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G.R. No. L-20240

December 31, 1965

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. JOSE GRIJALDO, defendant-appellant. FACTS: In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans are evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans were due one year after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental. By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loans in question, were subsequently transferred to the Republic of the Philippines by the Government of the United States under Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under the administration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent laws. On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. The record shows that the appellant had actually received the written demand for payment, but he failed to pay. On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after hearing, dismissed the case on the ground that the action had prescribed. The appellee appealed to the Court of First Instance of Negros Occidental and on March 26, 1962 the

court a quo rendered a decision ordering the appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of the filing of the complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and costs. The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court. ISSUE: Whether or not the obligation to pay is extinguished. The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished. HELD: This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation was to pay a generic thing the amount of money representing the total sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article 1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in questions is to pay the value thereof; that is, to deliver a sum of money a clear case of an obligation to deliver, a generic thing. Article 1263 of the Civil Code provides: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation.


The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops.

CA ruled that the P2 million downpayment shall include interest computed at the time the disputed amount was considered a loan. Thus, this petition.

Issue: Whether or not the interest should be limited to the 1st six months as contained in the MOA?

Frias vs San Diego-Sison G.R. No. 155223 April 4, 2007 Facts Petitioner is the owner of a house and lot in Ayala Alabang. Petitioner and Dra. Flora San Diego-Sison (Respondent) entered into a Memorandum of Agreement (MOA) over the cited property with the following terms: 1. The land is to be sold for P 6.4 million. 2. Petitioner will receive P3 million from respondent as downpayment. 3. In light of the downpayment, respondent had 6 st months (1 ) to notify the Petitioner of her intention to purchase the land. However, the balance is to be paid within another 6 months. 4. Prior to the first six months, the Petitioner may still offer the cited land to other persons provided that the P3 million downpayment shall be returned to the Respondent including interest based on prevailing compounded bank interest. 5. Nevertheless, in case there are no other buyers within the first 6 months, no interest shall be charged on the P3 million. 6. However, in the event that on the 6th month the Respondent does not purchase the land, the Petitioner has a period of another 6 months nd (2 ) within which to pay the sum of P3 million with interest for the last six months only. The downpayment shall be treated as loan granted by the Respondent. Petitioner received from Respondent P2 million in cash and P1 million in a post-dated check which was subsequently considered as stale. Therefore, only P2 million was received as downpayment. Before the check became stale, Petitioner gave Respondent the TCT and the Deed of Absolute Sale of the land. Subsequently, Respondent decided not to purchase the property and notified Petitioner of this reminding the latter that the amount of P2 million should be considered as a loan payable within six months as stipulated in the MOA with interest computed from such notification. Petitioner subsequently failed to return the P2 million pesos.

Ruling: No. SC ruled in favour of Respondent. The SC opined that if the terms of an agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail. It is further required that the various stipulations of a contract shall be interpreted together. In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. The MOA speaks of 2 periods of six months each. o The 1st six-months was given to Respondent to make up her mind whether or not to purchase Petitioner's property. o The 2nd six-months was given to Petitioner to pay the P2 million loan (downpayment) in the event that Respondent decided not to buy the property in which case interest will be charged "for the last six months only", referring to the 2nd six-month period. o This means that no interest will be charged for the 1st six-months while Respondent contemplating on whether to buy the property, nd but only for the 2 six-months after Respondent had decided not to buy the property. This is the meaning of the phrase "for the last six months only". o Certainly, there is nothing in their agreement that suggests that interest will be charged for 6 months only even if it takes defendant-appellant an eternity to pay the loan This does NOT mean that interest will no longer be charged after the 2nd six-month period since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the date stipulated. Therefore, the monetary interest for the last 6 months continued to accrue until actual payment of the loaned amount. It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor.


Art. 1956. No interest shall be due when not expressly stipulated in writing. ARWOOD INDUSTRIES, INC. vs. D.M. Consunji, Inc. FACTS: Petitioner and respondent, as owner and contractor, respectively entered into an Agreement for the construction of petitioners condominium. Despite the completion of the project, petitioner was not able to pay respondent the full amount and left a balance. Repeated demands were left unheeded prompting respondent to file a civil case against petitioner, with a prayer among others that the full amount be paid with interest of 2% per month, from Nov. 1990 up to the time of payment. RTC ruled in favor of respondent. Petitioner appealed to the CA, particularly opposing the imposition of the 2% interest. The CA ruled in favor of the 2% interest. Petitioners contention- The imposition of the interest is without basis because (1) although it was written in the Agreement, it was not mentioned by the RTC in the dispositive portion and (2) the interest does not apply to the respondents claim but to the monthly progress billing. ISSUE: WON the RTC and Ca is correct in imposing a 2% per month interest on the monetary award or the balance of the contract price. HELD: Yes. The Agreement between the parties is the formal expression of the parties rights, duties and obligations. It is the best evidence of the intention of the parties. Consequently, upon the fulfillment by respondent of its obligation to complete the construction project, petitioner had the correlative duty to pay for respondents services. However, petitioner refused to pay the balance of the contract price. From the moment respondent completed the construction of the condominium project and petitioner refused to pay in full, there was delay on the part of petitioner. 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. Obviously, respondent suffered damages brought about by the failure of petitioner to comply with its obligation on time. And, sans elaboration of the matter at hand, damages take the form of interest. Accordingly, the appropriate measure of damages in this case is the payment of interest at the rate agreed upon, which is 2% interest for every month of delay. It must be noted that the Agreement provided the contractor, respondent in this case, two options in case of delay in monthly payments, to wit: a) suspend work on the project until payment is remitted by the owner or b) continue the work but the owner shall be required to pay interest at a rate of two percent (2%) per month or a fraction thereof.

Evidently, respondent chose the latter option, as the condominium project was in fact already completed. The payment of the 2% monthly interest, therefore, cannot be jettisoned overboard. Since the Agreement stands as the law between the parties, this Court cannot ignore the existence of such provision providing for a penalty for every months delay. Facta legem facunt inter partes. Neither can petitioner impugn the Agreement to which it willingly gave its consent. From the moment petitioner gave its consent, it was bound not only to fulfill what was expressly stipulated in the Agreement but also all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Petitioners attempt to mitigate its liability to respondent should thus fail. As a last-ditch effort to evade liability, petitioner argues that the amount of P962,434.78 claimed by respondent and later awarded by the lower courts does not refer to monthly progress billings, the delayed payment of which would earn interest at 2% per month. Petitioner appears confused by a semantics problem. Monthly progress billings certainly form part of the contract price. If the amount claimed by respondent is not the monthly progress billings provided in the contract, what then does such amount represent? Petitioner has not in point of fact convincingly supplied an answer to this query. Neither has petitioner shown any effort to clarify the meaning of monthly progress billings to support its position. This leaves us no choice but to agree with respondent that the phrase monthly progress billings refers to a portion of the contract price payable by the owner (petitioner) of the project to the contractor (respondent) based on the percentage of completion of the project or on work accomplished at a particular stage. It refers to that portion of the contract price still to be paid as work progresses, after the downpayment is made. This definition is, indeed, not without basis. Articles 6.02 and 6.03 of the Agreement, which respectively provides that the (b)alance shall be paid in monthly progress payments based on actual value of the work accomplished and that the progress payments shall be reduced by a portion of the downpayment made by the OWNER corresponding to the value of the work completed give sense to respondents interpretation of monthly progress billings. SONCUYA V. AZARRAGA ROYAL SHIRT FACTORY, INC. v CO FACTS:


The parties entered into a contract wherein it is stipulated that 350 pairs of ballet shoes will be sold by Co and that Co had 9 days from delivery of the shoes to make his choice of 2 alternatives: a) consider the sale for the shoes closed at a flat rate, or b) return the remaining unsold ones to Royal. Co failed to return the unsold pairs after 9 days and actually began making partial payments on account of the purchase price agreed upon. Co then contended that there was merely a consignment of the goods and he wanted to return the unsold shoes. Royal refused contending that it was an outright sale.

Respondent Central Bank itself when it was then managing the Overseas Bank of Manila (now Commercial Bank of Manila) under a holding trust agreement, held the same position in Idelfonso D. Yap vs. OBM wherein it argued that "(I)n a suit against the receiver of a national bank for money loaned to the Bank while it was a going concern, it was error to permit plaintiff to recover interest on the loan after the bank's suspension" A significant development of the case, the Government Service Insurance System (GSIS) has acquired ownership of 99.93% of the outstanding capital stock of COMBANK. The Court's Resolution manifestly redounds to the benefit of another government institution, the GSIS, and to the preservation of the banking system. LIRAG TEXTILE MILLS, INC. VS. SSS 153 SCRA 338 Facts: SSS (respondent) and Lirag Textile Mills (Petitioner) entered into a Purchased Agreement which Respondent agreed to purchase preferred stocks of Petitioner worth P1 million subject to conditions: o For Petitioner to repurchase the shares of stocks at a regular interval of one year and to pay dividends. o Failure to redeem and pay the dividend, the entire obligation shall become due and demandable and it shall be liable for an amount equivalent to 12% of the amount then outstanding as liquidated damages. Basilio Lirag (Basilio) as President of Lirag Textile Mills signed the Agreement as a surety to guarantee the redemption of the stocks, the payment of dividends and other obligations. Pursuant to the Agreement, Respondent paid Petitioner P500,000 on two occasions and the latter issued 5,000 preferred stocks with a par value of P100 as evidenced by Stock Certificate Nos. 128 and 139. After sending Respondent sent demand letters, Petitioner and Basilio still made no redemption nor made dividend payments. Respondent filed an action for specific performance and damages against Petitioner: Petitioner contends that there is no obligation on their part to redeem the stock certificates since Respondent is still a preferred stock holder of the company and such redemption is dependent upon the financial ability of the company. On the part of Basilio, he contends that his liability only arises only if the company is liable and does not perform its obligations under the Agreement.

ISSUE: WoN the sale was an outright sale / WoN Co is bound by the interest stipulated in the invoice. SC: YES! / NO! OUTRIGHT SALE o Co accepted the invoice of the ballet shoes and he even noted down in his own handwriting the partial payments that he made. o If the sale has been on consignment, a stipulation as to the period of time for the return of the unsold shoes should have been made, however, this was not done NOT BOUND BY THE INTEREST o He did not sign the invoice slip the stipulated interest was 20%, hence, not binding o However, he is bound by the legal interest of 6% Hence, Co was ordered to pay the balance of the purchase price for the ballet shoes + legal interest

EMERITO M. RAMOS, et al., petitioners, vs. CENTRAL BANK OF THE PHILIPPINES, respondents; COMMERCIAL BANK OF MANILA, intervenor. Facts: This involves question as to applicability of Tapia ruling wherein the Court held 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," to loans and advances by the Central Bank Held: Respondents have failed to adduce any cogent argument to persuade the Court to reconsider its Resolution at bar that the Tapia ruling is fully applicable to the nonpayment of interest, during the period of the bank's forcible closure, on loans and advances made by respondent Central Bank.


Issue: 1) 2) 3) Whether or not the Purchase Agreement entered into by the Parties is a debt instrument? If so, Is Basilio liable as surety? Whether or not Lirag is liable for the interest as liquidated damages? Facts: Angel Warehousing sued Chelda for the recovery of unpaid loans amounting to P20,880 because the post dated checks issued by Chelda were dishonored. Chelda said that Angel Warehousing charged usurious interests, thus they have no cause of action against them & cant recover the remaining balance. Issue: W/N illegal terms as to payment of interest likewise renders a nullity the legal terms as to the payment of the principal debt? Ruling: No. The contract of loan with usurious interest consists of principal and accessory stipulations and the two stipulations are divisible in the sense that the principal debt can stand without the usurious interest (accessory). These are divisible contracts. In divisible contracts, if the illegal terms can be separated from legal ones, the latter may be enforced. Illegality lies only as to the prestation to pay interest, being separable, thus should be rendered void. If the principal will be forfeited this would unjustly enrich the borrower at the expense of the lender. CU-UNJIENG V. MABALACAT Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for security, Mabalacat mortgaged its property. Mabalacat failed to pay, but Cu Unjieng extended the payment. Cu Unjieng filed a case against Mabalacat for foreclosure of property and payment of attorney's fees. It also claims interest over interest. Mabalacat insisted that the agreement for the extension of the time of payment had the effect of abrogating the stipulation of the original contract with respect to the acceleration of the maturity of the debt by non-compliance with the terms of the mortgage. The issue related on this case is the interest over interest. Issue: WoN Cu-Unjieng is entitled to interest over interest. Ruling: It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded; and rests for the computation of compound interest can certainly be made monthly, as well as quarterly, semiannually, or annually. But in the absence of express stipulation for the accumulation of compound interest, no interest can be collected upon interest until the debt is judicially claimed, and then the rate at which interest upon accrued interest must be computed is fixed at 6 per cent per annum. In this case, there was no compound interest in the agreement.

Held: 1) YES, the Purchase Agreement is a debt instrument. The terms and conditions of the Agreement show that parties intended the repurchase of preferred shares on the respective scheduled dates to be an absolute obligation, which does not depend on the financial ability of the corporation. o This absolute obligation on the part of the Petitioner corporation is made manifest by the fact that a surety was required to see to it that the obligation is fulfilled in the event the principal debtors inability to do so. o It cannot be said that SSS is a preferred stockholder. The rights given by the Purchase Agreement to SSS are not rights enjoyed by ordinary stockholders. Since there was a condition that failure to repurchase the stocks on the scheduled dates renders the entire obligation due and demandable with interest. These features clearly show that intent of the parties to be bound therein as debtor and creditor and not as a corporation and stockholder. 2) YES, Basilio is liable as surety. Thus it follows that he cannot deny liability for Lirags default. As surety, he is bound immediately to pay SSS the amount then outstanding. 3) The award of liquidated damages represented by 12% of the amount then outstanding is correct, considering that the petitioners in the stipulation of facts admitted having failed to fulfill their obligations under the Agreement. The grant of liquidated damages is expressly provided for the Purchase Agreement in case of contractual breach.

Since Lirag did not deny its failure to redeem the preferred shares and the non-payment of dividends which are overdue, they are bound to earn legal interest from the time of demand, in this case, judicial i.e. the time of filing the action.

DAVID vs. CA G.R.No. 115821, October 13, 1999 ANGEL WAREHOUSING vs CHELDA Facts:


A writ of attachment over the real properties owned by Valentin Afable, Jr.. RTC ordered Afable, Jr. To pay David P66,500 plus interest from July 24, 1974, until fully paid. RTC amended its decison and ruled that legal rate of interest should be computed from January 4, 1966, instead of from July 24, 1974. Afable appealed to the Court of Appeals and then to the Supreme Court. In both instances, the decision of the lower court was affirmed. Entries of judgment were made and the record of the case was remanded to Branch 27 for the final execution. An Alias Writ of Execution was issued by virtue of which respondent Sheriff Melchor P. Pea conducted a public auction. Sheriff Pea informed the petitioner that the total amount of the judgment is P270,940.52. The amount included a computation of simple interest. Afable, however, claimed that the judgment award should be P3,027,238.50, because the amount due ought to be based on compounded interest. Although the auctioned properties were sold to the petitioner, Sheriff Pea did not issue the Certificate of Sale because there was an excess in the bid price in the amount of P2,941,524.47, which the petitioner failed to pay despite notice. David filed a Motion praying that respondent Judge Cruz issue an order directing respondent Sheriff Pea to prepare and execute a certificate of sale in his favor. His reason is that compound interest, which is allowed by Article 2212 of the Civil Code, should apply in this case. David claim that in computing the interest due of the P66,500.00, interest should be computed at 6% on the principal sum of P66,500.00 pursuant to Article 2209 and then interest on the legal interest should also be computed in accordance with the language of Article 2212 of the Civil Code. Issue: Whether or not the amount due should be subject to a simple interest or compounded interest. Ruling: In cases where no interest stipulated, no compounded interest could be further earned The Court ruled that Article 2212 contemplates the presence of stipulated or conventional interest which has accrued when demand was judicially made. In cases where no interest had been stipulated by the parties, as in the case of Philippine American Accident Insurance, no accrued conventional interest could further earn interest upon judicial demand. In this case, no interest was stipulated by the parties. In the promissory note denominated Compromise Agreement signed by the Afable, Jr. which was duly

accepted by the David no interest was mentioned. That being the case, the interest should only be subject to a simple interest.

Topic: Simple Loan or Mutuum; Article 1960 Velez v. Balzarra FACTS: Plaintiff Velez filed a complaint for the return of parcels of land sold by Defendant to Plaintiffs husband. She further alleged that defendants had remained in possession of said land under Contract of Lease but for over 2 years defendants had not paid the agreed rentals. Defendant alleged that the real agreement was a loan secured by a mortgage of those lands. Trial court found that the payments made by defendants were not made by way of interest but as payments for the principal. Defendant overpaid therefore Plaintiff should return excess. ISSUE: Whether payments were intended to be applied to the principal OR were considered as rents, interests? HELD:

Payments were NOT rents, interests Neri took possession of land and collected fruits. The creditor having enjoyed the beneficial use of the lands delivered as security for the loan, it appears to have been the intention of the parties that the creditor should be compensated thereby. Though receipts, payments are called rents, they were prepared by Neri (Ps husband) and Plaintiff, and defendants in their ignorance did not look into the wording, being merely satisfied that they were proofs of payment. The liability of plaintiff to return the excess payments is in keeping with Article 1895 (Old Civil Code) which provides that, when something is received which there is no right to collect, and which by mistake has been unduly delivered, the obligation to restore it arises. The 2 requisites are present: 1) There is no right to collect these excess sums; and 2) the amounts have been paid through mistake by defendants. Such mistake is shown by the fact that their contracts never intended that either rents or interest should be paid, and by the further fact that when these payments were made, they were intended by defendants to be applied to the principal, but they overpaid the amounts loaned to them.



G.R. No. 128990

September 21, 2000

INVESTORS FINANCE CORPORATION, petitioner, vs. AUTOWORLD SALES CORPORATION, and PIO BARRETTO REALTY DEVELOPMENT CORPORATION,respondents. FACTS: Petitioner Investors Finance Corporation, then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation), is a financing company doing business with private respondent Autoworld Sales Corporation (AUTOWORLD) since 1975. Anthony Que, president of AUTOWORLD, also held the same position at its affiliate corporation, private respondent Pio Barretto Realty Corporation (BARRETTO). Sometime in August 1980 Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied. But sometime thereafter, FNCB's Assistant Vice President, Mr. Leoncio Araullo, informed Anthony Que that although it could not grant direct loans it could extend funds to AUTOWORLD by purchasing any of its outstanding receivables at a discount. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed. The mechanics of the proposed "IPP" transaction was (1) First, Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12,999,999.60 payable in sixty (60) equal monthly installments of P216,666.66. Consequently, BARRETTO would acquire P12,999,999.60 worth of receivables from AUTOWORLD; (2) FNCB would then purchase the receivables worth P12,999,999.60 from BARRETTO at a discounted value of P6,980,000.00 subject to the condition that such amount would be "flowed back" to AUTOWORLD; (3) BARRETTO, would in turn, execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of the P12,999,999.60 purchase price directly to FNCB; and

(4) Lastly, to secure the payment of the receivables under the Deed of Assignment, BARRETTO would mortgage the property subject of the sale to FNCB. On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed "IPP" transaction. The lawyers of FNCB then drafted the contracts needed and furnished Anthony Que with copies thereof. On 9 February 1981 the parties signed three (3) contracts to implement the "IPP" transaction: (1) Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD, situated in San Miguel, Manila, together with the improvements thereon, covered by TCT No. 129763 for the price of P12,999,999.60 payable in sixty (60) consecutive and equal monthly installments of P216,666.66. (2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights, title and interest to all the money and other receivables due from AUTOWORLD under the Contract to Sell, subject to the condition that the assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the event that the payor (AUTOWORLD) defaulted in the payment of its obligations. (3) Real Estate Mortgage whereby BARRETTO, as assignor, mortgaged the property subject of the Contract to Sell to FNCB as security for payment of its obligation under the Deed of Assignment. After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB. On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per annum. AUTOWORLD and BARRETTO, as co-makers, then signed a promissory note in favor of FNCB worth P5,604,480.00 payable in sixty (60) consecutive monthly installments of P93,408.00. To secure the promissory note, AUTOWORLD mortgaged a parcel of land located in Sampaloc, Manila, to FNCB. Thereafter, AUTOWORLD began paying the installments. In December 1982, after paying nineteen (19) monthly installments of P216,666.66 on the first transaction ("IPP" worth P6,980,000.00) and three (3) monthly installments of P93,408.00 on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total


amount of P10,026,736.78, where P6,784,551.24 was the amount to settle the first transaction while P3,242,165.54 was the amount to settle the second transaction. On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latter's computation of its outstanding balances. On 27 December 1982 FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded. Thus, despite its objections, AUTOWORLD reluctantly paid FNCB P10,026,736.78 through its UCPB account. On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84. According to AUTOWORLD, it overpaid P2,586,035.44 to settle the first transaction and P418,262.00 to settle the second transaction. The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court of Makati to annul the Contract to Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise prayed for the nullification of thePromissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982. In its complaint, AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. Instead, the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction, or purchase of receivables at a discount, which FNCB could legally engage in as a financing company. With regard to the second transaction, the existence of a usurious interest rate had no bearing on the P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No. 871 dated 21 July 1981 had effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days. On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the discounting of receivables. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan. The Court of Appeals modified the decision of the trial court and concluded that the "IPP" transaction, comprising of the three (3) contracts perfected on 9 February 1981, was merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB

to reimburse AUTOWORLD P2,586,035.44 as excess interest payments over the 12% ceiling rate. However, with regard to the second transaction, the appellate court ruled that at the time it was executed the ceiling rates imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest. ISSUE: We stress at the outset that this petition concerns itself only with the first transaction involving the alleged' "IPP" worth P6,980,000.00, which was implemented through the three (3) contracts of 9 February 1981. As to the second transaction, which involves the P3,000,000.00 loan, we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed, hence the parties were free to fix any interest rate. The pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were executed to implement a legitimate Installment Paper Purchase ("IPP") transaction or merely to conceal a usurious loan. HELD: The three (3) contracts were executed to conceal a usurious loan. Generally, the courts only need to rely on the face of written contracts to determine the intention of the parties. "However, the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury." The following circumstances show that such scheme was indeed employed: First, petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO. As far as it was concerned, it merely purchased receivables at a discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981. Whether the Contract to Sell was fictitious or not would have no effect on its right to claim the receivables of BARRETTO from AUTOWORLD since the two contracts were entirely separate and distinct from each other. Curiously however, petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved which were executed on the same day. Also, petitioner was the one who procured the services of the Asian Appraisal Company to determine the fair market value of the land to be sold way back in September of 1980 or six


(6) months prior to the sale. If it were true that petitioner was never privy to the Contract to Sell, then why was it interested in appraising the lot six (6) months prior to the sale? And why did petitioner's own lawyers prepare the Contract to Sell? Obviously, petitioner actively participated in the sale to ensure that the appraised lot would serve as adequate collateral for the usurious loan it gave to AUTOWORLD. Second, petitioner insists that the 9 February 1981 transaction was a legitimate "IPP" transaction where it only bought the receivables of BARRETTO from AUTOWORLD amounting to P12,999,999.60 at a discounted price of P6,980,000.00. However, per instruction of petitioner in its letter to BARRETTO dated 17 November 1980 the whole purchase price of the receivables was to be "flowed back" to AUTOWORLD. And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply the proceeds worth P6,980,000.00. It can be seen that out of the nine (9) items of appropriation stated (in the letter), Item Nos. 2-8 had to be returned to petitioner. Thus, in compliance with the aforesaid letter, BARRETTO had to yield P4,058,468.47 of the P6,980,000.00 to petitioner to settle some of AUTOWORLD's previous debts to it. Any remaining amount after the application of the proceeds would then be surrendered to AUTOWORLD in compliance with the letter of 17 November 1980; none went to BARRETTO. The foregoing circumstances confirm that the P6,980,000.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner. Had petitioner entered into a legitimate purchase of receivables, then BARRETTO, as seller, would have received the whole purchase price, and free to dispose of such proceeds in any manner it wanted. It would not have been obliged to follow the "Application of Proceeds" stated in petitioner's letter. Third, in its 17 November 1980 letter to BARRETTO, petitioner itself designated the proceeds of the "IPP" transaction as a "loan." In that letter, petitioner stated that the "loan proceeds" amounting to P6,980,000.00 would be released to BARRETTO only upon submission of the documents it required. And as previously mentioned, one of the required documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6,980,000.00 should be "flowed back" to AUTOWORLD. If it were a genuine "IPP" transaction then petitioner would not have designated the money to be released as "loan proceeds" and BARRETTO would have been the end recipient of such proceeds with no obligation to turn them over to AUTOWORLD. Fourth, after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3,000,000.00 to AUTOWORLD. This time however, with no more ceiling rates to hinder it, petitioner imposed a 28% effective interest rate on the loan. And no longer having a

need to cloak the exorbitant interest rate, the promissory note evidencing the second transaction glaringly bore the 28% interest rate on its face. We are therefore of the impression that had there been no interest rate ceilings in 1981, petitioner would not have resorted to the fictitious "IPP" transaction; instead, it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%. Thus, although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables, the circumstances cited prove that the P6,980,000.00 was really a usurious loan extended to AUTOWORLD. Petitioner anchors its defense on Sec. 7 of the Usury Law which states Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of the Act and said purchase was not a part of the original usurious transaction. In any case however, the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and, in any case of litigation, also the costs and such attorney's fees as may be allowed by the court. Indeed, the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers. But even the law has anticipated the potential abuse of such transactions to conceal usurious loans. Thus, the law itself made a qualification. It would recognize legitimate purchase of negotiable mercantile paper, whether usurious or otherwise, only if the purchaser had no intention of evading the provisions of the Usury Law and that the purchase was not a part of the original usurious transaction. Otherwise, the law would not hesitate to annul such contracts. Thus, Art. 1957 of the Civil Code provides Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws on usury shall be void. The borrower may recover in accordance with the laws on usury. In the case at bar, the attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usurious loan. These contracts should therefore be declared void. Having declared the transaction between the parties as void, we are now tasked to determine how much reimbursement AUTOWORLD is entitled to. The Court of


Appeals, adopting the computation of AUTOWORLD in its plaintiff-appellant's brief, ruled According to plaintiff-appellant, defendant-appellee was able to collect P3,921,217.78 in interests from appellant. This is not denied by the appellee. Computed at 12% the effective interest should have been P1,545,400.00. Hence, appellant may recover P2,586,035.44, representing overpayment arising from usurious interest rate charged by appellee. While we do not dispute the appellate court's finding that the first transaction was a usurious loan, we do not agree with the amount of reimbursement awarded to AUTOWORLD. Indeed, it erred in awarding only the interest paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the principal debt. However, the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per annum or P200.00 per year, if the borrower pays P200.00, the whole P200.00 would be considered usurious interest, not just the portion thereof in excess of the interest allowed by law. In the instant case, AUTOWORLD obtained a loan of P6,980,000.00. Thereafter, it paid nineteen (19) consecutive installments of P216,666.66 amounting to a total of P4,116,666.54, and further paid a balance of P6,784,551.24 to settle it. All in all, it paid the aggregate amount of P10,901,217.78 for a debt of P6,980,000.00. For the 23month period of the existence of the loan covering the period February 1981 to January 1982, AUTOWORLD paid a total of P3,921,217.78 in interests. Applying the 12% interest ceiling rate mandated by the Usury Law, AUTOWORLD should have only paid a total of P1,605,400.00 in interests. Hence, AUTOWORLD is entitled to recover the whole usurious interest amounting to P3,921,217.78.

mortgage. Also, Petitioner-spouses opined that the 6% monthly interest was unconscionable. The subsequent mortgages were merely continuations of the first one, which is null and void. Moreover, the Respondent assured them that he will not foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a reasonable time thereafter. Petitioner-spouses substantially paid the loans with interest but were unable to pay it in full. On the other hand, the Respondent claimed that the mortgages were executed to secure 3 separate loans of and that the first two loans were paid, but the last one was not. He denied having represented that he will not foreclose the mortgage as long as the Petitioner-spouses pay interest. Lower courts ruled in favour of Respondent. Thus, this petition.

Issue: Whether or not the 6% monthly interest is unconscionable? Ruling: Yes. The SC ruled that this is unconscionable. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular 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 Medel v. Court of Appeals, the Court decreed that the 5.5% interest or 66% per annum was not usurious but held that the same must be equitably reduced for being iniquitous, unconscionable and exorbitant , and hence, contrary to morals (contra bonos mores), if not against the law. In the case at bench, Petitioner-spouses stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate. Hence, the interest rate must be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.

Solangon vs Salazar G.R. No. 125944 Facts: Petitioner-spouses executed 3 real estate mortgages on a parcel of land situated in Bulacan, in favor of the same Respondent Salazar to secure payment of loans of P60 K, P136 K and P230 K payable within 4 months, 1 year, and 4 months in that order, with 6% monthly interest on the first loan, and legal interests on the others. This action was initiated by the Petitioner-spouses to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan from the Respondent which was the P60 K secured by the first June 29, 2001

SPOUSES PASCUAL VS. RAMOS FACTS: Petitioners executed a Deed of Absolute Sale with Right to Repurchase with respondent, in consideration of Php 150,000. The petitioners did not exercise their right to repurchase the property within the stipulated one-year period; hence, respondent prayed that the title over the



parcels of land be consolidated in his favor. Petitioners aver that what was really executed between them and the respondent is a real estate mortgage and that there was no agreement limiting the period within which to exercise the right to repurchase and that they have even overpaid respondent. Respondent offered in evidence a document denominated as Sinumpaang Salaysay which had a provision of an interest of 7% per month on the principal loan of Php 150,000. RTC ruled that the transaction was actually a loan and the payment was secured by a mortgage of the property, and that the petitioners had made payments which resulted in overpayment as the interest was at 7% per annum. Respondent filed an MR alleging that the interest stipulated in the Sinumpaang Salaysay was 7% per month. The RTC ruled in favor of the respondent acknowledging that the correct interest rate stipulated was 7% per month. However, the RTC declared that the 7% per month interest is too burdensome and onerous and so the court unilaterally reduced the interest rate from 7% per month to 5% per month. Petitioners filed an MR alleging that either 5% or 7% per month is exorbitant, unconscionable, unreasonable, usurious and inequitable. ISSUE: WON the interest of 5% month is exorbitant, unconscionable, unreasonable, usurious and inequitable. HELD: NO. It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy. The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with RAMOS. Neither is there a showing that in their contractual relations with RAMOS, the PASCUALs were at a disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to the vigilant protection of the courts as mandated by Article 24 of the Civil Code. With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon REFORMINA V. TOMOL

EASTERN SHIPPING v CA FACTS: 2 Fiber drums of Riboflavin were shipped from Japan for delivery vessel owned by Eastern Shipping (P) and that the shipment was insured by Mercantile Insurance (R) Upon arrival in Manila, it was discharged unto the custody of Metro Port, which it stated in its survey that 1 drum was in bad order. It was then received by Allied Brokerage wherein it stated in its survey that one drum was opened and without seal Allied then delivered it to the consignees W/H, which it excepted that 1 drum contained spillages while the rest was adulterated/fake R then filed claims against P for the losses sustained by the consignee (which R subrogated). LC ruled in favor of R and ordered P to pay damages, however, it failed to state when the interest rate should commence from date of filing of complaint at 12% or from date of judgment of TC at 6%

ISSUE: When should the interest rate commence and at what rate SC: 6% from the date of decision and 12% from date of finality of judgment until payment This case laid down the rules on the interest rates: A) when an obligation regardless of its source, is breached, the contravenor can be held liable for damages B) with regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, shall be as follows: If it consists of payment of money (loan/forbearance) o Interest due imposed = as stipulated in writing and the o Interest due = earn legal interest from the time it is judicially demanded o No stipulation = 12% per annum from date of default (judicial/extra judicial) If it is not loan/forbearance o Interest on amount of damages = imposed by discretion of court at 6% o No interest shall be ordered on unliquidated claims/damages until demand can be established with reasonable certainty o When demand is established with reasonable certainty, interest shall begin to run from the time the claim is made (judicially/extrajudicially)



But if it cannot be reasonably established at the time demand was made = interest to run from date of judgment of the court If judgment becomes Final and Executory o Rate of legal interest = 12% o From finality to satisfaction o Why? It is already considered as forbearance

7) In its appeal EASCO to the SC, it contended that the CA wrongfully applied the aforecited paragraph 3 of the suggested rules of thumb for future guidance [as formulated in Eastern Shipping Lines, Inc. v. Court of Appeals, and unlawfully ignored or disregarded the agreed cut-off date for the payment of the legal rate. Issue: When the judgment of the court awarding a sum of money becomes final and executory what is the rate to be imposed? Held: Petitioner's contentions are without merit. The prior Eastern Shipping Lines, Inc. v. Court of Appeals, was held:


Facts: 1) On April 9, 1981, private respondent Vicente Tan insured his building in Dumaguete City against fire with petitioner Eastern Assurance and Surety Corporation (EASCO) for P250,000.00. On June 26, 1981, the building was destroyed by fire. As his claim for indemnity was refused, private respondent filed a complaint for breach of contract with damages against petitioner. The RTC Court, decided in favour of Vicente Tan. In its ruling, the RTC court imposed the rate of interest at 12% per annum, and decided that EASCO to pay immediately to Vicente Tan the unpaid balance of interest of the principal amount of P250,000.00 equivalent to 6% per annum from June 26, 1981 to September 30,1994. Petitioner EASCO appealed to the Court of Appeals, which, on July 30, 1993, affirmed the decision of the trial court. The CA, on the authority of prior case, Eastern Shipping Lines, Inc. v. Court of Appeals, that the interest rate on the amount due should be 6% per annum from June 26, 1981 to August 24, 1993, and 12% per annum beginning August 25, 1993 until the money judgment is paid. Thereafter, petitioner EASCO tendered payment of the money judgment in the amount of P250,000.00 plus interest of 6% per annum from June 26, 1981 to July 30, 1993. However, private respondent refused to accept payment on the ground that the applicable legal rate of interest was 12% per annum. Subsequently, private respondent brought the matter to the Insurance Commission. Then in, 1995, the parties agreed before the hearing officer of the commission that the interest should be computed from June 26, 1981 to September 30, 1994. Petitioner would file with the trial court a motion to fix the legal rate of interest attaching thereto a check in the amount of P250,000.00 with 6% interest per annum.


I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts, is breached, the contravener can be held liable for damages. The provisions under "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: Par. 3: When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Unquestionably, this case falls under the rule stated in paragraph 3. The question is whether this rule can be applied to this case. The prior Eastern Shipping Lines, case. did not lay down any new rules because it was just a a comprehensive summary of existing rules on the computation of legal interest. As to the "cut-off date" for the payment of legal interest: The trial court's finding on this point is binding. Hence, the payment of 12% legal interest per annum should commence from August 25, 1993, the date the decision of the trial court became final, up to September 30, 1994, the agreed "cut-offdate" for the payment of legal interest. The decision of the CA is affirmed.





PILIPINAS BANK, petitioner, vs.



THE HONORABLE COURT OF APPEALS, and LILIA R. ECHAUS, respondents. Facts: private respondent filed a complaint against petitioner and its president, Constantino Bautista, for collection of a sum of money. The complaint alleged: (1) that petitioner and 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; (2) that Greatland assigned P2,300,000.00 out of the total consideration in favor of private respondent; and (3) that notwithstanding her demand for payment, petitioner refused and failed to pay the said amount assigned to her. Petitioner claimed: (1) that its former president had no authority (2) that it never ratified the same; and (3) that assuming arguendo that the agreement was binding, the conditions stipulated therein were never fulfilled. The trial court ruled in favor of private respondent. Court of Appeals modified the Order dated April 3, 1985, by limiting the execution pending appeal against petitioner to P5,517.707.00 Trial court granted the new motion for execution pending appeal. Petitioner complied with the writ of execution pending appeal by issuing two manager's checks in the total amount of P5,517,707.00 The Court of Appeals rendered a decision in CA-G.R. No. CV06017, which modified the judgment of the trial court Petitioner filed a motion in the trial court praying that private respondent to refund to her the excess payment of P1,898,623.67 with interests at 6%. It must be recalled that while private respondent was able to collect P5,517,707.00 from petitioner pursuant to the writ of advance execution, the final judgment in the main case awarded to private respondent damages in the total amount of P3,619,083.33 ISSUE: What interest rate applicable? HELD: Note that Circular No. 416, fixing the rate of interest at 12% per annum, deals with (1) loans; (2) forbearance of any money, goods or credit; and (3) judgments. (1) the amount of P2,300,000.00 adjudged to be paid by petitioner to private respondent shall earn interest of 6% per annum - The said obligation 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.

(2) the amount of P1,898,623.67 to be refunded by private respondent to petitioner shall earn interest of 12% per annum. - where money is transferred from one person to another and the obligation to return the same or a portion thereof is subsequently adjudged.

PNB v CA FACTS: Province of Isabela issued several checks drawn against its account with PNB (P) in favor of Ibarrola (R), as payments for the purchase of medicines. The checks were delivered to Rs agents who turned them over to R, except 23 checks amounting to P98k. Due to failure to receive full amount, R filed case against P LC, CA and SC ordered PNB to pay however, all 3 courts failed to specify the legal rate of interest 6% or 12%

ISSUE: WoN the rate to be used is 6% SC: YES! This case does not involve a loan, forbearance of money or judgment involving a loan or forbearance of money as it arose from a contract of sale whereby R did not receive full payment for her merchandise. When an obligation arises from a contract of purchase and sale and not from a contract of loan or mutuum, the applicable rate is 6% per annum as provided in Art. 2209 of the NCC 6% from filing of complaint until full payment before finality of judgment 12% from finality of judgment PLANTILLA vs. BALIWAG 358 SCRA 396 Facts:

In a civil case, lower court rendered a decision ordering: o Spouses Orga and Plantilla to reinstate Suiza as share tenant o That they pay Suiza unrealized shares from the harvests of coconut fruits from August until reinstated the amount of P1,000 with legal interest until fully paid. The decision, however, did not state the interest to be charged.



A writ of execution was issued addressed to Sheriff Baliwag. Baliwag demanded payment from the spouses representing the share of Suiza the amount of 480k, representing the coconut harvest from Aug 1979 to Jan 1998 at P1,000 with 8 harvests per year with an interest rate of 12% per annum or a total of 222% plus attorneys fees. Col. Plantilla, administrator of the spouses, filed an administrative complaint against Baliwag charging him of serious irregularities in implementation of the writ of execution alleging that dispositive portion of the decision did not contain 8 harvest per year and Baliwag took it upon himself to specify the number of harvests.

this case its valid because it was not excessive under the Usury Law. *Atty. Aguinaldo assigned this case because he just wanted to show us how to compute for the interest in long term deals. He even made a diagram on the board. Di ko na ilalagay un sa digest because I assume that my industrious & responsible classmates took down notes... = p


Issue: Whether or not Sheriff is guilty of irregularities? Held: Yes, Baliwag is guilty of malfeasance, not irregularities. The determination of the amount due under the writ properly pertained to the Judge. Yet, respondent assumed the task. For doing so instead of pointing out to the court the deficiency of the writ, he should be sanctioned. He should not have arrogated unto himself judicial functions that were to be performed only by the judge.

Facts: On January 15, 1979, defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank and Trust Co. a 30-day domestic letter of credit, in the amount of P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the purchase from the latter of five units of hydraulic loaders, to expire on February 15, 1979. The three loaders were delivered to defendant for which plaintiff paid Ekman and which defendant paid plaintiff before expiry date of LC. The remaining two loaders were delivered to defendant but the latter refused to pay. Ekman pressed payment to plaintiff. Plaintiff paid Ekman for the two loaders and later demanded from defendant such amount as it paid Ekman. Defendant refused payment contending that there was a breach of contract by plaintiff who in bad faith paid Ekman, knowing that the two units of hydraulic loaders had been delivered to defendant after the expiry date of subject LC. Issue: WON petitioner is liable to respondent.

The computation of the amount due under the writ is not the duty of the sheriff. Such amount should have already been specifically stated in the writ if execution issued by the court under Section 3 Rule 39 of the 1997 Rules of Court. All that the sheriff should do upon receipt of that writ is the ministerial duty of enforcing it.

RCBC vs ALFA Facts: Alfa on separate instances was granted by RCBC 4 letters of credit to facilitate the purchase of raw materials for their garments business. Alfa executed 4 trust receipts and made comprehensive surety agreements wherein the signatory officers of Alfa agreed in joint/several capacity to pay RCBC in case the company defaulted. RCBC filed a case versus Alfa for a sum of money. The CA awarded only P3M (minimum amount) to RCBC instead of P18M as stipulated in their contract. Issue: W/N the CA can deviate from the provisions of the contract between the parties? Ruling: No. Contracting parties may establish agreements terms, deemed advisable provided they are not contrary to law/public policy. A contract is a law between the parties. In

Ruling: The SC agrees with the CA that petitioner should pay respondent bank the amount the latter expended for the equipment belatedly delivered by Ekman and voluntarily received and kept by petitioner. Equitable considerations behoove us to allow recovery by respondent. True, it erred in paying Ekman, but petitioner itself was not without fault in the transaction. It must be noted that the latter had voluntarily received and kept the loaders since October 1979. When both parties to a transaction are mutually negligent in the performance of their obligations, the fault of one cancels the negligence of the other and, as in this case, their rights and obligations may be determined equitably under the law proscribing unjust enrichment.

MENDOZA vs CA G.R.No. 116710, June 25,2001 Facts: PNB extended P500,000 credit line and P1 million letter of credit infavor of Mendoza. As security for the credit accomodations, he mortgaged real and personal properties to PNB. The real estate mortgage provided for an escalation clause.



He also executed 3 promissory notes covering the P500,000 credit line in 1979. The said notes also provided for an interest at the rate of 12% per annum until paid , and that PNB may raise the interest without further notice. He also executed 11 Application and Agreement for the commercial letter of credit providing for 9% interest per annum from the date of drafts until the arrival of payment in New York and that the bank may increase the interest without further notice. The bank sent a letter to Mendoza, informing him that the interest rates increased to 14% per annum. Mendoza made some proposals for the restructuring of his past due accounts into 5 year term loan and for an additional P2 million letter of credit. However, PNB did not approve his proposal and reduced the letter of credit to P 1 million only. Mendoza claimed that he was forced to sign 2 blank promissory notes and claimed that his proposal for 5 year restructuring of his past due accounts was approved . He also alleged taht PNB violated their agreement because PNB inserted 21% instead of 18% in the first promissory note and 18% instead of 12% in the second promissory note. The 2 promissory notes also provided escalation clauses. The 2 newly executed promissory notes novated the three 1979 promissory notes and 11 Application and Agreement for Commercial Letter of Credit executed by Mendoza earlier. After sometime, pursuant to the escalation clause, the interests in the two promissory notes were again increased. Due to Mendozas failure to pay the 2 promissory notes, PNB foreclosed the real and personal mortgages. Mendoza filed for specific performance, nullification of foreclosure and damages.

of mutuality of contract. Contract changes must be made with the consent of the contractiong parties. The minds of all parties must meet as to the proposed modification, especially wwhen it affects an important aspect of the agreement. No one receiving a proposal to change a contract to which the party is obliged to answer the proposal, and his silence per se cannot be construed as acceptance.


Topic: Deposit; Article 1962 Calibo v. CA FACTS: Respondent Abellas son Mike rented for residential purposes the house of Petitioner Calibo. Respondent left a tractor in his sons garage for safekeeping Petitioner Mike had not paid rentals, electric and water bills Mike reassured Calibo that the tractor would stand as guarantee for its payment Respondent wanted to take possession of his tractor but Petitioner said that the Mike had left the tractor with him as security for the payment of Mikes obligation to him. Respondent issued postdated checks but Petitioner will only accept check if Respondent executes Promissory Note to cover payment for unpaid electric and water bills. Petitioner instituted an action for replevin claiming ownership of the tractor and seeking to recover possession thereof from petitioner. Likewise, he asserts that the tractor was left with him, in the concept of an innkeeper, on deposit and that he may validly hold on thereto until Mike Abella pays his obligations. TC and CA Mike could not have validly pledged the tractor because he was not the owner. NO DEPOSIT ISSUE: WON there was a valid deposit? HELD: NO In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and of returning the same. Petitioner himself stated that he received the tractor not to safely keep it but as a form of security for the payment of Mike Abellas obligations. There is no deposit where the principal purpose for receiving the object is not safekeeping. Consequently, petitioner had no right to refuse delivery of the tractor to its lawful owner. On the other hand, private respondent, as owner, had every right to seek to repossess the tractor including the institution of the instant action for replevin.

Issue: Whether or not the interest rates imposed on the 2 newly executed promissory notes were valid. Ruling: The Court upheld the validity of the 2 newly executed promissory notes on the ground that private transactions are presumed to be fair and regular. However, it ruled that interest rates imposed on the 2 newly executed promissory notes are not valid on the ground that Mendoza was not informed beforehand by PNB of the change in the stipulated interest rates. It held that unilateral determination and imposition of increased interest rates by PNB is violative of the principle



BISHOP OF JARO V. DELA PENA CA Agro-Industrial vs CA G.R. No. 90027 March 3, 1993 Facts Petitioner (through its President) purchased 2 parcels of land from spouses Pugao for P350 K with a downpayment of P75 K. Per agreement, the land titles will be transferred upon full payment and will be placed in a safety deposit box (SBDB) of any bank. Moreover, the same could be withdrawn only upon the joint signatures of a representative of the Petitioner and the Pugaos upon full payment of the purchase price. Thereafter, Petitioner and spouses placed the titles in SDB of Respondent Security Bank and signed a lease contract which substantially states that the Bank will not assume liability for the contents of the SDB. Subsequently, 2 renter's keys were given to the renters one to the Petitioner and the other to the Pugaos. A guard key remained in the possession of the Respondent Bank. The SDB can only be opened using these 2 keys simultaneously. Afterwards, a certain Mrs. Ramos offered to buy from the Petitioner the 2 lots that would yield a profit of P285K. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the production of the certificates of title. Thus, Petitioner with the spouses went to Respondent Bank to retrieve the titles. However, when opened in the presence of the Bank's representative, the SDB yielded no such certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos withdrew her earlier offer to purchase the lots; as a consequence, the Petitioner allegedly failed to realize the expected profit of P285K. Hence, Petitioner filed a complaint for damages against Respondent Bank. Lower courts ruled in favour of Respondent Bank. Thus, this petition.


the full and absolute possession and control of the SDB was not given to the joint renters the Petitioner and the Pugaos. The guard key of the box remained with the Respondent Bank; without this key, neither of the renters could open the box and vice versa. In this case, the said key had a duplicate which was made so that both renters could have access to the box. Moreover, the renting out of the SDBs is not independent from, but related to or in conjunction with, the principal function of a contract of deposit the receiving in custody of funds, documents and other valuable objects for safekeeping. NO. SC opined that it is void. Generally, the Civil Code provides that the depositary (Respondent Bank) 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, the diligence 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 (which is present in the disputed contract) Said provisions are inconsistent with the Respondent Bank's responsibility as a depositary under Section 72(a) of the General Banking Act.


NO. SC ruled that: no competent proof was presented to show that Respondent Bank was aware of the private agreement between the Petitioner and the Pugaos that the Land titles were withdrawable from the SDB only upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates of title was due to the fraud or negligence of the Respondent Bank.

Issues: 1. 2. 3. Whether or not the disputed contract is an ordinary contract of lease? Whether or not the provisions of the cited contract are valid? Whether or not Respondent Bank is liable for damages?

ART. 1977. OBLIGATION NOT TO MAKE USE OF THING DEPOSITED UNLESS AUTHORIZED. JAVELLANA VS. LIM FACTS: Defendants executed a document in favor of plaintiffappellee wherein it states that they have received, as a deposit, without interest, money from plaintiff-appellee and agreed upon a date when they will return the money. Upon the stipulated due date, defendants asked for an extension to pay and binding themselves to pay 15% interest per annum on the amount of their indebtedness, to which the plaintiff-

Ruling: 1. No. SC ruled that it is a special kind of deposit because:



appellee acceded. The defendants were not able to pay the full amount of their indebtedness notwithstanding the request made by plaintiff-appellee. The lower court ruled in favor of plaintiff-appellee for the recovery of the amount due. ISSUE: Whether the agreement entered into by the parties is one of loan or of deposit? HELD: The document executed was a contract of loan. Where money, consisting of coins of legal tender, is deposited with a person and the latter is authorized by the depositor to use and dispose of the same, the agreement is not a contract of deposit, but a loan. A subsequent agreement between the parties as to interest on the amount said to have been deposited, because the same could not be returned at the time fixed therefor, does not constitute a renewal of an agreement of deposit, but it is the best evidence that the original contract entered into between therein was for a loan under the guise of a deposit.

future sale, which was never effected. D also contended that in order for the plaintiffs to recover, it is necessary that they should be able to establish that the plaintiffs' palay was delivered in the character of a sale, and that if, on the contrary, the defendant should prove that the delivery was made in the character of deposit, the defendant should be absolved. ISSUE: WoN there was deposit SC: NO Art. 1978. When the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract. The permission shall not be presumed, and its existence must be proved. The case does not depend precisely upon this explicit alternative; for even supposing that the palay may have been delivered in the character of deposit, subject to future sale or withdrawal at plaintiffs' election, nevertheless if it was understood that the defendant might mill the palay and he has in fact appropriated it to his own use, he is of course bound to account for its value. In this connection we wholly reject the defendant's pretense that the palay delivered by the plaintiffs or any part of it was actually consumed in the fire of January, 1921. Nor is the liability of the defendant in any wise affected by the circumstance that, by a custom prevailing among rice millers in this country, persons placing palay with them without special agreement as to price are at liberty to withdraw it later, proper allowance being made for storage and shrinkage, a thing that is sometimes done, though rarely.

G.R. Nos. L-26948 and L-26949

October 8, 1927

SILVESTRA BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant. And GUILLERMO BARON, plaintiff-appellant, vs. PABLO DAVID, defendant-appellant. FACTS: The defendant owns a rice mill, which was well patronized by the rice growers of the vicinity. On January 17, 1921, a fire occurred that destroyed the mill and its contents, and it was some time before the mill could be rebuilt and put in operation again. Silvestra Baron (P1) and Guillermo Baron (P2) each filed an action for the recovery of the value of palay from the defendant (D), alleged that: o The palay have been sold by both plaintiffs to the D in the year 1920 o Palay was delivered to D at his special request, with a promise of compensation at the highest price per cavan D claims that the palay was deposited subject to future withdrawal by the depositors or to some

UNITED STATES, vs. IGPUARA Facts: The defendant Jose igpuara was entrusted with the amount of P2,498 by Montilla and Veraguth. Without the consent of Montilla and Veraguth however, Igpuara used the said amount for his own ends. Thus, igpuara was charged and convicted with estafa, for having swindled Juana Montilla and Eugenio Veraguth out of P2,498 which he had taken as deposit from the former to be at the his disposal. Igpuara was sentenced to pay Juana Montilla P2,498 . The instrument for the deposit reads:



We hold at the disposal of Eugenio Veraguth the sum of two thousand four hundred and ninety-eight pesos (P2,498), the balance from Juana Montilla's sugar. Iloilo, June 26, 1911, Jose Igpuara, for Ramirez and Co Igpuara contended that the amount was not deposit for there was no certificate of deposit, there was no transfer or delivery of the P2,498 and what transpired was a loan. If assuming that it was deposit, this is negotiable. Issues: Whether or not it is necessary that there be transfer or delivery in order to constitute a deposit. Held: No. A deposit is constituted from the time a person receives a thing belonging to another with the obligation of keeping and returning it. (Art. 1758, Civil Code.) His contention is without merit because firstly, the defendant drew up a document declaring that they remained in his possession. With the understanding that he would, for it has no other purpose. The certificate of deposit in question is not negotiable because only instruments payable to order are negotiable. Hence, this instrument not being to order but to bearer, it is not negotiable. As for the argument that the depositary may use or dispose oft he things deposited, the depositor's consent is required thus, the rights and obligations of the depositary and of the depositor shall cease and the rules and provisions applicable to commercial loans, commission, or contract which took the place of the deposit shall be observed. Igpuara however has shown no authorization whatsoever or the consent of the depositary for using or disposing of the P2,498. That there was not demand on the same or the next day after the certificate was signed, does not operate against the depositor, or signify anything except the intention not to press it. Failure to claim at once or delay for sometime in demanding restitution of the things deposited, which was immediately due, does not imply such permission to use the thing deposited as would convert the deposit into a loan. Judgment appealed from is affirmed

FACTS: The plaintiff made an arrangement for the pasturing of eighty-one head of cattle, in return for which she has to give one-half of the calves that might be born and was to pay the defendant one-half peso for each calf branded. On demand for the whole, forty-eight head of cattle were afterwards returned to her and this action is brought to recover the remaining thirty-three. Defendant in reply to the demand for the cattle, in which he seeks to excuse himself for the loss of the missing animals. As a second defense it is claimed that the thirty-three cows either died of disease or were drowned in a flood. The defendant's witnesses swore that of the cows that perished, six died from overfeeding, and they failed to make clear the happening of any flood sufficient to destroy the others. HELD: If we consider the contract as one of deposit, then under article 1183 of the Civil Code, the burden of explanation of the loss rested upon the depositary and under article 1769 the fault is presumed to be his. The defendant has not succeeded in showing that the loss occurred either without fault on his part or by reason of caso fortuito. If, however, the contract be not one strictly of deposit but one according to a local custom for the pasturing of cattle, the obligations of the parties remain the same.

GULLAS vs. NATIONAL BANK 62 PHIL 519 Facts: Atty. Gullas has a current account with PNB. The treasury of the US issued a warrant in the amount of $361 payable to the order of Bacos. Gullas and Lopez signed as indorsers of this warrant. Thereupon it was cashed by PNB. The warrant was subsequently dishonored by the Insular treasurer. At that time, Gullas had a balance of P500 in PNB. From this balance, he also issued some checks which eventually could not be paid when it was sequestered by the Bank. When it learned of the dishonor, PNB sent notice to Gullas stating that it applied the outstanding balances from his current account as payment of the dishonored warrant. Such notice could not be delivered to him since he was out of town. Without any action from Gullas, PNB applied the dishonored warrant against his account. Because of this, Gullas was unable to pay for the checks he issued before the application. Gullas filed a complaint against PNB.

ANICETA PALACIO, plaintiff-appellee, vs. DIONISIO SUDARIO, defendant-appellant.



Issue: Whether or not PNB has a right to apply a deposit to the debt of a depositor to the bank? Held: Yes, PNB has a right to apply the payment against the account of the depositor. The relation between a depositor and a bank is that if creditor and debtor. The general rule is that a bank has a right to set off of the deposit in its hands for the payment of any indebtedness to it on the part of the depositor. However, prior to the mailing of the notice of dishonor and without waiting for any action by Gullas, the bank made use of the money standing in his account to make good for the treasury warrant. At this point recall that Gullas was merely an indorser. Notice should have been given to him in order that he might protect his interest. He should be awarded with nominal damages because of the premature action of the Bank.

Facts: Sesbreno entered into a money market, giving 300k to Philfinance. As an exchange, Philfinance gave checks and confirmation of sale of Delta Motor Corp certificates. Checks bounced. Sesbreno is running after Philipinas Bank (payee) (Holder of security of primissory note) and Delta (maker). Delta contends that it is not liable because there was "reconstruction" of debt of Delta to Philfinance, the promissory note is not valid anymore. It also contends that the document cannot be assigned because its non negotiable. RTC ruled that Philfinance is liable because Philfinance already knows that the liability was already waived and it still issued the certificate. However, since Philfinance was not impleaded, judgment cannot be made against Philfinance. The issue related in this case is regarding trasferrability and assignability. Issue: WoN the non-negotiable transferrable/assignable instrument is non

Ruling: Assignable is different from tranferrability. Negotiable instruments can be indorsed. Non negotiable instrumets can be assigned. Therefore, non negotiable instrument can be assigned.

DE LOS SANTOS vs TAN KHEY O.G.No.26695-R, July 30, 1962 SERRANO vs CENTRAL BANK Facts: Serrano had P350K worth of time deposits in Overseas Bank of Manila. He made a series of encashment but was not successful. He filed a case against Overseas Bank & he also included the Central Bank so that the latter may also be jointly and severally liable. Serrano argued that the CB failed to supervise the acts of Overseas Bank and protect the interests of its depositors by virtue of constructive trust. Issue: W/N the Central Bank is liable? Facts: Tan Khey was the owner of International Hotel located in Iloilo city. Romeo de los Santos lodged in Tna Kheys hotel. After arrival, he left the hotel, depositing his revolver and his bag with the person in charge in the hotel. When he returned to the hotel, he took his revolver and his bag from the person in charge in the hotel and proceeded to his room. He locked the door before sleeping. When he woke up, he discovered that the door in his room was opened and his bag and pants, wherein he placed his revolver , was missing. He reported the matter to the Assistant Manager of the hotel, who in turn informed Tan Khey. A secret service agent was sent to investigate and it was found that the wall of the room occupied by De los Santos was only seven feet high with an open space above through which one could enter from outside. De los Santos told the detective that he lost his revolver. Tan Khey disclaimed liability because De los Santos did not deposit his properties with the manager despite a notice to that effect was posted in the hotel. SESBRENO V. CA Tan Khey contended that to be liable under Article 1998 of the Civil Code, the following conditions must concur:

Ruling: No. There is no breach of trust from a banks failure to return the subject matter of the deposit. Bank deposits are in the nature of irregular deposits. All kinds of bank deposits are to be treated as loans and are to be covered by the law on loans Art.1980. In reality the depositor is the creditor while the bank is the debtor. Failure of the respondent bank to honor the time deposit is failure to pay its obligation as a debtor.



1. 2. 3.

Deposit of effects by travellers in hotel or inn Notice given to hotel keepers or employees of the effects brought by guests Guest or travellers take the precautions which said hotel keepers or their substitutes advised relative to the care and vigilance of their effects.

The requirement of notice being evidently for the purpose of closing the door to fraudulent claims for nonexistent articles, the lack thereof was fatal to De los Santos claim for reparation for the loss of his eyeglass, ring, and cash. Precautions

Issue: Whether the hotel owner should be held liable for the loss of the effects of the guest? Rulng: The Court ruled that the hotel owner should be liable for the loss of the revolver, pants and bag of the guest. Deposit While the law speaks of deposit of effects by travellers in hotels or inns, personal receipt by the innkeeper for safe keeping of effects is not necessaily meant thereby. The reason therefor is the fact that it is the nature of business of an innkeeper to provide not only lodging for travellers but also to security to their persons and effects. The secuity mentioned is not confined to the effects actually delivered to the innkeeper but also to all effects placed within the premises of the hotel. This is because innkeepers by the neture of their business, have supervision and controlof their inns and the premises threof. It is not necessary that the effect was actually delivered but it is enough that they are within the inn. If a guest and goods are within the inn, that is sufficient to charge him. The owner of a hotel may exonerate himself from liability by showing that the guest has taken exclusive control of his own goods, but this must be exclusive custody and control of a guest, and must not be held under the supervision and care of the innkeeper,ey are kept in a room assigned to a guest or the other proper depository in the house. In this case, the guest deposited his effects in the hotel because they are in his room and within the premises of the hotel, and therefore, within the supervision and control of the hotel owner.

While an innkeeper cannot free himself from responsibility by posting notices, there can be no doubt of the innkeepers right to make such regulations in the management of his inn as will more effectually secure the property of his guest and operate as protection to himself, and that it is incumbent upon the guest, if he means to hold the inkeeper ho his responsibility, to comply with any regulation that is just and reasonable, when he is requested to do so. However, in this case, the notice requiring actual deposit of the effects with the manager was an unreasonable regulation. It was unreasonable to require the guest to deposit his bag ,pants and revolver to the manager. De los Santos had exercised the necessary diligence with respect to the care and vigilance of his effects.

Topic: Deposit; Article 2003 YHT Realty v. CA FACTS: Respondent McLoughlin would stay at Tropicana Hotel every time he is here in the Philippines and would rent a safety deposit box. The safety deposit box could only be opened through the use of 2 keys, one of which is given to the registered guest, and the other remaining in the possession of the management of the hotel. McLoughlin allegedly placed the following in his safety deposit box 2 envelopes containing US Dollars, one envelope containing Australian Dollars, Letters, credit cards, bankbooks and a checkbook. When he went abroad, a few dollars were missing and the jewelry he bought was likewise missing. Eventually, he confronted Lainez and Paiyam who admitted that Tan opened the safety deposit box with the key assigned to him. McLoughlin went up to his room where Tan was staying and confronted her. Tan admitted that she had stolen McLouglins key and was able to open the safety deposit box with the assistance of Lopez, Paiyam and Lainez. Lopez alsto told McLoughlin that Tan stole the key assigned to McLouglin while the latter was asleep. McLoughlin insisted that it must be the hotel who must assume responsibility for the loss he suffered. Lopez refused to accept responsibility relying on the conditions for renting the safety deposit box entitled Undertaking For the Use of Safety Deposit Box

Notice The Court ruled that there was no doubt that the person in charge had knowledge of his revolver, the bag, and pants of the guest, De los Santos.



ISSUE: Whether the hotels Undertaking is valid? HELD: NO Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such as that presented in this case. The hotel business like the common carriers business is imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called undertakings that ordinarily appear in prepared forms imposed by hotel keepers on guests for their signature. In an early case (De Los Santos v. Tan Khey), CA ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests, it is not necessary that they be actually delivered to the innkeepers or their employees. It is enough that such effects are within the hotel or inn. With greater reason should the liability of the hotelkeeper be enforced when the missing items are taken without the guests knowledge and consent from a safety deposit box provided by the hotel itself, as in this case. Paragraphs (2) and (4) of the undertaking manifestly contravene Article 2003, CC for they allow Tropicana to be released from liability arising from any loss in the contents and/or use of the safety deposit box for any cause whatsoever. Evidently, the undertaking was intended to bar any claim against Tropicana for any loss of the contents of the safety deposit box whether or not negligence was incurred by Tropicana or its employees.

proportion stipulated in the milling contracts, and thereafter is deposited in the warehouses of the latter. (Pp. 4-5, t.s.n.) For the sugar deposited by the planters, the petitioner issues the corresponding warehouse receipts of "quedans". It does not collect storage charges on the sugar deposited in its warehouse during the first 90 days period counted from the time it is extracted from the sugarcane. Upon the lapse of the first ninety days and up to the beginning of the next milling season, it collects a fee of P0.30 per picul a month. Henceforth, if the sugar is not yet withdrawn, a penalty of P0.25 per picul or fraction thereof a month is imposed. (Exhibits "B-1", "C-1", "D-1", "B-2", "C-2", p. 10, t.s.n.) The storage of sugar is carried in the books of the company under Account No. 5000, denominated "Manufacturing Cost Ledger Control"; the storage fees under Account No. 521620; the expense accounts of the factory under Account No. 5200; and the so-called "Sugar Bodega Operations" under Account No. 5216, under which is a Sub-Account No. 20, captioned, "Credits". (Pp. 16-17, t.s.n., Exhibit "F".) The collections from storage after the lapse of the first 90 days period are entered in the company's books as debit to CASH, and credit to Expense Account No. 2516-20 (p. 18, t.s.n.). The credit for storage charges decreased the deductible expense resulting in the corresponding increase of the taxable income of the petitioner. This is reflected by the entries enclosed in parenthesis in Exhibit "G", under the heading "Storage Charges". (P. 18, t.s.n.) The alleged reason for this accounting operation is that, inasmuch as the "Sugar Bodega Operations" is considered as an expense account, entries under it are "debits". Similarly, since "Storage Charges" constitute "credit", the corresponding figures (see Exhibit "C") are enclosed in parenthesis as they decrease the expenses of maintaining the sugar warehouses. Upon investigation conducted by the Bureau, it was found that during the years 1949 to 1957, the petitioner realized from collected storage fees a total gross receipts of P212,853.00, on the basis of which the respondent determined the petitioner's liability for fixed and percentage taxes, 25% surcharge, and administrative penalty in the aggregate amount of P8,411.99 (Exhibit "5", p. 11, BIR rec.) After due hearing the Court of Tax Appeals ordered the CIR to refund to respondent Hawaiian-Philippine Company the amount of P8,411.99 representing fixed and percentage taxes assessed against it and which the latter had deposited with the City Treasurer of Silay, Occidental Negros ISSUE:


G.R. No. L-16315

May 30, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HAWAIIAN-PHILIPPINE COMPANY, respondent. FACTS: The petitioner, a corporation duly organized in accordance with law, is operating a sugar central in the City of Silay, Occidental Negros. It produces centrifugal sugar from sugarcane supplied by planters. The processed sugar is divided between the planters and the petitioner in the

Whether or notpetitioner is a warehouseman liable for the payment of the fixed and percentage taxes prescribed in Sections 182 and 191 of the National Internal Revenue Code



HELD: YES. Respondent disclaims liability under the provisions quoted above, alleging that it is not engaged the business of storing its planters' sugar for profit; that the maintenance of its warehouses is merely incidental to its business of manufacturing sugar and in compliance with its obligation to its planters. We find this to be without merit. It is clear from the facts of the case that, after manufacturing the sugar of its planters, respondent stores it in its warehouses and issues the corresponding "quedans" to the planters who own the sugar; that while the sugar is stored free during the first ninety days from the date the it "quedans" are issued, the undisputed fact is that, upon the expiration of said period, respondent charger, and collects storage fees; that for the period beginning 1949 to 1957, respondent's total gross receipts from this particular enterprise amounted to P212,853.00. A warehouseman has been defined as one who receives and stores goods of another for compensation (44 Words and Phrases, p. 635). For one to be considered engaged in the warehousing business, therefore, it is sufficient that he receives goods owned by another for storage, and collects fees in connection with the same. In fact, Section 2 of the General Bonded Warehouse Act, as amended, defines a warehouseman as "a person engaged in the business of receiving commodity for storage." That respondent stores its planters' sugar free of charge for the first ninety days does not exempt it from liability under the legal provisions under consideration. Were such fact sufficient for that purpose, the law imposing the tax would be rendered ineffectual.

Plaintiff Gonzales, totaling 368 sacks, for which he issued receipts. After he was licensed as a bonded warehouseman, Go Tiong again received various deliveries of palay from Plaintiff, totaling 492 sacks, for which he issued the corresponding receipts, all the grand total of 860 sacks, valued at P8,600 at the rate of P10 per sack. Noteworthy is that the receipts issued by Go Tiong to the Plaintiff were ordinary receipts, not the "warehouse receipts" defined by the Warehouse Receipts Act (Act No. 2137). On or about March 15, 1953, Plaintiff demanded from Go Tiong the value of his deposits in the amount of P8,600, but he was told to return after two days, which he did, but Go Tiong again told him to come back. A few days later, the warehouse burned to the ground. Before the fire, Go Tiong had been accepting deliveries of palay from other depositors and at the time of the fire, there were 5,847 sacks of palay in the warehouse, in excess of the 5,000 sacks authorized under his license. After the burning of the warehouse, the depositors of palay, including Plaintiff, filed their claims with the Bureau of Commerce. However, according to the decision of the trial court, nothing came from Plaintiff's efforts to have his claim paid. Thereafter, Gonzales filed the present action against Go Tiong and the Luzon Surety for the sum of P8,600, the value of his palay, with legal interest, damages in the sum of P5,000 and P1,500 as attorney's fees. While the case was pending in court, Gonzales and Go Tiong entered into a contract of amicable settlement to the effect that upon the settlement of all accounts due to him by Go Tiong, he, Gonzales, would have all actions pending against Go Tiong dismissed. Inasmuch as Go Tiong failed to settle the accounts, Gonzales prosecuted his court action

ISSUE: Gonzalez vs Go Tiong Facts: Go Tiong (respondent) owned a rice mill and warehouse, located in Pangasinan. Thereafter, he obtained a license to engage in the business of a bonded warehouseman. Subsequently, respondent Tiong executed a Guaranty Bond with the Luzon Surety Co to secure the performance of his obligations as such bonded warehouseman, in the sum of P18,334, in case he was unable to return the same. Afterwards, respondent Tiong insured the warehouse and the palay deposited therein with the Alliance Surety and Insurance Company. But prior to the issuance of the license to Respondent, he had on several occasions received palay for deposit from Whether or not Plaintiffs claim is governed by the Bonded Warehouse Act due to Go Tiongs act of issuing to the former ordinary receipts, not warehouse receipts? RULING: YES. SC ruled in favor Plaintiff. Act No. 3893 provides that any deposit made with Respondent Tiong as a bonded warehouseman must necessarily be governed by the provisions of Act No. 3893. The kind or nature of the receipts issued by him for the deposits is not very material much less decisive since said provisions are not mandatory and indispensable



Under Section 1 of the Warehouse Receipts Act, the issuance of a warehouse receipt in the form provided by it is merely permissive and directory and not obligatory. . "Receipt", under this section, can be construed as any receipt issued by a warehouseman for commodity delivered to him As the trial court well observed, as far as Go Tiong was concerned, the fact that the receipts issued by him were not "quedans" is no valid ground for defense because he was the principal obligor. Furthermore, as found by the trial court, Go Tiong had repeatedly promised Plaintiff to issue to him "quedans" and had assured him that he should not worry; and that Go Tiong was in the habit of issuing ordinary receipts (not "quedans") to his depositors. Furthermore, Section 7 of said law provides that as long as the depositor is injured by a breach of any obligation of the warehouseman, which obligation is secured by a bond, said depositor may sue on said bond. In other words, the surety cannot avoid liability from the mere failure of the warehouseman to issue the prescribed receipt.

HELD: YES. The warehouse receipt in question is negotiable. It recited that certain merchandise deposited in the ware house por orden of the depositor instead of a la orden, there was no other direct statement showing whether the goods received are to be delivered to the bearer, to a specified person, or to a specified order or his order. However, the use of por orden was merely a clerical or grammatical error and that the receipt was negotiable. As provided by the Warehouse Receipts Act, in case the warehouse man fails to mark it as non-negotiable, a holder of the receipt who purchase if for value supposing it to be negotiable may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. This appears to have given any warehouse receipt not marked nonnegotiable practically the same effect as a receipt which, by its terms, is negotiable provided the holder of such unmarked receipt acquired it for value supposing it to be negotiable, circumstances which admittedly exist in the present case. Hence, the rights of the indorsee, ASIA, are superior to the vendors lien.

WAREHOUSE RECEIPT: Failure to mark non-negotiable. ROMAN V. ASIA BANKING CORPORATION FACTS: U. de Poli, for value received, issued a quedan convering the 576 bultos of tobacco to the Asia Banking Corporation (claimant & appellant). It was executed as a security for a loan. The aforesaid 576 butlos are part and parcel of the 2, 766 bultos purchased by U. de Poli from Felisa Roman (claimant & appellee). The quedan was marked as Exhibit D which is a warehouse receipt issued by the warehouse of U. de Poli for 576 bultos of tobacco. In the left margin of the face of the receipt, U. de Poli certifies that he is the sole owner of the merchandise therein described. The receipt is endorsed in blank; it is not markednon-negotiable or not negotiable. Since a sale was consummated between Roman and U. de Poli, Romans claim is a vendors lien. The lower court ruled in favor of Roman on the theory that since the transfer to Asia Banking Corp. (ASIA) was neither a pledge nor a mortgage, but a security for a loan, the vendors lien of Roman should be accorded preference over it. However, if the warehouse receipt issued was nonnegotiable, the vendors lien of Roman cannot prevail against the rights of ASIA as indorsee of the receipt. ISSUE: WON the quedan issued by U. de Poli in favor of ASIA. is negotiable, despite failure to mark it as not negotiable?

Bank of P.I. v. Herridge FACTS: The insolvent Umberto de Poli was for several years engaged on an extensive scale in the exportation of Manila hemp, maguey and other products of the country. He was also a licensed public warehouseman, though most of the goods stored in his warehouses appear to have been merchandise purchased by him for exportation and deposited there by he himself.chanr In order to finance his commercial operations De Poli established credits with some of the leading banking institutions doing business in Manila at that time, among them the Hongkong & Shanghai Banking Corporation, the Bank of the Philippine Islands, the Asia Banking Corporation, the Chartered Bank of India, Australia and China, and the American Foreign Banking Corporation. De Poli opened a current account credit with the bank against which he drew his checks in payment of the products bought by him for exportation. Upon the purchase, the products were stored in one of his warehouses and warehouse receipts issued therefor which



were endorsed by him to the bank as security for the payment of his credit in the account current. When the goods stored by the warehouse receipts were sold and shipped, the warehouse receipt was exchanged for shipping papers, a draft was drawn in favor of the bank and against the foreign purchaser, with bill of landing attached, and the entire proceeds of the export sale were received by the bank and credited to the current account of De Poli.chanroble De Poli was declared insolvent by the Court of First Instance of Manila with liabilities to the amount of several million pesos over and above his assets. An assignee was elected by the creditors and the election was confirmed by the court Among the property taken over the assignee was the merchandise stored in the various warehouses of the insolvent. This merchandise consisted principally of hemp, maguey and tobacco. The various banks holding warehouse receipts issued by De Poli claim ownership of this merchandise under their respective receipts, whereas the other creditors of the insolvent maintain that the warehouse receipts are not negotiable, that their endorsement to the present holders conveyed no title to the property, that they cannot be regarded as pledges of the merchandise inasmuch as they are not public documents and the possession of the merchandise was not delivered to the claimants and that the claims of the holders of the receipts have no preference over those of the ordinary unsecured lib

PNB v PRODUCERS WAREHOUSE ASSOCIATION FACTS: PNB (P) is a bank in PH, Producers Warehouse Association (D) is a domestic corporation doing general warehouse business and Phil. Fiber and Produce Company (Fiber) is another domestic corporation. D and Fiber entered into a written contract, wherein Fiber would act as the general manager of the business of D and that Fiber would exercise a general and complete supervision over the management of the business of D. Nov and Dec 1918 D issued negotiable quedans to Fiber for 15k++ piculs of Copra, which the terms states that o D agreed to deliver that amount of copra to Fiber or its order o D will deliver the packages noted therein upon the surrender of the warrant to D o No transfer of interest/ownership will be recognized unless registered in the books of D o The words negotiable warrant were printed in red ink in the quedan Fiber then arranged for overdraft with P for P1M and to secure it, the subject quedans were endorsed in blank and delivered by Fiber to P, which became the owner and holder thereof. P later on requested D the delivery of copra described in the quedans, however, D refused to comply despite repeated requests of P, stating that it could not be delivered since the goods mentioned are not in the warehouse. D stated that the quedans were invalid and wrongfully issued and that the copra was not in its warehouse LC ruled in favor of D

ISSSUE: Whether or not the warehouse receipts issued are negotiable? HELD: Yes, a warehouseman who deposited merchandise in his own warehouse, issued a warehouse receipts therefore and thereafter negotiated the receipts by endorsement. The receipt recites that the goods were deposited por orden of the depositor, the warehouseman, but contained no statement that the goods were to be delivered to the bearer of the receipts or to a specified person. It is in the form of a warehouse receipts and was not mark nonnegotiable. Therefore the receipts was negotiable warehouse receipts and the words por orden must be construed to mean to the order.

ISSUE: WoN the quedans were validly negotiated to P SC: YES! The quedans have legal force and effect o They were duly executed by Wicks, as treasurer and Torres as warehouseman, for and in behalf of D. o The said quedans were endorsed in blank and physical possession was delivered to P as collateral security for the overdraft of Fiber Company and o That the quedans were in negotiable form. D cannot now deny the existence of the quedans CRUZ vs. VALERO



Facts: Valero is president of the Luzon Sugar Co. while appellant Cruz had a share amounting to 1,544.38 piculs export centrifugal sugar, which was exchanged for an equal amount of domestic centrifugal sugar. Cruz deposited in the Luzon Sugar Company's warehouse within its compound, with the obligation on its part to deliver it to the appellant on demand, that the appellant was entitled to 238.20 piculs of domestic centrifugal sugar as his share in the 1940-1941 crop. On different dates, the appellant had withdrawn several piculs of sugar, reducing reducing the number of gallons of molasses. Cruz claims that on December 1941, the Luzon Sugar Company (LSC) did not have in its warehouse the sugar he had stored in its warehouse for safekeeping and the number of gallons of molasses he had left in its possession contained in cylindrical tanks, because the Valero had disposed of the same without the knowledge and consent of appellant and that when the appellant wanted to withdraw his sugar from the warehouse of LSC, the amount of sugar stored in the warehouse was not manufactured by the Luzon Sugar Company but by a different company. This was denied by LSC, contending that it had sufficient amount of sugar manufactured by it and was in a position to deliver sugar. Its warehouse was however bombed by Japanese and the warehouse damaged by shrapnel and some piculs of centrifugal sugar were looted, some taken by the Japanese after the occupation and the remaining brought by the Japanese Army to Northern Luzon. Thus it became impossible the deliver the centrifugal sugar and molasses belonging of Cruz. Issue: Whether or not the LSC still has the obligation to deliver the same amount and kind of sugar stored in its warehouse. HELD: Since there was enough sugar to cover and deliver 1,081.79 piculs of domestic, reserve and additional sugar belonging to the Cruz who, according to the milling contract, was in duty bound to take delivery thereof at the warehouse, since it was established that the LSC compound was bombed on December 1941 by the Japanese who also occupied it from 1 January to 20 February 1942, the loss was due to the war or to a fortuitous event and therefore, the obligation of the depositary to deliver what has been deposited in him has been extinguished by the happening of a fortuitous event, which in this case, is the pacific war. The judgment appealed from is affirmed. This is an appeal from a decision of the Court of First Instance of Nueva Ecija which orders the defendant to pay to the plaintiff the sum of P3,000, with interest thereon at the rate of 6% per annum from June 26, 1940, and the costs of action.

ESTRADA V. CAR DMG INC. vs CONSOLIDATED TERMINALS INC. 63 OG 10 Facts: DMG ordered replacement parts for diesel conversion engine from Germany. Upon arrival in Manila, the shipment was placed in the warehouse of Consolidated Terminals. When DMG demanded for the delivery of the goods, Consolidated stated that it was already released and delivered to DMG through a delivery permit which was presented by a certain Sandoval authorized by Alteza. DMG contends that it has no such employees. It demanded for the payment of such goods.

Issue: Whether or not Consolidated is liable to DMG? Held: Yes, Consolidated is liable to DMG. Consolidated did not faithfully comply with its duties and obligations. Section 9 of the Warehouse Receipts Law does not deem it sufficient as prerequisite for delivery the mere presentment of the receipt. It further requires that the person to whom the goods should be delivered is one who is either himself entitled to the propertyor who has written authority from the person so entitled. Presentment of the receipt must be couple with ascertainment that the person so presenting it is rightfully entitled to take delivery of the goods covered by the receipt. Consolidated did not ascertain the identity of Sandoval and Alteza. They have not called up DMG first and ascertained the genuineness of the authority in writing before delivering the articles considering that they did not know either Sandoval or Alteza. Consolidated becomes liable under Section 10 of the WRL for misdelivery. On the contention that DMG was negligent for allowing such permits to fall into the hands of unauthorized persons, contributory negligence is not one of the defenses specified in its answer. In order to for it to be a defense, it must previously show to have been committed. The burden of proof is in himself who alleges it as a defense. It cannot be inferred from the fact that persons other than the consignee or owner were able to take possession of the shipping documents or the permit papers which were supposed to be in the latters custody.



CONSOLIDATED vs ARTEX Facts: Consolidated Terminals Inc (CTI) operated a customs warehouse in Manila. It received 193 bales of high density compressed raw cotton worth P99k. It was understood that CTI would keep the cotton on behalf of Luzon Brokerage until the consignee Paramount Textile had opened the corresponding letter of credit in favor of Adolph Hanslik Cotton. By virtue of forged permits, Artex was able to obtain the bales of cotton and paid P15k. Issue: W/N CTI as warehouseman was entitled to the possession of the bales of cotton? Ruling: No. CTI had no cause of action. It was not the owner of the cotton. It was not a real party of interest in the case. CTI was not sued for damages by the real party in interest.

known as quedan. The warehouse receipt of the mercahndise covered thereby was described as Cagayan tabacco en rama. It was indorsed in blank by U. De Poli to American Foreign Banking Corporation As security for an overdraft. U. De Poli became insolvent and the bank presented its claim for the delivery of the tobacco covered in the warehouse receipt. However, it was found that the tobacco had come from Isabela and not from Cagayan, and the banks claim was disputed by other creditors of the insolvent on the ground that, among others, that the tobacco claimed, being Isabela tobacco, was not correctly described in the warehouse receipt and that, therefore, the receipt was ineffective as against the general creditors. Issue: Whether the use of the word Cagayan instead of Isabela in describing the tobacco in the quedan renders the quedan null and void as negotiable warehouse receipt for the tobacco intended to be covered by it. Ruling:


Facts: Manila Railroad received into its custody a shipment of cases of milk, of which 3.171 wwere marked for Cebu and 1,829 for Lua Kia but according to the bills of lading in Manila Railroad's possession, Lua Kia was entitled to 2000 cases and Cebu was entitled to 3000 cases. Manila Railroad delivered 1,913 cases to Lua Kia, which is 87 cases short in the bill of lading. Issue: WoN manila RailRoad is liable to Lua Kia for the underlivered cases of milk Ruling. Yes. The legal relationship between an arrastre operator and the consignee is akin to that of a depositor and warehouseman. As custodian of the goods discharged from the vessel, it was A's duty like that of nay other depositary to take good care of the goods and turn them over to the party entitled to their possession. Under this particular set of circumstances, A should have held delivery because of the discrepancy between the bill of lading and the markings and conducted its own investigation not unlike that under Sectopm 18 of the Warehouse Receipts law, or called upon the parties to interplead such ias in case under Section 17 of the same law, in order to determint the rightful owner of the goods.

The identity of the tobacco was sufficiently established by the evidence. In the warehouse, there was no other tobacco stored nut only the Isabela tobacco. The debtor also said that Isabela tobacco was the tobacco which he transsfered to American Foreign Banking Corporation. Aside from that, when the subaccountant of the bank went to the warehouse to check which tobacco was covered by the warehouse receipt, the assignee and one of his accountants pointed to him the Isabela tobacco. The intention of the parties to the transaction must prevail against such a technical objection to the sufficiency of the description of the tobacco. It might be different if there had been Cagayan tobacco in the warehouse at the time of the issuance of the quedan, or if there were any doubt as to the identity of the tobacco intended to be covered by the quedan. The quedan was a negotiable warehouse receipt which was duly issued and delivered by the debtor U. de Poli to American Foreign Banking Corporation and it divested him of his title to said tobacco and transferred the position and the title thereof the American Foreign Banking Corporation.

AMERICAN FOREIGN BANKING CORPORATION vs HERRIDGE G.R.No.21005, December 20, 1924 Facts: U. de Poli was a debtor of American Foreign Banking Corporation. He issued a warehouse receipt, commonly

Topic: Warehouse Receipts Law; sec. 38 PNB v. Atendido FACTS: Laureano Atendido obtained from PNB a loan of P3k and pledged 2000 cavans of palay to guarantee payment which were then deposited in the warehouse of Cheng Siong Lam & Co and to that



effect the borrower endorsed in favour of the bank the corresponding warehouse receipt. Before the maturity of the loan, the 2000 cavans of palay disappeared for unknown reasons in the warehouse. When the loan matured, the borrower failed to pay obligation Defendant claimed that the warehouse receipt covering the palay which was given as security having been endorsed in blank in favour of the bank and the palay having been lost or disappeared, he thereby became relieved of liability.

merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds of the sale. This is for the simple reason that the transaction involved is not a sale but only a mortgage or pledge, and that if the property covered by the quedans or warehouse receipts is lost without fault or negligence of the mortgagee or pledge or the transferee or endorsee of the warehouse receipt or quedan, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor.

ISSUE: Whether the surrender of the warehouse receipt covering 2000 cavans of palay given as security, endorsed in blank, to PNB, has the effect of transferring their title or ownership OR it should be considered merely as a guarantee to secure the payment of the obligation of Defendant? HELD: FACTS Nature of contract is Pledge supported by the stipulations embodied in the contract signed by Defendant when he secured the loan from PNB. The 2000 cavans of palay covered by the warehouse receipt were given to PNB only as a guarantee to secure the fulfilment by Defendant in his obligation. This clearly appears in the contract wherein it is expressly stated that said 2000 cavanes of palay were given as collateral security. It follows that by the very nature of the transaction its ownership remains with the pledgor subject only to foreclosure in case of non-fulfillment of the obligation. By this we mean that if the obligation is not paid upon maturity the most that the pledge can do is to sell the property and apply the proceeds to the payment of the obligation and to return the balance, if any, to the pledgor. This is the essence of the contract, for, according to law, a pledge cannot become the owner of, nor appropriate to himself the thing given in pledge. If by the contract of pledge, the pledgor continues to be the owner of the thing pledged during the pendency of the obligation, it stands to reason that in case of loss of the property, the loss should be borne by the pledgor. The fact that the warehouse receipt covering the palay was delivered, endorsed in blank, to the bank does not alter the situation, the purpose of such endorsement being merely to transfer the juridical possession of the property to the pledge and to forestall any possible disposition thereof on the part of the pledgor. Where a warehouse receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee or endorsee does not automatically become the owner of the goods covered by the warehouse receipt or quedan but he


Plaintiff is a corporation engaged in business generally, and that the Defendant HSBC is a foreign bank authorized to engage in the banking business in the Philippines. On June 25, 1926, Otto Ranft called the office of the Plaintiff to purchase hemp (abaca), and he was offered the bales of hemp as described in the contested negotiable quedans. The parties agreed to the aforesaid price, and on the same date the quedans, together with the covering invoice, were sent to Ranft by the Plaintiff, without having been paid for the hemp, but the Plaintiff's understanding was o that the payment would be made against the same quedans, o and it appear that in previous transaction of the same kind between the bank and the Plaintiff, quedans were paid one or two days after their delivery to them. Immediately these Quedans were pledged by Otto Ranft to the Defendant HSBC to secure the payment of his preexisting debts to the latter. The baled hemp covered by these warehouse receipts was worth P31,635; 6 receipts were endorsed in blank by the Plaintiff and Otto Ranft, and 2 were endorsed in blank, by Otto Ranft alone On the evening of the said delivery date, Otto Ranft died suddenly at his house in the City of Manila. When the Plaintiff found out, it immediately demanded the return of the quedans, or the payment of the value, but was told that the quedans had been sent to the herein Defendant as soon as they were received by Ranft. Shortly thereafter the Plaintiff filed a claim for the aforesaid sum of P31,645 in the intestate proceedings of the estate of the deceased Otto Ranft, which on an



appeal from the decision of the committee on claims, was allowed by the CFI Manila. In the meantime, demand had been made by the Plaintiff on the Defendant bank for the return of the quedans, or their value, which demand was refused by the bank on the ground that it was a holder of the quedans in due course.

bank relied. Subsequently, Plaintiff in this case has suffered the loss of the quedans, but as far as the court sees it, there is now no remedy available to the Plaintiff equitable estoppel place the loss upon him whose misplaced confidence has made the wrong possible as ruled in National Safe Deposit vs. Hibbs (a US case) WAREHOUSE RECEIPT: Who may negotiate a receipt?

ISSUE PNB v. NOAHS ARK SUGAR REFINERY Whether or not the Quedans endorsed in blank gave the HSBC rightful and valid title to the goods? HELD YES. SC ruled in favour of Defendant HSBC. It may be noted, o first, that the quedans in question were negotiable in form; o second, that they were pledged by Otto Ranft to the Defendant bank to secure the payment of his preexisting debts to said bank; o third, that such of the quedans as were issued in the name of the Plaintiff were duly endorsed in blank by the Plaintiff and by Otto Ranft; o and fourth, that the two remaining quedans which were duly endorsed in blank by him. The bank had a perfect right to act as it did, and its action is in accordance with sections 47, 38, and 40 of the Warehouse Receipts Act However, the pertinent provision regarding the rights the Defendant bank acquired over the aforesaid quedans after indorsement and delivery to it by Ranft, is found in section 41 of the Warehouse Receipts Act (Act No. 2137): SEC. 41. Rights of person to whom a receipt has been negotiated. A person to whom a negotiable receipt has been duly negotiated acquires thereby: (a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a purchaser in good faith for value, and also such title to the goods as the depositor of person to whose order the goods were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value, and. . . . Therefore, the bank is not responsible for the loss; the negotiable quedans were duly negotiated to the bank and as far as the record shows, there has been no fraud on the part of the Defendant. Moreover, Plaintiff is estopped to deny that the bank had a valid title to the quedans for the reason that the Plaintiff had voluntarily clothed Ranft with all the attributes of ownership and upon which the Defendant o FACTS: Defendant issued on several dates warehouse receipts, which were substantial in form and contained the terms prescribed by law, to Rosa Sy and Teresita Ng. Subsequently, some of the warehouse receipts were negotiated and indorsed to Luis Ramos and Cresencia Zoleta. Ramos and Zoleta then used the quedans as security for loans obtained by them from PNB. Upon maturity, both failed to pay, prompting PNB to demand the delivery of the sugar covered by the quedans indorsed to it by Ramos and Zoleta. Noahs refused to comply with the demand, PNB filed a case for Specific Performance. The main contention of Noahs was that it was still the owner of the subject quedans and the quantity of sugar represented thereon because the corresponding payment of Sy and Ng through checks were dishonoured and so they did not acquire ownership. The it follows that the subsequent indorsers and plaintiff itself did not acquire a better right of ownership than the original vendees or first indorsers. In the answer of Sy and Ng, they alleged that the transaction between them and Noahs, concerning the quedans, was bogus and simulated. It was part of a complex banking scheme and financial maneuvers to avoid VAT payment and other BIR assessments. ISSUES: 1. WON the non-payment of the purchase price for the sugar stock evidenced by the quedans, rendered invalid the negotiation of said quedans by Sy and Ng to indorsers Ramos and Zoleta and the subsequent negotiation of Ramos and Zoleat to PNB? 2. WON PNB as indorsee of quedans was entitled to delivery of sugar stocks from the warehouseman, Noahs Ark?

HELD: The validity of the negotiation by RNS Merchandising and St. Therese Merchandising to Ramos and Zoleta, and by the latter to PNB to secure a loan cannot be impaired by the fact that the negotiation between Noah's Ark and RNS Merchandising and St. Therese Merchandising was in breach of faith on the part of the merchandising firms or by the fact that the owner (Noah's Ark) was deprived of the possession of the same by fraud, mistake or conversion of the person to whom the warehouse receipt/quedan was subsequently negotiated if (PNB) paid value therefor in good faith without



notice of such breach of duty, fraud, mistake or conversion. (See Article 1518, New Civil Code). And the creditor (PNB) whose debtor was the owner of the negotiable document of title (warehouse receipt) shall be entitled to such aid from the court of appropriate jurisdiction attaching such document or in satisfying the claim by means as is allowed by law or in equity in regard to property which cannot be readily attached or levied upon by ordinary process. (See Art. 1520, New Civil Code). If the quedans were negotiable in form and duly indorsed to PNB (the creditor), the delivery of the quedans to PNB makes the PNB the owner of the property covered by said quedans and on deposit with Noah's Ark, the warehouseman. (See Sy Cong Bieng & Co. vs. Hongkong & Shanghai Bank Corp., 56 Phil. 598). In the case at bar, PNB's right to enforce the obligation of Noah's Ark as a warehouseman, to deliver the sugar stock to PNB as holder of the quedans, does not depend on the outcome of the third-party complaint because the validity of the negotiation transferring title to the goods to PNB as holder of the quedans is not affected by an act of RNS Merchandising and St. Therese Merchandising, in breach of trust, fraud or conversion against Noah's Ark. PNB v SAYO, JR. FACTS Noahs Ark Sugar Refinery (Noahs) issued several warehouse receipts (quedans), which were negotiated to Rosa, RNS and St. Therese (vendees), which were again negotiated to Luis and Cresencia, which they (Luis and Cresencia) endorsed to PNB as security for 2 loan agreements. o Transfer of quedans Noahs Rosa, RNS and St. Therese Luis and Cresencia PNB Luis and Cresencia failed to pay their loans hence PNB demanded delivery of sugar stocks, however, Noahs Ark refused, alleging ownership thereof. Noahs Ark contended that the agreement made by them with the vendees was stopped since the bank dishonored the payments made by the vendees to Noahs Ark. As such, the vendees and the endorsers of the quedans never acquired ownership thereof. Noahs Ark claimed for warehousemans lien for the storage of the goods. LC granted lien PNB appealed

While PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. The warehouseman is entitled to the warehousemans lien that attaches to the goods invokable against anyone who claims a right of possession thereon. However, in this case, the lien was lost when R refused to deliver the goods, which were not anchored to a valid excuse (i.e. non satisfaction of W/Hman Lien) but on an adverse claim of ownership. The loss of W/H Mans lien does not necessarily mean the extinguishment of the obligation to pay the W/H fees and charges which continues to be a personal liability of the owners, PNB in this case. However, such fees and charges have ceased to accrue from the date of the rejection by Noahs Ark to heed the lawful demand for the release of the goods.

ISSUE: WoN PNB is entitled to the stocks of sugar as the endorsee of the quedans, without paying the lien SC: YES



is written in continuation of the contract for the construction of the building, it is a collateral undertaking separate and distinct from the latter. All of these circumstances are distinguishing features of contracts of guaranty. GUARANTY AND SURETYSHIP B) On the other hand, a surety undertakes to pay if the principal does not pay, the guarantor only binds himself to pay if the principal cannot pay. The one is the insurer of the debt, the other an insurer of the solvency of the debtor. This latter liability is what the Fidelity Company assumed in this case. Thus, Fidelity having bound itself to pay only the event its principal, cannot pay it follows that it cannot be compelled to pay until it is shown that Machetti is unable to pay. The judgment appealed from is therefore reversed.

MACHETTI v HOSPICIO DE SAN JOSE FACTS: 1) In 1916, Romulo Machetti, agreed to construct a building in Manila for the Hospicio de San Jose, for 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 P128,800. Said contract read: For value received we hereby guarantee compliance with the terms and conditions as outlined in the above contract. 2) Thereafter Machetti constructed the building and, as the work progressed, payments were made to him from time to time, until the entire contract price, except the sum of P4,978.08, was paid. 3) Later on 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 thus the Hospicio presented a counterclaim for damages for the partial noncompliance with the terms of the agreement abovementioned, in the total sum of P71,350. 4) During the duration of the trial however, Machetti, declared insolvent and an order was entered suspending the proceeding in the present case. Thus, the Hospicio 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, which motion was granted and subsequently, the Hospicio filed a complaint against the Fidelity and Surety Company for a judgement against the company upon its guaranty. The CFI rendered judgment against Fidelity. ISSUE: Whether or not Fidelity is answerable to the Hospicio as guaranty of Machetti.

PHIL EXPORT v VP EUSEBIO FACTS: Respondent entered into contract with SOB for construction of Therapy Bldg. SOB demanded bonds to secure performance. Project was delayed DOCTRINE: By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so; if the person binds himself solidarily with the principal debtor, the contract is called suretyship. That the guarantee issued by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it does not take effect until the fulfillment of the condition. Unconditional guarantee is still subject to the condition that the principal debtor should default in his obligation first before resort to the guarantor could be had.

MANILA RAILROAD v ALVENDIA Facts: CFI sentenced Manila Railroad Co. (MRC) and Manila Port Service (MPS) to pay Bataan Refining Corp. MPS filed a notice of appeal accompanied by an appeal bond. Noticing that the appeal bond was only executed by MPS signed by the manager and Standard Insurance (as surety) signed by the vice-president, the trial court rejected the record on appeal. It is contended by MRC that the MPS, being a mere subsidiary or department of MRC, without legal personality of its own, the bond filed by the former should be a bond for the MRC and that the appeal of the latter should have been given due course.

HELD: A) Guarantor implies an undertaking of guaranty, as distinguished from suretyship and in this case, it appears that the contract is the guarantor's separate undertaking in which the principal does not join, that its rests on a separate consideration moving from the principal and that although it

Issue: Whether or not the notice of appeal should be accepted?



Held: No, the notice of appeal should be rejected. Where there is no principal debtor in the appeal bond, it is void and unenforceable. The mere recital in the body of the instrument, We, MRC et. al, as principal and the Standard Insurance Co. Inc xxx as surety does not suffice to make contract binding on the MRC unless it is shown that the same was authorized by it. Neither the signature nor the acknowledgment indicates that the act of that of the MRC or that the latter had empowered MPS to execute the bond in its behalf. The result would be that the appeal bond is void and unenforceable for lack of principal debtor or obligation. While the surety bound itself to pay jointly and severally, such an undertaking presupposes that the obligation is to be enforceable against someone else besides the surety and the latter could always claim that it was never its intention to be the sole person obliged thereby. SEVERINO v SEVERINO

F: upon the death of x, who left considerable property, a litigation ensued between c, xs widow, and other heirs of x. a compromise was effected by which d, a son of x, took over the property pertaining to the estate of x at the same time agreeing to pay P100k to c, payable, first in P40k cash upon the execution of the document of compromise and the balance, in three equal installments. G. affixed his name as guarantor Upon ds failure to pay the balance, c instituted an action against d and g, the latter contending that he received nothing for affixing his signature as guarantor to the contract and that in effect the contract was lacking in consideration as to him. Issue: is there a consideration for the guaranty?

IFC v IMPERIAL TEXTILE Facts: IFC extended to PPIC a loan of US$7,000,000.00, payable in sixteen (16) semiannual installments of US$437,500.00 each, beginning June 1, 1977 to December 1, 1984. On December 17, 1974, a Guarantee Agreement was executed with Imperial Textile Mills, Inc. (ITM). ITM agreed to guarantee PPIC's obligations under the loan agreement. PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1, 1978. Despite the rescheduling of the installment payments, however, PPIC defaulted. IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance. However, the outstanding balance remained unpaid. Issue: The issue is whether ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan. Ruling: Yes. The Agreement uses guarantee and guarantors, prompting ITM to base its argument on those words. This Court is not convinced that the use of the two words limits the Contract to a mere guaranty. The specific stipulations in the Contract show otherwise. While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was 'jointly and severally liable. To put emphasis on the nature of that liability, the Contract further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was a surety. Indubitably therefore, ITM bound itself to be solidarily.

Ruling: a guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. The compromise and dismissal of lawsuit is recognized in law as a valuable consideration; and the dismissal of the action which c instituted against d was an adequate consideration to support the promise on the part of d to pay the sums stipulated in the contract subject of the action It is neither necessary that the guarantor or surety should receive any part of the benefit, if such there be accruing to his principal. The true consideration of this contract was the detriment suffered by c in the former action in dismissing the proceeding and it is immaterial that no benefit may have accrued either to the principal or his guarantor

LEE v CA FACTS: PBCOM was furnished by a board resolution stating that they authorize President, Mr. Charles Lee, and the VicePresident and General Manager, Mr. Mariano A. Sio to apply for, negotiate and secure the approval of commercial loans and other banking facilities and accommodations, from the Philippine Bank of Communications, in such sums as they shall deem advantageous, the principal of all of which shall not exceed the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine Currency, plus any interests. Mico availed of the loans and as security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed on May 16, 1979 a Deed of Real Estate Mortgage over its properties situated in Pasig, Metro Manila.



On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a Surety Agreement in favor of PBCom whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for which MICO may be held accountable by PBCom. It was provided, however, that the liability of the sureties shall not at any one time exceed the principal amount of Three Million Pesos plus interest, costs, losses, charges and expenses including attorneys . On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom and applied for an additional loan in the sum of Four Million Pesos). The loan was intended for the expansion and modernization of the companys machineries. Upon approval of the said application for loan, MICO availed of the additional loan of Four Million Pesos (as evidenced by Promissory Note TA No. 094. As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account with PBCom. To induce the PBCom to increase the credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter referred to as petitioners-sureties), executed another surety agreement in favor of PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for which MICO may be held accountable by PBCom. It was provided, however, that their liability shall not at any one time exceed the sum of Seven Million Five Hundred Thousand Pesos including interest, costs, charges, expenses and attorneys fees incurred by MICO in connection therewith. Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. For failure of petitioner MICO to pay the obligations incurred despite repeated demands, private respondent PBCom extrajudicially foreclosed MICOs real estate mortgage and sold the said mortgaged properties in a public auction sale held on November 23, 1982 and PBCom won and applied the proceeds of the purchase price at public auction of Three Million Pesos to the expenses of the foreclosure, interest and charges and part of the principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos exclusive of penalty and interest charges. Aside from the unpaid balance, MICO likewise had another standing obligation and PBCom then demanded the settlement of the aforesaid obligations from herein

petitioners-sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary attachment, alleging that MICO was no longer in operation and had no properties to answer for its obligations. PBCom further alleged that petitioner Charles Lee has disposed or concealed his properties with intent to defraud his creditors. Except for MICO and Charles Lee, the sheriff of the RTC failed to serve the summons on herein petitionerssureties since they were all reportedly abroad at the time. An alias summons was later issued but the sheriff was not able to serve the same to petitioners Alfonso Co and Chua Siok Suy who was already sickly at the time and reportedly in Taiwan where he later died. Petitioners contend that there was no proof that the proceeds of the loans or the goods under the trust receipts were ever delivered to and received by MICO. But the record shows otherwise. Petitioners-sureties further contend that assuming that there was delivery by PBCom of the proceeds of the loans and the goods, the contracts were executed by an unauthorized person, more specifically Chua Siok Suy who acted fraudulently and in collusion with PBCom to defraud MICO. ISSUE: Whether or not the individual petitioners, as sureties, may be held liable under the two (2) Surety Agreements executed on March 26, 1979 and July 28, 1980. RULING: Yes. The court ruled that it is proven that MICO received the proceeds of the loan and that PBCom has the right to to believe that Chua Siok Suy based on the Certificate issued by the Sectretary of MICO. The court ruled that as regards petitioners-sureties contention that they obtained no consideration whatsoever on the surety agreements, the court pointed that the consideration for the sureties is the very consideration for the principal obligor, MICO, in the contracts of loan. In the case of Willex Plastic Industries Corporation vs. Court of Appeals, we ruled that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effective between the parties thereto. It is not necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. DE GUZMAN v SANTOS FACTS:



Jerry O. Toole, Antonio Abad and Anastacio Santos formed a general mercantile partnership Philippine American Construction Company with a capital of P14k. P10k of which were taken by way of loan from Paulino Candelaria. The partnership and the copartners undertook and bound themselves to pay jointly and severally the indebtedness. Upon default, Paulino filed civil case against Phil-Am Construction Company and co-partners for the recovery of loan TC ordered all Defendants to pay jointly and severally; CA affirmed Upon filing of complaint, Paulino obtained a writ of attachment against Defendants. The Sheriff attached properties of 3 partners. Partnership offered to post a bond of P10k. Phil-Am Construction Company as principal then represented by the partner Antonio Abad, Santiago Lucero and Meliton Carlos as guarantors executed a bond of P10k in favour of Paulino for the lifting of the attachment. After issuance of writ of execution, Sheriff found no property of the judgment debtors. Paulino moved for the issuance of writ of execution against the guarantors of Defendants. Guarantor-Plaintiff and co-guarantor Meliton Carlos later paid the creditor and were able to recover from Antonio Abad a sum of P3800, which they divided equally. It appeared that the payment made by the plaintiff to Paulino was reduced to the sum of P3665. Plaintiff now demands from Anastacio Santos the return of the aforesaid sum but Anastacio refused.

can only recover from the debtor in so far as the payment has been beneficial to the latter. It is evident that Defendant is bound to pay to the plaintiff what the latter had advanced to the creditor upon the judgment, and this is more so because it appears that although Lucero executed the bond without his knowledge, nevertheless he did not object thereto or repudiate the same at any time.

MUNICIPALITY OF GASAN v MARASIGAN FACTS: The plaintiff-appellee municipality, on December 9, 1930, put up at auction the privilege of gathering whitefish spawn in its jurisdictional waters for the period of one year from January 1, 1931. Two bidders, Graciano Napa and Miguel Marasigan, appeared at the auction. Graciano Napa proposed to accept the privilege by paying P5,000 therefor, Miguel Marasigan proposed to do likewise, but by paying only P4,200. The council of the plaintiff-appellee municipality, in its resolution No. 161 (Exhibit 1) of December 11, 1930 rejected Graciano Napa's bid and accepted that of the appellant Miguel Marasigan. To secure his compliance with the terms of the contract which was immediately formalized by him and the plaintiff, and pursuant to the provisions of section 8 of resolution No. 128, series of 1925, of the council of said plaintiff, Miguel Marasigan filed the bond, Exhibit B, subscribed on December 15, 1930, by the defendants-appellants Angel R. Sevilla and Gonzalo L. Luna, who bound themselves in said document to pay to the plaintiff the sum of P8,400, if Miguel Marasigan failed to deposit one-fourth of P4,200 quarterly in advance in the municipal treasury of Gasan. Graciano Napa forwarded a protest (Exhibit 4) to the provincial board, which protest was later indorsed by said provincial board to the Chief of the Executive Bureau, alleging that the plaintiff municipality violated the provisions of section 2323 of the Administrative Code in rejecting his bid. The provincial board, passing upon Graciano Napa's protest and acting under the authority which, in its opinion, was granted to it by section 2233 of the Administrative Code, held that resolution No. 161, series of 1930, by virtue of which the municipal council of Gasan rejected Graciano Napa's bid and accepted that of Miguel Marasigan, notwithstanding the fact that the latter offered to pay less, was invalid, and suggested that the privilege should be, awarded to Graciano Napa who, in its opinion, appeared to be the highest bidder in accordance with the provisions of sections 2323 and 2319 of the Administrative Code (Exhibit 9). The Executive Bureau, concurring with the provincial board's points of view,

ISSUE: Whether or not Defendant is bound to pay Plaintiff what he had advanced to Paulino? HELD: YES Article 1838 provides that any guarantor who pays for the debtor shall be indemnified by the latter even should the guaranty have been undertaken without the knowledge of the debtor. IN THIS CASE: The guarantor was the deceased Santiago Lucero, now represented by the plaintiff in her capacity as judicial administratrix, and the debtor is the defendant-appellant. Applying the provision cited, it is obvious that the Defendant is legally bound to pay what the Plaintiff had advanced to the creditor upon the judgment, notwithstanding the fact that the bond had been given without his knowledge. Any person who makes a payment for the account of another may recover from the debtor the amount of the payment, unless it was made against the express will of the latter. In the latter case, he



declared, in turn, that the concession made to Marasigan was illegal in view of the fact that Graciano Napa was the highest bidder (Exhibit 13). The plaintiff municipality decided to award the privilege of gathering whitefish spawn within its waters to Graciano Napa, giving him a period of seven days, from January 8, 1931 (Exhibit 19-A), to deposit the sum of P500. Graciano Napa not only failed to make the deposit required by the plaintiff but he formally declared, through his duly authorized representative, that he yielded the privilege granted him to Miguel Marasigan or to any other person selected by the municipal authorities. One day later plaintiff-appellee municipality sent the letter Exhibit 21 to Miguel Marasigan informing him that the contract between them becomes effective on January 14, 1931. Prior to this, plaintiff informed Marasigan that the contract granting Marasigan the privilege is suspended & considered ineffective while the protest is pending. Plaintiff filed an action to recover from Marasigan, Sevilla and Luana the sum of P 3,780 as part of license fees which they failed to pay. ISSUE: w/n respondents are liable HELD: No. The contract was not only considered not consummated but cancelled. It ceased to be valid when it was cancelled Neither the appellant nor his sureties were bound to comply with the terms of their respective contracts of fishing privilege and suretyship. This is so particularly with respect to the sureties, because suretyship cannot exist without a valid obligation. Guaranty is not presumed. The elimination of the obligation for which said sureties desired to answer with their bond also rendered the bond also eliminated. SMITH BELL v PNB FACTS On April 1918, Fred M. Harden applied to Smith, to buy 8 Anderson expellers end drive, latest model, for the price

of P80,000, to be paid on delivery. This would be used for the extraction of coconut oil. It was understood that these expellers would be manufactured in the US and delivery would be in the month of February or March of the ensuing year. In order to assure the prompt payment of the price upon delivery, an arrangement was made between Harden and the Philippine National Bank (PNB) whereby the latter bound itself to Smith, Bell & Co. for the payment of the contract price, but provided that the expellers would delivered to them and must be new and in first class working order. Shortly after the contract was made, Harden appeared in the office of Smith, Bell & Co. and requested them to change the order for the expellers from "end-drive" to "side-drive;" and in obedience to this instruction, the house cabled to its agent in New York to change the order accordingly, which was done. On July 1919, Smith, Bell & Co. informed both Harden and PNB that the expellers had arrived. Shortly thereafter Harden, having examined the machinery in the Plaintiff's bodega, advised the Bank that the expellers were not as ordered. Consequently, the Bank naturally refused to accept and pay for the machinery, and the Plaintiff disposed of them to the best advantage in the Manila market at a price which was below the price at which Harden had agreed to take them. The ground upon which the defense is chiefly rested is that the expellers tendered by the Plaintiff were "sidedrive" instead of "end-drive" expellers, and in support of this contention Harden was produced by the Defendant as a witness, and he denied that the order for expellers had been changed upon his instructions.

Issue: Whether or not PNB is subsidiary liable? Rulings: NO. The SC ruled that PNBs liability is primary in nature. The contract by which the Bank obligated itself is both in form and effect an independent undertaking on the part of the Bank directly to the Plaintiff; and inasmuch as the Plaintiff had compiled, or offered to comply, with the terms of said contract, the Bank is bound by its promise to pay the purchase price. Its obligation to the Plaintiff is direct and independent. The debt must be considered a liquidated debt, in the sense intended in article 1825 of the Civil Code; and the action is now maintainable by the Plaintiff directly against the Bank without regard to the position of Harden. The Bank is to be considered strictly in the light of an independent promisor, a consequence would be that



Harden had no authority to change the order from enddrive to side-drive expellers; in other words, that the Bank should be held to be obligated according to the terms of the order as it stood when the Bank entered into the undertaking which is the subject of the suit.

WISE & CO. v KELLY FACTS: Kelly bought goods and merchandise on credit from Wise and Co., with the agreement that Kelly will apply the proceeds of its sale to the discharge of his indebtedness. Lim, as surety for Kelly, guaranteed unto Wise & Co. the payment of a sum of money which Kelly owes to Wise for goods and merchandise received and purchased by Kelly, to be sold in his establishment, upon the condition that Kelly will pay over to Wise at the end of each month all sums which he may receive from the sale of said goods and merchandise, and that in the contrary event, the surety undertakes to pay Wise such sums as Kelly may fail to turn in. As alleged by Wise, Kelly has not paid any money and thus filed a collection case against Kelly and Lim. Lim interposed the defense that the obligation was conditional as to him, and that the fact constituting the condition had not occurred. Lower court dismissed the case against Lim on the ground that wise has not proven that Kelly had failed to turn over any money and established the conclusion that Lim had incurred no liability. ISSUE: WON Lim should be held liable. HELD: NO. Lim is not liable for the difference between the amount realized from the sale of the merchandise and the purchase price of the same. Lim as surety did not undertake to pay the principal amount due. His agreement was limited to respond for the performance by Kelly of one of the accessory pacts, namely, the undertaking to deliver to Wise the total proceeds of the sales of the merchandise for the invoice value of which the promissory note was given. Wise has not proved that it has NOT in fact received all the money derived from the sale of the merchandise mentioned in the note, it follows that there is no evidence of the existence of the condition to which the obligation assumed by Lim was subordinated. In obligations subject to a suspensive condition the acquisitions of the right on the part of the creditor depends upon the occurrence of the event constituting the conditions.

among others, any existing indebtedness of Davao Agricultural Industries Corporation provided that the liability shall not exceed at any one time the aggregate principal sum of P100,000.00. A promissory note in the amount of P100,000.00 was issued in favor of petitioner. Said note was signed by Enrique Go, Sr. in his personal capacity and in behalf of Daicor. The promissory note was not fully paid despite repeated demands; hence petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and Residoro Chua Petitioner alleged that by virtue of the execution of the comprehensive surety agreement, private respondent is liable because said agreement covers not merely the promissory note subject of the complaint, but is continuing; and it encompasses every other indebtedness the Borrower may, from time to time incur with petitioner bank. The sole issue resolved by respondent court was the interpretation of the comprehensive surety agreement, particularly in reference to the indebtedness evidenced by the promissory note involved in the instant case, said comprehensive surety agreement having been signed by Enrique Go, Sr. and private respondent, binding themselves as solidary debtors of said corporation not only to existing obligations but to future ones.

Respondent court said that corollary to that agreement must be another instrument evidencing the obligation in a form of a promissory note or any other evidence of indebtedness without which the said agreement serves no purpose; that since the promissory notes, which is primarily the basis of the cause of action of petitioner, is not signed by private respondent, the latter can not be liable thereon.

ISSUE: whether private respondent is liable to pay the obligation evidence by the promissory note? HELD: YES, The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President and General Manager, respectively of Daicor, 1976 to cover existing as well as future obligations which Daicor may incur with the petitioner bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00 The agreement was executed obviously to induce petitioner to grant any application for a loan Daicor may desire to obtain from petitioner bank. The guaranty is a continuing one which shall remain in

RCBC v ARRO FACTS: Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreements to guaranty



full force and effect until the bank is notified of its termination. The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, 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

1) For several years Destilleria Lim Tuaco & Co., Inc. had one Dy Eng Giok as its provincial sales agent who has the duty of turning over the proceeds of his sales to the distillery company. In 1951, Dys outstanding running account was in the sum of P12,898.61. Thereafter, a surety bond was executed by Dy as principal and Traders Insurance as solidary guarantor, whereby they bound themselves, jointly and severally, WHEREAS, the contract requires the above bounden principal to give a good and sufficient bond in the above stated sum to secure the full and faithful fulfillment on its part of said contract; namely, to guarantee the full payment of the Principal's obligation not to exceed the above stated sum. 2) On the same date, by Eng Giok, as principal, with Pedro Lopez Dee and Pedro Dy-Liacco, as counterboundsmen, subscribed an indemnity agreement in favor of appellant Surety Company, where, in consideration of its surety bond, the three agreed to be obligated to the surety company. Thereafter, Dy contracted obligations in favor of the Destilleria in the amount of P41,449.93; and Dy made remittances of the same amount 3) The distillary, however, applied said remittances first to Dy Eng Giok's outstanding balance prior to August 4, 1951, before the suretyship agreement was executed, in the sum of P12,898.61; and the balance of P28,965.88 to Dy's obligations between August 4, 1951 and August 3, 1952. 4) Then demanded payment of the remainder from Dy, and later, from the appellant Surety Company. The latter paid P10,000.00 (the maximum of its bond) on July 17, 1953, apparently, without questioning the demand; and then sought reimbursement from Dy Eng Giok and his counter guarantors, who however failed to pay. Because of this the company brought an action to enforce collection. 5) The CFI absolved the counter-guarantors on the theory that in so far as they are concerned, the payments made by Dy from August 4, 1951 to August 3, 1952, should have been applied to his obligations during that period, which were the ones covered by the surety bond and the counter-guaranty; and since these obligations only amounted to P41,449.93, the payments exceeding the obligations, the CFI concluded that the Surety Company incurred no liability and the counterbondsmen in turn had nothing to answer for. HELD: A) The CFI is correct. There are two reasons why the remittances by Dy Eng Giok in the sum of P41,864.49 should be applied to the obligation of P41,449.93 contracted by him during the period covered by the suretyship agreement:

WILLEX PLASTICS v CA FACTS: - Inter Resin opened a Letter of Credit with Manila Banking Corp. with security of Continuing Surety Agreement signed by Inter Resin and Investment and Underwriting Corp (IUCP) wherein they bound themselves solidarily for the. - Later Inter Resin together with Willex (P) executed a continuing guaranty in favor of IUCP, stating that Inter Resin and P are solidarily liable. Due to this, IUCP paid Manila Bank P4M (Letter of Credit) - IUCP then demanded payment of the amount, however, Inter Resin and P failed to do so. Hence, this case - P contends that it should not be liable since P is merely a guarantor ISSUE: WoN P ma be held jointly and severally liable with Inter Resin for the amount paid by Interbank to Manila Bank SC: YES - The amount had been paid by InterBank to Manila bank - The intention of the parties is to secure the payment of the obligation. o CA held-to secure the guarantee undertaken by Interbank of the credit accommodation granted to Inter Resin by Manila Bank, Interbank required P to sign a Continuing Guaranty DOCTRINE: Although a contract of suretyship is ordinarily not be construed retrospective, in the end the intention of the parties as revealed by the evidence is controlling TRADERS INSURANCE v DY FACTS:



a.. In the absence of express stipulation, a guaranty or suretyship operates prospectively and not retroactively; that is to say, it secures only the debts contracted after the guaranty takes effect because a guaranty is not presumed, but must be express, and can not extend to more than what is stipulated. b.. Since the obligations of Dy between August 4, 1951 to August 4, 1952, were guaranteed, while his indebtedness prior to that period was not secured, then in the absence of express application by the debtor, any partial payments made by him should be imputed or applied to the debts that were guaranteed, since they are regarded as the more onerous debts from the standpoint of the debtor. B) In essence therefore debts covered by a guaranty are deemed more onerous to the debtor than the simple obligations because, in their case, the debtor may be subjected to action not only by the creditor, but also by the guarantor, and this even before the guaranteed debt is paid by the guarantor; hence, the payment of the guaranteed debt liberates the debtor from liability to the creditor as well as to the guarantor, while payment of the unsecured obligation only discharges him from possible action by only one party, the unsecured creditor. C) Thus, payment voluntarily made by appellant was improper since it was not liable under its bond; consequently, it can not demand reimbursement from the counterbondsmen but only from Dy. D) Ultimately, the application by a creditor depends upon the debtor acquiescence thereto. In the present case, as already noted, there is no evidence that the receipts for payment expressed any imputation, or that the debtor agreed to the same. Judgment is affirmed.

GARON v PROJECT MOVERS Facts: Project Movers Realty and Devt Corp (PMRDC) obtained a loan from Garon. The loan was covered by a Promissory note to mature on December 19. The stipulated interest rate was 36% per annum. To secure the payment of the loan, PMRDC undertook to assign to Garon its leasehold rights over a space at the Monumento Plaza Commercial Complex. The parties stipulated that failure to pay the note or any portion thereof, or any interest thereon, shall constitute as default and the entire obligation shall become due and demandable without need of demand. PMRDC obtained another loan from Garon at 17% per annum to mature on December 31. It is covered by another promissory note and secure a leasehold rights over another space in Monumento Plaza. To secure its obligations to assign the leasehold rights to Garon, PMRDC procured a surety bond from Stronghold Insurance, which the liability of the surety will not exceed the sum of P12M and will expire on Nov 7. When PMRDC defaulted in the payment of its obligations, Garon sent a demand letter dated Nov 3 requiring PMRDC to execute and deliver a unilateral Deed of Assignment of its leasehold rights over the commercial spaces. Garon also sent a demand letter to the surety on Nov 6. For failure to comply with the demand, Garon filed a complaint for collection of the principal obligation against PMRDC and the surety. The surety contends that the complaint stated no cause of action and was prematurely filed. At the time Garon sent the demand letter, the obligation guaranteed by the bond had not yet matured. On the part of PMRDC, it denied that it executed the promissory noted and alleged instead that they were mere roll-overs. It also alleged that it already complied with its undertaking under the promissory notes when it put up a surety bond. And that when Garon chose to demand from the surety, she effectively waived the right to claim for it.

SOCONY v CHO SIONG FACTS: Cho Siong entered into contract of agency for distribution of petroleum products, assumed liability of former agent Tong Kuan. His agency bond was secured by Ong Guan Can. Defaulted in the amount of P64.00 DOCTRINE: Under the terms of the bond signed by the surety, he did not answer for the principal obligor save for the Latters acts by virtue of the contract of agency. He cannot be held liable for the debt of a former agent, which the principal obligor assumed by virtue of another contract, of which said surety was not even aware. A contract of suretyship is to be strictly interpreted and is not to be extended beyond its terms.

Issue: Whether or not the surety is liable to Garon under its surety bond. Held: Yes, the surety is liable in general. The principal obligation guaranteed by the surety bond is the assignment of leasehold rights of PMRDC to Garon over the subject spaces. Garon made a formal demand but PMRDC defaulted. As such, PMRDCs liability arose. Consequently, the suretys liability likewise arose. Suretyship arises upon the solidary binding of a person with the principal debtor, for the purpose of fulfilling an



obligation. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged as touching the obligation of the latter and their liabilities are interwoven as to be inseparable. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute or equivalent to that of a regular party to the undertaking. Note: Surety in this case was not held liable since its undertaking under the surety bond was merely to guarantee the assignment of PMRDCs leasehold rights and not the payment of the entire obligation and Garon is seeking to enforce her right to collect the principal debt rather than enforce the security.

Ruling: Obviously, Commonwealth is obliged to pay the principal being the surety. Regarding the interest, generally no. However because Commonwealth refused to pay the principal when the lower court ordered it to do so, it is now bound to pay the interest. NAMARCO v MARQUEZ FACTS: Properties, rights, obligations, and contracts of the Philippine Relief and Trade Rehabilitation Administration (PRATRA) had been transferred to the Price Stabilization Corporation (PRISCO) and subsequently all rights and contracts of the PRISCO involving real estate, fixed assets and stock in trade had been assumed by herein plaintiff, the NAMARCO. Marquez secured from the PRATRA one tractor and one rice thresher, with a total value of P20,000.00 for which the said defendant paid thereon the sum of P8,000.00 as down payment, thereby leaving a balance of P12,000.00. Marquez executed a promissory note in the amount of P12,000.00 payable in installments commencing from June 24, 1951 to June 25, 1952, with interest thereon at the rate of 7% per annum from June 24, 1950 until finally paid. To guarantee full compliance with the aforementioned obligation, defendant Marquez, as principal, and defendant Plaridel Surety & Insurance Company, as surety, executed Guaranty Bond P. S. & I. No. 4220 in favor of the PRATRA, wherein they bound themselves, jointly and severally, to pay the said amount of P12,000.00 (Exhibit C). In this guaranty bond, the surety expressly waives its right to demand payment and notice of non-payment and agrees that the liabilities of this guaranty shall be direct and immediate and not contingent upon the exhaustion by the PRATRA of whatever remedies it may have against the principal, and that the same shall be valid and continuous until the obligation so guaranteed is paid in full. After making partial payment, Marquez defaulted in the payment of the other installments. Plaintiff demanded from defendants Marquez and Plaridel Surety & Insurance Company, payment of their outstanding obligation. The claim, therefore, of defendant Plaridel Surety & Insurance Company that they never received a demand for payment from plaintiff must necessarily fail, considering that it is clearly shown in registry return receipts that the same had been received by the addressee.

REPUBLIC v PAL-FOX LUMBER Facts: Pal-Fox Lumber Co., Inc. was indebted to the Bureau of Internal Revenue for forest charges and surcharges amounting to P11,851.56, and that the Far Eastern Surety & Insurance Co., Inc. was jointly and severally liable with the lumber company for the payment of said forest charges up to P5,000.00. Republic moved for reconsideration, pointing out that the surety company's correct liability under the appealed decision was P5,000.00 plus legal interest from the filing of the complaint. In other words, the Republic would want the surety company to pay the legal interest adjudged by the trial court before the case may finally be considered dismissed. Far Eastern's denial of liability for such interest is based on the stipulation in the bond that it was bound to the plaintiff "in the sum of P5,000.00." Issue: W/N Far Eastern should also pay interest? Ruling: Yes. Article 2055, paragraph 2, of the Civil Code of the Philippines is clearly applicable. If it (the guaranty) be simple or indefinite, it shall comprise not only the principal obligation but also all its accessories, including judicial costs.

COMMONWEALTH v CA This case is about SIGS and ELBA borrowing money from RCBC worth P4m. Commonwealth being the surety. SIGS and ELBA defaulted so RCBC went after Commonwealth. Commonwealth insists on not paying. Lower Court ruled in favor of RCBC and ordered Commonwealth to pay the principal debt plus interest. Commonwealth refused. Commonwealth appealed to CA and questions the ruling of the lower court awarding interest. (focus on interest) Issue: WoN Commonwealth whould pay principal and interest

ISSUES: Whether the surety's liability can exceed the sum of P12,000.00. RULING: Yes While the guarantee was for the original amount of the debt of Gabino Marquez, the amount of the judgment by the trial



court in no way violates the rights of the surety. The judgment on the principal was only for P10,000.00, while the remaining P9,990.91 represent the moratory interest due on account of the failure to pay the principal obligation from and after the same had fallen due, and default had taken place. Appellant surety was fully aware that the obligation earned interest, since the note was annexed to its contract, Exhibit "C".

The contract of guaranty executed by the appellant Company nowhere excludes this interest, and Article 2055, paragraph 2, of the Civil Code of the Philippines is clearly applicable. If it (the guaranty) be simple or indefinite, it shall comprise not only the principal obligation but also all its accessories, including judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay. Compensated sureties are not entitled to have their contracts interrupted strictissimi juris in their favor VIZCONDE v IAC FACTS: Perlas called Vizconde and asked her to sell an 8 carat diamond ring on a commission for P85k Vizconde later returned the ring. Afterwards, Vizconde called on Perlas and claimed that there was a sure buyer for the ring, Pilar Pagulayan Pagulayan gave a post-dated check; Perlas and Vizconde signed a receipt (Exh. A) The check was dishonoured. After 9 days, Pagulayan paid Perlas P5k against the value of the ring and gave 3 Certificates of Title to guarantee delivery of the balance of such value (Exh D) Perlas filed a complaint against Pagulayan and Vizconde for estafa. TC and CA Vizconde and Pagulayan had assumed a joint agency in favour of Perlas for the sale of the latters ring, which rendered them criminally liable, upon failure to return the ring or deliver its agreed value, under Art 315, par 1(b) of the Revised Penal Code SOL GEN disagreed; Vizconde cant be convicted of estafa based on the Exhibits presented ISSUE: Whether Vizconde was considered as agent of Perlas or mere guarantor of obligation of Pagulayan? HELD: Mere guarantor Nothing in the language of the receipt, Exh A, or in the proven circumstances attending its execution can logically be considered as evidencing the

creation of an agency between Perlas, as principal, and Vizconde as agent, for the sale of the formers ring. If any agency was established, it was one between Perlas and Pagulayan only, this being the 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 Vizcondes signature. The joint and several undertaking assumed by Vizconde in a separate writing below the main body of the receipt, Exhibit A, merely guaranteed the civil obligation Pagulayan to pay Perlas the value of the ring in the event of her (Pagulayans) failure to return said article. What is clear from Exh A is that the ring was entrusted to 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. Upon the evidence, Vizconde was a mere guarantor, a solidary one to be sure, of the obligation assumed by Pagulayan to complainant Perlas for the return of the latters 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. ESTATE OF HEMADY v LUZON SURETY

FACTS: The Luzon Surety Co. had filed a claim against the Estate based on twenty different indemnity agreements, or counter bonds, each subscribed by a distinct principal and by the deceased K. H. Hemady, a surety solidary guarantor) in all of them, in consideration of the Luzon Surety Co.s of having guaranteed, the various principals in favor of different creditors. The Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the twenty bonds it had executed in consideration of the counterbonds, and further asked for judgment for the unpaid premiums and documentary stamps affixed to the bonds, with 12 per cent interest thereon.



The lower court, by order of September 23, 1953, dismissed the claims of Luzon Surety Co., on the ground that whatever losses may occur after Hemadys death, are not chargeable to his estate, because upon his death he ceased to be guarantor. The reasoning of the court below ran as follows: The administratrix further contends that upon the death of Hemady, his liability as a guarantor terminated, and therefore, in the absence of a showing that a loss or damage was suffered, the claim cannot be considered contingent. This Court believes that there is merit in this contention and finds support in Article 2046 of the new Civil Code. It should be noted that a new requirement has been added for a person to qualify as a guarantor, that is: integrity. As correctly pointed out by the Administratrix, integrity is something purely personal and is not transmissible. Upon the death of Hemady, his integrity was not transmitted to his estate or successors. Whatever loss therefore, may occur after Hemadys death, are not chargeable to his estate because upon his death he ceased to be a guarantor. Another clear and strong indication that the surety company has exclusively relied on the personality, character, honesty and integrity of the now deceased K. H. Hemady, was the fact that in the printed form of the indemnity agreement there is a paragraph entitled Security by way of first mortgage, which was expressly waived and renounced by the security company. The security company has not demanded from K. H. Hemady to comply with this requirement of giving security by way of first mortgage. In the supporting papers of the claim presented by Luzon Surety Company, no real property was mentioned in the list of properties mortgaged which appears at the back of the indemnity agreement. (Rec. App., pp. 407-408). ISSUE: W/N the liability of the guarantor was terminated upon his death HELD: NO. Under the present Civil Code (Article 1311), as well as under the Civil Code of 1889 (Article 1257), the rule is that Contracts take effect only as between the parties, their assigns and heirs, except in the case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Under our law, therefore, the general rule is that a partys contractual rights and obligations are transmissible to the successors. Of the three exceptions fixed by Article 1311, the nature of the obligation of the surety or guarantor does not warrant the conclusion that his peculiar individual qualities are contemplated as a principal inducement for the contract. What did the creditor Luzon Surety Co. expect of K. H. Hemady when it accepted the latter as surety in the counterbonds? Nothing but the reimbursement of the moneys that the Luzon Surety Co. might have to disburse on

account of the obligations of the principal debtors. This reimbursement is a payment of a sum of money, resulting from an obligation to give; and to the Luzon Surety Co., it was indifferent that the reimbursement should be made by Hemady himself or by some one else in his behalf, so long as the money was paid to it. The second exception of Article 1311, p. 1, is intransmissibility by stipulation of the parties. Being exceptional and contrary to the general rule, this intransmissibility should not be easily implied, but must be expressly established, or at the very least, clearly inferable from the provisions of the contract itself, and the text of the agreements sued upon nowhere indicate that they are nontransferable. Because under the law (Article 1311), a person who enters into a contract is deemed to have contracted for himself and his heirs and assigns, it is unnecessary for him to expressly stipulate to that effect; hence, his failure to do so is no sign that he intended his bargain to terminate upon his death. Similarly, that the Luzon Surety Co., did not require bondsman Hemady to execute a mortgage indicates nothing more than the companys faith and confidence in the financial stability of the surety, but not that his obligation was strictly personal. The third exception to the transmissibility of obligations under Article 1311 exists when they are not transmissible by operation of law. The provision makes reference to those cases where the law expresses that the rights or obligations are extinguished by death, as is the case in legal support (Article 300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work (Article 1726), partnership (Article 1830 and agency (Article 1919). By contract, the articles of the Civil Code that regulate guaranty or suretyship (Articles 2047 to 2084) contain no provision that the guaranty is extinguished upon the death of the guarantor or the surety. WISE & CO. v TANGLAO FACTS In the CFI of Manila, Wise & Co filed a civil case against Cornelio C. David for the recovery of a certain sum of money. David was an agent of Wise & Co. and the amount claimed from him was the result of a liquidation of accounts showing that he was indebted in said amount. In said case Wise & Co. asked and obtained a preliminary attachment of David's property. To avoid the execution of said attachment, David succeeded in having the defendant Attorney Tanglao sign a power of attorney in his favor, with a clause (considered a special POA to David) To sign as guarantor for himself in his indebtedness to Wise & Company of Manila, and to mortgage the Attorneys lot



Subsequently, David made a compromise with the petitioner by paying P340 leaving an unpaid balance of P296 and pledged the lot owned by the Atty as a guaranty for the balance. Wise & Co. now institutes this case against Tanglao for the recovery of said unpaid amount. There is no doubt that under POA, Tanglao empowered David, in his name, to enter into a contract of suretyship and a contract of mortgage of the property described in the document, with Wise & Co. However, David used said power of attorney only to mortgage the property and did not enter into contract of suretyship.

guarantor the payment of the debt of one Alfredo Brillantes in favor of Southern Motors, Inc. due to the failure of Brillantes to settle his obligation; plaintiff filed an action against defendant to foreclose the real estate mortgage. Defendant filed an answer alleging that the plaintiff has no right of action against him because the plaintiff did not intent to exhaust all recourses to collect from the true debtor (Brillantes), notwithstanding the fact that the latter is solvent and has many properties within the Province of Iloilo. ISSUE: WHETHER THE MORTGAGE IN QUESTION COULD BE FORECLOSED ALTHOUGH PLAINTIFF HAD NOT EXHAUSTED, AND DID NOT INTEND TO EXHAUST, THE PROPERTIES OF HIS PRINCIPAL DEBTOR. HELD: NO. The right of guarantors, under Art. 2058 of the Civil Code, 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. Although an ordinary personal guarantor not a mortgagor or pledgor may demand exhaustion of the properties of the principal debtor, the creditor may, prior thereto, secure 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.

ISSUE Whether or not Atty. Tanglao is liable? RULING NO. The SC ruled that there is nothing stated in the Compromise Agreement to the effect that Tanglao became David's surety for the payment of the sum in question. Neither is this inferable from any of the clauses thereof, and even if this inference might be made, it would be insufficient to create an obligation of suretyship which, under the law, must be express and cannot be presumed. The only obligation which the Compromise Agreement, in connection with POA, has created on the part of Tanglao, is that resulting from the mortgage of a property belonging to him to secure the payment of said P640. However, a foreclosure suit is not instituted in this case against Tanglao, but a purely personal action for the recovery of the amount still owed by David. At any rate, even granting that Defendant Tanglao may be considered as a surety under the cited Compromise the action does not yet lie against him on the ground that all the legal remedies against the debtor have not previously been exhausted (art. 1830 of the Civil Code, and decision of the Supreme Court of Spain of March 2, 1891). The Plaintiff has in its favor a judgment against debtor David for the payment of debt. It does not appear that the execution of this judgment has been asked for and the Compromise, on the other hand, shows that David has two pieces of property the value of which is in excess of the balance of the debt the payment of which is sought of Tanglao in his alleged capacity as surety.

SAAVEDRA v PRICE FACTS: This is a proceeding instituted by the petitioner to annul the order of May 8, 1939, entered by the Court of First Instance of Leyte, which provided for the sale at public auction of the real property described in Transfer Certificate of Title No. 395 issued in favor of the petitioner, so that the proceeds thereof may be applied to the payment of the credit of the respondent W.S. Price in the sum of P15,000

SOUTHERN MOTORS v BARBOSA FACTS: Defendant Barbosa executed a real estate mortgage for the only purpose of guaranteeing as surety and/or

In civil case No. 3707 of the Court of First Instance of Leyte, W.S. Price, plaintiff vs. Ceferino Ibaez et al., defendants, said court rendered judgment ordering the defendants to pay the plaintiff within ninety days the sum of P15,000, with the legal interest thereon from January 16, 1934, and in case of default on their part, that the real property subject matter of the mortgage be sold at public auction so that the proceeds thereof may be applied to the payment of the sum in question and the interest thereon.



After the period of ninety days has elapsed and Rafael Martinez and Ceferino Ibaez failed to pay the sum in question with the interest thereon, the respondent Price filed a motion praying that the real property mortgaged be sold at public auction for the payment of his mortgage credit and its interest. This was denied. The petitioner now claims that the respondent Judge acted with abuse of his discretion in not transferring the hearing of the motion for the sale of the mortgaged realty and that he exceeded his jurisdiction in ordering the sale of said property.

LC ordered D to pay P, which the bondsmen appealed. D also pointed out properties of the previous guardian which are now being adversely rd claimed by 3 parties

ISSUE: WoN the bondsmen are liable SC: YES - For the surety to be not liable, he must be able to point out property of the principal debtor which are realizable and is situated within the Philippines to insure the fulfillment of the obligation and furnish the creditor with the means of obtaining its fulfillment without delay - The property pointed out by the sureties is not sufficient to pay the indebtedness; it is not salable; it rd is encumbered to 3 parties BITANGA v PYRAMID FACTS: 1) On March 26 1997, Pyramid entered into an agreement with Macrogen Realty, of which Bitanga is the President, to construct for the latter a building, located in Sucat, Paraaque. Pyramid then commenced civil, structural, and architectural works on the construction project. However, Macrogen Realty failed to settle respondents progress billings. Bitanga, assured Pyramid that the outstanding account of Macrogen Realty would be paid.Thus, Pyramid continued the construction project. 2) In August 1998, Pyramid suspended work on the construction project since the conditions that it imposed for the continuation thereof, including payment of unsettled accounts, had not been complied with by Macrogen Realty and eventually, on 1 September 1999, respondent instituted with the Construction Industry Arbitration Commission (CIAC) a case for arbitration against Macrogen Realty seeking payment by the latter of its unpaid billings and project costs. Macrogen, chose to amicably settle the arbitration case and both parties entered into a Compromise Agreement, with Bitanga acting as signatory for and in behalf of Macrogen Realty. 3) Under the Agreement, Macrogen Realty agreed to pay Pyramid the total amount in six equal monthly installments, that if it would default in the payment of two successive monthly installments, immediate execution could issue against it for the unpaid balance, without need of judgment from any court or tribunal. Bitanga guaranteed the obligations of Macrogen Realty under the Compromise Agreement by executing a Contract of Guaranty in favor of respondent, by virtue of which he irrevocably and unconditionally guaranteed the full and complete payment of the principal amount of liability of Macrogen Realty.

ISSUE: Whether or not the order of sale of such property was proper? HELD: It is contended that since the petitioner is not the debtor and as she, on the other hand is the owner of the mortgaged realty, she merely acted as surety to Rafael Martinez, the principal debtor, and as such she entitled to the benefit of the exhaustion of the property of the principal debtor, in accordance with the provision of article 1830 of the Civil Code.

We are of the opinion that this last contention is likewise unfounded and untenable. o In the first place, this alleged defense should have been interposed before the judgment was rendered in this case and it is too late to raise it for the first time as a ground for opposing the motion to sell the real property in question. o In the second place, the contention that the mortgaged real property belonging to the petitioner cannot be sold to pay the debt for the reason that she is a mere surety of Rafael Martinez, finds no support in the law.

It is true that the petitioner is a surety with regard to Rafael Martinez and as such surety she is entitled to resort to the actions and remedies against him which the law affords her, but we should not lose sight of the fact that she was sued not as a surety but as a mortgage debtor for being the owner of the mortgaged property ARROYO v JUNGSAY

FACTS: - Arroyo (P) is an appointed guardian of an imbecile, while Jungsay et al (D) are the previous guardian and bondsmen who absconded. - D, the former guardian of the ward, absconded with the funds of his ward.



4) However, despite this, Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the Compromise Agreement. Thus, on 7 September 2000, respondent moved for the issuance of a writ of execution against Macrogen Realty, which was granted. 5) The sheriff however filed a return stating that he was unable to locate any property of Macrogen Realty, except its bank deposit of P20,242.33, with the Planters Bank, Buendia Branch. Respondent then made, on January 3, 2001, a written demand on petitioner, as guarantor of Macrogen Realty, to pay the P6,000,000.00, or to have properties of the Macrogen Realty sufficient to cover the obligation guaranteed. Said demands met no reply. 6) As to Marilyns (bitangas wife) liability, Pyramid contended that Macrogen Realty was owned and controlled by bitanga and Marilyn and/or by corporations owned and controlled by them. On the theory that since the completion of the construction project would have redounded to the benefit of both petitioner and Marilyn and/or their corporations; and considering, Marilyns interest in a corporation which controls Macrogen Realty, Marilyn cannot be unaware of the obligations incurred by Macrogen Realty and/or petitioner in the course of the business operations of the said corporation. 7) Pyramid filed suit that a judgment be rendered ordering petitioner and Marilyn to comply with their obligation under the Contract of Guaranty by paying respondent the amount of P6,000,000.000. 8) Marilyn contended that, since she did not co-sign the Contract of Guaranty with her husband; nor was she a party to the Compromise Agreement between respondent and Macrogen Realty. She had no part at all in the execution of the said contracts. This was denied ISSUES: (1) whether the defendants were liable under the contract of guarantee dated April 17, 2000 entered into between Benjamin Bitanga and the plaintiff; (2) whether defendant wife Marilyn Bitanga is liable in this action; HELD: A) Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the

debtor. This is what is otherwise known as the benefit of excussion. Article 2060 of the Civil Code reads: In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt. B) Said provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt. C) In this case, despite having been served a demand letter at his office, petitioner still failed to point out to the respondent properties of Macrogen Realty sufficient to cover its debt. Such failure on petitioners part forecloses his right to set up the defense of excussion. D) Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. We quote: (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. E) Petition is DENIED. ONG v PCIB FACTS: Cho Siong entered into contract of agency for distribution of petroleum products, assumed liability of former agent Tong Kuan. His agency bond was secured by Ong Guan Can. Defaulted in the amount of P64.00 DOCTRINE: Under the terms of the bond signed by the surety, he did not answer for the principal obligor save for the Latters acts by virtue of the contract of agency. He cannot be held liable for the debt of a former agent, which the principal obligor assumed by virtue of another contract, of which said surety was not even aware. A contract of suretyship is to be strictly interpreted and is not to be extended beyond its terms.




By virtue of a written contract, Mira Hermanos (MH) agreed to deliver to Manila Tobacconists (MT) merchandise for sale on consignment under certain specified terms and MT agreed to pay MH on or before th the 20 day of each month the invoice value of all the merchandise sold during the preceding month. MH required MT a bond of 3,000 which was executed by Provident Insurance (PI). The volume of the business of MT increased so that the merchandise received by way of consignment from MH exceeded 3,000 in value. MH required MT to post an additional bond of 2,000 which MT complied, executing a bond with same conditions with the Manila Compania de Seguros (MCS) for the excess of 3,000 up to 5,000. After liquidation of the transaction, a balance was due from MT to MH for the amount of 2,200 which MT is unable to pay. PI, as surety, only paid 1,300, alleging that the remaining 40% should be paid by the other surety, MCS.

Issue: W/N in case of the insolvency of one or more of several simple sureties, those who remain solvent can be made to pay the entire debt? Ruling: None of the sureties, so far as this record shows, has been declared bankrupt. The benefit of division therefore has not been lost, and the rule declaring each surety liable only for his aliquot part of the guaranteed debt, must hold. The obligation of the surety cannot be extended beyond its specified limits. A co-surety is entitled to the benefit of division from the very moment that he contracts the obligation, except where there is stipulation to the contrary.

TUASON v MACHUCA F: Universal Trading Company was going to withdraw goods from the Bureau of Customs to be delivered to BPI. To withdraw, they gave a bond executed by Manila Compania de Seguros. That bond was secured solidarily by Tuason Co. and Machuca of Universal Trading. It was to be paid whether or not Manila Compania already paid CIR. Manila Compania demanded payment from Tuason. Manila Compania filed a case against tuason. Tuason later payed but incurred litigation expenses. Tuason now demands payment from Machuca. Tuason filed a case for collection of money from Machuca. The lower court ruled that Machuca should pay the debt and the expenses incurred by Tuason in the case for collection of money. Issue: Won Machuca should pay the expenses incurred by Tuason in its case vs. Manila Compania Ruling: NO! it was not Machucas fault why tuason incurred expenses in the litigation of Manila Compania and Tuason. If tuason paid Manila compania, no litigation expenses will be paid.

Issue: Whether or not MCS should be held liable for the remaining 40% of the balance due? Held: No, the bond of 3,000 filed by PI responded for the obligation of MT up to the some of 3,000, inasmuch as the bond of 2,000 filed by MCS responded for the obligation of MT only insofar as it might exceed 3,000 and up to 5,000. The provision in the NCC with regard to several sureties of only one debtor for the same debt does not apply in this case. Although the two bonds on their face appear to guarantee the same debt coextensively up to 2,000 that of PI alone extending beyond that sum up to 3,000 it was pleaded and conclusively proven that in reality said bonds, or the two sureties, do not guarantee the same debt because PI guarantees only the first 3,000 while MCS only the excess up to 5,000. CACHO v VALLES Facts: On October 29, 1920, the National Sporting Club, of Manila, obligated itself by a promissory note payable at four months to pay to Jose Ma. Cacho. Below the signature of said National Sporting Club, as signed by the proper officers of the Club, the following personal guaranty was written: "We guarantee this obligation." (Sgd.) J. A. Valles, J. L. Mateu, G. J. Heffting, Ed. Chesley, Baldomero Roxas. This note was not paid at maturity. An action was instituted thereon against the National Sporting Club and the guarantors. Baldomero Roxas interposed a defence claiming the right of division as among the co-sureties, and asking that in case he should be found liable that he should be held responsible only for his aliquot part of the debt.

AUTOCORP v INTRA STRATA FACTS: Autocorp Group, represented by its President, petitioner Peter Y. Rodriguez, secured two ordinary re-export bond from private respondent Intra Strata Assurance Corporation (ISAC) in favor of public respondent Bureau of Customs (BOC) to guarantee the re-export of one unit of Hyundai Excel 4-door 1.5 LS and Hyundai Sonata 2.4 GLS, and/or to pay the taxes and duties thereon. Petitioners executed and signed two Indemnity Agreements with identical stipulations in favor of ISAC, agreeing to act as surety of the subject bonds. Petitioner Rodriguez signed the Indemnity Agreements both as President of the Autocorp Group and in his personal capacity. In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with their undertaking with the BOC to re-export the imported vehicles within the given



period and pay the taxes and/or duties due thereon. In turn, petitioners agreed, as surety, to indemnify ISAC for the liability the latter may incur on the said bonds. Petitioner Autocorp Group failed to re-export the items guaranteed by the bonds and/or liquidate the entries or cancel the bonds, and pay the taxes and duties pertaining to the said items despite repeated demands made by the BOC, as well as by ISAC. By reason thereof, the BOC considered the two bonds, with a total face value of P1,034,649.00, forfeited. Failing to secure from petitioners the payment of the face value of the two bonds, despite several demands sent to each of them as surety under the Indemnity Agreements, ISAC filed with the RTC on 24 October 1995 an action against petitioners. Petitioners contend that their obligation to ISAC is not yet due and demandable. They cannot be made liable by ISAC in the absence of an actual forfeiture of the subject bonds by the BOC and/or an explicit pronouncement by the same bureau that ISAC is already liable on the said bonds. ISSUES: Whether actual forfeiture of the subject bonds is necessary for the petitioners to be liable to ISAC under the Indemnity Agreements? RULING: The liability of the guarantor already triggers the liability of the debtor. Autocrops liability Actual forfeiture of the subject bonds is not necessary for petitioners to be liable thereon to ISAC as surety under the Indemnity Agreements. Petitioners' obligation to indemnify ISAC became due and demandable the moment the bonds issued by ISAC became answerable for petitioners' non-compliance with its undertaking with the BOC. Stated differently, petitioners became liable to indemnify ISAC at the same time the bonds issued by ISAC were placed at the risk of forfeiture by the BOC for non-compliance by petitioners with its undertaking. It is worthy to note that petitioners did not impugn the validity of the stipulation in the Indemnity Agreements allowing ISAC to proceed against petitioners the moment the subject bonds become due and demandable, even prior to actual forfeiture or payment thereof. Even if they did so, the Court would be constrained to uphold the validity of such a stipulation for it is but a slightly expanded contractual expression of Article 2071 of the Civil Code which provides, inter alia, that the guarantor may proceed against the principal debtor the moment the debt becomes due and demandable. 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 the principal debtor intends to abscond; (7) If the principal debtor is in imminent danger of becoming insolvent. In all these cases, the action of the guarantor is to obtain release from the guaranty, or to demand a security that shall protect him from any proceedings by the creditor and from the danger of insolvency of the debtor. Rodriguezs liability Petitioner Rodriguez posits that he is merely a guarantor, and that his liability arises only when the person with whom he guarantees the credit, Autocorp Group in this case, fails to pay the obligation. Petitioner Rodriguez invokes Article 2079 of the Civil Code on Extinguishment of Guaranty, which states: Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension of time referred to herein. The use of the term guarantee in a contract does not ipso facto mean that the contract is one of guaranty. It thus ruled that both petitioners assumed liability as a regular party and obligated themselves as original promissors, i.e., sureties. The provisions of the Civil Code on Guarantee, other than the benefit of excussion, are applicable and available to the [22] surety. The Court finds no reason why the provisions of Article 2079 would not apply to a surety. This, however, would not cause a reversal of the Decision of the Court of Appeals. The Court of Appeals was correct that even granting arguendo that there was a modification as to the effectivity of the bonds, petitioners would still not be absolved from liability since they had authorized ISAC to



consent to the granting of any extension, modification, alteration and/or renewal of the subject bonds SAENZ v YAP CHUAN FACTS: Engracio Palanca a judicial administrator gave bond to guarantee his administration of the estate of Margarita Jose The bond was executed by Engracio, Plaintiff Saenz and two others in favour of the government for the sum of P60k On the same date, Engracio and 5 others executed a bond in favour of Saenz; Yap Chuan P20k and the other 4 P5k each TC ordered Saenz, as surety in solidum of the exadministrator Engracio to pay the estate the sum of P41k Saenz paid to the administrator of the estate P8k; He filed sut against 5 sureties who executed the bond TC acquitted Defendant from the P20k claim and ordered the other 4 to pay P2k each. Both parties appealed. Defendants were claiming that they are only liable for P1k each only according to the terms of the contract. Plaintiff was claiming that he is entitled to maximum sum of P5k for which each one had bound himself in the contract. ISSUE: Whether or not Vizmanos is entitled to P20k, a reimbursement of P5k each from the Defendants? HELD: NO The bond of a debtor to protect his surety is not a sub bond nor a second bond with respect to the original creditor. It is nothing but a substitution of the obligation of the debtor with respect to his surety, and is necessarily governed by the legal provisions which regulate the right of action of the surety against the party for whom he gave the bond, that is, an action of subrogation which lies with the surety to compel the debtor to comply with the obligation to reimburse. This action arising out of subrogation is the remedy for securing reimbursement of the amount that another has paid, and cannot exceed, except there is an express agreement to the contrary, the amount actually paid by the surety in place of the debtor. IN THIS CASE: The following terms of an obligation cannot be considered as an express agreement to the contrary: x x x bind themselves as such conjointly to reimburse or pay whatever amounts the latter (the surety) may have to pay or shall have paid by reason of the judicial bond, inasmuch as this manner of expressing the intention of the obligated parties does not constitute a true disjunctive proposition, but is merely explanatory of

the obligation as if contracted by the debtor himself, the only natural and logical interpretation. To ask an indemnity of P20k, when the loss to be indemnified is only P8k is contrary to law. Vizmanos only entitled to an action against 4 Defendants for recovery of maximum P5k. He cannot collect more than the sum which he himself was actually compelled to pay.

MANILA SURETY v BATU CONSTRUCTION FACTS: On July 8, 1950, the defendant Batu Construction & Company, as principal, and the plaintiff Manila Surety & Fidelity Co. Inc., as surety, executed a surety bond for the sum of P8,812.00 to insure faithful performance of the former's obligation as contractor for the construction of the Bacarra Bridge, Project PR-72 (No. 3) Ilocos Norte Province. On the same date, July 8,1950, the Batu Construction & Company and the defendants Carlos N. Baquiran and Gonzales P. Amboy executed an indemnity agreement to protect the Manila Surety & Fidelity Co. Inc.., against damage, loss or expenses which it may sustain as a consequence of the surety bond executed by it jointly with Batu Construction & Company. On or about May 30, 1951, the plaintiff received a notice from the Director of Public Works (Exhibit B) annulling its contract with the Government for the construction of the Bacarra Bridge because of its failure to make satisfactory progress in the execution of the works, with the warning that ,any amount spent by the Government in the continuation of the work, in excess of the contract price, will be charged against the surety bond furnished by the plaintiff. It also appears that a complaint by the laborers in said project of the Batu Construction & Company was filed against it and the Manila Surety and Fidelity Co., Inc., for unpaid wages amounting to P5,960.10. Trial Court dismissed the case holding that provisions of article 2071 of the new Civil Code may be availed of by a guarantor only and not by a surety the complaint, with costs against the plaintiff. ISSUE: The main question to determine is whether the last paragraph of article 2071 of the new Civil Code taken from article 1843 of the old Civil Code may be availed of by a surety. HELD: A guarantor is the insurer of the solvency of the debtor; a surety is an insurer of the debt. A guarantor binds himself to pay if the principal is unable to pay; a surety undertakes to



pay if the principal does not pay. The reason which could be invoked for the non-availability to a surety of the provisions of the last paragraph of article 2071 of the new Civil Code 2 would be the fact that guaranty like commodatum is gratuitous. But guaranty could also be for a price or consideration as provided for in article 2048. So, even if there should be a consideration or price paid to a guarantor for him to insure the performance of an obligation by the principal debtor, the provisions of article 2071 would still be available to the guarantor. In suretyship the surety becomes liable to the creditor without the benefit of the principal debtor's exclusion of his properties, for he (the surety) maybe sued independently. So, he is an insurer of the debt and as such he has assumed or undertaken a responsibility or obligation greater or more onerous than that of guarantor. Such being the case, the provisions of article 2071, under guaranty, are applicable and available to a surety. The reference in article 2047 to, the provisions of Section 4, Chapter 3, Title 1, Book IV of the new Civil Code, on solidary or several obligations, does not mean that suretyship which is a solidary obligation is withdrawn from the applicable provisions governing guaranty. The plaintiff's cause of action does not fall under paragraph 2 of article 2071 of the new Civil Code, because there is no proof of the defendants' insolvency. The fact that the contract was annulled because of lack of progress in the construction of the bridge is no proof of such insolvency. It does not fall under paragraph 3, because the defendants have not bound themselves to relieve the plaintiff from the guaranty within a specified period which already has expired, because the surety bond does not fix any period of time and the indemnity agreement stipulates one year extendible or renewable until the bond be completely cancelled by the person or entity in whose behalf the bond was executed or by a Court of competent jurisdiction. It does not come under paragraph 4, because the debt has not become demandable by reason of the expiration of the period for payment. It does not come under paragraph 5 because of the lapse of 10 years, when the principal obligation has no period for its maturity, etc., for 10 years have not yet elapsed. It does not fall under paragraph 6, because there is no proof that "there are reasonable grounds to fear that the principal debtor intends to abscond." It does not come under paragraph 7, because the defendants, as principal debtors, are not in imminent danger of becoming insolvent, there being no proof to that effect. But the plaintiff's cause of action comes under paragraph 1 of article 2071 of the new Civil Code, because the action brought by Ricardo Fernandez and 105 persons in the Justice of the Peace Court of Laoag, province of Ilocos Norte, for the collection of unpaid wages amounting to P5,960.10, is in connection with the construction of the Bacarra Bridge, Project PR-72 (3), undertaken by the Batu Construction & Company, and one of the defendants therein is the herein plaintiff, the Manila Surety and Fidelity Co., Inc., and

paragraph 1 of article 2071 of the new Civil Code provides that the guarantor, even before having paid, may proceed against the principal debtor "to obtain release from the guaranty, or to demand a security that shall protect him from any proceedings by the creditor or from the danger of insolvency of the debtor, when he (the guarantor) is sued for payment. It does not provide that the guarantor be sued by the creditor for the payment of the debt. It simply provides that the guarantor of surety be sued for the payment of an amount for which the surety bond was put up to secure the fulfillment of the obligation undertaken by the principal debtor. So, the suit filed by Ricardo Fernandez and 105 persons in the Justice of the Peace Court of Laoag, province of Ilocos Norte, for the collection of unpaid wages earned in connection with the work done by them in the construction of the Bacarra Bridge, Project PR-72(3), is a suit for the payment of an amount for which the surety bond was put up or posted to secure the faithful performance of the obligation undertaken by the principal debtors (the defendants) in favor of the creditor, the Government of the Philippines. The order appealed from dismissing the complaint is reversed and set aside. GEN. INDEMNITY v ALVAREZ FACTS: On February 1954, Appellee General Indemnity Co., Inc., filed a complaint in the CFI Manila against Appellant Estanislao Alvarez for the recovery of the sum of P2,000 representing the amount of a loan allegedly taken by the Appellant from the PNB, which the Appellee guaranteed with an indemnity bond, and for which Appellant, as counter-guaranty, executed in Plaintiff's favor a mortgage on his share of land in a parcel of land . The complaint further alleged that the Appellant failed to pay said loan, together with interest, to PNB as a result of which the bank deducted the amount thereof Plaintiff's deposit. Thereafter, Appellant averred that the loan in question was secured by him only in accommodation of one Hao Lam, and that Plaintiff agreed not to take any steps against Appellant and the mortgage executed by him in Plaintiff's favor until the latter had failed to obtain payment from said Hao Lam. Eight months later, Plaintiff filed a motion for summary judgment saying that Appellang presented no real and meritorious defense and that it was entitled to a summary judgment in its favor, based on the affidavit of its comptroller Pedro R. Mendiola essentially saying that: o That he has personal knowledge of the indebtedness of the Defendant. o Notwithstanding said several demands by Plaintiff, Defendant has failed and refused and still fails and refuses to pay the same.



The lower courts ruled in favour of Plaintiff. Thus this petition.

Issue: Whether or not Defendant Alvarez is liable? Ruling: NO. The SC ruled 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 Appellant, as surety, can claim reimbursement from Appellant, the principal debtor. However, Appellee is correct in saying that said defense is immaterial to its right to recovery, since the mortgage deed executed by Appellant in its favor (the genuineness and due execution of which Appellant admitted in his answer) shows Appellant to be the actual and only debtor, and Appellant is precluded from varying this representation by parol evidence. In ruling for the Appellant, the SC opined that the last paragraph of Art. 2071 of the New Civil Code, provides that the only action the guarantor can file against the debtor "to obtain release from the guaranty, or to demand a security that shall protect him from any proceeding by the creditor and from the danger of insolvency of the debtor." An action by the guarantor against the principal debtor for payment, before the former has paid the creditor, is premature.

ISSUE: Whether the withdrawal of the stored goods, wares, and merchandise without notice to them as sureties released them from any liability for the duties, taxes, and charges they committed to pay under the bonds they issued? HELD: NO. By its very nature under the terms of the laws regulating suretyship, the liability of the surety is joint and several but limited to the amount of the bond, and its terms are determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an accessory contract that introduces a third party element in the fulfillment of the principal obligation that an obligor owes an obligee. In short, there are effectively two (2) contracts involved when a surety agreement comes into play a principal contract and an accessory contract of suretyship. Under the accessory contract, the surety becomes directly, primarily, and equally bound with the principal as the original promissor although he possesses no direct or personal interest over the latters obligations and does not receive any benefit therefrom. Considered in relation with the underlying laws that are deemed read into these bonds, it is at once clear that the bonds shall subsist that is, shall remain in full force and effect unless the imported articles are regularly and lawfully withdrawn. . .on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall be subject. Fully fleshed out, the obligation to pay the duties, taxes, and other charges primarily rested on the principal Grand Textile; it was allowed to warehouse the imported articles without need for prior payment of the amounts due, conditioned on the filing of a bond that shall remain in full force and effect until the payment of the duties, taxes, and charges due. Under these terms, the fact that a withdrawal has been made and its circumstances are not material to the sureties liability, except to signal both the principals default and the elevation to a due and demandable status of the sureties solidary obligation to pay. Under the bonds plain terms, this solidary obligation subsists for as long as the amounts due on the importations have not been paid. Thus, it is completely erroneous for the petitioners to say that they were released from their obligations under their bond when Grand Textile withdrew the imported goods without payment of taxes, duties, and charges. From a commonsensical perspective, it may well be asked: why else would the law require a surety when such surety would be bound only if the withdrawal would be regular due to the payment of the required duties, taxes, and other charges? We note in this regard the rule that a surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract

INTRA STRATA v REPUBLIC FACTS: Grand Textile imported materials from other countries which, upon arrival, were transferred to Customs Bonded Warehouse. Grand Textile was obliged to pay customs charges. To secure payment of these obligations, petitioners issued general warehousing bonds in favor of the Bureau of Customs (BOC). Without payment of any of the obligations due, Grand Textile withdrew the imported goods from storage. BOC demanded payment from Grand Textile as importer and from the petitioners as sureties. All three failed to pay. The government filed a collection suit against the parties. Lower Court ruled against petitioners, CA affirmed. Petitioners allege that: (1) they were released from their obligations under their bonds when Grand Textile withdrew the imported goods without payment of taxes, duties, and other charges; and (2) that their non-involvement in the active handling of the warehoused items from the time they were stored up to their withdrawals substantially increased the risks they assumed under the bonds they issued, thereby releasing them from liabilities under these bonds.



and not merely its form. A surety, however, is not released by a change in the contract which does not have the effect of making its obligation more onerous. We find under the facts of this case no significant or material alteration in the principal contract between the government and the importer, nor in the obligation that the petitioners assumed as sureties. Specifically, the petitioners never assumed, nor were any additional obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The obligation, and one that never varied, is on the part of the importer, to pay the customs duties, taxes, and charges due on the importation, and on the part of the sureties, to be solidarily bound to the payment of the amounts due on the imported goods upon their withdrawal or upon expiration of the given terms. The petitioners lack of consent to the withdrawal of the goods, if this is their complaint, is a matter between them and the principal Grand Textile; it is a matter outside the concern of government whose interest as creditor-obligee in the importation transaction is the payment by the importerobligor of the duties, taxes, and charges due before the importation process is concluded. With respect to the sureties who are there as third parties to ensure that the amounts due are paid, the creditor-obligee's active concern is to enforce the sureties solidary obligation that has become due and demandable. With regard to the issue on the notice, the surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-debtor relationship; its role becomes alive only upon the debtors default, at which time it can be directly held liable by the creditor for payment as a solidary obligor. A surety contract is made principally for the benefit of the creditor-obligee and this is ensured by the solidary nature of the sureties undertaking. Under these terms, the surety is not entitled as a rule to a separate notice of default, nor to the benefit of excussion, and may be sued separately or together with the principal debtor. Significantly, nowhere in the petitioners bonds does it state that prior notice is required to fix the sureties liabilities. Without such express requirement, the creditors right to enforce payment cannot be denied as the petitioners became bound as soon as Grand Textile, the principal debtor, defaulted. Thus, the filing of the collection suit was sufficient notice to the sureties of their principals default.

payment of said sum. On that same date the Philippine Theatrical Enterprises, Inc., assigned all its right and interest in that contract to the Radio Corporation of the Philippines. In the said contract there was an accelerating clause that in case the vendee-mortgagor fails to make any of the payments as hereinbefore provided, the whole amount remaining unpaid under this mortgage shall immediately become due and payable and this mortgage on the property herein mentioned as well as the Luzon Surety Bond may be foreclosed by the vendor-mortgagee Roa failed to pay the monthly installment and the whole amount fell due. The defendant asked for an extension which was granted. After the extension given, the surety now argued that they already release from their obligation.

ISSUE: Whether or not the extension granted in the above copied letter by the plaintiff, without the consent of the guarantors, the herein appellants, extinguishes the latter's liability not only as to the installments due at that time, as held by the trial court, but also as to the whole amount of their obligation?

HELD: NO, The rule that an extension of time granted to the debtor by the creditor, without the consent of the sureties, extinguishes the latter's liability is common both to Spanish jurisprudence and the common law; and it is well settled in English and American jurisprudence that where a surety is liable for different payments, such as installments of rent, or upon a series of promissory notes, an extension of time as to one or more will not affect the liability of the surety for the others

VILLA v GARCIA BOSQUE FACTS: A sale of property was made by the attorney in fact for a stated consideration, part of which was paid in cash and the balance made payable in deferred instalments. The attorney in fact then executed a substituted power of attorney in favor of a third person to enable the latter to collect the deferred instalments. SC: Extension of time by Creditor to Principal Debtor; Effect on liability of sureties Where the purchase price of property is payable in various installments, an extension of time granted by

RADIO CORP. OF THE PHILS. v ROA FACTS: The defendant Jesus R. Roa became indebted to the Philippine Theatrical Enterprises, Inc., in the sum of P28,400 payable in seventy-one equal monthly installments at the rate of P400 a month commencing thirty days after December 11, 1931, with five days grace monthly until complete



the creditor to the debtor with respect to one instalment will discharge the sureties, whether simple or solidary, from ALL liability as to such instalment bit it DOES NOT AFFECT their liability for other instalments unconnected with the extension of time. HOSPICIO DE SAN JOSE v FIDELITY

SECURITY BANK v CUENCA DOCTRINE: An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The 1989 Loan Agreement expressly stipulated that its purpose was to liquidate, not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreeement, which had alledgedly extended the original P8 million credit facility. Hence, his obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states that *a+n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. An essential alteration in the terms of a Loan Agreement without the consent of the surety extinguishes the latters obligation. The submission that only the borrower, not the surety, is entitled to be notified of any modification in the original loan accommodation is untenable-such theory is contrary to the to the principle that a surety cannot assume an obligation more onerous than that of the principal. That the Indemnity Agreement is a continuing surety does not authorize the lender to extend the scope of the principal obligation inordinately; A continuing guaranty is one which covers all transaction, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof.

investigators found that more money were payable to ATACO from BPW, because the latter allowed other creditors to collect funds due to ATACO under the same purchase order. PNB demanded from ATACO and MSFC for payment but both refused. PNB filed a complaint against ATACO and MSFC to recover the balance with interests and costs. PNB contends that the power of attorney obtained from ATACO was merely an additional security in its favor and that it was the duty of the surety not that of the creditor to see to it that the obligor fulfills his obligations and that the creditor owed the surety no duty of active diligence to collect any sum from the principal debtor.

Issue: Whether or not MFSC should be held liable for the unpaid balance? Held: No, MFSC is not liable. PNB is not negligent in failing to collect from the principal debtor but is negligent for its failure in collecting the sums due to the debtor from the Bureau of Public Works, contrary to its duty as holder of an exclusive and irrevocable power of attorney to make such collections, since an agent is required to act with care of a good father of the family and becomes liable for damages which the principal may suffer through non-performance. Even if the assignment with power of attorney from the principal debtor were considered as mere additional security, still by allowing the assigned funds to be exhausted without notifying the surety, PNB deprived the former of any possibility of recoursing against that security. Article 2080 of the Civil Code provides that guarantors even though they are solidary, are released from their obligation whenever some act of the creditor they cannot be subrogated to the rights, mortgages and preferences of the latter.

PNB v MANILA SURETY Facts: PNB had opened a letter of credit and advanced thereon $120K to Edgingtom Oil Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000 tons were released and delivered to Adams & Taguba Corp (ATACO) under a trust receipt guaranteed by Manila Surety & Fidelity Co. (MSFC) up to the amount of 75K. To pay for the asphalt, ATACo constituted PNB its assignee and atty-in-fact to receive and collect from the Bureau of Public Works (BPW) the amount aforesaid out of funds payable to the assignor under a purchase order. ATACO delivered to BPW and the latter accepted the asphalt to the total value of 400K. After this, PNB regularly collected for 8 months. Thereafter, it ceased to collect until after 4 years, its PROVISIONS COMMON TO PLEDGE AND MORTGAGE ARENAS v RAYMUNDO Facts: Estanislaua Arenas and Julian La O, brought suit against Fausto O. Raymundo (pawnshop owner). The plaintiffs alleged that the said jewelry, during the last part of April or the beginning of May, 1908, was delivered to Elena de Vega to sell on commission, and that the latter, in turn, delivered it to Conception Perello, likewise to sell on commission, but that Perello, instead of fulfilling her trust, pledged the jewelry in the defendant's pawnshop. The said jewelry was then under the control and in the possession of the defendant, as a result of the pledge by Perello, and that the former refused to deliver it to the plaintiffs.



Issue: W/N the pawnshop should return the jewelry to the plaintiffs? Ruling: Yes. In the present suit, it was not proven that Estanislaua Arenas authorized Perello to pawn the jewelry given to her by Arenas to sell on commission. Conception Perello was not the legitimate owner of the jewelry which she pledged to the defendant Raymundo, for a certain sum that she received from the latter as a loan, the contract of pledge entered the jewelry so pawned cannot serve as security for the payment of the sum loaned, nor can the latter be collected out of the value of the said jewelry. The Civil Code prescribes as one of the essential requisites of the contracts of pledge and of mortgage, that the thing pledged or mortgaged must belong to the person who pledges or mortgages it. This essential requisite for the contract of pledge between Perello and the defendant being absent as the former was not the owner of the jewelry given in pledge. UNION MOTOR CORP. v CA This case is about the spouses respondents who bought a jeepney worth 30k. to finance the purchase, the spouses entered into a chattel mortgage with Union Motors wherein the security will be the jeepney. Union motors then transferred the mortgage to a financing company. Receipts and other documents of ownership were issued however, the jeep is still not in the possession of the spouses. The spouses tried to have possession of the jeep but failed. Frustrated, they did not continue the payment. LC ruled in favor of the spouses saying that they are not liable because there is still no delivery. Finance Co. claimed there was constructive delivery because how can the spouses mortgage the property if they do not own the it. Issue: WoN there was delivery Ruling: Non! Chattel mortgage do not prove delivery.

R filed an action for specific performance and damages against CDB for serious misrepresentation CDB denied that a contract of sale was ever perfected between them and R. Rs letter offer clearly states that the sum of P30k was given as option money NOT earnest money; therefore only an option contract

ISSUE: WON there was a valid foreclosure of the mortgage and subsequently a contract of sale? HELD: NO NEMO DAT QUOD NON HABET The sale by CDB to Lim of the property mortgaged by Rodolfo Guansing is deemed a nullity for CDB did not have a valid title to the said property. CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which, the property had been awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed. DE LEON v CALALO FACTS: This case was brought below by respondent Eduardo Calalo for the annulment of the mortgage executed by his brother, Augorio Calalo, in favor of petitioner Roberto de Leon covering a piece of land and the improvements thereon, consisting of a residential house and a commercial building located at 45/4th Street, East Tapinac, Olongapo City. Respondent Eduardo alleged that he was the owner of the property mortgaged, having bought it for P306,000.00 from the spouses Federico and Marietta Malit on September 13, 1984. He claimed that, as he was then a member of the merchant marines and stayed abroad, the Deed of Absolute Sale covering the land was made in favor of his brother, Augorio Calalo; that on April 8, 1985, Augorio executed a Deed of Donation in favor of the minor Julsunthie Calalo, herein respondents son, who, from the time the property was purchased until the filing of the complaint, had been receiving the fruits of the property; that on September 14, 1988, Augorio mortgaged the said property to petitioner Roberto de Leon without his *respondents+ knowledge and consent; that the mortgage was amended on September 30, 1988; that Augorio did not have any right to mortgage the property because he was not the owner thereof; and that he (respondent Eduardo) learned only in June 1992 that the property was the subject of an extrajudicial foreclosure. Named defendants in the action were petitioner Roberto de Leon, Augorio Calalo and Benjamin Gonzales, the sheriff conducting the foreclosure proceeding. In due time, petitioner De Leon filed an answer in which he claimed to be a mortgagee in good faith, having previously ascertained the ownership of Augorio who occupied and

DBP v PRUDENTIAL CAVITE DEVELOPMENT v SPOUSES LIM FACTS: Rodolfo Guansing obtained a loan in the amount of P90k from Cavite Devt Bank (CDB) and mortgaged a parcel of land covered by TCT in his name to secure the loan. When Guansing defaulted in the payment of his loan, CDB foreclosed the mortgage and consolidated the title to the property in its name R Lim offered to purchase the property from CDB and paid P30k as option money. She later on discovered that the subject property was originally registered in the name of Perfecto Guansing, father of Rodolfo Guansing.



possessed the land in question and in whose name the land was registered in the Register of Deeds and in various other documents. He pointed out that even the deed of sale attached to respondents complaint showed that the land was in Augorios name, clearly proving that the latter owned the property. Petitioner De Leon averred that the mortgage in his favor was registered with the Register of Deeds and that it had been amended four times. ISSUE: W/N the mortgage executed by Augorio Calalo in favor of petitioner De Leon is valid. HELD: There is no dispute that the land subject of the mortgage is titled in the name of Augorio Calalo. Nor is there any question that petitioner De Leon did not know of the claim of ownership of respondent Eduardo Calalo until after the present action was instituted. As the trial court found, petitioner De Leon examined the relevant documents pertaining to the land, consisting of the transfer certificate of title, the tax declarations in the City Assessors Office and information on the records in the barangay, and found that the land was registered in the name of Augorio Calalo. Upon due inspection of the property, he also found it to be occupied by Augorio Calalo. Petitioner had no reason to believe that the land did not belong to Augorio. Persons dealing with property covered by a torrens certificate of title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding the indefeasibility of torrens titles, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects buyers or mortgagees who, in good faith, rely upon what appears on the face of the certificate of 4 title. Petitioner De Leon is a mortgagee in good faith. Whether the money used in acquiring the property from the original owners came from respondent Eduardo Calalo and the title to the property was placed in the name of his brother Augurio Calalo only because respondent thought he was not qualified to acquire lands in the Philippines because he had become an American citizen, and that the land was subsequently donated to respondent Eduardos son, Julsunthie, are matters not known to petitioner. Hence, whether Augorio Calalo committed a breach of trust and whether the property was validly donated to petitioners son Julsunthie are questions which must be resolved in a separate proceeding. CEBU INTERNATIONAL v CA ERENA v QUERRA-KAUFFMAN FACTS: Respondent is the owner of a lot with house, with the TCT kept in a safety deposit box. She left the key of the box to her husband as she was leaving for the US. Later on, the daughter of respondent as well as her husband left for the US, and the key was entrusted to the sister of her husband,

Mira Bernal. After a few months, respondent asked her sister to get the TCT in the safety deposit box to be able to sell the property. When the safe was broken, the items inside were missing, including the title to the lot and tax declarations, as well as jewelry.

Respondent discovered from Bernal that she and Jennifer Ramirez, Victors daughter took the title and mortgaged it to petitioner. There was a woman who pretended to be the owner of the lot, showing the TCT in her name as Vida Dana Querrer and identification card. Petitioner verified with the Office of the Register of Deeds that the property was in the name of Vida Dana Querrer and that it was free of any lien or encumbrance. Subsequently, petitioner was convinced to enter into a Real Estate Mortgage Contract which was later on notarized and filed with the Office of the Register of Deeds and annotated on the TCT.

Respondent filed a complaint against petitioner, Bernal and Ramirez for Nullification of Deed of Real Estate Mortgage.

The RTC ruled in favor of petitioner and declared the Deed of Real Estate Mortgage valid. The CA rendered judgment in favor of defendant on the ground that in a Real Estate Mortgage contract, it is essential that the mortgagor be the absolute owner of the property to be mortgaged; otherwise the mortgage is void.


HELD: NO. One of the essential requisites of a mortgage contract is that the mortgagor must be the absolute owner of the thing mortgaged. A mortgage is, thus, invalid if the mortgagor is not the property owner. In this case, the trial court and the CA are one in finding that based on the evidence on record the owner of the property is respondent who was not the one who mortgaged the same to the petitioner.

Petitioner cannot be considered an innocent purchaser for value, relying on the Torrents title. While a Torrens title serves as evidence of an indefeasible title to the property in favor of the person whose name appears therein, when the instrument presented for registration is forged, even if



accompanied by the owners duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the assignee of the mortgagee, for that matter, acquire any right or title to the property. In such a case, the transferee or the mortgagee, based on a forged instrument, is not even a purchaser or a mortgagee for value protected by law.

Petitioner cannot also invoke the doctrine of a mortgagee on good faith. Said doctrine speaks of a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract or any foreclosure sale arising therefrom are given effect by reason of public policy. The doctrine of mortgagee in good faith presupposes that the mortgagor, who is not the rightful owner of the property, has already succeeded in obtaining a Torrens title over the property in his name and that, after obtaining the said title, he succeeds in mortgaging the property to another who relies on what appears on the said title- it does not apply to a situation where the title is still in the name of the rightful owner and the mortgagor is a different person pretending to be the owner. PNB v AGUDELO Vda. DE JAYME v CA FACTS: - Spouses Jayme (P) are the registered owners of a parcel of land. They entered into a contract of lease with Asian Cars (R) covering half of the lot for 20 years - The contract allows R to mortgage the property as long as the proceeds will be for the construction of a building on the land. - R mortgaged the property for P6M to MetroBank, covering the whole lot, and in which P signed the documents. R also executed an undertaking wherein the officers of R are liable personally to the mortgage - R defaulted and MetroBank foreclosed the property. - P filed for annulment of mortgage as it was acquired through fraud - RTC and CA declared the mortgage and undertaking valid ISSUE: WON Mortgage allowing R to mortgage the property was valid SC: YES - It has long been settled that it is valid so long as valid consent was given. In consenting thereto even granting that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and respond for the performance of the principal obligation -

The law recognizes instances when persons not directly parties to a loan agreement may give as security their own properties for the principal transaction. In this case, the spouses should not be allowed to disclaim the validity of a transaction they voluntarily and knowingly entered into for the simple reason that such transaction turned out prejudicial to them later on. Records show that P voluntarily agreed to use their property as collateral for Rs loan, hence, no fraud The undertaking made by R and its officers are valid, hence they are liable to reimburse P for the damages they suffered by reason of the mortgage SPOUSES BELO v PNB

FACTS: 1) Eduarda Belo owned an agricultural land with an area of 661,288 square meters in Panitan, Capiz, which she leased a portion to respondents spouses Eslabon, for a period of 7 years at the rate of P7,000.00 per year. 2) Respondents spouses Eslabon obtained a loan from PNB secured by a real estate mortgage on their own 4 residential houses located in Roxas City, as well as on the agricultural land owned by Eduarda Belo. The assent of Eduarda Belo to the mortgage was acquired through a special power of attorney which was executed in favor of respondent Marcos Eslabon on June 15, 1982. 3) The spouses Eslabon failed to pay their loan obligation, and so extrajudicial foreclosure proceedings against the mortgaged properties were instituted by PNB and was the highest bidder of the foreclosed properties at P447,632.00. 4) Meanwhile, Eduarda Belo sold her right of redemption to petitioners spouses Enrique and Florencia Belo under a deed of absolute sale of proprietary and redemption rights. Before the expiration of the redemption period, petitioners spouses Belo tendered payment for the redemption of the agricultural land which includes the bid price of respondent PNB, plus interest and expenses. 5) However, PNB rejected the tender of payment of petitioners spouses Belo contending that the redemption price should be the total claim of the bank on the date of the auction sale and custody of property plus charges accrued and interests amounting to P2,779,978.72 to which the spouses disagreed and refused to pay the said total claim of respondent PNB. Thereafter the\ spouses Belo filed in the RTC an action for declaration of nullity of mortgage, with an alternative cause of action, in the event that the accommodation mortgage be held to be valid, to compel respondent PNB to accept the redemption price tendered by



petitioners spouses Belo which is based on the winning bid price of respondent PNB in the extrajudicial foreclosure. The RTC ruled in favour of the spouses belo. 6) On appeal, the CA ruled that the petitioners spouses Belo should pay the entire amount due to PNB under the mortgage deed at the time of the foreclosure sale plus interest, costs and expenses. ISSUE: whether or not the SPA the real estate mortgage contract, the foreclosure proceedings and the subsequent auction sale involving Eduarda Belo's property are valid. And assuming they are valid, whether or not the petitioners are required to pay, as redemption price, the entire claim of respondent PNB in the amount of P2,779,978.72 as of the date of the public auction sale on June 10, 1991. HELD: A) The validity of the SPA and the mortgage contract cannot anymore be assailed due to petitioners Belo failure to appeal the same after the trial court rendered its decision affirming their validity. B) Also, the SPA executed by Eduarda Belo in favor of the respondents spouses Eslabon and the Real Estate Mortgage executed by the respondents spouses in favor of respondent PNB are valid. It is stipulated in paragraph three (3) of the SPA that Eduarda Belo appointed the Eslabon spouses "to make, sign, execute and deliver any contract of mortgage or any other documents of whatever nature or kind . . . which may be necessary or proper in connection with the loan herein mentioned, or with any loan which my attorney-in-fact may contract personally in his own name C) ThisSPA was not meant to make her a co-obligor to the principal contract of loan between respondent PNB, as lender, and the spouses Eslabon, as borrowers. Eduarda Belo consented to be an accommodation mortgagor in the sense that she signed the SPA to authorize respondents spouses Eslabons to execute a mortgage on her land. D) An accommodation mortgage isnt void simply because the accommodation mortgagor did not benefit from the same. The validity of an accommodation mortgage is allowed under Article 2085 of the New Civil Code which provides that "(t)hird persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property." E) An accommodation mortgagor, ordinarily, is not himself a recipient of the loan. F) There is no doubt that Eduarda Belo, assignor of the petitioners, is an accommodation mortgagor. Section 25 of P.D. No. 694 provides that "the mortgagor shall have the right

to redeem the property by paying all claims of the Bank against him". From said provision can be deduced that the mortgagor referred to by that law is one from whom the bank has a claim in the form of outstanding or unpaid loan; he is also called a borrower or debtor-mortgagor. G) PNB has no claim against accommodation mortgagor Eduarda Belo inasmuch as she only mortgaged her property to accommodate the Eslabon spouses who are the loan borrowers of the PNB. The principal contract is the contract of loan between the Eslabon spouses, as borrowers/debtors, and the PNB as lender. The accommodation real estate mortgage which secures the loan is only an accessory contract. Thus, the term "mortgagor" in Section 25 of P.D. No. 694 pertains only to a debtor-mortgagor and not to an accommodation mortgagor. H) Moreover, the mortgage contract provides that ". . . the mortgagee may immediately foreclose this mortgage judicially in accordance with the Rules of Court or extrajudicially in accordance with Act No. 3135, as amended and Presidential Decree No. 385 Thus, since the mortgage contract in this case is in the nature of a contract of adhesion as it was prepared solely by respondent, it has to be interpreted in favor of petitioners. J) While the petitioners, as assignees of Eduarda Belo, are not required to pay the entire claim of respondent PNB against the principal debtors, they can only exercise their right of redemption with respect to the parcel of land belonging to Eduarda Belo, the accommodation mortgagor. Thus, they have to pay the bid price less the corresponding loan value of the foreclosed 4 residential lots of the spouses Eslabon. Thus, petitioners are allowed to redeem only the property registered in the name of Eduarda Belo, by paying only the bid price less the corresponding loan value of the foreclosed (4) residential lots of the respondents spouses Eslabon.

BUSTAMANTE v ROSEL ALCANTARA v ALINEA Facts: Alinea and Belarmino loaned P480 from Alcantara. According to the loan agreement, if the period has expired without payment of the loan, the house and lot of Alinea and Belarmino will be considered sold to Alcantara. Alinea and Belarmino failed to pay. They refused to deliver the property to Alcantara. Alcantara filed an action against them. The defendants contend that the amount claimed by Alcantara included the interest and that the principal borrowed was only 200 and that the interest was 280.



They also alleged as their special defense that they offered to pay Alcantara the sum of 480 but the latter had refused to accept the same.

which the debtor Blanc owed and failed to pay, and that the latter did not reimburse Tuason the amount paid to the bank together with interests thereon. Issue: W/N Tuason can appropriate the things given by way of pledge? Ruling: No. Tuason is entitled to retain and appropriate to himself the merchandise received in pledge is null and indefensible, because he can only recover his credit, according to law, from the proceeds of the sale of the same. Art. 2088.

Issue: 1) WON there was a valid mortgage? 2) WON the defendants should deliver the property to Alcantara?

Held: 1) No. The property, the sale of which was agreed to by the debtors does not appear mortgaged in favor of the creditor because in order to constitute a valid mortgage it is indispensable that the instrument be registered in the Register of Property and the document contract does not constitute a mortgage nor it could possibly be a mortgage, for the reason that the said document is not vested with the character and conditions of a public instrument. The contract is not a pledge since the said property is not personal property and the debtor continued in possession thereof and was never been occupied by the creditor. It is also not an antichresis by reason that as the creditor has never been in possession of the property nor has enjoyed the said property nor for one moment received its rents. 2) Yes. The will of the parties are controlling, In this case, a contract of loan and a promise of sale of a house and lot, the price of which should be the amount loaned, if within a fixed period of time such amount should not be paid by the debtor-vendor of the property to the creditor-vendee of same. The fact that the parties have agreed at the same time, in such a manner that the fulfillment of the promise of sale would depend upon the nonpayment or return of the amount loaned, has not produced any change in the nature and legal conditions of either contract, or any essential defect which would tend to nullify the same.

LANUZA v DE LEON Spouses lanuza executed a deed of sale with a right to repurchase to Reyes. Upon expiration of term to repurchase, the time was extended without the wife of lanuza signing the document. A stipulation to the effect that the ownership will only be passed to the vendee if the vendor fails to repurchase the property was included. The spouses then mortgage the property to respondent to secure a debt. The debt was unpaid and respondent filed a case to foreclose the mortgage which was granted. Reyes filed a case for consolidation, claiming she has the right to the property. Reyes claims the ownership in the property automatically passes immediately to him after the sale and not after the end of the period to repurchase. Issue: won reyes contention valid Ruling: yes. a stipulation in a purported pacto de retro sale that the ownership over the property sold would automatically pass to the vendee in case no redemption was effected within the stipulated period is contrary to the nature of a true pacto de retro sale, under which the vendee acquires ownership of the thing sold immediately upon the execution of the sale, subject only to the vendors rights of redemption. The said stipulation is a pactum commissorium which enables the mortgagee to acquire ownership of the mortgaged property without need of forclosure. It is void. Its insertion in the contract is an avowal of the intention to mortgage rather than to sell the property. DAYRIT v CA

MAHONEY v TUASON Facts: P. Blanc, the owner of the jewels, entered into a contract of pledge, delivering to the creditor Mariano Tuason several jewels and other merchandise for the purpose of securing the fulfillment of the obligation which he (Blanc) had contracted in favor of the latter who had guaranteed the payment of a considerable amount of money which Blanc owed to the Chartered Bank. Creditor Tuason paid to the Chartered Bank the sum of sixteen thousand pesos (P16,000)

FACTS: Dayrit, Sumbillo and Angeles entered into a contract with Mobil Oil Phil, entitled LOAN & MORTGAGE AGREEMENT. Defendants violated the LOAN & MORTGAGE AGREEMENT because they only paid one installment. They also failed to buy the quantities required in the Sales Agreement. The plaintiff made a demand, Dayrit answered acknowledging his liability. Trial Court ruled in favor of plaintiff and also ruled that each of the three defendants shall pay 1/3 of the cost.



No appeal had been taken so the decision became final and executor. Mobil filed for the execution of the judgment. Dayrit opposed alleging that they had an agreement with Mobil, that he would not appeal anymore but Mobil would release the mortgage upon payment of his 1/3 share. Mobil claimed that the agreement was that it would only release the mortgage if the whole principal mortgaged debt plus the whole accrued interest were fully paid. ISSUE: Whether or not the CFI erred in ordering the sale at public auction of the mortgaged properties to answer for the entire principal obligation of Dayrit, Sumbillo and Angeles. RULING: While it is true that the obligation is merely joint and each of the defendant is obliged to pay his 1/3 share of the joint obligation, the undisputed fact remains that the intent and purpose of the LOAN & MORTGAGE AGREEMENT was to secure the entire loan. The court ruled that a mortgage directly and immediately subjects the property upon which it is imposed, the same being indivisible even though the debt may be divided, and such indivisibility likewise unaffected by the fact that the debtors are not solidarily liable. YU v PCIB FACTS: P mortgaged their title, interest, and participation over several parcels of land located in Dagupan City and Quezon City in favour of PCIB (R) as security for the payment of a loan in the amount of P9mill P failed to pay the loan; R filed a Petition for Extrajudicial Foreclosure of Real Estate Mortgage on the Dagupan City properties. A Certificate of Sale was issued in favour of R. Subsequently, R filed an Ex-Parte Petition for Writ of Possession before RTC Dagupan P filed a Motion to Dismiss. They argued that the Certificate of Sale is void because the real estate mortgage is indivisible, the mortgaged properties in Dagupan City and Quezon City cannot be separately foreclosed. R the filing of two separate foreclosure proceedings did not violate Article 2089 of the Civil Code on the indivisibility of a real estate mortgage since Section 2 of Act No. 3135 expressly provides that extra-judicial foreclosure may only be made in the province or municipality where the property is situated. R further submits that the filing of separate applications for extra-judicial foreclosure of mortgage involving several properties in different locations is allowed by A.M. No. 99-10-05-0, the

Procedure on Extra-Judicial Foreclosure of Mortgage, as further amended on August 7, 2001. TC denied Motion

ISSUE: WON a real estate mortgage over several properties located in different localities can be separately foreclosed in different places? HELD: YES What the law proscribes is the foreclosure of only a portion of the property or a number of the several properties mortgaged corresponding to the unpaid portion of the debt where, before foreclosure proceedings, partial payment was made by the debtor on his total outstanding loan or obligation. This also means that the debtor cannot ask for the release of any portion of the mortgaged property or of one or some of the several lots mortgaged unless and until the loan thus secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate extinguishment of the mortgage as long as the debt is not completely satisfied. In essence, indivisibility means that the mortgage obligation cannot be divided among the different lots, that is, each and every parcel under mortgage answers for the totality of the debt A.M. No. 99-10-05-0,the Procedure on Extra-Judicial Foreclosure of Mortgage, lays down the guidelines for extra-judicial foreclosure proceedings on mortgaged properties located in different provinces. It provides that the venue of the extra-judicial foreclosure proceedings is the place where each of the mortgaged property is located. Relevant portion provides: Where the application concerns the extrajudicial foreclosure of mortgages of real estates and/or chattels in different locations covering one indebtedness, only one filing fee corresponding to such indebtedness shall be collected. The collecting Clerk of Court shall, apart from the official receipt of the fees, issue a certificate of payment indicating the amount of indebtedness, the filing fees collected, the mortgages sought to be foreclosed, the real estates and/or chattels mortgaged and their respective locations, which certificate shall serve the purpose of having the application docketed with the Clerks of Court of the places where the other properties are located and of allowing the extrajudicial foreclosures to proceed thereat. (Emphasis supplied) The indivisibility of the real estate mortgage is not violated by conducting two separate foreclosure



proceedings on mortgaged properties located in different provinces as long as each parcel of land is answerable for the entire debt

METROBANK v SLGT FACTS: On October 25, 1995, Dylanco and SLGT each entered into a contract to sell with ASB for the purchase of a unit (Unit 1106 for Dylanco and Unit 1211 for SLGT) at BSA Towers then being developed by the latter. As stipulated, ASB will deliver the units thus sold upon completion of the construction or before December 1999. Relying on this and other undertakings, Dylanco and SLGT each paid in full the contract price of their respective units. The promised completion date came and went, but ASB failed to deliver, as the Project remained unfinished at that time. To make matters worse, they learned that the lots on which the BSA Towers were to be erected 6 had been mortgaged to Metrobank, as the lead bank, and 7 UCPB without the prior written approval of the Housing and Land Use Regulatory Board (HLURB). Alarmed by this foregoing turn of events, Dylanco, on August 10, 2004, filed with the HLURB a complaint for delivery of property and title and for the declaration of nullity of mortgage. A similar complaint filed by SLGT followed three (3) days later. At this time, it appears that the ASB Group of Companies, which included ASB, had already filed with the Securities and Exchange Commission a petition for rehabilitation and a rehabilitation receiver had in fact been appointed. What happened next are laid out in the OP decision adverted to above, thus: In response to the above complaints, ASB alleged that it encountered liquidity problems sometime in 2000 after its creditors *UCPB and Metrobank+ simultaneously demanded payments of their loans; that on May 4, 2000, the Commission (SEC) granted its petition for rehabilitation; that it negotiated with UCPB and Metrobank but nothing came out positive from their negotiation . On the other hand, Metrobank claims that complainants [Dylanco and SLGT] have no personality to ask for the nullification of the mortgage because they are not parties to the mortgage transaction ; that the complaints must be dismissed because of the ongoing rehabilitation of ASB; xxx that its claim against ASB, including the mortgage to the [Project] have already been transferred to Asia Recovery Corporation; xxx.

UCPB, for its part, denies its liability to SLGT [for lack of privity of contract+ *and+ questioned the personality of SLGT to challenge the validity of the mortgage reasoning that the latter is not party to the mortgage contract *and+ maintains that the mortgage transaction was done in good faith. Finally, it prays for the suspension of the proceedings because of the on-going rehabilitation of ASB. In resolving the complaint in favor of Dylanco and SLGT, the Housing Arbiter ruled that the mortgage constituted over the lots is invalid for lack of mortgage clearance from the HLURB. ISSUE: W/N The declaration of nullity of the entire mortgage constituted on the project land site and the improvements was valid. and HELD: Both petitioners do not dispute executing the mortgage in question without the HLURBs prior written approval and notice to both individual respondents. Section 18 of Presidential Decree No. (PD) 957 The Subdivision and Condominium Buyers Protective Decree provides: SEC. 18. Mortgages. - No mortgage of any unit or lot shall be made by the owner or developer without prior written approval of the [HLURB]. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project . The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for . (Emphasis and word in bracket added) There can thus be no quibbling that the project lot/s and the improvements introduced or be introduced thereon were mortgaged in clear violation of the aforequoted provision of PD 957. And to be sure, Dylanco and SLGT, as Project unit buyers, were not notified of the mortgage before the release of the loan proceeds by petitioner banks. As it were, PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices. Its preambulatory clauses say so and the Court need not belabor the matter presently. Section 18, supra, of the decree directly addresses the problem of fraud and other manipulative practices perpetrated against buyers when the



lot or unit they have contracted to acquire, and which they religiously paid for, is mortgaged without their knowledge, let alone their consent. The avowed purpose of PD 957 compels, as the OP correctly stated, the reading of Section 18 as prohibitory and acts committed contrary to it are void. Any less stringent construal would only accord unscrupulous developers and their financiers unbridled discretion to follow or not to follow PD 957 and thus defeat the very lofty purpose of that decree. It thus stands to reason that a mortgage contract executed in breach of Section 18 of the decree is null and void. The next question to be addressed turns on whether or not the nullity extends to the entire mortgage contract. The poser should be resolved, as the CA and OP did resolve it, in the affirmative. This disposition stems from the basic postulate that a mortgage contract is, by nature, indivisible. Consequent to this feature, a debtor cannot ask for the release of any portion of the mortgaged property or of one or some of the several properties mortgaged unless and until the loan thus secured has been fully paid, notwithstanding the fact that there has been partial fulfillment of the obligation. Hence, it is provided that the debtor who has paid a part of the debt cannot ask for the proportionate extinguishments of the mortgage as long as the debt is not completely satisfied. The situation obtaining in the case at bench is within the purview of the aforesaid rule on the indivisibility of mortgage. It may be that Section 18 of PD 957 allows partial redemption of the mortgage in the sense that the buyer is entitled to pay his installment for the lot or unit directly to the mortgagee so as to enable him - the said buyer - to obtain title over the lot or unit after full payment thereof. Such accommodation statutorily given to a unit/lot buyer does not, however, render the mortgage contract also divisible. Generally, the divisibility of the principal obligation is not affected by the indivisibility of the mortgage. The real estate mortgage voluntarily constituted by the debtor (ASB) on the lots or units is one and indivisible. In this case, the mortgage contract executed between ASB and the petitioner banks is considered indivisible, that is, it cannot be divided among the different buildings or units of the Project. Necessarily, partial extinguishment of the mortgage cannot be allowed. In the same token, the annulment of the mortgage is an all or nothing proposition. It cannot be divided into valid or invalid parts. The mortgage is either valid in its entirety or not valid at all. In the present case, there is doubtless only one mortgage to speak of. Ergo, a declaration of nullity for violation of Section 18 of PD 957 should result to the mortgage being nullified wholly. It will not avail the petitioners any to feign ignorance of PD 957 requiring prior written approval of the HLURB, they being charged with knowledge of such requirement since granting

loans secured by a real estate mortgage is an ordinary part of their business. CENTRAL BANK v CA PLEDGE YULIONGSIU v PNB FACTS: Yulongsiu owned 2 vessels and equity in FS-203, which were purchased by him from the Philippine Shipping Commission, by installment. Plaintiff obtained a loan from defendant and to guarantee payment, plaintiff pledged the 2 vessels and the equity on FS-203, as evidenced by a pledge contract. Plaintiff made a partial payment and the remaining balance was renewed by the execution of 2 promissory notes in the banks favor. These two notes were never paid at all by plaintiff on their respective due dates.

Defendant bank filed a criminal case against plaintiff charging the latter with estafa through falsification of commercial documents, and the trial court convicted the plaintiff and was sentenced to indemnify the defendant. The corresponding writ of execution issued to implement the order for indemnification was returned unsatisfied as plaintiff was totally insolvent.

Meanwhile, together with the institution of the criminal action, defendant took physical possession of the 2 vessels and transferred the equity on FS-203 to the defendant. Later on, the 2 vessels were sold by defendant to third parties.

Plaintiff commenced an action for recovery on the pledged items, and alleges, among others, that the contract executed was a chattel mortgage so the creditor defendant could not take possession of the chattel object thereof until after there has been default.

ISSUE: Whether the contract entered into between plaintiff and defendant is a chattel mortgage or a valid contract of pledge?

HELD: Its a contract of pledge. The contract itself provides that it is a contract of pledge and the judicial admission that it is a pledge contract cannot be offset without showing of palpable mistake.



The pledgee defendant was therefore entitled to the actual possession of the vessels. The plaintiffs continued operation of the vessels after the pledge contract was entered into places his possession subject to the order of the pledge. The pledge can temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating the pledge. In this case, the pledgor is regarded as holding the pledge merely as a trustee for the pledge.

with the seizure of certain items from FBDC's premises The sheriff delivered the seized properties to respondents. FBDC questioned the propriety of the seizure and delivery of the properties to respondents without an indemnity bond before the trial court. FBDC argued that when respondents and Tirreno entered into the chattel mortgage agreement on 9 November 2000, Tirreno no longer owned the mortgaged properties as FBDC already enforced its lien on 29 September 2000.

As to the validity of the pledge contract with regard to delivery, plaintiff alleges that constructive delivery is insufficient to make pledge effective. The Court ruled that type of delivery will depend on the nature and peculiar circumstances of each case. Since the defendant bank was, pursuant to the pledge contract, in full control of the vessels through plaintiff, the former could take actual possession at any time during the life of the pledge to make more effective its security.

ISSUE: Whether or not the dismissal of FBDC's third party claim upon the trial court's erroneous interpretation that FBDC has no right of ownership over the subject properties because Section 22 of the contract of lease is void for being a pledge and a pactum commissorium? HELD: No, This stipulation is in the nature of a resolutory condition, for upon the exercise by the [lessor] of his right to take possession of the leased property, the contract is deemed terminated. This kind of contractual stipulation is not illegal, there being nothing in the law proscribing such kind of agreement. Judicial permission to cancel the agreement was not, therefore necessary because of the express stipulation in the contract of [lease] that the [lessor], in case of failure of the [lessee] to comply with the terms and conditions thereof, can take-over the possession of the leased premises, thereby cancelling the contract of sub-lease. Resort to judicial action is necessary only in the absence of a special provision granting the power of cancellation. We allow FBDC's forfeiture of Tirreno's properties in the leased premises. By agreement between FBDC and Tirreno, the properties are answerable for any unpaid rent or charges at any termination of the lease. Such agreement is not contrary to law, morals, good customs, or public policy. Forfeiture of the properties is the only security that FBDC may apply in case of Tirreno's default in its obligations PNB v ATENDIDO (Re Incorporeal Rights) FACTS: Laureano Atendido (LA) obtained from PNB (P) a loan payable in 120 days with interest. To guarantee its payment LA pledge to the bank 2,000 cavans of palay which were deposited in a warehouse and to that effect endorsed in favor of the bank the corresponding WH receipt. Before the maturity of the loan, the cavans of rice dissappeared from the WH. LA failed to pay the loan upon matrity and so the present action was instituted. LA set up the defense that the quedan covering the palay which was given as security having been endorsed

FBDC v YLLAS LENDING FACTS: FBDC executed a lease contract in favor of Tirreno, Inc. (Tirreno) over a unit at the Entertainment Center - Phase 1 of the Bonifacio Global City in Taguig, Metro Manila Two provisions in the lease contract are pertinent to the present case: Section 20, which is about the consequences in case of default of the lessee, and Section 22, which is about the lien on the properties of the lease. Tirreno began to default in its lease payments in 1999. By July 2000, Tirreno was already in arrears by P5,027,337.91. FBDC and Tirreno entered into a settlement agreement on 8 August 2000. Despite the execution of the settlement agreement, FBDC found need to send Tirreno a written notice of termination dated 19 September 2000 due to Tirreno's alleged failure to settle its outstanding obligations FBDC entered and occupied the leased premises. FBDC also appropriated the equipment and properties left by Tirreno pursuant to Section 22 of their Contract of Lease as partial payment for Tirreno's outstanding obligations. Yllas Lending Corporation and Jose S. Lauraya, in his official capacity as President, (respondents) caused the sheriff of Branch 59 of the trial court to serve an alias writ of seizure against FBDC. On the same day, FBDC served on the sheriff an affidavit of title and third party claim Despite FBDC's service upon him of an affidavit of title and third party claim, the sheriff proceeded



in blank in favor of the bank and the palay having been lost or disappeared, he thereby became relieved of liability. ISSUE: WoN LA is relieved from liability SC: NO! The surrender of the warehouse receipt fiven as security, endorsed in blank was NOT that of a final transfer or that WH receipt but merely as a guaranty to the fulfillment of the obligation of P3k. This being so, the ownership remains with the pledgor subject only to foreclosure in case of nonfulfillment of obligation. The pledgor, continuing to be the owner of the goods pledged during the pendency of the obligation in case of the loss of the property, the loss is borne by him. OCEJO PEREZ v INTERNATIONAL BANK FACTS: 1) On March 7, 1914, Chua Teng Chong, executed to the International Banking Corporation a promissory note, payable one month after date, for the sum of P20,000 which note was also attached to another private document, signed by Chua, which stated that he had deposited with the bank, as security for the said note, 5,000 piculs of sugar, which were said stored in a warehouse in Binondo, Manila. 2) The bank made no effort to exercise any active ownership over said merchandise until the April 16, when it discovered that the amount of sugar stored in the said warehouse was much less than what was mentioned in the contract. The agreement between the bank and Chua Teng Chong with respect to the alleged pledge of the sugar was never recorded in a public instrument. 3) On March 24, 1914, the plaintiff partnership Ocejo, Perez and Co., entered into contract with Chua for the sale to him of sugar where the delivery should be made in April. The delivery was completed April 16, 1914, and the sugar was stored in the buyer's warehouse situated at Muelle de la Industria. On this same date, the bank sent an employee to inspect the sugar described in the pledge agreement, which should have been stored in the Calle Toneleros warehouse. It was discovered that the amount of sugar in that warehouse did not exceed 1,800 piculs, it was supposed to have 5,000 piculs of sugar. Eventually, the employee was informed that the rest of the sugar covered by the pledge agreement was stored in the warehouse at No. 119, Muelle de la Industria. The bank's representative immediately went to this warehouse, found 3,200 piculs of sugar, of which he took immediate possession, closing the warehouse with the bank's padlocks. 4) On April 17, 1914, partnership Ocejo presented, for collection, its account for the purchase price of the sugar, but chua refused to make payment, and up to the present time

the sellers have been unable to collect the purchase price of the merchandise in question. 5) The partnership Ocejo made a demand on the bank for the delivery of the sugar, to which demand the bank refused to accede. A suit was filed by Ocejo alleging that said defendant was unlawfully holding the seized sugar, the property of the plaintiff firm Ocejo, which the bank had received from Chua Teng Chong, and prayed for the judgment for the possession of said sugar. 6) Subsequently, by agreement of the parties, the sugar was sold and the proceeds of the deposited in the bank. Afterwards, a complaint in intervention was filed by Chua Seco, the assignee of the insolvency of Chua Teng Chong, asserting a preferential right to the sugar, or to the proceeds of its sale contending that the sugar is the property of the insolvent estate represented by him. The lower court rendered judgment in favor of the Oceja ISSUES: (a) Did title to the sugar pass to the buyer upon its delivery to him (chua seco)? (b) Assuming to pay that the title passed to the buyer, did his failure to pay the purchase price authorize the seller to rescind the sale? (c) Can the pledge of the sugar to the bank be sustained upon the evidence as to the circumstances under which it obtained physical possession thereof? HELD: A) The SC agreed with Chuas contention that he was entitled to demand payment of the sugar at any time after the delivery. No term having been stipulated within which the payment should be made, payment was demandable at the time and place of the delivery of the thing sold. The seller did not avail himself of his right to demand payment as soon as the right to such payment arose, but as no term for payment was stipulated, he was entitled, to require payment to be made at any time after delivery, and it was the duty of the buyer to pay the price immediately upon demand. In essence, the delivery had the effect of transmitting the title of the sugar to the buyer. B) Failure on the part of the buyer to pay the price on demand: Article 1506 of the Civil Code provides that the contract of sale may be rescinded for the same causes as all other obligations, in addition to the special causes enumerated in the preceding articles. It is also observed that the article does not distinguish the consummated sale from the merely perfected sale. In the contract of the sale the obligation to pay the price is correlative to the obligation to



deliver the thing sold. Nonperformance by one of the parties authorizes the other to exercise the right, conferred upon him by the law, to elect to demand the performance of the obligation or its rescission. C) The sugar here in question could not be possibly have been the subject matter of the contract of pledge which the parties undertook to create by the private document, inasmuch as it was not at the time the property of the bank, and this constitutes an indispensable requisite for the creation of a pledge. D) It is not shown that an effort was made to pledge the sugar, the subject matter of this case. Though it happened that the day the sugar was delivered, the Chua gave the bank's representative the keys of the warehouse on the Muelle de la Industria in which the sugar was stored, it was not because of an agreement concerning the pledge of the sugar. From the facts, no attempt was made to enter into any agreement for the pledge of the sugar here in question. The bank took possession of that sugar under the erroneous belief, based upon the false statement of Chua Teng Chong, that it was a part of the lot mentioned in the private document. Even assuming that an attempt was made to pledge the sugar and that delivery was made in accordance with the agreement, the pledge so established would be void as against third persons since it is provided Article 1865 of the Civil Code that a pledge is without effect as against third persons "if the certainty of the date does not appear by public instrument." E) As to assignee Chua Seco: He filed a complaint in intervention in this suit, in which he contends that by reason of its sale and delivery by plaintiff to the insolvent, title to the sugar passed to the latter and that the pledge set up by the bank is void as to third persons. The title to the sugar having been commenced against him before the declaration of insolvency, the assignee, Chua Seco, has a better right to its possession or to the product of its sale during the pendency of this action. The decision of the court below is therefore reversed, and it is decided that the assignee of the bankruptcy of Chua Teng Chong is entitled to the product of the sale of the sugar here in question, to wit, P10,826.76, together with the interest accruing thereon, reserving proceedings. So ordered. CRUZ v LEE SARMIENTO v JAVELLANA Facts: Spouses Villasenor obtained a loan from Javellana to be paid within one year with an interest of 25% p.a. evidenced by to documents. They pledged 4,000 worth of jewels. Upon maturity, the Spouses requested for an extension.

After 7 years, Villasenor offered to pay the loan and redeem the jewels. Javellana refused on the ground that redemption period has already expired and he has already bought the jewels from the wife of Villasenor. Villasenor brought an action against Javellana to compel the return of the jewels pledged.

Issues: 1) WON Villasenor can still redeem the jewels? 2) WON the right to redeem has already expired?

Held: 1) Yes. As the jewels in question were in the possession of the defendant to secure the payment of a loan of 1,500 with interest thereon and for having subsequently extended the term of the loan indefinitely, and so long as the value of the jewels pledged was sufficient to secure the payment of the capital and the accrued interest, the defendant is bound to return the jewels or their value to the plaintiffs, and the plaintiffs have the right to demand the same upon the payment by them of the sum of 1,500 plus interest. 2) An action for recovery of the goods which were pledged to secure the payment of a loan evidenced by a document is an action on a written contract which has a prescriptive period of 10 years from the date on which the debtor may have paid the debt and demanded the return of the goods pledged. In this case, the expiration of the contract was in 1912 and the action to recover was filed in 1920, therefore, the action has not yet prescribed.

PARAY v RODRIGUEZ Facts: Respondents were the owners, in their respective personal capacities, of shares of stock in a corporation known 1 as the Quirino-Leonor-Rodriguez Realty Inc. Sometime during the years 1979 to 1980, respondents secured by way of pledge of some of their shares of stock to petitioners Bonifacio and Faustina Paray ("Parays") the payment of certain loan obligations. When the Parays attempted to foreclose the pledges on account of respondents failure to pay their loans, respondents filed complaints with the Regional Trial Court (RTC) of Cebu City and , sought the declaration of nullity of the pledge agreements. However the 3 RTC, in its decision dated 14 October 1988, dismissed the complaint and gave "due course to the foreclosure and sale at public auction of the various pledges. Respondents then received Notices of Sale which indicated that the pledged shares were to be sold at public auction. However, before the



scheduled date of auction, all of respondents caused the consignation with the RTC Clerk of Court of various amounts. It was claimed that respondents had attempted to tender these payments to the Parays, but had been rebuffed. Notwithstanding the consignations, the public auction took place as scheduled, with petitioner Vidal Espeleta successfully bidding. Respondents instead filed on 13 November 1991 a complaint seeking the declaration of nullity of the concluded public auction. Petitioners now argue that the essential procedural requisites for the auction sale had been satisfied. Issue: W/N the the essential procedural requisites for the auction sale had been satisfied? Ruling: Yes. Under the Civil Code, the foreclosure of a pledge occurs extrajudicially, without intervention by the courts. All the creditor needs to do, if the credit has not been satisfied in due time, is to proceed before a Notary Public to the sale of the thing pledged. MANILA SURETY v VELAYO F: Manila Surety & Fidelity Co., upon request of Rodolfo Velayo, executed a bond for P2,800.00 for the dissolution of a writ of attachment obtained by one Jovita Granados in a suit against Rodolfo Velayo in the Court of First Instance of Manila. Velayo undertook to pay the surety company an annual premium of P112.00 and provided collateral jewelry with the authority to sell in case Manila Surety will be obliged to pay. Judgment having been rendered in favor of Jovita Granados and against Rodolfo Velayo, and execution having been returned unsatisfied, the surety company was forced to pay P2,800.00 that it later sought to recoup from Velayo; and upon the latter's failure to do so, the surety caused the pledged jewelry to be sold, realizing therefrom a net product of P235.00 only The surety files a claim against Velayo because the security Is insufficient. Velayo claims the sale of the jewelry even if insufficient extinguishes the principal obligation. Issue: Won Velayos contention is correct Ruling: Yes! The sale of the thing pledged shall extinguish the principal obligation, whther or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. REAL MORTGAGE VIOLA v EPCIB FACTS: Via a contract denominated as CREDIT LINE AND REAL ESTATE MORTGAGE AGREEMENT FOR PROPERTY LINE (Credit Line Agreement) executed on March 31, 1997, LeoMers Commercial, Inc., as the Client, and its officers spouses Leopoldo and Mercedita Viola (petitioners) obtained a loan through a credit line facility in the maximum amount of

P4,700,000.00 from the Philippine Commercial International Bank (PCI Bank), which was later merged with Equitable Bank and became known as Equitable PCI Bank, Inc. To secure the payment of the loan, petitioners executed also on March 31, 1997 a Real Estate Mortgage in favor of PCIBank over their two parcels of land. Petitioners availed of the full amount of the loan. Subsequently, they made partial payments and made no further payments and despite demand, they failed to pay their outstanding obligation. Respondent thus extrajudicially foreclosed the mortgage before the Office of the Clerk of Court & Ex-Officio Provincial Sheriff of the Regional Trial Court (RTC) of Marikina City. The mortgaged properties were sold on April 10, 2003 for P4,284,000.00 at public auction to respondent, after which a Certificate of Sale dated April 21, 2003 was issued. More than five months later or on October 8, 2003, petitioners filed a complaint for annulment of foreclosure sale. They claim that: a) they had made substantial payments b) the foreclosure proceedings and auction sale were not only irregularly and prematurely held but were null and void because the mortgage debt is only P2,224,073.31 on the principal obligation and P1,455,137.36 on the interest, or a total of only P3,679,210.67 as of April 15, 2003, but the mortgaged properties were sold to satisfy an inflated and erroneous principal obligation of P4,783,254.69, plus 3% penalty fee per month or 33% per year and 15% interest per year, which amounted to P14,024,623.22 as of September 30, 2002; c) that the parties never agreed and stipulated in the real estate mortgage contract that the 15% interest per annum on the principal loan and the 3% penalty fee per month on the outstanding amount would be covered or secured by the mortgage;

ISSUE: whether the mortgage contract also secured the penalty fee per month on the outstanding amount as stipulated in the Credit Line Agreement. RULING: A mortgage must sufficiently describe the debt sought to be secured, which description must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. In the case at bar, the parties executed two separate documents on March 31, 1997 the Credit Line Agreement granting the Client a loan through a credit facility in the maximum amount of P4,700,000.00, and the Real Estate Mortgage contract securing the payment thereof.



Undisputedly, both contracts were prepared by respondent and written in fine print, single space. The provision of the mortgage contract does not specifically mention that, aside from the principal loan obligation, it also secures the payment of a penalty fee of three percent (3%) per month of the outstanding amount to be computed from the day deficiency is incurred up to the date of full payment thereon, which penalty was expressly stipulates in the Credit Line Agreement. Since an action to foreclose must be limited to the amount mentioned in the mortgage and the penalty fee of 3% per month of the outstanding obligation is not mentioned in the mortgage, it must be excluded from the computation of the amount secured by the mortgage. Penalty fee is entirely different from bank charges. The phrase bank charges is normally understood to refer to compensation for services. A penalty fee is likened to a compensation for damages in case of breach of the obligation. Being penal in nature, such fee must be specific and fixed by the contracting parties, unlike in the present case which slaps a 3% penalty fee per month of the outstanding amount of the obligation.

any other property he then might have and on those he might acquire in the future. ISSUE: WON such a stipulation constitute a valid mortgage on the 5 other parcels of land which LM subsequently acquired? HELD: NO LM could not legally mortgage any property he did not yet own. 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 so far as the additional parcels of land are concerned, the registration of Deed of Mortgage did not affect and could not have affected them because they were not specifically described therein. PBCOM v MACADAEG FACTS: On September 30, 1950, respondents Pedro B. Bautista, Dativa Corrales Bautista, Inocencio C. Campos, and the Flash Taxi Company jointly and severally applied for and obtained a credit accommodation from the petitioner bank in the sum of P100,000.00, and as a security therefor executed in favor of the bank, in one single document, a real estate mortgage over four parcels of land, and a chattel mortgage on some movie equipment and thirty taxicabs. Respondents having failed to pay the total amount of P128,902.42 due on the credit accommodation referred to, the petitioner bank procured the extrajudicial foreclosure of the real estate mortgage in accordance with Act No. 3135, as amended, and at the foreclosure sale on January 9, 1956, the bank acquired the properties mortgaged as the highest bidder for the sum of P68,365.60. Claiming a balance of P62, 749.72 still due, the petitioner bank, instead of foreclosing respondents' chattel mortgage, filed against them on may 22, 1956, Civil Case No. 29752 for the collection of said balance. The lower court, on June 30, 1956, rendered judgment ordering defendants to pay the plaintiff bank, jointly and severally, the sum of P62, 749.72, with interest thereon at the rate of 7% per annum from May 22, 1956 until the said amount is fully paid. On September 18,1956, the court issued an order to execute said judgment; it does not appear, though, that plaintiff sought the enforcement of the writ of execution. On April 24, 1957, the court issued another order for the execution of the judgement, pursuant to which the sheriff of Manila published a "Notice of Sale," setting for sale at public auction on May 13, 1957 the rights, interest or participation of respondents on the certificate of public convenience registered in the name of the Flash Taxi Co. in cases Nos. 32578 of the Public Service Commission.

DILAG v HEIRS OF RESSURECCION FACTS: BEFORE 1936: Laureano Marquez (LM) was indebted to Fortunato Resurreccion (FR) in the sum of P5k as the balance of purchase price of a parcel of land which LM bought and received from FR. FR was in turn indebted to Luzon Surety Company in the same amt, secured by a mortgage on 3 parcels of land one of which was bought by LM from him AS EARLY AS 193: LM had agreed to pay FRs indebtedness to Luzon Surety Company by way of satisfaction of his own indebtedness to FR in the same amt LM failed to pay indebtedness of FR to the Luzon Surety Company, and the latter foreclosed judicially the mortgage executed in its favour by FR Since LM did not fulfil his promise, FR commenced an action against LM to recover the value of lost properties LM sale at public auction of 5 parcels of land mentioned in FRs complaint is invalid because they are not specifically described in the mortgage deed. LM acquired those parcels of land subsequent to the execution of mortgage deed. In the fifth clause of said document Laureano Marquez stipulated that inasmuch as the five parcels of land described in the fourth clause were not sufficient to cover all his obligations in favor of Fortunato Resurreccion, he also constituted a mortgage in favor of the latter and his assignees on



On May 13, 1957, the sheriff sold the rights, interests, or participation of respondents in the certificate of public convenience in question to the plaintiff bank as the highest bidder for the amount of P60,371.25, and two days later, on May 15, the sheriff issued to plaintiff the corresponding certificate of sale. Respondents Pedro B. Bautista, et al., filed in the court below a "Petition To Set Aside Order dated June 8, 1957, Confirming Sheriffs Sale of may 15, 1957 and to Declare its Nullity," claiming, as grounds for the petitions, that they had other properties which they had pointed out to the plaintiff bank with which the judgement could be satisfied that the law grants to the judgement debtor the right to direct which of his properties should be sold in execution of a judgement; that the sale of the certificate of public convenience in question would mean irreparable damage to them and would prove of work about forth drivers employed in their taxicab business; and that defendants had no objection to bearing the expenses of the sale sought to be revoked and of any subsequent execution sales in satisfaction of the judgement. Plaintiff bank opposed the petition, contending that there was no showing that the sheriff's sale in question was irregular or not in accordance with law; that the subject of the execution sale being personal property, and a certificate of sale having already been delivered to it by the sheriff, the court could no longer set aside said sale ISSUE: W/N the sheriffs sale was irregular and therefore null and void. HELD: The alleged nullity is claimed to arise from the fact that the real estate and chattel mortgage executed by respondents to secure their credit accommodation with the petitioner bank was indivisible, and that consequently, the bank had no legal right to extra judicially foreclose only the real estate mortgage and leave out the chattel mortgage, and then sue respondents for a supposed deficiency judgement; and for this reason, respondents assert that the judgement in the bank's favor for such deficiency in Civil Case No. 29752 is a nullity. The argument is fallacious because the mere embodiment of the real estate mortgage and the chattel mortgage in one document does not fuse both securities into an indivisible whole. Both remain distinct agreements, differing not only in the subject-matter of the contract but in the but in the governing legal provisions. Petitioner bank, therefore, had every right to foreclose the real estate mortgage and waive the chattel mortgage, and maintain instead a personal action for the recovery of the unpaid balance of its credit (De la Rama vs. Sajo, 45 Phil., 703; Salomon vs. Dantees, 63 Phil., 522; Brancharch Motor Co. vs. Rangal, et al., 68 Phil., 287,

290). This petitioner did by filing civil Case No. 29752 for the collection of the unpaid balance of respondents' indebtedness; and the validity and correctness of the action was admitted by respondents themselves when they confessed judgement thereto. The court in fact decision pursuant to such confession of judgement, and the decision has long since been final and executory. PRUDENTIAL BANK v PANIS HOME BANKERS v CA Facts: Private respondents entered into a Contract to Sell Agreement with TransAmerican through Engr. Garcia over portions of land with one unit three-storey townhouse to be built on each portion. Engr. Garcia obtained a loan from petitioner and as security executed a mortgage over the property subject to the Contract to Sell with the private respondents. Petitioner registered its mortgage on these titles without any other encumbrance or lien annotated therein. When the loan was due, Engr. Garcia failed to pay hence petitioner instituted an extrajudicial foreclosure on the subject lots. Private respondents prayed for the annulment of the mortgage in favor of petitioner. Petitioner filed its Answer contending that private respondents have no cause of action against it; that at the time of the loan application and execution of the promissory note and real estate mortgage by Garcia, there were no known individual buyers of the subject land nor annotation of any contracts, liens or encumbrances of third persons on the titles of the subject lots; that the loan was granted and released without notifying HLURB as it was not necessary. CA ruled in favor of private respondents saying that despite the contracts to sell, Garcia/TransAmerican did not apprise petitioner of the existence of these contracts nor did petitioner exhaust any effort to inquire into their existence since petitioner merely relied on the purported clean reconstituted titles in the name of Garcia; that the mortgage of the subject lots without the consent of the buyers and the authorization of the HLURB is a clear violation of P.D. No. 957; that the mortgage contract is void and unenforceable against private respondents.

ISSUES: 1. 2. 3. WON HLURB has jurisdiction over the case? WON the mortgage is valid? WON petitioner is a mortgagee in good faith and since the titles on their face were free from any claims, liens and encumbrances at the time of the mortgage, it is not obliged under the law to go



beyond the certificates of title registered under the Torrens system and had every reason to rely on the correctness and validity of those titles.? HELD: 1. HLURB has jurisdiction. The Court ruled in a prior case that the jurisdiction of the HLURB to regulate the real estate trade is broad enough to include jurisdiction over complaints for specific performance of the sale, or annulment of the mortgage, of a condominium unit, with damages. THE MORTGAGE IS VOID. Under Section 18 of P.D. No. 957, it is provided that no mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the HLURB Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. Without the prior written approval of the HLURB, the latter has the jurisdiction to annul the mortgage for being void. Petitioner is NOT A MORTGAGEE IN GOOD FAITH. Petitioner knew that the loan it was extending to Garcia/TransAmerican was for the purpose of the development of the eight-unit townhouses. Petitioners insistence that prior to the approval of the loan, it undertook a thorough check on the property and found the titles free from liens and encumbrances would not suffice. It was incumbent upon petitioner to inquire into the status of the lots which includes verification on whether Garcia had secured the authority from the HLURB to mortgage the subject lots. Petitioner failed to do so. We likewise find petitioner negligent in failing to even ascertain from Garcia if there are buyers of the lots who turned out to be private respondents. Petitioners want of knowledge due to its negligence takes the place of registration - thus it is presumed to know the rights of respondents over the lot - and the conversion of its status as mortgagee to buyerowner will not lessen the importance of such knowledge. SAMANILLA v CAJUCOM MOBIL PHILIPPINES v DIOCARES FACTS: The parties Mobil and Diocares entered an agreement wherein on cash basis, Mobil will deliver minimum of 50k liters of petroleum a month. To secure this, diocares executed a Real Mortgage. Diocares failed to pay the balance of their indebtedness and Mobil filed an action for the collection of the balance of the purchase amount or that the Real Property mortgaged by Diocares be sold to a public auction and the proceeds be applied to the payment of the

obligation. LC did not grant foreclosure on the ground that the mortgage was not validly executed (not registered). ISSUE: WON failure to register the Real Mortgage would render it invalid SC: NO! - If the instrument is not recorded, the mortgage is nevertheless binding between the parties. Its conclusion, however, is that what was thus created was merely a personal obligation but did not establish a real estate mortgage. - The mere fact that there is as yet no compliance with the requirement that it be recorded cannot be a bar to foreclosure MCCULLOUGH v VELOSO FACTS: 1) On March 23, 1920, the plaintiff McCullough & Co., sold to Mariano Veloso the "McCullough Building," and the land thereon, for the price of P700,000. Veloso paid P50,000 cash on account at the execution of the contract, leaving a balance of P650,000 to be paid. 2) Veloso assumed also the obligation to insure the property for not less than P500,000, as well as to pay all legal taxes that might be imposed upon the property, and in the event of his failure to do so, the plaintiff should pay said taxes at the expense of Veloso, with the right to recover of him the amounts thus paid, with interest at 7 per cent per year. To secure the payment of these amounts, Veloso mortgaged the property purchased 3) It was, also, stipulated that in case of failure on the part of Veloso to comply with any of the stipulations contained in the mortgage deed, all the installments with the interest thereon shall become due, and the creditor shall then have the right to bring the proper action for the collection of the unpaid part of the debt. 4) On August 21, 1920, Mariano Veloso, in turn, sold the property, with the improvements thereon for P100,00 to Joaquin Serna, who agreed to respect the mortgage of the property in favor of the plaintiff and to assume Mariano Veloso's obligation to pay the plaintiff the balance due of the price of the estate on the respective dates when payments should be made according to the contract between Mariano Veloso and the plaintiff. 5) Veloso paid P50,000 on account of the P650,000, and Serna made several payments up to the total sum of P250,000. Subsequently, however, neither Veloso, nor Serna, made any payment upon the last installments, by virtue of which delay, the whole obligation became due, and Veloso





lost the right to the installments stipulated in his contract with the plaintiff. 6) Upon a liquidation of the debt of Mariano Veloso in favor of the plaintiff, including the interest due, with the result that Veloso owed exactly P510,047.34. Thus, the plaintiff brings this action to recover of the defendant the sum due of P510,047.34. The defendant contends however that having sold the property to Serna, and the latter having assumed the obligation to pay the plaintiff the unpaid balance of the price secured by the mortgage upon the property, he no more obligation and it is upon Serna to pay the plaintiff. HELD: A) The mortgage is merely an encumbrance upon the property and does not extinguish the title of the debtor, who does not, therefore, lose his principal attribute as owner, that is, the right to dispose. the fact that the plaintiff recognized the efficaciousness of that sale cannot prejudice him, which sale the defendant had the right to make and the plaintiff cannot oppose and which, at all events, could not affect the mortgage, since it follows the property whoever the possessor may be. B) The Mortgage Law in force at the promulgation of the Civil Code and referred to in the latter, provided, among other things, that the debtor should not pay the debt upon its maturity after a judicial or notarial demand for payment has been made by the creditor upon him. Accordingly, the obligation of the new possessor to pay the debt originated only from the right of the creditor to demand payment of him, it being necessary that a demand for payment should have previously been made upon the debtor and the latter should have failed to pay. C) The Civil Code imposes the obligation of the debtor to pay the debt stand although the property mortgaged to secure the payment of said debt may have been transferred to a third person.

The effect of the failure to implead a subordinate lienholder or subsequent purchaser or both is to render the foreclosure ineffective as against them, with the result that there remains in their favor the unforeclosed equity of redemption.

PADERES v CA Facts: Manila International Construction Corporation (MICC) mortgaged 21 properties in favor of Banco Filipino (BF) for a loan of P1.8M. The mortgaged was registered with the Registry of Deeds. 2 of the lots were later sold to Spouses Paderes and Spouses Bergardo. MICC failed to pay the loan. Without any redemption having been made within the reglementary period, Banco Filipino foreclosed the properties extra judicially. BF won as the highest bidder in the auction sale. Paderes and Bergardo filed a petition stating that their right is superior than BF since they are buyers in good faith and are still entitled to redeem.

Issue: WON Paderes and Bergardo has still rights over the properties? Held: No. Sale or transfer cannot affect or release the mortgage. A purchaser is necessarily bound to acknowledge and respect the encumbrance to which is subjected the purchased thing and which is at the disposal of the creditor in order that he, under the terms of the contract, may recover the amount of his credit therefrom. For a recorded real estate mortgage is a right in rem, a lien on the property whoever its owner may be because the personality of the owner is disregarded. The mortgage subsists notwithstanding changes of ownership. The last transferee is just as much of a debtor as the first one. A mortgage lien is inseparable from the property mortgaged. All subsequent purchasers thereof must respect the mortgage, whether the transfer to them be with or without the consent of the mortgagee. For the mortgage until discharged, follows the property. With regard to the redemption period, it is settled 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. As such, he is entitled to the possession of the said property and can demand it any time following the consolidation of ownership in his name and the issuance to him of a new TCT. If the buyer demands the possession of the property before the

SANTIAGO v DIONISIO DOCTRINE: All persons having or claiming an interest in the mortgaged premises subordinate in right to that of the holder of the mortgage should be made defendants in the action for the foreclosure of the mortgage. Intervening as a subordinate lienholder in a foreclosure case merely to oppose the confirmation of the sale upon learning that such a sale had been made, is no the same as being a party to the suit to the extent of being bound by the judgement in the foreclosure suit.



expiration period, he has to post a bond. No bond is required after the redemption period if the property is not redeemed.


Facts: November 10, 1965, Alta Farms secured from the GSIS a Three Million Two Hundred Fifty Five Thousand Pesos (P3,255,000.00) loan and an additional loan of Five Million Sixty-Two Thousand Pesos (P5,062,000.00) on October 5, 1967, to finance a piggery project. Alta Farms defaulted in the payment because of this that Alta Farms executed a Deed of Sale With Assumption of Mortgage with Asian Engineering Corporation on July 10, 1969 but without the previous consent or approval of the GSIS and in direct violation of the provisions of the mortgage contracts. Even without the approval of the Deed of Sale With Assumption of Mortgage by the GSIS, Asian Engineering Corporation executed an Exclusive Sales Agency, Management and Administration Contract in favor of Laigo Realty Corporation, with the intention of converting the piggery farm into a subdivision. After developing the area, on December 4, 1969, Laigo entered into a contract with Amable Lumanlan, one of the petitioners, to construct for the home buyers, 20 houses on the subdivision. Petitioner Lumanlan allegedly constructed 20 houses for the home buyers and for which he claims a balance of P309,187.76 from the home buyers and Laigo. Out of his claim, petitioner Lumanlan admits that Mrs. Rhody Laigo paid him in several checks totalling P124,855.00 but which checks were all dishonoured. On December 29, 1969, Laigo entered into a contract with petitioner Pepito Velasco to construct houses for the home buyers who agreed with Velasco on the prices and the downpayment. Petitioner Velasco constructed houses for various home buyers, who individually agreed with Velasco, as to the prices and the downpayment to be paid by the individual home buyers.When neither Laigo nor the individual home buyers paid for the home constructed, Velasco wrote the GSIS to intercede for the unpaid accounts of the home buyers. Issue: W/N GSIS is liable to the petitioners for the cost of the materials and labor furnished by them in construction of the 63 houses now owned by the GSIS?

Ruling: Yes. GSIS should pay the petitioners. GSIS assumed ownership of the houses built by petitioners and was benefited by the same. Art. 2127, the mortgage extends to the natural accessions, to the improvements, growing fruits, rents.
AFABLE v BELANDO Afable brought a suit against Belando for an unpaid promissory note. Judgment was rendered in favor of him and because Belando has no money, the rents in her property was given to Afable. It turns out, before Afable filed a case for the collection of money, another creditor of Belando, La Urbana, already had a lien on the property because Belando borrowed money from La Urbana and as a security, Belando mortgaged the property being rented to La Urbana. La Urbana filed a petition to intervene in the case of Afable v Belando and claims that since the property was mortgaged to them, they also own the rents and the rents cannot be given to Afable. Issue: Won the contention of La Urbana is valid Ruling: Yes. The mortgage extends to the rents not yet received when the obligation becomes due. In this case, because the property was mortgaged to La Urbana, they also own the rents of the mortgaged property. Bank of America v American Realty F: Petitioner Bank of America NT & SA (BANTSA) is an international banking and financing institution Bank of America International Limited (BAIL), on the other hand, is a limited liability company organized and existing under the laws of England. BANTSA and BAIL on several occasions granted three major multi-million United States (US) Dollar loans to the following corporate borrowers and which are foreign affiliates of 3 private respondent. Due to the default in the payment of the loan amortizations, BANTSA and the corporate borrowers signed and entered into restructuring agreements. As additional security for the restructured loans, private respondent ARC (American Realty) as third party mortgagor executed two real estate mortgages, over its parcels of land including improvements thereon, located at Bulacan. Eventually, the corporate borrowers defaulted in the payment of the restructured loans prompting petitioner BANTSA to file civil actions before foreign courts for the collection. This includes the property of American Realty. Petitioners already filed collection cases in foreign courts. It also filed an extrajudicial foreclosure on the property in Bulacan in which American Realty question because the



petitioners cannot file a case for collection and a case for extrajudicial foreclosure at the same time. Issue: Won the contention of respondents are valid Ruling: yes! The mortgagee cannot have both remedies. He has only one cause of action, i.e., non-payment of the mortgage debt; hence, he cannot split up his cause of action by filing a compliant for payment of the and another complaint for foreclosure. PEOPLES BANK v DAHICAN LUMBER FACTS: On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do business in the Philippines hereinafter referred to as ATLANTIC sold and assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company hereinafter referred to as DALCO. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust Company. 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 together with all the buildings and other improvements existing thereon and all the personal properties of the mortgagor located in its place of business. On the same date, DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber concession. Both deeds contained the following provision extending the mortgage lien to properties to be subsequently acquired referred to hereafter as "after acquired properties" by the mortgagor: All property of every nature and description taken in exchange or replacement, and all buildings, machinery, fixtures, tools equipment and other property which the Mortgagor may hereafter acquire, construct, install, attach, or use in, to, upon, or in connection with the premises, shall immediately be and become subject to 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. 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 theretofore regarding "after acquired properties," the BANK requested DALCO to submit complete lists of said properties but the latter failed to do so. The alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to It, was subsequently rescinded by the parties. 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, ATLANTIC and the BANK commenced foreclosure proceedings. Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject to the deeds of mortgage mentioned heretofore; that said properties were acquired from suppliers other than DAMCO and CONNELL; that even granting that DAMCO and CONNELL were the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage lien in favor of plaintiffs. The defendants-appellants contend that the mortgages aforesaid were null and void as regards the "after acquired properties" of DALCO because they were not registered in accordance with the Chattel Mortgage Law. ISSUES: 1. are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of foreclosure? assuming that they are subject thereto, are the mortgages valid and binding on the properties aforesaid inspite of the fact that they were not registered in accordance with the provisions of the Chattel Mortgage Law?


RULING: 1. 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. 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. the chattels were placed in the real properties mortgaged to plaintiffs, they came within the 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 did not have to be registered a second time as chattel mortgages in order to bind the "after acquired properties" .

certain cinematograph which had been constructed upon the property mortgaged was not included therein and that it should not, therefore, be sold under said execution. Despite objection, Sheriff sold the property mortgaged together with the buildings erected thereon Def objected to the confirmation of said sale; said cinematograph in question was created by simply reforming a building located on the land at the time said mortgage was executed and delivered; that it was not a new structure on said land; that it was the result of changing and altering a building already upon the land, for the purpose of making it into a cinematograph TC Judge Harvey confirmed said sale

ISSUE: WON the sale under execution by the sheriff of certain real property including the buildings thereon should be confirmed? HELD: YES Questions presented by Camps have been discussed by this court and decided against his contention in the case of Bischoff v. Pomar and Compania General de Tabacos. In that case, this court discussed the very articles of the Mortgage Law upon which Camps now seeks relief. In that case the Court said: So that even though no mention had been made of said machinery and tramway in the mortgage instrument, the mortgage of the property whereon they are located in understood by law to extend to them and they must be considered as included therein, as well as all other improvements, unless there was an express stipulation between the parties that they should be excluded. IN THIS CASE: the buildings erected thereon" were expressly included in the mortgage. Nothing in the form of buildings was exclude. The buildings, therefore, were manifestly included in the mortgage. TADY-Y v PNB PRUDENTIAL BANK v ALVIAR LOPEZ v ALVAREZ FACTS: Appellee Evaristo holds a lien over the estate of one Vicente Lopez as the latter executed a mortgage deed in favor of Evaristo. On April 5, 1904, Evaristo assigned his lien on the estate to appellant Manuel Lopez through a public instrument but the same was not registered in the Registry of Deeds. Appellee Grindrod is a creditor of Evaristo, to whom

PHIL SUGAR ESTATE v CAMPS FACTS: Defendant executed and delivered to Plaintiff a mortgage on certain real estate, which is particularly described therein, including the building erected thereon, in order to guarantee the payment of certain sum of money; Another mortgage upon the same property to secure the payment of an additional sum of money Plaintiff commenced an action to recover said sums and to foreclose said mortgages when neither of said sums of money secured by said mortgages was fully paid and satisfied Def denied; alleged that the sum of P3k included in said mortgages for the payment of expenses was excessive TC Judge Ostrand ordered foreclosure of said mortgages While Sheriff tried to sell the property included in said mortgages, Def interposed an objection that a



the latter promised to pay his obligation through the sugar yielded by the hacienda, said agreement was entered into July 7, 1900. But the hacienda was not able to increase the sugar it yielded and defendant On August 5, 1904, Grindrod who feared of not getting paid obtained a preliminary attachment over all the property of Evaristo including the lien that was assigned to appellant. The same was registered on August 12, 1904. A dispute arised over the rightful owner of the lien, defendants main contention is that since the assignment made to Lopez was not registered it is not binding and has no effect. ISSUE: WON THE ASSIGNMENT OF A MORTGAGE CREDIT NEED TO BE REGISTERED FOR IT TO BE VALID AND EFFECTIVE? HELD: NO. Although the Civil Code provides that A mortgage credit may be alienated or assigned to a third person, wholly or partially, with the formalities required by law, the fact that such assignment was not registered in the property register is no obstacle to the transfer of the dominion or ownership of said credit in the sum therein stated in favor of Lopez. In as much as the assignment or alienation of a credit, made by the owner thereof in favor of another, is prior to the act of its registration, and entirely independent of such formality to such an extent that, if any question should arise over the contract between the assignor and the assignee, it would have to be decided according to common law without need of previous registration of the title, which shows that a credit secured by a mortgage may be assigned or alienated, and is a perfectly valid contract even if it were not registered. Also, the registration of the assignment or alienation of a credit secured by mortgage, required, among others, of the Mortgage Law, is only necessary in order that it may be effectual as against third parties.

R informed the Sheriff and Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without its consent, in contravention of their Deed of Real Estate Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties, Register of Deeds issued TCT in favor of R A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction was filed by the spouses Litonjua and PWHAS against R LC ruled in favor of R and affirmed by CA

ISSUE: WON paragraphs 8 and 9 of the Real Estate Mortgage are valid and enforceable; SC: NO! - Art. 2130 stipulation forbidding alienation of mortgaged property is VOID - A real mortgage is merely an encumbrance; it does not extinguish the title of the debtor, whose right to dispose a principal attribute of ownership is not thereby lost. Thus, a mortgagor had every right to sell his mortgaged property, which right the mortgagee cannot oppose. - Although 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. In other words, stipulations like those covered by paragraph 8 (requiring P to acquire prior consent of R before alienating the property) of the subject Deed of Real Estate Mortgage circumvent the law, specifically, Article 2130 of the New Civil Code. - Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not binding upon the parties.

BPI v CONCEPCION LITONJUA v L&R CORPORATION FACTS: - Spouses Litonjua (P) obtained a loan from L & R Corporation (R) Aug 6, 1974 (P200k) and Mar 27, 1978 (P200k) which are secured by a mortgage on 2 parcels of land owned by P - However, P sold to Phil White House Auto Supply (PWHAS) the subject parcels of land, without prior written consent of R, pursuant to the Mortgage agreement that they have. - Upon default of P, R initiated an extrajudicial sale and won the bidding. - P later on filed for redemption of the property but R refused to do accept the payment contending that P violated the contract

UNION BANK v CA FACTS: 1) A real estate mortgage was executed on December 1991 by spouses Dario (hereafter mortgagors) in favor of UNIONBANK to secure a P3 million loan which covered a Quezon City property in Leopoldo Dario's name and was annotated on the title. For non-payment of the principal



obligation, UNIONBANK extrajudicially foreclosed the property mortgaged on August 1993 and sold the same at public auction, with itself posting the highest bid. 2) One week before the one-year redemption period expired, private respondents filed a complaint with the RTC against the mortgagors, UNIONBANK and the Register of Deeds annulment of sale and real estate mortgage reconveyance and prayer for restraining notice of lis pendens was annotated on the title. 3) On October 1994, the RTC issued a TRO enjoining the redemption of property within the statutory period and its consolidation under UNIONBANK's name. 4) Without notifying private respondents, UNIONBANK consolidated its title over the foreclosed property on October 1994, UNIONBANK's name was issued in the new TCT. 5) Private respondents filed an amended complaint, alleging that they, not the mortgagors, are the true owners of the property mortgaged and insisting on the invalidity of both the mortgage and its subsequent extrajudicial foreclosure. They claimed that the original title, was entrusted to a certain Atty. Reynaldo Singson preparatory to its administrative reconstitution after a fire gutted the Quezon City Hall building. Mortgagor Leopoldo, private respondent Fermina's son, obtained the property from Atty. Singson, had the title reconstituted under his name without private respondents' knowledge, executed an ante-dated deed of sale in his favor and mortgaged the property to UNIONBANK. 6) On December 1994, the RTC admitted the aforementioned amended complaint. UNIONBANK filed its answer ad cautelam asserting its status as an innocent mortgagee for value whose right or lien upon the property mortgaged must be respected even if, the mortgagor obtained his title through fraud. It also averred that the action had become "moot and academic by the consolidation of the foreclosed property on 24 October 1994" in its name. 7) On appeal, the CA nullified the consolidation of ownership, which was the prior judgment in the RTC, ordered the Register of Deeds to cancel the certificate of title in UNIONBANK's name and to reinstate TCT of respondents. ISSUE: Whether UNIONBANK is a mortgagee in good faith and for value with a right to consolidate ownership over the foreclosed property with the redemption period having expired and there having been no redemptioners. HELD: A) The SC disagrees with the CAs judgment that consolidation deprived private respondents of their property without due process. Because 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. In effect, consolidation took place as a matter of right since there was no redemption of the foreclosed property and the TRO expired upon dismissal of the complaint. C) UNIONBANK need not have informed private respondent that it was consolidaint its title over the property, upon the expiration of the redemption period, without the judgment debtor having made use of his right of redemption, the ownership of the property sold becomes consolidated in the purchaser. Upon failure to redeem foreclosed realty, consolidation of title becomes a matter of right on the part of the auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes ministerial upon the Register of Deeds. C) At any rate, the consolidation of ownership over the mortgaged property in favor of UNIONBANK and the issuance of a new title in its name during the pendency of an action for annulment and reconveyance will not cause injury to private respondents because as purchaser at a public auction, UNIONBANK is only substituted to and acquires the right, title, interest and claim of the judgment debtors or mortgagors to the property at the time of levy. With the main action for reconveyance pending before the RTC, the notice of lis pendens, sufficiently protects private respondents interest over the property. Thus the Decision of the Court of Appeals is REVERSED and SET ASIDE. The order of the trial court dated 7 August 1999, declaring UNIONBANK's prayer for writ of preliminary injunction moot and academic, is hereby REINSTATED. Let this case be remanded to the Regional Trial Court for trial on the merits. DBP v LICUANAN DOCTRINE: All persons having or claiming an interest in the mortgaged premises subordinate in right to that of the holder of the mortgage should be made defendants in the action for the foreclosure of the mortgage. Intervening as a subordinate lienholder in a foreclosure case merely to oppose the confirmation of the sale upon learning that such a sale had been made, is no the same as being a party to the suit to the extent of being bound by the judgement in the foreclosure suit. The effect of the failure to implead a subordinate lienholder or subsequent purchaser or both is to render the foreclosure ineffective as against them, with the result that there remains in their favor the unforeclosed equity of redemption.

DBP v GO Facts:



In 1982, Go obtained a loan from DBP evidenced by two promissory notes, one for 194K payable quarterly for 5 years and the other 300K payable quarterly for 7 years. He mortgaged his real and personal property. A contract provision states that DBP can unilaterally increase the interest rate and requires Go to insure the mortgaged properties. DBP increased its interest rate to 35% then lowered it to 29%. Go failed to pay the loan. In 1986, DBP extrajudicially foreclosed the property and was declared the winner as the highest bidder in the auction sale. Go filed an action to annul the auction sale. Both RTC and CA declared that the extrajudicial foreclosure was void because loan has not yet mature at the time of the foreclosure sale (the foreclosure was done less than 5 years from the execution of the contract).

possession of Lot No. 2-B, the Provincial Sheriff ordered them to vacate the premises. Issue: W/N there was a valid extrajudicial foreclosure sale? Ruling: Yes. The formalities of a levy, as an essential requisite of a valid execution sale under Section 15 of Rule 39 and a valid attachment lien under Rule 57 of the Rules of Court, are not basic requirements before an extrajudicially foreclosed property can be sold at public auction. The case at bar, as the facts disclose, involves an extrajudicial foreclosure sale. Act No. 3135, as amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" applies in cases of extrajudicial foreclosure sale.

Issue: WON the extrajudicial foreclosure should be declared null and void? Held: Yes. The mortgage contract states that petitioner may resort to either judicial or extrajudicial foreclosure in case of default. Petitioner opted for extrajudicial foreclosure. However, both the trial court and the CA declared that the extrajudicial foreclosure void for being premature. For all intents and purposes, there has been no foreclosure. Therefore, this Court or any court cannot issue a writ of execution to judicially foreclose the property. FIESTAN v CA BANK OF AMERICA v AMERICAN REALTY CHIENG v SPOUSE SANTOS FIRST MARBELLA v GATMAYTAN FACTS: R is the registered owner of Fontavilla No. 501 (condo unit), Marbella I Condominium, Roxas Blvd under CCT No. 1972 P filed a Petition for Extradudicial foreclosure of the condominium unit of R and alleged that P is a duly organized association of the tenants and homeowners of Marbella I Condominium; that R is a member thereof but has unpaid association dues amounting to P3.2mill; that R refused to to pay his dues despite demand P - that it is expressly provided under Section 20 of Republic Act (R.A.) No. 4726 that it has the right to cause the extrajudicial foreclosure of its annotated lien on the condominium unit. Its petition then is cognizable by the RTC under Administrative Matter No. 99-10-05 R objected to P's right to file the petition for extrajudicial foreclosure, pointing out that the latter does not hold a real estate mortgage on the condominium unit or a special power of attorney to cause the extra-judicial foreclosure sale of said unit. - there is even a pending litigation regarding the validity of petitioner's constitution as a homeowners association and its authority to assess association dues, annotate unpaid assessments on condominium titles and enforce the same through extrajudicial foreclosure sale

Facts: Dionisio Fiestan and Juanita Arconada owners of a parcel of land (Lot No. 2B) situated in Ilocos Sur covered by TCT T-13218 which they mortgaged to the Development Bank of the Philippines (DBP) as security for their P22,400.00 loan. Lot No. 2-B was acquired by the DBP as the highest bidder at a public auction sale on August 6, 1979 after it was extrajudicially foreclosed by the DBP in accordance with Act No. 3135, as amended by Act No. 4118, for failure of petitioners to pay their mortgage indebtedness. On April 13,1982, the DBP sold the lot to Francisco Peria in a Deed of Absolute Sale. Francisco Peria mortgaged said lot to the PNB Vigan Branch as security for his loan of P115,000.00 as required by the bank to increase his original loan from P49,000.00 to P66,000.00 until it finally reached the approved amount of P115,000.00. Since petitioners were still in



Clerk of Court, as Ex-Officio Sheriff, recommended to RTC Exec. Judge : Under the facts given, no mortgage exists between the petitioner and respondent. Evidently, it is not one of those contemplated under Act 3135 as amended by Act 4118. The allegation simply does not show a mortgagor-mortgagee relationship since respondent liability arises from his failure to pay dues, assessments and charges due to the petitioner. As clearly stated, the authority of the Executive Judge under Administrative Matter No. 99-10-05-0, as amended dated March 1, 2001, covers extrajudicial foreclosure of real estate mortgages under R.A. No. 3135 and chattel mortgages under P.D. No. 1508. There is nothing in the above mentioned Circular which authorizes the Executive Judge and/or the Ex-Officio Sheriff to extra judicially foreclose properties covered by obligations other than the said mortgages. Hence, the subject petition is not proper for extra-judicial foreclosure under the supervision of the Executive Judge. Dismissal of the subject petition is recommended

unit. All that it states is that the assessment of petitioner against respondent for unpaid association dues constitutes a "first lien against [the] condominium unit Section 20 of RA 4726 does not grant P special authority to foreclose. It merely prescribes the procedure by which petitioner's claim may be treated as a superior lien - i.e., through the annotation thereof on the title of the condominium unit. While the law also grants petitioner the option to enforce said lien through either the judicial or extrajudicial foreclosure sale of the condominium unit, Section 20 does not by itself, ipso facto, authorize judicial as extra-judicial foreclosure of the condominium unit. Petitioner may avail itself of either option only in the manner provided for by the governing law and rules. As already pointed out, A.M. No. No. 99-10-05-0, as implemented under Circular No. 7-2002, requires that petitioner furnish evidence of its special authority to cause the extrajudicial foreclosure of the condominium unit. LANGKAAN REALTY v UCPB BOHANAN v CA

TC denied request for extrajudicial foreclosure of the subject condo unit and dismissed the petition; It not within the authority of Exec. Judge to supervise and approve the extrajudicial foreclosures of mortgage

ISSUE: WON P has a right to file a petition for extrajudicial foreclosure? HELD: NO In order to avail itself of a writ of mandamus, petitioner must establish that it has a clear right to the extrajudicial foreclosure sale of the condominium unit of respondent. Under Circular No. 7-2002, implementing Supreme Court Administrative Matter No. 99-10-05-0, it is mandatory that a petition for extrajudicial foreclosure be supported by evidence that petitioner holds a special power or authority to foreclose Without proof of petitioner's special authority to foreclose, the Clerk of Court as Ex-Oficio Sheriff is precluded from acting on the application for extrajudicial foreclosure IN THIS CASE: the only basis of petitioner for causing the extrajudicial foreclosure of the condominium unit of respondent is a notice of assessment annotated on CCT No. 1972 in accordance with Section 20 of R.A. No. 4726. However, neither annotation nor law vests it with sufficient authority to foreclose on the property The notice of assessment contains no provision for the extrajudicial foreclosure of the condominium

METROBANK v WONG FACTS: Mindanao Grains, Inc. applied for a credit accommodation with petitioner. As security for such credit accommodation, respondent Wong executed a real estate mortgage in favor of petitioner. Due to MGIs failure to pay the obligation, petitioner filed an application for extrajudicial foreclosure which was published in Pagadian Times once, for three consecutive weeks setting the date for the auction sale. No notice was posted in the municipality or city where the mortgaged property was situated. The auction sale proceeded and petitioner was adjudged as the sole and highest bidder. After the expiration of the one year redemption period, ownership was consolidated and TCT correspondingly issued in the name of petitioner.

Respondent unaware of the foregoing developments, applied for a credit accommodation with another bank, only to find out that his property was already foreclosed by petitioner. Respondent filed a case assailing the validity of the extrajudicial foreclosure on the ground that petitioner did not comply with the procedural requirements of law.

Petitioner on the other hand justifies his claim by citing Olizon v. CA, (1) that its failure to comply with the posting requirement did not necessarily result in the nullification of the foreclosure sale since it complied with the publication



requirement; and (2) that personal notice of the foreclosure proceedings to respondent is not a condition sine qua non for its validity.

ISSUE: WoN the foreclosure sale was valid despite lack of publication SC: NO! - Act 3135, governing EJF of mortgages on real property is specific with regard to the posting and publication requirements of the notice of sale, which requires: o Posting of notices of sale in 3 public places o Publication of the same in a newspaper of general circulation. o FAILURE TO PUBLISH the notice of sale constitutes a jurisdictional defect, which INVALIDATES the sale. - RE: WAIVER OF PUBLICATION REQUIREMENTS o PNB and R have absolutely NO RIGHT to waive the posting and publication requirements of the law. o The principal object of a notice of sale in a foreclosure of mortgage is not so much to notify the mortgagor as to inform the public generally of the nature and condition of the property to be sold, and of the time, place and terms of the sale - Notice is given to secure bidders and prevent a sacrifice of the property - Statutory requirement of Publication is mandatory not for the mortgagors benefit, but for the public or rd 3 persons. PNB v SPOUSES CABATINGAN FACTS: 1) Respondent spouses Cabatingan obtained two loans, secured by a real estate mortgage, in the total amount of P421,200 from petitioner PNB. They were unable to fully pay their obligation despite having been granted more than enough time to do so. 2) Thus, PNB extrajudicially foreclosed on the mortgage. Thereafter, a notice of extrajudicial sale was issued. Pursuant to this, the properties were sold at public auction on November 5, 1991. PNB was the highest bidder. 3) On March 16, 1993, respondent spouses filed in the RTC a complaint for annulment of extrajudicial foreclosure of real estate mortgage and the November 5, 1991 auction sale. 4) Petitioners claimed that the provisions of ACT no. 3135 must be observed strictly. Thus, because the public auction of the foreclosed properties was held for only 20 minutes (instead of seven hours as required by law), the consequent sale was void. Thus, the RTC issued an order annulling the sale at public auction. ISSUE: Whether a sale at public auction, to be valid, must be


HELD: 1. Section 3 of Act no. 3135 only requires: (1) the posting of notices of sale in three public places, and (2) the publication of the same in a newspaper of general circulation. Personal notice to the mortgagor is not necessary. Nevertheless, the parties are not precluded from exacting additional requirements. In the case at bar, it was stipulated that notice should be served to the mortgagor. When petitioner failed to send the notice of foreclosure sale to respondent, he committed a contractual breach sufficient to render the foreclosure sale null and void. The general rule is that non-compliance with the posting requirement is fatal to the validity of the foreclosure proceedings. The Olizon case was an exception due to the unusual nature of the attendant facts and peculiarity of the confluent circumstances which are not present in the instant case. While the law recognizes the right of the bank to foreclose a mortgage upon the mortgagors failure to pay his obligation, it is important that such right be exercised according to its clear mandate. Each and every requirement of the law must be complied with PNB v CA PNB v NEPOMUCENO PRODUCTIONS, INC. FACTS: PNB granted respondents (R) a credit line to finance the filming of the movie Pacific Connection. The loan was secured by mortgages on Rs real and personal properties (Malugay property, Forbes Park Property and motion picture equipments). However, R defaulted in their obligation. PNB sought foreclosure of the mortgaged properties where pNB was the highest bidder. R filed for annulment of foreclosure sale since it is null and void for lack of publication of the notice of sale. LC annulled foreclosure.




conducted the whole day from 9:00 a.m. until 4:00 p.m. of the scheduled auction day. HELD: A) Section 4 of Act 3135 provides that the sale must take place between the hours of nine in the morning and four in the afternoon. B) A creditor may foreclose on a real estate mortgage only if the debtor fails to pay the principal obligation when it falls due. But the foreclosure of a mortgage does not extinguish a debtors obligation to his creditor. The proceeds of a sale at public auction may not be sufficient to extinguish the liability of the former to the latter. For this reason, Section 4 of Act 3135 should be construed in such a way that affords the creditor greater opportunity to satisfy his claim without unduly rewarding the debtor for not paying his just debt. C) The word between ordinarily means in the time interval that separates. Thus, between the hours of nine in the morning and four in the afternoon merely provides a time frame within which an auction sale may be conducted. Therefore, a sale at public auction held within the intervening period provided by law is valid, without regard to the duration or length of time it took the auctioneer to conduct the proceedings. Since it was conducted within the time frame provided by law, the sale was valid.

PBC extrajudicially foreclosed the property and won as the highest bidder in the auction sale. Because Saguan failed to redeem, the properties were consolidated in the name of PBC which later on filed a writ of possession. Saguan filed an opposition since PBC failed to return the excess amount of the extrajudicial foreclosure sale. PBC points to Saguans remaining unsecured obligations with the former to which the excess or surplus proceeds were applied.

Issue: 1) WON the writ of possession should be issued? 2) WON PBC may unilaterally apply the excess proceeds to petitioners remaining unsecured obligations?

Held: 1) Yes. A writ of possession is an order enforcing a judgment to allow a persons recovery of possession of real or personal property. This writ may be issued either 1) within the one-year redemption period, upon filing of the bond, 2) after the lapse of the redemption period, without the need of a bond.

MONZON v RELOVA DOCTRINE: 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 sale. Even if, for the sake of argument, Rule 68 is to be applied to extrajudicial foreclosure of mortgages, such right can only be given to second mortgagees who are made parties to the (judicial) foreclosure. While a second mortgagee is a proper and in a sense even a necessary party to a proceeding to foreclose a first mortgage on real property, he is not an indispensable party, because a valid decree may be made, as between the mortgagor and the first mortgagee, without regard to the second mortgagee; but the consequence of a failure to make the second mortgagee a party to the proceeding is that the lien of the second mortgagee on the equity of redemption is not affected by the decree of foreclosure. SAGUAN v PBCOM Facts: Saguan obtained a loan of 3M from PBC and mortgaged his 5 lands. Saguan defaulted.

In this case, the issuance of RTC of a writ of possession in favor of PBC is proper since the redemption period has already expired. The duty of the trial court to grant a writ of possession in such instances is ministerial, and the court may not exercise discretion or judgment. Even if the excess proceeds were not returned to the petitioner, the writ is still valid.

A party may file a petition to set aside the foreclosure sale to cancel the writ of possession in the same proceeding where the writ was requested. However, in this case, petitioners do not challenge the validity of the foreclosure only the contention that the excess proceeds were not returned to them.

2) No. The foreclosure of petitioners properties was meant to answer only the obligation secured by the mortgage. Even if the petitioners have remaining obligations with the respondent, these obligations were not collateralized by the foreclosed mortgage.

The petitioners remedy lies in a separate civil action for collection of a sum of money and not an action to set aside the foreclosure sale.



SUICO v CA QUIRINO GONZALES v CA Facts: Petitioners applied for credit accommodations with respondent bank, which the bank approved granting a credit line of Php900,000.00. Petitioners obligations were secured by a real estate mortgage on four parcels of land. Also, petitioners had made certain advances in separate transactions from the bank in connection with QGLCs exportation of logs and executed a promissory note in 1964. Due to petitioners long default in the payment of their obligations under the credit line, the bank foreclosed the mortgage and sold the properties covered to the highest bidder in the auction. Respondent bank, alleging nonpayment of the balance of QGLCs obligation after the proceedings of the foreclosure sale were applied and nonpayment of promissory notes despite repeated demands, filed a complaint for sum of money against petitioners. Petitioners, on the other hand, asserted that the complaint states no cause of action and assuming that it does, the same is barred by prescription or void for want of consideration. Issue: Whether or not the cause of action is barred by prescription. Held: An action upon a written contract, an obligation created by law, and a judgment must be brought within 10 years from the time the right of action accrues. The finding of the trial court that more than ten years had elapsed since the right to bring an action on the Banks first to sixth causes had arisen is not disputed. The Bank contends, however, that the notices of foreclosure sale in the foreclosure proceedings of 1965 are tantamount to formal demands upon petitioners for the payment of their past due loan obligations with the Bank; hence, said notices of foreclosure sale interrupted the running of the prescriptive period. The Banks contention has no merit. Prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. The law specifically requires a written extrajudicial demand by the creditor which is absent in the case at bar. The contention that the notices of foreclosure are tantamount to a written extrajudicial demand cannot be appreciated, the contents of said notices not having been brought to light. But even assuming that the notices interrupted the running of the prescriptive period, the argument would still not lie for the following reasons: The Bank seeks the recovery of the deficient amount of the obligation after the foreclosure of the mortgage. Such suit is in the nature of a mortgage action because its purpose is to enforce the mortgage contract. A mortgage action prescribes after ten years from the time the right of action accrued. The law gives the mortgagee the right to claim for the

deficiency resulting from the price obtained in the sale of the property at public auction and the outstanding obligation proceedings. In the present case, the Bank, as mortgagee, had the right to claim payment of the deficiency after it had foreclosed the mortgage in 1965. as it filed the complaint only on January 27, 1977, more than ten years had already elapsed, hence, the action had then prescribed.

PIANO v CAYANONG FACTS: On March 17, 1952, the plaintiffs commenced an action to foreclose a mortgage executed by the defendant in favor of the plaintiffs upon a parcel of land. The partieslitigant submitted a compromise agreement. The defendant failed to pay the obligation within the period set by the Court; so the property in question was sold at public auction on Jan. 30, 1952(should be 1953) per order of the court, by the deputy sheriff of Maasin, Leyte, to the plaintiffs, they being the only bidders for P2,475. The certificate of sheriff's sale contained the provision that the said property is subject "to redemption within one year from the date hereof in the manner provided by the law applicable to the case." On March 11, 1953, the plaintiffs filed a motion for the confirmation of the sale executed by the sheriff, which was unopposed by the defendant. The sale was confirmed by the Court on March 21, 1953. Thereafter, the plaintiffs filed a petition for writ of possession; by virtue of such petition the court adjudicated possession to the plaintiffs on Aug. 15, 1953. On Aug. 20, 1953, the deputy clerk issued the writ of possesion prayed for by the plaintiffs. On Jan. 26, 1954, the defendant deposited with the court the sum of P2,783.93, P2,772 of which was in the concept of redemption deposit to be delivered to Generosa Cayanong and her husband. The oppositor Francisco Pilapil, on Feb. 11, 1954, filed an opposition to the defendants' motion of Jan. 26, 1954, claiming that the property, subject of foreclosure, having been sold at a judicial foreclosure sale, was not subject to redemption after the judicial sale was confirmed, title thereto having been fully vested and consolidated in favor of Cayanong and Bellones, their assignees and successors-ininterest.

ISSUE: Whether the property subject of foreclosure, having been sold at a judicial foreclosure sale is subject to redemption after the judicial sale was confirmed. RULING: In a foreclosure of mortgage under Rule 70 of the Rules of Court, there is no right of redemption after the sale is confirmed, although there is an equity of redemption in favor of the mortgagor or junior encumbrancer, consisting in the right to redeem the mortgaged property within the 90-day



period, or even thereafter, but before the confirmation of the sale. It is only in cases of foreclosures of mortgages in favor of banking and credit institutions (Sec. 76, General Banking Act [Rep. Act 337]), to the Philippine National Bank (Acts Nos. 2747, and 2938), and in extrajudicial foreclosures (Act 3135 as amended by Act 4118), where, by express provision, the law allows redemption. In all other foreclosure cases, there is no legal redemption. The sheriff, therefore, has no authority to grant or insert a period of redemption in the certificate of sale, when the same is conducted pursuant to Rule 70 and, wanting in said authority, any insertion therein has no validity and effect. Once the judicial sale is confirmed by the court, the rights are vested in the purchaser (Sec. 3, Rule 70).

LANDRITO v CA FACTS: P obtained a loan of P350k from R and secured payment by executing a deed of real estate mortgage of their parcel of land at Muntinlupa; obtained again another loan P 1mill and was granted by R with an amendment of real estate mortgage P defaulted and refused to comply with their obligation despite repeated demands R filed a petition for the extrajudicial foreclosure of the mortgage. Mortgaged property was sold in a public auction with R as highest bidder. R registered sheriffs certificate of sale. P filed a complaint for annulment of the extrajudicial foreclosure and auction sale and alleged that said foreclosure and auction sale were null and void for failure to comply with requirements of notice and publication; the mortgaged property was illegally foreclosed; application for consolidation of title was premature because the Rs Husband granted them an extension of the period of redemption TC granted Rs Motion to Dismiss; action already barred by laches. CA affirmed ISSUE: WON the extrajudicial foreclosure and public auction sale of the subject parcel of land are valid and lawful? HELD: YES Records indubitably show that at the time of the foreclosure sale on 11 August 1993, petitioners were already in default in their loan obligation to respondent Carmencita San Diego. A final notice of demand for payment had been sent to them, despite which they still failed to pay. Hence, respondent Carmencita San Diegos resort to extrajudicial foreclosure, provided no less in the parties Amendment of Real Estate Mortgage.

The rule has been, and still is, that in real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right to foreclose on the mortgage and to have the mortgaged property seized and sold with the view of applying the proceeds thereof to the payment of the obligation IN THIS CASE: The validity of the extrajudicial foreclosure on 11 August 1993 was virtually confirmed by the trial court when it dismissed petitioners complaint, and rightly so, what with the fact that petitioners failed to exercise their right of redemption within the 1-year period therefor counted from the registration of the sheriffs certificate of sale. It appears from the evidence on record that despite due notice and publication of the same in a newspaper of general, P did not bother to attend the foreclosure sale nor raise any question regarding the propriety of the sale. It was only on November 9, 1994, or more than one year from the registration of the Sheriffs Certificate of Sale, that P filed the instant complaint. Clearly, P had slept on their rights and are therefore guilty of laches, which is defined as the failure or neglect for an unreasonable or explained length of time to do that which, by exercising due diligence, could or should have been done earlier, failure of which gives rise to the presumption that the person possessed of the right or privilege has abandoned or has declined to assert the same. In Lazo v. Republic Surety & Insurance Co., Inc., this Court has made it clear that it is only where, by voluntary agreement of the parties, consisting of extensions of the redemption period, followed by commitment by the debtor to pay the redemption price at a fixed date, will the concept of legal redemption be converted into one of conventional redemption. IN THIS CASE: There is no showing whatsoever that petitioners agreed to pay the redemption price on or before 11 November 1994, as allegedly set by Mrs. San Diegos husband. On the contrary, their act of filing their complaint on 09 November 1994 to declare the nullity of the foreclosure sale is indicative of their refusal to pay the redemption price on the alleged deadline set by the husband. At the very least, if they so believed that their loan obligation was only for P1,000,000.00, petitioners should have made an offer to redeem within one (1) year from the registration of the sheriffs certificate of sale, together with a tender of the same amount. This, they never did. METROBANK v TAN IBAAN RURAL BANK v CA



RAMIREZ v CA FACTS: One Ronnie Garcia executed a first mortgage over a parcel of land in favor of PNB as a security for a loan granted by PNB. The deed was registered with the Register of Deeds and annotated in the title of the mortgaged property. During the subsistence of the first mortgage, Ronnie executed a second mortgage over the same property in favor of private respondent Marmeto which was also recorded on the title. For failure to pay his loan, PNB extra-judicially foreclosed the mortgage and a Certificate of Sale was issued in its favor on Nov. 8, 1977. The second mortgage was also extra-judicially foreclosed and a Certificate of Sale was issued in favor of Marmeto on June 27, 1978. On February 1980, Ronnie executed a Waiver and Renunciation of Rights with respect to his right of redemption with respect to the first mortgage in favor of his father. The latter assigned his right to petitioner Nimfa Ramirez, who in turn paid the total redemption price to PNB which accepted it. Meanwhile, Ronnie having not exercised his right of redemption over the second mortgage, Marmeto filed in court for the Consolidation of Ownership over the mortgaged property to which petitioner Ramirez filed an adverse claim. ISSUE: 1. Whether Ramirez had acquired any right by virtue of her having redeemed the property in question beyond the one-year redemption period? What will be the effect of the redemption by Ramirez on private respondent Marmeto?

the statutory period. Marmeto failed to make the redemption but instead it was the petitioner who made such redemption.

TOLENTINO v CA SPOUSES OLIVEROS v PRESIDING JUDGE FACTS: The mortgagors (P) obtained 2 loans for the construction of the Cabuyao Commercial Complex for P58M as evidenced by promissory notes from Metrobank (R). To secure the loans, Spouses Oliveros and Nevalga executed a Deed of Real Estate Mortgage in favor of Metrobank over the 3 parcels of land together with all the buildings and improvements existing thereon. Due to the failure of mortgagors to pay their loan, Metrobank instituted an EJF over the Real Estate Mortgage. Metrobank won the bid. Mortgagors failed to redeem the property hence, Metrobank consolidated its title to the subject property. Metrobank demanded P to turn over the actual possession of the property but the mortgagors failed and refused to do so. Metrobank filed a writ of possession which the Petitioner Spouses opposed claiming thata pending case was in another court for nullification of foreclosure proceedings. ISSUE: WoN a writ of possession is proper when there is a pending case to nullify the foreclosure sale SC: YES! - Metrobank purchased the properties at a public auction following the EJF of the subject properties. Certificate of sale over the properties were issued in favor of Metrobank and registered with RD. P as mortgagors failed to redeem the properties within the 1 year period of redemption hence Metrobank consolidated its ownership over the subject properties. - Metrobank having consolidated its title to the mortgaged properties is even more entitled now to possession thereof and makes more unmistakable its right to file an ex parte motion for the issuance of a writ of possession. - The issuance of the writ of possession becomes a mere ministerial duty on the part of the judge, regardless of WoN there is a pending action for nullification of the sale at public auction or foreclosure itself CHINA BANK v ORDINARIO FACTS: 1) Petitioner ChinaBank granted 3 loans to TransAmerican owned by spouses Garcia, secured by real estate mortgages constituted by Jesus Garcia 45 parcels of land The contracts of mortgage were all registered in the same Registry.


HELD: 1. Yes, by accepting the redemption price after the statutory period for redemption had expired, PNB is considered to have waived the one (1) year period within which Ramirez could redeem the property. There is nothing in the law which prevents such a waiver. Allowing a redemption after the lapse of the statutory period, when the buyer at the foreclosure does not object but even consents to the redemption, will uphold the policy of the law. Thus, there is no doubt that the redemption made by petitioner Ramirez is valid. The rule is well settled that a second mortgagee merely takes what is called an equity of redemption and thus a second mortgagee has to wait until after the debtor's obligation to the first mortgagee has been fully settled. The rights of a second mortgagee are strictly subordinate to the superior lien of the first mortgagee. In the case at bar, the proper foreclosure of the first mortgage gave, not only the first mortgagor, but also subsequent lien holders like Marmeto, the right to redeem the property within




Subsequently for failure of TransAmerican to pay its loans, Chinabank foreclosed extrajudicially the three real estate mortgages which were then sold at public auction for P38,004,205.01 to the same bank. The Certificate of Sale was then registered in the Registry of Deeds of Quezon City. 2) Thereafter Chinabank filed with the RTC a petition for issuance of a writ of possession, which was granted, thus placing Chinabank in possession of the 45 parcels of land. Then, spouses Ordinario, filed a motion for reconsideration praying that the parcel of land be excluded from the above order alleging, that they purchased the land covered on which was constructed their townhouse and that the mortgage foreclosure cannot prevail over their superior right as legitimate buyers of the area. 3) To this, Chinabank filed its opposition to respondents motion for reconsideration. The trial court denied Sps Ordinarios motion for reconsideration. On appeal, this was overturned by the CA. HELD: A) Under Section 7 of Act No. 3135, the purchaser in a foreclosure sale is entitled to possession of the property. Thus the writ prayed for by petitioner granting it possession has to be issued as a matter of course, being a ministerial duty of the trial court to grant such writ of possession. No discretion is left for the trial court. B) Under the Rules of Court a third-party claimant or a stranger to the foreclosure suit, like respondents herein, can opt to file a remedy known as terceria against the sheriff or officer effecting the writ by serving on him an affidavit of his title and a copy thereof upon the judgment creditor. By the terceria, the officer shall not be bound to keep the property and could be answerable for damages. A third-party claimant may also resort to an independent "separate action," the object of which is the recovery of ownership or possession of the property seized by the sheriff, as well as damages arising from wrongful seizure and detention of the property despite the third-party claim. If a "separate action" is the recourse, the third-party claimant must institute in a forum of competent jurisdiction an action, distinct and separate from the action in which the judgment is being enforced, even before or without need of filing a claim in the court that issued the writ. Both remedies are cumulative and may be availed of independently of or separately from the other. Availment of the terceria is not a condition sine qua non to the institution of a "separate action." C) In essence, the Court of Appeals committed palpable error when it granted Spouses Ordinarios motion for reconsideration and set aside the orders dated April 10, 1991 and September 21, 1992 of the RTC. Thus, the appealed Decision and Resolution of the Court of Appeals are

REVERSED and SET ASIDE. The orders of the RTC, Branch 90, Quezon City, directing the issuance of a writ of possession in favor of petitioner bank are AFFIRMED. ANTICHRESIS

DELA VEGA v BALLILOS BARRETTO v BARRETTO Facts: After the death of Juan Antonio Barretto, Sr., his son Juan Antonio Grandpre, in his own behalf and as the executor of his father, mortgaged, the cultivated half of said hacienda in favor of Antonio Vicente Barretto as security for the amount of P11,000 which the latter loaned to him. By verbal agreement, Antonio will collect his credit from the products of the property. His three children and heirs Antonio Ma Barretto, Ricardo Esteban Barretto, and Guadalupe Barretto came to succeed after the death of Antonio. Guadalupe made a donation inter vivos in favor of the plaintiff Alberto Barretto of the undivided one-third part of the hypothecary credit and of the rights belonging to her deceased father Antonio Vicente Barretto, assigning to the donee all the rights and actions which she might have in the foreclosure proceedings exhibited at the trial of the present action, on the condition that as soon as the donee Alberto Barretto could collect the said onethird part of the credit or should obtain the assignment of the property of the debtor, he would divide what was donated, into nine equal parts among the donee himself and six living brothers and the heirs of their two brothers now dead, each receiving one-ninth part. Alberto Barretto, complying with the condition imposed in said document of the donation paid to each of his brothers and nephews, and in exchange for the sums received as such price his co-donees assigned and conveyed to him one-eight part of the third of the said hacienda and whatever rights and interests the grantors might have by virtue of the said donation in favor of the plaintiff Barretto. It is to be noted that the plaintiff bought one-eight undivided part of the third of the whole hacienda of Balintagac and paid to every claimant the price of the eight part sold to him. The third part of the ownership of the hacienda was transferred to the plaintiff by the donor Guadalupe Barretto. Antonio and Ricardo, as grantors, sold and conveyed all their rights and actions included and derived from the said hypothecary credit for the price of P14,000 which would be paid by the grantee and vendee by installments and in the manner prescribed in the said deed, assigning



to him, besides, all the rights which the said brothers had over the two-third parts of the said hacienda.

antichresis to the creditor, without having previously paid the latter all his debt and interests thereon, the creditor being entitled to ask the courts that the said real property be sold to satisfy his credit.

Issue: WON there was a transfer of ownership to Alberto? Held: No. the plaintiff did not obtain by assignment, sale, or transfer, as expressed in said deeds, the ownership of the said hacienda of Balintagac, but only the hypothecary credit which the heirs of the deceased creditor Antonio Vicente Barretto had inherited from the latter, after the plaintiff had obtained from his other brothers the conveyance of their respective rights to the donation. With regard to prescription, the creditor in antichresis can never by prescription acquire the ownership of the real property received in antichresis, as he entered into the possession of the same not as an owner but as a creditor with right only to collect his credit from the fruits of said real property.

The rights acquired by the creditor were transmitted by hereditary title through operation of law to the heirs of the same Antonio M.a, Ricardo Esteban, and Guadalupe, Barretto y Rocha and these in turn assigned, sold and transferred the credit with all their rights as hypothecary creditors, as well as the right to the usufruct of all the hacienda of Balintagac to the plaintiff Alberto Barretto.

The extinguishment of the right as creditor and the termination of his use and possession of the real property given in antichresis depend upon the full payment of the debt and its interests, after the liquidation of the amounts entered on the account of the debtors and received by the creditor.


When in the record of an action it is fully established that the parties indebted in a certain amount, which is secured with a mortgage over of their hacienda, having delivered to the creditor not only the mortgaged half but the whole hacienda, not in the nature of an assignment of property in payment of a debt, still unpaid, but with the object that the creditor may collect by means of usufruct his credit and the interest agreed upon, the verbal contract which is inferred from such facts and presumed to have been entered into between the parties, although not set in any document, deserves in law the name of antichresis as defined in Article 1881 of the Civil Code.

FACTS: This action was instituted for the purpose of foreclosing a mortgage executed by defendant Antonio Gimenez. Massy Teague was also impleaded for having purchased at public auction one of the mortgaged properties. In order to secure the payment of P8,000 which the defendant Gimenez owed the plaintiff, he mortgaged the house at No. 655 Santa Mesa, Manila, and the leasehold right on the lot upon which it stands (Exhibit A). This was payable on October 27, 1925, but, in spite of nonpayment, the creditor, who is the plaintiff herein, did not foreclose the mortgage. The defendant was leaving the City of Manila in order to attend to his business in the Province of Cagayan, and at the special instance and request of the herein plaintiff, said defendant gave to the plaintiff the full control, and complete and absolute administration of the building and the parcel of land on which said building was erected, situated in Santa Mesa, District of Santa Mesa, mortgaged to the plaintiffIt and it was agreed between them that the plaintiff would collect the rents of said house, in order to apply them to the payment of interest on the amount of the indebtedness. For default in the payment of taxes for the years 1925 and 1926, the house was on November 23, 1926 sold at public auction, and, for failure to exercise the right of legal redemption, the City of Manila, the attachment creditor and

By the antichresis a creditor acquires a right to receive the fruits of real property of his debtor, with the obligation to apply them to the payment of the interest, if due, and afterwards to the principal of his credit.

The creditor in antichresis cannot by mere possession of the real property which he received by virtue of an antichresis acquire ownership over the same for failure of the debtor to pay the debt within the stipulated time, any agreement to the contrary being void; and the debtor on his part cannot recover the enjoyment and use of the real property given in



vendor of the property, executed a final deed of sale in favor of the purchaser, the other defendant Massy Teague. Furthermore, for default in the payment of the rents due on the lot of said house for the years 1925 to 1928, the Santa Mesa estate, the lessor of said land, cancelled the lease on July 13, 1928, pursuant to the terms of the contract. The appellant Gimenez contends that the plaintiff was responsible for the delinquency in the payment of both the tax on the house and the rent of the lot, which caused him the loss of the said house and the leasehold right on the lot, because the plaintiff was at that time in charge of the administration of the premises with the obligation to attend to the payment of the tax and the rents. The plaintiff denied that he had such obligation, alleging that his duties were confined to the collection of the rents of the house in order to apply them to the payment of the interest on the mortgage. Such was in fact the original agreement; but the appellant asserts that it was modified by the letter.

The creditor is obliged to pay the taxes and charges which burden the estate, in the absence of an agreement to the contrary. He shall also be obliged to pay any expenses necessary for its preservation and repair. Any sums he may expend for such purposes shall be chargeable against the fruits. (Art. 1882, Civil Code.) These obligations arise from the very nature of the covenant, and are correlated with the plaintiff's acquired right to take charge of the property and collect the fruits for himself.

PERALTA v QUIMPO 51 OG No. 3 p. 1383, Sept 1954 NO COPY AVAILABLE


ISSUE: Whether or not the the administration of the property in question assumed by the plaintiff toward the end of October, 1925 is antichretic in character. RULING: Taking into account the language of the letter Exhibit 1 and the appellant's unimpeached testimony, we are constrained to hold that it has been proved by a preponderance of evidence, that even though at first the plaintiff had only undertaken to collect the rents of the house, later on, towards the end of October, 1925, he assumed the obligation to pay both the tax on the house, and the rent of the lot. As to the consideration contained in the judgment appealed from to the effect that, in view of the reduction of the rent of the house in May, 1926, the plaintiff would not have accepted the administration under the conditions alleged by the defendant-appellant, it must be remembered that the plaintiff took over such complete administration months before such reduction of rents, and it does not appear that the reduction was foreseen. From all these circumstances it follows that the administration of the property in question assumed by the plaintiff toward the end of October, 1925 is antichretic in character, and therefore justice and equity demand that application be here made of the Civil Code provisions touching the obligations of the antichretic creditor, to wit:

ALEMAN v CATERA ALLIED BANK v SALAS FACTS: Petitioner-bank (through petitioners predecessor) granted Gencor Marketing, Inc. a time loan and was secured by a Deed of Chattel Mortgage over certain printing machineries and equipments; said deed was recorded in the Chattel Mortgage Registry in Feb. 7, 1974. Gencor failed to pay prompting petitioner to extra judicially foreclose the mortgage and requested the Sheriff of Quezon City to effect the said foreclosure. Upon issuance of the Notice of Sheriffs sale, private respondent filed a motion in court to enjoin the public auction alleging that the properties have been previously levied and attached by the Sheriff of Rizal. Metrobank is a creditor of Gencors president and claims the properties as the exclusive property of the president doing business under the firm name of Gencor Printing and as such may not be foreclosed and sold at auction. During the trial it was admitted by petitioner that the properties belonged to the president and not to Gencor. ISSUE: WHO between the two claimants has a better right over the property. HELD: Petitioner has the better right. Even though petitioner admitted that it was the president and not gencor who owned the properties, the Court nevertheless finds that the chattel mortgage over the printing machineries and equipment was ratified and approved by Clarencio Yujuico. As



earlier stated and as pointed out by petitioner, it was Clarencio Yujuico as president of Gencor Marketing, Inc., who signed the promissory note evidencing the time loan granted by petitioner's predecessor General Bank and Trust Company in favor of Gencor Marketing, Inc. Finding the chattel mortgage to be valid, the Court takes special note of the fact that said chattel mortgage was registered and duly recorded in the Chattel Mortgage Registry of Quezon City on February 7, 1974, prior to April 22, 1977, the date the writ of attachment of the properties in question was issued. This is a significant factor in determining who of two contending claimants should be given preference over the same properties in question. The registration of the chattel mortgage more than three years prior to the writ of attachment issued by respondent judge is an effective and binding notice to other creditors of its existence and creates a real right or a lien, which being 7 recorded, follows the chattel wherever it goes. The chattel mortgage lien attaches to the property wherever it may be. Thus, private respondent as attaching creditor acquired the properties in question subject to petitioner's mortgage lien as it existed thereon at the time of the attachment. In this regard, it must be stressed that the right of those who so acquire said properties should not and cannot be superior to that of the creditor who has in his favor an instrument of mortgage executed with the formalities of law, in good faith, 8 and without the least indication of fraud. Applying the foregoing principle to the case at bar, the Court finds the lien of petitioner's chattel mortgage over the mortgaged properties in question superior to the levy on attachment made on the same by private respondent as creditor of chattel mortgagor Clarencio Yujuico. What may be attached by private respondent as creditor of said chattel mortgagor is only the equity or right of redemption of the mortgagor. MAKATI LEASING v WEAREVER TEXTILES TSAI v CA FACTS: - Ever Textile (R) obtained a P3M loan from PBCOM (P), with Real Property and Chattel Mortgage over the lot, where its factory stands and the chattels located therein as enumerated in its attached schedule nd - A 2 loan was obtained secured by a Chattel Mortgage over personal properties listed in its attached list, which is similar to the attached list to st the 1 mortgage. nd - On the same date of the 2 loan, R purchased various machines and equipments - Later, R filed insolvency proceedings

P commenced an extrajudicial foreclosure (EJF), wherein P won the bid and the properties were leased and later sold to Tsai. P sold the factory, properties and the contested machineries of R. R filed for annulment of sale contending that the machineries bought by R which are not included in the list should be excluded from the sale to TSAI P contended that the machineries, which are connected to the land, are part of the real estate stated in the Mortgage. RTC and CA ruled in favor of R.

ISSUE: WoN the contested machineries (property bought by R nd on the same day that the 2 loan was executed) should be inlcluded in the auction sale and sale to TSAI SC: NO! - Based on the pieces of evidence, the true intention of P and R is to treat machinery and equipment as chattels. - The controverted machineries are not covered by or included in either of the 2 mortgages - The machineries were not included in the Notice of Sale - An immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar. DOCTRINE: a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged. ACME SHOE v CA FACTS: 1) Petitioner Chua Pac, the president and general manager of co-petitioner Acme Shoe, executed on June 1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of the Philippines as security for petitioner's corporate loan of P3,000,000.00. It was stated that: In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory note or notes and/or accommodations without the necessity of executing a new contract and this mortgage shall have the same force and effect as if the said promissory note or notes and/or accommodations were existing on the date thereof.



This mortgage shall also stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage 2) On 10 and 11 January 1984, the bank yet again extended to petitioner corporation a loan of P1,000,000.00 covered by four promissory notes for P250,000.00 each. Due to financial constraints, the loan was not settled at maturity. The bank then applied for an extra judicial foreclosure of the chattel mortgage, with the Sheriff of prompting Acme to file an injunction, which was dismissed. The court also ordered the foreclosure of the chattel mortgage. It held petitioner corporation bound by the stipulations.

D) Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract. Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the borrower of the financing agreement whereon the promise is written but the remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed. E) A chattel mortgage, as hereinbefore so intimated, must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. The fact, .that the statute has provided that the parties to the contract must execute an oath that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud means that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. F) In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated. In other words, A mortgage that contains a stipulation in regard to future advances in the credit will take effect only from the date the same are made and not from the date of the mortgage.

ISSUE: Whether it is valid and effective to have a clause in a chattel mortgage that purports to likewise extend its coverage to obligations yet to be contracted or incurred. HELD: A) Contracts of security are either personal or real. In contracts of personal security, such as a guaranty or a suretyship, the faithful performance of the obligation by the principal debt or is secured by the personal commitment of another. B) In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit upon the essential condition that if the obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation, but that should the obligation be duly paid, then the contract is automatically extinguished proceeding from the accessory 8 character of the agreement. C) While a pledge, real estate mortgage, or antichresis may secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage, can only cover obligations existing at the time the mortgage is constituted.

CERNA v CA MAGNA FINANCIAL v COLARINA Facts: Elias Colarina bought on installment from Magna Financial Services (MFS) one Suzuki Multicab. After making a down payment, Colarina executed a promissory note for the balance of P229,284.00 payable in 36 equal monthly installments. To secure payment, Colarina executed an integrated promissory note and deed of chattel mortgage over the motor vehicle. Colarina failed to pay the monthly amortization accumulating an unpaid balance of P131,607.00. Despite repeated demands, he failed to make the necessary payment. MFS filed a Complaint for Foreclosure of Chattel Mortgage with Replevin.



Upon the filing of a Replevin Bond, a Writ of Replevin was issued. Summons, together with a copy of the Writ of Replevin, was served on Colarina who voluntarily surrendered physical possession of the vehicle to the Sheriff. The motor vehicle was turned over by the sheriff to Magna Financial Services Group, Inc. The trial court rendered judgment in favor of MFS and asked Coralina to pay the unpaid balance and foreclose the chattel mortgage. Colarina appealed to the Regional Trial Court which affirmed in toto the decision of the MTCC. CA reversed the decision of MTCC and RTC stating that MTC and the RTC erred in ordering the defendant to pay the unpaid balance of the purchase price of the subject vehicle irrespective of the fact that the instant complaint was for the foreclosure of its chattel mortgage.

balance. And it is deemed that there has been foreclosure of the mortgage when all the proceedings of the foreclosure, including the sale of the property at public auction, have been accomplished.

Be that as it may, although no actual foreclosure as contemplated under the law has taken place in this case, since the vehicle is already in the possession of Magna Financial Services Group, Inc. and it has persistently and consistently avowed that it elects the remedy of foreclosure, the Court of Appeals, thus, ruled correctly in directing the foreclosure of the said vehicle without more.

BA FINANCE v CA BICOL SAVINGS v GUINHAWA F: Victorio Depositario together with private respondent Jaime Guinhawa, acting as solidary co-maker, took a loan from petitioner Bicol Savings and Loan Association (BISLA) payable every 19th day of each month. 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 private respondent Guinhawa to pay the loan. There was a deficiency in the amount of P5,158.06 where BISLA made a demand to pay the same. Petitioner BISLA (plaintiff therein) filed a complaint for the recovery of a sum of money constituting the deficiency after foreclosure of the chattel mortgage put up by the principal borrower Depositario against the latter and his solidary co-maker Guinhawa (herein private respondent) as defendants. Eventually, a stipulation of facts was entered into between BISLA and Guinhawa. They agreed to drop Depositario, as "his whereabouts being unknown now and he could not be served with summons". The creditor claims that he can maintain an action for deficiency and claim P5k balance. Issue: WoN creditor can claim remaining balance Ruling: Yes! The creditor may maintain an action for deficiency although the chattel mortgage law Is silent on this point. The reason is tat a chattel mortgage is only given as a security and not as payment for the debt in case of failure of payment PAMECA WOOD v CA FACTS: On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from respondent Bank. By virtue of this loan, petitioner PAMECA, through its President, petitioner Herminio C. Teves, executed

Issue: 1) WON MFS can avail of the two remedies, payment of unpaid balance and foreclosure of chattel mortgage? 2) WON there was actual foreclosure?

Held: 1) No. Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose the chattel mortgage, he shall have no further action against the purchaser to recover any unpaid balance of the purchase price. Any agreement to the contrary shall be void. In other words, in all proceedings for the foreclosure of chattel mortgages executed on chattels which have been sold on the installment plan, the mortgagee is limited to the property included in the mortgage. Petitioner resolutely declared that it has opted for the remedy provided under Article 1484(3) of the Civil Code, that is, to foreclose the chattel mortgage. The petitioners prayer contains two remedies, payment of unpaid balance and foreclosure of chattel mortgage. Such a scheme is not only irregular but is a flagrant circumvention of the prohibition of the law. By praying for the foreclosure of the chattel, Magna Financial Services Group, Inc. renounced whatever claim it may have under the promissory note. 2) No. In the case at bar, there is no dispute that the subject vehicle is already in the possession of the petitioner, Magna Financial Services Group, Inc. However, actual foreclosure has not been pursued, commenced or concluded by it. Where the mortgagee elects a remedy of foreclosure, the law requires the actual foreclosure of the mortgaged chattel. It is the actual sale of the mortgaged chattel that would bar the creditor (who chooses to foreclose) from recovering any unpaid



a promissory note for the said amount, promising to pay the loan by installment. As security for the said loan, a chattel mortgage was also executed over PAMECA's properties in Dumaguete City, consisting of inventories, furniture and equipment, to cover the whole value of the loan. On January 18, 1984, and upon petitioner PAMECA's failure to pay, respondent bank extrajudicially foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the foreclosed properties for a sum of P322, 350.00. On June 29, 1984, respondent bank filed a complaint for the collection of the balance. Petitioners submit that Articles 1484 and 2115 of the Civil Code be applied in analogy to the instant case to preclude the recovery of a deficiency claim. ISSUES: Whether the foreclosure of the chattel mortgage valid RULING: The court did not find anything irregular or fraudulent in the circumstance that respondent bank was the sole bidder in the sale, as all the legal procedures for the conduct of a foreclosure sale have been complied with, thus giving rise to the presumption of regularity in the performance of public duties. The effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the amount of the principal obligation, Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in the price at public auction. As correctly pointed out by the trial court, the said article applies clearly and solely to the sale of personal property the price of which is payable in installments. Although Article 1484, paragraph (3) expressly bars any further action against the purchaser to recover an unpaid balance of the price, where the vendor opts to foreclose the chattel mortgage on the thing sold, should the vendee's failure to pay cover two or more installments, this provision is specifically applicable to a sale on installments.

SUPERLINES v ICC FACTS: Superlines decided to acquire five (5) new buses from the Diamond Motors Corporation for the price of P10k. However, Superlines lacked financial resources for the purpose so by virtue of a board resolution, it authorized its President and Gen Mgr Lavides to look for a loan for the purchase of said buses. Lavides negotiated with ICC Leasing. ICC agreed to finance the purchase of the new buses via a loan and proposed a 3-yr term for the payment. The new buses to be purchased were to be used by Superlines as security for the loan. Diamond Motors sold to Superlines 5 new buses and was registered under the name of Superlines. Superlines executed 2 docus Deed of Chattel Mortgage over said buses a security for the purchase price of buses in P13mill loaned by ICC to Superlines; a Continuing Guaranty to pay jointly and severally in favour of ICC the amount of P13mill After paying only 7 monthly amortizations, Superlines defaulted in the payment of its obligation to ICC. ICC filed a complaint for collection of sum of money with a prayer for a writ of replevin TC dismissed; ICC and Superlines forged a consumer loan agreement and not an amortized commercial loan. CA reversed; ICC and Superlines entered into an amortized commercial loan agreement with ICC as creditor-mortgagee and Superlines as debtormortgagor, and ordered Superlines and Lavides to pay jointly and severally the sum of P5mill as deficiency It was Diamond Motors Corporation and not ICC which sold the subject buses to Superlines. It held that no evidence had been presented by Superlines to show that ICC bought the said buses from Diamond Motors Corporation under a special arrangement and that ICC sold the buses to Superlines. The appellate court also ruled that Article 1484(3) is applicable only where there is vendor-vendee relationship between the parties and since ICC did not sell the buses to Superlines, the latter cannot invoke said law. ISSUE: WON there was an amortized commercial loan agreement? HELD: YES DIAMOND is the seller of the five units of buses and not the plaintiff No convincing evidence, except the self-serving testimony of defendant Manolet Lavides, was



presented to prove that there was an internal arrangement between the plaintiff, as financing agent, and Diamond, as seller of the buses. In fact, defendant Lavides admitted under oath that DIAMOND and plaintiff did not enter into transaction over the sale of the buses The evidence shows that the transaction between the parties was an "amortized commercial loan" to be paid in installments P failed to adduce a preponderance of evidence to prove that R and Diamond Motors Corporation entered into a special arrangement relative to the issuance of certificates of registration over the buses under the name of petitioner Superlines. P were also unable to prove that respondent purchased from Diamond Motors Corporation the new buses. In contrast, the vehicle invoices of Diamond Motors Corporation irrefragably show that it sold the said buses to petitioner Superlines. The net proceeds of the loan were remitted by respondent to petitioner Superlines and the latter remitted the same to Diamond Motors Corporation in payment of the purchase price of the buses. In fine, respondent and Diamond Motors Corporation had no direct business transactions relative to the purchase of the buses and the payment of the purchase price thereof. The evidence on record shows that under the Promissory Note, Chattel Mortgage and Continuing Guaranty, respondent was the creditor-mortgagee of petitioner Superlines and not the vendor of the new buses. Hence, petitioners cannot find refuge in Article 1484(3) of the New Civil Code. What should apply was the Chattel Mortgage executed by petitioner Superlines and R in relation to the Chattel Mortgage Law. This Court had consistently ruled that if in an extrajudicial foreclosure of a chattel mortgage a deficiency exists, an independent civil action may be instituted for the recovery of said deficiency. To deny the mortgagee the right to maintain an action to recover the deficiency after foreclosure of the chattel mortgage would be to overlook the fact that the chattel mortgage is only given as security and not as payment for the debt in case of failure of payment. Both the Chattel Mortgage Law and Act 3135 governing extra-judicial foreclosure of real estate mortgage, do not contain any provision, expressly or impliedly, precluding the mortgagee from recovering deficiency of the principal obligation.

SERVICEWIDE v CA FACTS: Respondents executed a promissory note and a chattel mortgage over a vehicle they bought from the mortgagee itself, C. R. Tecson Enterprises, for the payment in installments of the vehicle. C. R. Tecson Enterprises, on the same date, assigned in favor of Filinvest Credit Corporation. The respondents were aware that the new mortagee is Filinvest. Respondent spouses by way of Deed of Sale with Assumption of Mortgage transferred and delivered the vehicle to Conrado Tecson. Subsequently, Filinvest assigned all its rights as mortgagee to petitioner. Respondents failed to pay the installments and despite demands from petitioner-mortgagee to pay or to return the vehicle. Petitioner filed a complaint for Replevin but the respondents alleged in their Answer that they can no longer be held liable as they had already conveyed the car to Conrado Tecson.

ISSUE: 1. WON the assignment of credit by the creditormortgagee quires the notice and consent of the debtor- mortgagor? WON the assignment of credit by the debtormortgagor requires the notice and consent of the creditor-mortgagee?


HELD: 1. Only notice to the debtor-mortgagor of the assignment of credit is required. His consent is not required. In contrast, consent of the creditor-mortgagee to the alienation of the mortgaged property is necessary in order to bind said creditor. Since the assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel was mortgaged, it follows that the assignee's consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor-mortgagor. This is tantamount to a novation. As the new assignee, petitioner's consent is necessary before respondent spouses' alienation of the vehicle can be considered as binding against third persons. Petitioner is considered a third person with respect to the sale with mortgage between respondent spouses and third party defendant Conrado Tecson.






DE BARRETTO v VILLANUEVA SAMPAGUITA PICTURES v JALWINDOR FACTS: - Sampaguita (P) is the owner of a building which its roofdeck was leased to Capitol 300 (Capitol), wherein it was agreed that whatever improvements introduced therein by Capitol will later be owned by P. - Capitol purchased on credit from Jalwindor (R) glass and wooden jalousies which were DELIVERED and INSTALLED in the leased premises by R, replacing the existing windows of P. - Capitol failed to pay and R filed an action for collection of sum of money against Capitol. - R made a levy on the glass and wooden jalousies in question, which P intervened in the case alleging that it cannot be levied upon since it is already the owner of the subject jalousies. ISSUE: WoN R may levy the jalousies SC: NO! - When the glass and wooden jalousies were delivered and installed in the leased premises, P became the owner thereof, due to the contract between P and Capitol in which it stated that all permanent improvements made by lessee shall belong to the lessor and that said improvements hav been considered as part of the monthly rentals. - The fact that Capitol failed to pay R the purchase price of the items levied upon did not prevent the transfer of ownership to Capitol and then to P.

3) On January 12, 1961, Uy and Zamora, submitted to the court a compromise agreement wherein Zamora admitted being indebted to Uy. Since the motor vehicle had already been sold on order of the Court for P2,500 to prevent depreciation, defendant Zamora agreed to have plaintiff Uy's credit paid out of the proceeds of the sale. 4) The court found defendant Zamora to be liable to plaintiff Uy in the amount of P2,500, and to the intervenor in the amount of P2,451.93, plus interest. Uy claims preference on the basis of a lien arising from the attachment of the vehicle on August 11, 1960. On the other hand, allied bases its claim to preference on a Deed of Chattel Mortgage covering the same motor vehicle. ISSUE: Which of the two credits is preferred? HELD: A) Considering the fact that Allied Finance, Inc. registered its mortgage only on August 24, 1960, or subsequent to the date of the writ of attachment obtained by plaintiff Uy on August 11, 1960, the credit of the intervenor cannot prevail over that of the plaintiff. B) The SC disagreed with the lower courts decision upheld Allieds credit on the ground that, being embodied in a public instrument of an earlier date (June 20, 1960), it should take precedence over plaintiff's lien by attachment (August 11, 1960), pursuant to Article 2244 of the Civil Code, for the reason that, as already stated, the credit of the Allied cannot be considered as preferred until the same has been recorded in the Motor Vehicles Office. C) A mortgage of motor vehicles, in order to affect third persons, should not only be registered in the Chattel Mortgage Registry, but the same should also be recorded in the Motor Vehicles Office The decision of the lower court is reversed, without pronouncement as to costs.

UY v ZAMORA FACTS: 1) At the instance of plaintiff Uy, the MTC ordered the attachment of a vehicle belonging to Zamora. The writ was levied on the vehicle on August 11, 1960. Subsequently, the Municipal Court rendered judgment for the plaintiff Uy and ordered defendant Zamora to pay the sum of P1,740. Zamora appealed to the CFI. 2) While the case was pending appeal, the Allied Finance, Inc. intervene. According to it, the vehicle, which was attached by the Sheriff, had previously been mortgaged to it by Zamora to secure the payment of a loan and that at the time of the filing of the complaint in intervention, a balance of P2,451.93 remained in its favor. Allied, prayed that Zamora be ordered to pay P2,451.93 as principal.

CORDOVA v REYES CENTRAL BANK v MORFE Facts: The Monetary Board found the Fidelity Savings Bank to be insolvent. The Board directed the Superintendent of Banks to take charge of its assets, forbade it to do business and instructed the Central Bank Legal Counsel to take legal actions. Prior to the institution of the liquidation proceeding but after the declaration of insolvency, the spouses Elizes filed a complaint in the CFI against the Fidelity Savings



Bank for the recovery of the balance of their time deposits. In the judgment rendered in that case, the Fidelity Savings Bank was ordered to pay the Elizes spouses the sum plus accumulated interest. In another case, the spouses Padilla secured a judgment against the Fidelity Savings Bank for the sums as the balance of their time deposits, plus interests, moral and exemplary damages and attorney's fees. The lower court (having cognizance of the liquidation proceeding), upon motions of the Elizes and Padilla spouses and over the opposition of the Central Bank, directed the latter as liquidator, to pay their time deposits as preferred judgments, evidenced by final judgments, within the meaning of article 2244(14)(b) of the Civil Code. Central Bank contends that the final judgments secured by the Elizes and Padilla spouses do not enjoy any preference because (a) they were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of the Central Bank and the General Banking Law, no final judgment can be validly obtained against an insolvent bank.

The assets of a bank in process of liquidation are held in trust for the equal benefit of all creditors, and one cannot be permitted to obtain an advantage or preference over another by an attachment, execution or otherwise. Considering that the deposits in question, in their inception, were not preferred credits, it does not seem logical and just that they should be raised to the category of preferred credits simply because the depositors, taking advantage of the long interval between the declaration of insolvency and the filing of the petition for judicial assistance and supervision, were able to secure judgments for the payment of their time deposits. MANABAT v LAGUNA FED PHIL SAVINGS BANK v LANTIN F: c built a duplex apartment house on a registered lot of spouses x and y, using his own money, P25k to finish the construction. Meanwhile, x and y obtained from psb a loan secured by a mortgage to complete construction. At the time of the registration of the mortgage, the transfer certificate of title over the property was free from all liens and encumbrances. PSB foreclosed the mortgage, and being the highest bidder a new certificate of title was subsequently issued in its favor C filed an action against the spouses to collect the unpaid cost of construction. As x and y did not have any properties to satisfy the judgment rendered in his favor, c demanded from psb a pro rata share in the value of the duplex apartment in accordance with article 2242. Issue: is c entitled to claim pro rata share in the value of the property in question. Ruling: no. the action filed by c to collect the unpaid cost of the construction of the duplex apartment is far from being a general liquidation of the estate of x and y. Although the lower court found that there were no known creditors other than c and psb, this cannot be conclusive. It will not bar other creditors in the event they show up and present their claims against psb, claiming they have also preferred claims against the property. Consequently, the transfer certificate of title issued to psb which is supposed to be indefeasible would remain constantly unstable and questionable. Such could not have been the intention of article 2243 of the civil code although it considers claims and credits under article 2242 as statutory liens. Neither does the de barreto caes sanction such instability.

Issue: Whether a final judgment for the payment of a time deposit in a savings bank which judgment was obtained after the bank was declared insolvent, is a preferred claim against the bank? Held: No. It should be noted that fixed, savings, and current deposits of money in banks and similar institutions are not true deposits. They are considered simple loans and, as such, are not preferred credits. The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its assets. Evidently, one purpose in prohibiting the insolvent bank from doing business is to prevent some depositors from having an undue or fraudulent preference over other creditors and depositors. We are of the opinion that such judgments cannot be considered preferred and that article 2244(14)(b) does not apply to judgments for the payment of the deposits in an insolvent savings bank which were obtained after the declaration of insolvency. In the Rohr case, the general principle of equity that the assets of an insolvent are to be distributed ratably among general creditors applies with full force to the distribution of the assets of a bank. A general depositor of a bank is merely a general creditor, and, as such, is not entitled to any preference or priority over other general creditors.