Credit Transactions Doctrines 2012 Exams Atty. Helen De Leon-Manzano Ruiz v.

Caneba Where the court judgment which did not provide for interest is already final, there is no reason to add interest in the judgment.Anent the Ruizes claim of interest as aforementioned, it has been held in the case of Santulan v. Fule, 133 SCRA 762 (1984) that where the court judgment which did not provide for interest is already final, there is no reason to add interest in the judgment. Interest was not demanded by the Ruizes when the case was pending before the lower court, hence, there is no reason for this Court to grant such claim. As ruled by this Court, such claim is groundless since the decision and orders sought to be enforced do not direct the payment of interest and have long become final Easter Shipping Lines v. CA Rule of thumb for the court in awarding damages and interest: When an obligation is breached, the contravenor can be held liable for damages.When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum. 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: When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. In case of other obligations, the interest on the amount of damages may be imposed at the discretion of the court at the rate of 6% per annum. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.
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Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest 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 Central Bank v. Morfe Bank deposits are simple loans Where a suit for recovery of a bank deposit was filed after the bank has been declared insolvent by the Central Bank, a judgment in favor of the depositor cannot be considered a preferred credit under Article 22H(H)(b ) of the Civil Code. o 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 A non-preferred credit cannot be raised to that category simply because a depositor, taking advantage of long interval of time between declaration of insolvency and filing of judicial assistance, was able to secure a judgment for payment of his deposit. o 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 pay ment of their time deposits. Banzon v. CA General Rule that a guarantor must first pay the outstanding amounts before it can exact payment from the principal debtor; Since Associated had not paid nor compelled private respondent to pay the bank, it had no right in law or equity to execute judgment against the indemnitor o Exception to the rule is 2071 which provides for situations where the guarantor can proceed to the principal before paying the obligation. Atok Finance v. CA

Issue: Re: Trade receivables assigned as surety. WON the continuing surety agreement being an accessory contract was null and void since at the time of its execution there was no pre-existing obligation? While a contract of suretyship or guarantee is an accessory contract, it may be readily entered into to warranty debts to be incurred or created in the future yet. It is true that a guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that a guarantee cannot exist without a valid obligation. This legal proposition is not, however, like most legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. This is clear from Article 2052 of the Civil Code itself: Art. 2052. A guaranty cannot exist without a valid obligation. Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation. (Emphases supplied) Moreover, Article 2053 of the Civil Code states: Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. Re: Comprehensive and Continuing Surety Agreements a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice . A bank or a financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. As we understand it, this is precisely what happened in the case at bar Integrated Realty Corp v. CA The deed of assignment in the instant case is actually a pledge .
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For all intents and purposes, the deed of assignment in this case is actually a pledge. The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have absolute, its object and character might still be qualified and explained by contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge.

Requisites of a Contract of Pledge. The facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement was complied with by the execution of the deed of assignment in favor Loans; A contract of simple loan or mutuum is created when Santos invested his money in time deposit with petitioner-bank. Legal interest in the nature of damages for non-compliance with an obligation to pay a sum of money is recoverable even if not expressly stipulated in writing The banks obligation to pay interest on the deposit ceases the moment its operation is completely suspended by the Central Bank

DBP v. CA Contract of sale became void (illegal object), what is the effect of the loan and mortgage executed?

The contract of loan executed between the parties is entirely different and discrete from the deed of sale they entered into. The annulment of the sale will not have an effect on the existence and demandability of the loan. One who has received money as a loan is bound to pay to the creditor an equal amount of the same kind and quality. Fact that the annulment of the sale will also result in the invalidity of the mortgage does not have an effect on the validity and efficacy of the principal obligation. The fact that the annulment of the sale will also result in the invalidity of the mortgage does not have an effect on the validity and efficacy of the principal obligation, for even an obligation that is unsupported by any security of the debtor may also be enforced by means of an ordinary action. Where a mortgage is not valid, as where it is executed by one who is not the owner of the property, or the consideration of the contract is simulated or false, the principal obligation which it guarantees is not thereby rendered null and void. That obligation matures and becomes demandable in accordance with the stipulations pertaining to it. Only the right to foreclose the mortgage as a special remedy for satisfying the indebtedness is lost. Actual or compensatory damages cannot be presumed but must be duly proved and so proved with a reasonable degree of certainty

What is REPLEVIN? Both a form of principal remedy and of a provisional relief. It may refer either to the action itself - to regain the possession of personal chattels being wrongfully detained from the plaintiff by another. Or to the provisional remedy - that would allow the plaintiff to retain the thing during the pendency of the action and hold it pendente lite. The action is primarily possessory in nature and generally determines nothing more than the right of possession. Replevin is so usually described as a mixed action, being partly in rem and partly in personam o In rem insofar as the recovery of specific property is concerned o In personam - as regards to damages involved. Consequently, the person in possession of the property sought to be replevied is ordinary the proper and only necessary party defendant, and the plaintiff is not required to so join as defendants other persons claiming a right on the property but not in possession thereof. Where the right of the plaintiff to the possession of the specific property is so conceded or evident, the action need only be maintained against him who so possesses the property. The defendant not being part of the chattel mortgage does not matter Assumption here is that the right to possess is undisputed The mortgagee, upon the mortgagor's default, is constituted an attorney-infact of the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly, that the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the object of replevin is traced to his possession, one properly can be a defendant in an action for replevin. It is here assumed that the plaintiffs right to possess the thing is not or cannot be disputed. If the right to possess of the plaintiff is disputed The right of possession on the part of the plaintiff, or his authority to claim such possession or that of his principal, is put to great doubt (a contending party might contest the legal bases for plaintiffs cause of action or an adverse and independent claim of ownership or right of possession is raised by that party), it could become essential to have other persons involved and accordingly impleaded for a complete determination and resolution of the controversy. A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the possession of the property unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since the mortgagee's right of possession is conditioned upon the actual fact of default which itself may be controverted, the inclusion of other parties like the debtor or the mortgagor himself, may be required in order to allow a full and conclusive determination of the case.

Robles v. CA 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. In the present case, it is apparent that Hilario Robles was not the absolute owner of the entire subject property; and that the Rural Bank of Cardona, Inc., in not fully ascertaining his title thereto, failed to observe due diligence and, as such, was a mortgagee in bad faith. The rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.The bank should not have relied solely on the Deed of Sale purportedly showing that the ownership of the disputed property had been transferred from Exequiel Ballena to the Robles spouses, or that it had subsequently been declared in the name of Hilario. Because it was dealing with unregistered land, and the circumstances surrounding the transaction between Hilario and his fatherin-law Exequiel were suspicious, the bank should have exerted more effort to fully determine the title of the Robleses. Rural Bank of Compostela v. Court of Appeals invalidated a real estate mortgage after a finding that the bank had not been in good faith. The Court explained: The rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks.

BA Finance Corporation v. CA
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When the mortgagee seeks a replevin in order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to replevin the property. The burden to establish a valid justification for that action lies with the plaintiff. An adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for replevin.

In accepting the mortgage, petitioner was not required to make any further investigation of the titles to the properties being given as security, and could rely entirely on what is stated in the aforesaid titles. The public interest in upholding the indefeasibility of a certificate of title, as evidence of the lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title.

DBP v. NLRC Art. 110 of the Labor Code cannot be invoked absent a formal declaration of bankruptcy or liquidation order. Under the new law, even mortgage credits are subordinate to workers claim. R.A. No. 6715, however, took effect only on March 21, 1989. The amendment cannot therefore be retroactively applied to nor can it affect the mortgage credit which was secured by the petitioner several years prior to its effectivity. To give Art. 110 retroactive effect would be to wipe out the mortgage in DBPs favor and expose it to a risk which it sought to protect itself against by requiring a collateral in the form of real property.

Laches, being a doctrine in equity, cannot be invoked to resist the enforcement of a legal right; Since foreclosure sale retroacts to the date of the registration of the mortgage, it no longer matters that the annotation of the sheriffs certificate of sale and the affidavit of consolidation of ownership was made subsequent to the annotation of the notice of lis pendens only registered the Sheriffs certificate of sale after the lapse of almost 15 years, because, as already discussed, it registered its prior mortgage and had already foreclosed on the same

DBP v. CA An assignment to guarantee an obligation is in effect a mortgage A condition in a deed of assignment providing for the appointment of the assignee as attorney-in-fact with authority, among other things, to sell or otherwise dispose of real rights, in case of default by the assignor, and to apply the proceeds to the payment of the loan does not constitute pactum commissorium. An assignment to guarantee an obligation is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee

Philippine Veterans Bank v. Monillas Settled in this jurisdiction is the doctrine that a prior registration of a lien creates a preferencethe subsequent annotation of an adverse claim cannot defeat the rights of the mortgagee, or the purchaser at the auction sale whose rights were derived from a prior mortgage validly registered. prior registered mortgage of PVB and the foreclosure proceedings already conducted prevail over respondents subsequent annotation of the notices of lis pendens on the titles to the property. PVB is an innocent mortgagee for value. When the lots were mortgaged to it by Ireneo, the titles thereto were in the latters name, and they showed neither vice nor infirmity.
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Guanco v. Antolo Rep. Act No. 7939, the provincial sheriff is mandated to post a notice of the foreclosure of the real estate mortgage in at least three of the most conspicuous public places not only in the municipality but also in the barrio where the land mortgaged is situated during the 60-day period immediately preceding the public auction o The foreclosure of mortgages covering loans granted by rural banks shall be exempt from the publication in newspapers now required by law where the total amount of the loan, including interests due and unpaid, does not exceed three thousand pesos. It shall be sufficient publication in such cases if the notices of foreclosure are posted in at least three of the most conspicuous public places in the municipality and barrio where the land mortgaged is situated during the period of sixty days immediately preceding the public auction. Proof of publication as required herein shall be accomplished by affidavit of the sheriff or officer conducting the foreclosure sale and shall be attached with the records of the case o a deviation from the statutory requirements for such notice renders the foreclosure sale at least voidable. o The absence of such notice has been held as sufficient cause to invalidate the foreclosure and auction sale o failure to publish notice of auction sale as required by the statute constitutes a jurisdictional defect which invalidates the sale. Pascual v. Universal Motors Foreclosure of chattel mortgage precludes any further action against the debtor and his guarantor Main doctrine: 1484 bars the right to recover any deficiency from the

purchaser after the foreclosure of the chattel mortgage and not a recourse to the additional security put up by a third party to guarantee the purchasers performance of his obligation. (T)o sustain appellants argument is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and public policy overturned.

are three (3) parties involved, namely: (1) the installment buyer, (2) the seller, and (3) the financing company. The buyer executes a note or notes for the unpaid balance of the price of the thing purchased by him on installment. The seller assigns the notes or discounts them with a financing company which is subrogated in the place of the seller, as creditor of the installment buyer. Transaction between IHMI and Medina did not involve any discounting, factoring or assignment of IHMIs credit against Medina to a finance company o The transaction was bilateral, not trilateral. o No financing company stepped into the shoes of IHMI as assignee or purchaser of IHMIs credit against Medina. Medina himself, not a financing company, paid IHMI for the truck engines. Medina made his installment payments or amortizations to IHMI, not to a financing company.

International Harvester v. Medina o Issue: WON IHMI is engaged in financing transactions covered by RA 5980? - NO Financing transaction that is regulated by RA 5980 involves the buying, discounting, or factoring of promissory notes and sales on credit or installments. o Evidently, the financing transaction that is regulated by R.A. 5980 involves the buying, discounting, or factoring of promissory notes and sales on credit or installment. o IHMI did not purchase from itself the Retail Notes Analysis executed by Medina. IHMI only extended credit to Medina by allowing him to pay for the 24 truck engines in installment. While the increased price of the sale included a financing charge, that charge was simply another name for the interest to be paid by the installment buyer (Medina) on the deferred payment of the purchase price of the vehicles sold and delivered to him by IHMI. Use of the words finance charge, financing or finance operation in the documents prepared and letters sent by IHMI to Medina was in compliance with RA 3765 (Truth in Lending Act). o The use of the words finance charge, financing or finance operation in the documents prepared, and letters sent, by IHMI to Medina, was in compliance with R.A. 3765 (Truth in Lending Act) which requires a creditor (or seller) to fully disclose to the debtor (or buyer) the true cost of credit with a view of preventing the uninformed use of credit to the detriment of the national economy. IHMI transaction with Medina differs from a financing transaction under RA 5980. o IHMI correctly pointed out that its transaction with Medina differs from a financing transaction under R.A. 5980, in that there were only two parties in its transaction with Medina, namely: IHMI and Medina, while in a financing transaction under R.A. 3765, there

State Investment v. Citibank A foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, may not be considered a non-resident within the scope of the legal corporation authorizing attachment against a defendant not residing in the Philippine Islands. o This Court itself has already had occasion to hold that a foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, may not be considered a non-resident within the scope of the legal provision authorizing attachment against a defendant not residing in the Philippine Islands; o in other words, a preliminary attachment may not be applied for and granted solely on the asserted fact that the defendant is a foreign corporation authorized to do business in the Philippinesand is consequently and necessarily, a party who resides out of the Philippines. o Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party who resides out of the country, then, logically, it must be considered a party who does reside in the Philippines, who is a resident of the country o Be this as it may, this Court pointed out that: x x Our laws and jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed to do business here, to the status of domestic corporations. o We think it would be entirely out of line with this policy should we make a discrimination against a foreign corporation, like the petitioner, and subject its property to the harsh writ of seizure by attachment when it has complied not only with every requirement of law made specially of foreign corporations, but in addition with every requirement of law made of domestic corporations. xx.

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The law grants to a juridical person as well as to natural persons the power to petition for the adjudication of bankruptcy of any natural or judicial, provided it is a resident corporation. o Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an explicit and categorical statement that they are residents of the Philippine Islands, is fatal to their cause. o In truth, in light of the concept of resident foreign corporations just expounded, when they alleged in that petition that they are foreign banking corporations, licensed to do business in the Philippines, and actually doing business in this country through branch offices or agencies, they were in effect stating athat they are resident foreign corporations in the Philippines. o There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the power to petition for the adjudication of a Philippine corporation as a bankrupt. o This is inconsequential, for neither is there any legal provision expressly giving domestic banks the same power, although their capacity to petition for insolvency can scarcely be disputed and is not in truth disputed by petitioners. o The law plainly grants to a juridical person, whether it be a bank or not or it be a foreign or domestic corporation, as to natural persons as well, such a power to petition for the adjudication of bankruptcy of any person, natural or juridical, provided that it is a resident corporation and joins at least two other residents in presenting the petition to the Bankruptcy Court.

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