CASE 1

MANILA PRINCE HOTEL VS. GSIS

FACTS:
Pursuant to the privatization program of the government, GSIS decided to sell
30-51% of the Manila Hotel Corporation. Two bidders participated, Manila Prince Hotel
and Malaysian Firm RenongBerhad. The latter was the highest bidder hence it was
logically considered as the winning bidder but is yet to be declared so. Pending
declaration, Manila Prince Hotel matches RenongBerhads bid and invoked the Filipino
First policy enshrined under pa. 2, sec. 10, Art. 12 of the 1987 Constitution, but GSIS
refused to accept. In turn, Manila Prince Hotel filed a temporary restraining order to
avoid the perfection of the sale to RenongBerhad.
ISSUE:
Whether or not RenongBerhad should be admitted as the highest bidder and
hence be proclaimed as the legit buyer of shares.
HELD:
No, Manila Prince Hotel should be awarded the sale pursuant to Article 12 of the
1987 Constitution. This is in light of the Filipino First Policy. In the grant of rights,
privileges, and concessions covering the national economy and patrimony, the State
shall give preference to qualified Filipinos.
Manila Hotel falls under national patrimony. Patrimony in its plain and ordinary
meaning pertains to heritage. When the Constitution speaks of national patrimony, it
refers not only to the natural resources of the Philippines but also to the cultural heritage
of the Filipinos. It also refers to our intelligence in arts, sciences and letters. Therefore,
we should develop not only our lands, forests, mines and other natural resources but
also the mental ability or faculty of our people. Note that, for more than eight decades
Manila Hotel has been mute witness to the triumphs and failures, loves and frustrations
of the Filipinos. Its existence is impressed with public interest. Its own historicity
associated with our struggle for sovereignty, independence and nationhood.
Herein resolved as well is the term Qualified Filipinos which not only pertains to
individuals but to corporations as well and other juridical entities. The term qualified
Filipinos simply means that preference shall be given to those citizens who can make a
viable contribution to the common good because of credible competence and efficiency.
It certainly does not mandate the pampering and preferential treatment to Filipino
citizens that are incompetent sin such an indiscriminate preference would be counterproductive and inimical to the common good.
Hence, the State shall regulate and exercise authority over foreign investments
within its national jurisdiction and in accordance with its national goals and priorities.

CASE 2
FRANK S. BOURNS VS. D.M. CARMAN, ET AL.
FACTS:
The plaintiff in this action seeks to recover the sum of $437.50 balance due on a
contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. The contract
relating to the said work was entered into by the said Lo-Chim-Lim, acting as in his own
name with the plaintiff, and it appears that the said Lo-Chim-Lim personally agreed to
pay for the work himself. The plaintiff, however, has brought this action against LoChim-Lim and his co-defendants jointly, alleging that, at the time the contract was made,
they were the joint proprietors and operators of the said lumber yard engaged in the
purchase and sale of lumber under the name and style of Lo-Chim-Lim. Apparently, the
plaintiff tries to show that the other defendants were the partners of Lo-Chim-Lim in the
said lumber yard business. The lower court dismissed the action as to the defendants
D.M. Carman on the ground that they were not the partners of Lo-Chim-Lim, and
rendered judgment against the other defendants for the amount claimed in the
complaint. The said other defendants have brought this case by bill of exceptions.
ISSUE:
Whether or not there has been a partnership between Lo-Chim-Lim and the
appellants, and consequently their liability toward the plaintiff, in connection with the
transaction which gave rise to the present suit.
HELD:
It seems that the alleged partnership between Lo-Chim-Lim and the appellants
was formed by verbal agreement only. Moreover, the partnership has no corporate
name. The plaintiff himself alleges in his complaint that the partnership was engaged in
business under the name and style of Lo-Chim-Lim only, which according to the
evidence was the name of one of the defendants. On the other hand, it does not appear
that there was any mutual agreement between the parties. As far as the evidence
shows it seems that the business was conducted by Lo-Chim-Lim in his own name,
although he gave to the appellants a share was has been shown with certainty. There is
no evidence that the partnership over contracted in any other form. Under such
circumstances, the court finds nothing upon which to consider this partnership other
than as a partnership of cuentas en participacion. It may be that, as a matter of fact, it is
something different, but a simple business and scant evidence introduced by the
partnership. The court sees nothing, according to the evidence, but a simple business
conducted by Lo-Chim-Lim exclusively, in his own name, the names of other persons
interested in the profits and losses of the business nowhere appearing. A partnership
constituted in such a manner, the existence of which was only known to those who had
an interest in the same, being no mutual agreements between the partners and without
a corporate name indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the business, is exactly the
accidental partnership of cuentas en participacion defined in Article 239 of the Code of
Commerce.

Those who contract with the person under whose name the business of such
partnership of cuentas en participacion is conducted, shall have only a right of action
against such person and not against the other persons interested. It follows, therefore,
that the plaintiff has no right to demand from the appellants the payment of the amount
claimed in the complaint, as Lo-Chim-Lim was the only one who contracted with him.
The judgment appealed from is hereby reversed and the appellants are absolved of the
complaint without express provisions as to the costs of both instances.

CASE 3
MAGSAYSAY INC. VS AGAN
FACTS:
In 1949, SS San Antonio, owned by AM Inc, embarked on its voyage to Batanes
via Aparri. It was carrying various cargoes, one of which was owned by Agan. One day,
it accidentally ran aground the mouth of the Cagayan River due to the sudden shifting of
the sands below. SS San Antonio then needed the services of Luzon Stevedoring Co. to
tow the ship and make it afloat so that it can continue its journey. Later, AM Inc. required
the cargo owners to pay the expenses incurred in making the ship afloat. The expenses,
AM Inc. claims, fall under the General Averages Rule under the Code of Commerce,
which is to be shared by ship owner and cargo owners as well.
ISSUE:
Whether or not general averages exist in the case at bar.
HELD:
No. General averages contemplate that the stranding of the vessel is intentionally
done in order to save the vessel itself from a certain and imminent danger. Here, the
stranding was accidental and it was made afloat for the purpose of saving the voyage
and not the vessel. Note that this happened on a fine weather day Also, it cannot be
said that the towing was happened on a fine weather day. Also, it cannot be said that
the towing was made to save the cargos.

CASE 4
LUZON STEVEDORING CORPORATION VS COURT OF APPEALS
FACTS:
A maritime collision occurred between the tanker LSCO Cavite owned by Luzon
Stevedoring Corporation an MV Fernando Escano a passenger ship. As a result, said
passenger ship sunk. An action in admiralty was filed by against the Luzon Corporation.
After trial on the merits, a decision was finding the LSCO Cavite was solely to blame.
Not satisfied therewith, the defendant interposed an appeal, therefrom, affirming the
decision of the court a quo in toto. Hence said defendant filed a petition for certiorari.
ISSUE:
Whether under Article 837 entry of the Code of Commerce abandonment of
vessel at fault is necessary in order that the liability of owner of said vessel shall be
limited only to the extent of the value, thereof, its appurtenances and freightage earned
in the voyage.
HELD:
It is clear that in case of collision of vessels, in order to avail of the benefits of
Article 837 of the Code of Commerce, the ship owner or agent must abandon the
vessel. In such case, the civil liability shall be limited to the value of the vessel with all
the appurtenances and freight earned during the voyage. However, where the injury or
average is due to the ship owners fault as in said case, the ship owner may not avail of
his right to limited liability by abandoning the vessel,
In previous decisions that the real and hypothecary nature of the liability of the
ship owner or agent is embodied in the provisions of the Maritime Law, Book III, Code
of Commerce. Articles 587, 590 and 837 of the same code are precisely intended to
limit the liability of the ship owner to the value of the vessel, its appurtenances and
freightage earned in the voyage, provided that owner abandons the vessel.
Hence, the rule is that in case of collision there should be abandonment of the
vessel by the ship owner or agent in order to enjoy the limited liability provided for under
said Article 837. The exception to this rule is when the vessel is totally lost in which case
there is no vessel to abandon, s abandonment is required. Because of such total loss,
the liability of the ship owner or agent for damages or extinguished. Nevertheless, the
ship owner or agent is personally liable for claims under the Workmens Compensation
Act and for repairs of the vessel before its loss.
In the case now before the Court, there is no question that the action arose from
a collision and the fault is laid at the doorstep of LSCO Cavite of petitioner. Undeniably,
petitioner has not abandoned the vessel. Hence petitioner cannot invoke the benefit of
the provisions of Article 837 of the Code of Commerce to limit its liability to the value of
the vessel, all the appurtenances and freightage earned during the voyage.

CASE 5
MONARCH INSURANCE CO., INC VS COURT OF APPEALS AND ABOITIZ
SHIPPING CORPORATION
FACTS:
Monarch and Tabacalera are insurance carriers of lost cargoes. They indemnified
the shippers and were consequently subrogated to their rights, interests and actions
against Aboitiz, the cargo carrier. Because Aboitiz refused to compensate Monarch, it
filed two complaints against Aboitiz which were consolidated and jointly tried. Aboitiz
rejected responsibility for the claims on the ground that the sinking of its cargo vessel
was due to force majeure or an act of God. Aboitiz was subsequently declared as in
default and allowed Monarch and Tabacalera to present evidence ex-parte.
ISSUE:
Whether or not the doctrine of limited liability applies in the instant case.
HELD:
Yes. The failure of Aboitiz to present sufficient evidence to exculpate itself from
fault and/ or negligence in the sinking of its vessel in the face of the foregoing expert
testimony constrains the court to hold that Aboitiz was concurrently at fault and/ or
negligent with the ship captain and crew of the M/V P. Aboitiz. This is in accordance with
the rule that in cases involving the limited liability of ship owners, the initial burden of
proof of negligence or unseaworthiness rests on the claimants. However, once the
vessel owner or any party asserts the right to limit its liability, the burden of proof as to
lack of privity or knowledge on its part with respect to the matter of negligence or
unseaworthiness is shifted to it. This burden, Aboitiz had unfortunately failed to
discharge. That Aboitiz failed to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/ or negligence should not
however mean that the limited liability rule will not be applied to the present cases. The
peculiar circumstances here demand that there should be no strict adherence to
procedural rules on evidence lest the just claims of shippers/ insurers be frustrated. The
rule on limited liability should be applied in accordance with the latest ruling in Aboitiz
Shipping Corporation vs General Accident Fire and Life Insurance Corporation, Ltd.,
that claimants be treated as creditors in an insolvent corporation whose assets are not
enough to satisfy the totality of claims against it.

Case 6
Planters Product vs. CA
G.R. No. 101503 September 15, 1993
Facts:
Planters Products (Planters) purchased from Mitsubishi International
Corporation of USA of 9,000 metric tons of urea fertilizer which the latter shipped
aboard the cargo vessel owned by private respondent Kyosei Kisin Kabushiki Kaisha
(KKKK) from America to La Union. Prior to its voyage, a time charter party was
entered into between Mitusbishi as shipper/charterer and KKKK as ship-owner. After
the Urea fertilizer was loaded in bulk by stevedores hired by the shipper, the steel
hatches were closed with heavy iron lids which remained closed during the entire
journey.
PPI filed an action for damages with the CFI Manila after it was surveyors
revealed a shortage in the cargo, and some portion in the cargo was contaminated
with dirt, rendering the same unfit for commerce.The defendant carrier argued that
the strict public policy governing common carriers does not apply to them because
they have become private carriers by reason of the provisions of the charter-party.
The court a quo however sustained the claim of the plaintiff against the defendant
carrier for the value of the goods lost or damaged.
On appeal, respondent Court of Appeals reversed the lower court and
absolved the carrier from liability for the value of the cargo that was lost or
damaged. Relying on the 1968 case of Home Insurance Co.v. American Steamship
Agencies, Inc., the appellate court ruled that the cargo vessel M/V Sun Plum
owned by private respondent KKKK was a private carrier and not a common carrier
by reason of the time charterer-party and that the Civil Code provisions on common
carriers which set forth a presumption of negligence do not find application in the
case at bar.
Issues:
1. Whether a common carrier becomes a private carrier by reason of a
charter-party.
2. Whether or not the respondent is a common carrier.
3. Whether or not the respondent is liable for damages.
Held:
1. The distinction between a common or public carrier and a private or
special carrier lies in the character of the business, such that if the
undertaking is a single transaction, not a part of the general business or

occupation, although involving the carriage of goods for a fee, the person or
corporation offering such service is a private carrier.It is not disputed that
respondent carrier, in the ordinary course of business, operates as a common
carrier, transporting goods indiscriminately for all persons. When petitioner
chartered the vessel M/V Sun Plum, the ship captain, its officers and
compliment were under the employ of the shipowner and therefore continued
to be under its direct supervision and control. Hardly then can we charge the
charterer, a stranger to the crew and to the ship, with the duty of caring for
his cargo when the charterer did not have any control of the means in doing
so. This is evident in the present case considering that the steering of the
ship, the manning of the decks, the determination of the course of the
voyage and other technical incidents of maritime navigation were all
consigned to the officers and crew who were screened, chosen and hired by
the shipowner. It is therefore imperative that a public carrier shall remain as
such, notwithstanding the charter of the whole or portion of a vessel by one
or more persons, provided the charter is limited to the ship only, as in the
case of a time-charter or voyage-charter. It is only when the charter includes
both the vessel and its crew, as in a bareboat or demise that a common
carrier becomes private, at least insofar as the particular voyage covering the
charter-party is concerned. Indubitably, a shipowner in a time or voyage
charter retains possession and control of the ship, although her holds may,
for the moment, be the property of the charterer.
2. Respondent is a common carrier. The term common carrier is defined in
Article 1732 of the Civil Code. The definition refers to carriers either by land,
water, or air which holds themselves out as ready to engage in carrying
goods on transporting passengers or both for compensation as a public
employment and not as a casual occupation; if the undertaking is a single
transaction, not a part of the general business or corporation, although
involving the carriage of goods for a fee, then the person or corporation
offering such services is a private carrier. In the case at bar respondent
carrier transports goods indiscriminately for all persons. Being such, he is a
common carrier.
3. The court ruled in the negative. While respondent is a common carrier, he has
sufficiently overcome by clear and convincing proof the prima facie
presumption of negligence, due to the manner of storage of the goods during
the voyage. The presumption of negligence on the part of the respondent
carrier has been efficaciously overcome by the showing of extraordinary zeal
and assiduity exercised by the carrier in the care of the cargo.Article 1734 of
the New Civil Code provides that common carriers are not responsible for the
loss, destruction or deterioration of the goods if caused by the charterer of
the goods or defects in the packaging or in the containers. The Code of
Commerce also provides that all losses and deterioration which the goods
may suffer during the transportation by reason of fortuitous event, force

majeure, or the inherent defect of the goods, shall be for the account and risk
of the shipper, and that proof of these accidents is incumbent upon the
carrier

Coastwise Lighterage Corporation vs. CA

G.R. No. 114167 July 12, 1995
Facts:
Pag-asa Sales Inc. entered into a contract to transport molasses from
the province of Negros to Manila with Coastwise Lighterage Corporation
(Coastwise for brevity), using the latter's dumb barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise. Upon reaching Manila Bay, one of the barges, "Coastwise 9",
struck an unknown sunken object. The forward buoyancy compartment was
damaged, and water gushed in through a hole "two inches wide and twentytwo inches long". As a consequence, the molasses at the cargo tanks were
contaminated. Pag-asa filed a claim against Philippine General Insurance
Company, the insurer of its cargo. Philgen paid P700,000 for the value of the
molasses lost.
Philgen then filed an action against Coastwise to recover the money it
paid, claiming to be subrogated to the claims which the consignee may have
against the carrier. Both the trial court and the Court of Appeals ruled against
Coastwise.
Issues:
1. Whether Coastwise was transformed into a private carrier by virtue of
the contract it entered into with Pag-asa, and whether it exercised the
required degree of diligence.
Held:
1. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to
carry cargo from one point to another, but the possession, command

mid navigation of the vessels remained with petitioner Coastwise

Lighterage. Coastwise Lighterage, by the contract of affreightment,
was not converted into a private carrier, but remained a common
carrier and was still liable as such. The law and jurisprudence on
common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods
at the place of destination in bad order makes for a prima facie case
against the carrier. It follows then that the presumption of negligence
that attaches to common carriers, once the goods it is sports are lost,
destroyed or deteriorated, applies to the petitioner. This presumption,
which is overcome only by proof of the exercise of extraordinary
diligence, remained unrebutted in this case. Jesus R. Constantino, the
patron of the vessel "Coastwise 9" admitted that he was not licensed.
Coastwise Lighterage cannot safely claim to have exercised
extraordinary diligence, by placing a person whose navigational skills
are questionable, at the helm of the vessel which eventually met the
fateful accident. It may also logically, follow that a person without
license to navigate, lacks not just the skill to do so, but also the utmost
familiarity with the usual and safe routes taken by seasoned and
legally authorized ones. Had the patron been licensed he could be
presumed to have both the skill and the knowledge that would have
prevented the vessel's hitting the sunken derelict ship that lay on their
way to Pier 18. As a common carrier, petitioner is liable for breach of
the contract of carriage, having failed to overcome the presumption of
negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.

RAMON GONZALES,
plaintiff-appellee, vs.
GO TIONG and LUZON SURETY CO., INC.,
defendants-appellants.
FACTS
Go Tiong owned a rice mill and warehouse, located at Mabini,
Urdaneta, Pangasinan. He obtained alicense of a bonded businessman with
Luzon Surety Co., with conditions he failed to fulfill. The warehouseand palay
deposited therein were insured with the Alliance Surety and Insurance
Company.Ramon Gonzales deposited palay to Go Tiong even before he
got the license who later demanded thevalue of his deposits. But Go Tiong
failed to give him his value until fire burned down the warehouse, withsacks
in excess of that was authorized under his license. The receipts issued to
Gonzales were ordinaryreceipts and not the warehouse receipts as defined
by Warehouse receipts act.Plaintiff filed their claims with the Bureau of
Commerce and wt hthe proceeds of the insurance policy,BOC paid off some
claims. Plaintiffs counsel withdrew the claims, because according to court
othing camefrom plaintiff's efforts to have his claim paid, inconsistent with
what Go Tiong claimed that it was denied. Gonzales filed claims both against
Gonzales and Luzon Surety, and renewed his claim with BOC. Gonzalesand
Go Tiong entered into a contract of amicable settlement to the effect that
upon the settlement of allaccounts, but upon failure to comply, Gonzales

prosecuted his court action. Court ruled in favor of Gonzales. Hence this
appeal.
ISSUE
1. Is the plaintiffs claim covered by the Civil Law, and not Bonded
Warehouse Act for the reason that, GoTiong issued to plaintiff were
ordinary receipts, not the warehouse receipts contemplated by
theWarehouse Receipts Law, and because the deposits of palay of
plaintiff were gratuitous?
RULING
Consequently, any deposit made with him as a bonded warehouseman
must necessarily be governed bythe provisions of Act No. 3893. Though it is
desirable that receipts issued by a bonded warehousemanshould conform to
the provisions of the Warehouse Receipts Law, said provisions are not
mandatory andindispensable in the sense that if they fell short of the
requirements of the Warehouse Receipts Act, thenthe commodities delivered
for storage become ordinary deposits and will not be governed by
theprovisions of the Bonded Warehouse Act.As the trial court well observed,
as far as Go Tiong was concerned, the fact that the receipts issued by
himwere not "quedans" is no valid ground for defense because he was the
principal obligor. Furthermore, asfound by the trial court, Go Tiong had
repeatedly promised plaintiff to issue to him "quedans" and hadassured him
that he should not worry; and that Go Tiong was in the habit of issuing
ordinary receipts (not"quedans") to his depositors.Considering the fact, as
already stated, that prior to the burning of the warehouse, plaintiff
demanded thepayment of the value of his palay from Go Tiong on two
occasions but was put off without any validreason, it is illogical
and unreasonable to hold that the presumption of negligence in case of this
kind isrebutted by the bailee by simply proving that the property bailed was
destroyed by an ordinary fire whichbroke out on the bailee's own premises,
without regard to the care exercised by the latter to prevent thefire, or to
save the property after the commencement of the fire.Besides, as observed
by the trial court, the defendant violated the terms of his license by
accepting fordeposit palay in excess of the limit authorized by his license,
which fact must have increased the risk.Appealed decision affirmed
Case 9
NATIONAL STEEL CORPORATION v. COURT OF APPEALS
G.R. No. 112287 December 12, 1997
Facts:
Plaintiff National Steel Corporation (NSC) as Charterer and defendant
Vlasons Shipping, Inc. (VSI) as Owner, entered into a Contract of Voyage

Charter Hire whereby NSC hired VSIs vessel, the MV Vlasons I to make one
voyage to load steel products at Iligan City and discharge them at North
Harbor, Manila. The handling, loading and unloading of the cargoes were the
responsibility of the Charterer.
The skids of tinplates and hot rolled sheets shipped were allegedly
found to be wet and rusty. Plaintiff, alleging negligence, filed a claim for
damages against the defendant who denied liability claiming that the MV
Vlasons I was seaworthy in all respects for the carriage of plaintiffs cargo;
that said vessel was not a common carrier inasmuch as she was under
voyage charter contract with the plaintiff as charterer under the charter
party; that in the course its voyage, the vessel encountered very rough seas.
Issue:
1. Whether or not the provisions of the Civil Code on common carriers
pursuant to which there exists a presumption of negligence against the
common carrier in case of loss or damage to the cargo are applicable
to a private carrier.
Held:
No. In a contract of private carriage, the parties may freely stipulate
their duties and obligations which perforce would be binding on them. Unlike
in a contract involving a common carrier, private carriage does not involve
the general public. Hence, the stringent provisions of the Civil Code on
common carriers protecting the general public cannot justifiably be applied
to a ship transporting commercial goods as a private carrier.
It has been held that the true test of a common carrier is the carriage
of passengers or goods, provided it has space, for all who opt to avail
themselves of its transportation service for a fee [Mendoza vs. Philippine
Airlines, Inc., 90 Phil. 836, 842-843 (1952)]. A carrier which does not qualify
under the above test is deemed a private carrier. Generally, private carriage
is undertaken by special agreement and the carrier does not hold himself out
to carry goods for the general public.
Because the MV Vlasons I was a private carrier, the ship owners
obligations are governed by the foregoing provisions of the Code of
Commerce and not by the Civil Code which, as a general rule, places
the prima facie presumption of negligence on a common carrier

CASE 10
G.R. No. L-24772 May 27, 1968
Ruperto G. Cruz, et al., plaintiffs-appellees
vs Filipinas Investment and Finance Corporation, defendant-appellant

Facts:
This is an appeal by Filipinas from the decision of the CFI of Rizal. In the action of
Cruz for the cancellation of the real estate mortgage constituted on the land of Cruz in
favor of Filipinas, the parties submitted the case for decision on the following facts:
Cruz purchased on installments a diesel bus with a promissory note to the Far East Motor
Corporation. To secure the promissory note, Cruz executed in favor of the Motor
Corporation a chattel mortgage. Since there was no down payment made, Motor Corporation
required Cruz to give additional security by which was given in the form of second
mortgage on a parcel of land and building owned by FelicidadReyes.Later, Cruz defaulted
on the payment of the promissory note in spite of the demands. Because of default,
defendant foreclose the chattel mortgage. The proceeds of the sale of the bus were not
sufficient to cover the expenses of sale, principal obligation, interest and attorney's
fees. Leading to the foreclosure of the land owned by Mrs. Reyes. Mrs. Reyes then on
March 20, 1964 wrote a letter to Filipinas asking for the cancellation of the real
estate mortgage on her land, but defendant did not comply with such.
Issue: (1) Whether Filipinas may foreclose the real estate mortgage.
Held:
should the vendee or purchaser of a personal property default in the payment of two or
more of the agreed instalments, the vendor or seller has the option to avail of any one
of these three remedies either to exact fulfilment by the purchaser of the obligation,
or to cancel the sale, or to foreclose the mortgage on the purchased personal property,
if one was constituted. These remedies have been recognized as alternative, not
cumulative, that the exercise of one would bar the exercise of the others. It may also
be stated that the established rule is to the effect that the foreclosure and actual
sale of a mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not so satisfied by the sale.
Considering the purpose for which the prohibition contained in Article 1484 was
intended, the word "action" used therein may be construed as referring to any judicial
or extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to
exact recovery of the supposed unsatisfied balance of the purchase price from the
purchaser or his privy. Certainly, an extrajudicial foreclosure of a real estate
mortgage is one such proceeding.

WHEREFORE, the decision appealed from is modified, by ordering plaintiff-appellee

FelicidadVda. de Reyes to reimburse to defendant-appellant Filipinas Investment &
Finance Corporation the sum of P2,148.07, with legal interest thereon from the finality

of this decision until it is fully paid. In all other respects, the judgment of the
court below is affirmed, with costs against the defendant-appellant.
CASE 11
G.R. No 139233 November 11, 2005
Spouses Rosario v. PCI Leasing and Finance, Inc
Facts:
Spouses Rosario purchased an Isuzu Elf Pick-up Utility vehicle from CarMerchants,
Inc. The transaction wascovered by a Purchase Agreement whereby the spouses undertook to make a
down payment. The spouses then applied for a loan with PCI Leasing to pay for the balance.Upon the
approval of their loan application, the spouses Rosario executed a Promissory Note in
favor of PCILeasing covering the amount of the loan plus finance charges. The spouses
undertook to pay the loan in monthlyinstallments payable on the 29 th day of each month at
22.10% annual interest.-The spouses Rosario also agreed that, in case of default, the
payment

of

the

outstanding

sum

with

interest

shallimmediately

become

due

and payable. To secure the payment of the loan, they executed, on the same day,
aChattel Mortgage in favor of PCI Leasing over the Isuzu Elf 4BD1. The motor vehicle was delivered
to the spousesand it was registered in their names. -Despite demands, the spouses Rosario failed to
pay the amortizations on their loan to PCI Leasing.Page 22 of 33/Comia, A.T.
SPCL Chattel Mortgage
PCI Leasing filed a Complaint against the spouses Rosario Sum of Money with Damages with a Prayer
for a Writof Replevin.- RTC issued an Order for the issuance of a writ of replevin. Then, the
Sheriffseized the motor vehicle. After five (5)days, without the court issuing an order discharging
the writ, the Sheriff turned over the possession of the vehicle toPCI Leasing. -In their Answer
to the complaint, the spouses Rosario alleged that the chattel mortgage they executed
in favor of PCI Leasing covering the motor vehicle was in effect a contract of sale of personal
property, payable in installmentsto be governed by Article 1484of the New Civil Code of the
Philippines. They further alleged that since PCILeasing opted to foreclose the chattel
mortgage, it was estopped from collecting the balance of their account under the promissory note and
chattel mortgage.
The trial court rendered judgment in favor of PCI Leasing. The trial court declared that the
spouses Rosario wereonly able to pay several monthly installments on their loan and their
account was overdue. The trial court did not,however, resolve the issue of whether Article
1484 of the New Civil Code was applicable.
The Court of Appeals rendered judgment dismissing the appeal, declaring that the spouses Rosario
failed to prove their claim that PCILeasing had agreed to be subrogated to the right
of CarMerchants, Inc. to collect the unpaid balance of the purchase price of

the motor vehicle. The appellate court also ruled that even if Article 1484 of the New
Civil Codewere to be applied, the chattel mortgage had not been foreclosed; hence, PCI
Leasing was not precluded fromcollecting the balance of the appellants account. It
held that the remedy of the unpaid seller under Article 1484 of the New Civil Code is
alternative and not cumulative.
Issue:Whether or not Article 1484 will apply as against a mortgagee who is not the vendor of the
chattel mortgaged.
Held:
Article 1484 will not apply as against a mortgagee who is not the vendor of the chattel mortgaged.
Thus, a suit for replevin is not equivalent to an exercise of the remedy of foreclosure
under

Article

1484

of

the

New

Civil

Code.Hence, a vendor-

mortgagee is not barred from making a claim for specific performance against
the buyer mortgagor, by mere fact that the former was already able to secure writ of Replevin.

Case 12
G.R. No. 16736 December 9, 2005
MAGNA FINANCIAL SERVICES GROUP, INC., vs. COLARINA

Facts:
Colarina bought from petitioner a Suzuki Multicab payable on installments and secured
by an integrated promissory note and a deed of chattel mortgage. Upon respondents
default

in

payment,

petitioner

filed

complaint

for

Foreclosure

of

the

Chattel

Mortgage with Replevin. Colarina then voluntarily surrendered the physical possession
of the vehicle. Failing to answer within the reglementary perion, the Municipal Trial
Court

ordered

respondent

to

pay

petitioner

the

unpaid

balance

of

the

vehicles

purchase price. This was affirmed by the Regional Trial Court. The Court of Appeals,
on the other hand, reversed and set aside the decisions of the lower courts granting
the

payment

of

the

payment

of

the

unpaid

balance

for

being

inconsistent

with

petitioners complaint for foreclosure.

Issue:
Whether or not the foreclosure of mortgage, as an exercise of the 3rd remedy in
Article 1484, is in nature an action for sum of money with execution of the security.

Held:
No. A Contract of chattel mortgage is in the nature of a conditional sale of personal
property given as a security for the payment of a debt, or the performance of some
other obligation specified therin, the condition being that the sale shall be void
upon the seller paying to the purchaser a sum of money or doing some other act named.
If

the

condition

is

performed

according

to

its

terms,

the

mortgage

and

sale

immediately become void, and the mortgage is thereby divested of his title. But in
case of nonpayment, foreclosure is one of the alternative remedies available to a
mortgagee. Since the petitioner has undeniably elected a remedy of foreclosure under
Article 1484(3) of the Civil Code, it is bound by its election and thus may not be
allowed to change what it has opted for nor to ask for more.

Case 13
28 SCRA 658 1969
Filipinas Investment vsVitug Jr.
Under Art 1484 of the Civil Code, the vendor may only exercise in thealternative the
following remedies: a.) exact fulfillment of the obligation;b.) cancel the sale in
case the failure to pay covers two or moreinstallments and c.) foreclose the chattel
mortgage in case one has beenexecuted over the personality involved in the case.-

However, the provision can admit of some exceptions as in the present case, where it
has been expressly stipulated in the assignment that recourse may be had against the
seller should the buyer fail to pay for thebalance of the obligation.
Facts:
Respondent

Vitug

promissory

note

constituted

bought

providing

four-door
for

chattel mortgage

Consul

sedan

for

monthly installment
over

the

vehicle.

Php

payment
On

the

14,605.
and

Heexecuted

at the

same dayhe

same

assigned

time
his

negotiated the promissory note in favor of herein petitionerFilipinas Investment,

assigning thereto all his rights,including a right of recourse against co-defendant
Supreme Sales.
Vitug predictably failed to pay for the car, and petitioner applied for a writ of
replevin, but this was negated when Vitug voluntarily surrendered the vehicle.The car
was sold in public auction but the proceeds left a balance of Php 8,349.35, which
petitioner now wishes to collect from co-defendant SupremeSales.Issue1.)
Issue:WON

petitioner

can

collect

on the

balance

from

Supreme

Sales

despite

theprovision of the Recto Law (Art 1484)?

Held:
YES. The transaction between appellant and appellee was purely an ordinarydiscounting
transaction whereby the promissory note executed by defendant Vitug was negotiated by
appellee in favor of appellant for a valuableconsideration at a certain discount,
accompanied by an assignment also of thechattel mortgage executed by said defendant to
secure the payment of hispromissory note and with the express stipulation that should
there be anydeficiency, recourse could be had against appellee.
Stated otherwise, theremedy presently being sought is not against the buyer of the car
or thedefendant Vitug but against the seller, independent of whether or not suchseller
may have a right of recovery against the buyer, which, in this case, hedoes not have
under the Recto Law.

Case 14
G.R. No. 34385
September 21, 1931
ALEJANDRA TORRES, ET AL., plaintiff-appellees,
vs.
FRANCISCO LIMJAP, Special Administrator of the estate of the deceased
Jose B. Henson, defendant-appellant.
Facts:

These two actions were commenced in the Court of First Instance of Manila on April
16, 1930, for the purpose of securing from the defendant the possession of two drug
stores located in the City of Manila, covered by two chattel mortgages executed by
the deceased Jose B. Henson in favor of the plaintiffs.
In the first case the plaintiffs alleged that Jose B. Henson, in his lifetime, executed in
their favour achattel mortgage on his drug store at Calle Rosario, known as
Farmacia Henson, to secure a loan and inthe second case the plaintiffs alleged that
they were the heirs of the late Don Florentino Torres; and thatJose B. Henson, in his
lifetime, executed in favor of Don Florentino Torres a chattel mortgage on his
threedrug stores known as Henson's Pharmacy, Farmacia Henson and
BoticaHensonina, to secure a loan.
In both cases the plaintiffs alleged that the defendant violated the terms of the
mortgage and that,in consequence thereof they became entitled to the possession
of the chattels and to foreclose theirmortgages thereon.
Subsequently, the court issued in each case an order directing the sheriff of the City
of Manila totake immediate possession of said drug stores. The defendant filed
practically the same answer to bothcomplaints. He denied generally and specifically
the plaintiffs' allegations, and set up the following special defences 1) that the
chattel mortgages are null and void for lack of sufficient particularity in the
descriptionof the property mortgaged; and 2) that the chattels which the plaintiffs
sought to recover were not the sameproperty described in the mortgage.
The trial court ruled in favor of the plaintiffs. Hence this appeal.
Issue:
Whether or not the The lower court erred in failing to make a finding on the question
of thesufficiency of the description of the chattels mortgaged and in failing to hold
that the chattel mortgages were null and void for lack of particularity in the
description of the chattels mortgaged?
HELD:
The court held that it unnecessary to discuss the question raised, in Their words:
With reference to the first assignment of error, we deem it unnecessary to discuss
the question therein raised, inasmuch as according to our view on the question of
estoppel, as we shall hereinafter set forth inour discussion of the third assignment
of error, the defendant is estopped from questioning the validity of these chattel
mortgages.
A stipulation in the mortgage, extending its scope and effect to after-acquired
property, is valid and binding. . . where the after-acquired property is in renewal of,
or in substitution for, goods on hand whenthe mortgage was executed, or is
purchased with the proceeds of the sale of such goods, etc. (11 C.J., p.436.)Cobbey,
a well-known authority on Chattel Mortgages, recognizes the validity of
stipulationsrelating to after-acquired and substituted chattels. His views are based
on the decisions of the supremecourts of several states of the Union. He says: "A
mortgage may, by express stipulations, be drawn to covergoods put in stock in
place of others sold out from time to time. A mortgage may be made to
includefuture acquisitions of goods to be added to the original stock mortgaged, but
the mortgage must expressly provide that such future acquisitions shall be held as
included in the mortgage. ... Where a mortgagecovering the stock in trade,
furniture, and fixtures in the mortgagor's store provides that "all goods, stock in

trade, furniture, and fixtures hereafter purchased by the mortgagor shall be

included in and covered by the mortgage," the mortgage covers all after-acquired
property of the classes mentioned, and, uponforeclosure, such property may be
taken and sold by the mortgagee the same as the property in possessionof the
mortgagor at the time the mortgage was executed." (Vol. I, Cobbey on Chattel
Mortgages, sec. 361,pp. 474, 475.)
Case 15
G.R. No. 103576 August 22, 1996
ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL
SHERIFF OF CALOOCANCITY,
respondents.
FACTS:
On June 27, 1978, Chua Pac (general manager) of Acme Shoe, Rubber & Plastic
Corporation executed in behalf of Acme, a chattel mortgage in favour of Producers
Bank of the Philippines to secure a corporate loan of P3M.
Chattel mortgage had a provision:
(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly
perform the full obligation or obligations above-stated according to the terms
thereof, then this mortgage shall be null and void. . . .In case the MORTGAGOR
executes subsequent promissory note or notes either as a renewal of the former
note, asan 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
shallalso stand as security for the payment of the said promissory note or notes
and/or accommodations without thenecessity of executing a new contract and this
mortgage shall have the same force and effect as if the saidpromissory note or
notes and/or accommodations were existing on the date thereof. This mortgage
shall also standas 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.
The loan of P3M was paid. They obtained another loan of P2.7M in 1981 and was
also paid. On January 10 and 11 1984, the bank again obtained loan of P1M in 4
promissory notes of 250 thousand each. Due to financialconstraints, the loan was
not settled at maturity.
Bank applied for extrajudicial foreclosure of chattel mortgage. Acme filed action for
injunction however RTCultimately dismissed complaint and ordered foreclosure
saying Acme was bound by stipulations.
CA dismissed appeal and affirmed RTC.
ISSUE:

Whether or not it is valid and effective to have a clause in a chattel mortgage that
extends its coverage to obligationsyet to be contracted or incurred.
HELD:
Chattel mortgage can cover only obligations existing at the time mortgage is
constituted [Act 1508 Chattel Mortgage Law] While a pledge, real estate mortgage,
or antichresis may exceptionally secure after-incurred obligations so longas these
future debts are accurately described, a chattel mortgage, however, can only cover
obligationsexisting at the time the mortgage is constituted.
Although a promise expressed in a chattel mortgage to include debts that are yet to
be contracted can be abinding commitment that can be compelled upon, the
security itself, however, does not come into existence or arise until after a chattel
mortgage agreement covering the newly contracted debt is executed either by
concluding a fresh chattel mortgage or by amending the old contract conformably
with the form prescribed by the Chattel Mortgage Law.
Refusal on the part of the borrower to execute the agreement so as to cover the
after-incurred obligation canconstitute an act of default on the part of the borrower
of the financing agreement whereon the promise is writtenbut, of course, the
remedy of foreclosure can only cover the debts extant at the time of constitution
and during thelife of the chattel mortgage sought to be foreclosed.
Affidavit of Good Faith requirement makes it obvious that the obligation is current.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with
the form prescribed by the Chattel Mortgage Law itself. Sec. 5 thereof requires an
affidavit of good faith. If this is not appended to the agreement chattel mortgage
would still be valid between the parties (not against third persons acting in good
faith). The fact, however, 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.
makes it obvious that the debt referred to in the law is a current, not an obligation
that is yet merely contemplated. In the chattel here involved, the only obligation
specified in the chattel mortgage contract was the P3,000,000 loan which the
petitioner corporation later fully paid.
Sec. 3 of the Chattel Mortgage Law, the payment of the obligation automatically
rendered the chattel mortgage void or terminated. 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. Payment of P3M
loan caused the extinguishment of chattel mortgage.

Case 16
G.R. No. L-14475
May 30, 1961
SOUTHERN MOTORS, INC., plaintiff-appellee,
vs.
ANGELO MOSCOSO, defendant-appellant.
FACTS:
Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck
on installment basis, for P6,445.00. Upon making a down payment, the defendant
executed a promissory note for the sum of P4,915.00, representing the unpaid
balance of the purchase price to secure the payment of which, a chattel mortgage
was constituted on the truck in favor of the plaintiff. Of said account, the defendant
had paid a total of P550.00, of which P110.00 was applied to the interest and
P400.00 to the principal, thus leaving an unpaid balance of P4,475.00. The
defendant failed to pay 3 installments on the balance of the purchase price.
Plaintiff filed a complaint against the defendant, to recover the unpaid balance of
the promissory note. Upon plaintiffs petition, a writ of attachment was issued by
the lower court on the properties of the defendant. Pursuant thereto, the said
Chevrolet truck, and a house and lot belonging to defendant, were attached by the
Sheriff and said truck was brought to the plaintiffs compound for safe keeping. After
attachment and before the trial of the case on the merits, acting upon the plaintiffs
motion for the immediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo
sold the truck at public auction in which plaintiff itself was the only bidder for
P1,OOO.OO. The trial court condemned the defendant to pay the plaintiff the
amount of P4,475.00 with interest at the rate of 12% per annum from August 16,
1957, until fully paid, plus 10% thereof as attorneys fees and costs. Hence, this
appeal by the defendant.
ISSUE:
Whether or not the attachment caused to be levied on the truck and its immediate
sale at public auction, was tantamount to the foreclosure of the chattel mortgage on
said truck.
HELD:
Article 1484 of the Civil Code provides that in a contract of sale of personal property
the price of which is payable in installments, the vendor may exercise any of the
following remedies: (I) Exact fulfillment of the obligation, should the vendee fail to
pay; (2) Cancel the sale, should the vendees failure to pay cover two or more
installments; and (3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendees failure to pay cover two or more installments.
In this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
The plaintiff had chosen the first remedy. The complaint is an ordinary civil action
for recovery of the remaining unpaid balance due on the promissory note. The

plaintiff had not adopted the procedure or methods outlined by Sec. 14 of the
Chattel Mortgage Law but those prescribed for ordinary civil actions, under the
Rules of Court. Had the plaintiff elected the foreclosure, it would not have instituted
this case in court; it would not have caused the chattel to be attached under Rule
59, and had it sold at public auction, in the manner prescribed by Rule 39. That the
plaintiff did not intend to foreclose the mortgage truck, is further evinced by the fact
that it had also attached the house and lot of the appellant at San Jose, Antique.
We perceive nothing unlawful or irregular in plaintiffs act of attaching the
mortgaged truck itself. Since the plaintiff has chosen to exact the fulfillment of the
appellants obligation, it may enforce execution of the judgment that may be
favorably rendered hereon, on all personal and real properties of the latter not
exempt from execution sufficient to satisfy such judgment. It should be noted that a
house and lot at San Jose, Antique were also attached. No one can successfully
contest that the attachment was merely an incident to an ordinary civil action. The
mortgage creditor may recover judgment on the mortgage debt and cause an
execution on the mortgaged property and may cause an attachment to be issued
and levied on such property, upon beginning his civil action.
Case 17
Levy Hermanos, Inc.
Vs.
Pacific Commercial Co., Manuel Dumdum y. Rosario Pedor,
FACTS:
Manuel Dumdum needed six new motor vehicles business for transport and hauling
gravel under contract to provide the Iloilo Provincial Government, held jointly with
his wife Rosario Peter, with the applicant. The selling price of these cars, agreed
between the three, was that of P13, 600, and as the couple wants could not pay this
amount once, thus, a 40 promissory notes which were to overcome on the dates
mentioned in each and in the same Exhibit A mortgage agreement, undertaking to
pay the amount of the last of these promissory notes, on or before July 28, 1938.
Placed as security for payment of said promissory notes were not only the same six
cars in installments but also a lot of his property located in the municipality of Jaro
in Iloilo province, and a house of materials in the corner of Quezon and JonesDelgado, Iloilo.
However the applicant had only paid the amount of P4,600 on account of its
obligations and still have the remaining P9,000 of their P13,600 original debt. To
collect this balance and interest that the defendants owed the plaintiff, they filed
before the Court of First Instance of Iloilo who handed down judgment in its favor,
requiring them to pay the sum of P12, 029.36 to then ascended the balance of
remaining unpaid interests, the price of car accessories that were taken as the
penalty, and so on., and interest on these amounts at the rate of 12 per ceintoto n,
plus the costs; If that were not enough properties for them to meet their obligation,
a warrant for the execution of the judgment. In the meantime, they were ordered to
deliver the goods mortgaged to Vicente Garcia, for his city and conservation. The
applicant to appeal against the decision of the Court of Iloilo, argues in his brief that
the court committed the following errors:

ISSUE:
The declrado have the mortgage contract awarded to the appellees in their favor
violates the provisions of Law No. 4122 amending the Civil Code Article 1454, as
also the solar gravel and characteristics of these respondents.
HELD:
It should be noted, to resolve the question raised by the appellant, that the
provisions of Law No. 4122 are in this vein:
ART. 1454-A. In a contract of sale of furniture hoes pagardera by installments, the
failure to pay two or more times gives the seller the right to the resolution of the
sale or the execution of the mortgage, from having this set up on the thing, without
reimbursement to the buyer already paid deadlines, if they have been agreed.
The seller, however, who has opted for the mortgage ejercucion may not proceed
against the buyer for any balance corbro would have been against this, to be void
otherwise agreed.
Just rega shall govern in cases of cosarrendameinto furniture with option to buy,
when the landlord has opted to remove the tenant's enjoyment of the chattel.

18
Magna Financia Services Group, INC vs. Elisa Colarina
Gr No. 158635
Facts: On 11 June 1997, Elias Colarina bought on installment from Magna Financial
Services Group, Inc., one (1) unit of Suzuki Multicab.
After making a down payment, Colarina executed a promissory note for the
balance of P229,284.00 payable in thirty-six (36) equal monthly installments
at P6,369.00 monthly, beginning 18 July 1997. 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 beginning January 1999, despite
repeated demands. On 31 October 2000 Magna Financial Services Group, Inc. filed a
Complaint for Foreclosure of Chattel Mortgage with Replevin [2] before the Municipal
Trial Court and a Writ of Replevin was issued. On 27 December 2000, 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. Colarina was declared in
default for having filed his answer after more than six (6) months from the service of
summons thereupon, the trial court rendered judgment in favour of the plaintiff.
Colarina appealed to RTC affirming the decision but during the pendency of appeal he
died ad was substituted by his heirs. They filed petition in CA which granted the petition
and reversing and setting aside the assailed decision.
Issue: WHAT IS THE TRUE NATURE OF A FORECLOSURE OF CHATTEL
MORTGAGE, EXTRAJUDICIAL OR JUDICIAL, AS AN EXERCISE OF THE
3RD OPTION UNDER ARTICLE 1484, PARAGRAPH 3 OF THE CIVIL CODE.
Held: 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.
The petitioner sought for the payment of the unpaid amortizations which is a
remedy that is provided under Article 1484(1) of the Civil Code, allowing an unpaid
vendee to exact fulfillment of the obligation and at the same time, prayed that Colarina
be ordered to surrender possession of the vehicle so that it may ultimately be sold at
public auction, which remedy is contained under Article 1484(3). 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.
In case of non payment, foreclosure is one of the remedies available to a
mortgagee by which he subjects the mortgaged property to the satisfaction of the
obligation to secure that for which the mortgage was given. Foreclosure may be
effected either judicially or extrajudicially, that is, by ordinary action or by foreclosure
under power of sale contained in the mortgage. It may be effected by the usual
methods, including sale of goods at public auction. [22]
Extrajudicial foreclosure, as chosen by the petitioner, is attained by causing the
mortgaged property to be seized by the sheriff, as agent of the mortgagee, and have it
sold at public auction in the manner prescribed by Section 14 of Act No. 1508, or the
Chattel Mortgage Law.[23] This rule governs extrajudicial foreclosure of chattel
mortgage.
And because the petitioner undeniably elected remedy of foreclosure under Article 1484
(3) of the Civil Code, it is bound by its election and thus may not be allowed to changed
what it has opted for nor to ask for more.
WHEREFORE, the instant petition is DENIED for lack of merit and the decision of
the Court of Appeals dated 21 January 2003 is AFFIRMED. Costs against petitioner.

19
Ruperto G. Cruz, et al Vs. Filipinas Investment and Finance Corporation
GR NO L-24772 May 27, 1968
Facts:
In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes in
the Court of First Instance of Rizal for cancellation of the real estate mortgage
constituted on the land of the latter 1 in favor of defendant Filipinas Investment &
Finance Corporation (as assignee of the Far East Motor Corporation)
On July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from the
Far East Motor Corporation, one (1) unit of Isuzu Diesel Bus, payable in
installments per month for thirty (30) months until fully paid. Cruz executed and
delivered to the Far East Motor Corporation a negotiable promissory note.

To secure the payment of the promissory note, Annex "A", Cruz executed in favor
of the seller, Far East Motor Corporation, a chattel mortgage over the aforesaid
motor vehicle and additional security for his obligation in form of second
mortgage is a parcel of land owned together with the building.
The plaintiff Cruz defaulted so defendant took steps to foreclose the chattel
mortgage on the bus which had been damaged in accident while in the
possession of the plaintiff Cruz. The foreclosure was held but the proceeds of
sale were not sufficient to cover the expenses of sale, principal obligation,
interest and attorneys fee.
On February 12, 1964, preparatory to foreclosing its real estate mortgage on
Mrs. Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes to
the Development Bank of the Philippines the unpaid balance of said obligation

Issue: Whether defendant, which has already extrajudicially foreclosed the chattel
mortgage executed by the buyer, plaintiff Cruz, on the bus sold to him on installments,
may also extrajudicially foreclose the real estate mortgage constituted by plaintiff Mrs.
Reyes on her own land, as additional security, for the payment of the balance of Cruz'
Obligation, still remaining unpaid
Held: The provision under Article 1484 of the Civil code is clear and simple: should the
vendee or purchaser of a personal property default in the payment of two or more of the
agreed installments, the vendor or seller has the option to avail of any one of these
three remedies (1) either to exact fulfillment by the purchaser of the obligation, (2) or
to cancel the sale, (3) or to foreclose the mortgage on the purchased personal property,
if one was constituted. These remedies have been recognized as alternative, not
cumulative, that the exercise of one would bar the exercise of the others. It may also be
stated that the established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not so satisfied by the sale.
Undoubtedly the principal object of the above amendment was to remedy the
abuses committed in connection with the foreclosure of chattel mortgages. This
amendment prevents mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a
deficiency judgment. The almost invariable result of this procedure was that the
mortgagor found himself minus the property and still owing practically the full amount of
his original indebtedness.
Under this amendment the vendor of personal property, the purchase price of which is
payable in installments, has the right to cancel the sale or foreclose the mortgage if one
has been given on the property. Whichever right the vendor elects he need not return to
the purchaser the amount of the installments already paid, "if there be in agreement to
that effect". Furthermore, if the vendor avails himself of the right to foreclose the
mortgage the amendment prohibits him from bringing an action against the purchaser
for the unpaid balance.

WHEREFORE, the judgment of the court below is affirmed, with costs against the
defendant-appellant.
20
Spouses Alfredo and Brigida Rosario vs. TINGA and PCI Leasing and Finance
INC.
GR No 139233 November 11, 2005
Facts: It is a petition for review on certiorari of the Decision of the Court of Appeals
affirming the decision of the Regional Trial Court (RTC) holding the spouses Alfredo and
Brigida Rosario, jointly and severally, liable to PCI Leasing and Finance, Inc. (PCI
Leasing) for the sum of P338,786.03, with interest, attorneys fees and costs.

On April 18, 1994, the spouses Rosario purchased an Isuzu Elf Pick-up Utility
vehicle from CarMerchants, Inc., whereby the spouses undertook to make a
downpayment of P190,000.00 of the total purchase price of P380,000.00. The
spouses then applied for a loan with PCI Leasing to pay for the balance of
P190,000.00.
Upon the approval of their loan application, the spouses Rosario executed a
Promissory Note] on May 6, 1994, in favor of PCI Leasing covering the amount
of the loan plus finance charges, in the total amount of P274,008.00. The
spouses undertook to pay the loan in monthly instalments payable on the 29th
day of each month starting on May 29, 1994 to April 29, 1996, at 22.10% annual
interest. The spouses Rosario also agreed that, in case of default, the payment
of the outstanding sum with interest shall immediately become due and payable.
To secure the payment of the loan, they executed a Chattel Mortgage in favor of
PCI Leasing over the Isuzu Elf 4BD1. The motor vehicle was delivered to the
spouses and it was registered in their names on May 16, 1994.
Despite demands, the spouses Rosario failed to pay the amortizations on their
loan to PCI Leasing which, as of November 29, 1995, amounted to P338,786.03,
inclusive of P20,000.00 attorneys fees. On January 25, 1995, PCI Leasing filed
a Complaint[8] against the spouses Rosario in the RTC with Damages and with
a Prayer for a Writ of Replevin. When the Rosarios failed to appear despite
notice, they were declared in default and trial court rendered judgement in favour
of PCI Leasing. The Rosarios then appealed the decision to CA, which was
dismissed due to failure to prove their claim and that since the chattel mortgage
had not been forclosed, PCI Leasing was not precluded from collectiinng the
balance of the appellants account.

Issue:whether the respondent, based on the evidence on record, is the assignee of the
petitioners account with CarMerchants, Inc. (as the vendor of the motor vehicle), and
Held:There is no factual basis for the petitioners claim that CarMerchants, Inc. had
assigned its rights to collect the balance of the purchase price to the respondent. The
fact of the matter is that the petitioners admitted in their petition at bench that they were
declared in default and failed to prove such claim. The evidence on record clearly

shows that the petitioners secured a loan from the respondent to pay the P190,000.00
balance to CarMerchants, Inc., and even executed a promissory note evidencing their
loan in favor of the respondent. The petitioners forthwith executed a chattel mortgage in
favor of the respondent over the vehicle as security for the payment of their loan and the
interests thereon. Under Article 1625 of the New Civil Code, an assignment of credit,
right or action must appear in a public document to bind third persons. There is no
evidence on record to prove that Car Merchants, Inc. executed such a deed, assigning
its right to collect the balance of the purchase price of the vehicle from the petitioners;
hence, Article 1484 of the New Civil Code does not apply in this case.
As correctly ruled by the CA: if there has been no foreclosure of the chattel
mortgage or a foreclosure sale, then the prohibition against further collection of the
balance of the price does not apply. Where the remedy is not foreclosure of the chattel
mortgage, but specific performance of the obligation to do payment, then the levy on the
property is indeed not a foreclosure of the mortgage but is instead a levy on execution.
A creditor is not obliged to foreclose a chattel mortgage even if there is one.
As a matter of fact, he may avail himself of remedy no. 1 (specific performance)
and may still ask that a real estate mortgage be executed to secure the payment of the
obligation, in which case, and in the event of foreclosure, there can still be recovery of
the deficiency. Wherefore, the decision of CA was affirmed with modification that the
award was deleted.
21
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and JOSE HENARES, petitioners,
vs.
THE HON. COURT OF APPEALS and MARINDUQUE MINING AND INDUSTRIAL
CORPORATION, respondents.
G.R. No. 84526
January 28, 1991
Facts: This is a petition for review on certiorari which assails both the resolution of the
Court of Appeals which reconsidered and set aside its earlier decisions,reversing the
decision of the trial court and denied the petitioners' motion for reconsideration.

The instant case originated from an action filed with the National Labor Relations
Commission (NLRC) by a group of laborers who obtained therefrom a favorable
judgment for the payment of backwagesagainst the private respondent. After the
deputy, Damian Rojas, was directed to enforce the writ of execution, he went to
the minning site to serve the said writ to the private respondent but nothing
happened.
Thereafter, the Sheriff prepared on his own a Notice of Garnishment addressed
to six (6) banks, one of which being the petitioner herein, directing the bank
concerned to immediately issue a check in the name of the Deputy Provincial
Sheriff of Negros Occidental in an amount equivalent to the amount of the
garnishment and that proper receipt would be issued therefor.Incidentally, the

house lawyer of the private respondent, Atty. Alejano requested the withholding
of any release of the deposit of the private respondent with the petitioner bank.
The deputy sheriff presented the Notice of Garnishment and the Writ of
Execution attached therewith to the petitioner Henares and demanded from the
latter, under pain of contempt, the release of the deposit of the private
respondent. Petitioner Henares, upon knowing that there was no restraining
order from the NLRC and on the favorable advice of the bank's legal
counsel,issued a debit memo for the full balance of the private respondent's
account with the petitioner bank. Thereafter, he issued a manager's check in the
name of the Deputy Provincial Sheriff of Negros Occidental with the exact
balance of the private respondent's account as of that day.
On the following day, before actual encashment, Petitioner Henares inquired
again about any exisisting restraining order and there being none, allowed the
encashment.
The private respondent, then plaintiff, filed a complaint before the Regional Trial
Court, against the petitioners and Damian Rojas, the Deputy Provincial Sheriff of
Negros Occidental, then defendants, alleging that the former's current deposit
with the petitioner bank was levied upon, garnished, and with undue haste
unlawfully allowed to be withdrawn, and notwithstanding the alleged
unauthorized disclosure of the said current deposit and unlawful release thereof,
the latter have failed and refused to restore the amount of P37,466.18 to the
former's account despite repeated demands. The trial court rendered its
judgment in favor of the private respondent.On appeal, the respondent first
reversed the said judgment of the lower court, but however, on the motion for
reconsideration filed by the private respondent, subsequently annulled and set
aside its said decision and also denied the petitioner's own motion for
reconsideration.

Issue: (1)whether or not a bank is liable for releasing its depositor's funds on the
strength of the notice of garnishment made by the deputy sheriff pursuant to a writ of
execution issued by the National Labor Relations Commission (NLRC). (2) Whether or
not petitioners violated Republic Act No. 1405, otherwise known as the Secrecy of Bank
Deposits Act, when they allowed the sheriff to garnish the deposit of private respondent.
Held: The petitioners are not liable. There is no evidence that private rrespondednt
made an appeal against the decision of the NLRC or existence of restraining order to
prevent the release of the respondents deposit. On the contrary, the uncontroverted
statements in the deposition of the petitioner Henares that he had previously sought the
advice of the bank's counsel and that he had checked twice with the Acting Provincial
Sheriff who had informed him of the absence of any restraining order, belie any
allegation of undue and indecent haste in the release of the said deposit in question.
The immediate release of the funds by the petitioners on the strength of the notice of
garnishment and writ of execution, whose issuance, absent any patent defect, enjoys

the presumption of regularity, sufficiently supported by Sec. 41, Rule 39 of the Rules of
Court.
2nd issue: we find no violation whatsoever by the petitioners of Republic Act No. 1405,
otherwise known as the Secrecy of Bank Deposits Act. Since there is no evidence that
the petitioners themselves divulged the information that the private respondent had an
account with the petitioner bank and it is undisputed that the said account was properly
the object of the notice of garnishment and writ of execution carried out by the deputy
sheriff, a duly authorized officer of the court, we can not therefore hold the petitioners
liable under R.A. 1405.
The petitioners are therefore absolved from any liability for the disclosure and release of
the private respondent's deposit to the custody of the deputy sheriff in satisfaction of the
final judgment for the laborers' backwages.
WHEREFORE, the petition is GRANTED
Case No. 22
Filipinas Investment vs. Vitug Jr., and Supreme Sales and
Development
Facts:
Respondent Vitug bought a four-door Consul sedan for Php 14,605. He
executed a promissory note providing for monthly installment payment and
at the same time constituted a chattel mortgage over the vehicle. On the
same day he assigned his negotiated the promissory note in favor of herein
petitioner Filipinas Investment, assigning thereto all his rights, including a
right of recourse against co-defendant Supreme Sales.
Vitug predictably failed to pay for the car, and petitioner applied for a
writ of replevin, but this was negated when Vitug voluntarily surrendered the
vehicle. The car was sold in public auction but the proceeds left a balance of
Php 8, 349.35, which petitioner now wishes to collect from co-defendant
Supreme Sales.
Issue:
WON petitioner can collect on the balance from Supreme Sales despite
the provision of the Recto Law (Art 1484)?
Held:
YES. The transaction between appellant and appellee was purely an
ordinary discounting transaction whereby the promissory note executed by
defendant Vitug was negotiated by appellee in favor of appellant for a

valuable consideration at a certain discount, accompanied by an assignment

also of the chattel mortgage executed by said defendant to secure the
payment of his promissory note and with the express stipulation that should
there be any deficiency, recourse could be had against appellee. Stated
otherwise, the remedy presently being sought is not against the buyer of the
car or the defendant Vitug but against the seller, independent of whether or
not such seller may have a right of recovery against the buyer, which, in this
case, he does not have under the Recto Law.
Under Art 1484 of the Civil Code, the vendor may only exercise in the
alternative the following remedies: a.) exact fulfillment of the obligation; b.)
cancel the sale in case the failure to pay covers two or more installments and
c.) Foreclose the chattel mortgage in case one has been executed over the
personality involved in the case.
However, the provision can admit of some exceptions as in the present case,
where it has been expressly stipulated in the assignment that recourse may
be had against the seller should the buyer fail to pay for the balance of the
obligation.
Case No. 23
Rural Bank of Buhi vs. CA
Facts:
Buhi Bank was a rural bank. Its books were examined by the Rural
Banks division of the Central Bank. However, it refused to be examined. As a
consequence, its financial assistance was suspended. Later, a general
examination of the banks affairs and operations were again conducted. The
rural banks division found out massive irregularities in the operations, giving
out loans to unknown and fictitious borrowers, and sums amounting to
millions past due to the Central Bank.
There were also promissory notes rediscounted with the Central Bank
for cash. As a result, the Buhi Bank became insolvent. The division chief,
Odra, recommended that Buhi be placed under receivership. Thus, the
Monetary Board adopted a Resolution # 583, placing the bank under
receivership.
Odra, the division chief, was made the receiver. Odra thus
implemented the resolution, authorizing deputies to take control and
possession of Buhis assets and liabilities. Del Rosario, the Buhi Bank
Manager, filed an injunction against the receiver, arguing that the resolution
violated the Rural Banks Act. The bank claims that there was a violation of
due process. They claim that the bank was not given the chance to deny and
disprove the claim of insolvency or the other grounds and that it was hastily
put under receivership.

Later on, the Central Bank Monetary Board ordered the liquidation of
the Bank.
The judge ruled in favor of the Bank and issued a writ of execution. The CA
however restrained the enforcement of execution, citing that the Judge did
not follow the orders, and thus required the Bank to yield to the CB.
Issue:
Was due process observed?
Held:
Yes. Under Sec 29 of the RA 265, on proceedings regarding insolvency, there
is NO REQUIREMENT that a hearing be first conducted before a bank may be
placed under receivership. The law explicitly provides that the Monetary
Board can immediately forbid a banking institution from doing business and
immediately appoint a receiver when: 1) there has been an examination by
CB, b) a report to the CB, and c) prima facie showing that the bank is
insolvent.
As to the claim that the RA 265 violates due process, the claim is untenable.
The law could not have intended to disregard the constitutional requirement
of due process when it conferred power to place rural banks under
receivership. The closure and liquidation of the bank is considered an
exercise of POLICE POWER. It may be subject to judicial inquiry and could be
set aside if found to be capricious, discriminatory, whimsical, arbitrary, etc.
The appointment of a receiver may be made by the Monetary Board,
WITHOUT NOTICE AND HEARING, but subject to the JUDICIAL INQUIRY, to
insure protection of the banking institution.
Due process does NOT necessarily require a PRIOR HEARING. A hearing
or an OPPORTUNITY TO BE HEARD may be made SUBSEQUENT to the closure.
One could just imagine the dire consequences of a prior hearing: bank runs
would happen, resulting in panic and hysteria. In that way, fortunes will be
wiped out, and disillusionment will run the gamut of the entire banking
industry.
There is no question that the action of the MB may be subject to
judicial review. Courts may interfere with the MBs exercise of discretion.
Here, the RTC has jurisdiction to adjudicate the question of whether the MB
acted in bad faith when it directed the dissolution of Buhi Bank.
Case No. 24
Pacific Banking Corporation vs. CA and Oriental Assurance

Facts:
An open Fire Policy issued to Paramount Shirt Manufacturing for
Php61,000 on the following: stocks, materials, supplies, furniture, fixture,
machinery, equipment contained on the 1st to 3rd floors. Insurance is for a
year
starting
OCTOBER
21,
1964. Paramount Shirt
is
debtor
of Pacific Banking amounting to Php800,000. Goods in policy were held in
trust by Paramount forPacific under thrust receipts. Fire broke out on 4
January 1964.
Pacific sent letter
of
demand to Oriental.
Insurance
Adjuster
ofOriental notified Pacific to submit proof of loss pursuant to Policy Condition
11. Pacific did not accede but asked Insurance Adjuster to verify records form
Bureau
of
Customs. Pacific filed
for
sum
of
money
against Oriental. Oriental alleged thatPacific prematurely filed a suit, for
neither filing a formal claim over loss pursuant to policy nor submitting any
proof of loss.
Trial court decided in favor of Pacific. Decision based on technicality.
The defences of lack of proof of loss and defects were raised for the 1st time.
(On presentation of evidences by Pacific, it was revealed there was violation
of Condition No.3, there were undeclared co-insurances under same property
Wellington, Empire, Asian. The only declared co-insurances were Malayan,
South Sea, and Victory. CA reversed decision. Concealment of other coinsurances is a misrepresentation and can easily be fraud.
Issues:
(1)Whether or not unrevealed con-insurances is a violation of Policy
Condition No.3
(2)Whether or not there was premature filing of action
Held:
(1) Yes. Policy Condition 3 provides that the insured must give notice of
any insurance already in effect or subsequently be in effect covering same
property being insured. Failure to do so, the policy shall be forfeited. Failure
to reveal before the loss of the 3 other insurances is a clear
misrepresentation or a false declaration. The material fact was asked for but
was not revealed. Representations of facts are the foundations of the
contract. Pacific itself provided for the evidences in trial court that proved
existence of misrepresentation.

(2) Yes. Policy Condition 11 is a sine qua non requirement for

maintaining action. It requires that documents necessary to prove and
estimate the loss should be included with notice of loss. Pacificfailed to
submit formal claim of loss with supporting documents but shifted the
burden to the insurance company. Failing to submit claim is failure
for insurance company to reject claim. Thus, there is a lack ofcause of
action to file suit.
Furthermore, the mortgage clause in the policy specifically provides
that the policy is invalidated by reasons of FRAUD, MISREPRESENTATION and
FRAUD. Concealment can easily be fraud or misrepresentation. The insured
PARAMOUNT is not entitled to proceeds. Moreso,Pacific as endorsee of
policy is not entitled.
Case No. 25
First Philippine International Bank vs. CA
Facts:
In 1987, the a manager of First Philippine International Bank (FPIB),
Mercurio Rivera, entered into a contract of sale with Demetrio Demetria and
Jose Janolo for the purpose of selling lands owned by the bank to Demetria
and Janolo. FPIB at that time is already under conservatorship and the
conservator assigned was LeonidaEncarnacion. Later, Demetria and Janolo
sold the land they bought to Carlos Ejercito. Later however, Encarnacion
sought the repudiation of the contracts entered into by Rivera. She asserted
that the bank is already in conservatorship hence the contracts are done
without authority; that as conservator, she is the one empowered to dispose
the assets of the bank.
Issue:
Whether or not the real property sales contracts entered into by a
property manager, like Rivera, are valid for being entered into with apparent
authority.
Held:
Yes. Rivera was acting with apparent authority. This can be gleaned
from the fact that Rivera has been advertised by the bank as the go-to guy
as far as disposition of assets is concerned. Rivera is the manager of the
property management department of the bank and as such is in charge of
the assets of the bank. Therefore, the fact that there is already a conservator
is of no moment. Rivera has been the active participant in all the
transactions involving the lands subject of the contracts. He was advertised

as such. The buyers therefore are not expected to know Rivera is not
supposed to be in charge of the selling of the properties.