Code he would have been
counterpart in the
e exempt from
Roman law and is more
v responsibility. The fact
has none under the
o that he placed the trust
Spanish law, In this
l fund in the bank in his
jurisdiction, therefore,
u personal account does
Father dela Peñ a's
t not add to his
liability is determined by
i responsibility. Such
those portions of the
o deposit did not make him
Civil Code which relate
n a debtor who must
to obligations (Book 4,
a respond at all the
Title 1.)
r hazards.
Although the
y We do not enter
Civil Code states that a
into a discussion for the
"person obliged to give
p purpose of determining
something is also bound
u whether he acted more
to preserve it with the
r or less negligently by
diligence pertaining to a
p depositing the money in
good father of a family"
o the bank than he would if
(art.
s had left it in his home: or
1094), it also provides,
e whether he was more or
following the principle of
s less negligent by
the Roman law, major
. depositing the money in
casus est, cui humana
his personal account than
infirmitas resistere non
T he would have been if
potest, that "no one shall
h had deposited it in a
be liable for events
e separate account as
which could not be
trustee. We regard such
foreseen, or which
m discussion as
having been foreseen
o substantially fruitless,
were inevitable, with the
n inasmuch as the precise
exceptions of the cases
e question is not one of the
expressly mentioned in
y negligence. There was no
the law of those in which
law prohibiting him from
the obligation so
w depositing it as he did
declares." (Art. 1105).
a and there was no law
By placing the
s which changed his
money in the bank and
responsibility by reason
mixing it with his
t of the deposit. While it
personal funds, De la
a may be true that one who
Peñ a did not thereby
k is under obligation to do
assume an obligation
e or give a things is duty-
different from that under
n bound, when he sees
which he would have
events approaching the
lain if such deposit had
f results of which will be
not been made, nor did
r dangerous to his trust, to
he thereby make himself
o take all reasonable
liable to repay the
m means and measures to
money at all hazards. If
escape or, if unavoidable,
the money had been
t to temper the effects of
14
2
those events, we do not
feel constrained to hold
that, in choosing
between two means
equally legal, he is
culpably negligent in
selecting one whereas
he would not have been
if he had selected the
other.
Trent,dissenting:
Technically speaking,
whether Father De la
Peñ a was a trustee or an
agent of the plaintiff his
books showed that in
1898 he had in his
possessions as trustee
or agent or a trustee or
an agent of the plaintiff
his books
the plaintiff, I think that
it may be presumed that
the military authorities
would not have
confiscated it for the
reason that they were
looking for insurgent
funds only. Again, the
plaintiff had no reason
to suppose that De la
Peñ a would attempt to
strip the fund of its
identity, not had he said
or done anything which
tended to relieve De la
Peñ a from the legal
responsibility which
pertains to the care and
custody of trust funds.
The Supreme Court of
the United States in
United States vs.
Thomas (82 U.S.,
337), at page 343, said:
"Trustees are only
bound to exercise the
same care and solicitude
with regard to their
own. Equity will not
exact more of them.
They are not liable for a
loss by theft without
their fault. But this
showed that in 1898 he
had in his possession as
trustee or agent the sum
of P6,641 belonging to
the plaintiff as the head
of the church. This
money was then clothed
with all the immunities
and protection with
which the law seeks to
invest trust funds. But
when De la Peñ a mixed
this trust fund with his
own and deposited the
whole in the bank to his
personal account or
credit, he, by this act,
stamped on the said
funds his own private
marks and unclothed it
of all the protection it
had. If this money had
been deposited in the
name of De la Peñ a as
trustee of agent of
exemption ceases when
they mix the trust money
with their own, whereby
it loses its identity, and
they become mere
debtors."
If De la Peñ a,
after depositing the trust
fund in his personal
account, had used this
money for speculative
purposes, such as the
buying and selling of
sugar or other products
of the country, thereby
becoming a debtor,
there would have been
no doubt as to the
liability of his estate.
Whether he used this
money for that purpose
the record is silent, but it
will be noted that a
considerable length of
time intervened from the
time of the deposit until
the funds were
confiscated by the
military authorities. In
fact, the record shows
that De la Peñ a
deposited on June 27,
1898, P5,259, on June 28
of that year P3,280, and Sergio Aguirre, and the
on August 5 of the same Pugaos then rented
year P6,000. The record Safety Deposit Box No.
also shows that these 1448 of private
funds were withdrawn respondent Security
and again deposited all Bank and Trust
together on the 29th of Company, a domestic
May, 1900, this last banking corporation.
deposit amounting to For this purpose, both
P18,970. These facts signed a contract of
strongly indicate that De lease which contains
la Peñ a had as a matter the condition that the
of fact been using the bank is not a depositary
money in violation of the of the contents of the
trust imposed in him. safe and it has neither
the possession nor
control of the same and
that the bank has no
interest whatsoever in
said contents, except
herein expressly
provided, and it assumes
absolutely no liability in
connection therewith.
After the execution of
the contract, two (2)
renter's keys were
given to the renters
— one to Aguirre (for
the petitioner) and the
other to the Pugaos. A
guard key remained in
the possession of the
respondent Bank. The
safety deposit box has
two (2) keyholes, one
for the guard key and
the other for the renter's
key, and can be opened
only with the
C
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14
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T i
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s n
t t
Company, G.R. No. 90027, March 3, 1993 ,
14
4
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w a
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t o
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(
3 a
) g
r
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14
7
 n
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r
M e
e
m t
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r a
a t
n
d t
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m e

o t
f i
t
T l
r e
u s
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t
a o
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A e
c
t l
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a t
l s

A s
g h
r a
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t
o r
f a
n
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a f
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r
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f d

L t
a o
14
8
t t
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e a
t
p
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'
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14
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e 9
t 2
o 4
, 3
4
T ,
r
a s
n h
s a
f l
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r
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e
r d
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f o
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c i
a t
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s
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o n
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a
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i s
t a
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e e
t
( y
T
C d
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) p
o
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o i
s t
.
b
2 o
8 x
4
6 o
5 f
5
a
a n
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d
b
2 a
15
0
n r
k e
. s

T o
h f
e
a
s
a r
m e
e p
r
c e
o s
u e
l n
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a
b t
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v
w e
i
t o
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d
r t
a h
w e
n
p
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n t
l i
y t
i
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p n
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t a
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j t
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n
t P
u
s g
i a
g o
n s
a
t u
u p
15
1
o use of both keys.
n Petitioner claims that sse
the certificates of title
f were placed inside the d
u said box.
l Thereafter, a by
l certain Mrs. Margarita
Ramos offered to buy the
p from the petitioner the
a two (2) lots at a price of tria
y P225.00 per square
m meter which, as l
e petitioner alleged in its
n complaint, translates to a cou
t profit of P100.00 per
square meter or a total rt.
o of P280,500.00 for the
f entire property. Mrs. CA
Ramos demanded the affirmed.
t execution of a deed of
h sale which necessarily Issue: Whether the
e entailed the production rental of a safety deposit
of the certificates of title. box is a contract of
p In view thereof, Aguirre, deposit.
u accompanied by the
r Pugaos, then proceeded Held: Yes. Affirmed.
c to the respondent Bank
h on 4 October 1979 to
a open the safety deposit
s box and get the
e certificates of title.
However, when opened
p in the presence of the
r Bank's representative,
i the box yielded no such
c certificates. Because of
e the delay in the
. reconstitution of the
title, Mrs. Ramos
P withdrew her earlier
e offer to purchase the
t lots; as a consequence
i thereof, the petitioner
t allegedly failed to realize
i the expected profit of
o P280,500.00.
n A complaint for damages
e was filed.
r
, It

t wa
h
r s
o
u dis
g
h mi

15
2
American relationship in question n
jurisprudence. We might be more properly t
agree with the characterized as that of e
petitioner that under landlord and tenant, or n
the latter, the lessor and lessee. It has t
prevailing rule is that also been suggested i
the relation between a that it should be o
bank renting out safe- characterized as that of n
deposit boxes and its licensor and licensee.
customer with respect The relation between a t
to the contents of the bank, safe-deposit h
box is that of a bailor company, or storage a
and bailee, the bailment company, and the t
being for hire and renter of a safe-deposit
mutual benefit. box therein, is often t
There is, described as h
however, some support contractual, express or e
for the view that the implied, oral or
c
R o
a n
t t
i r
o a
: c
t
W
e f
o
a r
g
r t
e h
e e

w r
i e
t n
h t

t o
h f
e
t
p h
e e
t
i s
t a
i f
o e
n t
e y
r
' d
s e
p
c o
o s
15
3
i r
t t
i
b c
o l
x e

i 1
s 6
4
n 3
o
t o
f
a
n t
h
o e
r
d C
i i
n v
a i
r l
y
C
c o
o d
n e
t .
r
a H
c o
t w
e
o v
f e
r
l ,
e
a W
s e
e
d
a o
s
n
d o
e t
f
i f
n u
e l
d l
y
i
n s
u
A b
15
4
s h
c a
r t
i
b i
e s

t t
o o

i b
t e
s
s
v t
i r
e i
w c
t
t l
h y
a
t g
o
t v
h e
e r
n
s e
a d
m
e b
y
i
s t
h
a e

c p
o r
n o
t v
r i
a s
c i
t o
n
o s
f
i
d n
e
p t
o h
s e
i
t C
i
t v
15
5
i e
l c
i
C a
o l
d
e k
i
o n
n d

d o
e f
p
o d
s e
i p
t o
. s
i
T t
h .
e
I
c t
o
n c
t a
r n
a n
c o
t t

i b
n e

t c
h h
e a
r
c a
a c
s t
e e
r
a i
t z
e
b d
a
r a
s
i
s a
n
a
o
s r
p d
15
6
i
n a
a n
r d
y
a
c b
o s
n o
t l
r u
a t
c e
t
p
o o
f s
s
l e
e s
a s
s i
e o
n
u
n a
d n
e d
r
c
A o
r n
t t
i r
c o
l l
e
o
1 f
6
4 t
3 h
e
b
e s
c a
a f
u e
s t
e y

t d
h e
e p
o
f s
u i
l t
l
15
7
b u
o g
x a
o
w s
a .
s
T
n h
o e
t
g
g u
i a
v r
e d
n
k
t e
o y

t o
h f
e
t
r h
e e
n
t b
e o
r x
s
r
— e
m
t a
h i
e n
e
p d
e
t w
i i
t t
i h
o
n t
e h
r e

a r
n e
d s
p
t o
h n
e d
e
P n
15
8
t
t
B h
a e
n
k b
; o
x
w .
i
t O
h n
o
u t
t h
e
t
h o
i t
s h
e
k r
e
y h
, a
n
n d
e ,
i
t t
h h
e e
r
r
o e
f s
p
t o
h n
e d
e
r n
e t
n
t B
e a
r n
s k

c c
o o
u u
l l
d d

o n
p o
e t
n
15
9
l e
i ,
k
e t
w h
i e
s
e s
a
o i
p d
e
n k
e
t y
h
e h
a
b d
o
x a

w d
i u
t p
h l
o i
u c
t a
t
t e
h
e w
h
r i
e c
n h
t
e w
r a
' s
s
m
k a
e d
y e
.
s
I o
n
t
t h
h a
i t
s
b
c o
a t
s h
16
0
r 1
e 9
n 7
t 5
e ,
r
s a
l
c s
o o
u
l r
d e
l
h i
a e
v d
e
u
a p
c o
c n
e
s b
s y

t t
o h
e
t
h r
e e
s
b p
o o
x n
. d
N e
e n
i t
t
h C
e o
r u
r
c t
o ,
u
l b
d e

A i
r n
t v
i o
c k
l e
e d
16
1
 f
a i
s r
s
a t
n
p
a a
r r
g a
u g
m r
e a
n p
t h

a o
g f
a
i s
n u
s c
t h

t p
h r
e o
v
d i
e s
p i
o o
s n
i
t c
a
t n
h n
e o
o t
r
y a
. p
p
O l
b y
v
i t
o o
u
s a
l
y d
, e
p
t o
h s
e i
t
16
2
a
r e
y a
r
o n
f
i
c n
e t
r e
t r
i e
f s
i t
c
a i
t f
e
s s
, u
c
b h
o
n d
d o
s c
, u
m
s e
e n
c t
u s
r
i a
t r
i e
e
s k
e
o p
r t

i i
n n
s
t a
r
u r
m e
e n
n t
t e
s d

w s
h a
i f
c e
h t
16
3
y t
h
d e
e
p b
o o
s x
i
t w
i
b t
o h
x o
. u
t
I
t t
h
i e
s
r
c e
l n
e t
a e
r r

t b
h e
a i
t n
g
t
h p
e r
e
d s
e e
p n
o t
s .
i W
t e
a
r o
y b
s
c e
a r
n v
n e
o ,
t
h
o o
p w
e e
n v
e
16
4
r u
, n
a
t n
h i
a m
t o
u
t s
h
e s
u
d p
e p
p o
o r
s t
i
t e
v
t e
h n
e
o i
r n
y
written, in whole or in (c) of this section as
i part. But there is depositories or as agents.
t apparently no Note that the
s jurisdiction in which any primary function is still
e rule other than that found within the
l applicable to bailments parameters of a contract
f governs questions of of deposit, i.e., the
the liability and rights receiving in custody of
d of the parties in respect funds, documents and
o of loss of the contents of other valuable objects for
e safe-deposit boxes. safekeeping. The renting
s In the context of out of the safety deposit
our laws which boxes is not independent
n authorize banking from, but related to or in
o institutions to rent out conjunction with, this
t safety deposit boxes, it is principal function. A
clear that in this contract of deposit may
a jurisdiction, the be entered into orally or
l prevailing rule in the in writing and, pursuant
t United States has been to Article 1306 of the
o adopted. Section 72 of Civil Code, the parties
g the General Banking Act thereto may establish
e pertinently provides that such stipulations, clauses,
t banks may receive in terms and conditions as
h custody funds, they may deem
e documents, and valuable convenient, provided
r objects, and rent safety they are not contrary to
deposit boxes for the law, morals, good
f safeguarding of such customs, public order or
i effects. The banks shall public policy. The
n perform the services depositary's
d permitted under responsibility for the
subsections (a), (b) and safekeeping of the
16
5
objects deposited in the
case at bar is governed
by Title I, Book IV of the
Civil Code. Accordingly,
the depositary would be
liable if, in performing
its obligation, it is found
guilty of fraud,
negligence, delay or
contravention of the
tenor of the agreement.
In the absence of any
stipulation prescribing
the degree of diligence
required, that of a
good father of a family
is to be observed. Hence,
any stipulation
exempting the
depositary from any
liability arising from the
loss of the thing
deposited on account of
fraud, negligence or
delay would be void for
being contrary to law
and public policy.
In the instant
case, petitioner
maintains that
conditions 13 and 14 of
the questioned contract
of lease of the safety
deposit box are void as
they are contrary to law
and public policy. We
find Ourselves in
agreement with this
proposition for indeed,
said provisions are
inconsistent with the
respondent Bank's
responsibility as a being present.
depositary under
Section 72(a) of the
General Banking Act.
Both exempt the latter
from any liability except
as contemplated in
condition 8 thereof
which limits its duty to
exercise reasonable
diligence only with
respect to who shall be
admitted to any rented
safe. Furthermore,
condition 13 stands on a
wrong premise and is
contrary to the actual
practice of the Bank. It is
not correct to assert that
the Bank has neither the
possession nor control of
the contents of the box
since in fact, the safety
deposit box itself is
located in its premises
and is under its absolute
control; moreover, the
respondent Bank keeps
the guard key to the said
box. As stated earlier,
renters cannot open
their respective boxes
unless the
Bank cooperates by from a characterization
presenting and using of the impugned
this guard key. Clearly contract as a contract of
then, to the extent lease, but rather on the
above stated, the fact that no competent
foregoing conditions in proof was presented to
the contract in question show that respondent
are void and ineffective. Bank was aware of the
The petition is, agreement between the
nonetheless, dismissed petitioner and the
on grounds quite Pugaos to the effect that
different from those the certificates of title
relied upon by the Court were withdrawable
of Appeals. In the from the safety deposit
instant case, the box only upon both
respondent Bank's parties' joint signatures,
exoneration cannot, and that no evidence
contrary to the holding was submitted to
of the Court of Appeals, reveal that the loss of
be based on or proceed the
certificates of title was containing $5,300 worth
due to the fraud or of solid gold jewelry and
negligence of the the other a small satchel
respondent Bank. This in containing
turn flows from this $1,000 worth of jewelry.
Court's determination The smaller bag was not
that the contract locked and had no key.
involved was one of On arriving at
deposit. Since both the the hotel, Larter asked
petitioner and the for a room, but one could
Pugaos agreed that each not be assigned to him
should have one (1) for some 3-4 hours.
renter's key, it was During the time he was
obvious that either of waiting, he placed his
them could ask the Bank bags in the coat room and
for access to the safety received a check
deposit box and, with the therefore. Between 12-2,
use of such key and the a room was assigned to
Bank's own guard key, him, and his baggage was
could open the said box, taken from the coat room
without the other renter and carried up to the
room. When coming
down for dinner, Larter
Elcoxvs.Hill,98US218(1 gave the key to his room
878) to the bellboy and
directed him to go up and
Facts: Elcox and Larter bring down his bags to
were manufacturing the coat room again. He
jewelers, doing business then received a coat
at Newark, New Jersey. room check after dinner.
Larter left home for a He saw the bags in the
tour through several coat room 2 or 3 times
Western cities, with after that before he went
some to bed around 10pm.
$6,300 worth of jewelry The boy in charge of the
which was contained in coat room, William
2 bags or satchels – one Drum, voluntarily told
a large leather bag him that his bags were
16
6
perfectly safe.
The next day,
Larter asked for his
bags, but only the small
one could be found. The
jewelry inside had been
stolen. Larter did not
inform the hotel of the
contents of the bags, and
he did not ask to have
the bags placed in the
safe. At the top of the
page of the register
where he wrote his
name on entering the
hotel were printed the
words: “Money, jewels,
and valuable property
must be placed in the
safe in the office,
otherwise the
proprietor will not be
responsible for any
loss.” On the door of
his room and every
other room were a
printed notice saying
that “All guests of the
house are cautioned
against leaving money,
jewels, or valuables of
any description in
their rooms, as the
proprietor will not be
responsible for them if
stolen. Money or
valuables, properly
labelled, must be
deposited in the safe
at the office.”
Furthermore, the statute
of the State of Illinois
entitled “An Act for the
protection of
innkeepers” provides
that hotels shall keep
notices posted at
conspicuous places in
the hotel that guests
and customers must
leave their money,
jewelry, and other
valuables with the
landlord, agent or clerk
for safekeeping and that
hotels that comply with
these requirements shall
not be liable for the loss
of such money, jewelry
or valuables, unless such
loss shall occur by the
hand or through the
negligence of the
landlord, clerk or
servant employed by
him.
For purpose of
safekeeping the
valuables of guests, the
hotel had a very large
vault which was in
plain sight at the
counter. The coat room
was only intended for
the reception of
ordinary valises, coats,
umbrellas, and not for
valuables or jewelry.
Evidence
showing that hotel
employee William Drum
had stolen the jewelries
was objected to and
excluded during the
trial.
Issue: Whether a hotel is
liable for the loss of
The defendant
valuables which were
contends that he is
not made known to it
exempt from liability for
and which were not
money, jewels, and the
properly deposited to it
like, unless his guest who
as stated in the notices
lost them complied with
posted in conspicuous
the statute of Illinois on
places.
that subject. Where a safe
for the keeping of such
Held: No. Judgment articles is provided by
affirmed. the hotelkeeper, and the
notice given as required
Ratio: There can be but by the statute, a loser
little doubt that the failing to take the benefit
goods of the plaintiffs of the protection thus
were stolen from them furnished him must bear
while one of them was at his own loss. To this rule
the hotel of the the statute makes one
defendant, in the city of exception. If the loss
Chicago. They insist occurs 'by the hand or
thereupon that their loss through the negligence of
shall be made good; the landlord, or by a clerk
but it does not follow, or servant employed by
because they met with a him in such hotel or inn,'
loss, that they can the liability remains.
recover the amount from It is settled by
him. the authorities that
16
7
where the loss is of the availability of t
occasioned by the hotel safety deposit ,
personal negligence of boxes for her valuables,
the guest himself, the but saw no such notice. S
liability of the innkeeper Mr. Ippolito also o
does not exist. The court testified he did not see u
refused to receive any notice of the t
evidence that William availability of safety h
Drum had admitted that deposit boxes posted in
he had stolen the the room; however, he C
jewelry in question. If admitted that if such a
he was guilty of the notice was posted, he r
offence, the fact should may have overlooked it. o
have been established Despite not seeing a l
by due proof. If he were notice in the room, Mr. i
on trial himself, his Ippolito testified he was n
admission would be aware that Innkeeper a
competent, but upon no provided safety deposit
principle could he admit boxes, but he chose not C
away the rights of to request a box from .
another person. the Innkeeper because A
he felt that the less .
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17
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 The hotel provided the testimony of its
employees and a security expert on its security
procedures and its dedication to adhering to those
procedures, particularly for providing guests with notice
of the availability of safety deposit boxes. On cross-
examination of the security expert, he was asked about
past security problems at Innkeeper’s hotel in which
Innkeeper’s employees spied on guests through
peepholes. The expert replied that he was not aware of
those prior incidents.
The jury awarded the Ippolitos $350,000 in
actual damages. However, the jury found that the
Ippolitos were forty percent comparatively negligent,
and reduced the award to $210,000.
646)
Facts: On March 31, 1959, the Court of First Instance of
Manila, in its Civil Case No.
36525, rendered a decision ordering the City of Baguio to
pay the National Power Corporation various sums of
money totalling P240,000.00 representing the unpaid
electric charges, and rentals for the lease of two electric
generators, etc. The aforesaid decision having become
final, the court of Manila granted on June 4, 1959, the
National

Issue: Whether the hotel is liable for losses when the

guests were unable to see posted notices that valuables
must be deposited.

Held: Yes. Affirmed.

Ratio: The Ippolitos testified that neither of them saw any

conspicuously posted notice in their room indicating that
the hotel had safety deposit boxes available in which they
could store their valuables. Although testimony from
Officer Sadler, as well as several of Innkeeper’s current
and former employees, contradicts this evidence, the
existence of conflicting evidence precludes us from
finding as a matter of law that Innkeeper complied
with the statute. The jury implicitly found that Innkeeper
failed to comply with the statute’s notice requirements.
Thus, Innkeeper cannot avail itself of the statute’s
protection from liability, regardless of whether its
actions contributed to the Ippolitos’ loss.
Because we find the Innkeeper offered evidence
concerning the quality of its security, we cannot say as a
matter of law that the trial court erred in admitting
evidence contradicting this testimony. We find no
evidence in the record indicating that Innkeeper suffered
any prejudice from the Ippolitos’ two questions
concerning Booth’s knowledge of the peephole incidents
or his negative responses.

Concurring Opinion: In arguing its post trial motions,

Innkeeper urged the court to consider Mr. Ippolito’s
actual knowledge of the availability of safety deposit
boxes. However, to fall within the protections of the
Innkeeper’s Statute, the notice innkeepers post must
inform guests that they are required to place their
jewels and money in the innkeeper’s safe. Here, Mr.
Ippolito only admitted to knowing that Innkeeper had a
safe available; he did not admit to knowing he was
required to place his money and jewelry in that safe.

National Power Corporation vs. Judge Jesus de Veyra,

CFI Baguio City & City of
Baguio, G.R. No. L-15763, December 22, 1961 (3 SCRA
Power Corporation's motion for execution. A writ was court's jurisdiction by issuing the writ of preliminary
issued, addressed to the Sheriff of Baguio City to levy injunction and assuming cognizance of the complaint
execution on the property of above respondent Baguio City presented before it.
to satisfy the judgment. Such Sheriff, in compliance with The reason advanced by the respondent court of
the writ, garnished on June 8, 1959, the amount of Baguio City that it should grant relief when "there is
P239,589.80 out of the cash deposits of Baguio City in the apparently an illegal service of the writ" (the property
possession of the Baguio Branch of the Philippine National garnished being allegedly exempt from execution) may
Bank. not be upheld, there being a better procedure to follow,
Whereupon on June 12, 1959, Baguio City filed i.e., a resort to the Manila court, wherein the remedy may
against herein petitioner National Power Corporation, the be obtained, it being the court under whose authority
Philippine National Bank and the said Sheriff, in the the illegal levy had been made.
Court of First Instance of Baguio City, a complaint (Civil
Case No. 866) praying that all the acts of said defendants
relative to the garnishment of the cash deposits with
the defendant Philippine National Bank, be declared
illegal, that said defendants be permanently restrained
from performing acts in furtherance of the said
garnishment, and that they be ordered to pay damages.
On the same date, June 12, 1959, above respondent
court of Baguio City issued a preliminary mandatory
injunction ordering above petitioner corporation, the
Philippine National Bank, the Sheriff and others acting in
their behalf to restore and maintain the status quo of
respondent corporation's bank deposits.
Petition for certiorari was filed.

Issue: Whether property which has been levied upon in

a garnishment proceedings by one court, may be subject
to the jurisdiction of another court in an independent suit
impugning the legality of said garnishment.

Held: No. Petition Granted.

Ratio: The garnishment of property to satisfy a writ of

execution "operates as an attachment and fastens upon
the property a lien by which the property is brought
under the jurisdiction of the court issuing the writ." It is
brought into custodia legis, under the sole control of such
court. Property is in the custody of the court when it has
been seized by an officer either under a writ of attachment
on mesne process or under a writ of execution. A court
which has control of such property, exercises exclusive
jurisdiction over same. No court, except one having a
supervisory control or superior jurisdiction in the
premises, has a right to interfere with and change that
possession.
We have followed and applied this principle of
procedure. Thereby conflict of power is avoided between
different courts of coordinate jurisdiction. We have
invariably held that no court has authority to interfere by
injunction with the judgments or decrees of a court of
concurrent or coordinate jurisdiction having equal power
to grant the relief sought by injunction.
The property involved in Civil Case No. 866, is
property in custodia legis of the Court of First Instance of
Manila, it having been garnished to satisfy a writ of
execution duly issued by the said court. Respondent
Baguio court should not have interfered with the Manila
Needless to say, an effective ordering of legal relationships in civil society is possible only when each
court is granted exclusive jurisdiction over the property
brought to it. To allow coordinate courts to interfere with
each other's judgments or decrees by injunctions, would
obviously lead to confusion and might seriously hinder
the proper administration of justice.
Romulo Machetti vs. Hospicio de San Jose & Fidelity
& Surety Company of the
Philippine Islands, G.R. No. L-16666, April 10, 1922 (43
Phil 297)
Held: No. Reversed.
Ratio: We think the court below erred in proceeding with
the case against the guarantor while the proceedings
were suspended as to the principal. The guaranty in the
present case was for a future debt of unknown amount
and even regarding the guaranty as an

Facts: Romulo Machetti, by a written agreement,

undertook to construct a building on Calle Rosario in the
city of Manila for the Hospicio de San Jose, the contract
price being P64,000. One of the conditions of the
agreement was that the contractor should obtain the
"guarantee" of the Fidelity and Surety Company of the
Philippine Islands to the amount of P12,800 and the
following endorsement in the English language appears
upon the contract: "For value received we hereby
guarantee compliance with the terms and conditions as
outlined in the above contract.”
Machetti constructed the building under the
supervision of architects representing the Hospicio de San
Jose and, as the work progressed, payments were made to
him from time to time upon the recommendation of the
architects, until the entire contract price, with the
exception of the sum of P4,978.08, was paid. Subsequently
it was found that the work had not been carried out in
accordance with the specifications which formed part of
the contract and that the workmanship was not of the
standard required, and the Hospicio de San Jose therefore
refused to pay the balance of the contract price. Machetti
thereupon brought this action. Hospicio de San Jose
answered the complaint and presented a counterclaim for
damages for the partial noncompliance with the terms of
the agreement above mentioned, in the total sum of
P71,350. After issue was thus joined, Machetti, on petition
of his creditors, was declared insolvent, and an order was
entered suspending the proceeding in the present case in
accordance with section 60 of the Insolvency Law, Act No.
1956.
The Hospicio de San Jose on January 29, 1919,
filed a motion asking that the Fidelity and Surety Company
be made cross-defendant to the exclusion of Machetti and
that the proceedings be continued as to said company, but
still remain suspended as to Machetti. This motion was
granted, and Hospicio filed a complaint against the
Fidelity and Surety Company asking for a judgment for
P12,800 against the company upon its guaranty. After
trial, the Court of First Instance rendered judgment
against the Fidelity and Surety Company.

Issue: Whether a guarantor can be held liable for an adebtor whoisunder insolvency
obligation of
proceedings
ordinary fianza under the Civil Code, the surety cannot be
held responsible until the debt is liquidated.
But in this instance the guarantor's case is even
stronger than that of an ordinary surety. The contract of
guaranty is written in the English language and the
terms employed must of course be given the signification
which ordinarily attaches to them in that language. In
English the term "guarantor" implies an undertaking of
guaranty, as distinguished from suretyship. It is very true
that notwithstanding the use of the words "guarantee" or
"guaranty" circumstances may be shown which convert
the contract into one of suretyship but such circumstances
do not exist in the present case: on the contrary it appears
affirmatively that the contract is the guarantor's separate
undertaking in which the principal does not join, that it
rests on a separate consideration moving from the
This sum of money was made payable, first, P40,000 in
cash upon the execution of the document of compromise,
and the balance in three several payments of P20,000 at
the end of one year, two years, and three years
respectively. To this contract the appellant Enrique
Echaus affixed his name as guarantor. The first payment of
P40,000 was made on July 11, 1924, the date when the
contract of compromise was executed; and of this amount
the plaintiff Fabiola Severino received the sum of P10,000.
Of the remaining P60,000, all as yet unpaid, Fabiola
Severino is entitled to the sum of P20,000.
principal and that although it is written in
continuation of
the contract for the construction of the
building, it is a
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(56 Phil 185) r
a
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T ke an end of this litigation a compromise t
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i
l
l
a
n
u
e
v
a

a
n
d

F
a
b
i
o
l
a

S
e
v
e
r
i
n
o
.
 It appears that at the time the compromise
agreement was executed Fabiola Severino had not yet Consuelo P. Piczon, Ruber O. Piczon & Aida P.
been judicially recognized as the natural daughter of Alcantara vs. Esteban Piczon & Sosing-Lobos & Co., Inc.,
Melecio Severino, and it was stipulated that the last

P20,000 corresponding to Fabiola and the last P5,000

corresponding to judgment should issue
Felicitas Villanueva first against the property
should be retained on of Guillermo Severino,
deposit until the definite and if no property should
status of Fabiola be found belonging to
Severino as natural said defendant sufficient
daughter of Melecio to satisfy the judgment in
Severino should be whole or in part,
established. The judicial execution for the
decree to this effect was remainder should be
entered in the Court of issued against the
First Instance of property of Enrique
Occidental Negros on Echaus as guarantor.
June 16, 1925. Guillermo did not appeal.
This action was Echaus appealed.
instituted in the Court of
First Instance of the Issue: Whether a
Province of Iloilo by separate consideration
Fabiola Severino, with from the principal
whom is joined her contract is necessary for
husband Ricardo the existence of a
Vergara, for the purpose guarantee
of recovering the sum of
P20,000 from Guillermo Held: No. Affirmed.
Severino and Enrique
Echaus, the latter in the
character of guarantor
for the former. The proof
shows that the money
claimed in this action has
never been paid and is
still owing to the
plaintiff; and the only
defense worth noting in
this decision is the
assertion on the part of
Enrique Echaus that he
received nothing for
affixing his signature as
guarantor to the contract
which is the subject of
suit and that in effect the
contract was lacking in
consideration as to him.
Upon hearing the cause,
the trial court gave
judgment in favor of the
plaintiff's to recover the
sum of P20,000 with
lawful interest, but it
was declared that
execution of this
70
Facts: Esteban Piczon, deposit for registration
as President, of Sosing- with the SEC of the c
Lobos & Co, Inc., as incorporation papers o
controlling stockholder, relative to the Sosing- n
and as guarantor for Lobos and Co., Inc. The s
the same, took out a amount was to be i
loan for P12,500 to be returned as soon as d
used as surety cash the e
r
R a
a t
t i
i o
o n
:
t
A h
a
g t
u
a m
r a
a k
n e
t s
o
r t
h
o e
r
c
s o
u n
r t
e r
t a
y c
t
i
s e
f
b f
o e
u c
n t
d i
v
b e
y
b
t e
h t
e w
e
s e
a n
m
e t

71
h
e o
f
p
r a
i
n l
c a
i w
p s
a u
l i
t
p
a i
r s
t
i r
e e
s c
o
t g
h n
e i
r z
e e
t d
o
. i
n
T
h l
e a
w
c
o a
m s
p
r a
o
m v
i a
s l
e u
a
a b
n l
d e

d c
i o
s n
m s
i i
s d
s e
a r
l a

72
t a
i n
o u
n e
; v
a
a
n a
d n
d
t
h F
e a
b
d i
i o
s l
m a
i
s S
s e
a v
l e
r
o i
f n
o
t
h h
e a
d
a
c i
t n
i s
o t
n i
t
w u
h t
i e
c d
h
a
F g
e a
l i
i n
c s
i t
t
a G
s u
i
V l
i l
l e
l r

73
m r
o o
m
S i
e s
v e
e
r o
i n
n
o t
h
w e
a
s p
a
a r
n t

a o
d f
e
q G
u u
a i
t l
e l
e
c r
o m
n o
s
i S
d e
e v
r e
a r
t i
i n
o o
n
t
t o
o
p
s a
u y
p
p t
o h
r e
t
s
t u
h m
e s

p o

74
f
t
m h
o i
n s
e
y a
c
s t
t i
i o
p n
u .
l
a T
t h
e e
d
p
i r
n o
m
t i
h s
e e

c o
o f
n
t t
r h
a e
c
t a
p
w p
h e
i l
c l
h a
n
i t
s
E
t c
h h
e a
u
s s
u
b a
j s
e
c g
t u
a
o r
f a

75
n a
t r
o a
r n
t
i o
s r

t o
h r
e
r s
e u
f r
o e
r t
e y

b s
i h
n o
d u
i l
n d
g
. r
e
I c
t e
i
i v
s e

n a
e n
v y
e
r p
a
n r
e t
c
e o
s f
s
a t
r h
y e

t b
h e
a n
t e
f
a i
t
g ,
u

76
i c
f o
n
s s
u i
c d
h e
r
t a
h t
e i
r o
e n

b o
e f
,
t
a h
c i
c s
r
u c
i o
n n
g t
r
t a
o c
t
h
i w
s a
s
p
r t
i h
n e
c
i d
p e
a t
l r
. i
m
B e
u n
t t

t s
h u
e f
f
t e
r r
u e
e d

77
b p
y r
o
t c
h e
e e
d
p i
l n
a g
i ,
n
t a
i n
f d
f
s i
t
i
n i
s
t
h i
e m
m
f a
o t
r e
m r
e i
r a
l
a
c t
t h
i a
o t
n
n
i o
n
b
d e
i n
s e
m f
i i
s t
s
i m
n a
g y

t h
h a
a v
t e

78
a W Issue: Whether a
c h subsidiary contract of
c e guarantee must be
r t phrased in a certain
u h formal manner. Whether
e e acceptance is necessary
d r for the perfection of a
contract of guarantee.
e “
i g
t u
h a
e r
r a
n
t t
o o
r
t ”
h
e c
a
p n
r
i Held: No. Affirmed with modifications.
n
c
R
i
a
p
t
a
i
l
o
:
o
r
U
n
h
d
i
e
s
r
g
t
u
h
a
e
r
a
t
n
e
t
r
o
m
r
s
.
incorporation papers were found liable. o
are duly registered and f
the Certificate
a person who isofexpressly designated
I as a be held as a surety. Held: No. No. Affirmed.
Incorporation is issued. s t
The amount was not s h
returned. A case was u e
filed. Sosing-Lobos & e
Co, Inc. and Esteban : c
Piczon, as guarantor, o
79
n u
t a
r r
a a
c n
t t
, o
r
E ,
s
t a
e n
b d
a
n t
h
P e
i r
c e
z
o a
n r
e
e
x n
p o
r
e c
s i
s r
l c
y u
m
b s
o t
u a
n n
d c
e
h s
i
m i
s n
e
l t
f h
e
o
n r
l e
y c
o
a r
s d

a f
r
g o

80
m
o
w f
h
i a
c
h s
u
i r
t e
t
c y
a .
n
A
b
e g
u
d a
e r
d a
u n
c t
e y
d
m
t u
h s
a t
t
b
h e
i
s e
x
l p
i r
a e
b s
i s
l ,
i
t a
y n
d
c
o i
u t
l
d w
o
b u
e l
d
t
h b
a e
t

81
v s
i u
o r
l e
a t
t y
i
v w
e h
e
o n
f
t
t h
h e
e
v
l e
a r
w y

t w
o o
r
c d
o
n i
s n
i
d t
e h
r e

a a
g
p r
a e
r e
t m
y e
n
t t
o
i
b s
e
“
b g
o u
u a
n r
d a
n
a t
s o
r
a ”
.

82
 s
P e
i n
c t
z a
o t
n i
o
b n
o
u a
n n
d d

h u
i n
m d
s e
e r
l t
f a
k
a i
s n
g
a
n m
a
i d
n e
s
u b
r y
e
r R
. u
p
Macondray & Company, Inc. vs Perfecto Piñon, et al., e
G.R. No. L-13817, August 31, 1961 r
(2 SCRA 1110) t
o
F
a K
c .
t
s K
: a
n
U g
p l
o e
n o
n
r ,
e
p t
r h
e e

83
n i
n
a t
i
m f
e f
m
b d
e a
r t
e
o d
f
3
t 0
h
e J
a
S n
e u
n a
a r
t y
e
, 1
9
i 5
n 4
,
a
t
l h
e a
t t
t
e h
r e

a w
d o
d u
r l
e d
s
s g
e u
d a
r
t a
o n
t
t e
h e
e
p
p a
l y
a m

84
e p
n a
t y

o o
f n

h t
i h
s e

c d
o u
- e
d
e d
f a
e t
n e
d ,
a
n t
t h
s e
'
p
o l
b a
l i
i n
g t
a i
t f
i f
o
n s
, o
l
s d
h
o o
u n
l
d c
r
t e
h d
e i
y t

f a
a n
i d
l
d
t e
o l
i

85
v
e k
r n
e o
d w
n
t
o i
n
t
h t
e h
e
d
e t
f h
e e
n a
d t
a e
n r
t
s a
n
P d
e
r e
f n
e t
c e
t r
o t
a
P i
i n
ñ m
o e
n n
t
a
n b
d u
s
C i
o n
n e
r s
a s
d
o a
s
P
i "
r T
i u
n g
g a
, k

86
" r

a a
n
d c
o
" m
P m
u o
g n
a
k n
, a
" m
e
r
e k
s n
p o
e w
c n
t
i a
v s
e
l "
y A
, l
l
a
n S
d t
a
t r
r s
a
n P
s r
a o
c d
t u
i c
n t
g i
o
b n
u s
s ,
i "
n
e 1
s 2
s 7

u r
n o
d l
e l

87
s h
e
o
f g
u
c a
i r
n a
e n
m t
a e
t e
o
g i
r s
a
p p
h h
i r
c a
s
f e
i d
l
m a
s s
,
f
F o
. l
l
G o
. w
s
r :
e
l “
e f
a o
s r
e
w
p h
o i
s c
i h
t
i b
v y
e
t
t h
y e
p i
e r
.
g
T u

88
a p
r a
a y
n
t t
y h
e
I
a
p m
l o
e u
d n
g t
e
o
p w
a e
y d
m
e b
n y
t
” t
. h
e
T m
h
e o
n
p
r t
i h
n e
c
i d
p u
a e
l
d
d a
e t
b e
t .
o
r U
s p
o
f n
a
i e
l x
e t
d e
n
t s
o i
v

89
e r
i
i n
n c
v i
e p
s a
t l
i
g d
a e
t b
i t
o o
n r
s s

m h
a a
d v
e e

b a
y n
y
t
h p
e r
o
p p
l e
a r
i t
n y
t ,
i
f r
f e
a
a l
s
o
t r
o
p
w e
h r
e s
t o
h n
e a
r l
,
t
h w
e h
i
p c

90
h i
o
m n
a ,
y
i
b t
e
h
l a
e s
v
i f
e o
d u
n
u d
p
o t
n h
a
f t
o
r t
h
t e
h y
e
h
s a
a v
t e
i
s n
f o
a n
c e
t .
i
o K
n a
n
o g
f l
e
t o
h n
e
i c
r o
u
o l
b d
l
i n
g o
a t
t

91
p r
o s
i
n l
t e
v
t i
o a
b
t l
h e
e
f
p o
l r
a
i e
n x
t e
i c
f u
f t
i
a o
n n
y
s
p u
r f
o f
p i
e c
r i
t e
y n
t
o
f t
o
t
h s
e a
t
p i
r s
i f
n y
c
i t
p h
a e
l
o
d b
e l
b i
t g
o a

92
t n
i g
o l
n e
. o
n
T
h j
e o
i
c n
r t
e l
d y
i
t a
o n
r d
s
s
f e
i v
l e
e r
d a
l
a l
y
c
a l
s i
e a
b
t l
o e
.
h
o K
l a
d n
g
t l
h e
e o
n
d
e a
b n
t s
o w
r e
r
a e
n d
d
t
K h
a e

93
 t
p e
l r
a
i h
n e
t
i h
f a
f d
'
s w
r
c i
o t
m t
p e
l n
a
i t
n o
t
t
s h
e e
t
t p
i l
n a
g i
n
u t
p i
f
t f
h
e w
a
d s
e
f o
e n
n l
s y
e
t
t o
h
a i
t n
t
t r
h o
e d
u
l c
e e
t

94
h s
i
s p
a
c r
o t
-
d t
e o
f
e g
n u
d a
a r
n a
t n
s t
. e
e
A
s p
s a
u y
m m
i e
n n
g t

t o
h f
a
t h
i
t s
h
e c
r o
e -

w d
a e
s f
e
a n
n d
a
i n
n t
t '
e s
n
t o
b
o l
n i
g
h a
i t

95
i o
o f
n
, h
i
t s
h
e c
o
s -
a d
i e
d f
e
l n
e d
t a
t n
e t
r s

w w
a h
s i
c
b h
u
t w
a
a s
n
n
o o
f t
f
e a
r c
c
t e
o p
t
a e
c d
t .

a T
s h
e
g
u c
a o
r u
a r
n t
t
o r
r u
l

96
e p
d e
a
a l
g e
a d
i .
n
s D
t u
r
t i
h n
e g

d t
e h
b e
t
o t
r i
s m
e
a
n t
d h
i
t s
h
e a
p
g p
u e
a a
r l
a
n w
t a
o s
r
. p
e
T n
h d
e i
n
g g
u
a i
r n
a
n t
t h
o i
r s

a C
p o

97
u a
r t
t i
v
t e
h
e w
e
a r
p e
p
e d
l i
l r
a e
n c
t t
e
d d
i
e t
d o
.
a
H p
i p
s e
a
h r
e
i i
r n
s
s
o u
r b
s
t t
h i
e t
i u
r t
i
l o
e n
g
a f
l o
r
r
e t
p h
r e
e
s d
e e
n c
t e

98
a Had the appellant essential requisites for
s meant otherwise, he their validity are
e would have present." A contract of
d immediately denied that guaranty is not a formal
he ever guaranteed contract and shall be
a payment of the valid in whatever form it
p principal debtors' may be, provided that it
p obligation. This he did complies with the
e not do. statute of frauds.
l The appellant's The appellant
l very letter constitutes insists that he should
a his undertaking of have been notified by
n guaranty. "Contracts the appellee of the
t shall be obligatory in acceptance of his offer of
. whatever form they guaranty. In the first
Ratio: The appellant appellant's co- may have been entered place, his letter already
contends that although defendants had been into, provided all the constitutes his
in the stipulation of facts declared in default, the T
entered into by and appellee presented its h
between him and the evidence, testimonial e
appellee, he had and documentary,
admitted the liability of against them, and a
his co- defendants, who thereby established their p
were declared in default, primary liability. p
under the principle of e
res inter alios acta, that l
an admission by a third l
person can not bind a
another, his admission n
cannot bind the t
defendants in default,
and no judgment against c
them may be rendered l
on the basis of the a
stipulation of facts i
referred to. Since the m
appellee had not s
established a case
against the defendants t
in default, the principal h
debtors, it cannot a
directly hold liable the t
appellant, the guarantor,
whose obligation is only t
subsidiary to that of the h
former. e
The appellant
proceeds from the l
wrong premise that the e
case was submitted to t
the Court solely on the t
stipulation of facts e
entered into by and r
between him and the
appellee. The records i
show that when the case s
was called for trial on 30
August 1956, after the m
99
e o
r f
e f
l e
y r

a o
f
l
e g
t u
t a
e r
r a
n
o t
f y
.
i
n A
t
r c
o u
d r
u s
c o
t r
i y
o
n r
e
a a
n d
d i
n
d g
o
e o
s f

n t
o h
t e

c l
o e
n t
s t
t e
i r
t
u b
t e
e l
i
a e
n s

10
0
h "
i T
s h
i
a s
s
s w
e i
r l
t l
i
o i
n n
. t
r
W o
h d
i u
l c
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i t
n o

h y
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s u

o t
p h
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n
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r
s e
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n s
t ,
e
n M
c e
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s
h r
e s
.
s
a C
y o
s n
r
t a
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a o
t
P

10
1
i "
r
i c
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o
P g
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o
f
P i
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,
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w t
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l
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l
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f t
o h
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10
2
t
o
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11
5
t claimant & 3rd party, paid and was only
o vs. Ricardo D. credited with
Lorenzana, cross P13,559.33, leaving a
i defendant, Calixto D. balance of P2,086.31.
n Lorenzana, Jose M. Upon demand by the
v Lorenzana & Benigno corporation, Lorenzana
i proposed to settle his
t C. Gutierrez, 3rd party pending obligation by
e defendants, G.R. No. L- giving P100 a month,
8086, October 31, 1957 which amount was later
t (102 Phil 234) reduced to P25, to which
h arrangement the
e Facts: Pacific Tobacco company apparently
i Corporation is engaged agreed and Lorenzana
r in the business of actually made
manufacturing and installments amounting
a distributing cigarettes, to P250. As he failed to
t cigars and other tobacco make any further
t products. On January 16, payment, the Philippine
e 1952, Ricardo D. Tobacco Corporation
n Lorenzana and said filed a complaint with the
t corporation entered into Court of First Instance of
i a distributorship Manila on October 30,
o agreement. The 1953, against Ricardo D.
n agreement stipulated Lorenzana and the
that to guarantee the Visayan Surety &
t faithful performance on Insurance Corporation
o his part of the terms and for the recovery of the
conditions of this sum of P2,086.31, with
y contract, the distributor legal interest.
o shall post a surety bond Defendant
u in favor of the company Visayan Surety &
r in the amount of P8,000 Insurance Corporation
signed by him and a answered this complaint,
l reputable surety which it later modified
e company acceptable to with leave of Court by
t the company – P3,000 to filing an amended
t answer for the faithful answer with cross-claim
e settlement of the against Ricardo D.
r distributor’s account and Lorenzana and third
. P5,000 for the return of party complaint against
" a company truck. In Calixto D. Lorenzana, Jose
accordance thereto, Lorenzana and Benigno
undertaking of guaranty. guaranty became Lorenzana put up a bond C. Gutierrez, denying the
In the second place, the binding upon effectivity in the amount of P3,000 material allegations of
contract entered into by of the principal contract. with Visayan Surety & the complaint and setting
and between the Hence no notice of Insurance Corp as the affirmative
appellee and the acceptance by the surety.
defendants in default is appellee to the appellant On various
the principal contract is necessary for its occasions in 1952, the
and the contract entered validity. Philippine Tobacco
into by and between the Corporation delivered to
appellant and the Pacific Tobacco Corp. Lorenzana for
appellee is subsidiary to vs. Ricardo D. distribution cigarettes,
the principal contract. Lorenzana & Visayan cigars and other tobacco
Since the principal Surety & Insurance products amounting to
contract had already Corp. Visayan Surety & P15,645.64, but out of
been perfected, the Insurance Corp, cross this amount the latter
subsidiary contract of
11
6
defense that the bond when plaintiffs agreed Visayan Surety & But even
could not be held liable and allowed him to sell Insurance Corporation granting arguendo that
for damages and the tobacco products for the amount which the the merchandise thus
attorney's fees, that not only in the City of latter would actually pay delivered and
plaintiff Philippine Manila and Rizal plaintiff in case presumably received at
Tobacco Corporation province but defendant Ricardo D. San Fernando, La Union,
was barred from throughout the island of Lorenzana should fail to was actually sold and
presenting this action Luzon. By virtue of such make the payment distributed therein, this
against the surety due modifications, he sold himself. may not be considered
to laches, waiver of plaintiff's products in as a deviation from the
claim and estoppel. places as far as the Issue: Whether the terms of the agreement,
Ricardo D. northern provinces on delivery by the company for such widening of the
Lorenzana denied the credit basis. On August of its products to territory to be covered
allegation of the 2, 1952, when defendant Lorenzana in by the agent or
complaint that he defendant arrived from a place other than that distributor was not
refused or failed to his trip from the Ilocos mentioned in the prohibited by the
pay the plaintiff. He regions, plaintiff agreement constitutes an agreement itself, nor
set up the defense terminated his services alteration of said does the record show
that the agreement on the ground that the agreement that would that such expansion of
was partially modified corporation was losing release the surety from the territory was due to
without giving him an cigarettes outside Manila its liability under the instructions from the
bond. plaintiff. While it is true
advance notice of 30 and Rizal. The lower
days in accordance with Court opined that what that the contract states
the agreement. Since the was guaranteed by the Held: No. Affirmed. that the distributor is
plaintiff took the Visayan Surety & willing to sell and
delivery truck which he Insurance Corporation distribute the products
was using in the was the faithful delivery of the company in
distribution of plaintiff's by defendant Lorenzana Manila and Rizal, this
products, he was of the price of the specification serves
prevented from going cigarettes to plaintiff more as a manifestation
back to the provinces to within the time fixed in that Lorenzana entered
collect from his the contract and as the into the agreement
customers their sending of some
accounts. He made cigarettes to San R
several payments in Fernando, La Union, a
small amounts to settle caused the surety no t
his remaining obligation injury, said deviation i
which were accepted, will not relieve the o
but in November, 1953, surety from its liability :
plaintiff refused to under the bond. The
receive the same. court thus ordered I
At the hearing, defendants Ricardo D. t
defendant Lorenzana Lorenzana and the
failed to appear. The Visayan Surety a
court ruled that & Insurance Corporation p
although on one to pay, jointly and p
occasion plaintiff severally, to the plaintiff e
shipped cigarettes to Pacific Tobacco a
defendant Lorenzana Corporation the sum of r
addressed at San P2,086.31, with legal s
Fernando, La Union, this interest from the date of
fact alone would not the filing of the o
release the surety from complaint, plus P500 as n
liability, for there was attorney's fees and
nothing in the contract rd r
costs. 3 party
that expressly e
defendants were
prohibited defendant c
ordered to indemnify the
Lorenzana from selling o
11
7
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12
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12
2
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12
3
e e
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, .

d with the understanding accounts of the

e that his sphere of
s activity would be for
p these places. But
i certainly nowhere in the
t same agreement appears
e a restriction against his
acceptance of additional
t territories, if he so
h desired.
e Appellant surety
argues that the bond
f guarantees only the
a payment of cigarettes,
c cigars or other tobacco
t products that were
delivered to and
t distributed by Lorenzana
h in Manila and Rizal and
a at no other place. To
t adopt this line of
reasoning would be to
h harness a pliant
e argument to suit
appellant's purpose. The
w agreement required the
a distributor to post a
s bond for P8,000, "P3,000
of which bond shall
d answer for the faithful
u settlement of the account
l of the distributor with
y the Company". The bond
put up by Lorenzana in
r the amount of P3,000,
e undertaken by the
p Visayan Surety & liability, invokes the rule
r Insurance Corporation,
e therefore, was only to
s secure the prompt and
faithful payment of the
distributor to the
company. The mention of
Manila and Rizal in said
agreement was designed
more as a declaration or
identification of the
places wherein the
distributor was expressly
authorized and assigned
to sell the cigar,
cigarettes and tobacco
products of the plaintiff,
which is no obstacle to
the distributor's
acceptance or taking
motu propio of additional
territories in order to
better fulfill his
obligation to sell monthly
for the Company not less
than P20,000 worth of
cigarettes and other
tobacco products and
could by no means alter
his liability to turn over
to the company
payments therefor, and
that is precisely his
obligation secured by the
bond.
Appellant,
maintaining that the
alleged modification of
the agreement released
the surety from its
of strictissimi juris under
which, it is claimed,
surety bonds must be
strictly construed and
12
4
cannot be extended fact insurers, and in A material
beyond their terms. determining their rights alteration of a contract
Although We might and liabilities the rules is such a change in the
acknowledge that a peculiar to suretyship do terms of the agreement
surety is a favorite of the not apply. as either imposes some
law and his contract new obligation on the
strictissimi juris, this party promising or
rule has no bearing on takes away some
the case at bar. Anyway, obligation already
it commonly refers to an imposed. A change in
accommodation surety the form of the contract
and should not be which does not affect
extended to favor a one or the other of
compensated surety, as these results is
is appellant in the immaterial, and will not
instant case. The discharge the surety. It
rationale of this doctrine cannot be denied that
is reasonable; an the obligation of the
accommodation surety principal remained the
acts without motive of same — to settle his
pecuniary gain and, accounts to the
hence, should be company at the
protected against unjust specified time. The
pecuniary addition or diminution
impoverishment by of the territories
imposing on the covered by his previous
principal duties akin to assignment will not
those of a fiduciary. This alter or affect that duty
cannot be said of a to make payments on
compensated corporate time. Apart from the
surety which is a fact that the alteration
business association in the instant case, if
organized for the there was any, is not
purpose of assuming material
classified risks in large
numbers, for profit and
on an impersonal basis,
through the medium of
standardized written
contractual forms drawn
by its own
representatives with the
primary aim of
protecting its own
interests.
The law does
not have the same
solicitude for
corporations engaged in
giving indemnity bonds
for profit as it does for
individual surety who
voluntarily undertakes
to answer for the
obligations of another.
Although calling
themselves sureties,
such corporations are in

12
5
as to relieve the surety from its liability under the bond, Facts: Rosa V. Reyes filed a case against Felicisimo V.
there is not even an iota of proof that such deviation Reyes and others and was able to get a writ of preliminary
caused the surety any loss or injury or that such delivery attachment. For the dissolution of the attachments, the
caused the distributor's failure to pay his accounts. defendants put up a bond issued by Imperial Insurance,
Inc., as surety. Rosa won the case. The decision became
Southern Motors, Inc. vs. Eliseo Barbosa, G.R. No. L- final. A writ of execution was issued which remained
9306, May 25, 1956 (99 Phil unsatisfied. Rosa filed a motion for recovery on the surety
263) bonds. This motion was granted. In the meantime, the
surety moved for reconsideration of the order granting
Facts: Mr. Alfredo Brillantes owed P2,889.53 to Southern
Motors, Inc. To secure this obligation, Eliseo Barbosa
acted as guarantor or surety by mortgaging his land. Mr.
Brillantes failed to pay his obligations. Southern
Motors sought to foreclose the mortgage executed by
Barbosa. Southern Motors moved for summary judgment,
but this was denied by the lower court judge. The case
was transferred to another judge which ruled against
Barbosa by ordering him to pay the debt or face
foreclosure.

Issue: Whether a mortgagor who secures a loan has the

right to excussion.

Held: No. Affirmed.

Ratio: The right of guarantors, under Article 2058 of the

Civil Code of the Philippines, to demand exhaustion of the
property of the principal debtor, exists only when a pledge
or a mortgage has not been given as special security for
the payment of the principal obligation. Guarantees,
without any such pledge or mortgage, are governed by
Title XV of said Code, whereas pledges and mortgages
fall under Title XVI of the same Code. Art. 2087 CC states
that it is also of the essence of these contracts that when
the principal obligation becomes due, the things in which
the pledge or mortgage consists may be alienated for the
payment to the creditor. Art. 2126 CC further states that
the mortgage directly and immediately subjects the
property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation
for whose security it was constituted. It has been held
already stated in Saavedra vs. Price, 68 Phil., 688 that a
mortgagor is not entitled to the exhaustion of the property
of the principal debtor. Although an ordinary personal
guarantor — not a mortgagor or pledgor — may demand
the aforementioned exhaustion, the creditor may, prior
thereto, secure a judgment against said guarantor, who
shall be entitled, however, to a deferment of the execution
of said judgment against him until after the properties of
the principal debtor shall have been exhausted to satisfy
the obligation involved in the case.

The Imperial Insurance, Inc. vs. Hon. Walfrido de los

Angeles, Judge of CFI Rizal, QC Br IV, Rosa V. Reyes,
Pedro V. Reyes & Consolacion V. Reyes, G.R. No. L-
28030, January 18, 1982 (111 SCRA 24)
plaintiffs' motion to recover on the counterbond, and upon
denial thereof, filed a petition for certiorari with the Court
of Appeals. The petition was dismissed.
Issue: Whether a bonding company issuing a counterbond
to lift an attachment is a guarantor. Whether the wording
of a guarantee can turn it into a surety.
the Revised Rules of Court. The petitioner surety as
solidary obligor is liable just the same.
Jose M. Arroyo, guardian of Tito Jocsing, an
imbecile vs. Florentino Hilario
Jungsay, et al., G.R. No. 10168, July 22, 1916 (34 Phil
589)

Held: Yes. Yes. Affirmed.

Ratio: Counterbonds to lift an attachment may be charged

only after notice and summary hearing in the same action.
The records show that the notice and hearing requirement
was substantially complied with in the instant case.
The petitioner asserts that the Court of Appeals
gravely erred in holding that the plaintiff who obtained
judgment against the defendant may legally choose "to
go directly" after the surety in a counterbond without
prior exhaustion of the defendant's properties. This
contention is likewise not meritorious.
Although the counterbond contemplated in the
aforequoted Sec. 17, Rule 57, of the Rules of Court is an
ordinary guaranty where the sureties assume a
subsidiary liability, the rule cannot apply to a counterbond
where the surety bound itself "jointly and severally" (in
solidum) with the defendant as in the present case. The
counterbond executed by the deceased defendant
Felicisimo V. Reyes, as principal, and the petitioner, The
Imperial Insurance, Inc., as solidary guarantor to lift the
attachment in Civil Case No. Q-5213 is in the following
terms:” hereby JOINTLY AND SEVERALLY, bind ourselves”.
Clearly, the petitioner, the Imperial Insurance, Inc.,
had bound itself solidarily with the principal.
To recover against the petitioner surety on its
counterbonds it is not necessary to file a separate action.
Recovery and execution may be had in the same Civil Case.
The counterbonds merely stand in place of the properties
so released. They are mere replacements of the
properties formerly attached, and just as the latter may
be levied upon after final judgment in the case in order to
realize the amount adjudged so is the liability of the
counter sureties ascertainable after the judgment has
become final.
Under the law and under their own terms, the
counterbonds are only conditioned upon the rendition of
the judgment. As held by this Court in the aforecited case
of Luzon Steel Corporation vs. Sia:" where under the rule
and the bond the undertaking is to pay the judgment, the
liability of the surety or sureties attaches upon the
rendition of the judgment, and the issue of an execution
and its return nulla bona is not, and should not be a
condition to the right to resort to the bond." Thus, it
matters not whether the Provincial Sheriff of Bulacan, in
making the return of the writ of execution served or did
not serve a copy thereof with notice of attachment on the
administratrix of the intestate estate of Felicisimo V. Reyes
and filed a copy of said writ with the Office of the Clerk of
Court with notice in accordance with Sec. 7 (f), Rule 57 of
Facts: Jungsay is a guardian of Tito Jocsing, an imbecile, bondsmen. The court ruled in favor of Arroyo and awarded
who absconded with the funds of his ward. His P6,000. The bondsmen appealed claiming that they should
guardianship was secured by a bond. The new guardian, be credited with P4,400 or the alleged value of certain
Jose Arroyo, filed a case against Jungsay and the properties belonging to the absconding guardian all of
 which are in the exclusive possession of 3 rd parties under
claim of ownership.
Issue: Whether a surety is entitled to the right of
excussion when he points out properties of the debtor
which are insufficient, not salable, and encumbered.
Held: No. Affirmed.
Held: No. Remanded.
Ratio: There is merit in appellant's contention that there
exists a controversy in the complaint and answer as to
whether or not appellee had actually paid appellant's
obligation to the Philippine National Bank, a matter which
should be decided in the affirmative before appellee, as
surety, can claim reimbursement from appellant, the
principal debtor. The affidavit of plaintiff's comptroller
Pedro R Mendiola, supporting the motion for summary
judgment, simply relates to the amount of the loan in
question

Ratio: The surety who desires to avail himself of the right

of excussion must demand it in limine, 'on the institution
of proceedings against him.' He must, moreover, point out
to the creditor property of the principal debtor, not
incumbered, subject to seizure; and must furnish a
sufficient sum to have the excussion carried into effect. A
plea which does not meet these requirements must be
disregarded.
The property pointed out by the sureties is not
sufficient to pay the indebtedness; it is not salable; it is
so incumbered that third parties have, as we have
indicated, full possession under claim of ownership
without leaving to the absconding guardian a fractional or
reversionary interest without determining first whether
the claim of one or more of the occupants is well
founded. In all these respects the sureties have failed to
meet the requirements of article 1832 of the Civil Code.

General Indemnity Co., Inc. vs. Estanislao Alvarez,

G.R. No. L-9434, March 29,
1957 (100 Phil 1059)

Facts: Estanislao Alvarez took out a loan from the

Philippine National Bank which was guaranteed by an
indemnity bond issued by General Indemnity Co., Inc., for
which Alvarez, as counter-guaranty, executed a mortgage
on his share in a parcel of land.
Alvarez failed to pay, and PNB deducted the
amount of his loan from the deposit account of General
Indemnity Co, Inc. General Indemnity filed this case to
recover its payment of Alvarez’s debt. Alvarez denied
having knowledge of any payment made by the plaintiff.
The court, in a summary judgment, ruled in favor of the
plaintiff.

Issue: Whether the guarantor may file a collection

action against the principal debtor even before the
guarantor has paid the debt.
sarah jane
D:20140108141753+08'00'1/8/2014 1:17:53 AM
--------------------------------------------
Art. 2071. The guarantor, even before having paid,
may proceed against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him
from the guaranty within a specified period, and this
period has expired;
(4) When the debt has become demandable, by
reason of the expiration of the period for payment;
(5) After the lapse of ten years, when the principal
obligation has no fixed period for its maturity,
unless it
be of such nature that it cannot be
extinguished except within a period longer than
ten years;
(6) If there are reasonable grounds to fear
that theandprincipal debtor
appellant's intends
failure to abscond;
to pay the same to appellee inspite
The 1979 letter of credit was negotiated.
(7) If the
of principal
repeateddebtor
demands,is in imminent
but does not danger
touch on the alleged Metr
P81 obank paid Planters Products the amount of
of becoming
paymentinsolvent.
made by appellee to the bank. The plaintiff 5,600.00 which payment was covered by a Bill of
In all these cases,
likewise the action
contends thatofittheis guarantor
immaterial is to
to its cause of Exch
acceange in favor of the former, drawn on and
obtain release from the
action against guaranty,
appellant or to or
whether demand
not it hada actually paid pted by UTEFS. Pursuant to the above
securitythethat shall protect
Philippine him Bank,
National from any citingproceedings
Art. 2071 of the New com
Metrmercial transaction, UTEFS executed and delivered to
by the creditor
Civil Codeandto fromthethe danger
effect thatof ainsolvency
guarantorofmay proceed obank a Trust Receipt whereby the former
the debtor.
against the principal debtor, even before having paid, ackn
aforowledged receipt in trust from the latter of the
when the debt has become demandable. The last ementioned goods from Planters Products which
paragraph of this same article, however, provides that in amo
unted to P815,600.00. Being the entrustee, the
such instance, the only action the guarantor can file form
er agreed to deliver to Metrobank the entrusted goods
against the debtor is to obtain release from the guaranty, in th
e event of non-sale or, if sold, the proceeds of the sale
or to demand a security that shall protect him from any ther
proceeding by the creditor and from the danger of eof, on or before September 2, 1979.
insolvency of the debtor ." An action by the guarantor
against the principal debtor for payment, before the
former has paid the creditor, is premature.
The judgment appealed from is hereby set aside
and the lower court is ordered to set anew this case for
trial on the sole issue of whether or not appellee General
Indemnity Co, Inc., had already paid the loan in question to
the PhilippineUnder
Suretyships. National
the Bank.
aforesaid agreements, Norberto Uy
agreed to pay Metrobank any indebtedness of UTEFS up to
Jacinto Uy Diño
the aggregate sum& of Norberto
P300,000.00 Uy vswhile
CA &Jacinto
Metropolitan
Uy Diñ o
Bank & Trust Co., G.R. No.
agreed to be bound up to the aggregate sum of
89775, November 26, 1992 (216 SCRA 9)
P800,000.00.
Having paid the obligation under the above letter
of credit
Facts: In in 1977,UyUTEFS,
1977, Tiam through Uy Tiam,
Enterprises and obtained
Freight
another credit accommodation from
Services (UTEFS), thru its representative Uy Tiam, Metrobank in
1978, which credit accommodation
applied for and obtained credit accommodations, was fully settled
before an irrevocable
from Metrobank in theletter
sumof ofcredit was applied
P700,000. To for and
secure
obtained by the abovementioned
the aforementioned business entity
credit accommodations, in 1979.Uy
Norberto
and JacintoTheUy Irrevocable
Diñ o executedLetter of Credit
separate No. SN-Loc-309,
Continuing
dated March 30, 1979, in the sum of P815,600.00,
covered UTEFS' purchase of '8,000 Bags Planters Urea
and 4,000
Bags Planters 21-0-0.' It was applied for and
obtained by UTEFS without the participation of
Norberto Uy and Jacinto Uy Diñ o as they did not sign the
document denominated as 'Commercial Letter of Credit
and Application.' Also, they were not asked to execute any
suretyship to guarantee its payment. Neither did
Metrobank nor UTEFS inform them that the 1979 Letter of
Credit has been opened and that the Continuing
Suretyships separately executed in February, 1977 shall
guarantee its payment.
However, UTEFS did not acquiesce to the Besides, the 1977 credit accommodation which he
obligatory stipulations in the trust receipt. As a guaranteed has been fully paid.
consequence, METROBANK sent letters to the said Having sent the last demand letter to UTEFS, Diñ o
principal obligor and its sureties, Norberto Uy and Jacinto and Uy and finding resort to extrajudicial remedies to be
Uy Diñ o, demanding payment of the amount due. Informed futile, Metrobank filed a complaint for collection of a sum of
of the amount due, UTEFS made partial payments to the money (P613,339.32, as of January 31, 1982, inclusive of
Bank which were accepted by the latter. interest, commission penalty and bank charges) with a
Answering one of the demand letters, Diñ o, thru prayer for the issuance of a writ of preliminary attachment,
counsel, denied his liability for the amount demanded against Uy Tiam, representative of UTEFS and impleaded
and requested Metrobank to send him copies of Diñ o and Uy as parties- defendants. The case against Uy
documents showing the source of his liability. In its reply, Tiam was later dismissed because he could not be found.
the bank informed him that the source of his liability is the After trial, the court ruled that the sureties were not liable.
Continuing Suretyship which he executed on February 25, CA reversed.
1977. As a rejoinder, Diñ o maintained that he cannot be
held liable for the 1979 credit accommodation because it Issue: Whether a surety under a continuing suretyship
is a new obligation contracted without his participation. agreement is liable for subsequent obligations which were
entered into without his knowledge. right to recall the guaranty is expressly reserved. Hence,
where the contract of guaranty states that the same is to
Held: Yes. Affirmed. secure advances to be made "from time to time" the
guaranty will be construed to be a continuing one.
In other jurisdictions, it has been held that the use
of particular words and expressions such as payment of
"any debt," "any indebtedness," "any deficiency," or "any
sum," or the guaranty of "any transaction" or money to be
furnished the principal debtor

Ratio: Under the Civil Code, a guaranty may be given to

secure even future debts, the amount of which may not
be known at the time the guaranty is executed. This is
the basis for contracts denominated as a continuing
guaranty or suretyship. A continuing guaranty is one
which is not limited to a single transaction, but which
contemplates a future course of dealing, covering a series
of transactions, generally for an indefinite time or until
revoked. It is prospective in its operation and is
generally intended to provide security with respect to
future transactions within certain limits, and contemplates
a succession of liabilities, for which, as they accrue, the
guarantor becomes liable. Otherwise stated, a continuing
guaranty is one which covers all transactions, including
those arising in the future, which are within the
description or contemplation of the contract of guaranty,
until the expiration or termination thereof. A guaranty
shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing
credit to the principal debtor to be used from time to time
either indefinitely or until a certain period, especially if the
"at any time," or "on such time" that the principal
debtor may require, have been construed to indicate a
continuing guaranty.
The stipulations unequivocally reveal that the
suretyship agreements in the case at bar are continuing in
nature. Petitioners do not deny this; in fact, they candidly
admitted it. Neither have they denied the fact that they had
not revoked the suretyship agreements.
Petitioners maintain, however, that their
Continuing Suretyship Agreements cannot be made
applicable to the 1979 obligation because the latter was
not yet in existence when the agreements were executed
in 1977; under Article 2052 of the Civil Code, a guaranty
to leave the Philippines for 15 days only and requested
information whether the court had any objection thereto.
By an order dated July 11, 1955, the court required
Haragan to file a bond of P4,000 "to answer for his return
to the Philippines and the prosecution of this case against
him, with the understanding that upon his failure to
return, said bond will answer pro tanto for any judgment
that may be rendered against him". Thereupon, or on July
12, 1955, Haragan submitted a bond, subscribed by
him and the Associated Insurance & Surety Co., as
principal and surety. Haragan was allowed by the court
to leave the country. Haragan was unable to return to the
Philippines because the Philippine Consulate in Hongkong
"cannot exist without a valid obligation." We cannot agree.

First of all, the Department

succeeding article
provides that "[a]
guaranty may also be
given as security for
future debts,
the amount of which is not yet known." Secondly.
A
r
t
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e

2
0
5
2

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a o
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current obligation. This distinction is
d made clearer in the second
i paragraph of Article
s 2052 which
t reads:
i "Nevertheless, a guaranty may be constituted to
n g
g u
u a
i r
s a
h n
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e
f
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a p
e
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o f
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o
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n o
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o .
r "
c T
e h
a e
b
l l
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m
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n — and petitioner Uy fix the aggregate
t iability, at any given time, at P800,000.00 o
r f
a
c t
t h
. e

I p
t e
t
m i
a t
y i
o
a n
l e
s r
o s
'
g
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r s
a p
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n l
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a l
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t
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i
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b I
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t
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f d
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m
t
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e e

s t
u h
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s h
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i
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a
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e o
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o t
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t
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r
e o
t b
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s i
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i
w o
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t
h o
f
a
t
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a
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t
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y
e c
, a
n
a n
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t b
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e
e
r x
u t
l e
e n
d
i e
s d

s b
e y
t
t i
l m
e p
d l
amount of their l t
a h
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d
p
P r
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, b
t
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p
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v
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e
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a
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h
i e
s
a
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t a
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t
t
a h
guarantor may bind himself for less, but not efor more
t
h o
a n
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r
o e
u n
s t
s
n
a p
t r
u o
r v
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f
f
t o
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n i
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a t
s
e a
n
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t .
h Thus, by express mandate of the Continuing Sur
A
a g
g r
r e
e e
e m
m e
n e
t l
s v
e
w s
h
i t
c o
h
p
t a
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e
y i
n
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a e
d r
e
s s
i t
g s
n ,
e
d e
, x
p
p e
e n
t s
i e
t s
i ,
o
n a
e t
r t
s o
r
s n
e e
p y
a '
r s
a
t f
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l e
y s

b a
o n
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n
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o
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m .
s
T 0
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e )

l o
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s
t t
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w
o a
m
i o
t u
e n
m t
s
d
a u
r e
e .

p Allen McConn vs. Paul Haragan, et al., Associated

e Insurance & Surety Co., Inc., G.R. No. L-16550,
g January
g 31, 1962 (4 SCRA 251)
e
d F
a
a c
t t
s
n :
o
t P
e
l n
e d
s i
s n
g
t
h h
a e
n a
r
t i
e n
n g
p o
e f
r
c C
e i
n v
t i
l
(
1 C
a d
s
e "
M
N o
o r
. r
i
2 s
4
7 M
9 c
0 C
o
o n
f n

t v
h s
e .

C P
o a
u u
r l
t
H
o a
f r
a
F g
i a
r n
s "
t ,

I w
n h
s i
t c
a h
n
c w
e a
s
o
f s
c
M h
a e
n d
i u
l l
a e
, d

e t
n o
t
i t
t a
l
k s
e e
d
p
l s
a a
c i
e d

o c
n o
u
S r
e t
p
t t
e h
m a
b t
e
r d
e
1 f
6 e
, n
d
1 a
9 n
5 t
5
P
— a
u
t l
h
e H
a
B r
u a
r g
e a
a n
u
h
o a
f d

I a
m p
m p
i l
g i
r e
a d
t
i f
o o
n r

a a
d n
v
i
m
m
i
g
r
a
t
i
o
n

c
l
e
a
r
a
n
c
e

a
n
d

r
e
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e
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y

p
e
r
m
i
t

t
o

e
n
a
b
l
e

h
i
m
81
of Foreign Affairs banning him from returning to the
Philippines. In due course, thereafter, or on February 19,
1959, the court rendered judgment, which, inter alia,
sentenced Haragan to pay to plaintiff the sum of P5,500,
with 6% interest thereon from December 8, 1954, until full
payment, plus P1,000 as attorney's fees and costs. After
this judgment had become final and executory, plaintiff
moved for the execution of the aforementioned bond to
satisfy said judgment against Haragan. The surety
company objected thereto upon several grounds and, after
due hearing, the lower court issued an order dated
October 13, 1959, releasing said company from liability
under the bond aforementioned and denying plaintiff's
motion.
Issue: Whether a surety is liable for an obligation that has
become impossible without its fault and due to
government decree.
et al., G.R. No. 42829, September 30, 1935 (62 Phil
211)
Facts: Jesus R. Roa became indebted to the Philippine
Theatrical Enterprises, Inc., in the sum of P28,400 payable
in 71 equal monthly installments at the rate of P400 a
month. On that same date the Philippine Theatrical
Enterprises, Inc., assigned all its rights and interest in that
contract to the Radio Corporation of the Philippines. The
loan carried an acceleration clause which states that in
case the vendee-mortgagor fails to make any of
R
a
t
i
o
:

Held: No. Affirmed. A

c
a
r
e
f
u
l

r
e
a
d
i
n
g

o
f

t
h
e

s
u
r
e
t
y

b
o
n
d
,

E
82
x i
h s
i
b '
i t
t o

F g
, u
a
i r
n a
d n
i t
c e
a e
t
e t
s h
a
t t
h
a h
t e

t (
h H
e a
r
s a
u g
r a
e n
t )
y
' w
s i
l
p l
r
i r
n e
c t
i u
p r
a n
l
t
c o
o
m t
m h
i e
t
m P
e h
n i
t l
i
83
p a
p p
i h
n
e o
s f

o s
n a
i
o d
r
s
b u
e r
f e
o t
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e
b
S o
e n
p d
t ,
e
m E
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e h
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b
1 i
6 t
,
F
1 ,
9
5 i
5 t
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. a
p
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n e
a
t r
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e
t
l h
a a
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t
s
p a
a i
r d
a
g b
r o
84
n
d o
r
w
a i
s t
s
e
x d
e u
c l
u y
t
e a
d u
t
i h
n o
r
f i
a z
v e
o d
r
r
o e
f p
r
t e
h s
e e
n
R t
e a
p t
u i
b v
l e
i s
c
t
o o
f
g
t u
h a
e r
a
P n
h t
i e
l e
i
p '
p t
i h
n a
e t
s
85
t e
h s
e
o
h n
e
r o
e r
i
n b
e
p f
r o
i r
n e
c
i S
p e
a p
l t
e
( m
H b
a e
r r
a
g 1
a 6
n ,
)
1
w 9
i 5
l 5
l
a
r n
e d
t
u t
r h
n a
t
t
o s
h
t o
h u
e l
d
P
h h
i e
l
i f
p a
p i
i l
n
86
t t
o h
a
d t
o
m
s a
o y
,
b
s e
a
i r
d e
n
b d
o e
n r
d e
d
w
i a
l g
l a
i
a n
n s
s t
w
e h
r i
m
p .
r '
o
A
t s
a
n t
t h
o e

f t
o e
r r
m
a s
n
y o
f
j
u t
d h
g e
m
e b
n o
t n
d
87
 r
s
o f
o
s r
t
a t
t h
e e
,
j
i u
t d
g
a m
p e
p n
e t
a
r w
s h
i
c c
l h
e
a m
r a
l y
y
b
t e
h
a r
t e
n
t d
h e
e r
e
b d
o
n a
d g
a
w i
i n
l s
l t

o d
n e
l f
y e
n
a d
n a
s n
w t
e ,
88
 p
s i
h n
o e
u s
l .
d
I
h n
e
o
( t
d h
e e
f r
e
n w
d o
a r
n d
t s
,
H
a i
r f
a
g d
a e
n f
) e
n
f d
a a
i n
l t

t H
o a
r
r a
e g
t a
u n
r
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h
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l
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e
P t
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89
o d

t w
h i
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l
P
h n
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l t
i
p a
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90
n c

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p
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91
r s
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92
, e

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93
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t o
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94
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g ,
u
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95
r t
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v
e i
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t
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e
s w
u i
c s
h e

r e
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t t
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i
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d
a
c a
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96
a s
b e
i d
l
i w
t h
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. n
'
T t
h h
e e

d p
e r
b e
t s
o t
r a
t
i i
n o
n
o
b b
l e
i c
g o
a m
t e
i s
o
n l
e
t g
o a
l
d l
o y

s o
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a
l p
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y
a s
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s c
o a
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r i
e m
l p
e o
a s
97
s time, but also as to the proved prejudicial to the
i whole amount of their surety or not. The rule
b obligation. stated is quite
l independent of the
e Held: Yes. Reversed. event, and the fact that
the principal is insolvent
w or that the extension
i granted promised to be
t beneficial to the surety
h would give no right to
o the creditor to change
u the terms of the contract
t without the knowledge
or consent of the surety.
t Nor does it matter for
h how short a period the
e time of payment may be
extended. The principle
f is the same whether the
a time is long or short.
u The creditor must be in
l such a situation that
t when the surety comes
to be substituted in his
o place by paying the debt,
f he
t
Ratio: Art. 1851 states that an extension
h
granted to the
e
the creditors, without the consent of the
guarantor, extinguishes the latter's liability.
o
b
This court
l
h
i
a
g
s
o
r
h
.
e
l
Radio Corporation of the Philippines vs. Jesus R. Roa, d
the payments as which Radio Corp
hereinbefore provided, approved. When Roa t
the whole amount failed to pay, a case was h
remaining unpaid under filed. The court ruled in a
this mortgage shall favor of Radio Corp and t
immediately become held Roa and his sureties
due and payable and jointly and severally m
this mortgage on the liable. e
property herein r
mentioned as well as the e
Issue: Whether an
Luzon Surety Bond may extension granted
be foreclosed by the d
without the consent of
vendor- mortgagee. e
the guarantors
Roa sought an l
extinguishes the
extension in the a
guarantors’ liability not
payment of the loan y
only as to the
from February to April installments due at that
98
i e
n
s
s u
u r
i e
n t
g i
e
f s
o .
r T
h
t e
h
e s
t
c i
o p
l u
l l
e a
c t
t i
i o
o n
n
i
o n
f
t
t h
h e
e
c
d o
e n
b t
t r
a
d c
o t
e
s u
n
n d
o e
t r

r c
e o
l n
e s
a i
s d
e e
r
t a
h t
99
i y
o
n a
, n
y
c
o i
p n
i s
e t
d a
l
a l
b m
o e
v n
e t
,
w
i h
s e
n
t
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t e
h
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h
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f
f o
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r
t
h i
a n
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t
u a
p l
o l
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e
f n
a t
i s
l
u i
r p
e s
o
t
o f
a
p c
a t
10
0
o e

b e
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c p
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s
d
u p
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o
a v
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i
p o
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y
a o
b f
l
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e
I
n c
o
v n
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w a
c
o t
f ,

t q
h u
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t
f e
a d
c
t a
b
t o
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t ,

u t
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e
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h
t o
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10
1
e
f
u a
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a u
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d e

b t
a o
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c y
e
o
a n
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t
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m n
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t t
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t
b ,
e
c t
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e
s a
c
d t
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f
a
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d h
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p
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p f
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10
2
n
F
e e
x b
t r
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n a
d r
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g
1
t 9
h 3
e 2
,
p
a t
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t 1
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2
i ,
n
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10
3
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t
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i t
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a i
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e
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x n
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s ,
i
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o b
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t t
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t
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m t
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10
4
s o
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c
t t
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e o
n
p
l o
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i
n t
t h
i e
f
f w
h
c o
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l
d a
m
n o
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t
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v n
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i
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A
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n
1
f 9
o 3
r 2
.
t
h T
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e
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10
5
e e
f n
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r
e o
f
a
p o
p n
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l
l i
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t t
s a
' l
l
c m
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t t
e
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c
t t
h
a o
t f

a t
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e
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e
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a n
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e
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f i
t
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e
i
p n
a
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m x
10
6
t n
e
n c
d o
i n
n f
g o
r
t m
h i
e t
y
t
i w
m i
e t
h
o
f a
r
p t
a i
y c
m l
e e
n s
t 1851 and 1852 of the Civil Code is correct.
I
d t
i
s i
c s
h
a a
r
g f
e a
s m
i
t l
h i
e a
m r

a r
s u
l
g e
u
a t
r h
a a
n t
t
o i
r f
s
a
i
10
7
c n
r d
e
d w
i i
t t
o h
r o
, u
t
b
y t
h
p e
o
s c
i o
t n
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v e
e n
t
c
o o
n f
t
r t
a h
c e
t
s
w u
i r
t e
h t
y
t ,
h
e e
x
p t
r e
i n
n d
c s
i
p t
a h
l e

d t
e i
b m
t e
o
r o
, f

a p
10
8
a n
y t
m
e m
n a
t y
,
b
h e
e
q
t u
h i
e t
r e
e
b a
y s

d i
i m
s p
c o
h r
a t
r a
g n
e t
s
a
t
h c
e o
n
s s
u i
r d
e e
t r
y a
. t
i
T o
h n
e
o
t f
i
m t
e h
e
o
f s
u
p r
a e
y t
m y
e
10
9
a a
s
s
t u
h r
e e
t
a y
m
o h
u a
n s
t
t
h h
e e

h r
a i
s g
h
p t
r ,
o
m o
i n
s
e p
d a
y
c m
o e
n n
d t
i
t o
i f
o
n t
a h
l e
l
y d
e
t b
o t
,
p
a t
y o
.
b
A e
g
a s
i u
n b
, r
o
11
0
g o
a n
t c
e e
d
t
t o
o
c
a o
l l
l l
e
t c
h t
e
i
r t
i
g f
h r
t o
s m

o t
f h
e
t
h p
e r
i
c n
r c
e i
d p
i a
t l
o ;
r
, b
u
a t
n
d i
f
t
o t
h
p e
r
o c
c r
e e
e d
d i
t
a o
t r

11
1
h n
a g
s
t
t h
i e
e
d t
i
h m
i e
s
o
o f
w
n c
o
h l
a l
n e
d c
s t
i
f o
r n
o ,
m
t
p h
r e
o
c h
e a
e n
d d
i s
n
g o
f
p
r t
o h
m e
p
t s
l u
y r
, e
t
b y
y
w
e i
x l
t l
e
n e
d q
i u
11
2
a n
l
l o
y f

b t
e h
e
b
o e
u x
n t
d e
; n
d
a e
n d
d
c
b r
e e
f d
o i
r t
e ,

t t
h h
e e
y
p
a r
r i
e n
c
l i
o p
o a
s l
e
d d
, e
b
b t
y o
r
t
h m
e a
y
e
x h
p a
i v
r e
a
t b
i e
o c
11
3
o s
m s
e .

i I
n t
s
o s
l h
v o
e u
n l
t d

a b
n e
d
o
t b
h s
e e
r
r v
i e
g d
h ,
t
h
o o
f w
e
s v
u e
b r
r ,
o
g t
a h
t a
i t
o
n i
t
r
e i
n s
d
e r
r e
e a
d l
l
w y
o
r u
t n
h i
l m
e p
11
4
o mortgage and not the Manager of PAGRICO
r accelerating clause. and in his personal and
t Plaintiff- individual capacity; Mr.
a appellee contends that Liu signed both as
n there was no President of PACOCO
t consideration for the and in his individual and
extension granted the personal capacity. Under
w principal debtor. Article both indemnity
h 1277 of the Civil Code agreements, the
e provides that "even indemnitors bound
t though the consideration themselves jointly and
h should not be expressed severally to R & B Surety
e in the contract, it shall be to pay an annual
r presumed that a premium of P5,103.05
consideration exists and and for the faithful
t that it is licit, unless the compliance of the terms
h debtor proves the and conditions set forth
e contrary." It was in said surety bond for a
incumbent upon the period beginning until
e plaintiff to prove that the same is cancelled
x there was no valid and/or discharged.
t consideration for the
e extension granted.
n
s Joseph Cochingyan, Jr. & Jose K. Villanueva vs. R&B
i Surety & Insura nce Co., Inc., G.R. No. L-47369,
o June 30,
n
F
g a
i c
v t
e s
n :
h I
a n
s
N
a o
c v
t e
u m
a b
l e
l r
y
may have an immediate enforcement of the 1
right of action against accelerating clause is 9
the principal. The potestative on the part of 6
suspension of the right the obligee, and not self- 3
to sue for a month, or executing, is clearly ,
even a day, is as untenable from a simple
effectual to release the reading of the clause P
surety as a year or two copied above. What is a
years. potestative on the part of c
Plaintiff's the obligee is the i
contention that the foreclosure of the f
11
5
i a
c s

A g
g r
r a
i n
c t
u e
l d
t
u a
r n
a
l i
n
S c
u r
p e
p a
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i e
e
r i
s n
,
i
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n s
c
. l
i
( n
P e
A
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p t
p
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f P
o 4
r 0
0
a ,
n 0
d 0
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w .
11
6
0 T
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t s
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p
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N t
a o
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a
B
a g
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(
P a
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B d
)
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u
11
7
f e
f
i i
c n
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t m
e
b n
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11
8
o e
m
p o
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i
a c
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i
w t
i
t w
h a
s
t
h i
e n
c
t r
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a .
n
d I
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c
o c
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u
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d i
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11
9
e r
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t s
, p
o
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R n
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C
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s &
u
b B
m
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t u
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u a
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12
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12
1
a e
n
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t t
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12
2
e
&
r
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g
h S
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R a
12
3
s s
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h d
e
t
p h
r a
i t
n
c R
i
p &
a
l B

o S
b u
l r
i e
g t
o y
r '
, s

P l
A i
G a
R b
I i
C l
O i
. t
y
T
h w
e a
s
S
u n
r o
e t
t
y t
o
B
o b
n e
d
l
a i
l m
12
4
i c
t l
e u
d d
e
t
o "
a
t c
h c
e r
u
p e
r d
i
n i
c n
i t
p e
a r
l e
s
s t
u "
m
o
o n
f
t
P h
4 e
0
0 s
, a
0 i
0 d
0
. a
0 m
0 o
, u
n
b t
u
t "
p
w l
o u
u s
l
d a
l
a l
l
s e
o x
p
i e
n n
12
5
s
e t
s h
, e

c o
h b
a l
r i
g g
e a
s t
i
o o
r n

o u
t n
h d
e e
r r

l t
e h
g e
a
l S
u
c r
o e
s t
t y
s
B
i o
n n
c d
i .
d I
e n
n
t c
o
t n
o s
i
c d
o e
l r
l a
e t
c i
t o
i n
o
n o
f
o
f R
12
6
 d
& e
m
B n
i
S t
u y
r
e a
t g
y r
' e
s e
m
i e
s n
s t
u s
a
n w
c e
e r
e
o
f e
n
t t
h e
e r
e
S d
u
r i
e n
t t
y o

B w
o i
n t
d h
,
R
t
w &
o
B
i
d S
e u
n r
t e
i t
c y
a :
l
(
i a
n )
12
7
 t
o h
n o
e l
i
a c
g
r C
e h
e u
m r
e c
n h
t
M
d a
a r
t t
e
d (
C
2 C
3 M
D )
e
c a
e n
m d
b
e b
r y

1 p
9 e
6 t
3 i
t
w i
a o
s n
e
e r
x
e J
c o
u s
t e
e p
d h

b C
y o
c
t h
h i
e n
g
C y
a a
12
8
n a
, l
s
J o
r
. i
; n

t h
h i
e s

l p
a e
t r
t s
e o
r n
a
s l
i
g a
n n
e d
d
i
n n
o d
t i
v
o i
n d
l u
y a
l
a
s c
a
P p
r a
e c
s i
i t
d y
e ;
n
t a
n
o d
f
(
C b
C )
M
a
b n
u o
t t
h
12
9
e ,
r
P
a a
g c
r i
e f
e i
m c
e
n C
t o
p
d r
a a
t
e E
d x
p
2 o
4 r
t
D
e I
c n
e c
m .
b
e (
r P
A
1 C
9 O
6 C
3 O
)
w ,
a
s J
o
e s
x e
e
c K
u .
t
e V
d i
l
b l
y a
n
P u
A e
G v
R a
I
C a
O n
13
0
d brought suit against same time. In both
Joseph Cochingyan, Jr., objective and subjective
L Jose K. Villanueva and novation, a dual purpose
i Liu Tua Beh in the Court is achieved — an
u of First Instance of obligation is
Manila. extinguished and a new
T one is created in lieu
u thereof.
a If objective
novation is to take place,
B it is imperative that the
e new obligation
h expressly declare that
; the old obligation is
thereby extinguished, or
M that the new obligation
r be on every point
. incompatible with the
old one. Novation is
V never presumed: it must
i be established either by
l the discharge of the old
l debt by the express
a terms of the
n T
u h
e e
v
a d
e
s f
i e
g n
n d
e a
d n
t
b s
o
t r
h a
i
a s
s e
When PAGRICO vouchers and receipts. d
failed to comply with its R & B Surety in
Principal Obligation to turn sent formal demand t
the PNB, the PNB letters to petitioners h
demanded payment Joseph Cohingyan, Jr. and e
from R & B Surety of the Jose K. Villanueva for
sum of P400,000.00, the reimbursement of the d
full amount of the payments made by it to e
Principal Obligation. R & the PNB and for a f
B Surety made a series discharge of its liability e
of payments to PNB by to the PNB under the n
virtue of that demand Surety Bond. When s
totalling P70,000.00 petitioners failed to heed e
evidenced by detailed its demand, R & B Surety
t
13
1
h
a o
t f

t t
h h
e e

i p
n a
d r
e t
m i
n e
i s
t ,
y
t
a h
g a
r t
e
e t
m h
e e
n y
t
s
d i
i g
d n
e
n d
o
t t
h
e e
x
p i
r n
e d
s e
s m
n
t i
h t
e y

t a
r g
u r
e e
e
i m
n e
t n
e t
n
t f
13
2
o e
r y

t w
h e
e r
e
s
a a
k s
e s
u
o r
f e
d
c
o t
m o
p
l r
y e
i m
n a
g i
n
w
i a
t s
h
s
t t
h r
e a
n
f g
o e
r r
m s
a
l t
i o
t
i t
e h
s e

o t
n r
l a
y n
, s
a
t c
h t
a i
t o
n
t ,
h
13
3
t i
h n
a s
t t

R t
h
& e
m
B ,

S t
u h
r a
e t
t
y t
h
w e
a
s P
r
e i
s n
t c
o i
p p
p a
e l
d
O
f b
r l
o i
m g
a
e t
n i
f o
o n
r
c o
i f
n
g P
A
i G
t R
s I
C
c O
l
a t
i o
m
t
a h
g e
a
13
4
P C
N C
B M

s b
e y
c
u v
r i
e r
d t
u
b e
y
o
t f
h
e a

S T
u r
r u
e s
t t
y
A
B g
o r
n e
d e
m
h e
a n
d t

a e
l n
r t
e e
a r
d e
y d

b i
e n
e t
n o

a w
s i
s t
u h
m
e t
d h
e
b
y P
N
13
5
B k
,
t
w o
h
e p
r a
e y

C t
C h
M e

r P
e r
p i
r n
e c
s i
e p
n a
t l
e
d O
b
b l
y i
g
J a
o t
s i
e o
p n
h
o
C f
o
c P
h A
i G
n R
g I
y C
a O
n
, t
o
J
r t
. h
e
u
n P
d N
e B
r ,
t
o t
o h
13
6
a
t e
x
h t
i i
s n
g
o u
b i
l s
i h
g e
a d
t
i b
o y
n
n
u o
n v
d a
e t
r i
o
t n
h
e a
r
I i
n s
d i
e n
m g
n
i f
t r
y o
m
A
g t
r h
e e
e
m c
e h
n a
t n
g
w e
a
s o
f
t
h d
e e
r b
e t
b o
y r
13
7
 a
u t
n u
d r
e e
r
s
t i
h n
e c
e
P
r P
i N
n B
c
i h
p a
a s
l
n
O o
b t
l
i y
g e
a t
t
i p
o r
n o
, c
e
a e
n d
d e
d
t
h a
a g
t a
i
t n
h s
e t

c R
a
s &
e
B
w
a S
s u
r
p e
r t
e y
m .
13
8
The court ruled in favor of R & B Surety. o
t
I h
s e
s r
u
e p
: e
r
W s
h o
e n
t
h i
e s
r
i
a n
c
s l
u u
r d
e e
t d
y
t
a o
g
r a
e s
e s
m u
e m
n e
t
t
i h
s e

e d
x e
t b
i t
n .
g
u W
i h
s e
h t
e h
d e
r
w
h a
e
n m
e
a r
n e
13
9
 t
d h
e e
l
a s
y u
r
i e
n t
y
p .
r
o W
c h
e e
e t
d h
i e
n r
g
t
a h
g e
a
i i
n n
s d
t e
m
t n
h i
e t
y
p
r p
i a
n r
c t
i i
p e
a s
l
a
w r
i e
l
l l
i
e a
x b
t l
i e
n
g t
u o
i
s p
h a
y
14
0
 a
t l
h
e p
a
f y
u m
l e
l n
t
a s
m .
o
u Held: No. No. Yes. Affirmed.
n
t R
a
e t
v i
e o
n :
t W
h e
o
u a
g r
h e
t u
h n
e a
b
s l
u e
r
e t
t o
y
s
h u
a s
s t
a
o i
n n
l
y p
e
m t
a i
d t
e i
o
p n
a e
r r
t s
i
14
1
' n
s
c
l u
a n
i d
m e
r
t
h t
a h
t e

t I
h n
e d
e
S m
u n
r i
e t
t y
y
A
B g
o r
n e
d e
m
a e
n n
d t
s
t
h w
e e
i r
r e

r e
e x
s t
p i
e n
c g
t u
i i
v s
e h
e
o d
b
l b
i y
g
a n
t o
i v
o a
14
2
t
i A
o g
n r
e
b e
r m
o e
u n
g t
h .
t
N
a o
b v
o a
u t
t i
o
b n
y
i
t s
h
e t
h
s e
u
b e
s x
e t
q i
u n
e g
n u
t i
s
e h
x m
e e
c n
u t
t
i o
o f
n
a
o n
f
o
t b
h l
e i
g
T a
r t
u i
s o
t n
14
3
 q
b u
y e
n
t t
h
e o
n
s e
u
b w
s h
t i
i c
t h
u
t t
i e
o r
n m
i
o n
r a
t
c e
h s
a
n i
g t
e ,

o e
f i
t
t h
h e
e r

o b
b y
l
i c
g h
a a
t n
i g
o i
n n
g
b
y i
t
a s

s o
u b
b j
s e
e c
14
4
t i
n
o
r p
l
p a
r c
i e
n
c o
i f
p
a t
l h
e
c
o o
n l
d d
i
t o
i n
o e
n ,
s
, o
r
o
r b
y
b
y s
u
s b
u r
b o
s g
t a
i t
t i
u n
t g
i
n a
g
t
a h
i
n r
e d
w
p
d e
e r
b s
t o
o n
r
t
14
5
o t
h
t e
h
e o
b
r j
i e
g c
h t
t
s o
r
o
f p
r
t i
h n
e c
i
c p
r a
e l
d
i c
t o
o n
r d
. i
t
N i
o o
v n
a s
t
i o
o f
n
a
t n
h
r e
o x
u i
g s
h t
i
a n
g
c
h o
a b
n l
g i
e g
a
o t
f i
o
14
6
n b
y
i
s t
h
r e
e
f c
e h
r a
r n
e g
d e

t o
o f

a e
s i
t
o h
b e
j r
e
c t
t h
i e
v
e p
e
( r
o s
r o
n
r
e o
a f
l
) t
h
n e
o
v d
a e
t b
i t
o o
n r
.
o
N r
o
v o
a f
t
i t
o h
n e

14
7
c
r N
e o
d v
i a
t t
o i
r o
n
i
s m
a
d y
e
s a
c l
r s
i o
b
e b
d e

a b
s o
t
s h
u
b o
j b
e j
c e
t c
i t
v i
e v
e
(
o a
r n
d
p
e s
r u
s b
o j
n e
a c
l t
) i
v
n e
o
v (
a m
t i
i x
o e
n d
. )
14
8

a debtor.
t The Indemnity
t several
h applying jointly and
e severally to the R & B
new agreement, or by
the acts of the parties
whose intention to
dissolve the old
obligation as a
consideration of the
emergence of the new
one must be clearly
discernible.
Again, if
subjective novation by a
change in the person of
the debtor is to occur, it
is not enough that the
juridical relation
between the parties to
the original contract is
extended to a third
person. It is essential
that the old debtor be
released from the
obligation, and the third
person or new debtor
take his place in the new
relation. If the old
debtor is not released.
no novation occurs and
the third person who
has assumed the
obligation of the debtor
becomes merely a co-
debtor or surety or a co-
surety.
Applying the
above principles to the
instant case, it is at once
evident that the Trust
Agreement does not
expressly terminate the
obligation of R & B
Surety under the Surety
Bond. On the contrary,
the Trust Agreement
expressly provides for
the continuing
subsistence of that
obligation by stipulating
that "[the Trust
Agreement] shall not in
any manner release" R &
B Surety from its
obligation under the
Surety Bond.
Neither can the
petitioners anchor their
defense on implied
novation. Absent an
unequivocal declaration
of extinguishment of a
pre-existing obligation, a
showing of complete
incompatibility between
the old and the new
obligation (and nothing
else) would sustain a
finding of novation by
implication. But where,
as in this case, the
parties to the new
obligation expressly
recognize the continuing
existence and validity of
the old one, where, in
other words, the parties
expressly negated the
lapsing of the old
obligation, there can be
no novation. The issue of
implied novation is not
reached at all.
What the trust
agreement did was, at
most, merely to bring in
another person or
persons — the
Trustor[s] — to assume
the same obligation that
R & B Surety was bound
to perform under the
Surety Bond. It is not
unusual in business for a
stranger to a contract to
assume obligations
thereunder; a contract
of suretyship or
guarantee is the classical
example. The precise
legal effect is the
increase of the number
of persons liable to the
obligee, and not the
extinguishment of the
liability of the first
Agreement speaks of the
indemnitors
Surety to become surety
upon a surety bond
demanded by and in
favor of PNB in the sum
of P400.000 for the
faithful compliance of
the terms and conditions
set forth in said surety
bond. This part of the
Agreement suggests
that the indemnitors
(including the
petitioners) would
become co-sureties on
the Security Bond in
favor of PNB. The record,
however, is bereft of any
indication that the
petitioners- indemnitors
ever in fact became co-
sureties of R & B Surety
vis-a-vis the PNB. The
petitioners, so far as the
record goes, remained
simply indemnitors
bound to R & B Surety
but not to PNB, such that
PNB could not have
directly demanded
payment of the Principal
Obligation from the
petitioners.
any extension of time
referred to herein. The
theory behind Article
2079 is that an extension
of time given to the
principal debtor by the
creditor without the
surety's consent would
deprive the surety of his
right to pay the creditor
and to be immediately
subrogated to the
creditor's remedies
against the principal
debtor upon the original
maturity date. The
surety is said to be
entitled to protect
PNB's
undertaking under the
Trust Agreement "to
hold in abeyance any
action to enforce its
claims" against R & B
Surety did not extend
the maturity of R & B
Surety's obligation
under the Surety Bond.
The Principal Obligation
had in fact already
matured, along with that
of R & B Surety, by the
time the Trust
Agreement was entered
into. Petitioners'
obligations under the
Indemnity Agreements
had, in turn, already
similarly matured, for
those obligations were
to mature "as soon as [R
& B Surety] became
liable to make payment
of any sum under the
terms of the [Surety
Bond] — whether the
said sum or sums or part
thereof have been
actually paid or not."
Thus, the situation was
that precisely envisaged
in Article 2079 which
states that the mere
failure on the part of the
creditor to demand
payment after the debt
has become due does
not of itself constitute
himself against the
contingency of the
principal debtor or the
indemnitors becoming
insolvent during the
extended period. The
underlying rationale is
not present in the
instant case. Mere delay
or negligence in
proceeding against the
principal will not
discharge a surety unless
there is between the
creditor and the principal
debtor a valid and
binding agreement
therefor, one which tends
14
9
to prejudice [the surety] capacity as Mayor, and not entitled to claim nature of an insurance
or to deprive it of the Porfirio T. de Leon, in exemption from the company that is exempt
power of obtaining his capacity as effects of the from local government
indemnity by Treasurer, G.R. No. L- controverted ordinance. fees and permits.
presenting a legal 23618, August 31,
objection for the time, to 1970
Issue: Whether a surety Held: Yes. Reversed
the prosecution of an
company is in the partially.
action on the original
security.
In the instant F
case, there was a
nothing to prevent the c
petitioners from t
tendering payment, if s
they were so minded, to :
PNB of the matured
obligation on behalf of R O
& B Surety and n
thereupon becoming
subrogated to such J
remedies as R & B u
Surety may have against l
PAGRICO. y
The petitioners
lose sight of the fact that 1
the Indemnity ,
Agreements are
contracts of 1
indemnification not only 9
against actual loss but 6
against liability as well. 2
While in a contract of ,
indemnity against loss
an indemnitor will not t
be liable until the person h
to be indemnified makes e
payment or sustains
loss, in a contract of c
indemnity against i
liability, as in this case, t
the indemnitor's liability y
arises as soon as the
liability of the person to c
be indemnified has o
arisen without regard to u
whether or not he has n
suffered actual loss. c
Accordingly, R & B i
Surety was entitled to l
proceed against
petitioners not only for o
the partial payments f
already made but for the
full amount owed by t
PAGRICO to the PNB. h
e
Luzon Surety Co., Inc.
C
vs. The City of Bacolod,
i
Romeo Guanzon, in his
(34 SCRA 509) 15
0
t r
y e
q
o u
f i
r
B e
a d
c
o L
l u
o z
d o
n
a
p S
p u
r r
o e
v t
e y
d
C
O o
r .
d ,
i
n I
a n
n c
c .
e
t
1 o
5
8 p
, a
y
s
e a
r
i f
e i
s x
e
o d
f
a
1 n
9 n
6 u
2 a
l
w
h l
i i
c c
h e
n
15
1
s o
e r

f a
e
e p
e
o r
f m
i
P t
3 .
0
0 L
u
a z
n o
d n

t S
o u
r
a e
p t
p y
l
y p
a
f i
o d
r
t
a h
n e
d
f
o e
b e
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c
o
m
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y

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a
n

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a 15
7
Ratio: Under the Insurance Act, insurance company shall Arrieta and Nenita B. Arrieta, Leopoldo G. Halili and
include all corporations, associations, partnerships, or Pablito Bermundo as sureties, executed a Continuing
individuals engaged as principals in the insurance Suretyship Agreement in favor of Atok Finance as creditor.
business, excepting fraternal and benevolent orders Under this Agreement, Sanyu Trading and the individual
and societies. Corporations formed or organized to private respondents who were officers and stockholders
save any person or persons from loss, damage, or liability of Sanyu Chemical jointly and severally uncond itionally
arising from any unknown or future or contingent event, guarantee to ATOK FINANCE CORPORATION the full,
or to indemnify or to compensate any person or persons faithful and prompt payment and discharge of any and all
or other corporation for any such loss, damage, or liability indebtedness of Sanyu Chemical to the Creditor. The word
or to guarantee the contractual obligations or debts of 'indebtedness' is used herein in its most comprehensive
others, shall be known as Insurance Corporations. sense and includes any and all advances, debts, obligations
According to American Jurisprudence (The Cyclopedia of and liabilities of Principal or any one or more of them,
Insurance Law), a class of contracts written by guaranty or heretofore, now or hereafter made, incurred or created,
surety companies, and generally designated as guaranty, whether voluntary or involuntary and however
insurance, comprises principally contract, credit,
fidelity, title, bond, and security guaranty generally. F
Contracts of this kind are now almost universally a
regarded as those of insurance where the underwriter c
engages in the business for profit, especially since the t 88
terms of the contracts usually closely resemble the s
essential elements of an insurance contract. In American :
Surety Co. of New York vs. Folk Insurance Commissioner
(135 S
SW 778), the Supreme Court of Tennessee ruled that a
American Surety Company was authorized to conduct the n
business of guaranteeing the fidelity of persons holding y
places of public and private trust, the performance of u
contracts other than insurance policies, and executing or
guaranteeing bonds and undertaking required or C
permitted in all actions or proceedings or by law h
allowed. These contracts are contracts of insurance e
and the making of them is insurance business. m
Luzon Surety, which is the holder of a Certificate i
of Authority as a fire, marine, earthquake, typhoon, tidal c
wave, riot, flood, civil commotion, war, civil war, a
revolutions, rebellions, military or usurped power, use & l
occupancy, storm, bombardment, invasion, insurrection,
motor car, burglary, accident, and fidelity insurance C
company, and which is authorized to become a surety o
upon official recognizances, stipulations, bonds and r
undertakings, is engaged in the insurance business and is p
an insurance company. o
As to the P20 annual permit fee, the company was r
correctly adjudged liable. The authority of the City of a
Bacolod to require persons and entities engaged in or t
conducting any business within its jurisdictional territory i
to obtain permits and pay the corresponding permit fees is o
specifically granted by Commonwealth Act 326. n
,
Atok Finance Corporation vs. CA, Sanyu Chemical
Corporation, Danilo E. Arrieta, Nenita B. Arrieta, a
Pablito Bermundo & Leopoldo Halili, G.R. No. 80078, s
May 18,
1993 (222 SCRA 232) p
r
i
n
c
i
p
a
l
, t
o
a c
n k
d h
o
S l
a d
n e
y r
u s

T o
r f
a
d S
i a
n n
g y
u
C
o C
r h
p e
o m
r i
a c
t a
i l
o ,
n
n
a a
l m
o e
n l
g y
,
w
i s
t p
h o
u
i s
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d s
i
v D
i a
d n
u i
a l
l o

p E
r .
i
v
a
t
e

s
arising, whether direct or acquired by the Creditor by absolute and literal manner and carried to the limit of its
assignment or succession, whether due or not due, logic. This is clear from Article 2052 of the Civil Code itself
absolute or contingent, liquidated or unliquidated, which states that a guaranty cannot exist without a valid
determined or undetermined and whether the Principal obligation. Nevertheless, a guaranty may be constituted to
may be liable individually or jointly with others, or guarantee the performance of a voidable or an
whether recovery upon such indebtedness may be or unenforceable contract. It may also guarantee a natural
hereafter become barred by any statute of limitations, or obligation. Moreover, Article 2053 of the Civil Code states
whether such indebtedness may be or otherwise become that a guaranty may also be given as security for future
unenforceable. debts, the amount of which is not yet known; there can
On 27 November 1981, Sanyu Chemical be no claim against the guarantor until the debt is
assigned its trade receivables outstanding as of 27 liquidated. A conditional obligation may also be secured .
November 1981 with a total face value of P125,871.00, The
to Atok Finance in consideration of receipt from Atok T
Finance of the amount of P105,000.00. The assigned h
receivables carried a standard term of thirty (30) days; e
it appeared, however, that the standard commercial
practice was to grant an extension of up to one c
hundred twenty (120) days without penalties. Later, o
additional trade receivables were assigned by Sanyu u
Chemical to Atok Finance with a total face value of r
P100,378.45. t
On 13 January 1984, Atok Finance commenced
action against Sanyu Chemical, the Arrieta spouses, r
Pablito Bermundo and Leopoldo Halili before the Regional u
Trial Court of Manila to collect the sum of P120,240.00 l
plus penalty charges amounting to P0.03 for every peso e
due and payable for each month starting from 1 d
September 1983. Atok Finance alleged that Sanyu
Chemical had failed to collect and remit the amounts due f
under the trade receivables. o
Sanyu Chemical and the individual private r
respondents sought dismissal of Atok's claim upon the
ground that such claim had prescribed under Article A
1629 of the Civil Code and for lack of cause of action. The t
private respondents contended that the Continuing o
Suretyship Agreement, being an accessory contract, was k
null and void since, at the time of its execution, Sanyu
Chemical had no pre-existing obligation due to Atok F
Finance. i
n
a
n
c
e
.

T
h
e

a
p
p
e
a
l

w
a
s

d
i i
s e
m f
i .
s
s T
e h
d e

a d
t i
s
f m
i i
r s
s s
t a
l
d
u w
e a
s
t
o s
e
t t
h
e a
s
f i
a d
i e
l
u t
r h
e r
o
t u
o g
h
f
i a
l
e p
e
t t
h i
e t
i
a o
p n
p
e f
l o
l r
a
n r
t e
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s i
e
b f
r
, t
h
a e
n r
d
a
t
h s
e u
r
d e
e t
c y
i s
s h
i i
o p
n
i
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f
v
t a
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d
l
o a
w n
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r
b
c i
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u d
r i
t n
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w
a e
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e
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r f
s o
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d e
.
t
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s e
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: i
n
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a a
l
s
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a s
t h
i i
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a
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b e
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n n
. t

Held: Yes. Reversed. i

s
R
a a
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i
o a
: c
c
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t s
s
i o
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y
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a h
r e
a
n s
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s
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r
t
h a
a n
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e
i
t o
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i
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e
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t
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t w
h h
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c
p h
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r i
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o
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n
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i
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c t
u e
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i
n a
g s

t t
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p p
e r
r i
f n
o c
r i
m p
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l d
e
o
b s
l t
i a
g t
a e
t s
i
o t
n h
. a
t
I
t "
a
i
s g
u
a a
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s a
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t
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u
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a
t n
h n
a o
t t

A e
r x
t i
i s
c t
l
e w
2 i
0 t
5 h
2 o 89
u
o t
f
a
t
h v
e a
l
C i
i d
v
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l b
l
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a
t p
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o i
n n
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p
T l
h e
i s
s ,

l t
e o
g
a b
l e

p r
r e
o a
p d
o
s i
i n
t
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n

i
s

n
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a
Court of Appeals apparently overlooked our caselaw
interpreting Articles 2052 and 2053 of the Civil Code. In
National Rice and Corn Corporation (NARIC) v. Jose A.
Fojas and Alto Surety Co., Inc., the court ruled that Article
1825 of the Civil Code of 1889, in force in 1948, expressly
recognized that 'a guaranty may also be given as security
for future debts the amount of which is not yet known.' In
Rizal Commercial Banking Corporation v. Arro, it can be
clearly seen that the surety agreement was executed to
guarantee future debts which Daicor may incur with
petitioner, as is legally allowable under the Civil Code.
It is clear to us that the Rizal Commercial Banking
Corporation and the NARIC cases rejected the distinction
which the Court of Appeals in the case at bar sought to
make with respect to Article 2053, that is, that the
Article 1629 of the Civil Code invoked by private
respondents and accepted by the Court of Appeals is not,
in the case at bar, material. The liability of Sanyu
Chemical to Atok Finance rests not on the breach of the
warranty of solvency; the liability of Sanyu Chemical was
not ex lege (ex Article 1629) but rather excontractu.
Under the Deed of Assignment, the effect of non-payment
by the original trade debtors was a breach of warranty of
solvency by Sanyu Chemical, resulting in turn in the
assumption of solidary liability by the assignor under
the receivables assigned. In other words, the assignor
Sanyu Chemical becomes a solidary debtor under the
terms of the receivables covered
"future debts" referred to in that Article relate
to "debts
of the
a
g
r
e
e
m
e
n
t

b
u
t

t
h
e

a
m
o
u
n
t

[
o
f

w
h
i
c
h
]

i
s

u
n
k
n
90
o t
w
n t
, i
" m
e
a .
n
d O
f
n
o c
t o
u
t r
o s
e
d ,
e
b a
t
s s
u
n r
o e
t t
y
y
e i
t s

i n
n o
c t
u
r b
r o
e u
d n
d
a
n u
d n
d
e e
x r
i
s a
t n
i y
n
g p
a
a r
t t
i
t c
h u
a l
91
a b
r o
r
p n
r .
i
n B
c u
i t
p
a t
l h
e
o r
b e
l
i i
g s
a
t n
i o
o
n t
h
u e
n o
t r
i e
l t
i
t c
h a
a l
t
o
p r
r
i d
n o
c c
i t
p r
a i
l n
a
o l
b
l d
i i
g f
a f
t i
i c
o u
n l
t
i y
s
i
92
n a
h l
e i
r d
e
n a
t n
d
i
n b
i
s n
a d
y i
i n
n g
g
e
t v
h e
a n
t
b
t e
h f
e o
r
s e
u
r t
e h
t e
y
s p
h r
i i
p n
c
a i
g p
r a
e l
e
m o
e b
n l
t i
g
i a
t t
s i
e o
l n
f
i
i n
s t
e
v n
93
d d
e
d b
e
t
o i
n
b
e s
a
s y
e i
c n
u g
r
e t
d h
a
t t
h
e o
r b
e l
b i
y g
a
i t
s i
o
b n
o s
r
n w
, h
i
a c
n h
y
a
m r
o e
r
e s
u
t b
h j
a e
n c
t
t
h t
e o
r
e a

w c
o o
u n
l d
94
i
t o
i f
o
n t
h
p e
r
e c
c o
e n
d d
e i
n t
t i
o
a n
r
e p
r
v e
a c
l e
i d
d e
n
a t
n .
d C
o
b m
i p
n r
d e
i h
n e
g n
s
b i
e v
f e
o
r o
e r

t c
h o
e n
t
o i
c n
c u
u i
r n
r g
e
n s
c u
e r
95
e
t f
y i
n
a a
g n
r c
e i
e a
m l
e
n a
t n
s d

a c
r o
e m
m
i e
n r
c
f i
a a
c l
t
p
q r
u a
i c
t t
e i
c
c e
o .
m
m A
o
n b
p a
l n
a k
c
e o
r
i
n a

p f
r i
e n
s a
e n
n c
t i
n
d g
a
y c
96
o r
m a
p n
a s
n a
y c
t
w i
h o
i n
c s
h
w
a i
n t
t h
i
c a
i
p p
a a
t r
e t
s i
c
e u
n l
t a
e r
r
i c
n o
g m
p
i a
n n
t y
o ,

a c
o
s m
e m
r o
i n
e l
s y

o r
f e
q
c u
r i
e r
d e
i s
t
t
t h
97
e
a
p g
r r
o e
j e
e m
c e
t n
e t
d
a
p l
r o
i n
n g
c
i w
p i
a t
l h

d i
e t
b s
t
o s
r u
r
t e
o t
i
e e
x s
e .
c
u B
t y
e
e
a x
e
c c
o u
n t
t i
i n
n g
u
i s
n u
g c
h
s
u a
r n
e
t a
y g
98
r
e i
e n
m t
e o
n
t t
, h
e
t
h p
e r
o
p j
r e
i c
n t
c e
i d
p
a s
l e
r
p i
l e
a s
c
e o
s f

i t
t r
s a
e n
l s
f a
c
i t
n i
o
a n
s
p
o w
s i
i t
t h
i
o i
n t
s
t
o c
r
e e
n d
t i
e t
r o
99
r o
;
e
w x
i e
t c
h u
t
s e
u
c a
h
s
s e
u p
r a
e r
t a
y t
s e
h
i s
p u
r
a e
g t
r y
e
e c
m o
e n
n t
t r
, a
c
t t
h
e o
r r
e
b
w o
o n
u d
l
d f
o
b r
e
e
n a
o c
h
n
e f
e i
d n
a
t n
100
c o
i r
n .
g T
h
o e
r
c
c o
r n
e t
d e
i n
t t
i
a o
c n
c
o o
m f
m
o S
d a
a n
t y
i u
o
n C
h
e e
x m
t i
e c
n a
d l
e
d w
a
t s
o
t
t h
h a
e t

p A
r t
i o
n k
c
i F
p i
a n
l a
n
d c
e e
b
t h
101
a r
d e
a
n s
o o
n
c
a t
u h
s a
e t

o S
f a
n
a y
c u
t
i C
o h
n e
m
u i
n c
d a
e l
r '
s
t
h w
e a
r
D r
e a
e n
d t
y
o
f o
f
A
s t
s h
i e
g
n d
m e
e b
n t
t o
r
f s
o '
r
s
t o
h l
e v
e
102
n t
c h
y a
t
h
a t
d h
e
c
e D
a e
s e
e d
d
. o
f
I
t A
s
m s
a i
y g
n
b m
e e
n
s t
t
r w
e a
s s
s
e v
d a
l
a i
s d

a a
n
p d
r
e b
l i
i n
m d
i i
n n
a g
r
y u
p
m o
a n
t
t S
e a
r n
y
103
u e
r
C c
h i
e a
m l
i
c t
a r
l a
. n
s
A a
s c
s t
i i
g o
n n
m
e t
n o
t d
a
o y
f .

r I
e t
c
e i
i s
v
a a
b n
l
e a
s c
t
i i
s v
i
a t
y
c
o o
m r
m
o o
n p
p e
l r
a a
c t
e i
o
c n
o
m t
m h
104
a
t t
h
p e
e
r r
m e
i c
t e
s i
v
t a
h b
e l
e
a s
s
s b
i e
g f
n o
e r
e e

t t
o h
e
m
o m
n a
e t
t u
i r
z i
e t
y
o
r t
h
r e
e r
a e
l o
i f
z .
e
I
t n
h
e o
t
v h
a e
l r
u
e w
o
o r
f d
105
s t
, s

S t
a r
n a
y d
u e

C r
h e
e c
m e
i i
c v
a a
l b
l
r e
e s
c
e i
i t
v
e h
d a
d
f
r a
o s
m s
i
A g
t n
o e
k d
;
F
i S
n a
a n
n y
c u
e
C
t h
h e
e m
i
v c
a a
l l
u
e o
b
o v
f i
o
i u
106
s first instance from the trade debtors of Sanyu
l Chemical
y would represent the return of the investment
which Atok
b F
e i
n n
e a
f n
i c
t e
t
e h
d a
d
f
r m
o a
m d
e
t
h w
e h
e
a n
s
s i
i t
g
n p
m a
e i
n d
t
. S
a
T n
h y
e u

p C
a h
y e
m m
e i
n c
t a
s l

d t
u h
e e

i t
n r
a
t n
h s
e f
107
e comprehensive surety otherwise". There is no
r agreement was doubt that Daicor is
admittedly in full force liable on the promissory
v and effect. The loan was, note evidencing the
a therefore, covered by indebtedness.
l the said agreement, and The surety
u private respondent, agreement which was
e even if he did not sign earlier signed by
the promisory note, is Enrique Go, Sr. and
o liable by virtue of the private respondent, is
f surety agreement. The an accessory obligation,
only condition that it being dependent upon
s would make him liable a principal one which, in
u thereunder is that the this case is the loan
c Borrower "is or may obtained by Daicor as
h become liable as maker, evidenced by a
endorser, acceptor or promissory note. What
r
e
Rizal Commercial Banking Corporation vs. Hon. Jose
c
P. Arro, Judge of the CFI of
e
Davao & Residoro Chua, G.R. No. L-49401, July
i
30, 1982
v
a
b F
l a
e c
s t
. s
:
and transferred by Sanyu Chemical as
virtue of the Deed of solidary obligor under R
Assignment. And each of the assigned e
because assignor Sanyu receivables by virtue of s
Chemical became, under the operation of the i
the terms of the Deed of Deed of Assignment. d
Assignment, solidary That solidary liability of o
obligor under each of Sanyu Chemical is not r
the assigned receivables, subject to the limiting o
the other private period set out in Article
respondents (the Arrieta 1629 of the Civil Code. C
spouses, Pablito h
Bermundo and Leopoldo u
Halili), became solidarily a
liable for that obligation
of Sanyu Chemical, by a
virtue of the operation n
of the Continuing d
Suretyship Agreement.
Put a little differently, E
the obligations of n
individual private r
respondent officers and i
stockholders of Sanyu q
Chemical under the u
Continuing Suretyship e
Agreement, were
activated by the G
resulting obligations of o
108
, g
u
S a
r r
. a
n
j t
o y
i
n a
t n
l y
y
e
e x
x i
e s
c t
u i
t n
e g
d
o
a r

c f
o u
m t
p u
r r
e e
h
e o
n b
s l
i i
v g
e a
t
s i
u o
r n
e
t o
y f

a D
g a
r v
e a
e o
m
e A
n g
t r
i
t c
o u
l
109
t Thereafter, a promissory note in the
u amount of
r bank
a w
l h
i
I c
n h
d
u w
s a
t s
r
i s
e i
s g
n
C e
o d
r
p s
o o
r l
a e
t l
i y
o
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y
(
D E
A n
I r
C i
O q
R u
) e

w G
i o
t ,
h
S
p r
e .
t
i i
t n
i
o h
n i
e s
r
p
b e
a r
n s
k o
. n
110
a
l d
e
c m
a a
p n
a d
c s
i
t t
y h
e
a
n n
d o
t
i e
n
w
b a
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h
a n
l o
f t

o f
f u
l
D l
A y
I
C p
O a
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d
. ,

W p
h e
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n i
t
d i
e o
s n
p e
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t
e b
a
r n
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p
e f
a i
t l
e e
d d
111
 ,
a
S
c r
o .
m
p T
l h
a e
i
n t
t r
i
a a
g l
a
i c
n o
s u
t r
t
D ,
a
i s
c u
o s
r t
, a
i
r n
e i
s n
p g
o
n t
d h
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n
t p
r
C i
h v
u a
a t
e
a
n r
d e
s
E p
n o
r n
i d
q e
u n
e t
,
G
o d
112
i e
s
m o
i f
s
s a
e c
d t
i
t o
h n
e
a
c s
o
m a
p g
l a
a i
i n
n s
t t

o h
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m
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o
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a
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t
s
s i
t g
a n
t
e t
s h
e
n
o s
u
c b
a j
u e
s c
113
t m
p
p r
r e
o h
m e
i n
s s
s i
o v
r e
y
s
n u
o r
t e
e t
, y

w a
h g
i r
c e
h e
m
i e
s n
t
a
a
n s
e
c e
e v
s i
s d
a e
r n
y c
e
c
o o
r f
o
l i
l n
a d
r e
y b
t
t e
o d
n
t e
h s
e s
,
c
o a
114
n e
d :

w W
i h
t e
h t
o h
u e
t r

w a
h
i s
c u
h r
e
t t
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e
w
s h
a o
i
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u
a a
g r
r a
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m e
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t
a
s n
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r
v e
e x
d i
s
n t
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n
p g
u
r o
p r
o
s f
e u
. t
u
I r
s e
s
u o
115
b n
l t
i l
g y
a
t e
i x
o e
n c
u
c t
a e
n d

b w
e i
t
h h
e o
l u
d t

l h
i i
a s
b
l s
e i
g
f n
o a
r t
u
a r
e
p .
r
o Held: Yes. Reversed.
m
i Ratio: The agreement was executed
s obviously to
s a loan
o D
r a
y i
c
n o
o r
t
e m
a
s y
u
b d
s e
e s
q i
u r
e
116
e i
n
t g
o
o
o n
b e
t
a w
i h
n i
c
f h
r
o s
m h
a
p l
e l
t
i r
t e
i m
o a
n i
e n
r
i
b n
a
n f
k u
. l
l
T
h f
e o
r
g c
u e
a
r a
a n
n d
t
y e
f
i f
s e
c
a t

c u
o n
n t
t i
i l
n
u t
117
h n
e
o
b f
a
n P
k 1
0
i 0
s ,
0
n 0
o 0
t .
i 0
f 0
i
e w
d a
s
o
f o
b
i t
t a
s i
n
t e
e d
r
m f
i r
n o
a m
t
i p
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n t
. i
t
A i
t o
n
t e
h r
e
b
t y
i
m D
e a
i
t c
h o
e r
,
l
o f
a o
118
r d

t s
h e
e l
l
p i
u n
r g
p
o c
s o
e c
o
o -
f s
h
h e
a l
v l
i
n c
g h
a
a r
n c
o
a a
d l
d
i a
t n
i d
o
n i
a m
l p
o
c r
a t
p a
i t
t i
a o
l n

f o
o f
r
a
b c
u t
y i
i v
n a
g t
e
a d
n
119
c o
a r
r p
b o
o r
n a
, t
i
t o
h n
e
v
obviously induced The records of the case s
petitioner bank to grant were reconstituted .
the loan was the surety upon petition. The court
agreement whereby Go ruled for the bank, H
and Chua bound holding the spouses o
themselves solidarily to solidarily liable for the n
guaranty the punctual liability. Upon appeal, .
payment of the loan at the IAC modified the
maturity. By terms that decision by holding I
are unequivocal, it can Roberto Regal liable n
be clearly seen that the only to the extent of t
surety agreement was the monthly credit e
executed to guarantee limit granted to Celia r
future debts which Regala, i.e., at P2,000.00 m
Daicor may incur with a month and only for e
petitioner, as is legally the advances made d
allowable under the during the one year i
Civil Code. Thus, Article period of the card's a
2053 states that a effectivity. t
guaranty may also be e
given as security for
Issue: Whether a
future debts, the amount A
guarantor’s undertaking
of which is not yet p
which makes him liable
known; there can be no p
jointly and severally can
claim against the e
be construed as being a
guarantor until the debt l
contract of surety.
is liquidated. A l
conditional obligation a
may also be secured. t
e
P
a C
c o
i u
f r
i t
c
&
B
a R
n o
k b
i e
n r
g t
o
C Regala, Jr., G.R. No. 72275, November 13, 1991 (203
120
SCRA 496)
a
F p
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O f
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a
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121
e a
t
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122
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123
d c

s B
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R a
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a
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t a
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a n
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i s
f s
i 124
, i
d
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a 125
d a
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B 126
 t
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n i
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t u
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t o
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127
t o
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a
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a
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n 128
h c
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r
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129
 e
i
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h 130
l r
y ,

s h
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131
P t
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132
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133
t
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a
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h f
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134
e t
d i
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C C
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135
t R
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136
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137
 e
b
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P f
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138
n
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c
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139
Held: Yes. Rever 1987 (149 SCRA 226)
sed.
Ratio: The undertaking signed by Roberto Regala,
Facts: Dr. Marylou J. Perlas, called up the Vizconde, a long-
Jr. although denominated "Guarantor's Undertaking," & People of the Philippines, G.R. No. 74231, April 10,
was in substance a contract of surety. As distinguished
from a contract of guaranty where the guarantor binds
himself to the creditor to fulfill the obligation of the
principal debtor only in case the latter should fail to do so,
in a contract of suretyship, the surety binds himself
solidarily with the principal debtor.
We need not look elsewhere to determine the
nature and extent of private respondent Roberto Regala,
Jr.'s undertaking. As a surety he bound himself jointly and
severally with the debtor Celia Regala "to pay the Pacific
Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the use of
Pacificard or renewals thereof issued in (her) favor by
Pacific Banking Corporation."
It is true that under Article 2054 of the Civil Code,
"(A) guarantor may bind himself for less, but not for
more than the principal debtor, both as regards the
amount and the onerous nature of the conditions. It is
likewise not disputed by the parties that the credit limit
granted to Celia Regala was P2,000.00 per month and that
Celia Regala succeeded in using the card beyond the
original period of its effectivity, October 29,
1979. We do not agree however, that Roberto Jr.'s
liability should be limited to that extent. Private
respondent Roberto Regala, Jr., as surety of his wife,
expressly bound himself up to the extent of the debtor's
(Celia) indebtedness likewise expressly waiving any
"discharge in case of any change or novation of the
terms and conditions in connection with the issuance of
the Pacificard credit card." Roberto, in fact, made his
commitment as a surety a continuing one, binding upon
himself until all the liabilities of Celia Regala have been
fully paid. All these were clear under the "Guarantor's
Undertaking' Roberto signed.
Private respondent Roberto Regala, Jr. had been
made aware by the terms of the undertaking of future
changes in the terms and conditions governing the
issuance of the credit card to his wife and that
notwithstanding, he voluntarily agreed to be bound as a
surety. As in guaranty, a surety may secure additional and
future debts of the principal debtor the amount of which is
not yet known.
A guarantor or surety does not incur liability
unless the principal debtor is held liable. It is in this sense
that a surety, although solidarily liable with the principal
debtor, is different from the debtor. It does not mean,
however, that the surety cannot be held liable to the same
extent as the principal debtor. The nature and extent of the
liabilities of a guarantor or a surety is determined by the
clauses in the contract of suretyship.

Corazon J. Vizconde vs. Intermediate Appellate Court

time friend and former high school classmate, asking her About a week and a half later, Vizconde
to sell Perlas' 8-carat diamond ring. Shortly afterwards, returned the ring to Perlas, who had asked for it
Perlas delivered the ring to Vizconde to be sold on because she needed to show it to a cousin. However,
commission for P85,000.00. Vizconde signed a receipt for Vizconde afterwards
the ring.
called on Perlas at the latter's home, with another lady, one (21) days of reclusion temporal. A motion for
Pilar A. Pagulayan, who claimed to have a "sure buyer" for reconsideration was denied. Vizconde thereafter filed the
the ring. Perlas was initially hesitant to do so, but she present petition for review on certiorari.
eventually parted with the ring so that it could be Required to comment on the petition, the Solicitor
examined privately by Pagulayan's buyer when the latter
gave her a postdated check for the price (P85,000.00) and,
together with Vizconde, signed a receipt prepared by
Perlas. The receipt made Pagulayan principally liable
while Vizconde jointly and severally guaranteed the
obligation.
After Pagulayan's postdated check matured,
Perlas deposited it to her account at Manila Bank. It was
dishonored for the reason, "No arrangement," stated in
the debit advice. Perlas then called up Vizconde to inform
her about the dishonor of the check. The latter suggested
that Perlas redeposit the check while she (Vizconde)
followed up the sale of the ring. Perlas re-deposited the
check, but again it was dishonored because drawn
against insufficient funds. So Perlas took the matter to
counsel, who sent separate letters of demand to Vizconde
and Pagulayan for return of the ring or payment of
P85,000.00. After nine days, Vizconde and Pagulayan
called on Perlas. Pagulayan paid Perlas P5,000.00 against
the value of the ring. She also gave into Perlas'
keeping three certificates of title to real estate to
guarantee delivery of the balance of such value. A
receipt for the money and the titles was typed and signed
by Perlas, which she also made the two sign.
Vizconde and Pagulayan having allegedly reneged
on a promise to complete payment for the ring on the
very next day, Perlas filed with the Quezon City Fiscal's
office a complaint against them for estafa. This
notwithstanding, Pagulayan still paid Perlas various sums
totalling P25,000.00 which together with the P5,000.00
earlier paid, left a balance of P55,000.00 still owing.
After trial, both accused were convicted and each
sentenced to serve an indeterminate prison term of from
eight (8) years, four (4) months and one (1) day to ten
(10) years and two (2) months of prision mayor, with the
accessory penalties provided by law, and jointly and
severally to indemnify the offended party in the sum of
P55,000.00 for the unaccounted balance of the value of
the ring with legal interest from April 22,
1975, the further sum of P30,000.00 as and for moral
damages and the sum of P10,000.00 for attorney's fees.
Both accused appealed to the Court of Appeals,
but as Pilar A. Pagulayan had evaded promulgation of
sentence in the Trial Court and had appealed only through
counsel, the Appellate Court vacated her appeal as
ineffectual. On Vizconde's part, the Court of Appeals
affirmed the judgment of the Trial Court in all respects
except the penalty of imprisonment, which it increased to
a term of from ten (10) years and one (1) day of prision
mayor to twelve (12) years ten (10) months and twenty-
General, despite having argued for affirmance of
Vizconde's conviction in the Court of Appeals, now Issue: Whether a surety can be held liable for estafa.
recommends that she be acquitted, but nonetheless held
civilly liable. Held: No. Reversed.
Ratio: Nothing in the language of the receipt, or in the was entrusted to Pagulayan and when part payment of
proven circumstances attending its execution can logically P5,000.00 was made, and that she signed the receipts on
be considered as evidencing the creation of an agency those occasions are, at best, inconclusive. They are not
between Perlas, as principal, and Vizconde, as agent, for
the sale of the former's ring. True, reference to what may
be taken for an agency agreement appears in the clause ". .
. which I agree to sell . . . on commission basis" in the main
text of that document. But it is clear that if any agency was
established, it was one between Perlas and Pagulayan
only, this being the only logical conclusion from the use of
the singular "I" in said clause, in conjunction with the fact
that the part of the receipt in which the clause appears
bears only the signature of Pagulayan. To warrant
anything more than a mere conjecture that the receipt
also constituted Vizconde the agent of Perlas for the same
purpose of selling the ring, the cited clause should at
least have used the plural "we," or the text of the
receipt containing that clause should also have carried
Vizconde's signature. As the Solicitor General correctly
puts it, the joint and several undertaking assumed by
Vizconde in a separate writing below the main body of the
receipt merely guaranteed the civil obligation of Pagulayan
to pay Perlas the value of the ring in the event of her
(Pagulayan's) failure to return said article. It cannot, in any
sense, be construed as assuming any criminal
responsibility consequent upon the failure of Pagulayan to
return the ring or deliver its value. It is fundamental that
criminal responsibility is personal and that in the
absence of conspiracy, one cannot be held criminally
liable for the act or default of another.
Thus, the theory that by standing as surety for
Pagulayan, Vizconde assumed an obligation more than
merely civil in character, and staked her very liberty on
Pagulayan's fidelity to her trust is utterly unacceptable; it
strikes at the very essence of guaranty (or suretyship) as
creating purely civil obligations on the part of the
guarantor or surety. To render Vizconde criminally liable
for the misappropriation of the ring, more than her
mere guarantee is necessary. At the least, she must be
shown to have acted in concert and conspiracy with
Pagulayan, either in obtaining possession of the ring, or in
undertaking to return the same or delivery its value, or
in the misappropriation or conversion of the same.
Now, the information charges conspiracy
between Vizconde and Pagulayan, but no adequate proof
thereof has been presented. It is of course true that direct
proof of conspiracy is not essential to convict an alleged
conspirator, and that conspiracy may be established by
evidence of acts done in pursuance of a common unlawful
purpose. Here, however, the circumstances from which a
reasonable inference of conspiracy might arise, such as
the fact that Vizconde and the complainant were friends
of long standing and former classmates, that it was
Vizconde who introduced Pagulayan to Perlas, that
Vizconde was present on the two occasions when the ring
inconsistent with what Vizconde has asserted to be an
innocent desire to help her friend dispose of the ring;
nor do they exclude every reasonable hypothesis other
than complicity in a premeditated swindle.
The conflict in the recitals of the two receipts
insofar as concerns Vizconde's part in the transaction
to Pilar A. Pagulayan to be sold on commission; there is no
mention therein that it was simultaneously delivered to
and received by Vizconde for the same purpose or,
therefore, that Vizconde was constituted, or agreed to act
as, agent jointly with Pagulayan for the sale of the ring.
What Vizconde solely undertook was to guarantee the
obligation of Pagulayan to return the ring or deliver its
value; and that guarantee created only a civil obligation,
without more, upon default of the principal. The second
receipt, on the other hand, would make out Vizconde an
agent for the sale of the ring. The undisputed fact that
the first receipt was executed simultaneously with the
delivery of the ring to Pagulayan compellingly argues for
accepting it as a more trustworthy memorial of the real
agreement and transaction of the parties than the second
receipt which was executed at a later date and after the
supervention of events rendering it expedient or desirable
to vary the terms of that agreement or transaction.
Upon the evidence, appellant Corazon J. Vizconde
was a mere guarantor, a solidary one to be sure, of the
obligation assumed by Pilar A. Pagulayan to complainant
Marylou J. Perlas for the return of the latter's ring or the
delivery of its value. Whatever liability was incurred by
Pagulayan for defaulting on such obligation — and this is
not inquired into — that of Vizconde consequent upon
such default was merely civil, not criminal. It was,
therefore, error to convict her of estafa.
involving Perlas' ring is obvious and cannot be ignored.
Neither, as the Court sees it, should these writings be read
together in an attempt to reconcile what they contain,
since the later receipt was made under circumstances
which leave no little doubt of its truth and integrity. What
is clear from the first receipt is that the ring was entrusted
COMPANY or its representatives shall or may pay or
cause to be paid or become liable to pay, on account of
or arising from the execution of the above mentioned
Bond."
On June 25, 1954, the surety advised the Secretary
of Education that it was withdrawing and cancelling its
bond. Copies of the letter were sent to the Bureau of
Private Schools and to the Central Luzon Educational
Foundation, Inc.
It appears that on the date of execution of the
bond, the Foundation was indebted to two of its teachers
for salaries, to wit: to Remedios Laoag, in the sum of
P685.64, and to H.B. Arandia, in the sum of P820.00, or a
total of P1,505.64. Demand for the above

General Insurance and Surety Corporation vs.

Republic of the Philippines & Central Luzon
Educational Foundation, G.R. No. L-13873, January
31, 1963 (7
SCRA 4)

Facts: Department of Education required the Central

Luzon Educational Foundation, Inc., operating the Sison
& Aruego Colleges, of Urdaneta, Pangasinan, Philippines
an institution of learning to file a bond to guarantee the
adequate and efficient administration of said school or
college and the observance of all regulations prescribed by
the Secretary of Education and compliance with all
obligations, including the payment of the salaries of all its
teachers and employees, past, present, and future, and the
payment of all other obligations incurred by, or in behalf
of said school. Thus, Central Luzon Educational
Foundation, Inc. and the General Insurance and Surety
Corporation posted in favor of the Department of
Education a bond which holds them jointly and severally
liable.
On the same day, May 15, 1954, the Central Luzon
Educational Foundation, Inc., Teofilo Sison and Jose M.
Aruego executed an indemnity agreement binding
themselves jointly and severally to indemnify the surety of
"any damages, prejudices, loss, costs, payments, advances
and expenses of whatever kind and nature, including
attorney's fees and legal costs, which the COMPANY may,
at any time sustain or incur, as well as to reimburse to said
COMPANY all sums and amounts of money which the
amount having been refused, the Solicitor General, in Supermart, its owner-proprietor, See Hong & Judge
behalf of the Republic of the Philippines, filed a complaint Benjamin K. Gorospe, Presiding Judge, CFI of
for the forfeiture of the bond, in the Court of First Instance Misamis Oriental, Br. 1, G.R. No. L-45848, November 9,
of Manila on July 11, 1956. The CFI rendered judgment 1977 (80 SCRA 262)
holding the principal and the surety jointly and severally
liable to the Government in the sum of P10,000.00 with
Facts: See Hong, the proprietor of Ororama Supermart in
legal interest from the date of filing of the complaint, until
Cagayan de Oro City, sued the spouses Ernesto Ong and
the sum is fully paid and ordering the principal to Conching Ong in the CFI of Misamis Oriental for the
reimburse the surety whatever amount it may be collection of the sum of P58,400 plus litigation expenses
compelled to pay to the Government by reason of the and attorney’s fees. See Hong asked for a
judgment, with costs against both principal and the surety.
The CA affirmed with modifications.

Issue: Whether the whole bond can be executed upon

even though the actual liability is a smaller amount.

Held: Yes. Affirmed.

Ratio: It must be remembered that, by the terms of the

bond, the surety guaranteed to the Government
"compliance (by the Foundation) with all obligations,
including the payment of the salaries of its teachers and
employees, past, present and future, and the payment of all
other obligations incurred by, or in behalf of said school."
Now, it is not disputed that even before the execution of
the bond, the Foundation was already indebted to two of
its teachers for past salaries. From the moment, therefore,
the bond was executed, the right of the Government to
proceed against the bond accrued because since then,
there has been violation of the terms of the bond
regarding payment of past salaries of teachers at the Sison
and Aruego Colleges. The fact that the action was filed only
on July 11, 1956 does not militate against this position
because actions based on written contracts prescribe in
ten years.
There is no provision that the bond will be
cancelled unless the surety is notified of any claim and so
no condition precedent has to be complied with by the
Government before it can bring an action. Indeed, the
provision of the bond in the NARIC and Santos cases that it
would be cancelled ten days after its expiration unless
notice of claim was given was inserted precisely because,
without such a provision, the surety's liability for
obligations arising while the bond was in force would
subsist even after its expiration.
There is nothing against public policy in forfeiting
the bond for the full amount. The bond is penal in nature.
Article 1226 of the Code states that in obligation with a
penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-
compliance, if there is no stipulation to the contrary, and
the party to whom payment is to be made is entitled to
recover the sum stipulated without need of proving
damages because one of the primary purposes of a penalty
clause is to avoid such necessity.

Towers Assurance Corporation vs. Ororama

writ of preliminary attachment which was granted. The a Memorandum of Agreement was executed by and
deputy sheriff attached the properties of the Ong spouses between Slobec Realty and Development, Inc., represented
in Valencia, Bukidnon and in Cagayan de Oro City. To lift by its President Santiago Rivera and the Castillo family. In
the attachment, the Ong spouses filed a counterbond in the this agreement, Santiago Rivera obliged himself to pay the
amount of P58,400 with Towers Assurance Corporation as Castillo family the sum of P70,000.00 immediately after
surety. In that undertaking, the Ong spouses and Towers the execution of the agreement and to pay the additional
Assurance Corporation bound themselves to pay solidarily amount of P400,000.00 after the property has been
to See Hong the sum of P58,400. converted into a subdivision. Rivera,
The lower court ruled for See Hong and ordered
not only the Ong spouses but also their surety, Towers
Assurance Corporation to pay solidarily to See Hong the
sum of P58,400. A writ of execution was issued. Towers
Assurance Corporation filed a petition for certiorari where
it assailed the decision and the writ of execution.

Issue: Whether the surety in an attachment counterbond

is entitled to be heard before it can be held liable.

Held: Yes. Reversed.

Ratio: Under Section 17, Rule 47, in order that the

judgment creditor might recover from the surety on the
counterbond, it is necessary (1) that execution be first
issued against the principal debtor and that such execution
was returned unsatisfied in whole or in part; (2) that the
creditor made a demand upon the surety for the
satisfaction of the judgment; and (3) that the surety be
given notice and a summary hearing in the same action as
to his liability for the judgment under his counterbond.
The first requisite mentioned above is not
applicable to this case because Towers Assurance
Corporation assumed a solidary liability for the
satisfaction of the judgment. A surety is not entitled to
the exhaustion of the properties of the principal debtor.
But certainly, the surety is entitled to be heard before an
execution can be issued against him since he is not a party
in the case involving his principal. Notice and hearing
constitute the essence of procedural due process.

Buenaflor C. Umali, Mauricia M. Vda. De Castillo,

Victoria M. Ca stillo, Bertilla C. Rada, Marietta C.
Abañez, Leovin a C. Jalbuena & Santiago M. Rivera vs. Inc., & Philippine Machinery Parts
CA, Bormaheco Co., Inc., G.R. No.
Manufacturing
89561, Septemb er 13, 1990 (189 SCRA 529)

Facts: Santiago Rivera is the nephew of Mauricia Meer

Vda. de Castillo. The Castillo family are the owners of a
parcel of land located in Lucena City which was given
as security for a loan from the Development Banks of the
Philippines. For their failure to pay the amortization,
foreclosure of the said property was about to be initiated.
This problem was made known to Santiago Rivera, who
proposed to them the conversion into subdivision of the
four (4) parcels of land adjacent to the mortgaged
property to raise the necessary fund. The idea was
accepted by the Castillo family and to carry out the project,
armed with the agreement, approached Mr. Modesto President, Mr. Modesto Cervantes, sent a letter dated
Cervantes, President of defendant Bormaheco, and August 9,1976 addressed to plaintiff Mrs. Mauricia Meer
proposed to purchase from Bormaheco two (2) tractors
Model D-7 and D-8. Subsequently, a Sales Agreement was
executed on December 28, 1970. On January
23, 1971, Bormaheco, Inc. and Slobec Realty and
Development, Inc., represented by its President, Santiago
Rivera, executed a Sales Agreement over one unit of
Caterpillar Tractor D-7. As shown by the contract, the
price was P230,000.00 of which P50,000.00 was to
constitute a down payment, and the balance of
P180,000.00 payable in eighteen monthly installments. On
the same date, Slobec, through Rivera, executed in favor of
Bormaheco a Chattel Mortgage over the said equipment
as security for the payment of the aforesaid balance of
P180,000.00. As further security of the aforementioned
unpaid balance, Slobec obtained from Insurance
Corporation of the Phil. a Surety Bond, with ICP
(Insurance Corporation of the Phil.) as surety and Slobec
as principal, in favor of Bormaheco. The aforesaid surety
bond was in turn secured by an Agreement of Counter-
Guaranty with Real Estate Mortgage executed by Rivera as
president of Slobec and Mauricia Meer Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo Rada, Victoria
Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as
mortgagors and Insurance Corporation of the Philippines
(ICP) as mortgagee. In this agreement, ICP guaranteed the
obligation of Slobec with Bormaheco in the amount of
P180,000.00. In giving the bond, ICP required that the
Castillos mortgage to them the properties in question,
namely, four parcels of land covered by TCTs in
the name of the aforementioned mortgagors, namely
TCT Nos. 13114, 13115, 13116 and 13117 all of the
Register of Deeds for Lucena City.
For violation of the terms and conditions of the
Counter-Guaranty, the properties of the Castillos were
foreclosed by ICP. As the highest bidder with a bid of
P285,212.00, a Certificate of Sale was issued by the
Provincial Sheriff of Lucena City and Transfer Certificates
of Title over the subject parcels of land were issued by the
Register of Deeds of Lucena City in favor of ICP. The
mortgagors had one (1 ) year from the date of the
registration of the certificate of sale, that is, until October
1,1974, to redeem the property, but they failed to do so.
Consequently, ICP consolidated its ownership over the
subject parcels of land through the requisite affidavit
of consolidation of ownership dated October 29, 1974.
Pursuant thereto, a Deed of Sale of Real Estate covering
the subject properties was issued in favor of ICP.
On April 10, 1975, Insurance Corporation of the
Phil. (ICP) sold to Phil. Machinery Parts Manufacturing Co.
(PM Parts) the four (4) parcels of land and by virtue of
said conveyance, PM Parts transferred unto itself the titles
over the lots in dispute so that said parcels of land are
now covered by TCT Nos. T-24846, T-24847, T-24848
and T-24849. Thereafter, PM Parts, through its
Castillo requesting her and her children to vacate the
subject property, who (Mrs. Castillo) in turn sent her
reply expressing her refusal to comply with his demands.
On September 29, 1976, the heirs of the late
Felipe Castillo, particularly plaintiff Buenaflor M. Castillo
Umali as the appointed administratrix of the properties in
question filed an action for annulment of title before the
the aforementioned transactions starting with the
Agreement of Counter-Guaranty with Real Estate
Mortgage, Certificate of Sale and the Deeds of Authority to
Sell, Sale and the Affidavit of Consolidation of Ownership
as well as the Deed of Sale are void for being entered into
in fraud and without the consent and approval of the
Court of First Instance of Quezon, (Branch IX) before
whom the administration proceedings has been pending.
The court declared the counter-guaranty, sales
agreement, chattel mortgage, Certificate of Sale void for
being fictitious, spurious, and without consideration. CA
reversed.
then Court of First Instance of Quezon and docketed
thereat as Civil Case No. 8085. Thereafter, they filed an
Amended Complaint on January 10,1980. On July 20,
1983, plaintiffs filed their Second Amended Complaint,
impleading Santiago M. Rivera as a party plaintiff. They
contended that all
recognized Bormaheco as an agent of ICP. Such payment to
the agent of ICP is, therefore, binding on Rivera. He is
now estopped from questioning the validity of the
suretyship contract.
The surety bond was dated October 24, 1970.
However, an annotation on the upper part thereof states:
"NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON
JANUARY 22, 1971." On the other hand, the Sales
Agreement dated January 23,
1971 provides that the balance of P180,000.00 shall be
payable in eighteen (18) monthly

Issue: Whether a surety who was not given a timely notice

can be relieved of its liability. Whether a surety can be
liable for a shorter period of time than the principal.

Held: Yes. Yes. Affirmed with modifications.

Ratio: There is absolute simulation, which renders the

contract null and void, when the parties do not intend to
be bound at all by the same. The basic characteristic of
this type of simulation of contract is the fact that the
apparent contract is not really desired or intended to
either produce legal effects or in any way alter the
juridical situation of the parties. The subsequent act of
Rivera in receiving and making use of the tractor subject
matter of the Sales Agreement and Chattel Mortgage, and
the simultaneous issuance of a surety bond in favor of
Bormaheco, concomitant with the execution of the
Agreement of Counter-Guaranty with Chattel/Real Estate
Mortgage, conduce to the conclusion that petitioners had
every intention to be bound by these contracts. The
occurrence of these series of transactions between
petitioners and private respondents is a strong indication
that the parties actually intended, or at least expected, to
exact fulfillment of their respective obligations from one
another.
Neither will an allegation of fraud prosper in this
case where petitioners failed to show that they were
induced to enter into a contract through the insidious
words and machinations of private respondents without
which the former would not have executed such contract.
To set aside a document solemnly executed and
voluntarily delivered, the proof of fraud must be clear and
convincing. We are not persuaded that such quantum of
proof exists in the case at bar.
The fact that it was Bormaheco which paid the
premium for the surety bond issued by ICP does not per
se affect the validity of the bond. Petitioners themselves
admit in their present petition that Rivera executed a Deed
of Sale with Right of Repurchase of his car in favor of
Bormaheco and agreed that a part of the proceeds thereof
shall be used to pay the premium for the bond. In effect,
Bormaheco accepted the payment of the premium as an
agent of ICP. The execution of the deed of sale with a right
of repurchase in favor of Bormaheco under such
circumstances sufficiently establishes the fact that Rivera
installments. The Promissory Note executed by Slobec unauthorized extension thereof. This is an exception to
on even date in favor of the general rule that the obligation of the surety continues
Bormaheco further provides that the obligation shall be for the same period as that of the principal debtor.
payable on or before February 23, It is possible that the period of suretyship may be
1971 up to July 23, 1972, and that non-payment of any of shorter than that of the principal obligation, as where the
the installments when due shall make the entire obligation principal debtor is required to make payment by
immediately due and demandable. It is basic that liability installments. In the case at bar, the surety bond issued by
on a bond is contractual in nature and is ordinarily ICP was to expire on January 22, 1972, twelve (12) months
restricted to the obligation expressly assumed therein. We from its effectivity date whereas Slobec's installment
have repeatedly held that the extent of a surety's liability payment was to end on July 23, 1972. Therefore, while ICP
is determined only by the clause of the contract' of guaranteed the payment by Slobec of the balance of
suretyship as well as the conditions stated in the bond. It P180,000 00, such guaranty was valid only for and within
cannot be extended by implication beyond the terms the twelve (12) months from the date of effectivity of the
contract. surety bond, or until January 22, 1972. Thereafter, from
Fundamental likewise is the rule that, except January
where required by the provisions of the contract, a 23, 1972 up to July 23, 1972, the liability of Slobec became
demand or notice of default is not required to fix the an unsecured obligation. The
surety's liability. Hence, where the contract of suretyship
stipulates that notice of the principal's default be given to
the surety, generally the failure to comply with the
condition will prevent recovery from the surety. There are
certain instances, however, when failure to comply with
the condition will not extinguish the surety's liability, such
as a failure to give notice of slight defaults, which are
waived by the obligee; or on mere suspicion of possible
default; or where, if a default exists, there is excuse
or provision in the suretyship contract exempting the
surety or liability therefor, or where the surety already
has knowledge or is chargeable with knowledge of the
default.
In the case at bar, the suretyship contract
expressly provides that ICP shall not be liable for any
claim not filed in writing within thirty (30) days from the
expiration of the bond. In its decision dated May 25, 1987,
the court a quo categorically stated that "(n)o evidence
was presented to show that Bormaheco demanded
payment from ICP nor was there any action taken by
Bormaheco on the bond posted by ICP to guarantee
the payment of plaintiffs obligation. There is nothing in
the records of the proceedings to show that ICP
indemnified Bormaheco for the failure of the plaintiffs to
pay their obligation." The failure, therefore, of Bormaheco
to notify ICP in writing about Slobec's supposed default
released ICP from liability under its surety bond.
Consequently, ICP could not validly foreclose that real
estate mortgage executed by petitioners in its favor since
it never incurred any liability under the surety bond. It
cannot claim exemption from the required written notice
since its case does not fall under any of the exceptions
herein before enumerated.
The liability of a surety is measured by the terms
of his contract, and, while he is liable to the full extent
thereof, such liability is strictly limited to that assumed
by its terms. While ordinarily the termination of a
surety's liability is governed by the provisions of the
contract of suretyship, where the obligation of a surety
is, under the terms of the bond, to terminate at a
specified time, his obligation cannot be enlarged by an
default of Slobec during this period cannot be a valid basis modified the trial court's decision by exonerating private
for the exercise of the right to foreclose by ICP since its respondent Phoenix from liability under its surety bond.
surety contract had already been terminated. Besides, the
liability of ICP was extinguished when Bormaheco failed to
Issue: Whether the increase in the indebtedness of the
file a written claim against it within thirty (30) days from
principal without the knowledge of the surety is such a
the expiration of the surety bond. Consequently, the
material alteration that will completely discharge the
foreclosure of the mortgage, after the expiration of the
surety from all liability.
surety bond under which ICP as surety has not incurred
any liability, should be declared null and void.
Lastly, it has been held that where the guarantor Held: Yes. Affirmed.
holds property of the principal as collateral surety for his
personal indemnity, to which he may resort only after
payment by himself, until he has paid something as such
guarantor neither he nor the creditor can resort to such
collaterals. The Agreement of Counter-Guaranty with
Chattel/Real Estate Mortgage states that it is being issued
for and in consideration of the obligations assumed by the
Mortgagee-Surety Company under the terms and
conditions of ICP Bond No.
14010 in behalf of Slobec Realty Development Corporation
and in favor of Bormaheco, Inc. There is no doubt that
said Agreement of Counter-Guaranty is issued for the
personal indemnity of ICP. Considering that the fact of
payment by ICP has never been established, it follows,
pursuant to the doctrine above adverted to, that ICP
cannot foreclose on the subject properties.

Philippine National Bank vs CA & the Philippine

Phoenix Surety & Insurance, Inc., G.R. No. L-30937,
January 21, 1987 (147 SCRA 273)

Facts: Marino P. Rubin obtained from the Binalbagan

Branch of petitioner Philippine National Bank a 1954-
1955 sugar crop loan in the amount of P40,200.00,
secured by a chattel mortgage executed by Rubin as
debtor-mortgagor and Jose A. Campos as mortgagor. As
additional security, private respondent Philippine Phoenix
Surety and Insurance, Inc. issued Surety Bond No. 88 for
P10,000.00 in favor of petitioner Bank. Liability under
said bond was to expire one (1) year from the date
thereof, unless within ten (10) days from its expiration,
the surety is notified of any existing obligations
thereunder. Three months later, petitioner Bank
increased the loan from P40,200.00 to P56,800.00,
without the knowledge and consent of private respondent
Phoenix.
When Rubin failed to liquidate said loan,
petitioner Bank demanded of private respondent Phoenix
that it make good its undertaking as surety for Rubin up to
the stated amount of P10,000.00. Private respondent
Phoenix denied liability, resulting in petitioner instituting a
collection case against Rubin, his guarantors and sureties,
including private respondent Phoenix.
 The trial court ruled in favor of petitioner Bank,
ordering, among others, private respondent Phoenix to
pay petitioner the sum of P10,000 upon failure of the
principal debtor Rubin and his guarantors to pay the
judgment amount. On appeal, the Court of Appeals
said royalty of P50,000, but the latter has refused and
Ratio: The discharge of private respondent Phoenix from refuses to make payment; and PNB also made demand on
liability under Surety Bond No. Plaridel Surety & Insurance for said payment, but the
88 is correct. Contrary to petitioner's thinking, the contract latter refused and refuses to make payment.
in question is not a continuing chattel mortgage for which A complaint was filed by PNB against
consent and knowledge of the surety is unnecessary for Macapanga Producers Inc. and Plaridel Surety and
an increase in the amount of the principal obligation. The Insurance Co. Plaridel Surety & Insurance moved to
contract of chattel mortgage itself fixed the credits, loans, dismiss the complaint for failure to state cause of action,
overdrafts, etc. and other valuable consideration received alleging that it is a guarantor and as such is responsible
thereunder at Forty Thousand Two Hundred Pesos only if Macapanga Producers has no property or assets
[P40,200.00]. The undertaking under said contract was to pay its obligation as lessee. Plaintiff opposed the
"for the purpose of securing their payment including motion calling attention to the provision of the
the interest thereon, the cost of collection and other performance bond in
obligations owing by the Debtor-Mortgagor to the
mortgagee, whether direct or indirect, principal or
secondary as appears in the accounts, books and records
of the mortgagee. Applying the principle of ejusdem
generis, the term "other obligations" must be limited to
such as are of the same nature as interest and costs of
collection. The term cannot be enlarged to include future
additional advances to debtor-mortgagor, much less be
interpreted as a previous authorization from the surety to
increase the principal amount fixed in the contract. The
increase in the indebtedness from P40,200.00 to
P56,800.00 is material and prejudicial to private
respondent Phoenix. While the liability of private
respondent under the bond is limited to P10,000.00, the
increase in the amount of the debt proportionally
decreased the probability of the principal debtor being
able to liquidate the debt; thus, increasing the risk
undertaken by the surety to answer for the failure of the
debtor to pay. "A material alteration of the principal
contract, effected by the creditor and principal debtor
without the knowledge and consent of the surety,
completely discharges the surety from all liability in the
contract of suretyship."

Philippine National Bank vs. Macapanga Producers

Inc., Plaridel Surety & Insurance Co., G.R. No. L-8349,
May 23, 1956 (99 Phil 180)

Facts: On December 26, 1952, Luzon Sugar Company

leased a sugar mill located at Calumpit, Bulacan to
Macapanga Producers beginning with the crop year 1952-
53 at a minimum annual royalty of P50,000, which shall be
a lien on the sugar produced by the lessee and shall be
paid before sale or removal of sugar from warehouse.
Macapanga Producers, as principal, and Plaridel Surety
& Insurance, as surety, executed and delivered to PNB a
performance bond in the amount of P50,000 for the full
and faithful compliance by Macapanga Producers of all
terms and conditions of the lease. On December 21,
1953, Luzon Sugar assigned to PNB the payment due
from Macapanga Producers in the sum of P50,000,
representing royalty for the lease of the sugar mill for the
crop year 1952-53. PNB notified Macapanga Producers
and Plaridel Surety & Insurance of said assignment. PNB
had demanded from Macapanga Producers payment of
which Macapanga Producers and Plaridel Surety &
Insurance, the former as principal and the latter as surety,
agreed to be held and firmly bound unto Luzon Sugar in
the penal sum of P50,000, "for the payment of which, well
and truly be made, we bind ourselves, our heirs, executors,
administrators, successors, and assigns, jointly and
severally." Plaintiff contended that, as Plaridel Surety &
Insurance bound itself solidarily with Macapanga
Producers, it became a surety in accordance with Article
2047, par. 2 of the Civil Code.
The trial court dismissed the complaint against
Plaridel Surety & Insurance and subsequently denied a
motion to reconsider the order of dismissal.
Surety Company.
As early as 1933, Laureano Marquez had agreed
to pay Fortunato Resurreccion's indebtedness of P5,000 to
the Luzon Surety Company by way of satisfaction of his
own indebtedness to Fortunato Resurreccion in the same
amount. Laureano Marquez signed a document where he
bound himself as follows: "In the event an action is
presented by the Luzon Surety Company against Fortunato
Resurreccion for the recovery of the said indebtedness
and the interests thereon, I, Laureano Marquez,
obligate myself to

Issue: Whether assignment of a payment without the

knowledge or consent of the surety is a material alteration
that could extinguish the surety.

Held: No. Reversed.

Ratio: An assignment without knowledge or consent of

the surety is not a material alteration of the contract,
sufficient to discharge the surety (Stearns Law of
Suretyship, Elder, fifth edition, p. 113.) There is, besides,
no allegation in the complaint, or provision in the deed of
assignment, or any change therein that makes the
obligation of Plaridel Surety & Insurance more onerous
than that stated in the performance bond. Such
assignment did not, therefore, release the Plaridel Surety
& Insurance from its obligation under the surety bond.
It is lastly contended that as plaintiff or the
lessor had a lien in the sugar produced, and failed to
proceed against it or enforce such lien, Plaridel Surety
& Insurance was released thereby. There is no allegation
to this effect in the complaint, that lessor or plaintiff ever
had possession or control of the sugar, or ever waived or
released the lien thereon. Appellee cannot raise the issue
in a motion to dismiss.

Norberto L. Dilag, as administrator of the intestate

estate of Laureano Marquez, vs. The Legal Heirs of
Fortunato Resurreccion, et al., G.R. No. 48941, May 6,
1946 (76
Phil 650)

Facts: Before the year 1936, Laureano Marquez was

indebted to Fortunato Resurreccion in the sum of P5,000
as the balance of the purchase price of a parcel of land
which the former had bought and received from the latter.
Fortunato Resurreccion, in turn, was indebted to the
Luzon Surety Company in the same amount, which was
secured by a mortgage on three parcels of land, one of
which was that bought by Laureano Marquez from him.
The formal deed of sale from Resurreccion to Marquez
was to have been executed after Marquez shall have fully
paid the purchase price and after Resurreccion shall have
secured the cancellation of the mortgage by the Luzon
indemnify Fortunato Ressurreccion for all the damages he unilateral contract in the sense that only the promissor
may suffer in case the parcels of land mortgaged to the or maker signs it. But these do not mean that the signer
Luzon Surety Company are sold at public auction, is the only party to that contract and the only one entitled
including the fees of the attorneys of Fortunato to sue thereon. The obligee is as much a party to the
Ressurrecion as well as in the action that Fortunato contract as the obligor, for there can be no obligor without
Resurreccion in the suit brought by the Luzon Surety an obligee; and as a matter of course it is the obligee who
Company as well as in the action that Fortunato has the right to sue on and enforce the obligation.
Resurreccion may bring against me in relation to this The petitioner assails the judgment against him
agreement." insofar as it authorizes the sale at public auction of five
Laureano Marquez failed to pay the indebteness parcels of land which were not specifically described in
of Fortunato Resurreccion to the Luzon Surety Company, the mortgage deed. Those five parcels are said to have
and the latter foreclosed judicially the mortgaged executed been acquired by Laureano Marquez
in its favor by Fortunato Resurreccion.
On April 25, 1936, pending the foreclosure sale of
the Company, Laureano Marquez executed and delivered
to Fortunato Resurreccion another document. Since
Laureano Marquez again did not fulfill his promise, the
mortgaged properties were sold at public auction and
were totally lost by Fortunato Resurreccion.
Resurreccion commenced the present action against
Laureano Marquez to recover the value of the lost
properties amounting to P16,500, with legal interest
thereon from the date of the filing of the complaint, plus
P2,000 as indemnity for the rents of the lands sold and
P1,000 as attorney's fees, and to foreclose the mortgage
embodied in said instrument. The CFI ruled for the
plaintiff. The CA affirmed.

Issue: Whether a property that is subsequently acquired

can be the subject of a mortgage.

Held: No. Affirmed with modifications.

Ratio: The petitioner contends that Fortunato

Resurreccion cannot be granted damages caused by the
loss of two of the three parcels of land mortgaged to
the Luzon Surety Company because they did not belong to
Fortunato Resurreccion but to Emiliana Resurreccion and
the children of Vicente Platon. He contends that it was
only the said owners of those lands who could have
brought the present action. This contention runs counter
to the provision of section 3 of Rule 3 of the Rules of Court,
which says that a party with whom or in whose name a
contract has been made for the benefit of another may sue
or be sued without joining the party for whose benefit the
action is presented or defended. We do not think that
the word "contract" used in section 3 of Rule 3 refers
exclusively to a bilateral contract. It obviously refers to
any contract — bilateral or unilateral — enforcible in
court. The rule in question refers to a suit by or against "a
party with whom or in whose name a contract has been
made for the benefit of another. Article
1254 of the Civil Code says that a contract exists from the
moment one or more persons consent to be bound with
respect to another or others to deliver something or to
render some service. A deed of sale or mortgage is usually
a unilateral contract in the sense that only the vendor or
mortgagor signs it. Likewise a promissor note is a
subsequent to the execution of the document. In the fifth favor of Atlantic to secure payment of the unpaid
clause of said document Laureano Marquez stipulated that balance of the sale price of the lumber concession
inasmuch as the five parcels of land described in the amounting to the sum of $450,000.00. Both deeds
fourth clause were not sufficient to cover all his contained the following provision extending the mortgage
obligations in favor of Fortunato Resurreccion, he also lien to properties to be subsequently acquired — referred
constituted a mortgage in favor of the latter and his to hereafter as "after acquired properties" — by the
assignees on any other property he then might have and mortgagor: "All property of every nature and description
on those he might acquire in the future. taken in exchange or replacement, and all buildings,
Did such a stipulation constitute a valid mortgage machinery, fixtures, tools, equipment and other property
on the five other parcels of land which Laureano Marquez which the Mortgagor may hereafter acquire, construct,
subsequently acquired? We do not think so. In the first install, attach, or use in, to, upon, or in connection with
place, Laureano Marquez could not legally mortgage any the
property he did not yet own. In the second place, in
order that a mortgage may be validly constituted, the
instrument by which it is created must be recorded in the
registry of deeds and insofar as the additional five parcels
of land are concerned, the registration of the document
did not affect and could not have affected them because
they were not specifically described therein.
The contention of the respondents that after the
institution of the present action notice of lis pendens was
filed in the registry of deeds affecting the said five
additional parcels of land, merely serves to emphasize the
fact that there was no mortgage thereon; otherwise there
would have been no necessity for any notice of lis pendens.

People’s Bank & Trust Co. & Atlantic, Gulf & Pacific
Co. of Manila vs. Dahican Lumber Company, Dahican
American Lumber Corporation, & Connell Bros. Co.
(Phil), G.R. No. L-17500, May 16, 1967 (20 SCRA 84)

Facts: On September 8, 1948, Atlantic Gulf & Pacific

Company of Manila, a West Virginia corporation licensed
to do business in the Philippines, sold and assigned all its
right in the Dahican lumber concession to Dahican
Lumber Company (Dalco) for the total sum of
$500,000.00 of which only the amount of $50,000.00 was
paid. Thereafter, to develop the concession, DALCO
obtained various loans from the People's Bank & Trust
Company (Bank) amounting, as of July 13, 1950, to
P200,000.00. In addition, DALCO obtained, through the
Bank, a loan of $250,000.00 from the Export-Import Bank
of Washington D.C., evidenced by five promissory notes
of $50,000.00 each, maturing on different dates, executed
by both DALCO and the Dahican American Lumber
Corporation (Damco), a foreign corporation and a
stockholder of DALCO, all payable to the BANK or its order.
As security for the payment of the
abovementioned loans, DALCO executed in favor of the
Bank— the latter acting for itself and as trustee for the
Export, Import Bank of Washington D. C. — a deed of
mortgage covering five parcels of land situated in the
province of Camarines Norte, together with all the
buildings and other improvements existing thereon and all
the personal properties of the mortgagor located in its
place of business in the municipalities of Mambulao and
 Capalonga, Camarines Norte. On the same date, DALCO
executed a second mortgage on the same properties in
premises, shall immediately be and become subject to acquired subsequent to the execution of the mortgages
the lien of this mortgage in the same manner and to the
same extent as if now included therein, and the Mortgagor
shall from time to time during the existence of this
mortgage furnish the Mortgagee with an accurate
inventory of such substituted and subsequently acquired
property."
Both mortgages were registered in the Office of
the Register of Deeds of Camarines Norte. In addition
thereto DALCO and DAMCO pledged to the BANK 7,296
shares of stock of DALCO and 9,286 shares of DAMCO to
secure the same obligations.
Upon DALCO's and DAMCO's failure to pay the
fifth promissory note upon its maturity, the BANK paid
the same to the Export-Import Bank of Washington D.C.
and the latter assigned to the former its credit and
the first mortgage securing it. Subsequently, the BANK
gave DALCO and DAMCO up to April 1, 1953 to pay the
overdue promissory note.
After July 13, 1950 — the date of execution of the
mortgages mentioned above — DALCO purchased various
machineries, equipment, spare parts and supplies in
addition to, or in replacement of some of those already
owned and used by it on the date aforesaid. Pursuant to
the provision of the mortgage deeds quoted heretofore
regarding "after acquired properties", the BANK requested
DALCO to submit complete lists of said properties but the
latter failed to do so. In connection with these
purchases, there appeared in the books of DALCO as due
to Connell Bros. Company (Philippines) — a domestic
corporation who was acting as the general purchasing
agent of DALCO — the sum of P452,860.55 and to DAMCO,
the sum of P2,151,678.34.
On December 16, 1952, the Board of Directors of
DALCO in a special meeting called for the purpose, passed
a resolution agreeing to rescind the alleged sales of
equipment, spare parts and supplies by CONNELL and
DAMCO to it. Thereafter, the corresponding agreements
of rescission of sale were executed between DALCO and
DAMCO, on the one hand, and between DALCO and
CONNELL, on the other.
On January 23, 1953, the BANK, in its own behalf
and that of ATLANTIC, demanded that said agreements be
cancelled but CONNELL and DAMCO refused to do so. As a
result, on February 12, 1953, ATLANTIC and the BANK,
commenced foreclosure proceedings in the Court of
First Instance of Camarines Norte against DALCO and
DAMCO. On the same date they filed an ex-parte
application for the appointment of a Receiver and/or for
the issuance of a writ of preliminary injunction to restrain
DALCO from removing its properties. The court granted
both remedies and appointed George U. Evans as Receiver.
Upon defendants' motion, however, the court, in its order
of February 21, 1953, discharged the Receiver.
CONNELL filed a motion for intervention alleging
that it was the owner and possessor of some of the
equipments, spare parts and supplies which DALCO had
sought to be foreclosed and which plaintiffs claimed were
covered by their lien. In its order of March 18, 1953 the
Court granted the motion, as well as plaintiffs' motion to
set aside the order discharging the Receiver.
Consequently, Evans was reinstated.
Upon motion of all the parties, the Court ordered
the sale of all the machineries, equipment and supplies of
properties" (those not claimed by DAMCO and CONNELL),
and the other half as representing those obtained from the
sale of the "after acquired properties".
The court ruled against DALCO and ordered a
proportionate sharing among the creditors of the proceeds
of the sale of DALCO’s properties. All parties appealed.
Issue: Whether mortgage of after-acquired properties is
valid. Whether financiers have a superior lien over
mortgagors.
DALCO, and the same were subsequently sold for a total
consideration of P175,000.00 which was deposited in
court pending final determination of the action. By a
similar agreement one half (P87,500.00) of this
amount was considered as representing the proceeds
obtained from the sale of the "undebated
operation of Art. 415, paragraph 5 and Art. 2127 of the
new Civil Code. It is not disputed in the case at bar that
the "after acquired properties" were purchased by DALCO
in connection with, and for use in the development of its
lumber concession and that they were purchased in
addition to, or in replacement of those already existing in
the premises on July 13, 1950. 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

Held: Yes. No. Modified.

Ratio: Under the fourth paragraph of both deeds of

mortgage, it is crystal clear that all property of every
nature and description taken in exchange or replacement,
as well as all buildings, machineries, fixtures, tools,
equipments, and other property that the mortgagor may
acquire, construct, install, attach, or use in, to, upon, or in
connection with the premises — that is, its lumber
concession — "shall immediately be and become subject
to the lien" of both mortgages in the same manner and to
the same extent as if already included therein at the time of
their execution. As the language thus used leaves no room
for doubt as to the intention of the parties, We see no
useful purpose in discussing the matter extensively.
Suffice it to say that the stipulation referred to
is common, and We might say 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 — express or implied — 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 security. Indeed, if such
properties were of the nature already referred to, it
would be poor judgment on the part of the creditor who
does not see to it that a similar provision is included in the
contract.
Conceding, on the other hand, that it is the law in
this jurisdiction that, to affect third persons, a chattel
mortgage must be registered and must describe the
mortgaged chattels or personal properties sufficiently to
enable the parties and any other person to identify them,
We say that such law does not apply to this case.
Article 415 does not define real property but enumerates
what are considered as such, among them 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. On the strength of the above-
quoted legal provisions, the lower court held that
inasmuch as "the chattels were placed in the real
properties mortgaged to plaintiffs, they came within the
— did not have to be registered a second time as chattel the beginning that the "after acquired properties" of DALCO
mortgages in order to bind the were meant to be included in the first and second
"after acquired properties" and affect third parties. mortgages under foreclosure.
Now to the question of whether or not DAMCO As regard the proceeds obtained from the sale of
and CONNELL have rights over the "after acquired the "after acquired properties" and the "undebated
properties" superior to the mortgage lien constituted properties", it is clear, in view of our opinion sustaining
thereon in favor of plaintiffs. It is defendants' contention
that in relation to said properties they are "unpaid sellers";
that as such they had not only a superior lien on the
"after acquired properties" but also the right to rescind the
sales thereof to DALCO. This contention — it is obvious
— would have validity only if it were true that DAMCO and
CONNELL were the suppliers or vendors of the "after
acquired properties". According to the record, plaintiffs
did not know their exact identity and description prior
to the filing of the case at bar because DALCO, in
violation of its obligation under the mortgages, had
failed and refused therefore to submit a complete list
thereof. The report of the auditors and its annexes
show that neither DAMCO nor CONNELL had supplied
any of the goods of which they respectively claimed to be
the unpaid seller; that all items were supplied by different
parties, neither of whom appeared to be DAMCO or
CONNELL; that, in fact, CONNELL collected a 5 per cent
service charge on the net value of all items it claims to
have sold to DALCO and which, in truth, it had
purchased for DALCO as the latter's general agent; that
CONNELL had to issue its own invoices in addition to
those of the real suppliers in order to collect and justify
such service charge.
Taking into account the above circumstances
together with the fact that DAMCO was a stockholder and
CONNELL was not only a stockholder but the general
agent of DALCO, their claim to be the suppliers of the
"after acquired properties" would seem to be
preposterous. The most that can be claimed on the basis of
the evidence is that DAMCO and CONNELL probably
financed some of the purchases. But if DALCO still owes
them any amount in this connection, it is clear that, as
financiers, they can not claim any right over the "after
acquired properties" superior to the lien constituted
thereon by virtue of the deeds of mortgage under
foreclosure. Indeed, the execution of the rescission of sales
mentioned heretofore appears to be but a desperate
attempt to better or improve DAMCO and CONNELL's
position by enabling them to assume the role of "unpaid
suppliers" and thus claim a vendor's lien over the
"after acquired properties". The attempt, of course, is
utterly ineffectual, not only because they are not the
"unpaid sellers" they claim to be but also because there is
abundant evidence in the record showing that both
DAMCO and CONNELL had known and admitted from
the validity of the mortgages in relation thereto, that said
proceeds should be awarded exclusively to the plaintiffs
in payment of the money obligations secured by the
mortgages under foreclosure.

Luzon Lumber & Hardware Company, Inc. vs. Manuel

Quiambao, Virginia Santiago, & Rehabilitation
Finance Corporation, G.R. No. L-5638, March 30, 1954
(94 Phil
663)
Facts: Manuel Quiambao and his wife Virginia Santiago, under refection credit mentioned in paragraphs 3 and 5.
owners of three lots in the province of Tarlac covered by Refectionary credit is primarily an indebtedness
Certificates of Title Nos. 22607, 4217 and 4218, incurred in the repair or reconstruction of something and
mortgaged the said lots on July 20, 1948, in favor of the does not ordinarily include an entirely new work, but
Rehabilitation Finance Corporation (RFC) to secure the that Spanish jurisprudence appears to have sanctioned in
payment of a loan in the amount of P37,000 which sum certain cases this broader view to include a new work or
was to be spent for the construction of two buildings, one construction. The word "refaccionario" from which come
for a hotel and the other for residence. The mortgage was the English translation of "refectionary" is derived from
registered on September 13th of the same year. The two the Latin verb "refacio", "refacere",
buildings were subsequently constructed on the lot
covered by Certificate of Title No. R
22607. Upon violation of the terms of the mortgage, the a
RFC foreclosed the same and, in the auction sale, said RFC, t
as highest bidder, was awarded the mortgaged properties i
for the total sum of P31,000 followed by the issuance of o
the corresponding Transfer Certificates of Title. The hotel :
and residence buildings were valued at P18,000 and
P4,000, respectively. A
In the edification of the two buildings, the spouses r
bought on credit construction materials valued at about t
P7,000 from the plaintiff Luzon Lumber & Hardware Co. .
Said building materials were furnished by the lumber
company between October 1948 and March 1949. Only 2
P3,500 of this amount was paid, leaving an unpaid balance 2 110
of P3,456.50. To recover this balance including interests 4
and attorney's fees the lumber company filed this suit 2
against the spouses, the complaint being later amended so
as to include the RFC as party defendant. According to the (
RFC said amendment was made about a week after the c
auction sale of the foreclosed properties. l
After hearing, the Court of First Instance of a
Tarlac rendered judgment ordering the defendant i
spouses Manuel and Virginia to pay to the plaintiff m
lumber company the sum of P3,456.49 with legal interests s
and in default of such payment by them, the RFC was ,
ordered to pay to plaintiff out of the proceeds of the sale of
the hotel and the house, the said sum of P3,456.49 m
together with the corresponding legal interests thereon. o
The RFC is appealing from that decision. r
t
Issue: Whether a registered mortgage is preferred over a g
refectionary credit on construction materials. a
g
e
Held: Yes. Reversed.
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meaning "rehacer" which implies the idea of that the credit of the plaintiff herein might be made to fall
reconstruction or repair for reason of destruction or under article 1922 of the old Civil Code (preferred
deterioration. As already said, that was the original idea of encumbrances over personal property). But we believe
the word "refectionary". The liberal interpretation of the that the two buildings in question constructed partly with
refectionary credit to include new construction is upheld building materials furnished by the plaintiff may not be
in the ENCICLOPEDIA JURIDICA ESPAÑ OLA. And this considered as personal property under article 1922. Once
view is shared by our Code Commission which prepared said building materials were used in the construction and
the new Civil Code. In its Report on the proposed Civil had become part of the building, they lost their
Code of the Philippines (now our new Civil Code) which classification as personal property and become real
went into effect in 1950, referring to article 2242 of property. It is true that in the case of Unson vs. Orquije,
the new Code, it said that the new encumbrances in et al., 50 Phil., 160, this Tribunal applied the provision
said article are Nos. 2, 3, 6, 7 and 9, meaning to say that of article 1922, paragraph 1, referring to the purchase
paragraph 4 referring to claims of furnishers of materials price of personal plaintiff, the latter began
used in the construction, reconstruction or repair of property in the furnishing building
building which as invoked by the plaintiff and applied by possession of the debtor materials for the
the trial court is not a new provision, clearly implying that (machinery and grinder construction of the two
it was already provided for in article 1923, paragraphs 3 sold to the Capiz Central buildings only in October
and 5 under refectionary credits. This liberal view and and installed in its 1948, that is the month
interpretation of refectionary credit is in consonance building), the reason following, and what is
with principles of justice and fairness, for there seems being that said more, the evidence fails
to be no valid reason why one furnishing material for machinery and grinder to show that it was ever
purposes of repair or reconstruction should be given did not lose their form recorded in the Registry
preference while another furnishing material on new and substance and they of Deeds, so that said
construction is not given the same consideration. preserved their identity. refection credit comes
With respect to the holding of the trial court that Besides, they could not under paragraph 3 of
in point of time the credit of the plaintiff enjoys priority easily be removed from article 1923 of the old
over that of the RFC for the reason that according to said the building of the Civil Code, as does the
court the lien of the plaintiff vested when the materials Central. RFC mortgage, but under
were furnished while the mortgage credit of the RFC May the same paragraph 5 of the same
vested only when the buildings were constructed, we must thing be said in the article under
not forget that according to the facts of the case the loan of present case as regards unregistered and
P37,000 was given to the spouses to construct the two the building materials unrecorded refection
buildings, and that under the terms of the deed of which went into the credits.
mortgage, not only the lots but also all the improvements construction of the hotel
now existing or which may hereafter be constructed on the and the house? The Ajax Marketing &
mortgaged property are included. In other words, the answer can be given only Development
mortgage in favor of the defendant RFC not only enjoyed in the negative. Said Corporation, Antonio
the presumption provided by law that a mortgage includes materials had already Tan, Elisa Tan Yee, &
all improvements on the land mortgaged when the become part of the two Sps. Marcial See &
obligation falls due, but there was an express stipulation buildings either as posts, Lilian Tan vs. CA,
to include all buildings and improvements thereafter to be frames, floor, partition, Metropolitan Bank &
constructed on the mortgaged premises. This lien on all roof, etc. They have lost Trust Company, & the
improvements vested on the day and hour the mortgage their form and identity Sheriff of Manila, G.R.
was registered - about one month before plaintiff began and had become part of No. L-118585,
furnishing materials for construction. One of the purposes the buildings which are September 14, 1995
of the creation of the RFC was to finance the construction real property. (248
and reconstruction of buildings for purposes of There is another SCRA 222)
rehabilitation. We may even take judicial notice of the fact circumstance in this case
that the security of the loans from the RFC is based mainly which greatly weakens
on the buildings and constructions themselves, and that to Facts: Ylang-Ylang
plaintiff's claim. While as Merchandising Company,
assure that the loans are spent for the said construction, already stated, appellant
the money is sometimes given on the installment basis, a partnership between
RFC's mortgage which Angelita Rodriguez and
that is, so much money is released by the RFC as the included the two
construction progresses. This is to show the intimate Antonio Tan, obtained a
buildings in question loan in the amount of
relation between an RFC loan and the construction was recorded in
financed by it, for purposes of security. P250,000.00 from the
September 1948, thus Metropolitan Bank and
In the discussion of this case among the members serving as notice to third
of this Tribunal, there was a suggestion, even a contention Trust Company, and to
parties including the secure payment of the
111
same, spouses Marcial from Metropolitan Bank monetary obligations that petitioners agreed
See and Lilian Tan and Trust Company a and releasing the to apply the real estate
constituted a real estate loan of P600,000.00, the mortgaged property property to secure
mortgage in favor of payment of which was from liability. The trial obligations that they
said bank over their secured by another real court upheld the may thereafter obtain
property in the District estate mortgage foreclosure. The CA including their renewals
of Paco, Manila. The executed by spouses affirmed. or extensions with the
mortgage was annotated Marcial See and Lilian principals fixed at
at the back of the title. Tan in favor of said Issue: Whether a real P600,000.00,
Subsequently, bank over the same estate mortgage can P150,000.00, and
after the partnership realty. cover future debts. P250,000.00. The
had changed its name to In December promissory note merely
Ajax Marketing 1980, the three (3) Held: Yes. Affirmed. restructured and
Company albeit without loans with an aggregate renewed the three
changing its amount of previous loans to
composition, it obtained P1,000,000.00 were re- expediently make the
a loan in the sum of structured and loans current. There was
P150,000.00 from consolidated into one no change in the object
Metropolitan Bank and (1) loan and Ajax of the prior obligations.
Trust Company. Again to Marketing and The consolidation of the
secure the loan, spouses Development three loans, contrary to
Marcial See and Lilian Corporation, petitioners' contention,
Tan executed in favor of represented by Antonio did not release the
said bank a second real Tan as Board mortgaged real estate
estate mortgage over Chairman/President property from any
the same property. and in his personal liability because the
On February 19, capacity as solidary co- mortgage annotations
1979, the partnership obligor, and Elisa Tan as all remained
(Ajax Marketing Vice- uncancelled, thus
Company) was President/Treasurer indicating the
converted into a and in her personal continuing subsistence
corporation capacity as solidary co- of the real estate-
denominated as Ajax obligor, executed a mortgages.
Marketing and Promissory Note.
Development
R
Corporation, with the
a
original partners
t
(Angelita Rodriguez and
i
Antonio Tan) as
o
incorporators and three
:
(3) additional
incorporators, namely,
B
Elisa Tan, the wife of
a
Antonio Tan, and Jose
s
San Diego and Tessie
i
San Diego. Ajax
c
Marketing and
Development
p
Corporation obtained
r
Due to non- when their three (3) i
payment, the bank loans which are all n
extrajudicially secured by the same real c
foreclosed the estate property were i
mortgaged property. A consolidated into a p
case was filed with the single loan of P1 million l
trial court whereby the under a Promissory e
debtors contended that Note, thereby s
a novation occurred extinguishing their
112
o t
n h
e
n
o e
v x
a t
t i
i n
o g
n u
i
n s
e h
e m
d e
n
t t
o
o
b f
e
a
s n
t
r o
e b
s l
s i
e g
d a
t
a i
t o
n
t
h b
e y

o t
u h
t e
s
e s
t u
. b
s
N t
o i
v t
a u
t t
i i
o o
n n

i o
s r

113
c s
h h
a e
n s
g
e o
r
o
f m
o
t d
h i
e f
i
o e
b s
l
i t
g h
a e
t
i f
o i
n r
s
b t
y ,

a e
i
s t
u h
b e
s r
e
q b
u y
e
n c
t h
a
o n
n g
e i
n
w g
h
i t
c h
h e

e o
x b
t j
i e
n c
g t
u
i o
114
r e

p o
r f
i
n t
c h
i e
p
a d
l e
b
c t
o o
n r
d ,
i
t o
i r
o
n b
s y
,
s
o u
r b
, r
o
b g
y a
t
s i
u n
b g
s
t a
i
t t
u h
t i
i r
n d
g
p
a e
n r
o s
t o
h n
e
r i
n
i
n t
h
p e
l
a r
c i
115
g c
h t
t i
s o
n
o
f o
f
t
h o
e b
l
c i
r g
e a
d t
i i
t o
o n
r s
. ,

N i
o s
v
a a
t
i j
o u
n r
, i
d
u i
n c
l a
i l
k
e a
c
o t
t
h w
e i
r t
h
m
o a
d
e d
s u
a
o l
f
f
e u
x n
t c
i t
n i
116
o
n o
, n
e
n
a i
m n
e
l l
y i
, e
u
i
t o
f
e
x t
t h
i e
n
g o
u l
i d
s .
h
e I
s t

a c
n a
n
o
b b
l e
i
g o
a b
t j
i e
o c
n t
i
a v
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d ,

c s
r u
e b
a j
t e
e c
s t
i
a v
e
n ,
e
w o
117
r f

m t
i h
x e
e
d o
. b
j
O e
b c
j t
e
c o
t r
i
v p
e r
i
n n
o c
v i
a p
t a
i l
o
n c
o
o n
c d
c i
u t
r i
s o
n
w s
h
e o
n f

t a
h n
e
r e
e x
i
i s
s t
i
a n
g
c
h o
a b
n l
g i
e g
a
o t
118
i j
o e
n c
t
w
h o
i r
l
e p
subjective novation occurs when r
there is a change of i
of the debtor, or of the creditor in n
an c
e i
x p
i a
s l
t
i c
n o
g n
d
o i
b t
l i
i o
g n
a s
t
i o
o f
n
. a
n
W
h o
e b
n l
i
t g
h a
e t
i
c o
h n
a
n o
g c
e c
u
o r
f s

t a
h t
e
t
o h
b e
119
same time with the change of either in the person of the
debtor or creditor a mixed novation occurs. N
T o
h v
e a
t
w i
e o
l n
l
w
s i
e l
t l
t
l n
e o
d t

r b
u e
l
e a
l
i l
s o
w
t e
h d
a
t u
n
n l
o e
v s
a s
t
i i
o t
n
i
i s
s
c
n l
e e
v a
e r
r l
y
p
r s
e h
s o
u w
m n
e
d b
. y
120
 f
e e
x c
p t
r
e a
s n
s
o
a b
g j
r e
e c
e t
m i
e v
n e
t
, n
o
o v
r a
t
b i
y o
n
a
c i
t t
s
i
o s
f
i
e m
q p
u e
a r
l a
t
i i
m v
p e
o
r t
t h
. a
t
T
h t
u h
s e
,
n
t e
o w

e o
f b
121
l e
i i
g n
a ,
t
i t
o o
n
e
e f
x f
p e
r c
e t
s
s a
l
y s
u
d b
e j
c e
l c
a t
r i
e v
e
t
h n
a o
t v
the old a
obligation is t
thereby i
extinguished, or o
that the n
with the
n b
e y
w
a
o
n c
e h
. a
n
I g
n e

t i
h n
e
t
s h
a e
m
e p
e
v r
122
s l
o e
n a
s
o e
f d

t e
h x
e p
r
d e
e s
b s
t l
o y
r
f
i r
t o
m
i
s t
h
n e
e
c o
e b
s l
s i
a g
r a
y t
i
t o
h n
a ,
t
a
t n
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e
t
o h
l e
d
t
d h
e i
b r
t d
o
r p
e
b r
e s
o
r n
e
123
o o
r
n
n o
e v
w a
t
d i
e o
b n
t
o w
r i
t
a h
s o
s u
u t
m
e s
s u
c
h h
i
s r
e
p l
l e
a a
c s
e e

i a
n s

t t
h h
e e

r t
e h
l i
a r
t d
i
o p
n e
. r
s
T o
h n
e
r w
e h
o
i
s h
a
n s
124
a o
s r
s
u s
m u
e r
d e
t
t y
h .
e T
h
d e
e
b a
t t
o t
r e
' n
s d
a
o n
b t
l
i f
g a
a c
t t
i s
o
n h
e
b r
e e
c i
o n
m
e d
s o

m n
e o
r t
e
l m
y a
k
a e

c a
o
- c
d a
e s
b e
t
o o
r f
125
 u
n i
o v
v o
a c
t a
i l
o
n i
. n
t
T e
h n
e t
r
e o
f
i
s t
h
n e
o
t p
h a
i r
n t
g i
e
i s
n
t
t o
h
e n
o
r v
e a
c t
o e
r
d t
s h
e
t
o t
h
s r
h e
o e
w
l
t o
h a
e n

u a
n g
e r
q e
126
e i
m s
e i
n o
t n
s s

t o
h f
r
o t
u h
g e
h
p
t r
h o
e m
i
e s
x s
e o
c r
u y
t
i n
o o
n t
e
o
f y
i
a e
l
p d
r
o n
m o
i
s i
s n
o d
r i
y c
a
n t
o i
t o
e n
.
o
T f
h
e t
h
p e
r
o e
v x
127
t
i a
n g
g r
u e
i e
s m
h e
m n
e t
n s
t
s
o e
f c
, u
r
o e
r d

a b
n y

i t
n h
c e
o
m r
p e
a a
t l
i
b e
i s
l t
i a
t t
y e

w m
i o
t r
h t
, g
a
t g
h e
e s
.
t The provisions of the real estate mortgage show
h
r Neither can it be upon the consolidation of
e validly contended that the loans. The bare fact
e there was a change or of petitioner's conversion
substitution in the from a partnership to a
l persons of either the corporation, without
o creditor (Metrobank) or sufficient evidence, either
a more specifically the testimonial or
n debtors (petitioners) documentary, that they
128
were expressly released was executed without
from their obligations, any consideration. But T
did not make petitioner there is a legal h
AJAX, with its new presumption of e
corporate personality, a sufficient cause or
third person or new consideration C
debtor within the supporting a contract, a
context of a subjective even if such cause is not j
novation. If at all, stated therein. This u
petitioner AJAX only presumption appellants c
became a co-debtor or cannot overcome by a o
surety. Without express simple assertion of lack m
release of the debtor of consideration. s
from the obligation, Especially may not the
any third party who may presumption be so h
thereafter assume the lightly set aside when a
obligation shall be the contract itself states d
considered merely as co- that consideration was
debtor or surety. given, and the same has e
Novation arising from a been reduced into a x
purported change in the public instrument with e
person of the debtor all due formalities and c
must be clear and solemnities as in this u
express because, to case. t
repeat, it is never e
presumed. Clearly then, d
from the aforediscussed
points, neither objective i
nor subjective novation n
occurred here.
An action to S
foreclose a mortgage is a
usually limited to the m
amount mentioned in a
the mortgage, but where n
on the four corners of i
the mortgage contracts, l
as in this case, the intent l
of the contracting a
parties is manifest that ’
the mortgaged property s
shall also answer for
future loans or f
advancements then the a
same is not improper as v
it is valid and binding o
between the parties. r
,
Paz Samanilla vs. Cenen A. Cajucom, et al., G.R. No. L-
13683, March 28, 1960 (107 o
Phil 432) n

F D
a e
c c
t e
s m
: b
e
129
r r
t
2 i
0 c
, i
p
1 a
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5 i
5 o
, n

a o
n
r
e t
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e p
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t r
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e l

m o
o f
r
t l
g a
a n
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e
c
o o
v v
e e
r r
e
t d
h
e b
i y
r
O
r r
i i
g g
h i
t n
s a
l
a
n C
d e
r
p t
a i
130
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i i
c m
a e
t
e i
n
o
f F
e
T b
i r
t u
l a
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y
N ,
o
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9
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9 ,
6
6 t
h
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o
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w
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f d

P t
1 h
0 e
,
0 t
0 i
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e
S
o f
m r
e o
131
m h
e
h
e l
r a
n
o d
n
t
t h
h e
e
p
e o
x r
c t
u i
s o
e n

t c
h l
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t i
m
t e
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e
y b
y
n
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d h
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d r

i p
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r
t s
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n
s s
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g
r T
e h
g e
a r
t e
e a
f
f t
r e
o r
m ,

t S
132
a d
m
a r
n e
i g
l i
l s
a t
e
a r
s
k h
e e
d r

f m
o o
r r
t
t g
h a
e g
e
r ,
e
t b
u u
r t
n
t
o h
f e

t C
h a
e j
u
t c
i o
t m
l s
e
r
s e
o f
u
t s
h e
a d
t .
S
s a
h m
e a
n
c i
o l
u l
l a
133
 t
f i
i t
l i
e o
d n
,
a
c
p l
e a
t i
i m
t i
i n
o g
n
t
a h
g a
a t
i
n t
s h
t e

t m
h o
e r
t
C g
a a
j g
u e
c
o i
m n
s
. q
u
T e
h s
e t
y i
o
o n
p
p w
o a
s s
e
d v
o
t i
h d
e
a
p b
e
134
i d
n
i b
t e
i
o l
i
f t
o i
r g
a
w t
a e
n d
t
i
o n
f
a
c n
o
n o
s r
i d
d i
e n
r a
a r
t y
i
o c
n i
, v
i
a l
n
d a
c
t t
h i
a o
t n
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t
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s f
h o
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135
 d
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t
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136
o r
u
r a
t
. m
o
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t n
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I v
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e d
: .

W Held: Yes. Affirmed.

h
e R
t a
h t
e i
137
o h
: e

T r
h e
e g
i
a s
p t
p r
e a
a t
l i
o
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a
s o
f
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A o
p f
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l o
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' e

s i
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o
Appellants be compelled to
t assert that they cannot surrender their title for
138
registration of the after, not before, register of deeds, in lieu Attorney Gonzalez on
mortgage in question registration. It must thereof, to register the the ground that
until they are given an follow as a necessary certified complete copy Attorneys Javier &
opportunity to show its consequence that of said document which Javier, representing
invalidity in an ordinary registration must first be he then and there Feliciano Basa Jr.,
civil action, because allowed and validity or presented with a view refused to grant him
registration is an effect litigated to the annotation of the authority to annotate
essential element of a afterwards. mortgage in his favor on said mortgage on the
real estate mortgage and the certificates of title to certificates of title to be
the surrender of their be issued in the name of issued in the name of
title would complete this Feliciano Basa, Jr. Basa, and that since a
requirement of The register of mortgage is presumed
registration. The deeds refused to accede to be a voluntary
argument is fallacious, to said request of transaction
for a mortgage, whether
registered or not, is
Antonio Gonzalez vs. Feliciano Basa, Jr. & Pilar
binding between the
Lopez de Basa, G.R. No. 48695, September 30, 1942
parties, registration
(73 Phil 704)
being necessary only to
make the same valid
against third persons F
(Art. 2125, New Civil a
Code). In other words, c
registration only t
operates as a notice of s
the mortgage to others, :
but neither adds to its
validity nor convert an I
invalid mortgage into a n
valid one between the
parties. Appellants still t
have the right to show h
that the mortgage in e
question is invalid for
lack of consideration in m
an ordinary action and a
there ask for the t
avoidance of the deed t
and the cancellation of e
its registration. But until r
such action is filed and
decided, it would be too o
dangerous to the rights f
of the mortgagee to
deny registration of her t
mortgage, because her h
rights can so easily be e
defeated by a transfer
or conveyance of the e
mortgaged property to s
an innocent third t
person. a
If the purpose t
of registration is merely e
to give notice, the
questions regarding the o
effect or invalidity of f
instruments are
expected to be decided t
139
h e
e z

d d
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c
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a a
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140
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a 141
p e
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v 142
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c o
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a
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e 143
h r
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h r
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p 148
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149
r
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e 150
n d

o t
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p
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r
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s
t
e 151
between the parties he had no authority to make such him without annotating the mortgage thereon. Is the
annotation without the consent of both parties. The register of deeds authorized to comply with such request?
matter was brought to the CFI which ruled to instruct No reasonable person would so contend; and yet that is
the register of deeds of Manila to register a certain project what the register of deeds of Manila proposes to do in the
of partition in its entirety and not in a mutilated form as present case.
requested by the appellants.
Agricultural Credit Cooperative Association of
Issue: Whether the mortgagee is entitled to register the Hinigaran vs. Estanislao Yulo
mortgage as a matter of right. Yusay, et al., G.R. No. L-13313, April 28, 1960 (107 Phil
791)
Held: Yes. Affirmed.
Ratio: In in du
deciding to form.
comply with The
the request mutilat
of the ed
appellants certifie
for the d cop
registration was
of the project irregula
of partition r on it
as mutilated, face
over the and
objection of should
the appellee, have
who been
tendered a rejecte
complete, by him
certified true In fac
copy of the his
same authori
document, y in th
the register premis
of deeds of s goe
Manila no
impliedly farther
conceded to than
them the this. H
right to has n
repudiate authori
and annul an y t
obligation inquire
evidenced by into th
said intrinsi
document c
against the validity
will of the of
obligee and docume
without nt
judicial based
intervention. upon
That is proofs
obviously aliunde
wrong. It is If h
precisely his had n
duty to see to authori
it that a y t
document inquire
presented for into th
registration truth o
is regular and appella
nts' ent of
allegation as contracts
to lack of cannot be left
consideratio to the will of
n for the one of the
mortgage in contracting
question, parties
much less (article 1256
was he of the Civil
authorized Code). In the
to assume last analysis,
the truth of the case is as
such if Feliciano
allegation Basa, Jr., had
without any presented to
investigation the register
. The project of deeds a
of partition certified
in question, complete
having been copy of the
signed by project of
the parties partition
and with the
approved by request that
the court, is the register
presumed to of deeds take
be valid and into
is acceptable consideratio
for n only the
registration rights, and
in its ignore the
entirety. obligations,
Neither of evidenced by
the parties said
may alter it document. It
without the is the same
consent of as if a buyer
the other of real 116
and the property
approval of who
the court. mortgaged
The the property
reasoning of bought to
the register secure the
of deeds payment of
that, the purchase
inasmuch as price, had
a mortgage presented
is a the combined
voluntary deed of sale
transaction, and
he had no mortgage to
authority to the register
register it of deeds
without the with the
consent of request to
both parties, transfer the
is fallacious. title to
He confuses
the
execution of
Facts: Rafaela Yulo executed in favor of the cooperative a annotation of the mortgage, did not pass on its invalidity
mortgage for P33,626.29, due from her, her mother, or effect. As the mortgage is admittedly an act of the
sisters, brothers, and others, which amount she assumed registered owner, all that the judge below did and could
to pay to the cooperative. A motion was presented to the do, as a registration court, is to order its registration and
court by the cooperative demanding the surrender of the annotation on the certificate of title covering the land
owner's duplicate certificate of title that it may annotate mortgaged. By said order the court did not pass upon the
said mortgage at the back of the certificate. Estanislao effect or validity of the mortgage - these can only be
Yusay, a part owner of the lot, opposed the petition on the determined in an ordinary case before the courts, not
ground that he is owner of a part of the property in before a court acting merely as a registration court, which
question; that the granting of the motion would operate to did not have the jurisdiction to pass upon the alleged
his prejudice, as he has not participated in the mortgage effect or invalidity.
cited in the motion; that Rafaela Yulo is dead; that the
motion is not verified and movant's rights have lapsed by R
prescription. Finally it is argued that his opposition raises a
a controversial matter which the court has no jurisdiction t
to pass upon. i
The existence of the mortgage is not disrupted, o
and neither is the fact that the mortgagor Rafaela Yulo is :
part owner of the lot. The oppositors do not dispute that
she is such a part owner, and their main objection to the I
petition is that as part owners of the property, the n
annotation of the mortgage on the common title will affect
their rights. h
The matter was brought to the CFI, and it i
ordered the Register of Deeds to register the mortgage. s

Issue: Whether the validity or effectivity of a mortgage B

may be determined during its registration r
i
e
Held: No. Affirmed.
f

b
e
f
o
r
e

t
h
i
s

C
o
u
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t
,

c
o
u
n
s
e
l
117
 e
f r
o e
r d

a w
p a
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a o
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n
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s
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g t
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s
t p
118
r n
o l
c y
e
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d o
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119
s e
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t o
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c m
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a r
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c a
t g
120
e t
o
m
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121
s t
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R t
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122
i O
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s f
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123
o e
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124
 o
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125
v r
a a
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a
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p
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126
w r
i i
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t s
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l f
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m t
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c a
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a
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127
s
e f
r
o o
r m

m s
o e
r t
t t
g i
a n
g g
e
u
w p
a
s t
h
r a
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i i
s t
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e n
r o
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d
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f
p e
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t .
y The court below, in ordering the registration and
Moneset & Cristita
t Winifreda Ursal vs. CA, Moneset, G.R. No.
o the Rural Bank of 142411, October 14,
Larena (Siquijor), Inc., 2005 (473 SCRA 52)
i & Sps. Jesus
t
128
Facts: Jesus and Cristita in Siquijor for the
Moneset (Monesets) are amount of P100,000.00.
the registered owners of The special power of
a 333-square meter land attorney made by the
together with a house Monesets in favor of
thereon situated at Sitio Bundalo as well as the
Laguna, Basak, Cebu real estate mortgage was
City. On January 9, 1985, then annotated on the
they executed a title on September 16,
"Contract to Sell Lot & 1986. For the failure of
House" in favor of the Monesets to pay the
petitioner Winifreda loan, the Bank served a
Ursal. notice of extrajudicial
Ursal paid the foreclosure dated
down payment and took January 27, 1988 on
possession of the Bundalo.
property. She Ursal filed an
immediately built a action for declaration of
concrete perimeter non- effectivity of
fence and an artesian mortgage and damages
well, and planted fruit against the Monesets,
bearing trees and Bundalo and the Bank.
flowering plants thereon She claimed that the
which all amounted to defendants committed
P50,000.00. After paying fraud and/or bad faith in
six monthly mortgaging the property
installments, petitioner she earlier bought from
stopped paying due to the Monesets with a
the Monesets' failure to bank located in another
deliver to her the island, Siquijor; and the
transfer certificate of Bank acted in bad faith
title of the property as since it granted the real
per their agreement; estate mortgage in spite
and because of the of its knowledge that
failure of the Monesets the property was in the
to turn over said title, possession of petitioner.
petitioner failed to have The trial court
the contract of sale ruled that Ursal was
annotated thereon. more credible than the
Unknown to Monesets and that the
Ursal, the Monesets Monesets are liable for
executed on November damages, fraud, and
5, 1985 an absolute breach of contract. As to
deed of sale in favor of the real estate mortgage,
Dr. Rafael Canora, Jr. the trial court held that
over the said property the same was valid and
for P14,000.00. On that the bank was under
September 15, 1986, the no obligation to look
Monesets executed beyond the title. CA
another sale, this time affirmed.
with pacto de retro
with Restituto Bundalo. Issue: Whether the bank,
On the same day, as mortgagee, can rely
Bundalo, as attorney-in- solely on the certificate
fact of the Monesets, of title and had no
executed a real estate obligation to look
mortgage over said beyond the title.
property with Rural
Bank of Larena located
Held: No. Affirmed with
modifications.
Respondent is
not an ordinary
mortgagee; it is a
mortgagee-bank. As
such, unlike private
individuals, it is expected
to exercise greater care
and prudence in its
dealings, including those
involving registered
lands. A banking
institution is expected to
exercise due diligence
before entering into a
mortgage contract. The
ascertainment of the
status or condition of a
property offered to it as
security for a loan must
be a standard and
indispensable part of its
operations.
Our agreement
with petitioner on this
point of law,
notwithstanding, we are
constrained to refrain
from granting the
prayers of her petition.
The reason is that, the
contract between
petitioner and the
Monesets being one of
"Contract to Sell Lot and
House," petitioner, under
the circumstances, never
acquired ownership over
the property and her
rights were limited to
demand for specific
Ratio: We agree. Banks
cannot merely rely on
certificates of title in
ascertaining the status
of mortgaged
properties; as their
business is impressed
with public interest,
they are expected to
exercise more care and
prudence in their
dealings than private
individuals. Indeed, the
rule that persons
dealing with registered
lands can rely solely on
the certificate of title
does not apply to banks.
performance from the
Monesets, which at this
juncture however is no
longer feasible as the
property had already
been sold to other
persons.
A contract to
sell is a bilateral contract
whereby the prospective
seller, while expressly
reserving the ownership
of the subject property
despite delivery thereof
to the prospective buyer,
binds himself to sell the
said property exclusively
to the prospective buyer
upon fulfillment of the
condition agreed upon,
that is, full payment of
the purchase price. In
such contract, the
prospective seller
expressly reserves the
transfer of title to the
prospective buyer, until
the happening of an
event, which in this case
is the full payment of the
purchase price. What the
seller agrees or
obligates himself to do
is to fulfill his promise to
sell the subject property
when the entire amount
of the purchase price is
delivered to him. Stated
differently, the full
payment of the purchase
129
price partakes of a
suspensive condition,
the non- fulfillment of
which prevents the
obligation to sell from
arising and thus,
ownership is retained by
the prospective seller
without further
remedies by the
prospective buyer. It is
different from contracts
of sale, since ownership
in contracts to sell is
reserved by the vendor
and is not to pass to the
vendee until full
payment of the
purchase price, while in
contracts of sale, title to
the property passess to
the vendee upon the
delivery of the thing
c performance eight years from the date
sold. In contracts of sale
the vendor loses
ownership over the
property and cannot
recover it unless and
until the contract is
resolved or rescinded,
while in contracts to sell,
title is retained by the
vendor until full
payment of the price. In
contracts to sell, full
payment is a positive
suspensive condition
while in contracts of
sale, non- payment is a
negative resolutory
condition.
Since the
contract in this case is a
contract to sell, the
ownership of the
property remained with
the Monesets even after
petitioner has paid the
down payment and took
possession of the
property. In Flancia vs.
CA, where the vendee in
the contract to sell also
took possession of the
property, this Court held
that the subsequent
mortgage constituted by
the owner over said
property in favor of
another person was valid At most, the vendee in
since the vendee the contract to sell was
retained absolute entitled only to
ownership over the damages.
property. Petitioner
attributes her decision
to stop paying
installments to the
failure of the Monesets
to comply with their
agreement to deliver
the transfer certificate
of title after the down
payment of P50,000.00.
On this point, the trial
court was correct in
In Pangilinan vs
CA, the vendees
contended that their
failure to pay the balance
of the total contract price
was because the vendor
reneged on its obligation
to improve the
subdivision and its
facilities. In said case, the
Court held that the
vendees were barred by
laches from asking for
specifi
last installment.
The legal adage
finds application in the
case at bar. Tempus
enim modus tollendi
obligations et actiones,
quia tempus currit
contra desides et sui
juris contemptores-For
time is a means of
dissipating obligations
and actions, because
time runs against the
slothful and careless of
their own rights.
In this case,
petitioner instituted an
action for "Declaration of
Non-Effectivity of
Mortgage with Damages"
four years from the date
of her last installment
and only as a reaction to
the foreclosure
proceedings instituted
by respondent Bank.
After the Monesets failed
to deliver the TCT,
holding that for such
failure, the Monesets are
liable to pay damages
pursuant to Art. 1169 of
the Civil Code on
reciprocal obligations.
The vendors' breach of
the contract,
notwithstanding,
ownership still
remained with the
Monesets and
petitioner cannot justify
her failure to complete
the payment.
petitioner merely
stopped paying
installments and did not
institute an action for
specific performance,
neither did she consign
payment of the
remaining balance as
proof of her willingness
and readiness to comply
with her part of the
obligation. As held in San
Lorenzo Development
Corp vs. CA, the perfected
contract to sell imposed
on the vendee the
obligation to pay the
balance of the purchase
price. There being an
obligation to pay the
price, the vendee should
have made the proper
tender of payment and
consignation of the price
in court as required by
law. Consignation of the
amounts due in court is
essential in order to
extinguish the vendee's
obligation to pay the
balance of the purchase
price. Since there is no
indication in the records
that petitioner even
attempted to make the
proper consignation of
the amounts due, the
obligation on the part of
the Monesets to transfer
ownership never
acquired obligatory
force.
130
 In other words,
petitioner did not
acquire ownership over
the subject property as
she did not pay in full
the equal price of the
contract to sell. Further,
the Monesets' breach
did not entitle petitioner
to any preferential
treatment over the
property especially
when such property has
been sold to other
persons.
Petitioner's
rights were limited to
asking for specific
performance and
damages from the
Monesets. Specific
performance, however,
is no longer feasible at
this point as explained
above. This being the
case, it follows that
petitioner never had any
cause of action against
respondent Bank.
Having no cause of
action against the bank
and not being an owner
of the subject property,
petitioner is not entitled
to redeem the subject
property.
Indeed, it is the
Monesets who first
breached their
obligation towards
petitioner and are guilty
of fraud against her. It
cannot be denied
however that petitioner
is also not without fault.
She sat on her rights and
never consigned the full
amount of the property.
She therefore cannot ask
to be declared the
owner of the property,
this late, especially since
the same has already
passed hands several
times, neither can she
question the mortgage
constituted on the
property years after title
has already
passed to another parcels of land, for the
person by virtue of a period from September
deed of absolute sale. 14, 1956 to September
15,1960, as evidenced by
a public document in
Teotimo Rivera vs.
the Pampango dialect.
Timoteo Peña,
This contract was merely
Rehabilitation Finance
a renewal of a previous
Corporation &
contract of lease over the
Register of Deeds
same parcels of land,
Tarlac, G.R.
between the same
6 No. L-11781, March 24, 19
parties. The owner's
1
duplicates of the
(1
aforementioned transfer
SC
certificates of title are in
R
the possession of the
A
Rehabilitation Finance
7
Corporation, to whom
4
said lands were
7)
mortgaged by Timoteo
Peñ a on October 26,
Facts: Timoteo Peñ a 1955, to guarantee the
was the registered payment of a P25,000.00
owner of 2 lots of the loan, which mortgage is
barrios of Pacalcal and duly annotated on the
Anupul, respectively, aforementioned transfer
municipality of Bamban, certificates of title; and
province of Tarlac, and that, in order to protect
covered by TCTs. his rights over the
Timoteo Peñ a executed parcels of land
in favor of petitioner aforementioned,
Rivera a contract of petitioner Rivera desires
lease over said two (2) to have said rights
registered in the office of
the register of deeds of
Tarlac and annotated in
the certificates of title
above referred to, for
which reason he prayed
that the Rehabilitation
Finance Corporation be
ordered to surrender to
said register of deeds the
owner's duplicates of the
aforementioned transfer
certificates of title and
that said register of
deeds be directed to
register the original of
the contract of lease, and
to make the
corresponding
annotations in said
transfer certificates of
title, upon presentation
of said original of the
contract of lease and
payment of the
corresponding fees.
The
Rehabilitation Finance
Corporation objected to
said petition upon the
ground that, pursuant to
the deed of mortgage
executed in its favor by
Timoteo Peñ a, the lands
above referred to shall
not be encumbered in
any manner without the
written consent of the
mortgagee; that the
consent of the
corporation to the
contract of lease had
never been sought. The
corporation had granted
the loan guaranteed by
said mortgage for the
development of the
property in question, to
be undertaken by the
mortgagor; and, as a
matter of policy, the
corporation does not
allow, therefore, the
leasing of mortgaged
property.
The lower court
denied the petition
because the deed of lease
sought to be registered is
in the Pampango dialect
and that it does not bear
the correct number of the
title covering the leased
property.
Issue: Whether a
subsequent encumbrance
may be registered when
a previous encumbrance
disallows it.
Held: No. Affirmed.
131
commitments in favor language or dialect in c
of said corporation, it is which the deed of lease u
clear that appellant has in question is written t
no valid adverse claim and of the inaccuracy of e
which may be ordered the number therein d
registered and that, given of one of the
accordingly, the lower transfer certificates of b
court has not erred in title involved in this y
denying his petition, incident.
regardless of the T
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132
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133
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136
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a
n 137
 Felisa Boyano. The title carried no annotation, defect or
Philippine National Bank vs. CA & Chu Kim Kit flaw that would have aroused suspicion as to its
represented by Chu Tong U, G.R. No. 43972, July 24, authenticity. "The certificate of title was in the name of the
1990 (187 SCRA 735) mortgagor when the land was mortgaged to the PNB. Such
being the case, petitioner PNB had the right to rely on
Facts: Chu Kim Kit, a Chinese national and son of what appeared on the certificate of title, and in the
defendant Boyano, is the absolute owner of a commercial absence of anything to excite suspicion, it was under no
lot and building on Rizal Avenue, Tacloban City, registered obligation to look beyond the certificate and investigate
in his name. Chu Kim Kit went to mainland China, and he the title of the mortgagor appearing on the face of the
was prevented from returning to the Philippines when the certificate."
Communists took over mainland China. Through letters, may rely on the correctness of the certificate of title. Held:
he requested Chu Tong U to take care of his
aforementioned property. Although Boyano was aware Yes. Reversed.
that her son was still alive, she executed an affidavit
on May 21, 1963, alleging that he had died and R
adjudicating to herself, as his sole heir, the above- a
described property. By means of said affidavit of t
adjudication, she was able to obtain a Transfer Certificate i
of Title over the land in her name. She thereafter o
mortgaged the property to the Philippine National Bank, :
Tacloban Branch, to secure a loan of P25,000. She was
also about to dispose of the property. T
Chu Kim Kit, represented by his uncle, Chu Tong h
U, filed a case against Felisa Boyano for cancellation of e
the latter's Certificate of Title. Boyano admitted that
Chu Kim Kit was still alive but she alleged that she r
signed the affidavit of adjudication without having read e
him and
its contents, the same being the petitioner
written in Englishwhich
whichwas
she c
does not understand. o
The trial court ruled that the TCT of Boyano were r
d
null and void. CA affirmed. Issue: Whether a mortgagee s

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 Where there was nothing in the certificate of title DBP made a counter-offer of P25,500.00 which was
to indicate any cloud or vice in the ownership of the accepted by respondent spouses. The parties further
property, or any encumbrance thereon, the purchaser is agreed that payment was to be made within six months
not required to explore farther than what the Torrens thereafter for it to be considered as cash payment. On
Title upon its face indicates in quest for any hidden July 20, 1981, a deed of absolute sale was executed. Said
defect or inchoate right that may subsequently defeat his documentcontainedawaiver ofthe seller's warranty
right thereto. If the rule were otherwise, the efficacy and against eviction.
conclusiveness of the certificate of title which the Thereafter, the spouses Mangubat applied for an
Torrens System seeks to insure would entirely be futile industrial tree planting loan with DBP. The latter
and nugatory. required the former to submit a certification from the
Where innocent third persons relying on the Bureau of Forest Development that the land is alienable
correctness of the certificate of title issued, acquire rights and disposable. However, on October 29, 1981, said
over the property, the court cannot disregard such rights office issued a certificate attesting to the fact that the said
and order the total cancellation of the certificate for that property was classified as timberland, hence not subject to
would impair public confidence in the certificate of title; disposition. The loan application of respondent spouses
otherwise everyone dealing with property registered
under the torrens system would have to inquire in every D
instance as to whether the title had been regularly or e
irregularly issued by the court. Indeed, this is contrary to v
the evident purpose of the law. Every person dealing with e
registered land may safely rely on the correctness of the l
certificate of title issued therefor and the law will in no o
way oblige him to go behind the certificate to determine p
the condition of the property. Stated differently, an m
innocent purchaser for value relying on a torrens title e
issued is protected. A mortgagee has the right to rely on n
what appears in the certificate of title and, in the absence t
of anything to excite suspicion, he is under no obligation to Bank
look beyond the certificate and investigate the title of the o
mortgagor appearing on the face of said certificate. f
The right or lien of an innocent mortgagee for the
value upon the land mortgaged must be respected and P
protected, even if the mortgagor obtained his title through h
fraud. The remedy of the persons prejudiced is to bring an i
action for damages against those who caused the fraud, l
and if the latter are insolvent, an action against the i
Treasurer of the Philippines may be filed for recovery of p
damages against the Assurance Fund. p
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Mangubat, G.R. No. 110053, October 16, 1995 (249 l
SCRA 331) l
y
F
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9 rendered judgment as a loan is bound to pay
9 modifying the to the creditor an
. disposition of the lower equal amount of the
9 court by deleting the same kind and quality.
9 award for damages, The fact that the
. attorney's fees, litigation annulment of the sale
expenses and the costs, will also result in the
was, nevertheless, fraudulently and in bad but affirming the same in
eventually approved by faith by misrepresenting invalidity of the
all its other aspects. mortgage does not have
DBP in the sum of itself as the absolute
P140,000.00, despite the owner of the land and in an effect on the validity
aforesaid certification of incorporating the waiver Issue: Whether a loan and efficacy of the
the bureau, on the of warranty against contract which is principal obligation, for
understanding of the eviction in the deed of secured by a void even an obligation that
parties that DBP would sale. mortgage is still valid. is unsupported by any
work for the release of In its answer, security of the debtor
the land by the former DBP contended that it Held: Yes. Affirmed with may also be enforced by
Ministry of Natural was actually the absolute Modifications. means of an ordinary
Resources. To secure owner of the land, action. Where a
payment of the loan, having purchased it for mortgage is not valid, as
respondent spouses value at an auction sale where it is executed by
executed a real estate pursuant to an one who is not the
mortgage over the land extrajudicial foreclosure owner of the property,
on March 17, 1982, of mortgage; that there or the consideration of
which document was was neither malice nor the contract is simulated
registered in the fraud in the sale of the or false, the principal
Registry of` Deeds land under the terms obligation which it
pursuant to Act No. mutually agreed upon by guarantees is not
3344. The loan was then the parties; that thereby rendered
released to the spouses assuming arguendo that
Mangubat on a there was a flaw in its R
staggered basis. After a title, DBP cannot be held a
substantial sum of liable for anything t
P118,540.00 had been inasmuch as respondent i
received by private spouses had full o
respondent, they asked knowledge of the extent :
for the release of the and nature of DBP's
remaining amount of the rights, title and interest I
loan. It does not appear over the land. n
that their request was The trial court
acted upon by DBP, rendered judgment i
ostensibly because the annulling the subject t
release of the land from deed of absolute sale and s
the then Ministry of ordering DBP to return
Natural Resources had the P25,500.00 purchase l
not been obtained. price, plus interest; to e
The spouses reimburse to respondent g
Mangubat then filed a spouses the taxes paid a
complaint against DBP by them, the cost of the l
seeking the annulment relocation survey,
of the subject deed of incidental expenses and c
absolute sale on the other damages in the o
ground that the object amount of P50,000.00; n
thereof was verified to and to further pay them t
be timberland and, attorney's fees and e
therefore, is in law an litigation expenses in the x
inalienable part of the amount of P10,000.00, t
public domain. They also and the costs of suit. ,
alleged that DBP acted Upon appeal, the CA
130
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r general rule to interest to occupy the house and
e on the money paid from lot prompting Chua and
c the time of Payment. A Ng to file a petition for
e contract which the law writ of possession. Such
i denounces as void is writ was issued.
v necessarily no contract The spouses
e whatever, and the acts of Carpo then filed a
d the parties in an effort to complaint for the
create one can in no wise annulment of real estate
m bring about a change of mortgage and the
o their legal status. The consequent foreclosure
n parties and the subject proceedings. They
e matter of the contract consigned the amount of
y remain in all particulars P257, 197.26 with the
just as they did before court. A TRO was
null and void. That given as consideration, any act was performed
obligation matures and this has been passed issued. The RTC
in relation thereto. suspended the
becomes demandable upon in the case of
in accordance with the Leather Manufacturers enforcement of the writ
stipulations pertaining National Bank vs. of possession pending
to it. Merchants National Bank the final disposition of
Under the where it was held that: the complaint. Chua and
foregoing "What money is paid Ng questioned this
circumstances, what is upon the representation suspension order
lost is only the right to of the receiver that he before the CA. During
foreclose the mortgage has either a certain title the pendency of the case
as a special remedy for in property transferred before the CA, the court
satisfying or settling the in consideration of the handling the complaint
indebtedness which is payment or a certain for annulment dismissed
the principal obligation. authority to receive the the case on the ground
In case of nullity, the money paid, when in
mortgage deed remains fact he has no such title Spouses David B. Carpo & Rechilda S. Carpo vs.
as evidence or proof of a or authority, then, Eleanor Chua & Elma Dy Ng, G.R. Nos.
personal obligation of although there be no 150773 &
the debtor, and the fraud or intentional 471)
amount due to the misrepresentation on his
creditor may be part, yet there is no F
enforced in an ordinary consideration for the a
personal action. payment, the money c
Considering remains, in equity and t
that neither party good conscience, the s
questioned the legality property of the payer :
and correctness of the and may be recovered
judgment of the court a back by him." T
quo, as affirmed by Therefore, the h
respondent court, purchaser is entitled to e
ordering the annulment recover the money paid
of the deed of absolute by him where the s
sale, such decreed contract is set aside by p
nullification of the reason of the mutual o
document has already material mistake of the u
achieved finality. We parties as to the identity s
only need, therefore, to or quantity of the land e
dwell on the effects of sold. And where a s
that declaration of purchaser recovers the
nullity. purchase money from a C
With respect to vendor who fails or a
the right of a party to refuses to deliver the r
recover the amount title" he is entitled as a p
133
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137
t mortgage can be the stipulated interest is
e nullified on the ground evinced by its
that the interest of the subsequent rulings,
s loan which is secured by cited above, in all of
u the mortgage is usurious. which the main
c obligation was upheld
h Held: No. Affirmed. and the offending
interest rate merely
d corrected. Hence, it is
e clear and settled that
v the principal loan
e obligation still stands
l and remains valid. By
o the same token, since
p the mortgage contract
m derives its vitality from
e the validity of the
n principal obligation, the
t invalid stipulation on
s interest rate is similarly
, insufficient to render
void the ancillary
t mortgage contract.
h
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that it was filed out of ministerial duty of the o
time and was barred by lower court to issue the
laches. A petition was writ of possession when u
filed assailing the title over the mortgaged n
dismissal of the property had been s
complaint. The CA consolidated in the e
eventually reversed the mortgagee. t
suspension order on the t
ground that it was the Issue: Whether a l
138
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140
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142
r n

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143
.
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145
d a
n
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M m
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,
d as it was a case for annulment of the loan contract itself.
i T
d h
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146
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147
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a
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c o
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149
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p
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150
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151
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152
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c
155
b o
y n

s i
i s
d
e c
o
w n
i g
t r
h u
e
t n
h t
e
w
i i
n t
v h
a
l t
i h
d e
a
t r
i u
o l
n e

o t
f h
a
t t
h
e a

i u
n s
t u
e r
r i
e o
s u
t s

r l
a o
t a
e n
s
t
t r
h a
e n
r s
e a
u c
p t
156
i c
o t
n
t
i o
s
t
n h
o e
t
a
a g
r
c e
o e
m d
p
l i
e n
t t
e e
r
n e
u s
l t
l .
i T
t h
y e

b C
u o
t u
r
d t
e ’
f s
e
c w
t h
i o
v l
e e
h
o e
n a
l r
y t
e
w d
i
t a
h f
f
r i
e r
s m
p a
e t
157
i i
o t
n e

o t
f h
e
t
h n
e u
l
r l
u i
l t
e y

t o
h f
a
t The petition for Rivero.
certiorari and On the 21st of
t mandamus questioning January, 1890, Enrique
h the suspension order Grupe and Dolores
e was proper since the Orozco de Rivero
said order was obtained a loan from the
p interlocutory in nature plaintiff secured by a
r and since the case mortgage on the
i involved the property referred to in
n performance of a the power of attorney. In
c ministerial duty. the caption of the
i instrument evidencing
p Gonzalo Tuason vs. the debt it is stated the
a Dolores Orozco, G.R. Grupe and Dolores
l No. 2344, Orozco appeared as the
February10,1906(5Phi parties of the first part
o l596) and Gonzalo Tuason, the
b plaintiff, as the party of
l Facts: On November 19, the second part; that
i 1888, Juan de Vargas y Grupe acted for himself
g Amaya, the defendant's and also in behalf of Juan
a husband, executed a Vargas by virtue of the
t power of attorney to power granted him by
i Enrique Grupe, latter, and that Dolores
o authorizing him to Orozco appeared merely
n dispose of all his for the purpose of
property, and complying with the
s particularly of a certain requirements contained
u house and lot known as in the power of attorney.
b No. 24 Calle Nueva, This instrument was
s Malate, in the city of duly recorded in the
i Manila, for the price at Registry of Property, and
s which it was actually it appears therefrom that
t sold. He was also Enrique Grupe, as
s authorized to mortgage attorney in fact for
the house for the Vargas, received from the
d purpose of securing the plaintiff a loan of 2,200
e payment of any amount pesos and delivered the
s advanced to his wife, same to the defendant.
p Dolores Orozco de To secure its payment, he
158
mortgaged the property (Art. 1727 of the Civil t
of his principal with Code.) The fact that the i
defendant's consent as agent has also bound o
required in the power of himself to pay the debt :
attorney. does not relieve from
The loan was not liability the principal for T
p whose benefit the debt h
ai was incurred. The e
d. individual liability of
T the agent constitutes in f
h the present case a a
e further security in favor c
c of the creditor and does t
r not affect or preclude
e the liability of the t
d principal. In the present h
it case the latter's liability a
o was further guaranteed t
r by a mortgage upon his
fi property. The law does t
le not provide that the h
d agent can not bind e
s himself personally to
u the fulfillment of an d
it obligation incurred by e
a him in the name and on f
n behalf of his principal. e
d On the contrary, it n
w d
o a
n n
i t
n
t r
h e
e c
lo e
w i
e v
r e
c d
o
u t
rt h
. e

Issue: Whether validity m

of the mortgage can be o
affected by the n
circumstances on how e
the money from the loan y
was received by the
mortgagor. f
r
Held: No. Affirmed. o
m
R
h
a
e
159
r
t
h h
u e
s
b v
a a
n l
d i
' d
s i
t
a y
g
e o
n f
t
t
a h
n e
d
m
n o
o r
t t
g
f a
r g
o e
m
i
t n
h
e v
i
c e
r w
e
d o
i f
t
o t
r h
e
d
o c
e o
s n
d
n i
o t
t i
o
a n
f s
f
e c
c o
t n
160
t s
a
i c
n r
e e
d a
t
i e
n d
.
t
h N
e o
w
p h
o e
w r
e e
r
d
o o
f e
s
a
t i
t t
o
r a
n p
e p
y e
a
u r
n
d i
e n
r
t
w h
h i
i s
c
h p
o
t w
h e
e r

m t
o h
r a
t t
g
a t
g h
e e

w m
a o
161
n n
e o
y t

w t
a h
s r
o
t u
o g
h
b
e t
h
d e
e
l a
i g
v e
e n
r t
e
d o
r
t
o a
n
h y
e
r o
t
b h
y e
r
t
h p
e e
r
c s
r o
e n
d .
i
t T
o h
r e

h i
i m
m p
s o
e r
l t
f a
n
a t
n
d t
h
162
i i
n n
g k

w i
a s
s
f
t u
h l
a l
t y

s e
h s
e t
a
s b
h l
o i
u s
l h
d e
d
h
a b
v y
e
t
r h
e e
c
e r
i e
v c
e o
d r
d
t .
h A
e
d
m e
o b
n t
e
y t
. h
u
T s
h
i i
s n
c
w u
e r
r
t e
h d
163
 d
b e
y d

t t
h h
e e

a f
g o
e r
n m
t e
r
i
s a
c
b t
i e
n d
d ,
i
n a
g s

d i
i n
r
e t
c h
t e
l
y p
r
u e
p s
o e
n n
t
t
h c
e a
s
p e
r ,
i
n w
c i
i t
p h
a i
l n
,
t
p h
r e
o
v s
i c
164
o the subject property and Josefa Albaytar.
p because he had prior Evelyn Banua
e possession as assignee and her husband filed a
of the said "Assignment case against Lagrosa.
o of Real Estate Lagrosa, in turn, filed a
f Mortgage" executed by case against Cesar
Presentacion Quimbo in Orolfo. The case filed by
h his favor, and with the Evelyn Banua was ruled
i consent of Mauricia in her favor. The case
s Albaytar, the sister of filed by Lagrosa was
the deceased Josefa ruled in his favor. The
a Albaytar Arizapa, after case was consolidated in
u the demise of the the CA,
t spouses Julio Arizapa
h
o
Ruben Lagrosa vs. CA, Spouses Romulo & Evelyn A.
r
Banua, & Cesar Orolfo, G.R. Nos. 115981-82,
i
August 12,
t
y
. F
a
provides that such act Vargas. She did not deny c
on the part of an agent in her answer that she t
would be valid. (Art. was such administratrix. s
1725 of the Civil Vargas having :
Code.) incurred this debt during
The appellant's his marriage, the same I
final contention is that should not be paid out of n
in order to render property belonging to v
judgment against the the defendant o
mortgaged property it exclusively but from that l
would be necessary that pertaining to the v
the minor children of conjugal partnership. e
Juan de Vargas be made This fact should be borne d
parties defendant in this in mind in case the
action, they having an proceeds of the i
interest in the property. mortgaged property be n
Under article 154 of the not sufficient to pay the
Civil Code, which was in debt and interest t
force at the time of the thereon. The judgment of h
death of Vargas, the the court below should i
defendant had the be modified in so far as it s
parental authority over holds the defendant
her children and personally liable for the c
consequently the legal payment of the debt. a
representation of their s
persons and property. e
(Arts. 155 and 159 of
the Civil Code.) It can i
not be said, therefore, s
that they were not
properly represented at t
the trial. Furthermore h
this action was brought e
against the defendant
in her capacity as p
administratrix of the o
estate of the deceased s
165
s t
e
s l
s o
i c
o a
n t
e
o d
f
i
s n
i
x P
t a
y c
- o
,
f
i M
v a
e n
i
( l
6 a
5 ,
)
o
s r
q i
u g
a i
r n
e a
l
m l
e y
t
e o
r w
s n
e
o d
f
b
r y
e
s t
i h
d e
e
n C
t i
i t
a y
l
o
l f
o
166
M
a p
n r
i o
l g
a r
a
w m
h
i f
c o
h r
,
t
i h
n e

d u
u n
e d
e
c r
o -
u p
r r
s i
e v
, i
l
f e
o g
l e
l d
o ,
w
i a
n w
g a
r
i d
t e
s d

l i
a t
n
d t
o
a
n o
d n
e
h
o J
u u
s l
i i
n o
g
167
A .
r
i T
z h
a e
p
a a
w
w a
h r
o d

c w
o a
n s
s
t i
r n
u
c t
t h
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d
n
a a
t
h u
o r
u e
s
e o
f
a
n a
d
"
u C
p o
h n
o t
l r
s a
t c
e t
r
y t
o
s
h S
o e
p l
l
t "
h
e p
r a
e y
o a
n b
168
l A
e r
i
m z
o a
n p
t a
h
l c
y o
u
f l
o d
r
p
a a
y
p
e f
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o
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f
l
t o
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e ,
n
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( d
2 i
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,
y
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a e
r a
s v
. i
n
B g
e
f b
o e
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n
J d
u
l h
i i
o s

169
w r
i v
f i
e v
i
a n
n g
d
c
c h
h i
i l
l d
d r
r e
e n
n ,
.
i
H n
i c
s l
u
w d
i i
f n
e g

d E
i v
e e
d l
y
t n
h
e A
r
f i
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l a
l p
o a
w
i B
n a
g n
u
y a
e ,
a
r e
. x
e
T c
h u
e t
e
s d
u
170
a v
e
D s
e
e t
d h
e
o
f l
o
E t
x
t a
r n
a d
j
u a
d
i R
c e
i n
a u
l n
c
P i
a a
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t i
i o
t n
i
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n n

a f
d a
j v
u o
d r
i
c o
a f
t
i E
n v
g e
l
u y
n n
t .
o
C
t e
h s
e a
m r
s
e O
l r
171
o r
l i
f z
o e
d
i
s a
n
t d
h
e a
p
c p
a o
r i
e n
t t
a e
k d
e
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y
o
f E
v
t e
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n
s
a B
m a
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u
s a
u ,
b
j i
e n
c
t w
h
p o
r s
o e
p
e n
r a
t m
y e

a T
s C
T
a
u N
t o
h .
o 1
172
9 f
7
6 E
0 v
3 e
l
c y
o n
v
e B
r a
i n
n u
g a

t t
h o
e
t
s h
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u
p b
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p c
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r
t p
y r
o
i p
s e
r
r t
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g
i i
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t
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r v
e i
d d
. e
n
T c
h e
e d

t b
i y
t
l a
e
D
o e
173
e b
d y

o a
f
T
S C
a T
l .
e R
u
e b
x e
e n
c
u L
t a
e g
d r
o
b s
y a

t c
h l
e a
i
C m
i s
t
y t
o
o
f b
e
M
a t
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l
a l
a
i w
n f
u
h l
e
r p
o
f s
a s
v e
o s
r s
o
a r
n
d o
f
174
 o
t f
h
e R
e
s a
u l
b
j E
e s
c t
t a
t
p e
r
o M
p o
e r
r t
t g
y a
g
b e
y "

v e
i x
r e
t c
u u
e t
e
o d
f
i
t n
h
e h
i
" s
D
e f
e a
d v
o
o r
f
b
A y
s
s P
i r
g e
n s
m e
e n
n t
t a
c
175
i a
o g
n e
"
Q
u e
i x
m e
b c
o u
t
o e
n d

t b
h y
e
J
b u
a l
s i
i o
s
A
o r
f i
z
a a
p
" a
C
o i
n n
t
r f
a a
c v
t o
r
o
f o
f
R
e t
a h
l e

E l
s a
t t
a t
t e
e r
.
M
o L
r a
t g
g r
176
o i
s o
a :

p T
o h
s e
i
t D
s e
e
t d
h
a o
t f

h R
e e
a
c l
a
n E
n s
o t
t a
t
b e
e
M
e o
v r
i t
c g
t a
e g
d e
"
f
r e
o x
m e
c
and the court affirmed 7 of Rule 86 and Section u
the ruling in favor of 5 of Rule 87 of the Rules t
Evelyn Banua and of Court. Thus, the e
reversed the ruling in mortgagee does not d
favor of Cesar Orolfo. acquire title to the
mortgaged real estate b
Issue: Whether a unless and until he y
mortgage executed by a purchases the same at
person who is not the public auction and the J
owner of the property is property is not u
valid. redeemed within the l
period provided for by i
Held: No. Affirmed. the Rules of Court. o

R A
a r
t i
177
z a
a p
p a
a
b
i e
s i
n
n g
u
l o
l w
n
a e
n d
d
b
v y
o
i t
d h
, e

t C
h i
e t
y
p
r o
o f
p
e M
r a
t n
y i
l
m a
o
r u
t n
g d
a e
g r
e
d T
r
b a
y n
s
J f
u e
l r
i
o C
e
A r
r t
i i
z f
178
i e
c
a a
t
e v
a
o l
f i
d
T
i m
t o
l r
e t
g
N a
o g
. e

9 o
1 n
1
2 r
0 e
. a
l
F
o e
r s
t
a a
t
p e
e ,
r
s h
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n
m
t u
o s
t
v
a b
l e
i
d t
l h
y e

c a
o b
n s
s o
t l
i u
t t
u e
t
179
o o
w f
n
e t
r h
e
t
h P
e h
r i
e l
o i
f p
p
a i
s n
e
r s
e .
q
u S
i i
r n
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d e

b t
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e
A
r m
t o
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c t
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2 g
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8
5 t
o
o
f P
r
t e
h s
e e
n
C t
i a
v c
i i
l o
n
C
o Q
d u
e i
m
180
b o
o n

o Q
f u
i
t m
h b
e o

l o
o f
t
h
i e
s r

n r
u i
l g
l h
t
a s
n
d a
s
v
o m
i o
d r
, t
g
t a
h g
e e

a t
s o
s
i L
g a
n g
m r
e o
n s
t a

b i
y s

P l
r i
e k
s e
e w
n i
t s
a e
c
181
v e
o t
i i
d t
. i
o
E n
v e
e r
n ,

i i
f t

t i
h s
e
w
m e
o l
r l
t -
g s
a e
g t
e t
l
i e
s d

v t
a h
l a
i t
d
a
a
s m
e
i r
n e
s
i m
s o
t r
e t
d g
a
b g
y e
e
h
e h
r a
e s
i
n n
o
p
182
r s
i
g i
h s
t
s
t o
o ,

e b
j e
e c
c a
t u
s
t e
h
e a

o m
c o
c r
u t
p g
a a
n g
t e
s
p
o a
f s
s
t e
h s
e
n
p o
r
o t
p i
e t
r l
t e
y
t
m o
o
r t
t h
g e
a
g m
e o
d r
. t
g
T a
h g
i e
183
e l
. y

I s
n u
d b
e j
e e
d c
, t
s
b
y i
t
m
o t
r o
t
g a
a
g l
i i
n e
g n

a b
u
p t
i
e o
c w
e n
e
o r
f s
h
p i
r p
o
p t
e h
r e
t r
y e
, o
f
a
i
d s
e
b n
t o
o t
r
p
m a
e r
r t
e e
184
d
m
w e
i r
t e
h
. l
i
T e
h n
u ,
s
, e
n
a c
u
m m
o b
r r
t a
g n
a c
g e
e ,

i o
s r

r s
e e
g c
a u
r r
d i
e t
d y

a f
s o
r
n
o a
t
h d
i e
n b
g t
,
m
o a
r n
e d

t p
h a
a s
n s
e
a s
185
n o
o r

t c
i l
t a
l i
e m

o t
r o

e t
s h
t e
a
t p
e o
s
t s
o e
s
t s
h i
e o
n
m
o o
r f
t
g t
a h
g e
e
e p
r
a o
n p
d e
r
g t
i y
v .
e P
s e
t
h i
i t
m i
o
n n
o e
r
r
i L
g a
h g
t r
186
o n
s
a f
a
n v
o o
w r

c o
o f
n
t P
e r
n e
d s
s e
n
t t
h a
a c
t i
o
w n
h
a Q
t u
i
w m
a b
s o

m w
o a
r s
t
g "
a h
g i
e s
d
r
b i
y g
h
J t
u
l a
i s
o
a
A n
r
i a
z w
a a
p r
a d
e
i e
187
o P
v e
e t
r i
t
t i
h o
e n
e
h r
o
m w
e o
l u
o l
t d

i h
n a
v
q e
u
e t
s h
t i
i s
o
n C
, o
u
a r
n t
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u
n p
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t o
l
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o
m v
e a
l l
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t d
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t y
s
e a
l n
f d
.
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188
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198
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199
e direct issuance of the knowledge of the
d corresponding writ. The mortgagee can
ex- officio provincial
f sheriff, in implementing
o the writ, thereby also
r sought the vacation of
the premises by
i petitioners. When the
n latter refused, private
respondent filed an ex-
S parte motion for a
e special order directing
c the physical ouster of the
t occupants.
i On 23 May
o 1986, petitioners
n formally entered their
appearance in the
Luis Castro, Jr., payment of the loan. In proceedings to oppose
Marissa Castro, Ramon time, Bancom the ex- parte motion.
Castro, Mary Ann extrajudicially foreclosed Petitioners averred
Castro, Catherine on the mortgage, and the that, being the owners
Castro & Antonio mortgaged property was of the residential house
Castro vs. CA & Union sold at public auction on which they themselves
Bank of the 22 August 1979 with had built on the
Philippines, G.R. No. Bancom coming out to foreclosed property with
97401, December 6, be the only bidder. A the prior knowledge of
1995 (250 SCRA 661) certificate of sale was the mortgagee, they
accordingly executed by could not be ousted
Facts: On 15 August the provincial sheriff in simply on the basis of a
1974, Cabanatuan City favor of Bancom. petition for a writ of
Colleges obtained a loan Subsequently, the latter possession under Act No.
from the Bancom assigned its credit to 3135. The court,
Development herein private nevertheless, issued an
Corporation. In order to respondent Union Bank order granting private
secure the indebtedness, of the Philippines. On 10 respondent's motion,
the college mortgaged to October 1984, following and it directed Atty. Luis
Bancom two parcels of the expiration of the T. Castro representation
land covered by TCT No. redemption period of petitioners, to deliver
T-45816 and No. T- without the college "all the keys to all the
45817 located in having exercised its right room premises" found
Cabanatuan City. The of redemption, private on the property
parcels were both respondent consolidated foreclosed and
within the school site. title to the property. On authorized, in the event
While the mortgage was 08 May 1985, private petitioners would refuse
subsisting, the college respondent filed with to surrender the keys,
board of directors the Regional Trial Court private respondent "to
agreed to lease to of Nueva Ecija, Branch the premises in question
petitioners a 1,000- XXVIII in Cabanatuan and do what is best for
square- meter portion of City, an ex-parte motion the preservation
the encumbered for the issuance of a properties belonging to
property on which the writ of possession not the Cabanatuan City
latter, eventually, built a only over the land and Colleges." Upon appeal,
residential house. school buildings but also the CA affirmed.
Bancom, the mortgagee, the residential house
was duly advised of the constructed by
petitioners. On 10 May Issue: Whether a house
matter. subsequently built by a
The school 1985, the lower court
granted the motion and lessee on mortgaged
defaulted in the due land with the
200
be included in the the natural accessions, s
foreclosure proceedings. to the improvements,
growing fruits, and the b
Held: No. Reversed. rents or income not yet e
received when the e
Ratio: Art. 2127 NCC obligation becomes due, n
provides that the and to the amount of
mortgage extends to the indemnity granted s
or owing to the e
e
proprietor from the During the public n
insurers of the property auction, L & R Corp., as
mortgaged, or in virtue the sole bidder, bought b
of expropriation for the land. When L & R y
public use, with the Corp attempted to
declarations, have their Certificate of t
amplifications and Sale recorded, it h
limitations established discovered the prior e
by law, whether the sale of the land to
estate remains in the PWHAS for the first C
possession of the time. L & R Corp. wrote o
mortgagor, or passes a letter to the Register u
into the hands of a third of Deeds requesting the r
person. cancellation of the t
This article annotation of the sale ,
extends the effects of the on the ground that the
real estate mortgage to contract of mortgage i
accessions and prohibited such sale. 7 n
accessories found on the months after the
hypothecated property foreclosure sale, a
when the secured PWHAS, for the account
obligation becomes due. of the spouses Litonjua, l
The law is predicated on tendered payment of o
an assumption that n
the ownership of such g
accessions and accessories
also l
principal. i
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201
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202
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203
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204
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205
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206
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207
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208
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209
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210
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211
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212
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213
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214
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C
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215
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216
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217
 t .
g
a T
g h
e e
d
property without getting the consent of the mortgagee s
and that p
t o
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e
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o
r L
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f W
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218
 e
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o
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u
p t
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.
The sale s
w p
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t t
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i
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219
 t
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a
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, r
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s p
o e
r
L t
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& .

R the full redemption price with the Register of

to L & R Corp in the form Deeds. In the process,
C of a Chinabank they learned that the
o manager’s check. L prior sale of the
r & R Corp refused to properties to PWHAS
p accept the payment. was not annotated on the
. Hence, PWHAS was titles. A complaint for
compelled to redeem the quieting of title,
s mortgaged properties annulment of title &
t through the ex-officio damages was filed. The
a sheriff who, in turn, lower court dismissed
r issued a Certificate of the complaint. CA
t Redemption. reversed at first, but set
e Due to the aside its decision in an
d refusal of L & R Corp to amended decision.
return their owner’s
e duplicate certificate of
x title, the spouses
t Litonjua asked the
r Register of Deeds to
a annotate their
j Certificate of
u Redemption as an
d adverse claim on the
i titles. The Register of
c Deeds refused to do so,
i hence the spouses
a Litonjua filed a petition
l against L & R Corp for
the surrender of the title.
f While the case
o was pending, L & R Corp.
r executed an Affidavit of
e Consolidation of
c Ownership. The Register
l of Deeds then issued it a
o TCT, free of any lien and
s encumbrance. L & R Corp
u then informed all tenants
r of the property to pay
e the rentals to it. Upon
learning of this, the
o spouses Litonjua filed an
f adverse claim and a
notice of lis pendens
220
foreclosure suit against Court of Appeals,
the mortgagor without where a similar o
the necessity of either provision appeared in f
notifying the purchaser the subject contract of
or including him as a mortgage, the f
defendant. At the same petitioners therein, to i
time, the purchaser of whom the mortgaged r
the mortgaged property were sold s
property was deemed without the written t
not to have lost his consent of the
equitable right of mortgagee, were held as r
redemption. without the right to e
In Bonnevie v. f
u
Issue: Whether a mortgage contract may provide that the s
mortgagor cannot sell the a
mortgaged property without l
of the mortgagee. Whether a
m i
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221
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b redeem the said of the Philippines v. Ty

y property. No consent Camco Sobrino, 57 Phil.
having been secured 801), stipulations
t from the mortgagee to "forbidding the owner
h the sale with assumption from alienating the
e of mortgage by immovable mortgaged"
petitioners therein, the are expressly declared
m latter were not validly void by law (Art. 2130,
o substituted as debtors. It Civil Code).
r was further held that Earlier, in PNB v.
t since their rights were Mallorca, it was
g never recorded, the reiterated that a real
a mortgagee was charged mortgage is merely an
g with the obligation to encumbrance; it does not
o recognize the right of extinguish the title of the
r redemption only of the debtor, whose right to
, original mortgagors- dispose
vendors. Without – a principal attribute of
t discussing the validity of ownership – is not
h the stipulation in thereby lost. Thus, a
e question, the same was, mortgagor had every
in effect, upheld. right to sell his
m On the other mortgaged property,
o hand, in Tambunting v. which right the
r RehabilitationFinanceCo mortgagee cannot
t rporation, the validity of oppose.
g a similar provision was Insofar as the
a specifically raised and validity of the questioned
g discussed and found as stipulation prohibiting
e invalid. It was there the mortgagor from
e ratiocinated that the selling his mortgaged
provision can only be property without the
i construed as directed consent of the mortgagee
s against subsequent is concerned, therefore,
mortgages or the ruling in the
a encumbrance, not to an Tambunting case is still
u alienation of the the controlling law.
t immovable itself. For Indeed, we are fully in
h while covenants accord with the
o prohibiting the owner pronouncement therein
r from constituting a later that such a stipulation
i mortgage over property violates Article
z registered under the 2130 of the New Civil
e Torrens Act have been Code. Both the lower
d held to be legally court and the Court of
permissible (Phil. Appeals in its Amended
t Industrial Co. v. El Decision rationalize that
o Hogar Filipino, et al., 45 since paragraph 8 of the
Phil. 336, 341-342; Bank subject Deed of Real
232
Estate Mortgage
contains no absolute
prohibition against the
sale of the property
mortgaged but only
requires the mortgagor
to obtain the prior
written consent of the
mortgagee before any
such sale, Article 2130 is
not violated thereby.
This observation takes a
narrow and technical
view of the stipulation in
question without taking
into consideration the
end result of requiring
such prior written
consent. True, the
provision does not
absolutely prohibit the
mortgagor from selling
his mortgaged property;
but what it does not
outrightly prohibit, it
nevertheless achieves.
For all intents and
purposes, the stipulation
practically gives the
mortgagee the sole
prerogative to prevent
any sale of the
mortgaged property to a
third party. The
mortgagee can simply
withhold its consent and
thereby, prevent the
mortgagor from selling
the property. This
creates an
unconscionable
advantage for the
mortgagee and amounts
to a virtual prohibition
on the owner to sell his
mortgaged property.
The right of first refusal
has long been
recognized as valid in
our jurisdiction. The
consideration for the
loan- mortgage includes
the consideration for
the right of first refusal.
L & R Corporation is, in
effect, stating that it
consents to lend out
money to the spouses
In other words, property to PWHAS
stipulations like those without securing the
covered by paragraph 8 prior written consent of
of the subject Deed of L & R Corporation, they
Real Estate Mortgage had the obligation under
circumvent the law, paragraph 9, which is a
specifically, Article perfectly valid provision,
2130 of the New Civil to notify the latter of
Code. Being contrary to their intention to sell the
law, paragraph 8 of the property and give it
subject Deed of Real priority over other
Estate Mortgage is not buyers. It is only upon
binding upon the failure of L & R
parties. Accordingly, the Corporation to exercise
sale made by the its right of first refusal
spouses Litonjua to could the spouses
PWHAS, Litonjua validly sell the
notwithstanding the subject properties to
lack of prior written others, under the same
consent of L & R terms and conditions
Corporation, is valid. offered to L & R
While Corporation.
petitioners question the What then is the
validity of paragraph 8 status of the sale made
of their mortgage to PWHAS in violation of
contract, they appear to L & R Corporation's
be silent insofar as contractual right of first
paragraph 9 thereof is refusal? The Contract of
concerned. Said Sale was not voidable
paragraph 9 grants but rescissible. Under
upon L & R Corporation Article 1380 to 1381(3)
the right of first refusal of the Civil Code, a
over the mortgaged contract otherwise valid
property in the event may nonetheless be
the mortgagor decides subsequently rescinded
to sell the same. We see by reason of injury to
nothing wrong in this third persons, like
provision. creditors. The status of
creditors could be
validly accorded by the
Bonnevies for they had
substantial interest that
were prejudiced by the
sale of the subject
property to the
Contract of Lease.
case at bar, PWHAS
Litonjua provided that in cannot claim ignorance
case they decide to sell of the right of first
the property mortgaged refusal granted to L & R
to it, then L & R Corporation over the
Corporation shall be subject properties since
given the right to match the Deed of Real Estate
the offered purchase Mortgage containing
price and to buy the such a provision was
property at that price. duly registered with the
Thus, while the spouses Register of Deeds. As
Litonjua had every right such, PWHAS is
to sell their mortgaged presumed to have been
notified thereof by
registration, which
equates to notice to the
whole world. We note
that L & R Corporation
had always expressed its
willingness to buy the
mortgaged properties on
equal terms as PWHAS.
Indeed, in its Answer to
the Complaint filed, L & R
Corporation expressed
that it was ready, willing
and able to purchase the
subject properties at the
same purchase price of
P430,000.00, and was
agreeable to pay the
difference between such
purchase price and the
redemption price of
P249,918.77, computed
as of August 13, 1981,
the expiration of the
one-year period to
redeem. That it did not
duly exercise its right of
first refusal at the
opportune time cannot
be taken against it,
precisely because it was
not notified by the
spouses Litonjua of their
intention to sell the
subject property and
thereby, to give it priority
over other buyers.
All things
considered, what then
are the relative rights
and obligations of the
parties? To recapitulate:,
the sale between the
spouses Litonjua and
PWHAS is valid,
notwithstanding the
absence of L & R
Corporation's prior
written consent thereto.
Inasmuch as the sale to
PWHAS was valid, its
offer to redeem and its
tender of the redemption
price, as successor-in-
interest of the spouses
Litonjua, within the one-
year period should have
been accepted as valid by
the L & R Corporation.
233
However, while
itself must be supported
by a consideration
separate and distinct
from the price itself, nor
an offer which Article
1319 of the Code
requires to be definitive
and certain both as to
object and cause of the
contemplated
agreement. Even while
the object in a "right of
first refusal" might be
determinate, the
exercise of the right,
nevertheless, would still
be dependent not only
on the grantor's
eventual intention to
enter into a binding
juridical relation but
also on terms, including
the price, that obviously
are yet to be fixed. It
would be absurd to
suggest that a right of
first refusal can be the
proper subject of an
action for specific
performance but, of
course, neither would it
the sale is, indeed, valid,
the same is rescissible
because it ignored L & R
Corporation's right of
first refusal.
Vitug, concurring&
dissenting: What I find
quite difficult to accept,
with all due respect, is
the pre-emptive and
peremptory
pronouncement in the
ponencia that the sale
between the Litonjuas
and PWHAS is
rescissible because it
ignored the "right of
first refusal" of L
& R Corporation. I must
stress that a right of
first refusal is not a
perfected contract.
Neither does it qualify
as an option under the
second paragraph of
Article 1479, which
be correct to say that a
breach of such right
would be totally
inconsequential. A Preliminary Injunction")
grantor who unjustly
discards his own
affirmation violates the
basic dogma in human
relations so well
expressed as in Article
19 of the Civil Code to
the effect that every
person is expected to act
with justice, give another
his due and observe
honesty and good faith.
When ignored, the legal
feasibility of an action
for damages is a matter
now long settled.
Most
importantly, a rescissory
action in consonance
with Article 1380, in
relation to Article 1381,
paragraph (3), of the
New Civil Code so
invoked (by citing
Guzman, Bocaling & Co.
vs. Bonnevie) as the
authority for the
rescission of the sale spouses leased from the
between the Litonjua Consolidated Asiatic Co.
spouses and PWHAS is On January 12, 1961,
here off the mark Lanuza executed a
unfortunately. An action document entitled "Deed
for rescission under said of Sale with Right to
provisions of the Code is Repurchase" whereby he
merely subsidiary and conveyed to Maria
relates to the specific Bautista Vda. de Reyes
instance when a debtor, and Aurelia R. Navarro
in an attempt to defraud the house, together with
his creditor, enters into a the leasehold rights to
contract with another the lot, a television set
that deprives the and a refrigerator in
creditor to recover his consideration of the sum
just claim and leaves him of P3,000. When the
with no other legal original period of
means, than by redemption expired,
rescission, to obtain
reparation. Hence, the
rescission is only to the
extent necessary to
cover the damages
caused pursuant to
Article 1384 of the Civil
Code. Verily, the case
and factual settings in
the instant controversy
(for "Quieting of Title,
Annulment of Title and
Damages with
initiated by the Litonjua
spouses and PWHAS
against herein
respondents is neither
the occasion nor the
proper forum for such an
issue to be considered.
In Re: Petition for
Consolidation of Title
in the Vendees of a
House and the Rights
to a Lot. Maria Bautista
Vda. de Reyes, et al.,
Rodolfo Lanuza vs.
Martin de Leon, G.R.
No. L-22331, June 6,
1967 (20 SCRA 369)
Facts: Rodolfo Lanuza
and his wife Belen were
the owners of a two-
story house built on a lot
of the Maria Guizon
Subdivision in Tondo,
Manila, which the
234
the parties extended it
to July 12, 1961 by an
annotation to this effect
on the left margin of the
instrument. Lanuza's
wife, who did not sign
the deed, this time
signed her name below
the annotation.
It appears that
after the execution of
this instrument, Lanuza
and his wife mortgaged
the same house in favor
of Martin de Leon to
secure the payment of
P2,720 within one year.
This mortgage was
executed on October 4,
1961 and recorded in
the Office of the
Register of Deeds of
Manila on November 8,
1961 under the
provisions of Act No.
3344.

235
 As the Lanuzas failed to pay their obligation, De
Leon filed a petition for the extrajudicial foreclosure of the
mortgage. On the other hand, Reyes and Navarro followed
suit by filing in the Court of First Instance of Manila a
petition for the consolidation of ownership of the house
on the ground that the period of redemption expired on
July 12,
1961 without the vendees exercising their right of
repurchase. The petition for consolidation of ownership
was filed on October 19. On October 23, the house was
sold to De Leon as the only bidder at the sheriff's sale. De
Leon immediately took possession of the house, secured a
discharge of the mortgage on the house in favor of a rural
bank by paying P2,000 and, on October 29, intervened in
court and asked for the dismissal of the petition filed by
Reyes and Navarro on the ground that the unrecorded
pacto de retro sale could not affect his rights as a third
party.
The court ruled for Reyes and Navarro.
considered. We refer to the nature of the so-called "Deed
of Sale with Right to Repurchase" and the claim that it is
in reality an equitable mortgage. Circumstances are
clearly present that indicate the existence of the equitable
mortgage. The price is grossly inadequate. There was no
transmission of ownership to the vendees. There was a
delay in the filing of a petition for consolidation. Under
these circumstances we cannot but conclude that the
deed in question is in reality a mortgage. This conclusion is
of far-reaching consequences because it means not only
that this action for consolidation of ownership is
improper as
R
a
t
i
o
:

Issue: Whether an unrecorded prior sale of a property is W

preferred over a recorded subsequent mortgage. Whether e
a recorded subsequent mortgage is preferred over a prior
equitable mortgage. a
r
e
Held: Yes. Yes. Reversed.
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v questioned the
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i W
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u p
c r
h e
j
c u
a d
s i
e c
, e

b t
e o

o t
f h
e
n
o b
e
m t
o t
m e
e r
n
t r
i
s g
i h
n t
c
e o
f
i
t t
h
i i
s r
d
u
n p
d a
e r
r t
s i
t e
o s
o .
d
N
t o
o r

b w
e o
u
w l
i d
t
h i
o t
u
 i
a o
v n
a
i o
l f

t t
h h
e e

m p
o r
r o
t p
g e
a r
g t
e y
e
f
a o
n r
y
t
t h
o e

a e
s x
s e
e c
r u
t t
i
t o
h n
a
t o
f
h
e t
h
i e
s
c
i o
n n
v
a e
c y
t a
u n
a c
l e

p i
o n
s
s a
e
s
p
u t
b h
l i
i n
c g

i s
n o
s l
t d
r
u t
m o
e
n t
t h
e
e
a v
r e
l n
i d
e e
r e
.
w B
a u
s trial court appear tot have sufficiently
136
e t
q h
u e
i r
v e
a
l i
e s
n
t o
n
t e
o
a
t s
h p
e e
c
d t
e
l o
i f
v
e t
r h
y i
s
o
f c
a
t s
h
e
n
w e
h i
i t
c h
h e
r
l
e t
a h
d e
s
p
u a
s r
t
t i
o e
s
a
n
d o
i r
f
f t
e h
r e
e
n
t

c
o
n
c
l
u
s
i
o
n
.

I
t

i
s

p
o
i
n
t

w
h
i
c
De Leon claims, but, what is more, that between the Carolina P. Ramirez, Ferdinand P. Ramirez, Francis P.
unrecorded deed of Reyes and Navarro which we hold to Ramirez, Frederic P. Ramirez, & the Intestate Estate of
be an equitable mortgage, and the registered mortgage of Francisco Ramirez, Jr. vs. CA, Hon. Juan A. Bigornia, Jr.,
De Leon, the latter must be preferred. Preference of in his capacity as Presiding Judge of the RTC of Iligan,
mortgage credits is determined by the priority of Isabela, Br. 18
registration of the mortgages, following the maxim "Prior & Sps. Loreto Claravall & Victoria H. Claravall, G.R. No.
tempore potior jure" 133841, August 15, 2003 (409 SCRA 133)
(Hewhoisfirstintimeispreferredinright."). Under Article Judge of CFI of Antique, Juan, Ernesto, Estrella,
2125 of the Civil Code the equitable mortgage, while valid B
between Reyes and Navarro, on the one hand, and the a
Lanuzas, on the other, as the immediate parties thereto, r
cannot prevail over the registered mortgage of De Leon. t
o
Maria T. Guanzon vs. Hon. Manuel Argel, Presiding l
o
m
e
,

H
o
n
o
r
a
t
o
,

a
l
l

s
u
r
n
a
m
e
d

D
u
m
a
r
a
o
g
,

G
.
R
.

N
o
.
 c
L u
- t
2 e
7 d
7
0 a
6
, d
o
J c
u u
n m
e e
n
1 t
6
, e
n
1 t
9 i
7 t
0 l
e
d
(
3
p
3
a
c
S t
C o
R
A d
e
4
7 r
4 e
) t
r
o
F
a o
c v
t e
s r
:
a
I
n p
e a
s r
c
F e
l l
o
r o
e f
s
r
e i
x c
e
e r
i
l a
a
n G
d u
a
s n
i z
t o
u n
a .
t
e W
d h
e
i n
n
I
I n
n e
a s
b
a F
s l
a o
n r
, e
s
S
a w
n a
s
J
o u
s n
e a
, b
l
A e
n
t t
i o
q
u p
e a
y
i ,
n
M
f a
a r
v i
o a
r
G
o u
f a
n
M z
a o
n n
e
c s
o
n F
s l
o o
l r
i e
d s
a ,
t
e t
d h
e
h
e D
r u
m
t a
i r
t a
l o
e g
s
o ,
v
e f
r i
l
t e
h d
e
a
p n
r
o a
p c
e t
r i
t o
y n
.
f
T o
h r
e
t
c h
h e
i
l r
d e
r d
e e
n m
p
o t
f i
o
I n
 w
o a
f s

t a
h c
e t
u
l a
a l
n l
d y

c a
l n
a
i e
m q
i u
n i
g t
a
t b
h l
a e
t
m
t o
h r
e t
g
p a
u g
r e
p .
o A
r f
t t
e e
d r

p t
a r
c i
t a
o l
,
d
e t
h
r e
e
t c
r o
o u
r
s t
a
l d
e e
c
l
a o
r r
e d
d e
r
t e
h d
e
G
d u
o a
c n
u z
m o
e n
n
t t
o
i
n e
v x
o e
l c
v u
e t
d e

t a
o n

b i
e n
s
o t
n r
e u
m
o e
f n
t
e
q o
u f
i
t r
a e
b c
l o
e n
v
m e
o y
r a
t n
g c
a e
g
e i
n
a
n
f
a f
v i
o l
r e
d
o
f t
h
t i
h s
e
p
D e
u t
m i
a t
r i
a o
o n
g .
s
I
u s
p s
o u
n e
:
t
h W
e h
e
p t
a h
y e
m r
e
n a
t n

o e
f q
u
P i
1 t
, a
5 b
0 l
0 e
.
m
G o
u r
a t
n g
z a
o g
n e
e
t ’
h s
e
 d
t e
i b
t t
l o
e r

o f
v a
e i
r l
s
t
h t
e o

m p
o a
r y
t
g t
a h
g e
e
d l
o
p a
r n
o .
p
e Held: No. Affirmed.
r
t R
y a
t
w i
i o
l :
l
I
b f
e
t
c h
o e
n
s D
o u
l m
i a
d r
a a
t o
e g
d s
i f
f a
i
t l
h
e
t e
o
e
p n
a t
y i
t
t l
h e
e d

P t
1 o
,
5 h
0 a
0 v
e
w
i e
t x
h e
i c
n u
t
t i
h o
e n

s i
p s
e s
c u
i e
f
i t
e o
d
c
2 o
0 l
l
d e
a c
y t
s
, t
h
G e
u
a s
n a
z i
o d
n
a
w m
o o
u u
l n
d t
 o
f n
r v
o e
m y
a
t n
h c
e e

p w
r o
o u
p l
e d
r
t b
i e
e
s e
x
o e
f c
u
t t
h e
e d

D b
u y
m
a G
r u
a a
o n
g z
s o
n
w .
h
e I
r n
e
u n
p o
o
n w
a
t y
h
e c
a
d n
e
e t
d h
e
o
f j
u
r d
e
g y
m
e t
n h
t e

b m
e o
n
c e
o y
n
s w
t i
r t
u h
e i
d n

t t
o h
e
m
e s
a p
n e
c
t i
h f
a i
t e
d
s
h p
o e
u r
l i
d o
d
t
h t
e h
e
D n
u
m t
a h
r e
a
o p
g r
s o
p
f e
a r
i t
l y

t w
o o
u
p
l o
d l
d
b
e t
o
c
o s
n a
v t
e i
y s
e f
d y

b t
y h
e
t
h o
e u
t
s s
h t
e a
r n
i d
f i
f n
to Guanzon. Any interpretation in that g
sense would contradict the d eclaration made in the same judgment
that the contra i
ct between the parties was in fact a
mortgage and not a pacto de retro sale. The only right of n
a mortgagee in case of non-payment of a d
debt secured e
mortgage and have b
t t
h e
e d
n
e e
n s
c s
u .
m
b T
e h
r e
e
d m
o
p r
r t
o g
p a
e g
r o
t r
y ’
s
s
d
e o
f f
a
u t
l h
t e

d e
o n
e c
s u
m
n b
o e
t r
e
o d
p
e p
r r
a o
t p
e e
r
t t
o y
,
v
e f
s o
t r

i a
n n
y
t
h s
e u
c
m h
o
r e
t f
g f
a e
g c
e t
e
i
t s
h
e a
g
o a
w i
n n
e s
r t
s
h p
i
u
b
l
i
c

p
o
l
i
c
y
.

137
Facts: On Dec. 29, 1965, spouses Loreto Claravall and public policy and, therefore, void. Before perfect title over
Victoria Claravall executed a deed of sale in favor of a mortgaged property may thus be secured by the
the spouses Francisco Ramirez, Jr. and Carolina mortgagee, he must, in case of non-payment of the debt,
Ramirez covering a parcel of land, including foreclose the mortgage first and thereafter purchase the
improvements thereon, situated in Ilagan, Isabela. On mortgaged property at the foreclosure sale. In fine, the
even date, another instrument was executed granting the ownership of the property was not vested to the spouses
spouses Claravall an option to repurchase the property Ramirez upon private respondents’ failure to pay their
within a period of two years from December 29, 1965 but indebtedness, the registration of the property in the
not earlier nor later than the month of December, 1967. former’s names notwithstanding, absent any showing that
At the expiration of the two-year period, the Claravalls they foreclosed the mortgage and purchased the property
failed to redeem the property, prompting them to file a at a foreclosure sale.
complaint against the spouses Francisco Ramirez, Jr. and
Carolina Ramirez to compel the latter to sell the property I
back to them. After trial, judgment was rendered in favor s
of the spouses Ramirez which was, on appeal, affirmed by s
the Court of Appeals. On review, however, this Court, u
finding that the Deed of Absolute Sale with option to e
repurchase executed by private respondents in favor of :
the spouses Ramirez was one of equitable mortgage,
reversed the decision of the appellate court by W
Decision of October 15, 1990. The decision of this Court h
having become final and executory, possession of the e
property was turned over to private respondents after t
they settled their obligation to the spouses Ramirez. h
Following the death of Francisco Ramirez, Jr., the e
spouses Claravall filed a complaint for accounting and r
damages against the intestate estate of Francisco Ramirez,
his widow and children. A motion to dismiss was filed t
alleging, among other things, that the Ramirezes, as h
registered owners of the lot prior to its redemption, e
were entitled to collect rentals for the lot. The
resolution of the motion to dismiss was deferred. The m
Ramirezes filed a petition for certiorari which was denied. o
r
t
g
a
g
e
e
s

o
f

a
n

e
q
u
i
t
a
b
l
e

138
m g
o a
r g
t e
g d
a
g p
e r
o
w p
h e
o r
t
h y
a
v c
e a
n
b
e c
e o
n l
l
r e
e c
g t
i
s r
t e
e n
r t
e
d a
n
a d
s
o
t t
h h
e e
r
o
w f
n r
e u
r i
s t
s
o
f f
r
t o
h m
e
t
m h
o e
r
t s
139
a t
i e
d m
s
p
r f
o r
p o
e m
r
t t
y h
. e
i
Held: No. Affirmed. r

R s
a u
t b
i m
o i
: s
s
T i
h o
e n

f t
l h
a a
w t

i t
n h
e
p
e s
t p
i o
t u
i s
o e
n s
e
r R
s a
’ m
i
a r
r e
g z
u ,
m
e a
n s
t
“
s v
e
140
n e
d r
e e
e d
s
, i
” n

w t
e h
r e
e i
r
t
h n
e a
m
o e
w s
n
e f
r o
s l
l
o o
f w
i
t n
h g
e
t
p h
r e
o
p e
e x
r e
t c
y u
t
a i
f o
t n
e
r o
f
i
t t
h
w e
a
s d
e
r e
e d
g
i o
s f
t
141
s t
a
l i
e n

i t
n h
e
t
h f
e i
i r
r s
t
f
a c
v a
o s
r e
.
t
T h
h a
e t

d t
e h
c e
l
a d
r e
a e
t d
i
o o
n f
,
s
h a
o l
w e
e
v w
e i
r t
, h

b o
y p
t
t i
h o
i n
s
t
C o
o
u r
r e
142
p s
u p
r o
c n
h d
a e
s n
e t
s
e
n w
t a
e s
r
e a
d n

i e
n q
t u
o i
t
b a
y b
l
t e
h
e m
o
s r
p t
o g
u a
s g
e e
s
n
R e
a c
m e
i s
r s
e a
z r
i
a l
n y
d
t
p a
r k
i e
v s
a
t t
e h
e
r
e d
143
e a
e t
d i
o
o n
u
t t
h
o e
f
l
t a
h w
e
o
a n
m
b m
i o
t r
t
o g
f a
g
t e
h .
e
I
l t
a
w i
s
o
n a

s w
a e
l l
e l
s -
e
a s
n t
d a
b
p l
u i
t s
s h
e
i d
n
t d
o o
c
o t
p r
e i
r n
144
e
m
t o
h r
a t
t g
a
t g
h e
e e

m t
o h
r e
t
g o
a w
g n
o e
r r
’ s
s h
i
d p
e
f o
a f
u
l t
t h
e
d
o e
e n
s c
u
n m
o b
t e
r
o e
p d
e
r p
a r
t o
e p
e
t r
o t
y
v
e a
s n
t d

t t
h h
e e
145
a i
c n
t
h
o i
f s

t o
h w
e n

m n
o a
r m
t e
g
a u
g p
e o
e n

i t
n h
e
r
e m
g o
i r
s t
t g
e a
r g
i o
n r
g ’
s
t
h f
e a
i
m l
o u
r r
t e
g
a t
g o
e
d r
e
p d
r e
o e
p m
e
r t
t h
y e
146
 s
p e
r
o d
p e
e c
r l
t a
y r
e
a d
m
o b
u y
n
t t
s h
i
t s
o
C
p o
a u
c r
t t
u
m a
s
c
o c
m o
m n
i t
s r
s a
o r
r y
i
u t
m o
,
g
a o
o
f d
o
r m
f o
e r
i a
t l
u s
r
e a
n
c d
l Domingo Cortes, et al.,
a Lucia Perez, et al. vs. G.R. No. 3821, February
u 16, 1910 (15
147
Phil 211) mortgage when the whether the contract language of the
terms of the contract are entered into by Vicente document, in justice it
Facts: Liberato Perez, by doubtful. Whether Perez was one of must be assumed that
virtue of the possession mortgagee can mortgage or one of the debtor assumed a
he enjoyed as owner for automatically sale, on the hypothesis lesser obligation and
more than sixty years, appropriate and dispose that he could dispose of that in accord with the
without counting that of of the property the property, while it is creditor he bound
his ancestors, lawfully mortgaged upon default. not possible to decide himself to execute a
acquired by means of the question by the mortgage which
extraordinary Held: No. Yes. No.
prescription, under the Affirmed R
provisions of article a
1959 of the Civil Code, t
the ownership of about i
30 hectares of land. His o
two daughters, Lucia :
and Eduvigis Perez,
inherited such land from I
him. The daughters t
transferred ½ of the
land to Dominga Bolado m
who, in turn, transferred a
the said half to her y
daughter, Inocenta
Perez. b
In 1903, e
Domingo Cortes and his
wife Dominga Ubaldo, t
usurped and unlawfully r
retained the land last u
described, and still e
retain it without
possessing any right t
thereto. The Perezes h
filed suit. Impugning the a
right of the plaintiffs, the t
defendants alleged that
they were and still are V
the owners of the part i
or portion of land c
claimed, for the reason e
that Pedro Olang had n
acquired it in 1895 from t
its lawful owner and e
possessor, Vicente
Perez, and that Dominga P
Ubaldo inherited it upon e
the death of her r
husband. The court e
ruled for the Perezes. z

Issue: Whether a person o

who is not the owner of w
a property can mortgage e
the property. Whether d
the parties are
presumed to have P
entered a contract of e
148
d i
r t
o t
e
O d
l
a t
n h
g a
t
1
0 h
0 e

p g
e a
s v
o e
s
t
i h
n e

t s
h a
e i
d
y
e l
a a
r n
d
1
8 a
9 s
5
, s
e
b c
u u
t r
i
i t
t y
;
c
a i
n t

n d
o i
t d

b n
e o
t
a
d b
m e
149
l u
o t
n
g t
h
t e
o
k
h n
i o
m w
, l
e
n d
o g
r e

c o
o r
u
l c
d o
n
h s
e e
n
i t
n
o
a f
n
y i
t
m s
a
n l
n a
e w
r f
u
d l
i
s o
p w
o n
s e
e r
,
o
f a
n
i d
t ,

w s
i e
t e
h i
o n
150
g e
d
t
h h
a e
t r

h i
e n

d t
i h
e e
d
e
b n
e j
f o
o y
r m
e e
n
h t
i
s o
f
m
o t
t h
h e
e
r s
, a
i
h d
e
p
c o
o r
u t
l i
d o
n
n
o o
t f

h l
a a
v n
e d
.
s D
u o
c m
c i
e n
e g
d a
151
 e
U c
b l
a a
l r
d e
o d

r t
e o
s
t h
s a
v
h e
e
r m
o
c r
l t
a g
i a
m g
e
o d
n
t
a o

d P
o e
c d
u r
m o
e
n O
t l
a
w n
h g
e
r f
e o
r
V
i t
c h
e e
n
t s
e u
m
P
e o
r f
e
z 1
0
d 0
152
p o
e f
s
o L
s o
o
a c
,
p
a w
r i
c t
e h
l
a
o
f d
e
l s
a c
n r
d i
p
o t
w i
n o
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153
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154
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155
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156
g t
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s (
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157
i involves a greater (
n reciprocity of interests 4
than a contract of sale 7
a under pacto de retro, in
n spite of the fact that both P
y the latter and that of h
mortgage involve a i
w valuable consideration in l
o accordance with the
r provisions of article 9
d 1289 of the Civil Code. 5
Further, when 1
t the obligation became )
o due, the creditor would
be entitled to have the Facts: Ciriaco Villarin,
s mortgaged property sold being the owner of six
h to satisfy the debt, but parcels of land, executed
o not to appropriate or a document in favor of
w dispose of it. Eugenio Gomez,
acknowledging a debt,
t Juan Dalay vs. one of whose clauses is
h Bernardo Aquiatin & as follows: “if I cannot
a Proceso Maximo, pay the aforesaid
t G amount, when the date
. agreed upon comes, the
t R same shall be paid with
h . the lands given as
e security, the lot and
N house and lands
a o described in the
g . aforesaid seven
r documents.”
e 2 As the period so
e 0 stipulated elapsed
m 1 without Ciriaco Villarin
e 3 having paid the debt,
n 2 Eugenio Gomez, believing
t , himself entitled to do so,
executed a document in
w favor of Juan Dalay
S
a transferring the
e
s properties used as
p
t security in consideration
a of the amount of P2,300.
e
m By virtue of this
s conveyance, Juan Dalay,
b
a on the same date it was
e
l executed, entered upon
r
e the possession of these
2 lands and is now still in
a possession thereof.
2
, On October 10,
r 1917, Ciriaco Villarin, in
e an affidavit,
t 1
9 acknowledged that the
r title to, and possession of,
o 2
3 the aforesaid lands had
. been transferred in a real
However, even if there were a doubt as to
158
and absolute sale to
Eugenio Gomez.
Fifteen days
later, that is, on October
25, 1917, Ciriaco Villarin
contracted a debt in
favor of Bernardino
Aquiatin. Villarin was
unable to pay, so
Aquiatin filed suit. He
won and the judgment
became final.
Execution was issued
and levied upon the six
parcels aforementioned.
Juan Dalay
brought this action
against Bernardino
Aquiatin and the deputy
sheriff, Proceso Maximo,
to have himself
declared owner of said
lands, to forever
prohibit the defendants,
their agents and other
persons acting in their
behalf, from performing
any act tending to carry
out the attachment and
execution sale of said
realties, and to recover
the costs.
After trial, the
court found that the
plaintiff had no cause of
action for the reason
that he was not, nor
could he have been, the
owner of the properties
given to him as security
of the debt, and
dismissed the complaint,
ordering the execution
to be carried out upon
the lands in question,
and sentencing the
plaintiff to pay the costs.
Issue: Whether a mortgaged,
provision which
provides that if a loan is
not paid upon a date
agreed, the loan shall be
paid with the lands
given as security is valid.
Neither do we find that
it authorizes him to
appropriate the same.
Held: Yes. Reversed. at its maturity it is not
satisfied. It is merely a
promise made by the
Ratio: Is this stipulation
debtor to assign the
violative of the
property given as
provisions of article
security in payment of
1859 of the Civil Code?
the debt, which promise
Two things are
is accepted by the
prohibited by this
creditor. There is no
article, to wit, (a) the
doubt that a debtor may
appropriation by the
make an assignment of
creditor of the
his properties in
properties pledged or
payment of a debt. (Art.
mortgaged; and (b) the
1175, Civil Code.) And
disposition thereof by
the assignment is not
the same creditor. The
made unlawful by the
stipulation above set
fact that said properties
forth does not authorize
are mortgaged, because
either one or the other.
the title thereto remains
Of course it is clear that
in the debtor; nor is a
it does not authorize
promise to make such an
the creditor to dispose
assignment in violation
of the properties
of the law. We are,
mortgaged.
therefore, of the opinion
that this case does not
come under the
provisions of article
1859 of the Civil Code,
and therefore said article
is not applicable to the
stipulation in question.
Upon the
expiration of the period
for the payment of the
debt without the same
having been paid,
Eugenio Gomez did not
wait nor require Ciriaco
Villarin to make a formal
assignment of the
mortgaged property in
payment of the debt, and
transferred the same to
Juan Dalay in the
document Exhibit C. And
in doing so, Eugenio
Gomez did not dispose of
property merely
but of
property promised to be
assigned in payment of
the debt which had not
been paid at the
expiration of the period
fixed for its payment.
Gomez had not,
What it says is merely a by virtue alone of the
promise to pay the debt promise of assignment of
with such properties, if said property, any real
right thereon, but he did
have a personal action
against Villarin to compel
him to execute the
proper deed of
assignment. For this
reason the conveyance
made by Gomez in favor
of Dalay was defective, it
having been made in
advance of the actual
assignment of said
property in his favor.
This transfer, however, is
not void per se inasmuch
as Villarin consented to
the said property passing
to Gomez in payment of
the debt after the
expiration of the period
for payment, if the debt
was not paid. There is no
question as to the
concurrence of the other
elements of this contract
made in favor of Dalay,
the defect consisting in
Villarin not having
previously executed the
deed of assignment he
had promised. This
defect, which would have
been a ground for
annulling this transfer
made by Gomez in favor
of Dalay, had Villarin
brought the proper
action, was cured by the
act of said Villarin in
executing the document
wherein he
acknowledged that the
title to, and possession of,
said lands were
transferred to Gomez as
in a real and absolute
sale. This confirmation,
valid and effective under
the provisions of article
1311 of the Civil Code,
gave full effect to the
transfer of these
properties made by
Gomez in favor of Dalay.
The allegation of
the defendant Aquiatin
that this sale in favor of
Dalay is simulated and
fraudulent cannot be
159
held proven. It does not
appear that when he
executed the document,
Ciriaco Villarin was
indebted to anybody
with the exception of
Gomez, nor that he
owed anything to
anybody when he
executed the affidavit
which cured the defect
of the transfer in favor
of Dalay.
Street, dissenting: Said
stipulation in the
opinion of the
There is a recognition
maxim long recognized
by the equity courts of
England and America to
the effect that "Once a
mortgage, always a
mortgage." This means
that if an instrument is
in its origin a mortgage,
it will be treated as
such by the courts until
it is satisfied or
foreclosed by some
legal process; and the
courts will not recognize
a stipulation inserted in
the instrument creating
the mortgage which is
intended to vest the
property in the creditor
upon failure of the
debtor to pay the
mortgage debt. Nor will
they recognize any
waiver of the equity of
redemption inserted in
the contract. This
doctrine is based upon a
undersigned should be
declared invalid, as
being contrary to the
spirit, if not the letter, of
article 1859 of the Civil
Code, as well as directly
contrary to the general
principles of
jurisprudence
applicable to the
relation of mortgagor
and mortgagee. If a
stipulation of this kind
is valid, every mortgage
in which such
stipulation is inserted
will become self-
executing, and the
debtor, upon making
default in the payment
of the debt, will be
bound to transfer the
property in satisfaction
of the mortgage, with
the result that the right
of redemption is lost
from the mere fact that
the debtor is unable to
pay at the date
stipulated.
of the
inequality of the
position of the debtor
and creditor
respectively. It
recognizes the fact that
the creditor necessarily
has a power over his
debtor which may be
exercised inequitably,
and that the debtor is
liable to yield to the
exertions of such power.
The doctrine embodied
in the maxim referred to
protects the debtor
absolutely from the
consequences of his
inferiority and of his
own act done through
infirmity of will.
Opposed as I am
to the doctrine stated by
the court with reference
to the legality of the
stipulation above
referred to, I also differ
from the court with
respect to the effect of P3,600.00. The
the affidavit. The Tambuntings are
admission in the said engaged in the lending-
affidavit on the part of pawnshop business using
Villarin was merely a the name and style
recognition of the "Agencia de
validity of the stipulation Tambunting", with Jose
in question and such an P. Tambunting as
admission could not Manager. The loan was
impress validity upon a evidenced by a
stipulation of the promissory note
character referred to. executed by the Cruzes,
It is not to be payable within four (4)
denied that a mortgagor months from 16
of property may transfer December 1959, with
the mortgaged property interest at 12% per
to the creditor in annum. As security for
satisfaction of the payment of the loan, a
mortgage debt after the Deed of Real Estate
mortgage has fallen due. Mortgage was executed
But such a transfer by the Cruzes in favor of
implies the independent the Tambuntings over a
exercise of the power parcel of land belonging
vested in the mortgagor, to the Cruzes.
as owner, and the Due to debtors'
affidavit in question is failure to pay the
nothing more than the loan obligation
recognition of a situation
which was supposed by
the debtor to be an
accomplished fact,
namely, that the
property in question had
passed to the creditor
upon the debtor's failure
to pay the debt when
due. No legal efficacy can
be conceded to such an
admission.
Aurora Tambunting,
Antonio Tambunting,
Jose P. Tambunting &
the Acting Provincial
Sheriff for the Province
of Rizal vs. CA, Damaso
R. Cruz & Monica
Andres, G.R. No. L-
48278, November 8,
1988 (167 SCRA
16)
Facts: Spouses Damaso
R. Cruz and Monica
Andres obtained a loan
from spouses Antonio
and Aurora Tambunting
in the amount of
160
at maturity, a petition
for extrajudicial
foreclosure of mortgage
was filed. The
Cruzes instituted an
action against the
Tambuntings for
annulment of mortgage
and damages with
prayer for a writ of
preliminary injunction.
A TRO was issued by
the court. When the
TRO lapsed, the
mortgage properties
were sold at a public
auction to Aurora
Tambunting
and Antonio
The court
eventually upheld the
loan and the mortgage,
but voided the
foreclosure sale. CA
affirmed.
Issue: Whether a even slight deviations
deviation from the
publication requirement
will make the
foreclosure sale
voidable. Whether the
mortgagor is entitled to
an accounting of the
fruits of the mortgaged
property which was
improperly foreclosed.
Held: Yes. Yes. Affirmed.
Ratio: Sec. 3 of Act No.
3135 provides that
Notice shall be given by
posting notices of the
sale for not less than
twenty (20) days in at
least three public places
of the municipality or
City where the property
is situated, and if such
property is worth more
than four hundred
pesos, such notice shall
also be published once a
week for at least three
consecutive weeks in a
newspaper of general
circulation in the
Tambunting for
P9,400.00.
Thereafter,
mortgagee-
vendee Antonio
Tambunting sold and
transferred his 1/2
share in the property to
his wife Aurora
Tambunting. On 31
January 1969, Aurora
Tambunting executed
an Affidavit of
Consolidation of Title,
for the issuance of a
new title in her name. A
TCT was issued in her
name.
municipality or city. The
rule is that statutory
provisions governing
publication of notice of
mortgage foreclosure
sales must be strictly
complied with, and that
therefrom will invalidate
the notice and render the
sale at least voidable.
Where required by the
statute or by the terms of
the foreclosure decree,
public notice of the place
and time of the mortgage
foreclosure sale must be
given, a statute requiring
it being held applicable
to subsequent sales as
well as to the first
advertised sale of the
property. It has been
held that failure to
advertise a mortgage
foreclosure sale in
compliance with
statutory requirements
constitutes a stressed that, while the
jurisdictional defect
invalidating the sale and
that a substantial error
or omission in a notice of
sale will render the
notice insufficient and
vitiate the sale.
One issue of a
newspaper of general
circulation is not
substantial compliance court and the Court of
with the required Appeals.
publication of once (1) a As for the
week for at least three petition for accounting
(3) consecutive weeks. of fruits and rentals, the
Petitioners claim the Cruzes were entitled to
publisher's affidavit of such accounting and the
publication is merely a Court of Appeals was the
customary proof, hence, proper forum for such
it should not be petition. The petition for
considered as the sole accounting did not
evidence of publication. really seek a
This may be so in the modification of the
presence of equally judgments of the trial
convincing evidence. In court and the Court of
the case at bar, however, Appeals. The remedy
there is no such other sought (accounting and
proof of publication. To offsetting of accounts)
show compliance, the was a direct clear-cut
published notices and consequence of an
certificate of posting by
equally clear-cut
the sheriff of the notice decision which, in effect,
of sale of 26 January
held that the Cruzes
1968 should have been were never divested of
presented. They do not
their ownership over the
appear in the record. property in
Neither can the sale be
considered as an
adjournment of an
earlier sale under Sec.
24 of Rule 39 of the
Rules of Court. As
correctly posed by the
Court of Appeals, why
was there one (1)
publication of the notice
of sale scheduled on 26
January 1968? The
presumption of
compliance with official
duty has been rebutted
by the failure to present
proof of posting and
publication of the notice
of sale of 26 January
1968.
At this juncture,
it should be carefully
foreclosure or auction
sale of 26 January 1968
is null and void, the real
estate mortgage as well
as the Cruzes' loan
obligation to the
Tambuntings remain
valid and effective as
ruled in the decisions of
the trial
161
question. In other UCPB for a loan obtained publication thereof in a newspaper of general
words, the accounting by Guimaras Agricultural newspaper of general circulation which is
sought and granted is Development, Inc. in the circulation. We take distributed nationwide,
merely an incident of amount of P3,000,000. judicial notice of the fact shall have a readership
the declared Langkaan and Guimaras that newspaper of more people than that
respondents' right of agreed to share in the publications have more posted in a public
ownership under the total loan proceeds far-reaching effects than bulletin board, no
Civil Code. obtained from UCPB. posting on bulletin matter how strategic its
The petition for Another P2,000,000 boards in public places. location may be, which
accounting is based on loan was secured by There is a greater caters only to a limited
the rationale underlying Guimaras from UCPB probability that an few. Hence the
a related rule in the which was secured by announcement or notice publication of
Rules of Court – Sec. 34, the real estate published in a
Rule 39. What clearly mortgage. Guimaras
appears from this defaulted on its loan.
R
provision is the right of UCPB foreclosed the
a
the debtor to demand mortgage and bought the
t
for an accounting of the property during the
i
rents and profits auction sale in 1986.
o
received by a creditor There was no
:
during the period of redemption, so UCPB
redemption. Thus, while consolidated its title.
E
the Rules of Court allow In 1989,
v
the purchaser in an Langkaan wrote UCPB to
e
execution sale to receive buy back the foreclosed
n
the rentals if the property for P4,000,000,
purchased property is but UCPB refused
i
occupied by tenants, he claiming the market
f
is, however, accountable price of the property is
to the judgment debtor now P6,500,000.
i
or mortgagor, as the Langkaan then filed a
t
case may be, for the complaint for annulment
amounts so received and of extrajudicial
w
the same will be duly foreclosure and sale. The
e
credited against the complaint was
r
redemption price when dismissed. CA affirmed.
e
said debtor or
mortgagor effects the Issue: Whether an t
redemption. irregularity in the r
posting requirement u
Langkaan Realty will invalidate a e
Development, Inc. vs. foreclosure sale.
United Coconut Whether the holding of t
Planters Bank & CA, the foreclosure sale at h
G.R. No. 139437, the wrong venue without a
December 8, 2000 any opposition will t
(347 SCRA 542) invalidate the
foreclosure sale. t
Facts: Langkaan Realty h
was the registered Held: No. No. Affirmed. e
owner of 631,693
square meter parcel of N
land located at o
Langkaan, Dasmariñ as, t
Cavite. Langkaan Realty i
executed a real estate c
mortgage over the e
property in favor of
162
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166
the notice of sale in the
newspaper of general
circulation alone is more
than sufficient
compliance with the
notice- posting
requirement of the law.
By such publication, a
reasonably wide
publicity had been
effected such that those
interested might attend
the public sale, and the
purpose of the law had
been thereby subserved.
The object of a notice of
sale is to inform the
public of the nature and
condition of the
property to be sold, and
of the time, place and
terms of the sale.
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.’
In the case at bench, this
objective was attained
considering that there
was sufficient publicity
of the sale through the
Record Newsweekly.
In ascertaining
whether or not the
venue of the extra-
judicial foreclosure sale
was improperly laid, it is
imperative to consult
Act No. 3135, as
amended, the law
applicable to such a sale. sale conducted at the
Section 2 provides that municipal building of
the sale cannot be made Dasmarinas where the
legally outside of the property is situated. On
province which the the other hand, the
property sold is situated; private respondent
and in case the place argues that the extra-
within said province in judicial foreclosure sale
which the sale is to be was properly held at the
made is the subject of main entrance of the
stipulation, such sale Office of the Clerk of
shall be made in said Court and Ex-officio
place or in the municipal Sheriff of the RTC of
building of the Imus which has
municipality in which territorial jurisdiction
the property or part over Dasmarinas, as
thereof is situated. The provided in the
mortgage contract Supreme Court
specifically provided that Administrative Order
the auction sale shall be No.
held at the capital of the 7 (1983) issued
province, if the property pursuant to Section
is within the territorial 18 of B.P. Blg.
jurisdiction of the 129. The private
province concerned, or respondent further
shall be held in the city, if contends that Section
the property is within 18 of B.P. Blg. 129
the territorial repealed the provision
jurisdiction of the city on
concerned.
The foreclosed
property is located in
Dasmarinas, a considered only as an
municipality in Cavite.
Dasmarinas is within the
territorial jurisdiction of
the province of Cavite, Therefore, the stipulated
but not within that of the venue and that provided
provincial capital, Trece under Act 3135 can be
Martires City, nor of any applied alternatively.
other city in Cavite. Now, applying Act 3135,
The territorial the venue of the sale
jurisdiction of should be at the
Dasmarinas is covered municipal building of
by the RTC of Imus, Dasmarinas since the
another municipality in foreclosed property is
Cavite. The petitioner located in the
contends that the extra- municipality of
judicial foreclosure sale Dasmarinas.
should have been held in We cannot
Trece Martires City, the sustain the contention of
capital of Cavite, the private respondent
following the above- that the proper venue for
quoted stipulation in the the sale of the
real estate mortgage Dasmarinas property is
contract; or, in the the RTC of Imus which
alternative, Section 2 of has territorial
Act 3135 should have jurisdiction thereon as
been applied, and the provided under SC
venue under Section 2 of
Act 3135.
We agree with
the petitioner that under
the terms of the
contract, the extra-
judicial foreclosure sale
could be held at Trece
Martires, the capital of
the province which has
territorial jurisdiction
over the foreclosed
property. The
stipulation of the parties
in the real estate
mortgage contract is
clear, and therefore,
should be respected
absent any showing that
such stipulation is
contrary to law, morals,
good customs, public
policy or public order. A
contract is the law
between the parties.
However, since the
stipulation of the parties
lack qualifying or
restrictive words to
indicate the exclusivity
of the agreed forum, the
stipulated place is
additional, not a limiting
venue.
Administrative Order No.
7 issued pursuant to
Section 18 of B.P. Blg.
129, which allegedly
repealed the venue
provision under Section
2 of Act 3135. Section 18
of B.P. Blg. 129 provides
for the power of the
Supreme Court to define
the territorial
jurisdiction of the
Regional Trial Courts.
Pursuant thereto, the
Supreme Court issued
Administrative Order No.
7, placing the
municipalities of Imus,
Dasmarinas and Kawit
within the territorial
jurisdiction of the RTC of
Imus. On the other hand,
Section 2 of Act 3135
167
refers to the venue of an
extra-judicial
foreclosure sale. t is
difficult to fathom how a
general law such as B.P.
Blg. 129 can repeal a
special law like Act
3135. Aside from
involving two entirely
different legal concepts
such as jurisdiction (B.P.
Blg. 129) and venue
(Section 2 of Act 3135),
this proposition goes
against a basic rule in
statutory construction
that the enactment of a
later legislation which is
a general law cannot be
construed to have
repealed a special law.
Much less can the
private respondent
invoke Supreme Court
administrative issuances
as having amended or
repealed Section 2 of
Act 3135. A statute is
superior to an
administrative issuance,
and the former cannot
be repealed or amended
by the latter.
Notwithstandin
g the foregoing,
however, this Court
finds the extra-judicial
foreclosure sale held at
the RTC of Imus to be
valid and legal. Well-
known is the basic legal
principle that venue is
waivable. Failure of any
party to object to the
impropriety of venue is
deemed a waiver of his
right to do so. In the
case at bar, we find
that such waiver was
exercised by the
petitioner. An extra-
judicial foreclosure sale
is an action in rem, and
thus requires only
notice by publication
and posting to bind the
parties interested in the
foreclosed property. No
personal notice is
necessary. As such, the
due publication and
posting of the extra-
judicial foreclosure sale
of the Dasmarinas
property binds the
petitioner, and failure of
the latter to object to the
venue of the sale
constitutes waiver. From
1986 to April 1989,
despite knowledge of
the foreclosure sale of
their property, Langkaan
did not take any step to
question the propriety of
the venue of the sale. It
was only on May 30,
1989 that the petitioner
filed a Complaint for
Annulment of the
foreclosure sale, and
only after its offer to
repurchase the
foreclosed property, the
title to which had been
consolidated in the name
of private respondent
UCPB, had been rejected
by the bank. Nowhere
can it be found that the
petitioner objected to or
opposed the holding of
the sale at the RTC of
Imus. By neglecting to do
so, Langkaan is deemed
to
have waived its right to
object to the venue of
the sale, and cannot
belatedly raise its
objection in this
petition filed before us.
Spouses Guillermo
Agbada & Maxima
Agbada vs. Inter-
Urban Developers, Inc.
& RTC Br. 105, QC, G.R.
No. 144029,
September 19, 2002
Deed of Real Estate
Mortgage over a parcel
of land and the
improvements thereon
situated in Tandang
Sora, Quezon City owned
by the spouses. The loan
was payable within six
(6) months from 21
February 1991 at three
percent (3%) interest
per month, otherwise,
failure to discharge the
loan within the
stipulated period would
entitle Inter- Urban
Developers, Inc. to
foreclose the mortgage
judicially or extra-
judicially. The spouses
failed to pay the loan
within the six-month
period despite several
out-of-court demands
made by respondent
Inter- Urban Developers,
Inc.
On 10 December
1993 Inter-Urban
Developers, Inc. filed
with the Regional Trial
Court of Quezon City,
Branch 105, a complaint
for foreclosure of real
estate mortgage. On 2
March 1994, without
assistance of counsel, the
spouses filed their
unverified answer
admitting that they had
borrowed the amount of
P1,500,000.00 from
respondent and had
executed the real estate
(389 SCRA 430)
Facts: On 21 February
1991 petitioner-spouses
Guillermo Agbada and
Maxima Agbada
borrowed
P1,500,000.00 from
respondent Inter-Urban
Developers, Inc. through
its president, Simeon L.
Ong Tiam. To secure the
loan, the parties
concurrently executed a
mortgage to secure the
loan but alleging that it
was payable within five
(5) years and at twelve
percent (12%) interest
per annum. Pre-trial was
set, but reset several
times on account of the
spouses Agbada.
Guillermo Agbada
submitted a
1-page handwritten
letter admitting his
liability to pay Inter-
Urban Developers, Inc. A
motion for summary
judgment was filed
supported by an affidavit
of the treasurer who
witnessed the
transaction. The spouses
Agbada, this time
represented by a lawyer,
attempted to submit an
amended answer that
denied any obligation to
the interest. The judge
disallowed the amended
answer and promulgated
a summary judgment
against the spouses
Agbada.
The spouses
Agbada did not appeal
the summary judgment
nor did they pay the
judgment debt. A decree
of foreclosure was issued
and a foreclosure sale
was held with Inter-
Urban Developers, Inc.
winning the bidding. The
court confirmed the sale
over the opposition of
168
the spouses Agbada that Developers, Inc. the t
the purchase price of the opportunity to cross- h
property was below the examine whatever such e
appraised value as evidence would tend to
stated in an appraisal establish. Equally s
report. After the sale significant, the low p
became final, Inter- purchase price could o
Urban Developers, Inc. have worked in the u
prayed for a writ of petitioner-spouses' s
possession. The spouses favor if they promptly e
Agbada filed other exercised their equity of s
dilatory motions which redemption. As held in
were denied. They then Tarnate v. Court of c
filed a petition for Appeals, "[a]nent the l
annulment of the contention that the a
summary judgment on property has been sold i
the ground that violated at an extremely low m
their right to due price, suffice it to say
process. The petition that, if correct, it would t
was dismissed. have, in fact, favored an h
easy redemption of the a
Issue: Whether a property. That remedy t
foreclosure sale can be could have well been
reversed because the availed of but t
purchase price of the petitioners did not." h
property is below its e
appraised value.
p
Held: No. Affirmed. u
r
c
R
h
a
a
t
s
i
e
o
:
p
r
T
i
h
c
e
e
r
e
o
f
i
s
t
h
n
e
o
m
m
o
e
r
r
t
i
g
t
a
g
i
e
n
d

169
r w
e n
a
l e
v
p i
r d
o e
p n
e c
r e
t
y w
h
w i
a c
s h

w m
a i
y g
h
b t
e
l h
o a
w v
e
i
t p
s r
o
a v
p e
p d
r
a t
i h
s i
e s
d
m
v a
a t
l t
u e
e r
.
To begin with, they deliberately withheld
a the presentation
o n
f d

t t
h h
e u
i s
r
u
o n
170
f terms of the agreement land described in the
o were unequivocally original complaint. The
r reduced in writing, they defendant was duly
t could hardly be served in both
u controverted by oral proceeding with both the
n evidence to the original and amended
a contrary. Similarly, in complaints, and made
t Heirs of Amparo del defaults in both cases. On
e Rosario v. Santos, where April 21, 1922, the bank
l we rejected the filed a motion for default.
y alteration of the August 8, 1922, the court
conditions imposed in declared the defendant in
d the deed of sale, this default, and set the case
e Court ruled that for hearing on August 23,
p appellants therein could 1922, at which time the
r not be allowed to bank appeared and
i introduce evidence of presented proofs of all
v conditions allegedly the facts alleged in its
e agreed upon by them original and amended
d other than those complaints. August 28,
stipulated in the deed of 1922, the court rendered
r sale because when they judgment in favor of the
e reduced their agreement bank and against the
s in writing, it is presumed defendant, requiring him
p that they have made the within three months
o writing the only from that date to pay the
n repository and memorial plaintiff the amount of
d of truth, and whatever is the two mortgage in
e not found in the writing question, with the
n must be understood to interest and costs, and
t have been waived and that in default thereof,
abandoned. execution should be
I issued for the sale of the
n Philippine National property to satisfy the
t Bank vs. Manuel judgment.
e Ernesto Gonzalez. On December 7,
r Saturnino Lopez, G.R. 1922, and for want of any
- No. payment, the plaintiff
U 21026, February 13, moved the court for an
r 1924 (45 Phil 693) execution, and on
b January 11, 1923, an
a Facts: On November 23, execution was issued for
n 1921, the Philippine the sale of the real
National Bank property described in the
The instant case disputed, we rejected as mortgages to satisfy the
is not genuine issue the commenced a suit
against Manuel Ernesto amount of the judgment.
unprecedented. contention of petitioners On August 28,
In Tarnate therein that they were Gonzalez to foreclose a
real mortgage made to 1922, the total of the
v. Court of Appeals misled by respondent judgment in the first
involving a case of bank to believe that the secure a promissory note
for P15,000. On March cause of action, including
foreclosure of real estate loans were long-term the interest, was
mortgage that was accommodations since 17, 1922, the plaintiff
bank filed an amended P17,313.59, and in the
resolved by means of the loan documents second mortgage, on the
summary judgment admittedly executed by complaint against the
same defendant, in same date, it was
where neither the the parties clearly P17,755. The
existence of the loans contradicted petitioners’ which the original was
and the mortgage deeds asseverations and the reproduced, to foreclose
nor the fact of default on parties must have a second mortgage for
the due repayments was realized that when the P15,000 upon the same
171
property was sold in an the sale. extrajudicially the the mortgaged property.
auction sale. On On April 5, mortgaged property, The property was sold at
February 16, 1923, the 1923, Gonzalez filed a pursuant to Republic public auction on June
sheriff filed a motion to motion for Act No. 3135, as 10,
confirm the sale to reconsideration. The amended. Conformably 1957 to DBP, being the
Lopez, which was set court, in consideration to this stipulation, upon highest bidder. Because
down for hearing on of the disparity between breach of the conditions the proceeds of the sale
March 9, 1923, and due the real value of the of the mortgage, DBP were not sufficient to
notice was given to all land and the price at the foreclosed satisfy the balance of
the parties in interest. auction sale, set aside extrajudicially the appellant's
At a hearing on that the confirmation and mortgage on December indebtedness, appellee
date, the court made an ordered a resale to give 10, 1952, and the sued the appellants for
order duly confirming defendant Gonzalez a Provincial Sheriff of the deficiency. The trial
Pangasinan posted the court found for appellee
greater opportunity in will be regarded as requisite notice of the and ordered the
order to obtain a better fraudulent and void, and sale at public auction of appellants to pay the
price. The complainant the party injured will be I
and the buyer appealed. permitted to redeem the t
property sold.
Issue: Whether the In Warner, i
court can set aside the Barnes & Co. vs. Santos s
foreclosure sale of a (14 Phil., 446), a judicial
mortgaged property due sale of real estate in an b
to the disparity between action to foreclose will y
the selling price at the not be set aside for
auction and the actual inadequacy of price, n
value of the property. unless the inadequacy be o
so great as to shock the
Held: No. Reversed. conscience or unless the m
inadequacy be so great e
as to shock the a
Ratio: In Graffam and
conscience or unless n
Doble vs. Burgess (117
there be additional s
US 180), a judicial sale
circumstances against its
of real estate will not be
fairness. a
set aside for inadequacy
of price, unless the
inadequacy be so great m
as to shock the a
conscience, or unless t
there be additional t
circumstances against e
its fairness. r
If the
inadequacy of price paid o
for the purchase of real f
estate at a sale on an
execution be so gross as d
to shock the conscience, i
or if in addition to gross s
inadequacy the c
purchaser has been r
guilty of fairness or has e
taken any undue t
advantage, or if the i
owner of the property or o
the party interested in it n
has been for any other
reason misled or w
surprised, then the sale i
172
t
h n
o
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s
c
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s
t a
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n
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f
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m
e p
d r
, i
173
c e
e
, l
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.
f
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174
c c
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175
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176
a n
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f a
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177
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178
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179
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182
y there be a balance due to balance of the price. Any
the plaintiff after agreement to the
t applying the proceeds of contrary shall be void.'
o the sale, the court, upon (Article 1484, paragraph
motion, should render a 3, ibid.). It is then clear
f judgment against the that absence of a similar
o defendant for any such provision in Act No.
r balance for which by the 3135, as amended, it can
e record of the case, he not be concluded that
c may be personally liable the creditor loses his
l to the plaintiff.' It is true right given him under
o that this refers to a the Mortgage Law and
s judicial foreclosure, but recognized in the Rules
e the underlying principle of Court, to take action
is the same, that the for the recovery of any
deficiency, with interest provision thereunder mortgage is but a
thereon at the legal rate which expressly or unpaid balance on the
security and not a principal obligation,
until fully paid plus the impliedly prohibits such satisfaction of
sum equivalent to 10% recovery. Article 2131 of simply because he has
indebtedness. chosen to foreclose his
of the amount due as the new Civil Code, on Let it be noted
attorney's fees and cost the contrary, expressly mortgage extrajudicially
that when the legislature pursuant to a special
of suit. provides that intends to foreclose the
'The form, extent and power of attorney given
right of a creditor to sue him by the mortgagor in
Issue: Whether the consequences of a for any deficiency
mortgage, both as to its the mortgage contract.
mortgagee who resulting from the
constitution, As stated by this Court
purchased the foreclosure of the
modification and in Medina vs. Philippine
foreclosed property can security given to
extinguishment, and as National Bank (56 Phil.
still hold the mortgagor guarantee the obligation,
to other matters not 651), a case analogous
liable for any deficiency it so expressly provides.
included in this Chapter, to the one
from the foreclosure Thus, in respect to
sale. Whether the shall be governed by the pledges, Article 2115 of
mortgagor can be held provisions of the the Civil Code expressly
liable for the payment of Mortgage Law and of the states: 'If the price of
interest until the Land Registration Law.' the sale is less (than
completion of the Under the Mortgage Law, the amount of the
foreclosure. which is still in force, the principal obligation)
mortgagee has the right neither shall creditor be
Held: Yes. Yes. Affirmed. to claim for the entitled to recover the
deficiency resulting deficiency,
from the price obtained notwithstanding
Ratio: In Philippine
in the sale of the real stipulation to the
Bank of Commerce v.
property at public contrary.' Likewise, in
Tomas de Vera, this
auction and standing the event of a
Court ruled that in
obligation at the time of foreclosure of a chattel
extrajudicial foreclosure
the foreclosure mortgage on the thing
of mortgage where the
proceedings. (See sold in installments 'he
proceeds of the sale is
Soriano v. Enriquez, 24 (the vendor shall have
insufficient to cover the
Phil. 584; Banco de Islas no further action against
debt, the mortgagee is
Filipinas v. Concepcion e the purchaser to recover
entitled to claim the
Hijos, 53 an paid
deficiency from the
Phil. 86; Banco Nacional
debtor. A reading of the
v. Barreto, 53 Phil. 101). at bar, the step taken by taken to mean a waiver
provisions of Act No.
Under the Rules of Court the mortgagee-bank in of its right to demand the
3135, as amended (re
(Sec. 6, Rule 70), 'Upon resorting to extra- payment of the whole
extrajudicial
the sale of any real judicial foreclosure debt.'
foreclosure) discuss
property, under an order under Act 3135, was The Zaragozas
nothing, it is true, as to
for a sale to satisfy a merely to find a argue that since the
the mortgagee's right to
mortgage or other proceeding for the sale, appellee held in abeyance
recover such deficiency.
incumbrance thereon, if and its action can not be the sale of the property
But neither do we find,
183
for a period of four proceedings completed The application stated approved for P495,000.
(4) years, they alone and the mortgaged that the properties The loan was
should suffer the property sold to the offered for security for not paid. RFC foreclosed
consequences of such purchaser that all the RFC loan are the mortgage properties
delay. It was further interests of the encumbered to the PNB. and was able to
contended that the mortgagor are cut off The application was purchase most of them,
debtor's liability in from the property. This including the Soriano
judicial foreclosures is principle is applicable to land, during the
limited to the amount extrajudicial auction sale at very
due at the time of the foreclosures. deflated prices.
foreclosure and, Consequently, in the case Francisco Soriano,
therefore, such should at bar, prior to the through Teofila Soriano
also apply to completion of del Rosario, offered to
extrajudicial foreclosure, the repurchase the Soriano
foreclosures. By way of mortgagor is, therefore, lot for P14,000. The
refutation, DBP liable for the interest on offer was rejected, and
explained that the the mortgage. they were told to
seemingly long interval participate in the public
between the date of Jose L. Ponce de Leon sale of the land to be
issuance of the Sheriff's vs. Rehabilitation conducted by the RFC.
Notice of Sale and the Finance Corporation, Ponce de Leon did not
date of sale was due to Rosalina Soriano, offer to redeem the
the numerous transfers Teofila Soriano & Rev. foreclosed properties.
made of the date of the Fr. Eugenio R. Soriano, The RFC scheduled a
sale upon requests of G.R. No. L-24571, public sale of the Soriano
the Zaragozas December 18, land on February 20,
themselves. Under such 1970 (36 SCRA 289) 1956. On
circumstances, the February 18, 1956,
Zaragozas cannot take Facts: Jose Ponce De Ponce de Leon
advantage of the delay Leon & Francisco instituted this action. A
which was their own Soriano (father of the preliminary injunction
making, to the prejudice Sorianos) obtained a was
of the other party. Apart P10,000 loan from PNB,
from this consideration, issued due to the failure claimed that the
mortgaging a parcel of
it must be noted that a of RFC to attend the mortgaged property was
land situated in
foreclosure of mortgage hearing. A notice of lis conjugal property which
Parañ aque, Rizal in the
means the termination pendens was caused to was half-owned by them,
name of Francisco
of all rights of the be recorded by Ponce de and they did not consent
Soriano as security for
mortgagor in the Leon. to the mortgage.
the loan. Ponce de Leon
property covered by the Francisco The lower court
gave P2,000 to Soriano
mortgage. It denotes the Soriano then wrote a sustained the RFC, but
from the proceeds of
procedure adopted by letter to the President of ruled that the mortgage
the loan. The loan was
the mortgagee to RFC asking that he be over ½ of Soriano lot was
subsequently increased
terminate the rights of allowed to redeem the void.
to P17,500, and an
the mortgagor on the property. RFC allowed
amendment to the real
property and includes him to redeem the Issue: Whether a
estate mortgage was
the sale itself. In judicial property for not less mortgagor of a bank loan
executed.
foreclosures, the than its appraised value can redeem the
Ponce de Leon
"foreclosure" is not of P59,647.05, payable foreclosed property by
filed with the RFC a loan
complete until the 20% down and the paying the amount the
application for putting
Sheriff's Certificate balance in 10 years with property was purchased
up a sawmill in the
executed, acknowledges 6% interest. Soriano did at public auction and not
amount of P800,000
and recorded. In the not redeem the lot. He the amount fixed by the
offering as security
absence of a Certificate certain parcels of land, then filed a 3rd party court in its order.
of Sale, no title passes among which, was the complaint. Due to his
by the foreclosure parcel which Ponce de death, he was Held: No. Affirmed with
proceedings to the Leon and Soriano substituted by his modifications.
vendee. It is only when mortgaged to the PNB. children. The children
the foreclosure
184
judicial foreclosure of executed. The h
their real estate ownership of the e
mortgage under Act subject house and lots
3135. On July 28, 1981, was consolidated in e
the aforecited house favor of the defendant v
and lots of the plaintiff- bank by virtue of the e
spouses were sold at final deed of sale. On n
public auction with the December 19, 1984, the t
defendant bank as the defendant bank sold the
highest bidder. aforementioned real o
Thereafter, the estates to f
Certificate of Sale was
f
R o
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185
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186
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187
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188
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189
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190
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191
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192
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194
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195
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196
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a n
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197
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t f
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b i
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d i
a t
n i
t o
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b
198
f k
o n
r o
w
e n
x
t t
r h
a a
- t
defendant-spouses statutes which have t
Alberto Lucas and Nelia been mortgaged to h
Rico for P47,500.00, and banks or banking e
Transfer Certificates of institutions
Title over the house and — i.e., to resolutely and h
lots were subsequently unqualifiedly apply the o
issued in the name of 5-year period provided m
said defendant-spouses. for in Section e
Hence, the 119 of C.A. No. 141 and, s
complaint for the as categorically stated t
repurchase of the in Paras and Belisario, e
subject house and lots, to reckon the a
annullment of title and commencement of the d
damages filed on March said period from the
20, 1986 by the plaintiff- expiration of the one- l
spouses. The lower year period of a
court dismissed the redemption allowed in w
complaint. The CA extrajudicial s
reversed. foreclosure. If such be
the case in foreclosure w
Issue: Whether the sales of lands e
owner of a homestead mortgaged to banks r
has 5 more years to other than rural banks, e
repurchase his land then, by reason of the
after the 2 year express policy d
redemption period has e
lapsed. s
i
Held: Yes. Affirmed. g
n
R e
a d
t
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o o
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d
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t
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b
w u
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199
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e .

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200
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201
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t i
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202
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203
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204
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205
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206
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207
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d
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208
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c i
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t a
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d e
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209
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210
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211
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c
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212
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213
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d m
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c n
i t
a s
l
i
f n
o
r P
e a
c r
l a
o s
s
u v
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e .

s C
a o
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.
o
W f
e
A
t p
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s a
l
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a ,
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c B
214
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N t
a i
215
o e
n
(
o 5
f )

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216
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u c
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A a
c m
t o
n
N g
217
t c
h a
o s
s e
e s

c r
i e
t v
e e
d a
, l

t t
h h
a e
t
c
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R f
u
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a h
l e

B l
a a
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k
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' n

A r
c e
t d
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m
t p
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o
o n
t
h i
e n
r
218
f e
o n
r t
e
c o
l r
o
s h
u o
r m
e e
s
s t
a e
l a
e d
s
behind the Rural Banks'
o Act, and following the
f rationale of Our ruling in
Oliva, it is with greater
p reason that the 2- year
r redemption period in
o Section 5 of the Rural
p Banks' Act should yield
e to the period prescribed
r in Section 119 of
t C.A. No. 141. Moreover, if
i this Court is to be
e consistent with Paras
s and Belisario, the 5-year
repurchase period under
a C.A. No. 141 should
c begin to run only from
q the expiration of the 2-
u year period under the
i Rural Banks' Act.
r Furthermore,
e We wish to stress here
d that We are unable to
read in Section 5 of R.A.
u No. 720, as amended,
n any legislative intent to
d modify or repeal Section
e 199 of the Public Land
r Act. Each speaks of and
deals with a different
t right. Specifically, the
h former merely
e liberalized the duration
of an existing right of
f redemption in
r extrajudicial foreclosure
e sales by extending the
e period of one (1) year
fixed in Act No. 3135, as
p amended by Act No.
a 4118, to two (2) years
t insofar as lands acquired
under free patent and
homestead statutes are
concerned. the second
speaks of the right to
repurchase and
prescribes the period
within which it may be
exercised. These two
(2) rights are by no
means synonymous.
Under Act No. 3135, the
purchaser in a
foreclosure sale has,
during the redemption
period, only an inchoate
right and not the
absolute right to the
property with all the
accompanying incidents.
He only becomes an
absolute owner of the
property if it is not
redeemed during the
redemption period. Upon
the other hand, the right
to repurchase is based on
the assumption that the
person under obligation
to reconvey the property
has the full title to the
property because it was
voluntarily conveyed to
him or that he had
consolidated his title
thereto by reason of
redemptioner's failure to
reason of a
redemptioner's failure to
exercise his right of
redemption.
As a
consequence of the
219
inchoate character of the
right during the
redemption period, Act
No. 3135 allows the
purchaser at the
foreclosure sale to take
possession of the
property only upon the
filing of a bond in an
amount equivalent to
the use of the property
for a period of twelve
(12) months, indemnify
the mortgagor in case it
be shown that the sale
was made without
violating the mortgage
or without complying
with the requirements
of the Act. That bond is
not required after the
purchaser has
consolidated his title to
the property following
the mortgagor's failure
to exercise his right of
redemption for in such a
case, the former has
become the absolute
owner thereof.
Thus, the rules
on redemption in the
case of an extrajudicial
foreclosure of land
acquired under free
patent or homestead
statutes may be
summarized as follows:
If the land is mortgaged
to a rural bank under
R.A. No. 720, as
amended, the mortgagor
may redeem the
property within two (2)
years from the date of
foreclosure or from the
registration of the
sheriff's certificate of
sale at such foreclosure
if the property is not
covered or is covered,
respectively, by a Facts: On January 5,
Torrens title. If the
mortgagor fails to
exercise such right, he
or his heirs may still
repurchase the property
within five (5) years
from the expiration of
the two (2) year to Section 119 of the
redemption period Public Land Act (C.A.
pursuant No. 141). If the land is
mortgaged to parties
other than rural banks,
the mortgagor may
redeem the property
within one (1) year
from the registration of
the certificate of sale
pursuant to Act No.
3135. If he fails to do so,
he or his heirs may
repurchase the
property within five (5)
years from the
was registered with the
Register of Deeds on
November 5, 1981,
private respondents had
two years, reckoned
from said date, within
which to redeem the
property from petitioner,
and another five years,
under Commonwealth
Act no. 141, counted
from the expiration of
the redemption period,
to effect repurchase
which private
respondents precisely
did when the suit below
was initiated on March
20, 1986.
Spouses Antonio S.
Pahang & Lolita T.
Pahang vs. Hon.
Augustine A. Vestil,
Presiding Judge of RTC-
Br. 56, Mandaue City,
Deputy Sheriff, RTC –
Br. 56 & Metropolitan
Bank & Trust
Company, G.R. No.
148595, July 12, 2004
(434 SCRA
139)
1996, the petitioners,
Spouses Antonio and
Lolita Pahang, received a
short-term loan of
P1,500,000.00 from
MBTC payable on
expiration of the
redemption period also
pursuant to Section 119
of the Public Land Act.
Following the
doctrine enunciated in
the Rural Bank of Davao
City case, it is clear from
a perusal of the factual
antecedents at bar that
the plea for repurchase
was not time-barred at
the time it was made.
When the certificate of
sale in favor of
petitioner
December 27, 1996. The
loan was covered by
Non-Negotiable
Promissory Note and
was, likewise, secured by
a real estate mortgage on
a parcel of land. As the
petitioners failed to pay
the loan, the interest and
the penalties due
thereon, the respondent
foreclosed the real estate
mortgage extrajudicially.
As a consequence, the
mortgaged property was
sold at public auction on
January 8, 1998 to the
respondent bank as the
highest bidder. A
certificate of sale was
executed on January 14,
1998 and was registered
with the Register of
Deeds of Mandaue City
on January 27, 1998.
On December 29,
1998, the respondent
wrote the petitioners
that the one-year
redemption period of the
property would expire on
January 27, 1999. Instead
of redeeming the
property, the petitioners
filed, on January 19,
1999, a complaint for
annulment of
extrajudicial sale against
the respondent bank and
the Sheriff in the
Regional Trial Court of
Cebu (Mandaue City),
220
Branch 56. Therein, the
petitioners alleged that
the respondent bloated
their obligation of
P1,500,000.00 to
P2,403,770.73 by
including excessive past
due interest, penalty
charges, attorney’s fees
and sheriff’s expense.
They claimed that such
exorbitant charges were
made to frustrate their
chance to pay the loan,
and to ensure that the
respondent bank would
be the highest bidder
during the auction sale.
They also asserted that
the respondent failed to
remit to the Sheriff the
purchase price of the
property and was,
likewise, guilty of fraud,
collusion, breach of trust
or misconduct in the
conduct of the auction
sale of their property.
After the
expiration of the one-
year redemption period,
the respondent
consolidated its
ownership over the
foreclosed property.
Consequently, TCT No.
44668 was issued by the
Register of Deeds in its
name. On July 23, 1999,
the respondent filed a
Petition for Writ of
Possession before the
RTC of Mandaue City.
The petitioners, citing
the ruling of this Court
in Belisario v. The
Intermediate Appellate
Court, opposed the
petition on the ground
that the core issue in
their complaint
constituted a prejudicial
question, which
warranted a
respondent. A petition
for certiorari for the
nullification of the
decision was filed before
suspension of the suspended upon the
proceedings before the filing of an action to
court. The petitioners enforce the right to
averred that the filing of redeem.
their complaint within
the period to redeem Held: No. Affirmed.
the foreclosed property
was equivalent to an Ratio: A prejudicial
offer to redeem the question is one that
same, and had the effect arises in a case the
of preserving such right. resolution of which is a
They also asserted that logical antecedent of
the respondent acted in the issue involved
bad faith in procuring therein, and the
the title over the cognizance of which
property despite the pertains to another
pendency of their tribunal. It generally
complaint. comes into play in a
On March 28, situation where a civil
2000, the RTC of action and a criminal
Mandaue City, Branch action are both pending
56, rendered a decision and there exists in the
granting the petition former an issue that
and ordering the must be preemptively
issuance of a writ of resolved before the
possession in favor of criminal action may
the proceed, because
howsoever the issue
raised in the civil action
is resolved would be
determinative juris et de
jure of the guilt or
innocence of the accused
in the criminal case. The
rationale behind the
principle of prejudicial
question is to avoid two
conflicting decisions.
In the present
case, the complaint of
the petitioners for
Annulment of
Extrajudicial Sale is a
civil action and the
respondent’s petition for
the issuance of a writ of
possession is but an
incident in the land
registration case and,
therefore, no prejudicial
question can arise from
the existence of the two
actions.
Our ruling in
Belisario has no
the CA. CA affirmed.
application in this case
because in the said case,
Issue: Whether the
period to redeem is no prejudicial question
was involved. We merely
held therein that the
filing of an action to
enforce redemption
within the period of
redemption is equivalent
to a formal offer to
redeem, and should the
Court allow the
redemption, the
redemptioner should
then pay the amount
already determined. In
fine, the filing of an
action by the
redemptioner to enforce
his right to redeem does
not suspend the running
of the statutory period to
redeem the property,
nor bar the purchaser at
public auction from
procuring a writ of
possession after the
statutory period of
redemption had lapsed,
without prejudice to the
final outcome of such
complaint to enforce the
right of redemption.
The remedy of
the petitioners from the
assailed decision of the
RTC in LRC Case No. 3
was to appeal by writ of
error to the Court of
Appeals. However,
instead of appealing by
writ of error, the
petitioners filed their
petition for certiorari.
Certiorari is not proper
where the aggrieved
party has a plain, speedy
and adequate remedy at
law. Moreover, the error
of the trial court in
granting the respondent
bank a writ of
possession, if at all, was
an error of judgment
correctible only by an
ordinary appeal. It bears
stressing that the
proceedings in a
petition and/or motion
for the issuance of a writ
of possession, after the
lapse of the statutory
221
period for redemption, discretion when it property has been the redemption period
is summary in nature. merely complied with extrajudicially foreclosed without his credit
The trial court is its ministerial duty to and sold at the having been discharged,
mandated to issue a writ issue the said writ of corresponding it is illogical to hold that
of possession upon a possession. foreclosure sale, may during that same period
finding of the lapse of validly execute a of twelve months the
the statutory period for mortgage contract over mortgagor was
Manuel D. Medida,
redemption without the the same property in "divested" of his
Deputy Sheriff of the
redemptioner having favor of a third party ownership, since the
Province of Cebu, City
redeemed the property. during the period of absurd result would be
Savings Bank
It cannot be validly redemption. that the land will
(formerly Cebu City
argued that the trial consequently be without
Saving & Loan Assoc,
court abused its Held: Yes. Reversed. an owner although it
Inc.) & Teotimo
Abellana vs. CA & Sps. remains registered in
Andres Dolino & the name of the
Pascuala Dolino, G.R. mortgagor. That is why
No.98334, May 8, 1992 the discussion in said
(208 SCRA 887) case carefully and
felicitously states that
Facts: On October 10, favor of the association. what is divested from
1974 plaintiff spouses, The spouses the mortgagor is only his
alarmed of losing their Dolino filed a case for the "full right as owner
right of redemption over annulment of the sale at thereof to dispose (of)
a parcel of land to the public auction, as well as and sell the lands," in
purchaser of the the corresponding effect, merely
aforesaid lot at the certificate of sale issued
foreclosure sale of the pursuant thereto by R
previous mortgage in assailing the validity of a
favor of Cebu City the extrajudicial t
Development Bank, foreclosure sale of their i
went to Teotimo property, claiming that o
Abellana, president of the same was held in :
defendant Association, violation of Act No. 3135.
to obtain a loan of The lower court T
P30,000.00. Prior rendered judgment h
thereto or on October 3, upholding the validity of e
1974, their son Teofredo the loan and the real
Dolino filed a similar estate mortgage, but C
loan application for annulling the A
Twenty- Five Thousand extrajudicial foreclosure
(P25,000.00) Pesos with sale inasmuch as the d
lot No. 4731 offered as same failed to comply e
security. with the notice c
When the loan requirements in Act No. l
became due and 3135. Not satisfied, the a
demandable without spouses Dolino r
plaintiff paying the interposed a partial e
same, defendant appeal with respect to d
association caused the the portions in the
extrajudicial foreclosure decision declaring that t
of the mortgage. After the mortgage executed h
the posting and is valid. CA modified the e
publication decision of the lower
requirements were court and declared the r
complied with, the land mortgage null and void. e
was sold at public a
auction. No redemption Issue: Whether a l
having been effected, a mortgagor, whose
new TCT was issued in
222
e a
s t
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223
e g

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224
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225
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226
t
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227
 w
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228
a l
n o
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s
p a
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. e
I l
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,
a
a c
s q
u
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, i
n
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229
t clarifying that the subsequent to the
y mortgagor does not have judgment under which
the unconditional power the property was
w to absolutely sell the sold. Of course, while in
h land since the same is extrajudicial foreclosure
i encumbered by a lien of the sale contemplated is
c a third person which, if not under a judgment but
h unsatisfied, could result the proceeding pursuant
in a consolidation of to which the mortgaged
c ownership in the property was sold, a
o lienholder but only subsequent mortgage
u after the lapse of the could nevertheless be
l period of redemption. legally constituted
d Even on that score, it thereafter with the
may plausibly be argued subsequent mortgagee
r that what is delimited is becoming and acquiring
i not the mortgagor's jus the rights of a
p disponendi, as an redemptioner, aside from
e attribute of ownership, his right against the
n but merely the rights mortgagor. In either case,
conferred by such act of what bears attention is
i disposal which may that since the mortgagor
n correspondingly be remains as the absolute
t restricted. owner of the property
o At any rate, even during the redemption
the foregoing period and has the free
o considerations and disposal of his property,
w arguments would have there would be
n no application in the compliance with the
e case at bar and need not requisites of Article 2085
r here be resolved since of the Civil Code for the
s what is presently constitution of another
h involved is a mortgage, mortgage on the
i not a sale, to petitioner property. To hold
p bank. Such mortgage otherwise would create
does not involve a the inequitable situation
o transfer, cession or wherein the mortgagor
n conveyance of the would be deprived of the
l property but only opportunity, which may
y constitutes a lien be his last recourse, to
thereon. There is no raise funds wherewith to
u obstacle to the legal timely redeem his
p creation of such a lien property through
o even after the auction another mortgage
n sale of the property but thereon.
during the redemption
t period, since no
h distinction is made
e between a mortgage
constituted over the
l property before or after
a the auction sale thereof.
p Thus, a
s redemptioner is defined
e as a creditor having a
lien by attachment,
o judgment or mortgage
f on the property sold, or
on some part thereof,
230
ownership of the land title thereto of the lien i
sold becomes created by the levy on s
consolidated in the attachment or judgment
purchaser. or the registration of a u
Parenthetically mortgage thereon. The n
, therefore, what American rule is d
actually is effected similarly to the effect i
where redemption is that the redemption of s
seasonably exercised property sold under a p
by the judgment or foreclosure sale defeats u
mortgage debtor is the inchoate right of the t
not the recovery of purchaser and restores e
ownership of his land, the property to the d
which ownership he same condition as if no
never lost, but the sale had been t
elimination from his attempted. Further, it h
C a
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231
i p
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232
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233
t i
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234
i d
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235
a v
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236
s n

b p
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237
s sole bidder and a
certificate of sale was Held: Yes. Affirmed.
r issued in his name and
i registered with the Ratio: In order to effect
g Register of Deeds of a redemption, the
h Ozamiz City. judgment debtor must
t pay the purchaser the
redemption price
o composed of the
f following: (1) the price
which the purchaser
r paid for the property;
e (2) interest of 1% per
d month on the purchase
e price; (3) the amount of
m any
p P
t e
i t
o i
n t
, i
o
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a r
t
t
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e n
does not give to the respondent failed to pay
mortgagor a new title, the loan. Petitioner thus t
but merely restores to instituted against her a o
him the title freed of the case for collection of sum o
encumbrance of the lien of money or foreclosure k
foreclosed. of mortgage. A judgment
was issued against the p
Estanislao Bodiongan private respondent. The o
vs. CA & Lea Simeon, decision was affirmed s
G.R. No. 114418, by the CA and later s
September 21, 1995 became final and e
(248 SCRA 496) executory. Private s
respondent again failed s
Facts: On October 4, to pay the judgment debt i
1982, respondent Lea hence, the mortgaged o
Simeon obtained from properties were n
petitioner Estanislao foreclosed and sold on
Bodiongan and his wife execution. At the auction o
a loan of P219,117.39 sale, petitioner f
secured by a mortgage submitted to the sheriff a
on three written bid of t
(3) parcels of land P309,000.00 and at the h
with a four-storey same time reserved in e
hotel building and said bid a deficiency
personal properties claim of P439,710.57. p
located at Gango, The properties were r
Ozamiz City. Private awarded to petitioner as o
238
p n
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e 30 of Rule 39. The aggravated by the fact
redemption price for the that private respondent
a mortgaged properties in later sought for and was
m this case should actually compensated for
o therefore be the said loss.
u P346,080.00, not Indeed, if we
n P531,080.00. were to allow the
t Private deduction of the value of
respondent's tender was private respondent's
s P337,580.00 which is personal properties from
t still short by P8,500.00. the redemption price,
a The Provincial Sheriff this will amount to
t declared that private double compensation
e respondent ordered him and unjust enrichment at
d to deduct from the the expense of petitioner.
redemption price the On the other hand, it
i value of certain personal would be highly unjust to
n properties in the hotel. deprive private
During petitioner's respondent of her right
t possession of the lots, he to redeem by a strict
h sold some of the application of the Rules
e furniture, water pump of Court. It must be
and electrical remembered that the
j installations in the hotel policy of the law is to aid
u and appropriated the rather than defeat the
d proceeds to himself right of redemption.
g without private Inasmuch as in the
m respondent's knowledge instant case tender of the
e and approval. Petitioner redemption price was
n does not deny the fact timely made and in good
t that he sold the personal faith, and the deficiency
. properties and in said
appropriated the
assessments or taxes claim ant taxes or proceeds of P13,500.00
which the purchaser assessments he may to himself. He has
may have paid on the have paid on the expressly admitted this
property after the property after his in his written bid to the
purchase; and (4) purchase. He, however, sheriff. He, however,
interest of 1% per add P5,000.00 to the cannot be considered in
month on such price to cover the estoppel because the
assessments and taxes. attorney's fees awarded deduction for the loss of
The redemption price him by the trial court. the personal properties
must be for the full In the was not authorized
amount, otherwise the redemption of property under Section 30 of Rule
offer to redeem will be sold at an extrajudicial 39. In the first place, the
ineffectual. And if the foreclosure sale, the sheriff should not have
tender is for less than amount payable is no issued the certificate of
the entire amount, the longer the judgment redemption without a
purchaser may justly debt but the purchase final determination of
refuse acceptance price at the auction sale. the amount of the
thereof. In the instant In other words, the redemption price. This
case, the redemption attorney's fees awarded unauthorized deduction
price covers the by the trial court should of the value of private
purchase price of not have been added to respondent's personal
P309,000.00 plus 1% the redemption price properties and the
interest thereon per because the amount sheriff's over
month for twelve payable is no longer the zealousness in issuing
months at P37,080.00. judgment debt, but that the certificate of
Petitioner does not which is stated in Section redemption are
251
price is not substantial, West Negros College,
we are inclined to give Inc., G.R. No.
private respondent the 152359, October 28,
opportunity to 2002 (391 SCRA 330)
complete the
redemption of her Facts: On December 12,
properties within 1967, Bacolod Medical
fifteen days from the Center (BMC) obtained
time this decision a loan from the
becomes final. Development Bank of
the Philippines (DBP) in
Development Bank of the amount of
the Philippines vs. P2,400,000.00 secured
by
a mortgage on two (2) of the outstanding
parcels of land. The account subject to the
mortgage was expressly approval of DBP’s head
constituted subject to office. BMC further
the provisions of resolved to pay an
Republic Act No. 85 (R.A. installment of 20% of the
85) creating the compromise amount, or
Rehabilitation Finance P4,300,000.00, on or
Corporation, a before August 31, 1991.
predecessor agency of After several extensions
DBP. For failure of BMC of the deadline to pay the
to pay the loan, DBP installment, BMC finally
instituted on January 30, settled the amount in
1989 an extrajudicial three (3) separate
foreclosure of mortgage payments.
under Act 3135. On In the
August 24, 1989, the
meantime, on July 10,
mortgaged properties 1991, in the course of
were sold at public paying the 20%
auction with DBP installment, BMC and
emerging as the highest West Negros executed a
and only bidder for the Deed of Assignment
sum of P4,090,117.36. which assigned to the
On August 25, 1989, the latter BMC’s interests in
Ex-Officio Provincial the foreclosed properties
Sheriff of Bacolod City and vested upon West
executed the certificate Negros the right to
of sale in favor of DBP. redeem them. While
On July 11, 1990, the acknowledging that
sale was registered in redemption should be
the Registry of Deeds based on the outstanding
and annotated on the loan obligation of BMC to
TCTs of the mortgaged DBP, West Negros
properties. demanded the reduction
Prior to the of the redemption price
expiration of the from P21,500,000.00 to
redemption period on P12,768,432.90 allegedly
July 11, 1991, BMC and because of excessive
the Bacolod branch interest charges. On
office of DBP agreed to October 27, 1991, the
peg the redemption head office of DBP
price at P21,500,000.00 rejected the compromise
representing the amount of
compromise settlement P21,500,000.00 since the
amount was way below of DBP on November 12,
the re- appraised value 1991 to get the deposit
of the foreclosed parcels in the amount of
of land which stood at P358,128.58 and bring
P28,895,500.00 as of with him the owner’s
May 31, 1991. duplicate copies of the
On November 8, TCTs covering the
1991, West Negros subject properties.
requested the Ex-Officio DBP responded
Provincial Sheriff to that West Negros has no
issue the certificate of personality to enter into
redemption in view of the picture and that
the payment to DBP of whatever transaction
P4,300,000.00 may have been entered
representing 20% of the between BMC and West
compromise amount, Negros does not bind
with one percent (1%)
DBP. DBP further
interest thereon objected to the issuance
including other expenses
of the certificate of
defrayed by DBP at the redemption and argued
extrajudicial sale. The
that the redemption
computation of the price must be based on
redemption price made
the charter of the DBP
by West Negros was requiring payment of
based on Section 30,
the amount owed as of
Rule 39 of the Rules of the date of the
Court and Act 3135. The
foreclosure sale with
Ex- Officio Provincial interest on the total
Sheriff concurred with
indebtedness at the rate
West Negros’ basis for agreed upon in the
the redemption price but
obligation. It also
responded that the refused to hand over
amount paid was still
short of P358,128.58. In
a letter of even date to
the DBP, the Ex-Officio
Provincial Sheriff
informed DBP of the
request for a certificate
of redemption and the
amount pegged for the
full redemption of the
foreclosed properties
based on Section 30,
Rule 39 of the Rules of
Court, and requested the
surrender of the TCTs
covering the redeemed
properties. On
November 12, 1991,
West Negros settled
the deficit of
P358,128.58. The Sheriff
then requested the
Manager
the TCTs of the registration of its adverse
foreclosed properties claim thereon.
and caused the This prompted
252
West Negros to file a and accessories which h
petition against DBP. the respondent CMI had e
The trial court found purchased from the
merit in the petition and petitioner. On November P
ordered DBP to 3, 1981, the h
surrender the TCTs and, respondent judge i
in case of failure to turn ordered the l
them over, instructed attachment of CMI's i
the Register of Deeds to properties. On p
issue new certificates of November p
title for the foreclosed 26, 1981, notice of i
properties. Because DBP the attachment of n
manifested that it was real properties of the e
not relinquishing the CMI was served on s
documents, new TCTs the
were issued in the name Register of Deeds of v
of West Negros. CA Makati. .
affirmed.
J
Issue: Whether the i
redemption price of a m
property foreclosed by e
DBP is the amount owed n
to DBP. e
z
Held: Yes. Reversed.
t
h
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253
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255
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257
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e m
s b
r
268
a o
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o s
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a c
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269
i e
o a
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q
P u
7 i
1 p
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8 e
5 n
5 t
.
2 On May 31, was an equity in
0 1981, several banks, redemption only in case
. constituting the of foreclosure sale of real
Consortium Banks, filed properties but not in the
T a third party claim with case of chattels.
h the sheriff, alleging that In the meantime,
e they were the an insolvency court
mortgagees of the real authorized the sale of
a and personal properties CMI properties to Top
m of the CMI. They, Rate International as
o therefore, asked that the assignee of the El Grande
u properties be released Development Corp. On
n from attachment. The the basis of the sale to it,
t petitioner filed a motion Top Rate International
to quash the third party filed a third party claim
r claim which was denied. with the sheriff. It asked
e The court ruled that the that the properties be
p Consortium Banks, as discharged from
r mortgagees of the real attachment.
e and personal properties After hearing on
s of the CMI had a superior the matter, one trial
e lien on the properties court ordered the lifting
n and that the petitioner and setting aside of the
t could validly levy only levy on attachment on
s on the mortgagor's the properties while the
(CMI's) equity of other trial court issued
t redemption after the sale the same order
h of the mortgaged maintaining, however,
e properties. the levy on attachment
The personal on the properties. An
p properties were appeal was made. The
r foreclosed by the IAC ordered the levy on
i Consortium Banks to the 2 properties
c which the properties maintained.
e were sold as the highest
bidder and the Issue: Whether the
o certificate of sale sheriff should levy only
f issued. The petitioner on the right or equity of
then asked that it be redemption and not on
t allowed to exercise its the property itself.
h right of redemption. But
e the Consortium Banks Held: Yes. Affirmed.
opposed the motion on
h the ground that there
270
 We, therefore, actually attached by t
hold that the appellate respondents was g
court did not commit Consolidated Mines' a
any error in ruling that right or equity of g
there was no over-levy redemption, an o
on the disputed incorporeal and r
properties. What was
t
R o
a
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: e
e
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o
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l
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o
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271
n o
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b t
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b s
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272
e o
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273
 y
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274
r s
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275
I o
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276
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277
n m
k u
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w f
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a
278
s t
h
c e
o
r r
r e
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c p
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n
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a r
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b e
y q
u
279
i the sheriff’s certificate such rights of
t of foreclosure sale. redemption as may be
y Where the foreclosure allowed by law.’ Such
is judicially effected, rights exceptionally
o however, no equivalent ‘allowed by law’ (i.e.,
f right of redemption even after the
exists. The law declares confirmation by an
r that a judicial order of the court) are
e foreclosure sale, ‘when those granted by the
d confirmed by an order charter of the Philippine
e of the court, shall National Bank (Act Nos.
m operate to divest the 2747 and 2938), and the
p rights of all the parties General Banking Act
t to the action and to vest (R.A.337). These laws
i their rights in the confer on the mortgagor,
o purchaser, subject to
n
.
R
intangible right, the deed of sale to the a
value of which can winning bidder. The t
neither be quantified register of deeds issued i
nor equated with the new TCTs. The new o
actual value of the owners then filed a :
properties upon which it motion for the issuance
may be exercised. of a writ of possession T
which was granted. A h
Spouses Ricardo petition was filed e
Rosales & Erlinda questioning the issuance
Sibug vs. Spouses of the writ before the CA d
Alfonso & Lourdes which was denied. e
Suba, the c
City Sheriff of Manila, Issue: Whether a i
G.R. No. 137792, judgment debtor has a s
August 12, 2003 (408 right to redeem property i
SCRA 664) which was judicially sold o
to satisfy the judgment. n
Facts: A judgment was
o
rendered declaring a Held: No. Affirmed.
f
sale as an equitable
mortgage and ordering
t
the debtors, spouses
h
Rosales and Sibut to pay
e
the amount of the debt
to Macaspac and Jiao
t
within 90 days. The
r
decision became final.
i
The debtors failed to pay
a
the debt, so the creditor
l
filed a motion for
execution. The trial
c
court ordered the sale of
o
the property to satisfy
u
the judgment. An
r
auction sale was held,
t
and the spouses Suba
,
gave the highest bid. The
trial court confirmed the
w
sale and issued a final
280
h e
i n
c
h p
e
i t
s i
t
f i
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a e
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s
a
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t .
i
o I
n n

b M
e a
t t
w a
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281
g e
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C a
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282
, t
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s t
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283
a h
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284
i c
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l c
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285
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286
o d
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d
e S
r e
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287
t
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288
g o
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a
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289
e
– o
f
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o
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290
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291
 t
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g (
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n
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292
r They merely have an — or a day before levy
equity of redemption, was made on the two lots
f which, to reiterate, is in execution of the
r simply their right, as judgment against Butuan
o mortgagor, to extinguish Bay Wood Export
m the mortgage and retain Corporation — Ponce
ownership of the had initiated judicial
t property by paying the proceedings for the
h secured debt prior to the foreclosure of the
e confirmation of the mortgage over said two
foreclosure sale. (2) lots (together with
r However, instead of the two (2) others
e exercising this equity of mortgaged to him).
g redemption, petitioners Judgment was rendered
i chose to delay the in his
s proceedings by filing
t several manifestations
r with the trial court.
a Thus, they only have
t themselves to blame for
i the consequent loss of
o their property.
n
Gregorio Y. Limpin &
o Rogelio M. Sarmiento
f vs. IAC & Guillermo
his successors in their rights in the Ponce, G.R. No. L-
interest or any judgment purchaser.’ There then 70987, September 29,
creditor of the exists only what is 1988 (166 SCRA 87)
mortgagor, the right to known as the equity of
redeem the property redemption. This is Facts: The proceedings
sold on foreclosure– simply the right of the concern two (2) lots
after confirmation by defendant mortgagor to which, together with two
the court of the extinguish the mortgage (2) others, were
foreclosure sale– which and retain ownership of originally mortgaged in
right may be exercised the property by paying 1973 to herein private
within a period of one the secured debt within respondent Ponce by
(1) year, counted from the 90-day period after their former owners, the
the date of registration the judgment becomes Spouses Jose and
of the certificate of sale final, in accordance with Marcelina Aquino. These
in the Registry of Rule 68, or even after the two lots were afterwards
Property. foreclosure sale but sold in 1978 by the same
But, to repeat, prior to its confirmation. Aquino Spouses to
no such right of Clearly, as a Butuan Bay Wood
redemption exists in general rule, there is no Export Corporation.
case of judicial right of redemption in a Against this corporation,
foreclosure of a judicial foreclosure of herein petitioner Limpin
mortgage if the mortgage. The only obtained a money
mortgagee is not the exemption is when the judgment in 1979; and to
PNB or a bank or mortgagee is the satisfy the judgment, the
banking institution. In Philippine National Bank two lots were levied on
such a case, the or a bank or a banking and sold at public
foreclosure sale, ‘when institution. Since the auction in 1980, Limpin
confirmed by an order of mortgagee in this case is being the highest bidder.
the court, x x x shall not one of those Limpin later sold the lots
operate to divest the mentioned, no right of to his co-petitioner,
rights of all the parties redemption exists in Sarmiento.
to the action and to vest favor of petitioners. Earlier however
293
favor and became final; resolve the resulting Property. rights of all the parties
and at the ensuing dispute that Ponce But, to repeat, to the action and to vest
foreclosure sale, the instituted a special civil no such right of their rights in the
lots were acquired by action in the redemption exists in purchaser." There then
Ponce himself as Intermediate Appellate case of judicial exists only what is
highest bidder. Ponce Court, impleading foreclosure of a known as the equity of
then moved for Limpin and Sarmiento mortgage if the redemption. This is
confirmation of the as indispensable parties mortgagee is not the simply the right of the
foreclosure sale, but respondents. That Court PNB or a bank or defendant mortgagor to
the Court confirmed the rendered judgment on banking institution. In extinguish the mortgage
sale of only two lots, February 28, 1985 in such a case, the and retain ownership of
refusing to do so as Ponce's favor; Limpin foreclosure sale, "when the property by paying
regards the two which and Sarmiento confirmed by an order the secured debt within
had been subject of the appealed; this Court of the court . . . shall the 90-day period after
execution sale in denied their operate to divest the the judgment becomes
Limpin's favor.
It was to R
a
It was not until Sarmiento filed a motion
t
March 11, 1988 — nine in court to fix the
i
months or so after entry redemption price which
o
of the judgment was opposed by Ponce.
:
recognizing his equity of The court ruled for appeal.
redemption as Sarmiento. Ponce filed
T
successor-in-interest of a Motion for
h
the original mortgagors Clarification with the
e
— that Sarmiento Supreme Court.
finally bestirred himself
e
to attempt to exercise Issue: Whether q
his unforeclosed equity redemption may still be u
of redemption. On that made after confirmation i
day he filed a motion of a judicial foreclosure. t
with the Court presided
y
over by Hon. Judge Held: No. Equity of
Antonio Solano, redemption has already o
manifesting that he lapsed. f
would exercise the right
and asked the Court to
r
fix the redemption price.
e
The Court opined that
d
"this should be the
e
subject of the agreement
m
between Ponce and
p
Sarmiento." Sarmiento
t
then wrote to Ponce on
i
March 23, 1988 offering
o
"P2.6 million as
n
redemption price for the
two lots originally
i
covered by TCTs Nos.
s
92836 and 92837, now
,
307100 and 307124."
Ponce's answer, dated
t
March 25, 1988, rejected
o
the offer and averred
that the period within
b
which Sarmiento could
e
have exercised such
right had lapsed.
s
294
u h
r t
e
, o
f
d
i r
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o
m T
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i
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t
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f
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s n
e
d r
e
w l
i a
t t
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o
t n
h
e t
o
r
i a
g
295
m c
o q
r u
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a e
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o
— r
t
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t f
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r
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a o
296
s r
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s s
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— o
f
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t
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r final, in accordance with mortgagor's successors-

e Rule 68, or even after the in-interest, or third
g foreclosure sale but persons acquiring rights
i prior to its confirmation. over the mortgaged
s The mortgagor’s equity property subsequent, and
t of redemption may be therefore subordinate, to
r exercised by him even the mortgagee's lien. If
a beyond the these subsequent or
t 90-day period "from the junior lien- holders be
i date of service of the not joined in the
o order," and even after foreclosure action, the
n the foreclosure sale judgment in the
itself, provided it be mortgagor's favor is
o before the order of ineffective as to them, of
f confirmation of the course. In that case, they
sale. After such order retain what is known as
t of confirmation, no the "unforeclosed equity
h redemption can be of redemption," and a
e effected any longer. It is separate foreclosure
this same equity of proceeding should be
c redemption that is brought to require them
e conferred by law on the to redeem from the first
308
mortgagee, or the party
acquiring title to the
mortgaged property at
the foreclosure sale,
within 90 days, under
penalty of losing that
prerogative to redeem.
In the case at bar,
however, there is no
occasion to speak of any
"unforeclosed equity of
redemption" in
Sarmiento's favor since
he was properly
impleaded in the judicial
proceeding where his
and Ponce's rights over
the mortgaged property
were ventilated and
specifically adjudicated.
Under the
circumstances obtaining
in this case, the plain
intendment of the
Intermediate Appellate
Court was to give to
Sarmiento, not the
unforeclosed equity of
redemption pertaining
to a stranger to the
foreclosure suit, but the
same equity of
redemption possessed
by the mortgagor
himself. The judgment
cannot be construed as
contemplating or
requiring the institution
of a separate suit by
Ponce to compel
Sarmiento to exercise
his unforeclosed equity
of redemption, or as
granting Sarmiento the
option to redeem at any
time that he pleases,
subject only to
prescription. This would
give rise to that
multiplicity of
proceedings which the
law eschews. The
judgment plainly
intended that Sarmiento
exercise his option to
redeem, as successor of
the mortgagor.
The rejection by
this Court of Sarmiento's
and Limpin's appeal in
its own Decision of
January 30, 1987, which
imported nothing less
than a total affirmance of
the Decision of the
Appellate Court, should
therefore have
sufficiently alerted
Sarmiento that
confirmation could come
at any time after this
Court's Decision
became final, with or
without any action from
Ponce. He cannot, in the
circumstances, claim
unfair surprise. He
should, upon being
notified of this Court's
Decision, have taken
steps to redeem the
properties in question
or, at the very least,
served the Trial Court
and Ponce with notice of
his intention to exercise
his equity of redemption.
There was certainly time
enough to do this — the
order confirming the
foreclosure sale issuing
only on June 17, 1987 —
had he not occupied
himself with the fruitless
maneuverings to re-
litigate the issues
already recounted.
Indeed, had he made an
attempt to redeem, even
belatedly but within a
reasonable period of
time after learning of
the order of
confirmation (the
record shows he did
learn of it within three
[3] days after its
issuance), he might
perhaps have given the
Court some reason to
consider his bid on
equitable grounds. He
did not. He let nine (9)
Facts: In September of
1920, Ramon Herrera, in
his capacity as judicial
guardian of his minor
children Ricardo, Arturo,
Dulcelina, and Cristeto
Herrera, borrowed
P7,000 from Siuliong &
Co., payable with 12 per
cent annual interest.
Between 1920 and 1930,
he also borrowed
various other sums of
money, and upon
liquidation made on
June 31,
1930, the total sum due
was ascertained to be
P14,176.26 after
deducting payments
made. While these acts of
the guardian appeared to
be unauthorized by the
Court, the wards, upon
attaining majority, by
public document,
confirmed the previous
arrangements and
manifested their entire
agreement to the
liquidation of their
accounts, and
compromised the case
by promising to pay
Siuliong & Co., Inc., the
acknowledged balance of
P14,176.26. By a 12, 1937, the mortgagees
separate notarial
instrument, the spouses
Ramon Herrera and Rosa
Gallo compromised the
pending civil case filed
against them by Siuliong
& Co., Inc., by
months pass, to repeat,
in carrying out improper
(and contumacious)
stratagems to negate the
judgments against him,
before making any such
move.
Ramon Herrera, et al.
vs. Hon. Francisco
Arellano, et al., G.R. No.
L-8164, October
27, 1955 (97 Phil 776)
acknowledging an
indebtedness in favor of
the latter, promising to
pay said sum, jointly and
in solidum, and
guaranteeing payment by
mortgage of their 1/4
interest in the Hacienda
San Roque, the house on
Lot 91 of the Manapla
Cadastre, plus the parcels
of land. Both mortgage
credits were assigned by
the creditor Siuliong &
Co., Inc. to Francisco Cu
Unjieng, by public
instrument. Hacienda San
Roque was later leased
by the mortgagors to
Ricardo Herrera and
Lope Ilustre without the
consent of the creditor.
Siuliong & Co., Inc. gave
notice of its intention to
foreclose on the
properties. Apparently,
the sale was not carried
out, for on August 28,
1936, the lawyers of the
mortgagee wrote the
debtors complaining that
the land taxes of the
mortgaged property had
not been paid and the
mortgagee had been
forced to disburse the
same. Once again, on July
demanded satisfaction of
the indebtedness, but
attempts to settle and
compromise were
useless.
The mortgagors
filed a case for an
309
accounting and to set present time is period for payment aforementioned De Leon
aside an extrajudicial unreasonable and should be counted from case.
foreclosure. An answer oppressive and should the date of service of the
was filed with a not be prolonged a order directing the
Spouses Rempson
counterclaim for minute longer." mortgagors to pay their
Samson & Milagros
nonpayment and breach The mortgagee obligation.
Samson, & Rempson
of the obligations and then filed a motion for Realty & Development
prayed for judgment execution which was Held: No. Yes. Reversed. Corporation vs. Judge
thereon with interest granted. A writ of Mauricio M. Rivera, in
and attorneys' fees, and execution was issued. In his capacity as
for a decree of judicial compliance therewith, Presiding Judge of the
foreclosure. The case on September 8, 1953, RTC of Antipolo City,
was dismissed, but no the Provincial Sheriff of Br. 73, Atty. Joselito
decision was made on Negros Occidental sold, Malibago-Santos, in
the defendants’ claims. at public auction, the her capacity as Ex-
Upon motion by the mortgaged properties to Officio Sheriff, RTC of
parties, the court the mortgagee, Cu Antipolo City, & Lenjul
granted a reopening of Unjieng o& Sons, Inc. On Realty Corporation,
the case, but no decision motion of the latter, the G.R. No.
was rendered. The lower court confirmed this 154344, May 20, 2004
court, on petition, later sale by an order dated (428 SCRA 759)
decided in favor of the October 9, 1953. The
defendants and gave the mortgagors filed 2
mortgagors 90 days to R
motions for a
pay, otherwise the reconsideration which
mortgaged properties t
were denied. Hence, this i
will be sold at a public case.
auction. The o
mortgagors appealed, :
from this decision, to the
Court of Appeals. CA I
affirmed the n
indebtedness, but v
reversed the order o
decreeing the sale of k
mortgaged properties. i
The CA ruled that no n
action lies to enforce the g
indebtedness until the
moratiorium law expires o
or is lifted. u
On May 18, r
1953 this Court
rendered its decision in d
the case of Rutter vs. e
Esteban (93 Phil., 63), c
declaring that "the i
continued operation and s
enforcement of i
Republic Act No. 342 o
(the Moratorium Law) at n
the
i
Issue: Whether an order mortgagees nor grants n
executing a judgment said mortgagors the
which neither contains 90-day period within R
an order requiring the which to pay the u
mortgagors to pay their mortgaged debt is valid. t
obligation to the Whether the 90 day t
310
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311
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313
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315
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316
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317
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318
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319
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323
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324
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325
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b Facts: Sps. Rempson and/or Nullification of

y and Samson incurred Sale and the Certificates
from FEBTC a loan for of Title. The judge then
p P55M which was granted the prayer for
e secured by a real estate the issuance of a writ of
t mortgage over 5 parcels possession. CA affirmed.
i of property. The spouses
t failed to settle their Issue: Whether a writ of
i obligation. FEBTC possession may be issued
o extrajudicially even before the
n foreclosed the expiration of the
e properties. An auction redemption period.
r sale was held which was Whether the issuance of
s won by Lenjul Realty a writ of possession may
Corp. The sale was be stayed by the filing
h confirmed, and a of an action for the
e certificate of sale was annulment of the
r issued. foreclosure.
e Lenjul Realty
i filed a petition for the Held: Yes. No. Affirmed.
n issuance of a writ of
, possession. While the
Petition was pending,
a Spouses Samson and
r Rempson Corporation
e filed with the Antipolo
City RTC, an action for
" Annulment of Extra-
n Judicial Foreclosure
332
issuance of the Writ of registration case for the
Possession is issuance of a writ of a
unavailing. Their possession. It did not p
reliance on Active declare that the writ of p
Wood Products Co., Inc. possession must be l
v. Court of Appeals is stayed until the y
misplaced. In that questions on the
case, the sole issue mortgage or the f
was the consolidation foreclosure sale were o
of a civil case regarding resolved. Moreover, the r
the validity of the issue of
mortgage and a land a

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342
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343
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344
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347
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348
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9
p
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L t
R o

C t
a h
s e
e
consolidation in the
N present case has become
o moot, considering that
. the trial court has
already granted it.
0 The Court of
1 Appeals correctly
- declared that petitioners
pursued the wrong
2 remedy. A special civil
6 action for certiorari
9 could be availed of only
8 if the lower tribunal has
acted without or in
a excess of jurisdiction,
n or with grave abuse of
d discretion amounting to
lack or excess of
r jurisdiction; and if there
e is no appeal or any other
s plain, speedy, and
o adequate remedy in the
l ordinary course of law. A
v party may petition for
e the setting aside of a
d foreclosure sale and for
the cancellation of a writ
t of possession in the
h same proceedings where
e the writ of possession
was requested. In
a petitioners’ case, the
n filing of the Petition is no
n longer necessary
because the pendency of
Civil Case No. 01-
6219 (which was
consolidated with the
present case) already
challenged the
foreclosure sale
Development Bank of
the Philippines vs.
Spouses Wilfredo Gatal
& Azucena Gatal, G.R.
No. 138567, March 4,
2005 (452 SCRA 697)
Facts: Spouses Gatal
obtained a P1.5M loan
from the DBP which was
secured by a real estate
mortgage over a
commercial lot. For
failure to pay their loan,
DBP foreclosed. The
property was offered for
sale at an auction, but no
one was able to meet the
bid price ceiling. DBP
offered the property for
negotiated sale. The
spouses Gatal submitted
a bid, but another bidder,
Torrefranca, submitted a
higher bid. The spouses
Gatal offered to match
349
the higher bid, but this respondents against d
was denied because petitioner DBP. It seeks e
Torrefranca was already to declare the sale of n
considered a preferred the property to t
bidder. Torrefranca void and to i
The spouses order petitioner DBP “to a
Gatal filed a case for respect respondents’
injunction. A writ of right of pre- emption;” t
preliminary injunction and maintain the status o
was issued. DBP, on the quo between the
other hand, filed a parties. Upon the other l
petition for the issuance hand, Civil Case No. i
of a writ of possession 6097 is a petition for e
which was granted. The the issuance of a writ of
spouses Gatal filed a possession filed by a
motion to dismiss the petitioner DBP, being s
petition of DBP and to the purchaser of the lot
quash the writ of a
possession on the
ground that there is g
another case pending r
with the same subject o
matter and issues. The u
petition of DBP was n
dismissed and the writ d
of possession was
recalled. DBP filed a f
petition for certiorari o
with the CA, but this r
was dismissed.
a
Issue: Whether a
separate action should m
be filed for a writ of o
possession to issue. t
i
Held: No. Reversed. o
n
R
t
a
o
t
i
d
o
i
:
s
m
F
i
o
s
r
s
,
l
i
t
t
h
i
e
s
f
p
o
e
l
n
l
350
o h
w e
i
n a
g c
t
r i
e o
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i a
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i e
t
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e
m
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e
b ;
e
(
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r )
e
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:
t
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e
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s
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e s
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s
i
t d
o e
n
t t
351
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n
r
t e
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l
c t
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(
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352
c u
o l
n .
d
I
i t
n
i
a s
n
y u
n
e d
v i
e s
n p
t u
t
a e
n d
d
t
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e a
g t
a
r b
d o
l t
e h
s
s c
a
o s
f e
s
w
h i
i n
c v
h o
l
p v
a e
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t t
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i
s s
a
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c
c p
e a
s r
s t
f i
353
e f
s o
r
a
n i
d n
j
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y
. at the public auction. purpose. Records show
Clearly, the rights that title to the property
C asserted and the reliefs has been consolidated to
i sought by the parties in petitioner DBP. Thus, its
v both cases are not petition for a writ of
i identical. Thus, possession is in order.
l respondents’ claim of Obviously, the
litis pendentia is RTC (Branch 47) erred
C unavailing. when it granted
a In Tan Soo Huat respondents’ motion to
s vs. Ongwico, we ruled dismiss and recalled the
e that “once a mortgaged writ of possession it
estate is extrajudicially earlier issued. Where, as
N sold, and is not here, the title is
o redeemed within the consolidated in the name
. reglementary period, no of the mortgagee, the
separate and writ of possession
5 independent action is becomes a matter of right
9 necessary to obtain on the part of the
9 possession of the mortgagee, and it is a
6 property. The purchaser ministerial duty on the
at the public auction has part of the trial court to
i only to file a petition for issue the same. The
s issuance of a writ of pendency of a separate
possession pursuant to civil suit questioning the
a Section 33 of Rule 39 of validity of the sale of the
n the Rules of Court.” To mortgaged property
give effect to the right of cannot bar the issuance
a possession, the of the writ of possession.
c purchaser must invoke The rule equally applies
t the aid of the court and to separate civil suits
i ask for a writ or questioning the validity
o possession without need of the mortgage or its
n of bringing a separate foreclosure and the
independent suit for this validity of the public
354
auction sale. executed a document accounting. When in the sense that the true
entitled “Assignment of private respondent agreement is one
Jose P. Dizon vs. Right of Redemption and dishonored the request, whereby private
Alfredo G. Gaborro Assumption of petitioner sued the respondent, in
(Substituted by Pacita Obligation”. former for accounting, consideration of the use
de Guzman Gaborro, as Two years later, alleging that the two of petitioner's
Judicial Administratrix petitioner offered to deeds did not express properties until
of the Estate of Alfredo reimburse what private their true intent, the reimbursement, would
G. Gaborro) & respondent had paid to transaction being one of assume the latter's
Development Bank of the mortgagee without, an equitable mortgage debts. The Court of
the Philippines, G.R. however, tendering any and not an absolute Appeals affirmed the
No. L-36821, June 22, cash, and demanded an sale. decision, with the
1978 (83 SCRA 688) The trial court modification that
ordered the petitioner "has the
Facts: Petitioner Dizon instruments reformed right to reimburse"
was the owner of 3
respondent at 8% per title and ownership of
parcels of land. He
annum, which right shall the properties by virtue
constituted a first
be exercised within one of the Deed of Sale With
mortgage lien in favor of
year from the finality of Assumption of Mortgage
the Development Bank
decision. earlier executed
of the Philippines in
order to secure a loan in between them which We
the sum of P38,000.00 Issue: Whether a have ruled out as an
and a second mortgage contract denominated as absolute sale. The only
lien in favor of the a sale which is actually a legal effect of this Option
Philippine National contract for the use of Deed is the grant to
Bank to secure his land in the nature of an petitioner the right to
indebtedness to said antichresis can be recover the properties
bank in the amount of reformed to convey the upon reimbursing
P93,831.91. Dizon true intention of the respondent Gaborro of
himself executed the parties. the total sums of money
deed of sale in favor of that the latter may have
DBP. Held: Yes. Affirmed. paid to DBP and PNB
After his on account of the
properties were mortgage debts, the said
extrajudicially right to be exercised
foreclosed by DBP, but within the stipulated 5
before the expiration of years period.
the redemption period,
petitioner Dizon met R
respondent Gaborro. a
Petitioner executed a t
"Deed of Sale with i
Assumption of o
Mortgage" in favor of the :
private respondent, who
in turn executed on the A
same day an "Option to
Purchase Real Estate" in j
favor of petitioner. u
Thereafter, private d
respondent made g
several payments to the m
mortgagees (DBP and e
PNB), took possession n
of, cultivated, and paid t
taxes, on the land.
Petitioner Dizon also d
355
e h
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356
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357
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358
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359
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360
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363
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365
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367
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368
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P
u t
369
h In the light of
a the foreclosure
t proceedings and sale of
the properties, a legal
r point of primary
e importance here, as well
s as other relevant facts
p and circumstances, We
o agree with the findings
n of the trial and appellate
d courts that the true
e intention of the parties is
n that respondent Gaborro
t would assume and pay
the indebtedness of
G petitioner Dizon to DBP
a and PNB, and in
b consideration therefor,
o respondent Gaborro was
r given the possession, the
r enjoyment and use of the
o lands until petitioner can
reimburse fully the
d respondent the amounts
i paid by the latter to DBP
d and PNB, to accomplish
the following ends: (a)
n payment of the bank
o obligations;
t (b) make the lands
productive for the
p benefit of the possessor,
u respondent Gaborro; (c)
r assure the return of the
c land to the original
h owner, petitioner Dizon,
a thus rendering equity
s and fairness to all parties
e concerned.
In view of all
o these considerations, the
r law and jurisprudence,
and the facts
a established, We find
c that the agreement
q between petitioner
u Dizon and respondent
i Gaborro is one of those
r innominate contracts
e under Art. 1307 of the
New Civil Code
t whereby petitioner and
h respondent agreed "to
e give and to do" certain
rights and obligations
f respecting the lands and
u the mortgage debts of
l petitioner which would
l be acceptable to the
bank, but partaking of
the nature of the
antichresis insofar as the
principal parties,
petitioner Dizon and
respondent Gaborro, are
concerned.
Mistake is a
ground for the
reformation of an
instrument when, there
having been a meeting of
the minds of the parties
to a contract, their true
intention is not
expressed in the
instrument purporting to
embody the agreement,
and one of the parties
may ask for such
reformation to the end
that such true intention
may be expressed. (Art.
1359, New Civil code).
When a mutual mistake
of the parties causes the
failure of the instrument
to disclose their real
agreement, said
instrument may be
reformed. (Art. 1361,
New Civil Code.) It was a
mistake for the parties to
execute the Deed of Sale
With Assumption of
Mortgage and the Option
to Purchase Real Estate
and stand on the literal
meaning of the terms and
stipulations used therein.
On the issue of
the accounting of the
fruits, harvests and other
income received from the
three parcels of land
from October 6, 1959 up
to the present, prayed
and demanded by Dizon
of Gaborro or the Judicial
Administratrix of the
latter's estate, We hold
that in fairness and
equity and in the
interests of justice that
since We have ruled out
the obligation of
petitioner Dizon to
reimburse respondent
Gaborro of any interests
370
and land taxes that have (108 Phil 927) possession of the land, Tavera & Carmen
accrued or been paid by pending payment of the Pardo de Tavera
the latter on the loans of loan, finding it Manzano vs. El Hogar
Facts: On August 8,
Dizon with DBP and financially Filipino, Inc., Tavera-
1938, Perfecto Adrid
PNB, petitioner Dizon in advantageous to receive Luna Inc., Vicente
and his wife Carmen
turn is not entitled to an the products thereof, Madrigal,
Silangcruz, then owners
accounting of the fruits, valued at P300.00 a G
of a lot in San Francisco
harvests and other year, in lieu of the .
Malabon Estate
income received by payment of interest at R
Subdivision, situated in
respondent Gaborro 12% a year, which would .
General Trias, Cavite,
from the lands, for only be P240.00. But this
executed a document
certainly, petitioner did not convert, as N
entitled "Sale with Right
cannot have both contended by plaintiffs, o
to Repurchase",
benefits and the two the contract from a sale .
purporting to sell the lot
may be said to offset with pacto de retro to
to Eugenio Morga for
each other. that of antichresis. 4
the sum of P2,000 with
The contention 5
the right to repurchase
Perfecto Adrid, et al. of plaintiffs that 9
the same within two
vs. Rosario Morga, etc., although the original 6
years for the same sum
and Mamerto Morga, contract was one of sale 3
of P2,000, plus 12%
et al., G.R. No. L-13299, with right to ,
interest per annum. The
July 25, 1960 repurchase, it was
vendors never
converted into one of O
repurchased the lot. But
antichresis just because c
in 1956, Perfecto Adrid
the vendee took t
and his son, brought the
possession of the land, o
present action against
is clearly untenable. b
the administratrix of the
There is nothing in the e
deceased Eugenio
document, Exhibit A, nor r
Morga to recover the
in the acts of the
same lot and
parties subsequent to 1
asking for accounting of sum of P2,000 from its execution to show 2
all the produce of the lot Eugenio Morga, Lot No. that the parties had ,
since 1938, this on the 550 being given as entered into a contract of
theory that the original security. In other words, antichresis. In the case of 1
contract of sale with we have here a clear case Alojado vs. Lim Siongco, 9
pacto de retro was by of equitable mortgage. 51 Phil., 339, what 3
acts of the parties to the Otherwise, there would characterizes a contract 9
said contract, converted be no reason for the of antichresis is that the
into one of antichresis. agreement made for the creditor acquires the (
The lower court upheld payment of 12% interest right to receive the fruits 6
the pacto de retro sale. per annum. This interest of the property of his 8
must refer to the use of debtor with the
Issue: Whether a pacto P2,000 by the alleged obligation to apply them P
de retro sale or an vendors until the same to the payment of h
equitable mortgage is shall have been paid to interest, if any is due, i
converted into an Eugenio. The parties to and then to the principal l
antichresis because the the contract must have of his credit, and when
vendee or mortgagee contemplated the lot such a covenant is not 7
took possession of the remaining in the made in the contract, 1
land. possession of the which speaks 2
vendors inasmuch as it unequivocally of a sale )
was considered a mere with right of repurchase,
Held: No. Reversed.
security. However, after the contract is a sale Facts: On January 17,
the execution of the with the right to 1931, defendant
Ratio: The intention of repurchase and not an
contract, the creditor, corporation,
the parties was merely antichresis.
Morga according to the
for Perfecto and his wife
contention of the
Carmen to borrow the
plaintiff, decided to take Carlos Pardo de
371
Tavera-Luna, Inc., Tavera- Luna, Inc.,
obtained a loan of secured from El Hogar g
P1,000,000 from El Filipino an additional i
Hogar Filipino, Inc., for loan of P300,000 with v
the purpose of the same security e
constructing the Crystal executed for the original n
Arcade building on its loan. The Tavera-Luna,
premises at Escolta, Inc., thereafter, o
Manila. To secure this defaulted in the n
loan, the corporation payment of the monthly
executed a first amortizations on the a
mortgage on said loan; whereupon, El
premises and on the Hogar Filipino p
building proposed to be foreclosed the r
erected thereon. On mortgage and o
February 11, 1932, proceeded with the p
e
of extra-judicial sale of the properties now in r
the Crystal Arcade question were levied t
building. One day before upon as personalty by y
the expiration of the the sheriff. No third
period of redemption, party claim was filed w
Carlos Y. Pardo de for such properties at h
Tavera and Carmen the time of the sales i
Pardo de Tavera thereof as is borne out c
Manzano, in their by the record made by h
capacity as stockholders the plaintiff herein.
of the Tavera-Luna, Inc., Indeed the bidder, m
instituted the present which was the plaintiff a
action against Tavera- in that action, and the y
Luna, Inc., and El Hogar defendant herein having
Filipino, Inc., to annul consummated the sale, b
the two secured loans as proceeded to take e
well as the extra-judicial possession of the
sale. The complaint was machinery and other c
dismissed. properties described in o
the corresponding n
Issue: Whether certificates of sale s
stipulations in a contract executed in its favor by i
of anthichresis for the the sheriff of Davao. d
extrajudicial foreclosure e
of the security may be r
allowed. e
d
Held: Yes. Affirmed.
a
R s
a
t a
i
o p
: u
b
A l
i
l c
o
a b
n u
372
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o
373
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374
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375
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376
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377
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379
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380
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383
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384
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385
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386
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387
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388
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389
 installed, and any and of the execution of the
a all replacements, 2nd mortgage, Evertex
substitutions, additions, purchased various
w increases and
r marchineries and
accretions to the above equipment.
i properties. PBCom
t Due to business
granted a second loan of reverses, Evertex filed
P3.356M to Evertex for insolvency, and the
o which was secured by a
f court declared it
Chattel Mortgage over insolvent. Upon failure
personal properties of Evertex to pay,
e enumerated in a list
x PBCom commenced
attached thereto. extrajudicial foreclosure
e After the date
c
u
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a
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i
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Davao Saw Mill claim that such ,
Co., Inc., has, on a properties were real
number of occasions, properties that were i
treated the machinery attached to the land and t
as personal property by are exempt from
executing chattel execution. The lower m
mortgages in favor of court ruled that the u
third persons. One of properties were s
such persons is the personal properties and t
appellee by assignment dismissed the case.
from the original a
mortgagees. Issue: Whether g
Davao Saw Mill machineries which are a
Co., Inc. filed a case immobilized by a tenant i
against Davao Light & are real properties. n
Power Co., Inc. to
recover the properties b
Held: No. Affirmed.
executed upon on the e
390
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391
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392
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393
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394
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395
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396
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397
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398
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399
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400
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403
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404
d a
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405
a e
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a ,
f
t o
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r
under Act 3135. The sale of the properties
t properties were sold in illegal and irregular. CA
o public auction, and affirmed.
PBCom was the highest
e bidder. PBCom Issue: Whether
x consolidated its properties acquired after
i ownership over the the execution of the
s properties and sold chattel mortgage are
t these to Tsai. covered by the chattel
, Evertex filed a mortgage. Whether
complaint for annulment immovables can be
m of sale and reconveyance treated as movables for
a on the ground that the purposes of executing a
c extrajudicial foreclosure chattel mortgage.
h was a violation of the
i Insolvency Law. The Held: No. Yes. Affirmed.
n RTC found the lease and
406
only the property And, since the disputed
described therein and machineries were t
not like or substituted acquired in 1981 and h
property thereafter could not have been e
acquired by the involved in the 1975 or
mortgagor and placed 1979 chattel mortgages, d
in the same it was consequently an i
depository as the error on the part of s
property originally the Sheriff to include p
mortgaged, anything subject machineries u
in the mortgage to the with the properties t
contrary enumerated in said e
notwithstanding.” chattel mortgages. d

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407
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408
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409
o .
s
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410
t e
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411
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412
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413
h d
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414
a a
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b a
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415
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416
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417
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418
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419
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424
e nature, whether such encumbering the real
l obligations have been property covered
contracted before, thereby; and in
m during or after the antichresis, by a written
o constitution of this instrument granting to
r mortgage. the creditor the right to
t In due time, receive the fruits of an
g ACME was able to pay immovable property
a the loan. Subsequently, with the obligation to
g in 1981, the company apply such fruits to the
e obtained from the bank payment of interest, if
additional financial owing, and thereafter to
s accommodations the principal of his
h totaling P2.7M. These credit – upon the
a borrowings were also essential condition that
l paid on due date. In if the principal
l January 1984, the bank obligation becomes due
yet again extended to the and the debtor defaults,
b corporation a loan of then the property
e P1M, but this was not encumbered can be
paid. The bank alienated for the
d thereupon applied for an payment of the
e extrajudicial foreclosure obligation, but that
e of the chattel mortgage. should
m ACME was prompted to
e file an action for
d injunction.
The court
t dismissed the action
o and ordered the
foreclosure of the chattel
c mortgage. CA affirmed.
o The petition
v before the SC was
e originally denied for
r having been insufficient
in form and substance.
As the auction Its motion for
sale of the subject Facts: Chua Pac, the reconsideration was
properties to PBCom is president and general
void, no valid title manager of ACME denied, but its 2 nd
passed in its favor. executed, for and in motion for
Consequently, the sale behalf of the company, a reconsideration was
thereof to Tsai is also a chattel mortgage in favor granted and the petition
nullity under the of Producers Bank of the was reinstated.
elementary principle of Philippines. The
nemo dat quod non mortgage stood by way Issue: Whether a clause
habet, one cannot give of security for in a chattel mortgage
what one does not have. petitioner's corporate that purports to likewise
loan of three million extend its coverage to
ACME Shoe Rubber & pesos (P3,000,000). The obligations yet to be
Plastic Corporation & mortgage provided that contracted or incurred is
Chua Pac vs. CA, it shall stand as security valid and effective.
Producers Bank of the for said obligations and
Philippines & Regional any and all other Held: No. Reversed.
Sheriff of Caloocan obligations of the
City, G.R. No. 103576, MORTGAGOR to the R
August 22, 1996 (260 MORTGAGEE of a
SCRA 714) whatever kind and t
425
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426
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429
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430
l i
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l the obligation be duly execute the agreement so
paid, then the contract is as to cover the after-
e automatically incurred obligation can
s extinguished proceeding constitute an act of
t from the accessory default on the part of the
a character of the borrower of the financing
t agreement. As the law so agreement whereon the
e puts it, once the promise is written but, of
obligation is complied course, the remedy of
m with, then the contract of foreclosure can only
o security becomes, ipso cover the debts extant at
r facto, null and void. the time of constitution
t While a pledge, and during the life of the
g real estate mortgage, chattel mortgage sought
a or antichresis may to be foreclosed.
g exceptionally secure A chattel
e after-incurred mortgage, as
, obligations so long as hereinbefore so
these future debts are intimated, must comply
b accurately described, a substantially with the
y chattel mortgage, form prescribed by the
however, can only Chattel Mortgage Law
t cover obligations itself. One of the
h existing at the time the requisites, under Section
e mortgage is 5 thereof, is an affidavit
constituted. Although a of good faith. While it is
e promise expressed in a not doubted that if such
x chattel mortgage to an affidavit is not
e include debts that are appended to the
c yet to be contracted can agreement, the chattel
u be a binding mortgage would still be
t commitment that can be valid between the parties
i compelled upon, the (not against third
o security itself, however, persons acting in good
n does not come into faith), the fact, however,
existence or arise until that the statute has
o after a chattel mortgage provided that the parties
f agreement covering the to the contract must
newly contracted debt is execute an oath makes it
a executed either by obvious that the debt
concluding a fresh referred to in the law is
p chattel mortgage or by a current, not an
u amending the old obligation that is yet
b contract conformably merely contemplated. In
l with the form prescribed the chattel mortgage here
i by the Chattel Mortgage involved, the only
c Law. Refusal on the part obligation specified in
of the borrower to the chattel mortgage
431
contract was the entered into an have a formal accounting submitted by Estanislao
P3,000,000.00 loan agreement whereby the between them. Davao R. Lagman, the
which petitioner Jacas may secure, by Lumber Company filed commissioner appointed
corporation later fully way of advances, either its Answer with by the court. This report
paid. By virtue of cash or materials, Affirmative Defenses was assailed by the
Section foodstuffs, and or and Counterclaim.In petitioners as null and
3 of the Chattel equipment from the its counterclaim, the void in a motion to
Mortgage Law, the company. The payment Davao Lumber Company strike out the report
payment of the of such account was to alleged that Plaintiffs from the records of the
obligation be made either in cash Urbano Jaca and case.
automatically rendered and/or by the Jacas Bonifacio Jaca are the The reasons
the chattel mortgage turning over all the logs ones indebted to the stated in the order of
void or terminated. that they produce in the defendant in the sum of execution pending
aforesaid concession to P756,236.52 and appeal are not well
Urbano Jaca & the company. While the P91,651.97, respectively. founded. The first
Bonifacio Jaca vs. aforesaid business The company also reason stated in the
Davao Lumber relationship between alleged that Urbano Jaca order was the consistent
Company & Honorable the parties was executed a chattel refusal of petitioner to
Manases subsisting, the company mortgage in favor of the deliver the mortgaged
Reyes, as Judge of the made Urbano Jaca defendant to secure the chattels to the receiver.
CFI of Davao, G.R. No. execute in its favor a payment of any and all The records disclose
L-25771, March 29, chattel mortgage, a copy obligations contracted that respondent Davao
1982 (113 SCRA of which instrument, by him in favor of the Lumber Company is not
107) however, was never defendant covering even entitled to the
furnished to the Jacas. several chattels valued at appointment of a
Facts: Urbano Jaca is a Urbano Jaca executed P532,000. receiver. It is an
licensee of a logging assignments of letters The lower court established rule
concession in Davao, of credit in favor of the dismissed the complaint
together with Bonifacio company, in order that and granted the
Jaca. They are engaged the latter may be able counterclaim. A motion
in the logging business to use, as it did use, the pending appeal was
of producing timber and said letters of credit for granted. The Jacas are
logs for export and/or bank negotiations of the questioning the
domestic purposes. former in execution
Davao Lumber Company
is a business Issue: Whether a chattel
corporation with which mortgage that secures
plaintiffs had business any and all obligations
dealings covering the hereinbefore and
sale and/or exportation hereinafter contracted is
of their logs. Sometime void.
in 1954, the parties
Held: Yes. Reversed.
the exportation of logs. asserting that it had no
The business time as yet to examine
relationship of the into all the details of the R
parties continued from accounting. Sometime on a
1954 up to August 1963. October 30, t
The Jacas made 1963, much to their i
repeated demands on surprise, the Jacas o
the company for a received letters of :
formal accounting of demand from the
their business company in which they A
relationship from 1954 were requested to pay s
up to August, 1963, but their allegedly overdue
the company failed and accounts. p
refused, and still fails The Jacas filed r
and refuses, to effect this case in order to o
such formal accounting, compel the company to v
432
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433
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434
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435
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436
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437
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438
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439
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440
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441
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442
a r
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443
b executed by Urbano Jaca Shipping Agencies, Ltd.,
a in favor of the Davao G.R. No. 42551,
s Lumber Company is September 4, 1935 (62
e void. Hence, petitioner Phil 56)
d Urbano Jaca could not
have violated Article 319 Facts: There was a train
s of the Revised Penal accident. A case was filed
o Code. Moreover, the involving 28 claimants.
l respondent Davao Among the claimants
e Lumber Company has were the doctors who
l not successfully refuted treated victims, the
y the allegation of the victims, the owners of
petitioners that the sale damaged goods, and the
o of the wrecker to creditors. One creditor,
n Teodoro Alagon, was the Manila Motor Co.,
exclusively negotiated by Inc., executed a Chattel
t the lumber company's Mortgage which,
h managing partner, Tian however, was not
e Se, and that the latter registered.
caused Urbano Jaca to
r sign the deed of sale
e because he was the
p owner of the wrecker.
o The third reason
r stated is the fact that
t petitioners have no
properties and assets to
that the applicant for stipulation in regard to satisfy the judgment. The
receivership must have future advances in the basis of respondent
an actual and existing credit will take effect judge's conclusion that
interest in the property only from the date the petitioners do not have
for which a receiver is same are made and not sufficient assets is an
sought to be appointed. from the date of the unsubstantiated
The Davao Lumber mortgage. Where the allegation in the motion
Company's proof of statute provides that for execution pending
interest in the property the parties to a chattel appeal of respondent
is the deed of chattel mortgage must make lumber company.
mortgage executed by oath that the debt is a
Urbano Jaca in favor of just debt, honestly
the Davao Lumber due and owing from Aleko E. Lilius, for
Company on January 24, the mortgagor to the himself and as
1961. This deed of mortgagee, it is guardian ad litem of
chattel mortgage is obvious that a valid his minor child, Brita
void because it mortgage cannot be Marianne Lilius, and
provides that the made to secure a debt Sonja Maria Lilius vs.
security stated therein to be thereafter Manila Railroad
is for the payment of contracted. Company, Laura
any and all obligations The second reason Lindley Shuman,
herein before Manila Wine
stated was the fact
contracted and which that petitioner Merchants, Ltd., BPI &
may hereafter be Manila Motor Co., Inc.,
Urbano Jaca
contracted by the violated Article and W. H. Waterous, M.
Mortgagor in favor of Marfori, John R. Mcfie,
319 of the Revised Penal
the Mortgagee. In the Code by selling to a Jr., Erlanger &
case of Belgian Catholic Galinger, Inc.,
certain Teodoro Alagon
Missionaries vs. some of the mortgaged Philippine Education
Magallanes Press this Co., Inc. Hamilton
properties. As already
Court held that a discussed, the deed of Brown Shoe Co.,
mortgage that contains a Estrella Del Norte &
chattel mortgage
Eastern & Philippine
444
 The lower
court granted the
claims, and set an order
of preference. Some of
the claimants appealed
the order of preference.
Issue: Whether the
failure to present the
document of Chattel
Held: Yes. Yes. Affirmed.
Ratio: Manila Motor Co.,
Inc. has not proven that
its credit is evidenced
by a public document
within the meaning of
article 1924 of the Civil
Code. The only evidence
offered by the Manila
Motor Co., Inc., in
support of its claim of
preference against the
fund of Aleko E. Lilius
was a certified copy of
its judgment against him
in civil case No.
41159 of the Court of
First Instance of Manila,
together with a certified
copy of the writ of
execution and the
garnishment issued by
virtue of said judgment.
These documents
appear in the record.
The alleged public
document evidencing its
claim was not offered in
evidence and counsel of
the Manila Motor Co.,
Inc., merely stated at the
hearing in the lower
court that its judgment
was based on a public
document dated May 10,
1931. There is no
explanation as to why it
was not presented as
evidence. Manila Motor
Co., Inc. merely assume
that its credit is
evidenced by a public
document dated May 10,
1931, because the court,
in its judgment in said
civil case No. 41159,
Mortgage will prevent
the mortgagee from
getting preference.
Whether a chattel
mortgage is valid
between the parties
even though it was not
notarized and it
contained no affidavit of
good faith.
refers to a mortgage
appearing in the
evidence in that case as
the basis of its judgment,
without mentioning the
date of the execution of
that exhibit. This
reference in said
judgment to a mortgage
is not competent or
satisfactory evidence as
against third persons
upon which to base a
finding that the Manila
Motor Company's credit
is evidenced by a public
document within the
meaning of article 1924
of the Civil Code. This
court is not authorized
to make use of that
judgment as a basis for
its findings of fact in this
proceeding.
But even if the
court is authorized to
accept the statement in
that judgment as a basis
for its finding of fact in
relation to this claim,
still it would not
establish the claim of
preference of the Manila
Motor Co., Inc. Granting
that a mortgage existed
between the Manila
Motor Co., Inc., and
Aleko E. Lilius, this does
not warrant the
conclusion that the
instrument evidencing
that mortgage is a public
document entitled to
preference under article
1924 of the Civil Code.
Under section 5 of Act
No. 1507 as amended by
Act No.
2496, a chattel mortgage appears in a public
does not have to be document. If the Manila
acknowledged before a Motor Co., Inc., desired
notary public. As against to rely upon a public
creditors and document in the form of
subsequent a mortgage as
encumbrancers, the law establishing its
does require an preference in this case, it
affidavit of good faith should have offered that
appended to the document in evidence,
mortgage and recorded so that the court might
with it. (See Giberson vs. satisfy itself as to its
A. N. Jureidini Bros., 44 nature and
Phil., 216, and Betita vs. unquestionably fix the
Ganzon, 49 Phil., 87.) A
date of its execution.
chattel mortgage may,
There is nothing either
however, be valid as
in the judgment relied
between the parties
upon or in the evidence
without such an
to show the date of said
affidavit of good faith.
mortgage. The burden
In 11 Corpus Juris, 482,
was upon the claimant
the rule is expressly
to prove that it actually
stated that as between
had a public instrument
the parties and as to
within the meaning of
third persons who have
article 1924 of the Civil
no rights against the
Code. It is essential that
mortgagor, no affidavit
the nature and the date
of good faith is
of the document be
necessary. It will thus be
established by
seen that under the law,
competent evidence
a valid mortgage may
before the court can
exist between the parties
allow a preference as
without its being
against the other parties
evidenced by a public
to this proceeding.
document. This court
Inasmuch as
would not be justified,
merely from the
reference by the lower
court in that case to a
mortgage, in assuming
that its date
the claimant failed to those of the appellees in
establish its preference, this case.
based on a public
document, the lower
Northern Motors, Inc.
court properly held that
vs. Hon. Jorge R.
its claim against the said
Coquia, etc., et al.,
Aleko E. Lilius was based
Filinvest Credit
on the final judgment in
Corporation, G.R. No. L-
civil case No. 41159 of
40018, December 15,
the Court of First
1975 (68
Instance of Manila of
SCRA 374)
May 3, 1932. That court,
therefore, committed no
Facts: Northern Motors,
error in holding that the
Inc. has chattel
claim of the Manila
mortgages over several
Motor Co., Inc., was
taxicabs owned by
inferior in preference to
Manila Yellow Taxicab,
445
Inc. It foreclosed on of P2,000. To guarantee
these chattel mortgages. the payment of said l
Honesto Ong, on the sum, they executed and e
other hand, is an delivered to the said v
assignee of an Kilayko a chattel y
unsecured judgment mortgage covering
creditor of Manila machinery, crops and a u
Yellow Taxicab, Inc. and number of carabaos. To p
was able to levy on the comply with their o
taxicabs. obligation, the n
Northern mortgagors had to
Motors is claiming to deliver to the t
have a superior lien over mortgagee (Kilayko) in h
Honesto Ong. The the city of Iloilo their e
Supreme Court agreed. entire crop of sugar for
There is now a motion the years 1912-13. m
for reconsideration of Finally, a liquidation o
the Supreme Court was made and there r
decision. was found to be still due t
the mortgagee (Kilayko) g
Issue: Whether a chattel the sum of P650. The a
mortgage lien is balance was sent to the g
superior to an execution mortgagee by a e
levy. Whether representative of the d
registration of a chattel mortgagors, Antonio
mortgage is an effective Horrileno. Upon t
and binding notice to a delivery of a
judgment creditor. x
i
Held: Yes. Yes. MFR c
Denied. a
b
s
R
.
a
t
H
i
e
o
:
c
o
O
u
n
l
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d
h
h
a
a
s
v
e
n
o
l
e
r
v
i
i
g
e
h
d
t
o
t
n
o
l
446
y
t
u h
p e
o
n c
h
t a
h t
e t
e
m l
o
r m
t o
g r
a t
g g
o a
r g
’ e
s
i
e s
q
u t
i h
t a
y t

o t
f h
e
r
e m
d o
e r
m t
p g
t a
i g
o e
n d
.
c
T h
h a
e t
t
e e
s l
s s
e
n s
c h
e o
u
o l
f d
447
 e
a d
n i
s t
w
e o
r f

f t
o h
r e

t m
h o
e r
t
m g
o a
r g
t o
g r
a ’
g s
e
u
c n
r s
e e
d c
i u
t r
e
a d
n
d c
r
n e
o d
t i
t
f o
o r
r .

t T
h h
e e

j m
u o
d r
g t
m g
e a
n g
t e
e
c
r i
448
s c
e
n m
o e
t n
t
o
b o
l f
i
g h
a i
t s
e
d c
r
t e
o d
i
f t
i .
l
e T
o
a
n r
e
i q
n u
d i
e r
p e
e
n h
d i
e m
n
t t
o
a
c d
t o
i
o s
n o

f w
o o
r u
l
t d
h
e b
e
e
n a
f
o n
r u
449
l
l c
i h
f a
i t
c t
a e
t l
i
o m
n o
r
o t
f g
a
h g
i e
s
w
l h
i i
e c
n h

a i
n s
d
t
w o
o
u g
l i
d v
e
d
e h
f i
e m
a
t p
r
t e
h f
e e
r
p e
u n
r c
p e
o
s o
e v
e
o r
f
t
t h
h e
e
450
m
o t
r h
t e
g o
a r
g y
e
d t
h
c a
h t
a
t M
t a
e n
l i
s l
a
f
r Y
o e
l
t l
h o
e w

s T
a a
t x
i i
s c
f a
a b
c ’
t s
i
o b
n r
e
o a
f c
h
h
i o
s f

c t
r h
e e
d
i c
t h
. a
O t
n t
g e
’ l
s
451
m u
o c
r h
t
g c
a o
g n
e t
r
s a
h c
o t
u
l i
d s

n u
o n
t t
e
a n
f a
f b
e l
c e
t .

h T
i h
m e

b r
e e
c g
a i
u s
s t
e r
a
h t
e i
o
i n
s
o
n f
o
t t
h
p e
r
i c
v h
y a
t
o t
f e
l
s
452
m x
o i
r s
t t
g e
a n
g c
e e
.
i
s T
h
a e
n
m
e o
f r
f t
e g
c a
t g
i e
v
e c
r
a e
n a
d t
e
b s
i
n a
d
i r
n e
g a
l
n
o r
t i
i g
c h
e t

t o
o r

h a
i
m l
i
o e
f n

i w
t h
s i
c
e h
453
, e

b S
e i
i s
n o
g n

r &
e
c E
o m
r i
d l
e i
d o
,
S
f i
o s
l o
l n
o
w v
s s
.
t
h F
e .
M
c .
h
a Y
t a
t p
e
l T
i
w c
h o
e
r &
e
v A
e m
r a
n
i d
t o

g A
o v
e a
s n
. c
e
J ñ
o a
s ,
454
 ,
p
r 1
o 9
v 1
i 8
n
c (
i 3
a 7
l
P
s h
h i
e l
r
i 5
f 8
f 4
)
o
f Facts: The Sisons borrowed from Eugenio Kilayko the sum

I the sum on or about May caused by said alleged

l 14, 1914, Kilayko illegal attachment.
o executed and delivered court
a ruled for Yap Tico and relieved
i cancellation of said him of all liability.
l mortgage.
o It turns out Issue: Whether the
, Kilayko assigned and registration of the
transferred said assignment of chattel
G mortgage to F.M. Yap mortgage operates as
. Tico. The assignment notice to the mortgagors.
R and transfer were duly
. registered upon the Held: No. Reversed.
14th day of April, 1913,
N nearly one year after the
o transfer had been made.
. The cancellation of said
mortgage as above
L indicated was duly
- registered on the 19th
1 day of December, 1914.
1 Neither Kilayko nor Yap
5 Tico gave notice to the
8 Sisons that said
3 mortgage had been
, transferred.
Yap Tico
F proceeded to foreclose
e the mortgage. The
b sheriff attached and took
r possession of all the
u property which said
a mortgage covered. This
r action was brought for
y the purpose of
recovering the property,
8 together with damages
455
actual, and the dictum of the principal t
recording of the opinion to the effect r
assignment, there that "if the law does not a
being no law requiring require a particular t
the same, will not instrument to be i
operate as constructive recorded or registered, o
notice to the debtor. the recording of the n
instrument will not be
Carson, concurring: I constructive notice of o
accept the ruling of the its existence to any f
majority, but I cannot one." As I read them,
give my assent to the none of the cases or t
h
R e
a
t a
i s
o s
: i
g
T n
h m
e e
n
q t
u
e o
s p
t e
i r
o a
n t
, e
d
w
h a
e s
t
h n
e o
r t
i
o c
r e
,
n
o i
t p
s
t o
h
e f
a
r c
e t
g o
i ,
s
t
456
o ,

t f
h o
e r

m t
o h
r e
t
g r
a e
g a
o s
r o
s n
,
t
w h
e a
t
a
r t
e h
e
i
n l
c a
l w
i
n d
e o
d e
s
t
o n
o
a t
n
s r
w e
e q
r u
i
i r
n e

t s
h u
e c
h
n
e a
g s
a s
t i
i g
v n
e m
457
e ,
n
t t
s h
e
t
o l
a
b w
e
i
r s
e
c p
o e
r r
d m
e i
d s
. s
i
W b
h l
i e
l
e a
n
s d
u
c n
h o
t
a
s m
s a
i n
g d
n a
m t
e o
n r
t y
s .

m T
a h
y e

b f
e i
l
r i
e n
c g
o
r a
d n
e d
d
458
r w
e h
c e
o n
r
d t
i h
n e
g
l
o a
f w

a d
n o
e
i s
n
s n
t o
r t
u
m r
e e
n q
t u
i
i r
n e

t s
h u
e c
h
o
f f
f i
i l
c i
e n
g
o
f a
n
t d
h
e r
e
r c
e o
g r
i d
s i
t n
r g
a ,
r
, d
o
459
e
s 1
5
n 2
o
t U
.
c S
o .
n ,
s
t 6
i 3
t 4
u ;
t
e 5
Corpus Juris, 934.)
n T
o h
t e
i
c d
e e
b
t t
o o
r
t
h o
e r

p p
a a
r r
t t
i y
e
s l
. i
a
( b
B l
u e
r
c o
k n

v c
s o
. n
t
T r
a a
y c
l t
o s
r
, l
460
i n
k t
e i
l
t
h h
e e

o h
n a
e s

i n
s o
t
q i
u c
e e
s
t t
i h
o e
n r
e
i o
s f
,
n
o a
t n
d
a
f c
f o
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c s
t e
e q
d u
e
b n
y t
l
t y
h
e h
e
a
s m
s a
i y
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n s
m e
e t
n
t u
p
u
461
a r
g e
a
i n
n o
s t
t i
c
t e
h
e t
h
c a
l t
a
i w
m o
u
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f d

t a
h v
e a
i
a l
s
s h
i i
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n
e a
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a
a i
n n
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t
d
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n
s a
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s
a i
c g
q n
u o
i r
r
e h
d a
d
b
e t
f h
o e
462
r i
e g
n
b o
e r
e ,
n
o
n r
o
a
a n
s y
s
i c
g o
n m
m p
e r
n o
t m
, i
s
a e
n
d o
r
p
a r
y e
m l
e e
n a
t s
e
b
y o
f
t
h t
e h
e
d
e a
b s
t s
o i
r g
n
t e
o d

t c
h l
e a
i
a m
s
s b
463
y e
e
t
h a
e n
d
l
a d
t i
t s
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r h
a
b r
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f e
o
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e
n
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c t
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r
w .
i
l (
l V
a
b n
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u
v s
a k
l i
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a v
g s
a .
i
n H
s a
t r
t
t f
h o
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d
a
s F
s i
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n
464
I e
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465
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466
s t
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f i
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t t
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a n
467
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e K
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468
l r
,
v
s t
. h
e
I n
n ,
l
a t
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d
c i
l t
e o
a r
469
 h
w
i n
t o
h t
o i
u c
t e

a m
c u
t s
u t
a
l b
e
n
o authorities cited in the
t principal opinion
i support that proposition.
c The ratio decidendi of all
e these cases and
authorities would seem
t to be that if the law does
h not authorize or require
a a particular instrument
t to be recorded or
registered, the recording
t of that instrument will
h be constructive notice of
e its existence to anyone.
The distinction between
d the two propositions in
e this jurisdiction is vital.
b Our statute, though it
t does not require the
registry of transfers of
h chattel mortgages,
a expressly authorizes and
s provides for the registry
of such transfers. (Sec.
b 15, "The Chattel
e Mortgage Law," Act No.
e 1508.) Our statute does
n not require the registry
of transfer of chattel
a mortgages, but it
s expressly authorizes
s and provides for their
i registry in the public
g records, and the
n reasoning of all the
e authorities clearly
d indicate that when such
. a transfer is actually
recorded in the manner
S and form provided by
u law, all persons, who
c thereafter acquire an
interest in the mortgage
or the mortgaged
property, are charged
with constructive notice
of the transfer.
It affirmatively
appears that the transfer
of the mortgage from the
mortgagee to the
defendant, Yap Tico, was
made soon after the date
of the execution of the
mortgage. that although
Yap Tico recorded the
transfer of the mortgage,
he thereafter held
himself out to the
plaintiff (the mortgagor)
as the agent of the
mortgagee, and did in
fact act as the agent of
the mortgagee for the
purpose of collecting
payments upon the
mortgage indebtedness,
which payments, as it
appears, were turned
over to his principal, the
mortgagee, or credited in
his account with Yap
Tico; that he continued to
hold himself out as the
agent of the mortgagee
throughout the entire
course of these
transactions, and as such
agent accepted on behalf
of his principal a number
of shipments of sugar,
delivered by the
mortgagor on account of
his mortgage
470
indebtedness and in
strict compliance with
the terms of the
mortgage instrument;
that the mortgagor had
no actual notice of the
transfer of the mortgage
until after he had paid
the total amount of the
mortgage indebtedness,
the last payment being
made to the mortgage
himself, in total
ignorance of the transfer
of the mortgagee's
interest therein to the
defendant, Yap Tico; and
that it was not until after
the mortgage
indebtedness had been
paid in full the
mortgagee that the
defendant Yap Tico gave
actual notice of the
assignment of the
mortgage, and
demanded payment of
the full amount of the
indebtedness.
In the light of
these facts, Yap Tico
cannot be heard to
demand payment of the
mortgage indebtedness
on the ground that he is
entitled thereto as the
registered assignee of
the mortgage, and that
payment to the
mortgagee did not
extinguish the debt. By
his own conduct he is
stopped from setting up
such a claim. Having
held himself out to be
the agent of the
mortgagee and accepted
payment of the greater
part of the indebtedness
after the date of the
assignment, in the name
of and in behalf of the
mortgagee, it is
inconceivable that he
should be permitted to
enforce payment of the
amounts thus collected
a second time. And even
as to the balance of the
indebtedness paid record is prospective
directly to the Street, concurring: The and not retrospective.
mortgagee, it seems Chattel Mortgage Law It is only a subsequent
clear that Yap Tico is was adopted by the conveyance which
estopped from Philippine Commission defeats a prior
demanding repayment, from the laws relative to unrecorded
because his own registration prevailing in conveyance, and
conduct was such as to the States of the therefore only persons
lull any suspicion on the American Union; and the who acquire their
part of the debtor that problem presented in rights subsequently to
the mortgagee the present case if the registration can be
indebtedness had been therefore one arising said to be charged with
assigned to him, and upon the interpretation notice of a recorded
to justify the debtor in of an Act applying the conveyance.
the belief that so far as principles of that system Of course, it
he, Yap Tico, was to these Islands. It may would have been
concerned there was no be well to explain in a competent for the
reason to suspect the word that, according to Legislature to declare
existence of the the common-law ideas, that the registration of
assignment or to search registration is merely a the transfer of a
the records in order to species of notice. The act mortgage should operate
ascertain in the true of registering a as constructive notice to
nature of Yap Tico's document is never prior parties as well as
relations with the necessary in order to subsequent purchasers;
mortgagee. In truth, Yap give it legal effect but we have never seen
Tico's willful silence and between the parties. The any enacted law in which
failure to give actual purpose of the a rule so sweeping has
notice of the assignment Legislature in providing been declared. In the
under all the a system of registration absence of such a
circumstances fairly is to afford means of provision it is apparent
justifies the inference of publicity so that persons that registration should
an intent to defraud the dealing with property be considered
mortgage debtor, and to may search the records prospective in its
take advantage of his and thereby acquire operation, as indicated
lack of knowledge of his security against in the authorities
indebtedness twice instruments the already cited.
over. execution of which has
not been revealed. Fausto Rubiso &
It is sometimes Bonifacio Gelito vs.
stated in the decisions Florentino E. Rivera,
that the recording of a G.R. No. L-11407,
conveyance is notice to October 30, 1917 (37
all the world, but this is Phil 72)
too broad; and the
more accurate Facts: Valentina, a pilot
statement is that the boat, belonged to Gelito
record imparts & Co., Bonifacio Gelito
constructive notice to being a copartner thereof
such persons only as to the extent of two-
would have been thirds, and the Chinaman
entitled to protection Sy Qui, to that of one-
against the conveyance third of the value of said
in case it had not been vessel. Bonifacio Gelito
recorded, or, in other sold his share to his
words, to such persons copartner Sy Qui,
as are under a legal through an instrument
obligation to search for which was registered in
it. The operation of the the office of the Collector
471
of Customs. Sy Qui, in So, the boat rights of the two claims by strangers for,
turn, sold the boat to was twice sold: first purchases, whichever of pursuant to article 582
Florentino Rivera privately by its owner them first registered his of the said code, after
through a deed Sy Qui to the defendant acquisition of the vessel the bill of the judicial
executed on January 4, Florentino E. Rivera on in the one entitled to sale at auction has been
1915 which was January 4, 1915, and enjoy the protection of executed and recorded
registered in the Bureau afterwards by the the law, which in the commercial
of Customs on March 17, sheriff at public auction considers him the registry, all the other
1915. in conformity with the absolute owner of the liabilities of the vessel in
A case was order contained in the purchased boat, an this favor of the creditors
filed against Sy Qui by judgment rendered by latter to be free of all shall be considered
his creditor, Fausto the justice of the peace encumbrance and all canceled.
Rubiso, to enforce court, on January 23 of
payment of a certain the same year, against R
sum of money. Rubiso the Chinaman Sy Qui a
acquired the vessel at an and in behalf of the t
auction sale on January plaintiff, Fausto Rubiso. i
23, 1915, and the sale It is undeniable that the o
was recorded on defendant Rivera :
January 27, 1915. acquired by purchase
the pilot boat Valentina A
on behalf of the plaintiff r
Rubiso; but it is no less t
true that the sale of the i
vessel by Sy Qui to c
Florentino E. Rivera, on l
January 4, 1915, was e
entered in the
5
customs registry only 7
on March 17, 1915, Held: Yes. Affirmed. 3
while its sale in public
auction to Fausto Rubiso o
on the 23rd of January of f
the same year, 1915,
was recorded in the t
office of the Collector of h
Customs on the 27th of e
the same month, and in
the commercial registry C
on the 4th of March, o
following; that is, the d
sale on behalf of the e
defendant Rivera was
prior to that made at o
public auction to Rubiso, f
but the registration of
this latter sale was prior C
by many days to the sale o
made to the defendant. m
The lower court m
judge ordered Rivera e
to give the boat to r
Rubiso. Rivera appealed. c
e
Issue: Whether a prior
registrant has better p
rights than a prior buyer r
over a pilot boat. o
472
v e
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474
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475
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476
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478
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480
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481
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482
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483
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484
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485
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486
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487
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488
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489
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f The purchaser G
f at public auction, Fausto .
i Rubiso, who was careful R
c to record his acquisition, .
i opportunely and on
a prior date, has, N
l according to the law, a o
better right than the .
w defendant Rivera who
h subsequently recorded L
o his purchase. The latter -
is a third person, who 9
s was directly affected by 4
h the registration which 5
a the plaintiff made of the 1
l acquisition. ,
l Ships or vessels,
whether moved by M
m steam or by sail, partake, a
a to a certain extent, of the r
k nature and conditions of c
e real property, on account h
of their value and
t importance in the world 2
h commerce; and for this 9
e reason the provisions of ,
article 573 of the Code
e of Commerce are nearly
1
n identical with article
9
t 1473 of the Civil Code.
5
r 7
y Olaf N. Borlough vs.
; Fortune Enterprises, (
Inc. & CA, 1
490
0 was unlawfully hiding possession shall prevail annotation thereof in
0 and concealing the over a prior mortgage the Motor Vehicles
vehicle in order to evade registered under the Office.
P seizure by judicial Chattel Mortgage Law
h process. only, without Held: Yes. Affirmed.
i The vehicle was
T
l seized by the sheriff of
h
Manila on August 4,
e
1 1952 and was later sold
0 at public auction. The
C
6 Court of First Instance
A
3 rendered judgment in
) favor of Borlough, and
r
against plaintiff,
e
Facts: United Car ordering the latter to pay
n
Exchange sold to the Borlough the sum of
d
Fortune Enterprises, Inc. P4,000, with interest at 6
e
a Chevrolet car. The per cent per annum,
r
same car was sold by the from the date of the
e
Fortune Enterprises, Inc. seizure of the car on
d
to one Salvador August 4, 1952, and in
Aguinaldo on addition thereto,
j
installments. To secure attorney's fees in the
u
the payment of this note, sum of P1,000.
d
Aguinaldo executed a g
deed of chattel mortgage m
over said car. The deed e
was duly registered in n
the office of the Register t
of Deeds of Manila.
When Aguinaldo failed o
to pay, a demand letter r
was sent to him. d
It appears that e
the said car found its r
way again to United Car i
Exchange which sold the n
car in cash to Mr. g
Borlough. Borlough took
possession of the vehicle t
from the time he h
purchased it. a
Fortune t
Enterprises, Inc. brought
action against Salvador E
Aguinaldo to recover the m
balance of the purchase i
price. Borlough filed a l
third-party complaint,
claiming the vehicle. B
Thereupon, Fortune .
Enterprises, Inc.
amended its complaint, F
including Borlough as a a
defendant and alleging j
that he was in a
connivance with r
Salvador Aguinaldo and d
491
o f
f
p
a p
y a
y
B
o t
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o B
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o
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4 g
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0
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0 n
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p
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p s
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a
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t
i i
492
t c
s a
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s
t
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d
j
j u
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l
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e s
x
p t
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n a
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e
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. h
e
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r
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n
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r
s
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e e
r
m i
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d r
i ,
f
i b
493
e e
i n
n
g a
c
p q
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i
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y
p
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i o
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h a
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b
b y
e
494
t
h I
e s
s
r u
e e
g :
i
s W
t h
r e
a t
t h
i e
o r
n
t
o h
f e

h s
i a
s l
e
t
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e a

i c
n a
r
t
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e u
b
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o e
t q
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n
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s i
s
O t
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e
. w
495
i 4(b) of the Revised Law. A mortgage in
t Motor Vehicles Law the order to affect third
h Chief of the Motor persons should not
Vehicles Office is only be registered in
t required to enter or the Chattel Mortgage
h record, among other Registry, but the same
e things, transfers of should also be
motor vehicles "with a recorded in the Motor
M view of making and Vehicles Office as
o keeping the same and required by section
t each all of them as 5(e) of the Revised
o accessible as possible to Motor Vehicles Law.
r and for persons and And the failure of the
officers properly respondent mortgagee
V interested in the same," to report the mortgage
e and to issue such executed in its favor
h reasonable regulations had the effect of
i governing the search and making said mortgage
c examination of the ineffective against
l documents and records Borlough, who had his
e as will be consistent with purchase registered in
s their availability to the the said Motor Vehicles
public and their safe and Office.
O secure preservation."
f The Revised Montelibano Esguerra
f Motor Vehicles Law is a vs. CA, G.A.
i special legislation Machineries, Inc., Jose
c enacted to "amend and Tino & Manuel Dore,
e compile the laws relative G.R. No. 40062, May 3,
to motor vehicles," 1989
c whereas the Chattel G.A. Machineries,
o Mortgage Law is a Inc.
u general law covering vs.
p mortgages of all kinds of CA &
l personal property The Montelibano
e former is the latest Esguerra, G.R. No.
d attempt to assemble and 40102, May 3,
compile the motor 1989 (173 SCRA 1)
w vehicle laws of the
i Philippines, all the Facts: A Ford-Trader
t earlier laws on the cargo truck was sold by
h subject having been GAMI to Hilario-Lagmay
found to be very and Bonifacio
a deficient in form as well Masilungan.
c as in substance (Villar Subsequently, the right to
t and De Vega Revised the same was bought by
u Motor Vehicles Law, p. Montelibano Esguerra,
a 1); it had been designed the latter assuming the
l primarily to control the unpaid purchase price of
registration and P20,454.74. In so doing,
Ratio: While the the express provisions of operation of motor
question can be resolved the Revised Motor Esguerra executed in
vehicles (section 2, Act favor of GAMI a
by the general principles Vehicles Law, which No. 3992).
found in the Civil Code expressly and promissory note and a
The recording chattel mortgage over the
and expressly stated in specifically regulate the provisions of the Revised
Article 559, there is no registration, sale or said truck. On February
Motor Vehicles Law, 20, 1966, Esguerra
need of resorting transfer and mortgage of therefore, are merely
thereto (the general motor vehicles. It is to be having defaulted in his
complementary to those obligation and GAMI
principles) in view of noted that under section of the Chattel Mortgage
496
having granted his of his obligation. So, the
request for extension, a said truck was taken by
new chattel mortgage GAMI'S agents while the
and a new promissory same was in the
note were executed. possession of
Esguerra was Esguerra's driver,
unable to Carlito Padua.
comply with the Esguerra filed a
terms complaint to recover
the truck. The lower
court dismissed the
complaint. The CA
affirmed the decision,
but took exception at
the failure of GAMI to
sell the truck at a public
auction. Due to this
failure, attorney’s fees
and damages were
awarded to Esguerra.
the same.
Both the trial
Issue: Whether the
mortgagee-vendor of court and the Court of
Appeals found that there
personal property sold
on installment is legally was no forcible taking of
the cargo truck. Esguerra
obligated to foreclose
the chattel mortgage consented to the
repossession of the truck
and sell the chattel
subject thereof at public or at least did not make
any objection thereto. He
auction in case the
mortgagor-vendee simply requested that he
be given a chance to
defaults in the payment
of the agreed settle the account, which
was evidently granted as
installments.
on the following day,
June 14, 1966, appellant
Held: Yes. Affirmed with
sent his wife with
modifications.
P500.00 with which to
partially settle his
Ratio: Esguerra account.
admitted that he is in However, the
arrears in the payments respondent appellate
of his account. court did not err in
Consequently, the holding that while the
mortgagee, under the mortgagee can take
above cited provision of possession of the
the mortgage contract chattel, such taking did
has the option to not amount to the
foreclose the mortgage foreclosure of the
either judicially or mortgage. Otherwise
extrajudicially and in stated, the taking of
case of foreclosure, it Esguerra's truck without
was expressly agreed by proceeding to the sale of
the parties that the the same at public
mortgagee may take the auction, but instead,
property outside the appropriating the same
municipality or city in payment of Esguerra's
where the mortgagee indebtedness, is not
may conveniently sell
lawful. As clearly stated the sale, or to foreclose
in the chattel mortgage the mortgage on the
contract, the express purchased personal
purpose of the taking of property, if one was
the mortgaged property constituted.
is to sell the same and/or
foreclose the mortgage
constituted thereon
either judicially or
extrajudicially and
thereby, liquidate the
indebtedness in
accordance with law.
More than that, even if
such automatic
appropriation of the
cargo truck in question
can be inferred from or
be contemplated under
the aforesaid mortgage
contract, such stipulation
would be pactum
commissorium which is
expressly prohibited by
Article 2088 of the
Civil Code and therefore,
null and void.
Having opted
to foreclose the chattel
mortgage, respondent
GAMI can no longer
cancel the sale. The
three remedies of the
vendor in case the
vendee defaults, in a
contract of sale of
personal property the
price of which is
payable in installment
under Article 1484 of
the Civil Code, are
alternative and cannot
be exercised
simultaneously or
cumulatively by the
vendor-creditor.
Should the vendee or
purchaser of a
personal property
default in the payment
of two or more of the
agreed installments,
the vendor or seller
has the option to avail
of any one of these
three remedies - either
to exact fulfillment by
the purchaser of the
obligation, or to cancel
497
These remedies have vendor of any balance constitute only a pro Alberta B. Cabral &
been recognized as on the purchaser's tanto satisfaction of Renato Cabral vs.
alternative, not outstanding obligation the monetary award Teodora Evangelista, &
cumulative, that the not so satisfied by the made by the court, Juan N. Evangelista, &
exercise of one would sale. and the Bank is George L. Tunaya, G.R.
bar the exercise of the It will be entitled to collect the No. L-26860, July 30,
others. It may also be observed, however, that balance. 1969 (28 SCRA
stated that the the award of exemplary 1000)
established rule is to damages is apparently
the effect that the unwarranted, there R
foreclosure and actual being no showing that a
sale of a mortgaged the mortgagee acted in t
chattel bars further a wanton, fraudulent, i
recovery by the o
reckless or oppressive personal properties sold :
manner. It will be at public auction, the
recalled, that under the parties agreed to have W
chattel mortgage them sold at a private h
contract, the mortgagee sale. The proceeds were i
is expressly authorized applied to the partial l
to sell the mortgaged satisfaction of the e
property and the judgment.
mortgagee had already 5 years after the t
commenced foreclosure finality of the decision, h
of the chattel mortgage, PNB revived the case to e
but the sale presumably seek for the payment of
could not be the deficiency amount. d
immediately made The court ruled for PNB. e
because of the request of c
the mortgagor himself to Issue: Whether a private i
give him a chance to sale of mortgaged s
settle his account. chattels may be agreed i
upon by the parties. o
Philippine National Whether a chattel n
Bank vs. Manila mortgagee may collect
Investment & on the deficiency. o
r
Construction, Inc. &
Cipriano S. Allas, G.R. d
Held: Yes. Yes. Affirmed. e
No. L-27132, April 29,
1971 (38 SCRA 462) r
e
d
Facts: A decision was
rendered against Manila a
Investment &
Construction, Inc. to pay p
PNB a sum of money. In u
case of non-payment of b
the amount, the decision l
provided for the sale at i
public auction of the c
personal properties
covered by a chattel a
mortgage and for the u
disposition of the c
proceeds in accordance t
with law. i
Instead of o
having the mortgaged
498
n r
,
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499
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502
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503
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506
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507
r
e c
c l
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s m
o
508
r contract is barred by faith, and without the
t prescription. Whether a least indication of fraud.
g purchaser of mortgaged Article 559 CC
a chattels in an execution which provides that “If
g sale has a superior right the possessor of a
e over the mortgagee. movable lost or of which
d Whether a judgment the owner has been
creditor who levies on unlawfully deprived, has
p mortgaged properties acquired it in good faith
e can be held solidarily at a public sale, the
r liable with the owner canot obtain its
s mortgagor. return without
o reimbursing the price
n Held: No. No. Yes. therefore” has no
a Affirmed. application in this case
l because the chattels
were acquired subject
p to the existing mortgage
r lien. The record shows
o that the Evangelistas
p disposed of the
e mortgaged chattels to
r other persons at a
t discounted rate and,
i therefore, appropriated
e the same as if
s
Facts: George Tunaya having defaulted in the R
executed in favor of the payment thereof, the a
Cabrals a chattel Cabrals filed a complaint t
mortgage covering a against Tunaya and the i
“Morrison” English Evangelista spouses. The o
piano and a Frigidaire city court rendered :
General Motors Electric judgment in favor of the
Stove with 4 burners Cabrals as against A
and double oven as Tunaya, but dismissed
security for payment of the case as against the p
a promissory note. The Evangelista spouses. r
chattel mortgage deed The CFI upheld the o
was duly inscribed in superior rights of the p
the Chattel Mortgage Cabrals as mortgage e
Register. creditors to the personal r
Meanwhile, the properties, holding that
Evangelista spouses the Evangelistas, being r
obtained a final money subsequent judgment e
judgment against creditors in another case, a
Tunaya. They caused the have only the right of d
levy in execution on redemption. Tunaya and i
personal properties of the spouses Evangelista n
Tunaya, including the were found jointly and g
piano and stove. The solidarily liable to pay
properties levied on the Cabrals. o
were sold at public f
auction. Issue: Whether a
Subsequently, 8 S
mortgagee’s action to
months after the e
sell foreclosed
maturity of Tunaya’s c
mortgaged chattels after
promissory note and his 30 days from breach of
509
1 t
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510
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511
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512
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517
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518
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t o
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t m
519
o ownership, in complete October 7, 1920, this
r derogation of the mortgage was filed in the
t Cabral’s superior office of the register of
g mortgage lien and in the Province of Tarlac
a disregard of the demand and was thereupon duly
g to them prior to the registered in the registry
e filing of the complaint to of chattel mortgages. On
pay or exercise the May 18, 1921, Sibal again
e right of redemption. mortgaged the same
x The Evangelistas, by chattels to Domiciano
e their act of disposing the Tizon whose mortgage
c mortgaged chattels, was likewise duly
u whose value were registered in the chattel
t admittedly more than mortgage registry of
e adequate to secure the Tarlac in June, 1921.
d mortgage obligation, When the
have thus practically stipulated date of
w nullified the mortgagee’s payment arrived, Sibal
i superior right to defaulted in the making
t foreclose the mortgage of payment, and Valdez
h and collect the amount thereupon instituted a
due them. Considering civil action to recover the
t the long period that has indebtedness, in
h elapsed when the connection with which he
e mortgagees tried to sued out a writ of
enforce their claim and attachment and on June
f the Evanglista’s adamant 24, 1921, caused the
o resistance thereof and same to be levied upon
r unjust refusal to the property which is the
m recognize the clearly subject of this action. The
a superior right to the property, however, was
l chattels, which were not retained by the
i admittedly disposed of attaching officer for the
t without lawful right to reason that Tizon gave a
i other unknown persons counterbond. The court
e obviously to defeat the ruled in favor of Valdez,
s mortgagee’s right over and Valdez caused an
the same, justice and execution to be issued,
o equity justify the which, on April 24, 1924,
f judgment holding the was levied upon the
Evangelistas solidarily property now in
t liable for the amount question, being the same
h due. property included in
e Valdez's chattel
Domiciano Tizon vs. mortgage.
l Emiliano J. Valdez & Meanwhile
a Luis Morales, sheriff of Domiciano Tizon,
w the Province of proceeding under his
, Tarlac, G.R. No. 24797, own mortgage, had
March 16, 1926 (48 caused the sheriff to sell
i Phil 910) the same property in a
n foreclosure proceeding
Facts: A steam engine conducted in conformity
g and boiler were with the provisions of the
o originally owned by Chattel Mortgage Law
o Leon Sibal, Sr. who (Act No. 1508, sec. 14).
d mortgaged the The sale in these
properties to Valdez. On proceedings was effected
the chattels were of their absolute on June 28, 1923, Tizon
520
becoming purchaser for was not liable to be
the consideration of taken upon an
P1,000. As purchaser at execution directed
his own foreclosure sale, against Sibal. The
Tizon assumed sheriff, however, under
possession of the indemnity from Valdez,
property, and it was retained the property
found in his possession and sold it in due course
when the sheriff levied at an execution sale,
upon it by virtue of the Valdez becoming
execution issued in the purchaser at the price
civil case. At the time of P500. Pursuant to
this levy was made, or this sale Valdez now
soon thereafter, Tizon took possession, and
filed a claim with the Tizon filed this case to
sheriff, asserting that recover possession of
the property belonged the property. The case
to him and was dismissed.
Issue: Whether a first
mortgagee loses his
priority once he opts to
have the property
mortgaged attached and
executed upon, instead
of foreclosed.
announced by the
Held: No. Affirmed. Supreme Court of Ohio in
Green vs. Bass (83 Ohio
St., 378; Ann. Cas. [1912],
Ratio: It is the settled
828). It was there
doctrine of this court
declared that the owner
that a chattel mortgage,
of a senior mortgage
though written in the
does not, by recovering a
form of a conditional
judgment on the note
sale defeasible upon
which it secures and
performance of a sound
causing execution to be
condition subsequent, is
levied on the mortgaged
really no more than a
chattels, waive the
mere security for a debt
priority of his lien.
and creates only a lien in
It is suggested
favor of the creditor.
that the suing out of an
(Bachrach Motor Co. vs.
attachment by Valdez at
Summers, 42 Phil., 3.) At
the beginning of his civil
the same time a writ of
action to recover upon
execution in this
the debt secured by his
jurisdiction reaches
mortgage introduces a
both legal and equitable
vital difference; and
interests, with the result
attention is directed to
that the equity of
the fact that upon suing
redemption of the
out an attachment
mortgagor will pass to
under section
the purchaser at an
426 of the Code of Civil
execution sale. The
Procedure the creditor
better rule, we think,
is required to make oath
and the rule which is
that he has no other
certainly more in accord
sufficient security for the
with other doctrines
claim sought to be
here prevailing is that
enforced by the action. subsist unaffected by
The making of such what happened as a
affidavit shows an result of the civil action.
election on the part of If anybody had been
the creditor, so it is misled to his prejudice as
contended, to waive the a consequence of the
mortgage lien. This course pursued by
argument in our Valdez, this would have
opinion is not valid for constituted a ground of
two reasons, first, estoppel; but nothing of
because the creditor is the sort appears.
not required to state We have before
peremptorily under us then the
oath that he has no simple situation
other security at all of
but only that he has
no other sufficient
security; and, secondly,
because this court has
held that the provision
which prohibits the
issuance of an
attachment when there
is other sufficient
security has no
application where the
attachment is levied
upon the property
constituting the
security in an action to
recover the debt so
secured. (Pepperell vs.
Taylor, 5 Phil., 636.)
From whatever angle
the matter be viewed
we can discover no
reason for
holding that either the
suing out of the
attachment or the
subsequent sale of the
property under
execution had the
effect of destroying the
prior mortgage lien,
that is, as between the
parties to this lawsuit.
What Valdez may have
obtained by purchasing
at the execution sale, and
whether he obtained
anything at all, is a
different question, and
one that is really not
necessary to be here
decided. It is enough to
say that the first
mortgage in favor of
Valdez continues to
521
a first mortgagee in virtue of the second vehicle with the dismissed the action for
possession attacked by mortgage. As between alternative prayer for failure to prosecute. The
the second mortgagee the first and second the payment of a sum of order was recalled, but
after foreclosure of the mortgagees, therefore, money. A writ of summons still could
second mortgage; and a the second mortgagee replevin was issued. not be served on the
little reflection will has at most only the The vehicle was found Manahans. So, the trial
show, we think, that the right to redeem, and in the possession of court dismissed the
second mortgagee even when the second Roberto Reyes from case and ordered that
cannot prevail. After a mortgagee goes through whom it was seized. the vehicle be returned
first mortgage is the formality of an Summons could not be to Reyes. The CA
executed there remains extrajudicial served to the Manahans, affirmed.
in the mortgagor a foreclosure, the so the lower court
mere right of purchaser acquires no I
redemption, and only more than the right of n
this right passes to the redemption from the
second mortgagee by first mortgagee. t
h
The remedy of Sibal, but it cannot be e
the plaintiff in this case true as between Valdez
must therefore be and Tizon. When Valdez a
limited to the right to made his affidavit for an u
redeem by paying off the attachment, in legal t
debt secured by the first effect, he said: My debt is h
mortgage. But the action not secured by any lien. o
is not directed to this It was necessary for r
end, and in the him to do that to i
controversy over the procure the attachment. t
title the purchaser at the Having made that y
foreclosure sale under affidavit and procured
the second mortgage the attachment of the c
must fail. Valdez, as first property upon which i
mortgagee, even he had a chattel t
supposing that he mortgage lien, he e
acquired nothing by his ought to be legally d
purchase at his own estopped to now claim
execution sale, is yet or assert that he did i
entitled to possession not have a chattel n
for the purpose at least mortgage lien.
of foreclosing his first t
mortgage (Bachrach h
Motor Co. vs. Summers, e
42 Phil., 3), the lien of
which, as we have m
already demonstrated, a
still subsists; and since j
Valdez is entitled to o
possession Tizon cannot r
maintain an action to i
recover the property. t
y
Johns, Dissenting: The
majority opinion holds o
that Valdez has two liens p
on the same property, i
one being an n
attachment, and the i
other a chattel mortgage o
lien. That might be true n
as between Valdez and ,
522
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534
s in personam. It is in maintain an action for
rem insofar as the replevin therefor. Where
f recovery of specific the mortgage authorizes
i property is concerned, the mortgagee to take
l and in personam as possession of the
e regards to damages property on default, he
d involved. As an "action in may maintain an action
rem," the gist of the to recover possession of
p replevin action is the the mortgaged chattels
r right of the plaintiff to from the mortgagor or
a obtain possession of from any person in
y specific personal whose hands he may
i property by reason of his find them. In effect then,
n being the owner or of his the mortgagee, upon the
g having a special interest mortgagor's default, is
therein. Consequently, constituted an attorney-
f the person in possession in-fact of the mortgagor
o of the property sought to enabling such mortgagee
r be replevied is ordinarily to act for and in behalf of
the proper and only the owner. Accordingly,
t necessary party that the defendant is not
h defendant, and the privy to the chattel
e plaintiff is not required mortgage should be
to so join as defendants inconsequential. By the
r other persons claiming a fact that the object of
e right on the property but replevin is traced to his
c not in possession possession, one properly
o thereof. Rule 60 of the can be a defendant in an
v Rules of Court allows an action for replevin. It is
e application for the here assumed that the
r immediate possession of plaintiffs right to possess
y the property but the the thing is not or cannot
plaintiff must show that be disputed.
o he has a good legal A chattel
f basis, i.e., a clear title mortgagee,
thereto, for seeking such unlike a
t interim possession. pledgee, need
h Where the right not
e of the plaintiff to the
itself, i.e., to regain the possession of the specific
Issue: Whether a possession of personal property is so conceded
mortgagee can maintain chattels being or evident, the action
an action for replevin wrongfully detained need only be maintained
against a possessor of from the plaintiff by against him who so
the object of a chattel another, or to the possesses the property.
mortgage who is not a provisional remedy that In rem actio est per
party to the mortgage, in would allow the plaintiff quam rem nostram quae
the absence of the to retain the thing during ab alio possidetur
mortgagor. the pendency of the petimus, et semper
action and hold it adversus eum est qui
pendente lite. The action rem possidet. In
Held: No. Affirmed.
is primarily possessory Northern Motors, Inc. vs.
in nature and generally Herrera, there can be no
Ratio: Replevin, broadly determines nothing question that persons
understood, is both a more than the right of having a special right of
form of principal possession. Replevin is property in the goods
remedy and of a so usually described as a the recovery of which is
provisional relief. It may mixed action, being sought; such as a
refer either to the action partly in rem and partly chattel mortgagee, may
535
be in, nor entitled to the
possession of the
property unless and
until the mortgagor
defaults and the
mortgagee thereupon
seeks to foreclose
thereon. Since the
mortgagee's right of
possession is
conditioned upon the
actual fact of default
which itself may be
controverted, the
inclusion of other
existence of, but also the
mortgagor's default on,
the chattel mortgage
that, among other
things, can properly
uphold the right to
replevy the property.
The burden to establish
a valid justification for
that action lies with the
plaintiff. An adverse
possessor, who is not
the mortgagor, cannot
just be deprived of his
possession, let alone be
bound by the terms of
the chattel mortgage
contract, simply because
the mortgagee brings up
an action for replevin.
Jose Movido vs.
Rehabilitation
Finance Corporation
& The Provincial
Sheriff of
Samar, G.R. No. L-
11990, May 29, 1959
(105 Phil 886)
Facts: On 1 July 1946
the Vet Bros. & spouses
Company, Inc.
mortgaged to Jose S.
Movido its rights, title,
interest and
participation in a therein enumerated and
complete sawmill with
all its machineries, tools
and equipment in good
running condition to
secure the payment of a
loan of P15,000. On
parties like the debtor pay, Rehabilitation mortgage, and that
or the mortgagor Finance Corp. moved for when the Vet Bros.
himself, may be the sale of the properties Company, Inc. and the
required in order to in a public auction. On 24 spouses Simeon G.
allow a full and April 1953 Jose S. Toribio and Maximiana
conclusive Movido filed with the Escobar de Toribio
determination of the Sheriff a third party mortgaged to the RFC,
case. When the claim on the chattels the plaintiff's lien on the
mortgagee seeks a advertised for sale at chattels no longer
replevin in order to public auction asserting existed. The court
effect the eventual a prior and superior dismissed the case.
foreclosure of the right in them because of
mortgage, it is not only his chattel mortgage
Issue: Whether a prior
the recorded before that of
mortgagee who obtains
the Rehabilitation
a personal judgment
Finance Corporation and
28 February 1947 the against the mortgagor
by virtue of a judgment
chattel mortgage was waives his right to
in his favor rendered by
registered in the Office enforce the mortgage
the lower court. Despite
of the Register of Deeds securing the loan.
such claim the Sheriff
in and for the province of proceeded to carry out
Samar. On 28 July 1948 the sale and on 11
Jose S. Movido brought June 1953, after the sale
an action against Vet had been successively
Bros. & Company, Inc. to postponed to 14 May
recover a sum of money. and 28 May, sold the
On 7 February chattels, except those
1949 the parties thereto, expressly excluded
assisted by their from the public auction
respective counsel, sale, to the successful
entered into and bidders.
submitted to the Court a Movido filed an
compromise agreement action against RFC for
terminating their dispute having unlawfully,
and renouncing their fraudulently and
respective claims for maliciously disregarded
damages and any other his third party claim on
claim in connection with the chattels. The court
the subject matter of the rendered judgment
case which was holding that the
approved and the Court compromise agreement
rendered judgment in entered into by and
accordance therewith. between the parties in
On 3 March the civil case and the
1949, by an instrument judgment rendered by
duly executed, Vet Bros. the Court pursuant
& Company, Inc. and the thereto novated the
Simeon G. plaintiff's credit secured
Toribio and Maximiana by the chattel
Escobar de Toribio
mortgaged the real
estate and chattels
described in favor of the
Rehabilitation Finance
Corporation to secure
the payment of a loan of
P46,000. When Vet Bros.
& Company, Inc. failed to
536
Held: Yes. Affirmed. The case of Pascual, as cited by the respondent
court, is not applicable in this instant case because it was
a case of sale on installment, where after foreclosure of the
Ratio: A mortgagee who sues and obtains a personal
units the plaintiffs-guarantors who had likewise executed a
judgment against a mortgagor upon his credit waives
real estate mortgage of up to P50,000, cannot be held
thereby his right to enforce the mortgage securing it. By
answerable anymore for the deficiency. The conclusion
instituting the civil case and by securing a judgment in his
therefore reached by the lower court was erroneous
favor upon the compromise agreement, the appellant
because in the case at bar, the obligation
abandoned his mortgage lien on the chattels in question.
The rule in Tizon vs. Valdez, 48 Phil., 910 and Matienzo vs.
San Jose, G. R. No. 39510, 16 June 1934, relied upon by the
appellants, has been abandoned in Bachrach Motor
Company vs. Icarangal (68 Phil 287). Moreover, the
appellant secured a writ of execution of the judgment
rendered in the civil case on 26 June 1953 only or
fifteen days after the public auction sale had been carried
out.

Bicol Savings & Loan Association vs. Jaime Guinhawa &

The Honorary Presiding Judge of the CFI of Camarines
Sur (10th Judicial District), Br. III, G.R. No. 62415,
August 20, 1990 (188 SCRA 642)

Facts: Victorio Depositario together with private

respondent Jaime Guinhawa, acting as solidary co-maker,
took a loan from petitioner Bicol Savings and Loan
Association (BISLA). To secure the payment of the
foregoing loan obligation, the principal borrower Victorio
Depositario put up as security a chattel mortgage which
was a Yamaha Motorcycle. Said motorcycle was eventually
foreclosed by reason of the failure of Depositario and
Guinhawa to pay the loan. As a result of the foreclosure,
there was a deficiency in the amount of P5,158.06 as of
July 31, 1981, and BISLA made a demand to pay the same.
BISLA filed a complaint for the recovery of a sum of Ratio: If in other
money constituting the deficiency after foreclosure of the an proper
chattel mortgage. extrajudicial y of th
The City Court ruled for BISLA. The CFI reversed. foreclosure mortga
of a chattel gor fo
mortgage a the
Issue: Whether a creditor can collect the deficiency
deficiency paymen
amount after foreclosure of the chattel mortgage.
exists, an t of th
independent balance
Held: Yes. Reversed. civil action To den
may be to th
instituted for mortga
the recovery gee th
of said right t
deficiency. If mainta
the n a
mortgagee action
has to
foreclosed recover
the the
mortgage deficien
judicially, he cy afte
may ask for foreclo
the execution ure o
of the the
judgment chattel
against any mortga
ge would be
to overlook
the fact
that the
chattel
mortgage is
only given a
security and
not as
payment for
the debt in
case of
failure of
payment.
(Bank of the
Philippine
Islands v.
Olutanga
Lumber Co.,
47 Phil. 20;
Manila
Trading &
Supply Co. v.
Tamaraw
Plantation
Co., 47 Phil.
513.)
contracted by the principal debtor (Depositario) with a
solidary co-maker (private respondent herein), was one of
loan secured by a chattel mortgage, executed by the
principal debtor, and not a sale where the price is payable
on installments and where a chattel mortgage on the
thing sold was constituted by the buyer and, further,
the obligation to pay the installments having been
guaranteed by another.
Lorenzo Pascual & Leonila Torres vs. Universal
Motors Corporation, G.R. No. L-
27862, November 20, 1974 (61 SCRA 121)
Facts: On May 15, 1924, Alejo de la Flor recovered a
judgment against Tiburcia Buhayan. Under this
judgment, the sheriff levied execution on 4 carabaos
which were found in the possession of Simon Jacinto but
registered in the name of Tiburcia Buhayan.
Eulogio Betita presented a 3rd party claim
(terceria) alleging that the carabaos were already
mortgaged to him as evidenced by a document dated
May 6, 1924. The sheriff, nevertheless, proceeded with
the sale of the animals at public auction which were

Facts: A real estate mortgage was executed by spouses

Lorenzo Pascual and Leonila
Torres to secure the payment of an indebtedness of PDP
Transit, Inc. for the purchase of
5 units of Mercedes Benz trucks. The obligation is further
guaranteed by separate deeds of chattel mortgages on the
Mercedes Benz units. Upon failure to pay, Universal
Motors Corporation filed a complaint against PDP Transit,
Inc. before the CFI with a prayer for the issuance of a
writ of replevin to collect the balance and to repossess
all the units. UMC was able to repossess all the units and to
sell them in a public auction.
Spouses Pascual and Torres, the real estate
mortgagors, filed an action for the cancellation of the
mortgage they constituted on 2 parcels of land in favor
of UMC to guarantee the obligation of PDP. The court
ordered the cancellation of the mortgage. UMC appealed.
R
a
Issue: Whether a vendor in an installment sale has a right
t
to recover any deficiency from any additional security
i
after the foreclosure of the chattel mortgage.
o
:
Held: No. Affirmed.
I
t

i
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200
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201
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202
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204
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205
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206
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207
n previously levied (see
, Held: No. No. Reversed. Civil Code, article 1227).
The alleged
A Ratio: The judgment pledge is also ineffective
l must be reversed unless for another reason,
e the document namely, that the plaintiff
j abovequoted can be pledgee never had actual
o considered either a possession of the
chattel mortgage or else property within the
d a pledge. That it is not a meaning of article 1863
e sufficient chattel of the Civil Code. But it is
mortgage is evident; it argued that at the time of
l does not meet the the levy the animals in
a requirements of section question were in the
5 of the Chattel possession of one Simon
F Mortgage Law (Act No- Jacinto; that Jacinto was
l 1508), has not been the plaintiff's tenant; and
o recorded and, that the tenant's
r considered as a chattel possession was the
, mortgage, is possession of his
consequently of no effect landlord. The evidence
& as against third parties. actually shows that
Neither did the Simon Jacinto and
C document constitute a Tiburcia Buhayan were
l sufficient pledge of the living together as
e property valid against husband and wife and
m third parties. Article had been so living for
e 1865 of the Civil Code many years. It is, of
n provides that "no pledge course, evident that the
t shall be effective as delivery of possession
e against third parties referred to in article
unless evidence of its 1863 implies a change in
P date appears in a public the actual possession of
e instrument." The the property pledged and
d document in question is that a mere symbolic
r not in public, but it is delivery is not sufficient.
e suggested that its filing In the present case the
ñ with the sheriff in animals in question were
a connection with the in the possession of
, terceria gave it the Tiburcia Buhayan and
effect of a public Simon Jacinto before the
G instrument and served alleged pledge was
. to fix the date of the entered into and
R pledge, and that it apparently remained
. therefore fulfills the with them until the
requirements of article execution was levied, and
N 1865. Assuming, without there was no actual
o conceding, that the filing delivery of possession to
. of the document with the plaintiff himself.
24137, March 29, 1926 (49 Phil 87) the sheriff had that There was therefore in
effect, it seems reality no change in
purchased by Clemente whose date does not possession.
Pedreñ a. The lower appear in a public nevertheless obvious
court ruled that the instrument is effective that the pledge only
mortgage was a became effective as Diosdado Yuliongsiu vs
against 3rd persons. against the plaintiff in PNB (Cebu branch), G.R.
preferred credit because Whether a pledge is
it was a prior document. execution from the date No. L-
effective when there has of the filing and did not
been no actual delivery rise superior to the
Issue: Whether a pledge of the thing pledged. execution attachment
208
19227, February 17, Philippine Shipping pledgee, can purchase pledged to the pledgor
1968 (22 SCRA 585) Commission, by the thing pledged. without invalidating the
installment or on pledge. In such a case,
Facts: Diosdado account. As of January Held: Yes. Yes. No. Yes. the pledgor is regarded
Yuliongsiu was the or February, 1948, Affirmed. as holding the pledged
owner of two (2) Yuliongsiu had paid to property merely as
vessels, namely: the the Philippine Shipping trustee for the pledgee.
M/S Surigao and the Commission only the Plaintiff- appellant
M/S Don Dino, and would also urge Us to
operated the FS-203 rule that constructive
which was purchased delivery is insufficient to
by him from the make pledge effective.
He points to Betita v.
sum of P76,500 and the criminal action, the bank
Ganzon, 49 Phil. 87
balance of the purchase took physical possession
which ruled that there
price was payable at of the three pledged
has to be actual delivery
P50,000 a year, due on vessels while they were
of the chattels pledged.
or before the end of the at the Port of Cebu.
But then there is also
current year. After the first not fell due
Banco Espanol Filipino
Yuliongsiu and was not paid, the
v. Peterson, 7 Phil. 409
obtained a loan from branch manager,
ruling that symbolic
PNB. To guarantee pursuant to the terms of
delivery would suffice.
payment, he pledged his the pledge contract,
An examination of the
2 boats and his equity in executed a document of
the FS-203. The pledge sale transferring the two
document was duly pledged vessels and the
registered with the equity in FS-203 to the peculiar nature of the
office of the Collector of bank. The FS-203 was things pledged in the
Customs. Yuliongsui subsequently two cases will
made partial payment, surrendered by the bank
but failed to pay the to the Philippine R
balance. Shipping Commission a
PNB filed which rescinded the t
criminal charges against sale for failure to pay the i
Yuliongsiu for estafa remaining installments o
thru falsification of on the purchase price :
commercial documents, thereof. The other two
because plaintiff had, as boats, the M/S Surigao T
last indorsee, deposited and the M/S Don Dino h
with defendant bank, were sold by the bank to e
from March 11 to March third parties.
31, 1948, seven Bank of Yuliongsui filed p
the Philippine Islands an action to recover the a
checks. However, in 3 boats. The lower court r
connivance with one upheld the actions of the t
employee of defendant bank and the validity of i
bank, Yuliongsiu was the pledge contract. e
able to withdraw the s
amount credited to him Issue: Whether a
before the discovery of judicial admission that s
the defraudation on the contract is a pledge t
April 2, is binding. Whether i
1948. Yuliongsiu was constructive delivery is p
convicted and sentenced sufficient to make the u
to indemnify the bank. pledge effective. l
CA affirmed. Whether the formalities a
Meanwhile, required in mortgage is t
together with the also required in pledge. e
institution of the Whether the bank, as d
209
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210
n u
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211
p t
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212
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213
o C
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214
r n
e d
,
w
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e
w
a i
s s

e a
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215
p h
l e
e
d c
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e a
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t
c e
a l
n s

t readily dispel the first that the cases

e apparent contradiction
m between the two rulings.
p In Betita v. Ganzon, the
o objects pledged — prior
r carabaos — were easily
a capable of actual, manual
r delivery unto the
i pledgee. In Banco
l Espanol-Filipino v.
y Peterson, the objects
pledged — goods
e contained in a of defendant bank does
n warehouse — were
t hardly capable of actual,
r manual delivery in the
u sense that it was
s impractical as a whole
t for the particular
transaction and would
m have been an
e unreasonable
requirement. Thus, for
p purposes of showing the
h transfer of control to
y the pledgee, delivery to
s him of the keys to the
i warehouse sufficed. In
c other words, the type of
a delivery will depend
l upon the nature and the
peculiar circumstances
p of each case. The parties
o here agreed that the
s vessels be delivered by
s the "pledgor to the
e pledgor who shall hold
s said property subject to
s the order of the
i pledgee." Considering
o the circumstances of this
n case and the nature of
the objects pledged, i.e.,
o vessels used in maritime
f business, such delivery is
sufficient.
t It is contended
holding that the
statutory requirements
as to public sales with
notice in
connection with
foreclosure proceedings
are waivable, are no
longer authoritative in
view of the passage of Act
3135, as amended;
second, that the charter
not allow it to buy the
property object of
foreclosure in case of
private sales; and third,
that the price obtained at
the sale is
unconscionable. There is
no merit in the claims.
The rulings in Philippine
National Bank v. De Poli,
44
Phil. 763 and El Hogar
Filipino v. Paredes, 45
Phil. 178 are still
authoritative despite the
passage of Act 3135. This
law refers only, and is
limited, to foreclosure of
real estate mortgages. So,
whatever formalities
there are in Act 3135 do
not apply to pledge.
Regarding the
bank's authority to be the
purchaser in the
foreclosure sale, Sec. 33
of the Act 612, as
amended by Acts 2747
and 2938 only states that
if the sale is public, the
bank could purchase the
whole or part of the
property sold "free from
any right of redemption
216
on the part of the mortgage upon certain had with the bank and be run if the money
mortgagor or pledgor." specified real property, that it did not apply all of received in the course
This even argues against to secure the payment the proceeds to the thereof must instantly
plaintiff’s case since the of said debt. In addition secured debt, but also to be withdrawn and paid
import thereof is that if to the securities above the unsecured debt. to the discharge of
the sale were private stated as mortgaged The lower court obligations wholly apart
and the bank became and pledged, Reyes ruled for the plaintiff so from the business itself.
the purchaser, the likewise placed his far as concerns the In the meantime he
mortgagor or pledgor other assets, present proceeds of the must have something for
could redeem the and future, as security. mortgaged property and the support and
property. Hence, The bank made further the excess obtained from maintenance of his
plaintiff could have advances to Reyes, the special pledges, but family. From these facts
recovered the vessels and Reyes, in turn, holds that the we can readily see that
by exercising this right executed a pledge of P96,781.75 paid into the not every peso delivered
of redemption. He is the certain specified items bank from independent to the bank by Reyes
only one to blame for of personal property. sources is not legally was necessarily to be
not doing so. Therafter, to secure the applicable to the applied to the payment
debt to the plaintiff, satisfaction of the of the mortgage debt,
Congregacion de la Reyes executed a mortgage debt. Plaintiff even though said peso
Mision de San Vicente second mortgage and appealed the ruling on came by way of rents
de Paul vs. Francisco pledge on the same the sole issue of the and income from the
Reyes Y Mijares & El properties in favor of proceeds arising from property actually
Banco Español- the plaintiff. Then all of independent sources. included by specific
Filipino, G.R. No. 5508, the properties referred description in the
August 14, 1911 (19 to passed into the Issue: Whether the mortgage. Moreover,
Phil 524) custody and control of proceeds from the sale of Reyes had a large
the bank. Portions of the properties that were not amount of property not
Facts: Francisco Reyes same were disposed of covered by a mortgage
was indebted to the from time to time, and or pledge can be applied
Banco Españ ol-Filipino proceeds were credited to pay for a debt that has
in the sum of to the account of Reyes. been secured by a
P84,415.38; to the The amounts applied to mortgage and pledge.
Hongkong & Shanghai the account of Reyes
Bank in the sum of included Held: No. Affirmed.
P141,702; and to the
plaintiff in the sum of R
P45,286. Banco Españ ol- a
Filipino advanced Reyes t
the money to pay the i
Hongkong & Shanghai o
Bank, thus becoming his :
creditor in the sum total
of P226,117.38. Reyes T
thereupon executed a h
first e
an amount worth plaintiff now contends
P96,781.75 which was that the first mortgage is p
paid by Reyes to the wholly paid and r
bank and obtained from satisfied, thus the o
assets and credits other mortgaged properties v
than those covered by should be released and i
the mortgage and s
the 2nd mortgage should i
pledge. From time to now be equivalent to the
time, the bank cashed o
checks for Reyes and 1st mortgage. The bank n
paid drafts and other countered that the
obligations in favor of security is liable for any w
third persons. The and all liabilities Reyes h
217
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218
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219
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222
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223
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224
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225
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226
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227
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229
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230
n only said P96,781.75 but before the debt was due,
also the properties that to apply to its payment
b were pledged. Here moneys deposited by
u again we see moneys Reyes which had been
s delivered to the bank obtained from other
i which were not sources. There was no
n necessarily to be applied agreement to which
e to the payment of the Reyes was a party that he
s debt secured by the should apply all of his
s mortgage and pledge of assets to the payment of
the bank. Desiring to the said debt, especially
w continue his business, before it was due.
o Reyes was confronted The pledge
u with a stern necessity. executed by Reyes in
l He must have money to favor of the bank on his
d run that business and he account current with the
must have a bank in bank refers to a check
b which to put it. If every and deposit account, not
e dollar which he could just a current account. It
muster and deposit in was clearly not the
f the bank had to be intention of Reyes, in
a applied to the payment delivering money to be
r of an old obligation by checked against; that it
c the very fact of that should go in satisfaction
i deposit, his business was of the original debt. If it
c in a sorry plight. The were so applied, it could
a stipulation between him not be checked against,
l and the bank that he as it legally ceased to
. should continue such exist as soon as applied
business would, under to such payment. It
A such conditions, lose all borders on the absurd to
significance. It is thus say that one would
b clear that it is at least deposit money to create a
u possible that there was checking account with
s some money delivered at the intention that said
i different times to the account should be
n bank which, strictly instantly destroyed by
e speaking, was not the application of the
s intended to be used in sum deposited to the
s reduction of said original satisfaction of another
debt. It is, as we have obligation. Under such
c seen, conceded that said circumstances no check
a sum of P96,781.75 is account could possibly be
n composed of such created till the obligation
moneys. was fully paid. But this
n There was also would defeat the very
o the fact that at the time object of the deposit. The
t of the delivery of said purpose and intention of
sum to the bank, the Reyes and the bank were
included in the bank's admitted evidence in the original debt with the to provide means and
mortgage and pledge. case that he actually did bank was not yet due. facilities by which Reyes
This property was use substantially all of Reyes was under no legal could continue his
entirely unencumbered said property in that obligation to pay any business. To do this he
and was free to be used way. As a result, such part of the indebtedness must have resources,
by him in his business property, converted into secured by the mortgage banking facilities, must
conducted after the cash or used as security, and pledge to the bank make deposits and draw
execution of the was delivered to the until June 4, checks. But if, by the
mortgage and pledge to bank to that end. application of his
1905. But the bank had
the bank. It is the Witness to this fact not absolutely no right, deposits instantly to the
231
payment of an outside draw against? He could
obligation, it was not draw against the
impossible to create a original debt, as that
check account, what was a debt and not a
would he credit. He could not
draw against the
deposit, as that had
been destroyed by its
application to the debt.
There is nothing which
a check can be drawn
against except a another
checking account.
It is manifest,
therefore, that no part
of the personal property
or the income
therefrom, if any, could
have been applied to
relieve the real estate
from its share of the
burden of the debt
during the time
included within the
scope of this action. On
the other hand, a
considerable part of the
charge imposed upon
the personal property
still remains unpaid, a
portion of said property
still remaining in the
hands of the bank
unsold and
unused for the reduction judgment in a civil case
of said debt. There has against Mariano Lacson
been realized from the Ledesma. A writ of
personal property the execution of said
sum of P126,575.92. Its judgment was issued. In
share of the burden was compliance with the
P138,117.38. With- writ, the sheriff attached
interest added, there all right, title to and
would remain a interest which Mariano
considerable balance Lacson Ledesma may
due from the personal have in any bonus,
property. dividend, shares of stock,
money, or other
The Bachrach Motor property which Ledesma
Co., Inc. vs. Mariano is entitled to receive
Lacson Ledesma, from the Talisay-Silay
Talisay-Silay Milling Milling Co., Inc., by virtue
Co, Inc., & PNB, G.R. No. of the fact that he has
42462, August 31, mortgaged his land in
1937 (64 favor of the PNB to
Phil 681) guarantee the
indebtedness of the
Facts: Bachrach Motor Talisay-Silay Milling Co.,
Co., Inc. obtained Inc., or which he is
entitled to receive from Bachrach Motor Co., Inc.
the Talisay- Silay Milling as party defendant
Co., Inc., on account of because they claim to
being stockholder in that have some right to
corporation or which he certain properties which
is entitled to receive are the subject matter of
from that corporation for the complaint. The lower
any other cause or court ruled for PNB
pretext whatsoever. against Ledesma. The
Bachrach Motor court granted PNB the
Co., Inc. then obtained authority to sell the
judgment shares of stocks of
against Ledesma. A writ Ledesma.
of execution of said Bachrach Motor
judgment was issued, Co., Inc. brought an
thereby causing the action against the
attachment, sale and Talisay-Silay Milling Co.,
adjudication to Bachrach Inc., to recover from it
Motor Co., Inc. of the sum of P13,850
Ledesma's right of against the bonus or
redemption over certain dividend which, by virtue
mortgaged real of the resolution of
properties. These December 22, 1923, said
properties were Central Talisay-Silay
mortgaged to PNB. The Milling Co., Inc., had
instrument of mortgage declared in favor of
also contained, as part Ledesma as one of the
of the securities to owners of the hacienda
ensure compliance with which had been
his obligation, 1,540 mortgaged to PNB. PNB
shares in Talisay-Silay intervened alleging that
Milling Co., Inc. in had a preferred right
Central Talisay- to said bonus, not only
Silay Milling Co. by virtue of
resolved to grant a
bonus or compensation
to the owners of the real
properties mortgaged to
answer for the debts
contracted by said
central with the
Philippine National
Bank, for the risk
incurred by said
properties upon being
subjected to said
mortgage lien. Under the
resolution, Ledesma was
allotted the sum of
P19,911.11, which sum,
however, would not be
payable until the month
of January, 1930.
PNB brought
action against Ledesma
and his wife for the
recovery of a mortgage
credit. PNB amended its
complaint to include
232
the properties being question but merely a deemed legally entered not retained them in his
mortgaged to it, but remote and accidental into and should produce custody, provided that
also by virtue of the one and, therefore, it all its effects and the contract of pledge or
said bonus being a civil was not a civil fruit of consequences, provided chattel mortgage
fruit of the mortgaged the real properties it appears to have been appears in a notarial
lands. The lower court mortgaged to PNB. in some manner document and is
rendered a judgment in Talisay-Silay perfected and that the inscribed in the registry
favor of Bachrach Milling Co., Inc., issued things pledged have of deeds of the
Motor Co., Inc. The stock certificate No. 772 been delivered, and in a province." Therefore,
Supreme Court for 6,300 shares, as contrary case, and even this court holds that the
affirmed the judgment stock dividend, to if the creditor has not pledge of the 6,300 stock
of the lower court, Mariano Lacson received them or has dividends is valid
holding that the bonus Ledesma, which
had no immediate certificate was ordered R
relation to the lands in by a
t
Mariano Lacson to the pledgee is
i
Ledesma to be delivered effective. Whether
o
to Roman Lacson, certificate of stocks can
:
attorney for PNB. PNB be pledged.
then informed Talisay-
I
Silay Milling Co., Inc. Held: Yes. Yes. Affirmed. t
that the 6,300 shares
had been given to it by
i
Mariano Lacson
s
Ledesma as pledge.
Bachrach Motor Co., on
t
the other hand, by virtue
r
of an alias execution,
u
attached all right, title to
e
and interest which
,
Ledesma might have in
the bonus of P19,
a
911.11 which Ledesma
c
is entitled to receive
c
from the Talisay-Silay
o
Milling Co., Inc., by
r
virtue of the fact that
d
such defendant has
i
mortgaged his lands in
n
favor of PNB to
g
guarantee the
indebtedness of the
t
Talisay- Silay Milling Co.
o
Inc.
PNB then
a
foreclosed on the shares
r
of stock of Ledesma and
t
bought these during the
i
public auction. Bachrach
c
Motor Co., Inc. wants the
l
sale declared null and
e
void. The lower court
ruled for PNB.
1
8
Issue: Whether a pledge 6
that is not recorded in a 5
dated public instrument
but has been delivered o
233
f i
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234
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235
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236
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237
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238
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239
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240
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241
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242
h m
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243
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244
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245
m m
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246
r
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247
a l
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248
g t
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249
t
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A m
c o
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N g
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against the plaintiff for Ocejo, Perez & Co. vs
f the reason that the The International
o certificate was delivered Banking Corporation.
r to the creditor bank, Francisco Chua
c notwithstanding the fact Seco, as assignee, G.R.
e that the contract does No. L-10658, February
, not appear in a public 14, 1918 (37 Phil 631)
instrument.
a The plaintiff Facts: On March 7, 1914,
further contends that the Chua Teng Chong of
c pledge could not legally Manila, executed and
o exist because the delivered to the
n certificate was not the International Banking
t shares themselves, Corporation, a
r making it understood promissory note, payable
a that a certificate of stock one month after date.
c or of stock dividends can Attached to this note was
t not be the subject another private
matter of the contract of documents, signed Chua
o pledge or of chattel Teng Chong, in which it
f mortgage. Neither is this was stated that he had
contention tenable. deposited with the bank,
p Certificates of stock or of as security for the said
l stock dividends, under note, 5,000 piculs of
e the Corporation Law, are sugar, which in said
d quasi negotiable document were said to
g instruments in the sense be stored in a warehouse
e that they may be given situated in Binondo,
in pledge or mortgage to Manila. It appears from
o secure an obligation. the evidence, assuming
r that sugar was in the
250
warehouse on that date, price of the merchandise amount of sugar in the in another warehouse
that the bank did not question. warehouse did not (where Ocejo delivered).
take possession of it On the same exceed 1,800 piculs, The bank's
when the document was date as that on which the whereas the amount representative
executed and delivered, 5,000 piculs of sugar which should have been immediately went to
and that Chua Teng were delivered into the there, according to the this warehouse and
Chong continued to warehouse on Muelle de contract, was 5,000 upon arrival there found
retain the sugar in his la Industria, the bank piculs. Upon making some
possession and control. sent an employee to this discovery, the 3,200 piculs of sugar, of
The bank made no effort inspect the sugar bank's representative, which he took
to exercise any active described in the pledge accompanied by a immediate possession,
ownership over said agreement. The bank's lawyer, went closing the warehouse
merchandise until the representative then immediately to see Chua with the bank's
16th of April, when it discovered that the Teng Chong, and the padlocks. An attempt
discovered that the latter informed him that was made by Ocejo,
amount of sugar stored the rest of the sugar Perez & Co. to recover
in the said warehouse covered by the pledge the sugar, but to no
was much less than agreement was stored avail.
P5,000 piculs mentioned
in the contract. The Chua Teng pledge cannot adversely
agreement between the Chong was judicially affect third persons.”
bank and Chua Teng declared to be insolvent, Applying the doctrine of
Chong with respect to and Francisco Chua Seco the decision cited, It is
the alleged pledge of the was appointed as evident that the pledge
sugar was never assignee of the asserted by the
recorded in a public insolvency. On the same International Bank is
instrument. date, and a few minutes inefficacious.
On March 24, after insolvency The seller also
1914, Ocejo, Perez & Co., proceedings were has no right in the
entered into a contract commenced, Ocejo, property because it did
with Chua Teng Chong Perez & Co. filed a not file an action to
for the sale to him of a complaint, naming the rescind the contract.
lot of sugar. It was bank as defendant, Title had already passed
agreed that delivery alleging that it was to the buyer by the
should be made in the unlawfully holding the delivery of the product
month of April, the sugar, and prayed for a to him, despite the
sugar to be weighed in writ of replevin. By nonpayment. Replevin is
the buyer's warehouse. agreement of the parties, not the proper remedy
It appears that this the sugar was sold and in this case, but
sugar was brought to the proceeds of the sale rescission which the
Manila by a steamer in were deposited in the seller failed to avail. The
the month of April, and bank. Chua Seco, the property is, thus, given
5,000 piculs were assignee of the to the assignee in
delivered by plaintiff to insolvency, intervened in insolvency, while the
Chua Teng Chong. The the case. The lower court seller is reserved the
delivery was completed ruled for Ocejo, Perez & right to file his claim in
April 16, 1914, and the Co. the insolvency
sugar was stored in the proceeding.
buyer's warehouse. On Issue: Whether a pledge
April 17, 1914, Ocejo, is valid over other
Perez & Co. presented, properties of the pledgor
for collection, its that are of the same kind
account for the purchase which were not even
price of the sugar, but pledged.
the buyer refused to
make the payment, and Held: No. Reversed.
up to the present time
the sellers have been to
R
collect the purchase
251
a
t t
i h
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:
s
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252
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253
t a
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254
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255
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256
s f

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257
m h
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258
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259
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t t
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d e
a
t a
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d t
e
M r
a n
r o
c o
h n

7 o
260
f n
d
A
p t
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i a
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i
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,
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o
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l t
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d
g t
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e
t
h a
e g
r
s e
u e
g m
a e
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t
a ,
261
 e
t r
h s
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p s
l .
e
d A
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l
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s h
t a
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t
h a
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e
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262
g i
e n
t
i y
s
o
w f
i
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c ”
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t n
a
263
t a
h l
e i
a
c
a a
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o C
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264
 c
t o
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c
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t a

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c i
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a
c v
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f
a
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d g
g a
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i s
s t

n t
o h
t i
r
r d
e
265
p e
e c
r o
s v
o e
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s
; t
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t e
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a p
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t f
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i
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p a
l
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d h
g i
e r
d d
,
p
s e
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e s
k o
i n
n
g w
i
t t
o h
i
r n
266
 h
t e
h
e p
e
m r
e s
a o
n n
i
n c
g l
a
o i
f m
i
t n
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e
a
a s
r
t p
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l d
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e
c
i h
t a
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d
; t
a
a k
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d n

t a
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a t
t u
a
t l
h
e p
h
f y
a s
c i
t c
a
t l
h
a p
t o
s
t s
267
e e
s i
s n
i g
o
n d
e
o c
f l
a
t r
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e d

t v
h o
i i
n d
g
a
s s
o
l a
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a
w i
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l t

n t
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p s
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t .

t T
h h
e e

p c
l o
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d r
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h
f e
r l
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m
t
b h
268
a o
t d
e
t
h i
e s

p n
r o
i t
n
c a
i d
p j
l e
e c
t
e i
s v
t e
a
b i
l n
i
s i
h t
e s
d
c
b h
y a
r
a a
r c
t t
i e
c r
l ,
e
b
1 u
8 t
6
5 t
h
o a
f t

t “
h i
e t

C p
i r
v e
i s
l c
r
C i
269
b declared insolvent. The Estate of George Litton
e court ordered the sheriff vs. Ciriaco B. Mendoza &
s to take possession of all CA,
the assets of the G
a insolvent estate. The .
assignee in insolvency R
c filed a petition for .
o authority to sell at public
n auction all the properties
N
d of the insolvent estate.
o
i The PNB also filed a
.
t petition to seek
i enforcement of the
o pledge in its favor. L
n The lower court ruled for -
PNB. 4
w 9
i 1
Issue: Whether a pledge
t 2
is effective even though
h 0
the pledgee had no
o ,
possession over the
u thing pledged. Whether
t J
immovables can be the
u
subject of pledge.
w n
Whether the pledge
h e
covers the increase in
i quantity of the thing
c pledged. 3
h 0
,
Held: No. No. No.
t Reversed.
h 1
e 9
8
c 8
o
n (
t 1
r 6
a 3
c
t S
C
o R
f A
Involuntarty Facts: Gulf Plantation
Insolvency of The Gulf Company, through its 2
Plantation Co. Pacific President, executed to 4
Commercial Company, the PNB a pledge over 6
Philippine-American public land, buildings, )
Drug Company & hemp, carabaos, and
Standard Oil Company boats. The pledge was Facts: Bernal spouses
vs. PNB. H.B. Hugnes, contained in a public are engaged in the
assignee, G.R. No. instrument. manufacture of
24893, August 23, An insolvency embroidery, garments
1926 (49 petition was filed to have and cotton materials.
Phil 236) the Gulf Plantation Sometime in September
Company declared 1963, C.B.M. Products,
insolvent, and it was with Mendoza as
270
president, offered to textile cotton materials
sell to the Bernals and, for this purpose, i
n
R s
a t
t r
i u
o m
: e
n
I t
t
t
i h
s a
t
v
e i
r t
y
w
a a
p s
p
a p
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e e
n p
t a
r
f e
r d
o
m o
n
t
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e
l
a c
n u
g s
u t
a o
g m
e a
r
u y
s
e b
d l
a
i n
n k

t f
h o
e r
271
m T
o
o
f m
a
a k
e
p
l t
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d e
g
e i
n
f s
o t
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u
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t
t
a v
k a
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p a
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o p
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s
a
u s
n
d t
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a h
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p
l p
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d r
g s
e o
. n
a
272
l o

p t
r a
o k
p e
e
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t h
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t a
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n ,

d p
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o
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o
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d
u t
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o p
f r
o
t p
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t
b y
a ,
n
k a
n
t d
273
 v
t a
o l
i
c d
o
n a
t g
i a
n i
u n
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t
a
n c
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m t
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n s

i o
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s t
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h
a
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s g
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o
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a
n b
d a
n
t k
o
m
m u
a s
k t
e
h
i a
t v
e
274
 l
b a
e n
e t
n a
t
i i
n o
n
s
u C
c o
h m
p
a a
c n
t y
u
a w
l a
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p d
h e
y c
s l
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a e
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p i
o n
s s
s o
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s v
s e
i n
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n .

a U
t p
o
t n
h
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t a
i t
m
e q
u
t e
h s
e t
i
P o
275
n r
, u
m
t e
h n
e t
r
e i
s
i
s v
o
n i
o d

e a
v s
i
d a
e
n p
c l
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d
i g
n e
,
t
h a
e n
d
r
e t
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r
d b
. a
n
W k
i
t w
h o
o u
u l
t d

i n
t o
, t

t h
h a
e v
e
i
n a
s
t p
276
r o
e f
f
e t
r h
e e
n
c p
e r
, o
p
a e
n r
d t
y
w
o o
u f
l
d t
h
n e
o
t P
l
n a
o n
w t
a
b t
e i
o
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n
t C
i o
t m
l p
e a
d n
y
t ,
o
o
t r
h
e t
o
p
o h
s a
s v
e e
s
s i
i t
o
n s
o
277
l m
d .
A
a g
n a
d i
n
t ,
h
e i
n
p
r t
o h
c e
e
e v
d e
s r
y
a
p n
p a
l t
i u
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d e

t o
o f

t t
h h
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n
s g
a s
t ,
i
s a
f
a p
c l
t e
i d
o g
n e

o o
f r

i c
t h
s a
t
c t
l e
a l
i
278
m i
o t
r
t c
g a
a n
g n
e o
t
i
s b
e
c
o e
n x
f t
i e
n n
e d
d e
d
a
n o
d r

l m
i a
m d
i e
t
e t
d o

t a
o p
p
p l
e y
r
s t
o o
n
a r
l e
a
p l
r
o p
p r
e o
r p
t e
y r
, t
y
a .
n I
d t

279
w d
i
l i
l t

a i
l s
s
o v
e
b r
e y

n p
o r
t o
e b
d a
b
t l
h e
a
t t
h
t a
h t
e
t
p h
l e
e
d o
g n
e e

w t
a h
s o
u
e s
x a
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c d
u
t p
e i
d c
u
i l
n s

1 o
9 f
1
8 h
, e
m
a p
n
280
h ,
a
v t
e h
i
l r
o t
n y
g -
e
s i
i g
n h
c t
e
b
b u
e l
e l
n o
c
s k
o s
l
d a
. n
d
A
s e
i
t g
o h
t
t e
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e n

t h
w o
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n s
t e
y s
- ,

t t
h h
r e
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e e

c i
a s
r
a n
b o
a
o p
s r
281
o n
v y
i
s p
i u
o r
n p
o
f s
o e
r ,

t s
h h
e o
u
i l
n d
c
r b
e e
a
s c
e o
. n
f
H i
e n
n e
c d
e
, a
n
t d
h
e l
i
p m
l i
e t
d e
g d
e
, t
o
i
f t
h
v e
a
l p
i a
d r
t
f i
o c
r u
l
a a
282
r n
y
p
r i
o n
p c
e r
r e
t a
y s
e
d .
e
s Mendoza introduced the said checks were later
c Bernals to Alfonso Tan. returned to Tan with the
r Thus, the Bernals words stamped "stop
i purchased on credit payment" which appears
b from Tan some cotton to have been ordered by
e materials, payment of Mendoza for failure of
d which was guaranteed the Bernals to deposit
by Mendoza. Thereupon, sufficient funds for the
i Tan delivered the said check that the Bernals
n cotton materials to the issued in favor of
Bernals. Mendoza Mendoza.
t received checks from the Tan brought an
h Bernals with the action against Mendoza
e understanding that the while the Bernals
said check will remain brought an action for
p in the possession of interpleader for not
l Mendoza until the cotton knowing whom to pay.
e materials are finally While both actions were
d manufactured into pending resolution by the
g garments after which trial court, Tan assigned
e time Mendoza will sell in favor of George Litton,
, the finished products for Sr. his litigatious credit
the Bernals. Meanwhile, against Mendoza duly
a the said check matured submitted to the court
n without having been with notice to the parties.
d cashed and Mendoza After due trial,
demanded the issuance the lower court ruled
w of another check in the that the said PNB checks
o same amount without a were issued by Mendoza
u date. in favor of Tan for a
l On the other commission and held
d hand, Mendoza issued Mendoza liable as a
two (2) PNB checks in drawer whose liability is
n favor of Tan. He primary and not merely
o informed the Bernals of as an indorser. CA
t the same and told them affirmed.
that they are indebted to Meanwhile,
i him and asked the latter pending the resolution of
n to sign an instrument the said appeal, Mendoza
c whereby Mendoza entered into a
l assigned the said compromise agreement
u amount to Insular with Tan wherein the
d Products Inc. Tan had latter acknowledged that
e the two checks issued all his claims against
by Mendoza discounted Mendoza had been
a in a bank. However, the settled and that by
283
reason of said
settlement both parties
mutually waive, release
and quit whatever claim,
right or cause of action
one may have against
the other, with a
provision that the said
compromise agreement
shall not in any way
affect the right of Tan to
enforce by appropriate
action his claims against
the Bernal spouses.
Mendoza filed a
motion for
reconsideration praying
that the decision be set
aside, principally
anchored upon the
ground that a of the former can only be
compromise agreement
was entered into
between him and Tan
which in effect released
Mendoza from liability.
Tan filed an opposition
to this motion claiming
that the compromise
agreement is null and
void as he was not
properly represented by
his counsel of record
and principally because
of the deed of
assignment that he
executed in favor of
George Litton, Sr.
alleging that with such,
he has no more right
to alienate said credit.
While the case was
still pending
reconsideration, Tan,
the assignor, died
leaving no properties
whatsoever to satisfy
the claim of the estate
of the late George Litton,
Sr. The CA set aside its
Ratio: The validity of
the guaranty or pledge
in favor of Litton has not
been questioned. Our
examination of the deed
of assignment shows
that it fulfills the
requisites of a valid
decision and approved not be taken to mean as
the compromise a grant of an absolute
agreement. right on the part of the
assignor Tan to
indiscriminately dispose
Issue: Whether an
of the thing or the right
assignor (Tan) can
given as security. The
dispose or alienate a
Court rules that the said
pledged credit (credit
provision should be read
of
in consonance with
Mendoza) without
Article 2097 of the same
notice and consent of
code. Although the
the assignee (Litton Sr.).
pledgee or the assignee,
Litton, Sr. did not ipso
Held: No. Reversed. facto become the
creditor of private
respondent Mendoza,
the pledge being valid,
the incorporeal right
assigned by Tan in favor
alienated by the latter
with due notice to and
consent of Litton, Sr. or
his duly authorized
representative. To allow
the assignor to dispose
of or alienate the
security without notice
and consent of the
assignee will render
nugatory the very
purpose of a pledge or an
assignment of credit.
Moreover, under
Article 1634, the debtor
has a corresponding
obligation to reimburse
the assignee, Litton, Sr.
for the price he paid or
for the value given as
consideration for the
deed of assignment.
Failing in this, the
alienation of the litigated
credit made by Tan in
favor of private
respondent by way of a
compromise agreement
does not bind the
assignee, petitioner
pledge or mortgage. herein.
Although it is true that
Tan may validly alienate
the litigatious credit as Loreta Serrano vs CA &
Long Life Pawnship,
ruled by the appellate
court, citing Article Inc., G.R. No. 45125,
April 22, 1991 (196
1634 of the Civil Code,
said provision should SCRA 107)
Facts: Sometime in early
March 1968, Loreta
Serrano bought some
pieces of jewelry from
Niceta Ribaya. Serrano,
then in need of money,
instructed her private
secretary, Josefine Rocco,
to pawn the jewelry.
Josefina Rocco went to
Long Life Pawnshop, Inc.,
pledged the jewelry with
its principal owner and
General Manager, Yu An
Kiong, and then
absconded with said
amount and the pawn
ticket. The pawnshop
ticket issued to Josefina
Rocco stipulated that it
was redeemable "on
presentation by the
bearer."
Three (3)
months later, Gloria
Duque and Amalia
Celeste informed Niceta
Ribaya that a pawnshop
ticket issued by Long Life
Pawnshop, Inc. was being
offered for sale. They told
Niceta the ticket
probably covered
jewelry once owned by
the latter which jewelry
had been pawned by one
Josefina Rocco.
Suspecting that it was the
same jewelry she had
sold to Serrano, Niceta
informed Serrano of this
offer and suggested that
Serrano go to the Long
Life pawnshop to check
the matter out. Serrano
claims she went to the
pawnshop, verified that
indeed her missing
jewelry was pledged
there and told Yu An
Kiong not to permit
anyone to redeem the
jewelry because she was
the lawful owner thereof.
Petitioner claims that Yu
An Kiong agreed.
Serrano went to
the Manila Police
Department to report the
284
loss, and a complaint
first for qualified theft
and later changed to
estafa was subsequently
filed against
Serrano filed a
complaint for damages
against Long Life
Pawnshop, Inc. for
failure to hold the
jewelry and for allowing
its redemption without
first notifying petitioner
or the police. The trial
court ruled for Serrrano.
CA reversed.
Issue: Whether a Instruments Law nor a
pledgee has the duty to
give notice to the true
owner of any attempt to
redeem a stolen
property that was
pledged.
Held: Yes. Reversed.
Ratio: Having been
notified by petitioner
and the police that
jewelry pawned to it
was either stolen or
involved in an
embezzlement of the
proceeds of the pledge,
private respondent
pawnbroker became
duty bound to hold the
things pledged and to
give notice to petitioner
and the police of any
Josefina Rocco. On the
same date, Detective
Corporal Oswaldo
Mateo of the Manila
Police also claims to
have gone to the
pawnshop, showed Yu
An Kiong the report of
Serrano and left the
latter a note asking him
to hold the jewelry and
notify the police in case
someone should
redeem the same. The
next day, on 10 July
1968, Yu An Kiong
permitted one Tomasa
de Leon, exhibiting the
appropriate pawnshop
ticket, to redeem the
jewelry.
effort to redeem them.
Such a duty was imposed
by Article 21 of the Civil
Code. The circumstance
that the pawn ticket
stated that the pawn was
redeemable by the
bearer, did not dissolve
that duty. The pawn
ticket was not a
negotiable instrument
under the Negotiable
negotiable document of
title under Articles 1507
et seq. of the Civil Code.
If the third person
Tomasa de Leon, who
redeemed the things
pledged a day after
petitioner and the police
had notified Long Life,
claimed to be owner
thereof, the prudent
recourse of the
pawnbroker was to file
an interpleader suit,
impleading both
petitioner and Tomasa
de Leon. The respondent
pawnbroker was, of
course, entitled to
demand payment of the
loan extended on the
security of the pledge
before surrendering the
jewelry, upon the
assumption that it had stated, represented the
given the loan in good value of the bracelet and
faith and was not a pawn tickets and that it
"fence" for stolen articles was understood that Lee
and had not conspired would become the
with the faithless absolute owner of the
Josefina Rocco or with articles pledges if Cruz
Tomasa de Leon. should not return said
Respondent pawnbroker sum of money within the
acted in reckless period of sixty days.
disregard of that duty in One week thereafter,
the instant case and Cruz again presented
must bear the himself at the place of
consequences, without business of Lee and
prejudice to its right to received the further sum
recover damages from of P3,500, at the same
Josefina Rocco. time delivering two
pawn tickets of the
Cornelio Cruz & Ciriaca Monte de Pieded. At the
Serrano vs. Chua A.H. same time, Cruz signed a
Lee, G.R. No. 31018, further receipt
November 6, containing a stipulation
1929 (54 Phil 10) that the sale of the
articles pledged would
become absolute unless
Facts: Cornelio Cruz
the amount stated in the
pledged valuable jewelry
receipt should be
to two different
returned within sixty
pawnshops in the City of
days.
Manila, namely, the
Monte de Piedad and
Ildefonso Tambunting,
receiving therefor twelve
pawn tickets showing
the terms upon which
the articles pledged were
held by the pledgees. On
the date stated, Cruz,
being desirous of
obtaining a further loan
upon the same and other
jewels, presented
himself to Chua A. H. Lee
and pledged to him six
pawn tickets of the
Monte de Pieded and a
bracelet set with
seventeen diamonds of
different sizes. Upon
receiving the bracelet
and the six tickets, Lee
delivered to the plaintiff
a sum of money, for
which the plaintiff
executed a receipt
containing words to the
effect that the amount of
P3,020, therein
The right of repurchasing the
285
jewelry, which was Jose C. Locsin, a
conceded to Cruz in the Provincial p
two receipts above Sheriff of Occidental p
mentioned, was never Negros, G.R. No. e
exercised by him; and on 30882, February 1, a
September 25, 1926, Lee 1930 (54 Phil 361) r
filed a complaint against s
Cruz, in which it was
Facts: On September
alleged that the receipts t
15, 1925, Go Chulian
above mentioned had h
executed a mortgage on
been drawn in the form a
2 parcels of land in
of a sale with stipulation t
favor of Genoveva
for repurchase in sixty
Gamboa de Jayme, in
days but that it was a
order to secure the
understood between the l
payment of a loan. The
parties that the l
mortgage provides that
transaction was a loan
if upon maturity the
and that the jewelry and o
mortgagor shall be
pawn tickets held by Lee f
unable to satisfy the
constituted a mere
amount owed, he will
security for the money t
authorize the
advanced by him to h
mortgagee to take over
Cruz. The court ruled for e
the aforesaid parcels of
Lee, and this was
land, and to dispose of
affirmed in the Supreme p
them after the
Court. Execution was a
sugarcane crop has
suspended pending the w
been harvested for
outcome of this case. n
milling in the season of
e
1925-1926, the
Issue: Whether a d
ownership of the
pledgee is obligated to aforesaid lots being
take care of the thing j
thus transferred to the
pledged with the e
diligence of a good w
father of a family. e
Whether a person who l
takes a pawn ticket in r
pledge is bound to y
renew the ticket from
time to time, by the w
payment of interest, or a
premium, as required by s
the pawnbroker, until
the rights of the pledgor s
are finally foreclosed. t
i
Held: Yes. Yes. Modified. l
l
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286
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287
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288
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289
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290
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291
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292
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293
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294
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295
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296
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297
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298
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299
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300
 Velayo, G.R. No. L- Velayo, executed a bond
Tan Chun Tic vs. West Coast Life Insurance Co. & 21069, October 26, for P2,800.00 for the
mortgagee who shall preliminary attachment. 1967 (21 SCRA dissolution of a writ of
then be the owner This was granted by the 515) attachment obtained by
thereof in fee simple, lower court. one Jovita Granados in a
dispensing with Facts: Manila Surety & suit against Rodolfo
expensive lawsuits. Fidelity Co., Inc., upon Velayo. Velayo
Issue: Whether a pledge undertook to pay the
On September with a stipulation for request of Rodolfo
16, 1925, West Coast surety company
pactum commissorium is
Life Insurance Company valid.
filed a complaint against R
Go Chulian, Julio a
Held: No. Reversed. t
Gonzaga, and Francisco
Sanchez for the recovery i
of a sum of money. On o
the same day, the West :
Coast Life Insurance
Company obtained from A
the court a writ of n
preliminary attachment
of which the sheriff a
attached the 2 parcels of g
land mentioned above. r
On March 30, e
1926, the date on which e
the mortgage fell due, m
Genoveva de Jayme e
assigned and n
transferred her rights t
and actions in the
mortgage contract to t
Tan Chun Tic. On March h
7, 1927, Tan Chun Tic a
presented to the t
registrar of deeds of
Occidental Negros an t
affidavit wherein he h
stated that the period e
granted to the debtor in
the said mortgage had c
already elapsed without r
payment of its value. e
The registrar of deeds d
then cancelled the i
certificates of title in the t
name of Go Chulian, and o
in lieu thereof issued r
others in the name of
Tan Chun Tic, but m
preserved the a
annotation of the y
preliminary attachment
in favor of the West a
Coast Life Insurance p
Company. Tan Chun Tic p
filed a complaint to seek r
the annulment and o
cancellation of the p
301
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302
d h
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303
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304
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305
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306
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307
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308
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309
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310
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311
f t
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312
a property sold in
n installments, and which Zosimo D. Uy vs. Jose
y originated in Act 4110 R. Zamora, The
. promulgated by the Allied Finance, Inc.,
Philippine Legislature in G.R. No. L-19482,
Manila Surety & Fidelity Company, Inc. vs. Rodolfo R. 1933. March 31, 1965 (13
an annual premium of Thereafter and upon SCRA 508)
P112 to indemnify the Velayo's failure to pay
Company for any the balance, the surety R
damage and loss of company brought suit in a
whatsoever kind and the Municipal Court. t
nature that it shall or Velayo countered with a i
may suffer, as well as claim that the sale of the o
reimburse the same for pledged jewelry :
all money it should pay extinguished any further
or become liable to pay liability on his part T
under the bond under Article 2115 of h
including costs and the 1950 Civil Code. e
attorneys' fees. The municipal
As "collateral court disallowed a
security and by way of Velayo’s claims and c
pledge" Velayo also rendered judgment c
delivered four pieces of against him. CFI e
jewelry to the Surety affirmed. s
Company "for the s
latter's further Issue: Whether the o
protection", with power auction sale of the thing r
to sell the same in case pledged extinguishes the y
the surety paid or principal obligation and
become obligated to pay disallows the recovery of c
any amount of money in the deficiency. h
connection with said a
bond, applying the r
Held: Yes. Reversed.
proceeds to the payment a
of any amounts it paid c
or will be liable to pay, t
and turning the balance, e
if any, to the persons r
entitled thereto, after
deducting legal i
expenses and costs. s
Judgment
having been rendered in o
favor of Jovita Granados f
and against Rodolfo
Velayo, and execution t
having been returned h
unsatisfied, the surety e
company was forced to
pay P2,800.00 that it e
later sought to recoup s
from Velayo; and upon s
the latter's failure to do e
so, the surety caused n
the pledged jewelry to c
be sold, realizing e
therefrom a net product
of P235.00 only. o
313
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314
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315
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316
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h b
e s
t
p a
r c
i l
n e
c
i t
p o
a
l t
h
a e
g
r a
e p
e p
m l
e i
n c
t a
t
i i
s o
n
317
 s
o t
f
p
A o
r r
t t
i i
c o
l n
e ,

2 c
1 l
1 e
5 a
r
o l
f y

t e
h s
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a
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o
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t
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t
2 i
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5 t
, i
o
i n
n
o
i f
t
s t
h
l e
a
318
p l
r a
i w
n
c t
i h
p a
a t
l
t
o h
b e
l
i p
g a
a r
t t
i i
o e
n s

s c
u a
p n
e n
r o
v t
e
n o
e v
s e
r
b r
y i
d
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e
r T
a h
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i
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n r
o
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f i
s
i i
m o
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e
r i
a s
t
i c
v l
e e
a
319
r c
t
a i
n n
d g

u t
n o
m
i s
s e
t l
a l
k
a t
b h
l e
e
, a
r
a t
n i
d c
l
i e
t s
s
p
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f e
f d
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c e
t d
,
c
a i
n n
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o t
t e
a
b d
e
o
e f
v
a s
d u
e i
d n
. g

B o
y n

e t
l h
e e
320
 m
p e
r d
i y
n ,
c
i a
p n
a d
l
m
o u
b s
l t
i
g a
a b
t i
i d
o e
n
, b
y
t
h t
e h
e
c
r r
e e
d s
i u
t l
o t
r s

h o
a f
s
t
w h
a e
i
v s
e a
d l
e
a .
n
y N
o
o
t d
h e
e f
r i
c
r i
e e
321
n c
c l
y e

i 2
s 1
1
r 5
e
c i
o s
v
e b
r y
a
b n
l o
e
. m
I e
t a
n
i s
s
u
w n
e i
l q
l u
e
t .
o
I
n t
o
t i
e s

t b
h u
a t
t
a
t n
h
e e
x
r t
u e
l n
e s
i
o o
f n

A o
r f
t
i t
322
h a
e m
e
l
e C
g o
a d
l e
,
p
r c
e o
s n
c c
r e
i r
p n
t i
i n
o g
n
t
c h
o e
n
t e
a f
i f
n e
e c
d t

i o
n f

A a
r
t f
i o
c r
l e
e c
l
1 o
4 s
8 u
4 r
( e
3
) o
f
o
f a

t c
h h
e a
t
s t
323
e considered specially
l Facts: Uy had a motor preferred credit under
vehicle of Zamora Article 2241(4) of the
m attached in court. The Civil Code because an
o writ of attachment was unregistered chattel
r levied on the vehicle on mortgage is void.
t August 11, 1960. However, the court held
g Subsequently, the that the same could be
a Municipal Court considered a credit
g rendered judgment for appearing in a public
e Uy. Zamora appealed. instrument under Article
While the case 2244(14) so that it could
c was thus pending appeal, be considered preferred
o the Allied Finance, Inc. over plaintiff's
n sought and was allowed attachment lien because
s to intervene. According of priority of its date. Uy
t to the intervenor, the appealed.
i motor vehicle, which
t was attached by the Issue: Whether an
u Sheriff, had previously unregistered chattel
t been mortgaged to it by mortgage credit is
e defendant Zamora to preferred to an
d secure the payment of a attachment lien.
loan of P3,060 and that
t at the time of the filing of Held: No. Reversed.
o the complaint in
intervention on
s December 19, 1960
e there remained a
c balance of P2,451.93 in
u its favor.
r Meanwhile, Uy
e and Zamora submitted to
the court a compromise
t agreement wherein
h Zamora admitted being
e indebted to Uy. Since the
motor vehicle had
p already been sold on
r order of the Court for
i P2,500 to prevent
c depreciation, defendant
e Zamora agreed to have
plaintiff Uy's credit paid
o out of the proceeds of
f the sale.
The court found
t Zamora liable to both Uy
h and Allied Finance, Inc.
e Since the proceeds of the
sale of the vehicle was
p not enough to cover the
e two debts, there is now a
r controversy on who has
s preference.
o In resolving the
n issue, the lower court
a held that intervenor's
l claim could not be
324
Revised Motor Vehicles
Law. There is no Carried Lumber A
doubt that with respect Company vs. l
to defendant Zamora Agricultural Credit & l
and the intervenor Cooperative i
Allied Finance, Inc., Financing e
plaintiff Uy is a third Administration d
person. We, therefore, (ACCFA), G.R. No. L-
hold that plaintiff's 21836, April 22, 1975 F
credit should first be (63 SCRA 411) i
paid. n
a
R n
a c
t e
i ,
o
: I
n
C c
o .
n
s r
i e
d g
e i
r s
i t
n e
g r
e
t d
h
e i
t
f s
a
c m
t o
r
t t
h g
a a
t g
e
t
h o
e n
l
i y
n
t o
e n
r
v A
e u
n g
o u
r s
325
t m
e
2 n
4 t
,
o
1 b
9 t
6 a
0 i
, n
e
o d
r
b
s y
u
b p
s l
e a
q i
u n
e t
n i
t f
f
t
o U
y
t
h o
e n

d A
a u
t g
e u
s
o t
f
1
t 1
h ,
e
1
w 9
r 6
i 0
t ,

o t
f h
e
a
t c
t r
a e
c d
h i
326
t f
f
o .
f
T
t h
h e
e
l
i o
n w
t e
e r
r
v c
e o
n u
o r
r t

c u
a p
n h
n e
o l
t d

p i
r n
e t
v e
a r
i v
l e
n
o o
v r
e '
r s

t c
h r
a e
t d
i
o t
f
o
t n
h
e t
h
p e
l
a g
i r
n o
t u
i n
327
d
d
t a
h t
a e
t
, (
J
b u
e n
i e
n
g 2
0
e ,
m
b 1
o 9
d 6
i 0
e )
d ,

i i
n t

a s
h
p o
u u
b l
l d
i
c t
a
i k
n e
s
t p
r r
u e
m c
e e
n d
t e
n
o c
f e

a o
n v
e
e r
a
r p
l l
i a
e i
r n
328
t t
i i
f c
f l
' e
s 2
2
l 4
i 4
e
n o
f
b
y t
h
a e
t
t C
a i
c v
h i
m l
e
n C
t o
d
( e
A .
u
g T
u h
s i
t s

1 i
1 s
,
u
1 n
9 t
6 e
0 n
) a
, b
l
p e
u ,
r
s f
u o
a r
n
t t
h
t e
o
r
A e
r a
329
s a
o n
n n
o
t t
h
a b
t e
,
c
a o
s n
s
a i
l d
r e
e r
a e
d d
y
a
s s
t
a p
t r
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d f
, e
r
t r
h e
e d

c u
r n
e t
d i
i l
t
t
o h
f e

t s
h a
e m
e
i
n h
t a
e s
r
v b
e e
n e
o n
r
r
c e
330
c o
o r
r t
d u
e n
d e

i E
n n
t
t e
h r
e p
r
M i
o s
t e
o s
r ,

V I
e n
h c
i .
c ,
l
e 5
s 3

O O
f .
f G
i .
c
e 4
. 0
7
T 0
h ,
u
s i
, t

i w
n a
s
B
o h
r e
l l
o d
u
g t
h h
a
v t
.
a
F
331
m s
o ,
r
t s
g h
a o
g u
e l
d
o
f n
o
m t
o
t o
o n
r l
y
v
e b
h e
i
c r
l e
e g
s i
, s
t
i e
n r
e
o d
r
d i
e n
r
t
t h
o e

a C
f h
f a
e t
c t
t e
l
t
h M
i o
r r
d t
g
p a
e g
r e
s
o R
n e
332
g e
i h
s i
t c
r l
y e
, s

b O
u f
t f
i
t c
h e
e
(
s n
a o
m w
e
t
s h
h e
o
u L
l a
d n
d
a
l T
s r
o a
n
b s
e p
o
r r
e t
c a
o t
r i
d o
e n
d
C
i o
n m
m
t i
h s
e s
i
M o
o n
t )
o ,
r
a
V s
333
 judgment and levied concurrent. Whether an
r upon the Facoma’s lease insolvency proceeding is
e rights, warehouse and required in order to have
q ricemill building. a concurrence of credits.
u ACCFA filed a
i rd
3 party claim with the Held: Yes. No. Reversed.
r sheriff on the ground
e that the properties had
d already been sold to
ACCFA on November 6,
i 1960. Facoma was
n granted by ACCFA a loan
for the construction of a
S warehouse. As security
e for that loan, Facoma
c mortgaged to ACCFA its
t lease rights over the land
i and the warehouse to be
o constructed. This
n mortgage was recorded.
When Facoma defaulted,
5 ACCFA extrajudicially
foreclosed on the
( properties and came out
e as the highest bidder.
) The sheriff,
nevertheless, proceeded
o with the auction sale and
f the company came out as
the highest bidder. A
t certificate of sale was
h issued. Since no
e redemption was made, a
final deed of sale was
t issued.
h The company
e sued ACCFA for the
n purpose of asserting its
Facts: Sta Barbara partial payments to preferential lien. ACCFA
Farmer’s Cooperative Carried Lumber raised the defense that
Marketing Association, Company, but was the company waived its
Inc. (Facoma) purchased unable to pay the lien when it filed an
on credit from Carried balance. The company ordinary action to
Lumber Company sued Facoma. In a recover its claim instead
lumber and materials decision dated of enforcing its lien.
which were used in the September 26, 1960, After trial, the lower
construction of Facom’s based on compromise, court held that the
warehouse. The the lower court ordered lumber company’s
company extended Facoma to make monthly materialman’s lien was
credit to the Facoma installment payments to superior to ACCFA’s
after having been the company and the mortgage lien.
informed by the ACCFA’s failure to pay any
General Manager in a installment will render Issue: Whether
telegram that a loan had the whole unpaid preferred credits on a
been approved for the balance due. Since specific immovable
construction of the Facoma failed to make property should be
Facoma’s warehouse. the installments, the satisfied pro rata and
Facoma made company enforced the should be considered as
334
 The lumber insolvency proceeding a
company has no lien on in this case in order to t
the ricemill building as assert a pro rata
the lien is only on the satisfaction of the debt. t
warehouse. In this case, there are h
There is no no other creditors aside e
necessity of initiating a from the lumber
liquidation or company and ACCFA. e
n
R u
a m
t e
i r
o a
: t
i
T o
h n
e
o
l f
o
w 1
e 0
r
c
c l
o a
u i
r m
t s
,
w
a m
s o
r
m t
i g
s a
t g
a e
k s
e
n a
n
i d
n
l
a i
s e
s n
u s
m
i i
n n
g
A
t r
h t
335
.
s
2 a
2 y
4
2 t
h
c a
r t
e
a t
t h
e e
s
m
a a
n t
e
o r
r i
d a
e l
r m
a
o n
f ’
s
p
r l
e i
f e
e n
r
e o
n r
c
e r
. e
f
I e
t c
t
i i
s o
n
n a
o r
t y

c c
o r
r e
r d
e i
c t
t
o
t f
o
336
t p
h e
e r
i
l o
u r
m
b t
e o
r
A
c C
o C
m F
p A
a ’
n s
y
m
b o
e r
i t
n g
g a
g
l e
i
s c
t r
e e
d d
i
a t
s
w
N h
o i
. c
h
4
i
i s
n
l
A i
r s
t t
. e
d
2
2 a
4 s
2
N
i o
s .
5.
s T
u h
337
e i
s
e t
n s
u
m t
e h
r e
a
t c
i r
o e
n d
i
i t
s s

n w
o h
t i
c
i h
n
m
o a
r y
d
e c
r o
n
o c
f u
r
p
r w
e i
f t
e h
r
e r
n e
c s
e p
. e
c
T t
h
e t
o
a
r s
t p
i e
c c
l i
e f
i
l c
338
 o
r r
e d
a i
l n
g
p
r t
o o
p
e A
r r
t t
i .
e
s 2
2
a 4
n 9
d .
Magdalena C. De condition that the latter
w
Barreto, et al. vs. Jose will now assume the
h
G. Villanueva, et al., obligation owed to RFC.
i
G.R. No. L-14938, Pura made partial
c
January 28, 1961 (1 payments and was able
h
SCRA 288) to secure the land title in
her name. She then
w mortgaged the property
Facts: Rosario
o to Magdalena
Cruzado, for herself and
u C. Barretto as security for
as administratrix of the
l a loan.
intestate estate of her
d Pura failed to
deceased husband Pedro
Cruzado, obtained from pay the remaining
b installments on the
Rehabilitation Finance
e unpaid balance for the
Corporation (RFC) an
P11,000 loan which was sale of the property. A
s secured by a parcel of complaint for recovery of
a land owned by the the same was filed with a
t spouses. When she failed levy in attachment upon
i to pay installments on the property in favor of
s the loan, the mortgage the vendor (Rosario
f was foreclosed and the Cruzado). After trial, the
i RFC acquired the court ruled for the
e property. Upon vendor.
d application, the land was
sold back to Rosario
p conditionally for an
r amount payable in 7
o years.
2 years later,
r Rosario was authorized
a by the court to sell the
t land with the previous
a consent of RFC. Pursuant
to such authority and
a consent, Rosario sold the
c land to Pura L.
c Villanueva with the
339
 As to the point shows any such o
made that the articles limitation. If we are to n
of the Civil Code on interpret this portion
concurrence and of the Code as f
preference of credits intended only for o
are applicable only to insolvency cases, then r
the insolvent debtor, other creditor-debtor
suffice it to say that relationships f
nothing in the law o
P r
u e
r c
a l
o
a s
l u
s r
o e

f o
a f
i
l m
e o
d r
t
t g
o a
g
p e
a
y i
m
M p
a l
g e
d a
a d
l i
e n
n g
a
t
B h
a e
r
e C
t r
t u
o z
. a
d
A o
n s

a w
c a
t s
i
340
f r
i d
l e
e r
d e
. d

A t
h
d e
e
c i
i s
s s
i u
o a
n n
c
w e
a
s o
f
p
r a
o
m w
u r
l i
g t
a
t o
e f
d
e
a x
g e
a c
i u
n t
s i
t o
n
P .
u
r T
a h
. e

T C
h r
e u
z
c a
o d
u o
r s
t
f
o i
341
l v
e e
d
d
t u
h e
e
i c
r o
u
V r
e s
n e
d
o t
r o
’
s t
h
l e
i
e l
n i
e
o n
v
e a
r n
d
t
h o
e r
d
p e
r r
o e
p d
e
r i
t t
y s
,
a
a n
n n
d o
t
t a
h t
e i
o
c n
o .
u
r T
t h
e
g
a c
342
o a
u u
r c
t t
i
a o
l n
s ,
o
t
d h
e e
c
r C
e r
e u
d z
a
t d
h o
a s
t
s
s h
h a
o l
u l
l
d b
e
t
h c
e r
e
r d
e i
a t
l e
t d
y
w
b i
e t
h
s
o t
l h
d e
i
a r
t
p
p r
u o
b -
l r
i a
c t
a
343
 e
s
h t
a o
r
e b
u
i y
n
t
t h
h e
e
p
p r
r o
o p
c e
e r
e t
d y
s .
.
T
A h
t e

t B
h a
e r
r
s e
a t
l t
e o
, s

t s
h o
e u
g
B h
a t
r
r r
e e
t c
t o
o n
s s
i
w d
e e
r r
e a
t
a i
b o
l n
344
o t
f h
e
t
h C
e r
u
o z
r a
d d
e o
r s

o w
f h
i
t c
h h
e
t
c h
o e
u
r c
t o
u
g r
i t
v
i d
n e
g n
i
d e
u d
e .

c T
o h
u e
r y
s
e a
p
t p
o e
a
t l
h e
e d

l o
i n
e
n t
h
o i
f s
345
 b
i e
s
s s
u a
e t
. i
s
I f
s i
s e
u d
e
: p
r
W o
h -
e r
t a
h t
e a
r
t
a o
n g
e
u t
n h
r e
e r
g
i w
s i
t t
e h
r
e a
d
m
v o
e r
n t
d g
o a
r g
’ e
s
l
l i
i e
e n
n .

s Held: Yes then No. Affirmed. Reversed upon MFR.

h
a R
l a
l t
i
346
o n
: c
u
A m
r b
t r
. a
n
2 c
2 e
4
2 o
n
N
C s
C p
e
e c
n i
u f
m i
e c
r
a i
t m
e m
s o
v
t a
h b
e l
e
c
l p
a r
i o
m p
s e
r
t t
h y
a
t a
n
c d
o
n l
s i
t s
i t
t s
u
t a
e s

a N
s o
.
e
347
(
2 2
) 2
4
t 9
h
e p
r
v o
e v
n i
d d
o e
r s
’
s t
h
l a
i t
e
n i
f
a
n t
d h
e
a r
s e

N a
o r
. e
(
5 2
)
o
t r
h
e m
o
m r
o e
r
t c
g r
a e
g d
e i
t
l s
i
e w
n i
. t
h
A
r r
t e
. s
348
p y
e
c s
t h
a
t l
o l

t b
h e
e
s
s a
a t
m i
e s
f
s i
p e
e d
c
i p
f r
i o
c -

r r
e a
a t
l a
.
p
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349
i n
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350
s t
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351
n them, and it would credit for taxes that
render purposeless the enjoys absolute priority.
t special laws on If none of the claims is
h insolvency. for taxes, a dispute
e between 2 creditors will
Ratio of MFR: Under not enable the Court to
p the system of the Civil ascertain the pro rata
a Code, only taxes enjoy an dividend corresponding
r absolute preference. All to each, because the
a the remaining classes of rights of the other
m preferred creditors creditors likewise
o under Art. 2242 enjoy no enjoying preference
u priority among under Article 2242
n themselves, but must be cannot be ascertained.
t paid pro rata, i.e. in In the absence of
proportion to the insolvency proceedings,
r amount of the respective the conflict between the
i credits. But in order to parties now before us
g make this prorating must be decided
h fully effective, the pursuant to the well
t preferred creditors must established principle
s necessarily be convened, concerning registered
and the import of their lands; that a purchaser
o claims ascertained. It is in good faith and for
f thus apparent that the value takes registered
full application of Art. property free from liens
l 2249 and 2242 demands and encumbrances other
i that there must be first than statutory liens and
e some proceeding where those recorded in the
n the claims of all the certificate of title. There
preferred creditors may being no insolvency or
h be bindingly adjudicated, liquidation, the claim of
o such as insolvency, the the unpaid vendor did
l settlement of decedent’s not acquire the character
d estate, or other and rank of a statutory
e liquidation proceedings lien co-equal to the
r of similar import. This mortgagee’s recorded
s explains the rule of Art. encumbrance, and must
2243 NCC that the claims remain subordinate to
o or credits enumerated the latter. The court is
n shall be considered as understandably loathed
mortgages or pledges of to adopt a rule that
r real or personal property would undermine the
e or liens within the faith and credit to be
a purview of legal accorded to registered
l provisions governing Torrens titles and nullify
insolvency. Thus, it the beneficent objectives
p becomes evident that sought to be obtained by
r one preferred creditor’s the Land Registration
o Act. No argument is
3rd party claim to the
p needed to stress that if a
e proceeds of a foreclosure person dealing with
sale is not the
r registered land were to
t proceeding be held to take in every
contemplated by law for
y instance subject to all 14
. the enforcement of preferred claims
preferences under Art. enumerated in Art. 2242
where there are would be left without 2242, unless the NCC, even if the existence
concurrence of credits any rules to govern claimant was enforcing a and import thereof
352
cannot be ascertained vendors since they lost Secretariat (ESFS), a contractor’s lien can be
from the records, all their rights as owners of government agency enforced without an
confidence in Torrens the property when they working with the USAID. insolvency proceeding.
titles would be failed to pay RFC the The petitioners entered
destroyed. Upon the purchase price. What into a business venture Held: No. Affirmed.
other hand, it does not they sold to Pura was for the purpose of
appear excessively their rights, title, participating in the
burdensome to require interest and dominion bidding for the public
the privileged creditors to the property. They market. The contract
to cause their claims to merely assigned was awarded to them.
be recorded in the books whatever rights or Under the Construction
of the Register of Deeds claims they might still Agreement, the
should they desire to have thereto. The municipality agreed to
protect their rights even ownerhip of the assume the expenses for
outside of insolvency or property rested with the demolition, and
liquidation proceedings. RFC which was the one clearing and site filling
The Cruzados that sold the property to and to provide cash
also cannot be Pura. The sale from equity.
considered as Cruzado to Villanueva, Although the
unpaid therefore, was not so whole amount of the
much a sale of the land cash equity became due,
as it was a quitclaim the municipality refused
deed in favor of to pay despite repeated
Villanueva. demand and
notwithstanding that the
J.L. Bernardo r public market was
Construction, y 98% complete.
represented by Furthermore, the
attorneys- in-fact 3 petitioners advanced
Santiago R. Sugay, 1 the expenses for the
Edwin A. Sugay & , demolition, clearing and
Fernando site filling, and they have
S.A. Erana, Santiago R. 2 not yet been reimbursed.
Sugay, Edwin A. Sugan 0 The petitioners
& Fernando S.A. 0 filed a case. The court
Erana vs CA & Mayor 0 granted a preliminary
Jose L. Salonga, attachment. Although
G ( the usual way of
. 3 enforcing a lien is by a
R 2 decree of sale of the
. 4 property and the
application of the
N S proceeds to the payment
o C of the debt secured by it,
. R the court found it more
A practical and reasonable
1 to permit the petitioners
0 2 to operate the public
5 4 market and to apply to
8 ) their claims the income
2 derived therefrom, in the
7 Facts: The municipal form of rentals and
, government of San goodwill from the
Antonio, Nueva Ecija prospective stallholders
J approved the of the market.
a construction of San The CA reversed the
n Antonio Public Market to order of the lower court.
u be funded by the
a Economic Support Fund Issue: Whether a
353
insolvency proceedings. unpaid contractors and e
The action filed are entitle to invoke the n
by the petitioners in the contractor’s lien, such u
trial court does not lien cannot be enforced m
partake of the nature of in the present action for e
an insolvency there is no way of r
proceeding. It is determining whether or a
basically for specific not there exist other t
performance and preferred creditors with e
damages. Thus, even if respect to such s
it is finally adjudicated property. The fact that
that petitioners actually no 3rd party claims c
stand in the position of have e
r
t
R a
a i
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p
354
e e
c c
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f
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i
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p c
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t u
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d r
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r
. t
h
S i
p r
355
d i
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p a
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356
h
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s o
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s o
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t o
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t r
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357
 t
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t .
h
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d
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c w
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358
a t
r h
i e
s
e c
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t d
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t o
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i s
s
, w
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b a
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m s
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n
e F
u
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i a
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n
o t
f a
l
359
 n
t
e s
n h
e o
t u
s l
d
o
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h
d e
u n
e
o
p n
r l
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c
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s
e
w n
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i
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e
360
o t
f o
r
a s

p m
r a
o y
c
e b
e e
d
i b
n i
g n
d
w i
h n
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r l
e y

t a
h d
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u
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l i
a c
i a
m t
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d
o ,
f
s
a u
l c
l h

t a
h s
e been filed in the trial
court will not bar other
p creditors from
r subsequently bringing
e actions and claiming that
f they also have preferred
e liens against the
r property involved.
r Petitioners may
e only obtain possession
d and use of the public
market by means of a
c preliminary attachment
r upon such property, in
e the event that they
d obtain a favorable
i judgment in the trial
court. Clearly, the trial
court’s order granting
possession and use of the
public market to the
petitioners does not
adhere to the procedure
for attachment laid out in
the Rules of Court.
Development Bank of
the Philippines vs. CA &
Remington Industrial
Sales
Corporation, G.R. No.
126200, August 16,
2001 (363
361
SCRA 307) foreclosure proceedings. properties.
In the Ratio: DBP and PNB are In the
Facts: Marinduque meantime, the mining mandated by law to absence of liquidation
Mining Industrial company purchased and foreclose when an proceedings, the claim
Corporation obtained caused to be delivered account has reached of Remington cannot
from the PNB various construction materials certain arrearages, be enforced against
loan accommodations. and other merchandise thus they were only DBP. The ruling in the
To secure the loans, from Remington fulfilling a duty when Barretto case applies
the mining company Industrial Sales they foreclosed on the to this case.
executed real estate Corporation. The Although
mortgage and chattel purchases remained
unpaid when Remington Barretto involved court ruled that the
mortgage in favor of
filed a complaint for sum specific immovable separation pay of
PNB. The mortgage
of money and damages. property, the ruling workers were to be
covered all of the mining
The complaint was therein should apply preferred over the claims
company’s real
amended to include equally in this case of BOC and BIR as
properties located at
PNB and DBP in view of where specific movable provided by Art. 110 of
Surigao del Norte,
the foreclosure by the property is involved. As the Labor Code. The
Sipalay, Negros
latter of the real and the extrajudicial Solgen seeks the reversal
Occidental, and
chattel mortgages on foreclosure instituted by of this judgment on the
Antipolo, including
real and personal PNB and DBP is not the ground that Art. 110 does
improvements.
properties, chattels, liquidation proceeding not apply since it speaks
The Mining
mining claims, contemplated by the of wages which does not
Company executed in
machinery, equipment Civil Code, Remington include separation pay.
favor of PNB and DBP a
and other assets of the cannot claim its pro rata
second Mortgage Trust
mining company. Several share from DBP. Issue: Whether
Agreement over all its
real properties, other amendments to the separation pay claims of
including complaint were made to RP, represented by the laborers is preferred
improvements. The implead other parties. Bureau of Customs & over BIR and BOC claims.
mortgage also covered The lower court ruled for BIR vs. Honorable E.L.
all chattels, as well as Remington. CA affirmed. Peralta, Presiding Held: Yes. Affirmed.
assets of whatever kind, Judge of the CFI of
nature and description Issue: Whether an Manila, Branch XVII,
which the mining unpaid seller’s lien on Quality Tobacco Corp.,
company may movables shall be given Francisco Candeleria,
subsequently acquire in preference in the Federacion Obrero de
substitution or absence of a liquidation la Industria Tabaquera
replenishment or in proceeding. Y Otros Trabajadores
addition to th properties de Filipinas (FOITAF),
covered by the previous USTC Employees
Held: No. Reversed.
Deed of Real and Chattel Association Workers
Mortgage. Union-PTGWO, G.R. No.
An amendment L-56568, May 20, 1987
to the Mortgage Trust (150
Agreement was made in SCRA 37)
favor of PNB and DBP
over all other real and Facts: In the voluntary
personal properties and insolvency proceedings
other real rights commenced by Quality
subsequently acquired. Tobacco Corp, the
The mining following claims of
company creditors were filed:
failed to separation pay of
settle its workers; BIR tobacco
loan inspection fees; and BOC
obligations, customs duties and
thus PNB importation taxes which
and DBP appear to be secured by
instituted extrajudicial surety bonds. The trial
362
specially preferred assets of the insolvent v
credits, the residual applied in a certain i
value will form part of sequence or order of e
the free property of the priority. In this w
insolvent. sequence, certain taxes e
In contrast, Art. and assessments also d
2244 creates no liens figure but these do not
on determinate have the same kind of i
property which follow overriding preference n
such property. What that Art. 2241 No. 1 and
Art. 2244 creates is 2242 No. 1 create for i
simply rights in favor of taxes which constitutes s
certain creditors to liens on the taxpayer’s o
have the cash and other property. l
a
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363
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364
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365
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366
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367
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368
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369
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370
r d
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371
e a
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i
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b v
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s u
372
e t
e
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f
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373
r the claim of the BIR is a stating that “unpaid
tax lien upon all the wages shall be paid in full
t properties and assets, before other creditors
h movable and immovable, may establish any claim
a of the insolvent as to a share in the assets of
n taxpayer under Art. 2241 employer.” Insistent
No.1 and 2242 No. 2. considerations of public
t Art. 110 LC does policy prevent us from
h not purport to create a giving to “other
e lien in favor of workers creditors” a linguistically
or employees for unpaid unlimited scope that
s wages. Claims for unpaid would embrace the
u wages do not therefore universe of creditors
m fall at all within the save only unpaid
category of specially employees.
t preferred claims, except Art. 110,
o to the extent that such however, has an impact
t claims of unpaid wages on the provisions of the
a are already covered by Civil Code. Bearing in
l Art. 2241 No. 6 and 2242 mind the overriding
No. 3. Under, Art. 2241 precedence given to
o No. 6, the claim for taxes, duties and fees and
f separation pay the fact that the Labor
constitutes as liens Code does not impress
t attaching to the any lien on the property
h processed leaf tobacco, of an employer, the use of
e cigars and cigarettes, the phrase “first
and other products preference” in Art. 110
t produced or indicates that what Art.
a manufactured by the 110 intended to modify is
x insolvent, but not to the order of preference
other assets. The claims found in Art. 2244 which
l of the unions may be order relates, as we have
i given effect only after seen, to properties of the
e the BIR’s claim. insolvent that are not
n Art. 110 LC did burdened with liens or
s not sweep away the encumbrances created or
overriding preference recognized by Art.
a accorded to tax claims of 2241 and 2242. Art. 110
n the government or any modified Art. 2244 in 2
d subdivision thereof. It respects: (a) by removing
cannot be assumed the 1-year limitation
o simpliciter that the found in Art. 2244, No. 2.
t legislative authority, by And (b) by moving up
h using the words “first claims for unpaid wages
e preference” and “any of laborers or workers of
r provision of law to the the insolvent from 2nd
contrary
The claim of the claims of the BOC which notwithstanding” priority to 1st priority.
BOC for unpaid customs is No. 9 in the order of intended to disrupt the The BIR will
duties and taxes enjoys Art. 2244 will have to be elaborate and have preference in the
the status of specially paid out of the symmetrical structure processed or
preferred credit under insolvent’s free property. set up in the Civil Code. manufactured tobacco
Art. 2241 No. 1, only in The claim of BIR Neither can it be products. The remaining
respect of the articles of for Tobacco Inspection assumed casually that value will be subject to a
importation which are Fees are imposed both as Art. 110 intended to lien in favor of unions by
still in the custody or a regulatory measure subsume the sovereign virtue of Art. 2241
subject to the control of and as a revenue- raising itself within the term
the BOC. Unsatisfied measure. It follows that “other creditors” in
374
No. insufficient, it will only NLRC affirmed. scheme of concurrence
6. In case there are no have 9th priority by and preference of credit
more inventory, the virtue of Art. 2244 No. Issue: Whether labor is to raise the worker’s
claim of the unions will 9. In respect of the free claims against a bank claim into first priority
have to be satisfied out property, the unions under liquidation are under Art. 2244 NCC.
of the free property will enjoy first priority still under the Not being an absolutely
under Art. 2244 as and will be paid ahead jurisdiction of the NLRC. preferred credit, as
modified by Art. 110 of the claims of the BOC. Whether Art. 110 LC taxes under Art. 2241
LC. The claims of the Union upgraded the laborer’s (1) and 2242 (1),
The BOC will do not include the 10% claim to an absolutely Dizon’s claims cannot
have preference in claim for attorney’s fees preferred credit. be paid ahead of other
importations still in its which do not stand on credits and outside of
custody. If there are no the same footing as Held: Yes. No. Affirmed. the liquidation
such importations or if separation pay. proceeding because the
such importations are free property has not yet
Cruz, dissenting: If the P. Valenzuela) vs. been determined. Thus,
law had intended an NLRC, Labor Arbiter Dizon’s adjudicated
exception, it would have Evangeline Lubaton, & claims should be
– and could easily have – Fortunato Dizon, Jr., submitted to the
provided for it. The G.R. No. 82135, August liquidators for
Labor Code was 20, 1990 (188 SCRA processing. If it is later
promulgated by 700) adjudicated that the
President Marcos who liquidation is improper,
was aware of the usual then the NLRC’s
Facts: Banco Filipino
preference of tax claims. decision may be
Savings & Mortgage
So informed, he would executed
Bank was placed under
have reserved that receivership and later
primacy in the above ordered liquidated by R
article if that was what the Monetary Board of a
he really wanted. The the Central Bank. Mr. t
fact that he did not is to Fortunato Dizon, the EVP i
me certain indication and COO of the bank, o
of his intention, viz., filed with the liquidator :
that under the said a request for the
article the claims of payment to him of the T
laborers for unpaid cash equivalent of his h
wages shall have vacation and sick leave e
priority above all else. It credits and r
is axiomatic that the unexpended/unused e
words of a statute are to reimbursable allowance.
be given their normal His claims were not paid i
and ordinary by the liquidator. Dizon s
connotation. Moreover, then filed with the labor
the Labor Code was arbiter a complaint n
promulgated later than against the bank for o
the Civil Code, the recovery of unpaid t
Insolvency Law, and the salary, the cash h
Internal Revenue Code. equivalent of his i
The Labor Code prevails accumulated vacation n
over these earlier and sick leaves, g
statutes as it represents termination pay,
the later expression of damages and attorney’s i
legislative will. fees. The liquidator n
moved for dismissal on
Banco Filipino Savings grounds of jurisdiction. S
& Mortgage Bank The Labor Arbiter e
(Represented by its upheld her jurisdiction c
liquidator, Ms. Carlota and ruled for Dizon. The t
375
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379
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t under normal procedure. extrajudicially foreclosed
e If the contrary is proven, the same at public
l then the bank’s auction earlier in 1983.
y liquidation shall proceed DBP subsequently leased
and Dizon’s established the properties to Egret
p claims should be treated Trading and
r as an ordinary preferred Manufacturing
e credit enjoying first Corporation, Rasario
f preference. Textile Mills, and General
e Textile Mills.
r DBP vs. Hon. Labor The writ of
r Arbiter Ariel C. Santos, possession prevented the
e Phil. Association of scheduled auction sale of
d Free Labor Unions RMC properties to
(PAFLU-RMC Chapter) execute the award for the
c and its members, laborers. The laborers
r Michael Penalosa, et filed an incidental
e al., Samahang Diwang petition with the NLRC to
d Manggagawa sa RMC- declare their preference
i FFW Chapter, and its over the levied
t members, Jaime Arada, properties. The Labor
. et al., G.R. Nos. 78261- Arbiter issued an order
62, March 8, 1989 (171 recognizing and
T SCRA 138) declaring the laborer’s
h first preference. The
e Facts: PAFLU-RMC and NLRC set aside the
its members filed a labor decision and remanded
s case against Riverside the case for further
i Mills Corporation. The proceedings. The Labor
g labor arbiter ruled for Arbiter again affirmed
n the complainants. Other the preference of the
i laborers also filed cases laborers’ claims.
f against the corporation
i which was also decided Issue: Whether a
c in their favor. A notice of declaration of
a levy on execution of bankruptcy or a judicial
n certain real properties liquidation is required
c was annotated. before the worker’s
e Meanwhile, DBP preference may be
obtained a writ of enforced.
o possession from the RTC
f on all the properties of Held: Yes. Reversed.
RMC after having
381
binding adjudication which would result a
instead of the from the questioned t
piecemeal settlement decision in this case. i
o
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382
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385
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389