NORTHWESTERN UNIVERSITY

COLLEGE OF LAW
Laoag City, Ilocos Norte

LAW ON CREDIT TRANSACTIONS

CASE DIGEST

By:

JEANETTE P. CALONG
JD II

JUDGE CHARLES JAVIER CALAPINI

Professor
 TABLE OF CONTENTS

1. PNB vs. MARAÑON, G.R. No. 189316, July 1, 2013 ................................ 1

2. AGNER vs. BPI, G.R. No. 182963, June 3, 2013 ..................................... 2
3. HOJAS vs. PHIL. AMANAH BANK, G.R. No. 19453, June 5, 2013 ........... 3
4. MALLARI vs. PRUDENTIAL BANK, G.R. No. 197861, June 5, 2013 ......... 5
5. ANG vs. ANG, G.R. No. 201675, June 19, 2013 ...................................... 7
6. LIM vs. DBP, G.R. No. 177050, July 1, 2013 ........................................... 9
7. LIM vs. LAZARO, G.R. No. 185734, July 3, 2013 ................................... 11
8. BONROSTRO vs. LUNA, G.R. No. 172346, July 24, 2013 ...................... 13
9. AGUILAR vs. O’PALLICK, G.R. No. 182280, July 29, 2013 .................... 15
10. BPI vs. SARABIA MANOR HOTEL, G.R. No. 175844, July 29, 2013....... 17
11. NAGTALON vs. UNITED COCONUT, G.R. No. 172504, July 31, 2013.... 19
12. COMSAVINGS vs. CAPISTRANO, G.R. No. 170942, August 28, 2013 .... 21
13. VENZON vs. RURAL BANK, G.R. No. 178031, August 28, 2013 ............ 23
14. BIR vs. LEPANTO CERAMICS, G.R. No. 224764, April 24, 2017 ............ 24
15. DELA PAZ vs. L&J DEVT. CO., G.R. No. 183360, September 8, 2014.... 26
16. BAYSA vs. PLANTILLA, G.R. No. 159271, July 13, 2015 ....................... 27
17. BPI vs. SARDA, G.R. No. 239092, June 26, 2019 .................................. 29
18. FEBTC vs. UNION BANK, G.R. No. 196637, June 3, 2019 ..................... 31
19. PILIPINAS SHELL vs. ROYAL FERRY, G.R. No. 188146, Feb. 1, 2017 ... 33
20. PBCOM vs. BASIC POLYPRINTERS, G.R. No. 187581, Oct. 20, 2014 .... 35
 PNB vs. MARAÑON
G.R. No. 189316
July 1, 2013

Extent of mortgage. When the principal property is mortgaged, the mortgage

shall include all natural or civil fruits and improvements found thereon when
the secured obligation becomes due as provided in Article 2127 of the Civil Code.

FACTS:

A lot with a building leased to various tenants was subjected to a loan and
mortgage by Spouses Montealegre with PNB. The Spouses Montealegre failed to
pay the loan and PNB foreclosed on said lot and building. During the auction,
sale PNB was the highest bidder.

Spouses Marañon filed before the RTC a complaint for Annulment of Title,
Reconveyance and Damages against the Montealegres, PNB, the Register of
Deeds and Provincial Sherriff. The civil case alleged that the Marañons are
rightful owners of the lot and the Montealegres forged their names in a Deed of
Sale to transfer the property to the Montealegres. PNB averred it is a mortgagee
in good faith and the mortgage is binding and valid.

During the trial, Paterio Tolete deposited with the Clerk of Court
₱144,000.00 and ₱30,000.00 with PNB as rental payments. The RTC ruled in
favor of the respondents. PNB was also adjudged as a mortgagee in good faith
and to respect the lien on the property. Neither parties dissented.

Respondents filed an Urgent Motions for Withdrawal of Deposited Rental

deposited by Tolete. The RTC granted the motion. PNB appealed to the CA but
was unsuccessful. Hence, the instant petition.

ISSUE: Whether or not that the mortgage the RTC decided should be
respected should also include the fruits deposited to answer for the
debt.

RULING:

No. Rent as an accessory follows the principal is the general rule. Normally
when the principal property is mortgaged and there is failure of the mortgagor to
pay, the fruits pass on to the mortgagee as accorded by the Article 2127 of the
Civil Code. But this is subject to qualifications. This rule is under the
presumption that the mortgagor was the rightful owner to encumber such
property. There was no juridical tie made between PNB and the petitioners
because of the fraudulent acts of the Montealegres. The building and fruits are
not subjected to the lien, only the lot. Thus the rents paid are not subjected to
be passed upon to PNB.

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 AGNER vs. BPI FAMILY SAVINGS BANK, INC.
G.R. No. 182963
June 3, 2013

Interest. While Central Bank Circular No. 905-82 effectively removed the ceiling
on interest rates for both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as granting carte blanche
authority to lenders to raise interest rates to levels which would either enslave
their borrowers or lead to a hemorrhaging of their assets. In case the stipulation
on the interest rate is void for being contrary to morals, if not against the law, it
is as if there was no express contract on said interest rate; thus, the interest rate
may be reduced as reason and equity demand.

FACTS:

Petitioners executed a Promissory Note with Chattel Mortgage in favor of

Citimotors, Inc. with interest of 6% per month upon failure of payment of
installment of the loan. Citimotors then assigned all its rights, title and interests
in the Promissory Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc.,
which likewise assigned the same to respondent BPI.

For failure to pay, respondent filed an action for Replevin and Damages
before the RTC. The RTC ruled for the respondent and ordered petitioners to
jointly and severally pay an amount plus interest at the rate of 72% per annum.
On appeal, the CA affirmed the RTC’s decision. Hence, this case at bar.

ISSUE: Whether or not the 72% interest per annum is valid.

RULING:

No. Settled is the principle that stipulated interest rates of three percent
(3%) per month and higher are excessive, iniquitous, unconscionable, and
exorbitant. While Central Bank Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for both
secured and unsecured loans, regardless of maturity, nothing in the said circular
could possibly be read as granting carte blanche authority to lenders to raise
interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. Since the stipulation on the interest rate is void
for being contrary to morals, if not against the law, it is as if there was no express
contract on said interest rate; thus, the interest rate may be reduced as reason
and equity demand.

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 HOJAS vs. PHILIPPINE AMANAH BANK
G.R. No. 193453
June 5, 2013

Right to repurchase. The general rule in redemption is that it is not sufficient

that a person offering to redeem manifests his desire to do so. The statement of
intention must be accompanied by an actual and simultaneous tender of
payment. This constitutes the exercise of the right to repurchase.

FACTS:

Petitioners secured a loan from respondent bank which was secured by a

mortgage. For failure to pay, respondent applied for extrajudicial foreclosure of
the real properties, which was granted and was thereafter acquired by
respondent.

The OIC President of respondent bank wrote to petitioners’ son, informing

him that although the one-year redemption period would expire on April 21,
1988, by virtue of the bank’s incentive scheme, the redemption period was
extended until December 31, 1988. Despite said letter, the OIC of the Project
Development Department of respondent bank wrote petitioners that the real
properties acquired by respondent would be sold in a public bidding before the
end of August, 1988. Thereafter, a public bidding was conducted and the
mortgaged properties were awarded to respondent Kue. Subsequently, they were
requested to vacate the premises prompting petitioners to file an action for the
Determination of True Balance of Mortgage Debt, Annulment/Setting Aside of
Extrajudicial Foreclosure of Mortgage and Damages, with Prayer for Preliminary
Injunction against respondent.

The RTC dismissed the complaint. Aggrieved, the petitioners appealed to

the CA but to no avail. Hence, this present petition.

ISSUE: Whether or not petitioners properly exercised their right of

redemption in the case at bar.

RULING:

No. petitioners’ allegation that they had signified their intention to avail of
the incentive scheme which they have equated to their intention to redeem the
property, did not amount to an exercise of redemption precluding the bank from
making the public sale. In the case of China Banking Corporation vs. Martir, the
Court expounded on what constitutes a proper exercise of the right of
redemption, to wit:

The general rule in redemption is that it is not sufficient that a person

offering to redeem manifests his desire to do so. The statement of intention
must be accompanied by an actual and simultaneous tender of payment.
This constitutes the exercise of the right to repurchase.
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 In several cases decided by the Court where the right to repurchase was
held to have been properly exercised, there was an unequivocal tender of
payment for the full amount of the repurchase price. Otherwise, the offer to
redeem is ineffectual. Bona fide redemption necessarily implies a reasonable and
valid tender of the entire repurchase price, otherwise the rule on the redemption
period fixed by law can easily be circumvented.

4|Page
 MALLARI vs. PRUDENTIAL BANK
G.R. No. 197861
June 5, 2013

Stipulation as to the interest rate. 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.

FACTS:

Petitioner obtained from respondent bank a loan evidenced by a

Promissory Note subject to an interest rate of 21% per annum, attorney’s fees
equivalent to 15%, and in case of default, a penalty and collection charges of
12% per annum of the total amount due which was secured by a Deed of
Assignment over petitioner’s time deposit account. Petitioners obtained again a
loan from respondent subject to 23% interest per annum with the same penalties
in case of default. Petitioners executed a Deed of Real Estate Mortgage to answer
for the said loan.

Petitioners failed to settle their loan obligations with respondent bank

prompting the latter to file a petition for the extrajudicial foreclosure before the
RTC. On the other hand, petitioners filed a complaint for annulment of mortgage
alleging that there were onerous terms and conditions imposed by respondent
bank when it tried to unilaterally increase the charges and interest over and
above those stipulated. However, the RTC dismissed the complaint. On appeal,
the CA affirmed the lower court’s decision. Hence, this present petition.

ISSUE: Whether or not the 23% per annum interest rate and the 12% per
annum penalty charge on petitioners' loan are excessive or
unconscionable.

RULING:

No. In Bacolor vs. Banco Filipino Savings and Mortgage Bank, the Court
held that the interest rate of 24% per annum on a loan agreed upon by the
parties, may not be considered as unconscionable and excessive. As such, the
Court ruled that the borrowers cannot renege on their obligation to comply with
what is incumbent upon them under the contract of loan as the said contract is
the law between the parties and they are bound by its stipulations.

Based on the above jurisprudence, the Court finds that the 24% per
annum interest rate provided for in the subject mortgage contracts for a loan
may not be considered unconscionable. Moreover, considering that the mortgage
agreement was freely entered into by both parties, the same is the law between
them and they are bound to comply with the provisions contained therein.

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 The Court also do not find the stipulated 12% per annum penalty charge
excessive or unconscionable. In Ruiz vs. CA, the Court held that the 1%
surcharge on the principal loan for every month of default is valid. This
surcharge or penalty stipulated in a loan agreement in case of default partakes
of the nature of liquidated damages under Art. 2227 of the New Civil Code, and
is separate and distinct from interest payment. Also referred to as a penalty
clause, it is expressly recognized by law. It is an accessory undertaking to
assume greater liability on the part of an obligor in case of breach of an
obligation.

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 ANG vs. ANG
G.R. No. 201675
June 19, 2013

Validity of mortgage. The Civil Code provides that in order for a mortgage to
be valid, the mortgagor must be the absolute owner of the thing mortgaged.

FACTS:

Sunrise Marketing Bacolod, Inc. (SMBI) is a duly registered corporation

owned by the Ang family. Herein parties, Juanito Ang and Roberto Ang are
siblings. Nancy Ang, the sister of Juanito and Roberto, agreed to extend a loan.
Nancy issued a check in the amount of $1,000,000.00 payable to "Juanito Ang
and/or Anecita Ang and/or Roberto Ang and/or Rachel Ang."

Juanito and Anecita executed a Settlement Agreement and Real Estate

Mortgage. Under the foregoing instruments, Juanito and Anecita admitted that
they, together with Roberto and Rachel, obtained a loan from Nancy and such
loan shall be secured by: (a) Juanito and Anecita’s fifty percent share over a
parcel of land registered in the name of SMBI; (b) a parcel of land registered in
the name of Juanito Ang; (c) Juanito’s fifty percent share in seven parcels of land
registered in his and Roberto’s name; (d) a parcel of land registered in the name
of Roberto; (e) a parcel of land registered in the name of Rachel; and (f) Roberto
and Rachel’s fifty percent share in two parcels of land registered in the name of
their son.

Thereafter, Juanito filed a derivative suit before the RTC. He alleged that
the intentional and malicious refusal of defendants Sps. Roberto and Rachel Ang
to settle their 50% share of the total obligation will definitely affect the financial
viability of plaintiff SMBI. The RTC ruled in favor of petitioners. On appeal, the
CA reversed the appealed decision and held that that the loan extended by Nancy
was not SMBI’s corporate obligation. Hence, the present petition.

ISSUE: Whether or not the loan is a corporate loan.

RULING:

No. The CA correctly concluded that the loan was not a corporate
obligation, but a personal debt of the Ang brothers and their spouses. The check
was issued to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or
Rachel Ang" and not SMBI. The proceeds of the loan were used for payment of
the obligations of the other corporations owned by the Angs as well as the
purchase of real properties for the Ang brothers. SMBI was never a party to the
Settlement Agreement or the Mortgage. It was never named as a co-debtor or
guarantor of the loan. Both instruments were executed by Juanito and Anecita
in their personal capacity, and not in their capacity as directors or officers of
SMBI. Thus, SMBI is under no legal obligation to satisfy the obligation.

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 The fact that Juanito and Anecita attempted to constitute a mortgage over
their share in a corporate asset cannot affect SMBI. The Civil Code provides that
in order for a mortgage to be valid, the mortgagor must be the absolute owner of
the thing mortgaged. Corporate assets may be mortgaged by authorized directors
or officers on behalf of the corporation as owner, as the transaction of the lawful
business of the corporation may reasonably and necessarily require.

8|Page
 LIM vs. DEVELOPMENT BANK OF THE PHILIPPINES
G.R. No. 177050
July 1, 2013

Interest. No interest shall be due unless it has been expressly stipulated in

writing.

FACTS:

Petitioners obtained a loan from respondent DBP to finance their cattle

raising business. Petitioners likewise executed a Promissory Note undertaking to
pay the annual amortization with an interest rate of 9% per annum and penalty
charge of 11% per annum. Another loan from DBP was obtained by petitioners
with a Promissory Note with an interest rate of 12% per annum and a penalty
charge of 1/3% per month on the overdue amortization. To secure the loans,
petitioners executed a mortgage over their real properties in favor of DBP.

Petitioners’ business collapsed and as a result, they failed to pay the loan
amortizations. Petitioners requested for debt restructuring agreement. However,
petitioners received a letter from respondent granting the request including the
additional interest computed at straight 18.5% from date of receipt of notice of
approval. Petitioners, in a letter, asked for the restoration of their previous
agreement but to no avail. Petitioners then asked about the status of the
Restructuring Agreement as well as the computation of the accrued interest and
advances but the bank could not provide any definite answer.

Petitioners filed before the RTC a Complaint against DBP for Annulment
of Foreclosure and Damages with Prayer for Issuance of a Writ of Preliminary
Injunction and/or Temporary Restraining Order. Petitioners alleged that DBP’s
acts and omissions prevented them from fulfilling their obligation; thus, they
prayed that they be discharged from their obligation and that the foreclosure of
the mortgaged properties be declared void. The RTC ruled in favor of petitioners.
However, the CA reversed the decision. Now, petitioners seek the reinstatement
of the RTC Decision which declared their obligation fully extinguished and the
foreclosure proceedings of their mortgaged properties void. Relying on the
Principle of Constructive Fulfillment, petitioners insist that their obligation
should be deemed fulfilled since DBP prevented them from performing their
obligation by charging excessive interest and penalties not stipulated in the
Promissory Notes.

ISSUE: Whether or not the imposition of additional interest and penalties is

valid.

RULING:

No. As to the imposition of additional interest and penalties not stipulated

in the Promissory Notes, this should not be allowed. Article 1956 of the Civil
Code specifically states that "no interest shall be due unless it has been expressly
9|Page
stipulated in writing." Thus, the payment of interest and penalties in loans is
allowed only if the parties agreed to it and reduced their agreement in writing.

A perusal of the promissory notes, however, failed to justify respondent

bank’s computation of both interest and penalty under the same provision in
each of the promissory notes. Respondent bank also admitted that the additional
interests and penalties being charged petitioners were not based on the
stipulations in the Promissory Notes but were imposed unilaterally as a matter
of its internal banking policies. This banking policy, however, has been declared
null and void in Philippine National Bank vs. CA, 196 SCRA 536 (1991). The act
of respondent bank in unilaterally changing the stipulated interest rate is
violative of the principle of mutuality of contracts under Art. 1308 of the Civil
Code and contravenes Art. 1956 of the Civil Code. As in the PNB cases,
petitioners herein never agreed in writing to pay the additional interest, or the
penalties, as fixed by respondent bank; hence respondent bank’s imposition of
additional interest and penalties is null and void.

10 | P a g e
 LIM vs. LAZARO
G.R. No. 185734
July 3, 2013

Judicial deposit. The lien or security obtained by an attachment even before

judgment is in the nature of a vested interest which affords specific security for
the satisfaction of the debt put in suit.

FACTS:

Petitioner filed a complaint for a sum of money with a prayer for the
issuance of a writ of preliminary attachment against the respondents. The RTC
granted the writ of preliminary attachment application and upon the posting of
the required bond, issued the corresponding writ. Three parcels of land owned
by the respondent spouses were levied upon.

The parties later entered into a Compromise Agreement whereby

respondents agreed to pay petitioner the amount of ₱2,351,064.80 on an
installment basis. The RTC rendered a decision on the basis of the compromise.
Respondents then filed an Omnibus Motion, seeking to lift the writ of preliminary
attachment annotated on the subject TCTs. In granting the Motion, the RTC
ruled that a writ of preliminary attachment is a mere provisional or ancillary
remedy, resorted to by a litigant to protect and preserve certain rights and
interests pending final judgment. Considering that the case had already been
considered closed and terminated by the rendition of the decision based on the
compromise agreement, the writ of preliminary attachment should be lifted and
quashed.

ISSUE: Whether or not the writ of preliminary attachment was properly

lifted.

RULING:

No. By its nature, preliminary attachment, under Rule 57 of the Rules of

Court is an ancillary remedy applied for not for its own sake but to enable the
attaching party to realize upon the relief sought and expected to be granted in
the main or principal action; it is a measure auxiliary or incidental to the main
action.

In this relation, while the provisions of Rule 57 are silent on the length of
time within which an attachment lien shall continue to subsist after the rendition
of a final judgment, jurisprudence dictates that the said lien continues until the
debt is paid, or the sale is had under execution issued on the judgment or until
the judgment is satisfied, or the attachment discharged or vacated in the same
manner provided by law.

Applying these principles, the Court finds that the discharge of the writ of
preliminary attachment against the properties of Sps. Lazaro was improper.
11 | P a g e
Records indicate that while the parties have entered into a compromise
agreement which had already been approved by the RTC, the obligations
thereunder have yet to be fully complied with – particularly, the payment of the
total compromise amount of ₱2,351,064.80. Hence, given that the foregoing debt
remains unpaid, the attachment of respondents’ properties should have
continued to subsist.

In fine, the Court holds that the writ of preliminary attachment subject of
this case should be restored and its annotation revived in the subject TCTs, re-
vesting unto petitioner his preferential lien over the properties covered by the
same as it were before the cancellation of the said writ. Lest it be misunderstood,
the lien or security obtained by an attachment even before judgment, is in the
nature of a vested interest which affords specific security for the satisfaction of
the debt put in suit. Verily, the lifting of the attachment lien would be
tantamount to an abdication of petitioner’s rights over respondents’ properties
which the Court, absent any justifiable ground therefor, cannot allow.

12 | P a g e
 BONROSTRO vs. LUNA
G.R. No. 172346
July 24, 2013

Legal interest. Under Article 2209 of the Civil Code, if the obligation consists in
the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest.

FACTS:

Respondents entered into a Contract to Sell with petitioners over a house

and lot. However, except for the down payment, petitioners failed to pay any of
the stipulated subsequent amortization payments thus prompting respondents
to file before the RTC a Complaint for Rescission of Contract and Damages against
petitioners.

The RTC rendered its decision focusing on the sole issue of whether the
petitioners’ delay in their payment of the installments constitutes a substantial
breach of their obligation under the contract warranting rescission. The RTC
ruled that the delay could not be considered a substantial breach. Thus, the RTC
ordered petitioners to pay respondents within 60 days from receipt of the
decision the sum of ₱300,000.00 plus an interest of 2% per month and also to
pay within sixty (60) days from receipt of the decision the sum of ₱330,000.00
plus an interest of 2% per month.

On appeal, the CA affirmed the RTC’s decision but modified said decision
with respect to interest. Considering that petitioners had incurred delay in the
performance of their obligations, they should pay (i) interest at the rate of 2% per
month on the sum of ₱300,000.00 until fully paid and (ii) interest at the legal
rate on the amounts of ₱330,000.00 and ₱214,492.62 from the date of default
until the same are fully paid. Hence, this petition for review on certiorari.

ISSUE: Whether the CA correctly modified the RTC decision with respect to
interests.

RULING:

Yes. The CA correctly ordered the reimbursement to the latter of the said
amount with interest. Delay in the performance of an obligation is looked upon
with disfavor because, when a party to a contract incurs delay, the other party
who performs his part of the contract suffers damages thereby. As discussed,
the respondents obviously suffered damages brought about by the failure of the
petitioners to comply with their obligation on time. And, sans elaboration of the
matter at hand, damages take the form of interest.

Under Article 2209 of the Civil Code, if the obligation consists in the
payment of a sum of money, and the debtor incurs in delay, the indemnity for
13 | P a g e
damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest. There
being no stipulation on interest in case of delay in the payment of amortization,
the CA thus correctly imposed interest at the legal rate which is now 12% per
annum.

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 AGUILAR vs. O'PALLICK
G.R. No. 182280
July 29, 2013

Foreclosure sale. The buyer in a foreclosure sale becomes the absolute owner
of the property purchased if it is not redeemed during the period of one year after
the registration of the sale.

FACTS:

A Contract to Sell was executed between Primetown Property Group, Inc.

(PPGI) on the one hand, and Poblete and Villanueva on the other, over a
condominium unit covered by Condominium Certificate of Title No. 25156 (CCT
No. 25156). Poblete and Villanueva, in turn, executed in favor of herein
respondent a Deed of Assignment covering the unit. Thereafter, PPGI issued a
Deed of Sale in favor of respondent after the latter paid the purchase price in
full. Although respondent took possession of the unit, the Deed of Sale in his
favor was never registered nor annotated on CCT No. 25156.

Meanwhile, in a case between PPGI and herein petitioner filed in the

Housing and Land Use Regulatory Board (HLURB), Aguilar was able to obtain a
final and executory decision in her favor, and as a result, the sheriff caused
several properties of PPGI to be levied, including the herein subject condominium
unit. But before the scheduled auction sale, respondent filed an Affidavit of
Third-Party Claim. A public auction sale was conducted where petitioner was
declared the highest bidder for the subject unit. A certificate of sale was issued
in her favor. Because PPGI failed to redeem the property, a final Deed of Sale was
issued in favor of petitioner. CCT No. 25156 was cancelled, and CCT No. 74777
was issued in her name. Petitioner moved for the issuance of a Writ of Possession
in which the HLURB granted the motion.

Subsequently, respondent instituted a civil case with the RTC for quieting
of title and to set aside the levy on execution of the subject unit, to annul the
certificate of sale issued in favor of petitioner, as well as to recover the unit. In
his complaint, respondent claimed that when PPGI executed a Deed of Sale in
his favor, all rights and interests over the unit were transferred to him, and the
subsequent levy and sale thereof to petitioner created a cloud on his title. The
RTC dismissed the complaint on the ground of lack of jurisdiction.

On appeal, the CA set aside the decision and remand the case to the RTC.
Unable to obtain a reconsideration of the appellate court’s decision, petitioner
filed the present petition. Petitioners further contend that a remand of the case
is unnecessary on account of the ruling of this Court in G.R. No. 157801, which
declared Aguilar as the absolute owner of the subject unit; thus, remanding the
case for further proceedings would only render the final and executory decision
in G.R. No. 157801 nugatory. Besides, the trial court has no power over the
HLURB because the latter is a quasi-judicial agency co-equal with the former.
On one hand, respondent insists that petitioner is not a buyer in good faith.
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ISSUE: Whether or not petitioner has a better right over the condominium
unit.

RULING:

No. It is true, as respondent’s claims, that in G.R. No. 157801 the Court
did not foreclose the possibility that a separate action questioning petitioner’s
title may be instituted, either by PPGI or anyone claiming a right to the subject
condominium unit. Thus, the Court held in G.R. No. 157801 that the buyer in a
foreclosure sale becomes the absolute owner of the property purchased if it is
not redeemed during the period of one year after the registration of the sale. The
issuance of the writ of possession had become ministerial on the part of HLURB
when petitioner had sufficiently shown her proof of title over the subject
condominium. Being the registered owner of the condominium unit, she is
entitled to its possession. The case at bar is akin to foreclosure proceedings
where the issuance of a writ of possession becomes a ministerial act of the court
after title to the property has been consolidated in the mortgage.

It must be stressed that the Register of Deeds had already cancelled CCT
No. 25156 and issued CCT No. 74777 in the name of the petitioner. Thus, the
argument of the PPGI that the title or ownership had been wrongfully vested with
the respondent is a collateral attack on the latter’s title which is more appropriate
in a direct proceeding.

Thus, contrary to petitioners’ claim, this Court’s pronouncement in G.R.

No. 157801 can in no way constitute a final determination of respondent’s claim.
In his Amended Complaint, respondent averred that petitioner obtained her title
through unlawful means. More particularly, he prayed for the nullification of
Aguilar’s CCT No. 74777. Clearly, therefore, although captioned as one for
Quieting of Title, respondent suit is actually a suit for annulment of title. Basic
is the rule that the cause of action in a Complaint is not determined by the
designation given to it by the parties. The allegations in the body of the complaint
define or describe it. The designation or caption is not controlling more than the
allegations in the Complaint. But, more than the fact that respondent was not
impleaded in the HLURB case, he had the right to vindicate his claim in a
separate action, as in this case. As a prior purchaser of the very same
condominium unit, he had the right to be heard on his claim.

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 BANK OF THE PHILIPPINE ISLANDS vs. SARABIA MANOR
HOTEL CORPORATION
G.R. No. 175844
July 29, 2013

Financial Rehabilitation and Insolvency Act. The provision on "cram-down"

clause, which is currently incorporated in the FRIA, is necessary to curb the
majority creditors’ natural tendency to dictate their own terms and conditions to
the rehabilitation, absent due regard to the greater long-term benefit of all
stakeholders. Otherwise stated, it forces the creditors to accept the terms and
conditions of the rehabilitation plan, preferring long-term viability over
immediate but incomplete recovery.

FACTS:

Sarabia is a corporation duly organized and existing under Philippine laws.

It obtained a special loan package from Far East Bank and Trust Company
(FEBTC) in order to finance the construction of a five-storey hotel building for
the purpose of expanding its hotel business. An additional stand-by credit line
was also approved by FEBTC. The foregoing debts were secured by real estate
mortgages over several parcels of land owned by Sarabia and a comprehensive
surety agreement signed by its stockholders. By virtue of a merger, BPI assumed
all of FEBTC’s rights against Sarabia.

Sarabia started to pay interests on its loans as soon as the funds were
released. However, largely because of the delayed completion of the new building,
Sarabia incurred various cash flow problems. Thus, despite the fact that it had
more assets than liabilities at that time, it, nevertheless, filed a petition for
corporate rehabilitation.

After several hearings, the RTC gave due course to the rehabilitation
petition and referred Sarabia’s proposed rehabilitation plan to the Receiver for
evaluation. The Receiver recommended to restructure the loans with Sarabia’s
creditors, namely, BPI, Imperial Appliance, Rural Bank of Pavia, and Barcelo,
under the following terms and conditions: (a) the total outstanding balance as of
December 31, 2002 shall be recomputed, with the interest for the years 2001
and 2002 capitalized and treated as part of the principal; (b) waive all penalties;
(c) extend the payment period to seventeen (17) years, i.e., from 2003 to 2019,
with a two-year grace period in principal payment; (d) fix the interest rate at
6.75% per annum plus 10% value added tax on interest for the entire term of
the restructured loans; (e) the interest and principal based on the amortization
schedule shall be payable annually at the last banking day of each year; and (f)
any deficiency shall be paid personally by Sarabia’s stockholders in the event it
fails to generate enough cash flow; on the other hand, any excess funds
generated at the end of the year shall be paid to the creditors to accelerate the
debt servicing. The RTC approved Sarabia’s rehabilitation plan as recommended
by the Receiver, finding the same to be feasible.

17 | P a g e
 BPI opposed Sarabia’s rehabilitation plan but to no avail. On appeal, the
CA affirmed the RTC’s ruling with the modification of reinstating the surety
obligations of Sarabia’s stockholders to BPI as an additional safeguard for the
effective implementation of the approved rehabilitation plan. Hence, this petition.

ISSUE: Whether or not the approved rehabilitation plan did not give due
regard to BPI’s interests as a secured creditor in view of the
imposition of a fixed interest rate of 6.75% per annum and the
extended loan repayment period.

RULING:

No. Section 23, Rule 4 of the Interim Rules of Procedure on Corporate

Rehabilitation (Interim Rules) states that a rehabilitation plan may be approved
even over the opposition of the creditors holding a majority of the corporation’s
total liabilities if there is a showing that rehabilitation is feasible and the
opposition of the creditors is manifestly unreasonable. Also known as the "cram-
down" clause, this provision, which is currently incorporated in the FRIA, is
necessary to curb the majority creditors’ natural tendency to dictate their own
terms and conditions to the rehabilitation, absent due regard to the greater long-
term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept
the terms and conditions of the rehabilitation plan, preferring long-term viability
over immediate but incomplete recovery.

Although undefined in the Interim Rules, it may be said that the opposition
of a distressed corporation’s majority creditor is manifestly unreasonable if it
counter-proposes unrealistic payment terms and conditions which would, more
likely than not, impede rather than aid its rehabilitation. The unreasonableness
becomes further manifest if the rehabilitation plan, in fact, provides for adequate
safeguards to fulfill the majority creditor’s claims, and yet the latter persists on
speculative or unfounded assumptions that his credit would remain unfulfilled.

In this case, the Court finds BPI’s opposition on the approved interest rate
to be manifestly unreasonable considering that: (a) the 6.75% per annum
interest rate already constitutes a reasonable rate of interest which is concordant
with Sarabia’s projected rehabilitation; and (b) on the contrary, BPI’s proposed
escalating interest rates remain hinged on the theoretical assumption of future
fluctuations in the market, this notwithstanding the fact that its interests as a
secured creditor remain well-preserved.

18 | P a g e
 NAGTALON vs. UNITED COCONUT PLANTERS BANK
G.R. No. 172504
July 31, 2013

Right after the lapse of redemption period. Upon the lapse of the redemption
period, a writ of possession may be issued in favor of the purchaser in a
foreclosure sale, also upon a proper ex parte motion.

FACTS:

Petitioners mortgaged some properties in order to secure a credit

agreement they made with respondent bank. The petitioner spouses failed to
comply with the terms of conditions thereof so the properties were foreclosed and
sold at public auction. The respondent bank was the sole and highest bidder. It
was issued a certificate of sale and caused the entry of the sale in the records of
the Registry of Deeds.

After the one-year redemption period had expired with petitioners having
failed to redeem the properties, the bank consolidated the ownership over the
properties, cancelling the petitioners’ titles while issuing new TCTs in UCPB’s
name. Respondent bank then filed an ex parte petition for the issuance of a writ
of possession from the RTC, but petitioners opposed this petition by reason of a
pending civil case concerning the credit agreement.

The RTC ruled in favor of petitioners. On appeal, the CA and reversed and
set aside the decision of the RTC. Hence, this present petition.

ISSUE: Whether the pendency of a civil case challenging the validity of the
credit agreement, the promissory notes and the mortgage can bar
the issuance of a writ of possession after the foreclosure and sale of
the mortgaged properties and the lapse of the one-year redemption
period.

RULING:

No. The Court see no merit in the petition and ruled that the CA did not
commit any reversible error in the assailed decision.

The right to the issuance of a writ of possession is outlined in Sections 6

and 7 of Act 3135, as amended by Act 4118, to wit:

Sec. 6. In all cases in which an extrajudicial sale is made, the debtor,

his successors in interest or any judicial creditor or judgment creditor of
said debtor, or any person having a lien on the property subsequent to the
mortgage or deed of trust under which the property is sold, may redeem the
same at any time within the term of one year from and after the date of the
sale; and such redemption shall be governed by the provisions of sections
four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
19 | P a g e
 Code of Civil Procedure, in so far as these are not inconsistent with the
provisions of this Act.

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

During the one-year redemption period, as contemplated by Section 7 of

the above-mentioned law, a purchaser may apply for a writ of possession by filing
an ex parte motion under oath in the registration or cadastral proceedings if the
property is registered, or in special proceedings in case the property is registered
under the Mortgage Law. In this case, a bond is required before the court may
issue a writ of possession.

On the other hand, upon the lapse of the redemption period, a writ of
possession may be issued in favor of the purchaser in a foreclosure sale, also
upon a proper ex parte motion. This time, no bond is necessary for its issuance;
the mortgagor is now considered to have lost any interest over the foreclosed
property. The purchaser then becomes the owner of the foreclosed property, and
he can demand possession at any time following the consolidation of ownership
of the property and the issuance of the corresponding TCT in his/her name. It is
at this point that the right of possession of the purchaser can be considered to
have ripened into the absolute right of a confirmed owner. The issuance of the
writ, upon proper application, is a ministerial function that effectively forbids the
exercise by the court of any discretion. This second scenario is governed by
Section 6 of Act 3135, in relation to Section 35, Rule 39 of the Revised Rules of
Court.

20 | P a g e
 COMSAVINGS BANK vs. CAPISTRANO
G.R. No. 170942
August 28, 2013

Degree of diligence of depositary banks. A banking institution is obliged to

exercise the highest degree of diligence as well as high standards of integrity and
performance in all its transactions because its business is imbued with public
interest. The stability of banks largely depends on the confidence of the people
in the honesty and efficiency of banks.

FACTS:

Desirous of building their own house, respondents availed themselves of

the UHLP implemented by the National Home Mortgage Finance Corporation
(NHMFC). Thereafter, they executed a construction contract with GCB Builders.
To finance the construction, GCB Builders facilitated their loan application with
Comsavings Bank. Petitioners then executed in favor of GCB Builders a deed of
assignment of the amount of the ₱300,000.00 proceeds of the loan from
Comsavings Bank. Comsavings Bank informed one of the respondent that she
would have to sign various documents as part of the requirements for the release
of the loan. Among the documents was a certificate of house completion and
acceptance.

Respondents received a letter from NHMFC advising that they should

already start paying their monthly amortizations. Respondent then went to the
construction site and found to their dismay that the house was still unfinished.
Respondents then wrote to NHMFC protesting the demand for amortization
payments considering that they had not signed any certification of completion
and acceptance, and that even if there was such a certification of completion and
acceptance, it would have been forged.

Subsequently, respondents sued GCB Builders and Comsavings Bank for

breach of contract and damages. The RTC ruled in favor of respondents.
Petitioners appealed to the CA. The CA affirmed the decision of the RTC and held
that appellant Comsavings Bank jointly and severally liable with appellant GCB
Builders since it likewise committed misrepresentations in obtaining the
mortgage loan from the NHMFC in the name of the appellees. The records show
that it was appellant Comsavings Bank which called up the respondent and had
her sign various documents as part of the documentary requirements for the
release of the construction loan. One of these documents, was the Certificate of
House Completion and Acceptance, which, upon appellant Bank’s
representation was signed by the appellees even if the construction of the house
had not yet started. Hence, this present petition.

ISSUE: Whether or not petitioner bank is jointly and severally liable with
GCB builders.

21 | P a g e
RULING:

Yes. The liability of Comsavings Bank towards respondents was based on

Article 20 and Article 1170 of the Civil Code, viz:

Article 20. Every person who, contrary to law, willfully or negligently

causes damage to another, shall indemnify the latter for the same.

Article 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages.

Based on the provisions, a banking institution like Comsavings Bank is

obliged to exercise the highest degree of diligence as well as high standards of
integrity and performance in all its transactions because its business is imbued
with public interest. As aptly declared in Philippine National Bank vs. Pike: "The
stability of banks largely depends on the confidence of the people in the honesty
and efficiency of banks."

There is no question that Comsavings Bank was grossly negligent in its

dealings with respondents because it did not comply with its legal obligation to
exercise the required diligence and integrity. As a banking institution serving as
an originator under the UHLP and being the maker of the certificate of
acceptance/completion, it was fully aware that the purpose of the signed
certificate was to affirm that the house had been completely constructed
according to the approved plans and specifications, and that respondents had
thereby accepted the delivery of the complete house. Given the purpose of the
certificate, it should have desisted from presenting the certificate to respondents
for their signature without such conditions having been fulfilled.

22 | P a g e
 VENZON vs. RURAL BANK OF BUENAVISTA
G.R. No. 178031
August 28, 2013

Foreclosure of mortgage. Under the Rural Banks Act, the foreclosure of

mortgages covering loans granted by rural banks and executions of judgments
thereon involving real properties levied upon by a sheriff shall be exempt from
publication where the total amount of the loan, including interests due and
unpaid, does not exceed ₱10,000.00.

FACTS:

Petitioner alleged that she and her late spouse, obtained a ₱5,000.00 loan
from respondent against a mortgage on their house and lot and that she was
able to pay ₱2,300.00, thus leaving an outstanding balance of only ₱2,700.00.
Petitioner also alleged that she offered to pay the said balance in full, but the
latter refused to accept payment, and instead shoved petitioner away from the
bank premises. Subsequently, the respondent foreclosed the mortgage and the
property was sold at auction to respondent, being the highest bidder. The
petitioner then alleged that the foreclosure proceedings are null and void for lack
of notice and publication of the sale; hence, petitioner filed a petition to nullify
foreclosure proceedings.

In its Answer with Counterclaims, respondent bank denied all the

allegations and claimed that petitioner’s cause of action has long prescribed as
the case was filed only in 2005 or 18 years after the foreclosure sale; and that
petitioner is guilty of laches.

The RTC dismissed the complaint of petitioner. The petitioner moved for
reconsideration but to no avail. The CA also denied the appeal of the petitioner.
Hence, this present petition.

ISSUE: Whether or not there was a valid foreclosure sale.

RULING:

Yes. Under the Rural Banks Act, the foreclosure of mortgages covering
loans granted by rural banks and executions of judgments thereon involving real
properties levied upon by a sheriff shall be exempt from publication where the
total amount of the loan, including interests due and unpaid, does not exceed
₱10,000.00.

The trial court’s resolution dismissing the case was indeed to be treated
as a final order, disposing of the issue of publication and notice of the foreclosure
sale and declaring the same to be unnecessary pursuant to the Rural Banks Act,
as petitioner’s outstanding obligation did not exceed ₱10,000.00, and thus
leaving petitioner without basis to maintain her case.

23 | P a g e
 BIR vs. LEPANTO CERAMICS, INC.
G.R. No. 224764
April 24, 2017

Financial Rehabilitation and Insolvency Act. Upon the issuance of a

Commencement Order, all actions or proceedings, in court or otherwise, for the
enforcement of claims against the distressed company shall be suspended.

FACTS:

Respondent LCI filed a petition for corporate rehabilitation pursuant to

Republic Act No. 10142. The Rehabilitation Court then issued a Commencement
Order, which, inter alia: (a) declared LCI to be under corporate rehabilitation; (b)
suspended all actions or proceedings, in court or otherwise, for the enforcement
of claims against LCI; (c) prohibited LCI from making any payment of its liabilities
outstanding as of even date, except as may be provided under RA 10142; and (d)
directed the BIR to file and serve on LCI its comment or opposition to the petition,
or its claims against LCI. Accordingly, the Commencement Order was published
in a newspaper of general circulation and the same, together with the petition
for corporate rehabilitation, were personally served upon LCI's creditors,
including the BIR.

Despite the foregoing, BIR sent LCI a notice of informal conference

informing the latter of its deficiency internal tax liabilities. In response, LCI's
court-appointed receiver sent BIR a letter-reply, reminding the latter of the
pendency of LCI's corporate rehabilitation proceedings, as well as the issuance
of a Commencement Order in connection therewith. Undaunted, the BIR sent
LCI a Formal Letter of Demand requiring LCI to pay deficiency taxes. This
prompted LCI to file a petition for indirect contempt against petitioners before
RTC.

The RTC found BIR’s Assistant Commissioner guilty of indirect contempt. BIR
moved for reconsideration but to no avail. Hence, this present petition.

ISSUE: Whether or not petitioners is guilty of indirect contempt in defying

the commencement order.

RULING:

Yes. Case law has defined corporate rehabilitation as an attempt to

conserve and administer the assets of an insolvent corporation in the hope of its
eventual return from financial stress to solvency. It contemplates the
continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and liquidity.

Verily, the inherent purpose of rehabilitation is to find ways and means to

minimize the expenses of the distressed corporation during the rehabilitation
period by providing the best possible framework for the corporation to gradually
24 | P a g e
regain or achieve a sustainable operating form. It enables the company to gain a
new lease in life and thereby allow creditors to be paid their claims from its
earnings. Thus, rehabilitation shall be undertaken when it is shown that the
continued operation of the corporation is economically more feasible and its
creditors can recover, by way of the present value of payments projected in the
plan, more, if the corporation continues as a going concern than if it is
immediately liquidated.

In order to achieve such objectives, Section 16 of RA 10142 provides, inter

alia, that upon the issuance of a Commencement Order - which includes a Stay
or Suspension Order - all actions or proceedings, in court or otherwise, for the
enforcement of "claims" against the distressed company shall be suspended.
Under the same law, claim shall refer to all claims or demands of whatever nature
or character against the debtor or its property, whether for money or otherwise,
liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed
or undisputed, including, but not limited to; (1) all claims of the government,
whether national or local, including taxes, tariffs and customs duties; and (2)
claims against directors and officers of the debtor arising from acts done in the
discharge of their functions falling within the scope of their authority: Provided,
That, this inclusion does not prohibit the creditors or third parties from filing
cases against the directors and officers acting in their personal capacities.

25 | P a g e
 DE LA PAZ vs. L & J DEVELOPMENT COMPANY
G.R. No. 183360
September 8, 2014

Interest. Under Article 1956 of the Civil Code, no interest shall be due unless it
has been expressly stipulated in writing. Jurisprudence on the matter also holds
that for interest to be due and payable, two conditions must concur: a) express
stipulation for the payment of interest; and b) the agreement to pay interest is
reduced in writing.

FACTS:

Out of trust and confidence, petitioner lent a sum of money to respondent-

corporation. The loan was executed without any security and no maturity date.
It was however agreed between the parties that the loan will have a 6% monthly
interest.

Respondent later failed to make payments due to financial difficulties in

the business. Rolando then filed a collection case with the MTC. The MTC ruled
in favor of petitioner and upheld the 6% interest rate. Respondent appealed to
the RTC but to no avail. Undaunted, respondent went to the CA. The CA reversed
and set aside the lower court’s decision and held that the parties failed to
stipulate in writing the imposition of interest on the loan. Hence, no interest shall
be due thereon pursuant to Article 1956 of the Civil Code. Hence, this present
petition.

ISSUE: Whether or not the imposition of the interest rate is valid in the case
at bar.

RULING:

No. The lack of a written stipulation to pay interest on the loaned amount
disallows a creditor from charging monetary interest.

Under Article 1956 of the Civil Code, no interest shall be due unless it has
been expressly stipulated in writing. Jurisprudence on the matter also holds that
for interest to be due and payable, two conditions must concur: a) express
stipulation for the payment of interest; and b) the agreement to pay interest is
reduced in writing.

Here, it is undisputed that the parties did not put down in writing their
agreement. Thus, no interest is due. The collection of interest without any
stipulation in writing is prohibited by law.

26 | P a g e
 BAYSA vs. PLANTILLA
G.R. No. 159271
July 13, 2015

Foreclosure of mortgage. To enable the extrajudicial foreclosure of the Real

Estate Mortgage, the special power to sell should have been either inserted in
the Real Estate Mortgage itself or embodied in a separate instrument attached
to the Real Estate Mortgage. The omission of the special power to sell the
property subject of the mortgage was fatal to the validity and efficacy of the
extrajudicial foreclosure, and warranted the invalidation of the entire
proceedings.

FACTS:

The case involves a real estate mortgage entered into by the petitioners
involving their parcel of land to secure the payment of their in favor of the
respondent spouses. Upon the default of the petitioners, the respondent spouses
commenced the extrajudicial foreclosure of the mortgage to recover from the
petitioners their total liability.

The petitioners sued the respondent spouses in the RTC to annul the
extrajudicial foreclosure of the real estate mortgage and the public auction
conducted pursuant to the extrajudicial foreclosure. They alleged that all the
proceedings relevant to the extrajudicial foreclosure were null and void, pointing
out that there had been no power or authority to sell inserted in the real estate
mortgage or attached thereto as required by Section 1 Act No. 3135.

The RTC dismissed the complaint for lack of cause of action and upheld
the validity of the extrajudicial foreclosure. On appeal, the CA affirmed the RTC’s
decision. Hence, this present petition.

ISSUE: Whether or not the extrajudicial foreclosure was valid despite the
lack of provision in the mortgage deed granting special power to sell
to the mortgagee.

RULING:

No. In the extrajudicial foreclosure of property subject of a real estate

mortgage, Act No. 3135 (An Act to Regulate the Sale of Property Under Special
Powers Inserted in or Annexed to Real Estate Mortgages) is quite explicit and
definite about the special power to sell the property being required to be either
inserted in or attached to the deed of mortgage. Section 1 of Act No. 3135
provides:

Section 1. When a sale is made under a special power inserted in or

attached to any real estate mortgage hereafter made as security for the
payment of money or the fulfillment of any other obligation, the provisions
of the following section shall govern as to the manner in which the sale and
27 | P a g e
 redemption shall be effected, whether or not provision for the same is made
in the power.

Accordingly, to enable the extra judicial foreclosure of the REM of the

petitioners, the special power to sell should have been either inserted in the REM
itself or embodied in a separate instrument attached to the REM. But it is not
disputed that no special power to sell was either inserted in the REM or attached
to the REM. Hence, the respondent spouses as the foreclosing mortgagees could
not initiate the extrajudicial foreclosure, but must resort to judicial foreclosure
pursuant to the procedure set forth in Rule 68 of the Rules of Court. The
omission of the special power to sell the property subject of the mortgage was
fatal to the validity and efficacy of the extrajudicial foreclosure, and warranted
the invalidation of the entire proceedings conducted by the sheriff.

28 | P a g e
 BANK OF THE PHILIPPINE ISLANDS vs. SARDA
G.R. No. 239092
June 26, 2019

Degree of diligence of depositary banks. In relation to the duty imposed on

banks to exercise a high degree of diligence in their business transactions, the
Bangko Sentral ng Pilipinas (BSP) issued Circular No. 702, Series of 2010
pursuant to Monetary Board Resolution No. 1728, dated December 2, 2010,
which amended the provisions of the Manual of Regulations for Banks (MORB)
and the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI)
which provides that banks, quasi-banks and credit card companies are now
prohibited from issuing pre-approved credit cards. Before issuing credit cards,
these entities must exercise proper diligence by ascertaining that applicants
possess good credit standing and are financially capable of fulfilling their credit
commitments.

FACTS:

BPI filed a Complaint against respondent spouses alleging that it issued a

credit card to Mr. Sarda under terms and conditions attached to the card upon
its delivery. Respondents availed of BPI's credit accommodations by using the
said credit card and thereafter incurred an outstanding obligation of ₱ l,213,
114.19 per BPI statement of account. Despite demands for payment, Mr. Sarda
refused to settle the obligation.

In their Answer, respondents denied having applied for or having received

the credit card issued by BPI. They asserted that they had not used said credit
card as they did not have physical possession of it. They likewise denied having
signed or agreed to the terms and conditions referred to in the complaint, and
much less, incur an outstanding obligation of ₱l,213,114.19.

The RTC ruled in favor of BPI. Dissatisfied, respondents appealed to the

CA. The CA reversed and set aside the RTC’s decision. Hence, this present
petition.

ISSUE: Whether or not respondents are liable to pay the total amounts due
under the credit card issued by the BPI.

RULING:

No. The burden of proof rests upon BPI, as plaintiff, to establish its case
based on a preponderance of evidence. It is well-settled that in civil cases, the
party that alleges a fact has the burden of proving it. BPI failed to prove the
material allegations in its complaint that respondents availed of its credit
accommodation by using the subject cards.

29 | P a g e
 Since BPI clearly failed to present adequate proof that it was respondents
who made purchases and cash advances using the cards, the CA did not err in
dismissing its complaint.

In relation to the duty imposed on banks to exercise a high degree of

diligence in their business transactions, the Bangko Sentral ng Pilipinas (BSP)
issued Circular No. 702, Series of 2010 pursuant to Monetary Board Resolution
No. 1728, dated December 2, 2010, which amended the provisions of the Manual
of Regulations for Banks (MORB) and the Manual of Regulations for Non-Bank
Financial Institutions (MORNBFJ). Banks, quasi-banks and credit card
companies are now prohibited from issuing preapproved credit cards. Before
issuing credit cards, these entities must exercise proper diligence by ascertaining
that applicants possess good credit standing and are financially capable of
fulfilling their credit commitments.

30 | P a g e
 FAR EAST BANK AND TRUST CO. vs. UNION BANK OF THE PHILIPPINES
G.R. No. 196637
June 3, 2019

Financial Rehabilitation and Insolvency Act. Republic Act. No. 10142 of

2010 provides that among those exempted from coverage of Stay Order are
actions filed against sureties or persons solidarily liable with the debtor.

FACTS:

The EYCO Group of Companies and its controlling stockholders filed with
the Securities and Exchange Commission (SEC) a Petition for the Declaration of
Suspension of Payments, Formation and Appointment of Rehabilitation
Receivership Committee, Approval of Rehabilitation Plan with Alternative Prayer
for Liquidation and Dissolution of Corporations.

Subsequently, a consortium of EYCO's creditors composed of 22 domestic

banks, including Union Bank of the Philippines convened for the purpose of
deciding their options in the event that EYCO and its co-petitioners in SEC Case
would invoke the provisions of Presidential Decree (PD) No. 902-A, as amended.

However, Union Bank, without notifying the members of the consortium,

decided to break away from the group by suing EYCO and the Yutingcos, who
are the controlling stockholders, in the regular courts. Union Bank alleged that
Yutingcos were its debtors by virtue of a Continuing Surety to secure credit
accommodations granted to NIKON, which they owned. Upon investigation,
Union Bank confirmed that majority of NIKON's assets were used to purchase
real estate properties through EYCO, purposely to shield NIKON from answering
for its debts. These properties then were sold to herein petitioner, Far East Bank
and Trust Company (FEBTC).

Thereafter, an order was issued by SEC enjoining the disposition of the

debtor corporations' properties in any manner except in the ordinary course of
business and payment outside of legitimate business expenses during the
pendency of the proceedings and suspending all actions, claims and proceedings
against EYCO until further orders from the SEC. The order was opposed by
Union through a petition for certiorari before the CA. However, it was dismissed
by the CA.

The SEC issued an Order adopting the Unsolicited Rehabilitation Proposal

submitted by Strategies and Alliances Corporation (SAC) which was granted a
period of six months within which to complete the groundwork for the effective
implementation of the early "all-debt payment plan”. However, the SAC plan and
suspension of payment proceedings were ordered terminated, the committees
created dissolved and discharged. The SEC further ordered the dissolution and
liquidation of the petitioning corporations. Subsequently, a Liquidator was
appointed pursuant to the provisions of the Rules of Procedure on Corporate
Rehabilitation.
31 | P a g e
 The Union Bank then filed its claims before the RTC. However, the RTC
dismissed the case on the ground of litis pendentia. On appeal, the CA granted
Union Bank's appeal and reversed the assailed orders of the RTC. Hence, this
present petition.

ISSUE: Whether or not Union Bank has a legal personality to impugn the
sale of EYCO to FEBTC.

RULING:

Yes. As already mentioned, the properties subject of Civil Case No. 66477
were not included in the rehabilitation proceedings before the SEC. These
properties were sold to petitioner one day before the filing of the petition with the
SEC where EYCO sought the suspension of payments of debts to its creditors
and the rehabilitation of its companies. Union Bank filed the rescission case in
the trial court against EYCO, petitioner and the Yutingcos, the latter being
sureties of NIKON who availed of Union Bank's credit facilities. Union Bank
sought to rescind the allegedly fraudulent sale of EYCO's properties purchased
out of NIKON's assets, and revert their ownership to NIKON.

It may be mentioned that under the new law on corporate rehabilitation

and insolvency, Republic Act No. 10142 (Financial Rehabilitation and Insolvency
Act [FRIA] of 2010), among those exempted from the coverage of a Stay Order are
actions filed against sureties or persons solidarily liable with the debtor.

SECTION. 18. Exceptions to the Stay or Suspension Order. — The Stay or

Suspension Order shall not apply:

(c) to the enforcement of claims against sureties and other persons solidarily
liable with the debtor, and third party or accommodation mortgagors as well
as issuers of letters of credit, unless the property subject of the third party
or accommodation mortgage is necessary for the rehabilitation of the debtor
as determined by the court upon recommendation by the rehabilitation
receiver.

32 | P a g e
 PILIPINAS SHELL PETROLEUM CORPORATION vs. ROYAL FERRY
SERVICES, INC.
G.R. No. 188146
February 1, 2017

Financial Rehabilitation and Insolvency Act. The proper venue for a petition
for voluntary insolvency is the RTC of the province or city where the insolvent
debtor has resided in for six (6) months before the filing of the petition.

FACTS:

Royal Ferry filed a verified Petition for Voluntary Insolvency before the RTC
Manila. Subsequently, the RTC declared respondent insolvent. Petitioner then
filed before the RTC a Formal Notice of Claim and a Motion to Dismiss. In its
Motion to Dismiss, petitioner alleged that the petition was filed in the wrong
venue. It argued that the Insolvency Law provides that a petition for insolvency
should be filed before the court with territorial jurisdiction over the corporation's
residence. Since Royal Ferry's Articles of Incorporation stated that the
corporation's principal office is located at 2521 A. Bonifacio St., Bangkal, Makati
City, the Petition should have been filed before the RTC of Makati and not before
the RTC Manila.

The RTC dismissed petitioner’s complaint for lack of merit. It found Royal
Ferry to have sufficiently shown full compliance with the requirements of the
Insolvency Law on venue and that it had abandoned its Makati office and moved
to Manila. Petitioner moved for reconsideration. The RTC reconsidered the
petitioner’s motion to dismiss and held that a corporation cannot change its
place of business without amending its Articles of Incorporation. Without the
amendment, Royal Ferry's transfer did not produce any legal effect on its
residence. The Regional Trial Court granted the dismissal of the Petition for
Voluntary Insolvency.

On appeal, the CA reinstated the insolvency proceedings and held that the
RTC Court has jurisdiction over the instant case, and therefore, has the
authority to render a decision on it. It likewise found that Manila was the proper
venue for the case because the cities of Makati and Manila are part of one region,
or even a province, city or municipality, if Section 51 of the Corporation Code of
the Philippines is taken by analogy. Hence, this present petition.

ISSUE: Whether the Petition for Insolvency was properly filed.

RULING:

Yes. The Petition for Insolvency was properly filed before the RTC of Manila.

The first insolvency law, Republic Act No. 1956, was entitled "An Act
Providing for the Suspension of Payments, the Relief of Insolvent Debtors, the
Protection of Creditors, and the Punishment of Fraudulent Debtors (Insolvency
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Law)". With the enactment of Republic Act No. 10142, otherwise known as the
Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the Insolvency Law
was expressly repealed on July 18, 2010. The FRIA is currently the special law
that governs insolvency. However, because the relevant proceedings in this case
took place before the enactment of the FRIA, the case needs to be resolved under
the provisions of the Insolvency Law.

Section 14 of the Insolvency Law specifies that the proper venue for a
petition for voluntary insolvency is the RTC of the province or city where the
insolvent debtor has resided in for six (6) months before the filing of the petition.

Respondent is a resident of Manila. The law should be read to lay the venue
of the insolvency proceeding in the actual location of the debtor's activities. If it
is uncontroverted that respondent's address in its Articles of Incorporation is no
longer accurate, legal fiction should give way to fact. Thus, the petition was
correctly filed before the RTC of Manila.

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PHILIPPINE BANK OF COMMUNICATIONS vs. BASIC POLYPRINTERS AND
PACKAGING CORPORATION
G.R. No.187581
October 20, 2014

Financial Rehabilitation and Insolvency Act. Republic Act No. 10142 has
defined a corporate debtor as a corporation duly organized and existing under
Philippine laws that has become insolvent. The term insolvent is defined as the
financial condition of a debtor that is generally unable to pay its or his liabilities
as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets.

FACTS:

Respondent filed petition for suspension of payments with approval of the

proposed rehabilitation in the RTC. The RTC issued a stay order and appointed
a receiver. The RTC required all creditors and interested parties, including the
Securities and Exchange Commission (SEC), to file their comments.

After the initial hearing and evaluation of the comments and opposition of
the creditors, including petitioner, the RTC gave due course to the petition and
referred it to the rehabilitation receiver for evaluation and recommendation.
Subsequently, the rehabilitation receiver submitted his report recommending the
approval of the rehabilitation plan which was thereafter approved by the RTC.

In the assailed decision, the CA affirmed the questioned order of the RTC,
agreeing with the finding of the rehabilitation receiver that there were sufficient
evidence, factors and actual opportunities in the rehabilitation plan indicating
that respondent could be successfully rehabilitated in due time.

Emphasizing the equitable and rehabilitative purposes of rehabilitation

proceedings, the CA stated that Presidential Decree No. 902-A, as amended,
sought to effect a feasible and viable rehabilitation by preserving a foundering
business as going concern because it would be more valuable to preserve the
assets of the corporation rather than to pursue its liquidation. Hence, the instant
petition.

ISSUE: Whether the approval of the rehabilitation plan was proper despite
the alleged insolvency of respondent due to its assets being
inadequate to cover the outstanding obligations.

RULING:

Yes. Under the Interim Rules, rehabilitation is the process of restoring the
debtor to a position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover
by way of the present value of payments projected in the plan more if the
corporation continues as a going concern that if it is immediately liquidated. It
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contemplates a continuance of corporate life and activities in an effort to restore
and reinstate the corporation to its former position of successful operation and
solvency.

In Asiatrust Development Bank vs. First Aikka Development, Inc., the Court
held that rehabilitation proceedings have a two-pronged purpose, namely: (a) to
efficiently and equitably distribute the assets of the insolvent debtor to its
creditors; and (b) to provide the debtor with a fresh start, viz:

Rehabilitation proceedings in our jurisdiction have equitable and

rehabilitative purposes. On the one hand, they attempt to provide for the
efficient and equitable distribution of an insolvent debtor's remaining assets
to its creditors; and on the other, to provide debtors with a "fresh start" by
relieving them of the weight of their outstanding debts and permitting them
to reorganize their affairs. The purpose of rehabilitation proceedings is to
enable the company to gain a new lease on life and thereby allow creditors
to be paid their claims from its earnings.

Consequently, the basic issues in rehabilitation proceedings concern the

viability and desirability of continuing the business operations of the petitioning
corporation. The determination of such issues was to be carried out by the court-
appointed rehabilitation receiver.

Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency

Act (FRIA) of 2010), a law that is applicable hereto, has defined a corporate debtor
as a corporation duly organized and existing under Philippine laws that has
become insolvent. The term insolvent is defined in Republic Act No. 10142 as the
financial condition of a debtor that is generally unable to pay its or his liabilities
as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets.

As such, the contention that rehabilitation becomes inappropriate because

of the perceived insolvency of respondent due to its assets being inadequate to
cover the outstanding obligations was incorrect.

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