4e Civ Rev

CREDIT TRANSACTIONS
CIVIL LAW REVIEW 2 –

4E
Case Digest
Civil Law Review 2 – 4E Credit
Transactions
TABLE OF CONTENTS
CASE TITLE PAGE NO.
1 | Page
Transactions
AGA, Greg Mari ...................................................................................5
21. TAN VS. VALDEHUEZA ........................................................................................5
22. JARDENIL VS. SOLAS .........................................................................................5
ANZO, Nilo Jr. M. .................................................................................6
23. RADIOWEALTH FINANCE COMPANY vs. SPOUSES VICENTE AND MA.
SUMILANG DEL ROSARIO. .......................................................................................6
24. CASA FILIPINA DEVELOPMENT CORPORATION vs. THE DEPUTY
EXECUTIVE SECRETARY, OFFICE OF THE PRESIDENT, MALACAÑANG,
MANILA, AND JOSE VALENZUELA, JR. ....................................................................7
G.R. NO. 96494 MAY 28, 1992 ...................................................................................7
ARPAFO, Josephine ...............................................................................8
25. SECURITY BANK AND TRUST COMPANY vs. REGIONAL TRIAL COURT OF
MAKATI, BR 61 ...........................................................................................................8
26. PNB vs. CA............................................................................................................9
ARQUILLO, Buena ...............................................................................11
27. THE ROYAL SHIRT FACTORY, INC. vs. CO BON TIC .......................................11
28. JOSUE SONCUYA vs. JUAN AZARRAGA, ET AL. .............................................11
BAUTISTA, Cecille Catherine ..................................................................13
29. RELUCIO vs. BRILLANTE-GARFIN ...................................................................13
30. STATE INVESTMENT HOUSE, INC. vs. COURT OF APPEALS ........................13
BAUTISTA, Rodmel L. ...........................................................................14
31. EASTERN SHIPPING LINES, INC. vs. COURT OF APPEALS ..........................14
32. CASTELO vs. COURT OF APPEALS .................................................................15
BUTRON, Princess May M. ......................................................................16
33. ATLANTIC GULF AND PACIFIC COMPANY OF MANILA, INC., vs. COURT OF
APPEALS, CARLITO D. CASTILLO, HEIRS OF CRISTETA CASTILLO and
CORNELIO CASTILLO .............................................................................................16
34. CRISMINA GARMENTS, INC., vs. COURT OF APPEALS and NORMA SIAPNO .
17
CUEVAS, May Zyra ...............................................................................19
35. PILIPINAS BANK vs. CA .....................................................................................19
36. TIO KHE CHO vs. CA.........................................................................................19
CUYEGKENG, ChrystenGiann C. ...............................................................20
37. A.C. ENTERPRISES, INC., vs. CONSTRUCTION INDUSTRY ARBITRATION
COMMISSION and DEE CONSTRUCTION CORPORATION ..................................20
38. PHILIPPINE NATIONAL BANK, vs.COURT OF APPEALS, CAPITOL CITY
DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F.
ABANTE MARKETING..............................................................................................21
2 | Page
Transactions
DAVID, SheiglaNerie V...........................................................................22
39. SENTINEL INSURANCE CO., INC. vs. CA.........................................................22
40. PHILAM vs. CA....................................................................................................24
DESOACIDO, JamesMareck .....................................................................24
41. SANTULAN vs. FULE .........................................................................................24
42. RUIZ vs. CANEBA...............................................................................................25
DIAZ, Karl Adrian ................................................................................26
43. JOVEN vs. VENTURANZA..................................................................................26
44. RCBC vs. CA.......................................................................................................28
45. BRIONES vs. CAMMAYO, ET AL........................................................................28
46. ANGEL JOSE WAREHOUSING CO., INC. vs. CHELDA ENTERPRISES and
DAVID SYJUECO ......................................................................................................29
DUBLADO, Jerika Joy K. ........................................................................30
47. PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES vs. IAC ....30
48. SANCHEZ vs. BUENVIAJE.................................................................................31
GUERRERO, Juan Paolo R. .....................................................................32
49. CA AGRO-INDUSTRIAL DEVELOPMENT CORP vs. THE HONORABLE COURT
OF APPEALS and SECURITY BANK AND TRUST COMPANY ...............................32
50. ATOK FINANCE CORPORATION vs. COURT OF APPEALS, SANYU
CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO
BERMUNDO and LEOPOLDO HALILI......................................................................33
ILAGAN, Kerstin Kaye L.........................................................................33
51. ONGSIAKO vs. THE WORLD WIDE INSURANCE AND SURETY CO., INC. ....33
52. CITIZENS SURETY AND INSURANCE COMPANY, INC. vs. COURT OF
APPEALS ..................................................................................................................34
LASCANO, Karell Marie .........................................................................35
53. DURAN vs. IAC ...................................................................................................35
54. CABUHAT vs. CA ................................................................................................36
LIMJAP, Michelle F. ..............................................................................37
55. A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION vs. COURT
OF APPEALS ...........................................................................................................37
56. DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS .......38
LUNAR, Lorena Lerma M. ......................................................................39
57. LAO vs. CA..........................................................................................................39
58. STATEMENT INVESTMENT HOUSE vs. CA ......................................................39
MAGBUHOS, Denise .............................................................................40
59. FLANCIA vs. COURT OF APPEALS ...................................................................40
3 | Page
Transactions
60. PREMIER DEVELOPMENT BANK vs. COURT OF APPEALS...........................42
MANUEL, Maxine ................................................................................43
61. DELA MERCED vs. GSIS ...................................................................................43
62. NAVARRO vs. LAGUNA DEVELOPMENT BANK ...............................................44
MORELOS, Michelle .............................................................................45
63. URSAL VS. COURT OF APPEALS .....................................................................45
64. RIZAL COMMERCIAL BANKING CORPORATION VS. COURT OF APPEALS .46
MUPAS, Janelle ..................................................................................47
65. RAMIREZ vs. COURT OF APPEALS ..................................................................47
66. PRUDENTIAL BANK vs. ALVIAR ........................................................................47
PADILLA, Ysabel Jean ...........................................................................48
67. UNION BANK OF THE PHILIPPINES vs. HON. COURT OF APPEALS ............48
68. DAVID MAGLAQUE vs. PLANTERS DEVELOPMENT BANK ............................49
PANGANIBAN, Muriel Ielaine B. ...............................................................50
69. NORTHERN MOTORS, INC. vs. COQUIA..........................................................50
70. PNB vs. RBL ENTERPRISES, INC. ....................................................................51
RECALDE, Alberto Jr., D. .......................................................................52
71. PAMECA WOOD TREATMENT PLANT, INC vs. COURT OF APPEALS and DBP
52
72. DIZON vs. GABORRO ........................................................................................53
RECENO, Pia Mitzi ...............................................................................54
73. BARRETTO vs. VILLANUEVA.............................................................................54
74. PHILIPPINE SAVINGS BANK vs. LANTIN ..........................................................56
RUTOR, Lyndon ..................................................................................57
75. A.C. RANSOM LABOR UNION-CCLU vs. NLRC................................................57
76. DBP vs. NLRC .....................................................................................................59
SACRO, MarielleKrizza ..........................................................................61
77. PHILIPPINE NATIONAL BANK vs. TERESITA CRUZ, ET.AL. ............................61
78. DPB vs. SANTOS ................................................................................................62
SAN JOSE, Riza Kristina E. .....................................................................63
79. ONG vs. COURT OF APPEALS ..........................................................................63
80. BANCO FILIPINO vs. NATIONAL LABOR RELATIONS COMMISSION ............64
TAMBAOAN, Joan Carmel S. ...................................................................65
81. PAJUYO vs. CA ...................................................................................................65
82. REPUBLIC vs. SANDIGANBAYAN .....................................................................66
4 | Page
Transactions
TEJANO, Sherina ................................................................................68
83. ADVOCATES FOR TRUTH IN LENDING, INC. vs. BANGKO SENTRAL
MONETARY BOARD.................................................................................................68
84. PHILIPPINE PHOSPHATE FERTILIZER CORP. vs. KAMALIG RESOURCES
INC. ...........................................................................................................................69
VALENCIA, CharlonReinier O. ..................................................................69
85. CITIBANK N.A. vs. SPS. LUIS AND CARMELITA CABAMONGAN and their sons
LUIS CABAMONGAN JR. and LITO CABAMONGAN ..............................................69
86. DURBAN APARTMENTS CORP. vs. PIONEER INSURANCE AND SURETY
CORP. .......................................................................................................................71
YOUNG, Wesley ..................................................................................72
87. SPS LADANGA VS ASENETA ...........................................................................72
YOUNG, Wesley ..................................................................................73
88. LAND BANK OF THE PHILIPPINES vs PAGAYATAN ........................................73
AGA, Greg Mari

21. TAN VS. VALDEHUEZA
G.R. NO. L- 38745, August 6, 1975
Castro, J.
FACTS: The plaintiff Lucia Tan instituted an action against the defendants
AradorValdehueza and RediculoValdehueza for (a) declaration of ownership and
recovery of possession of the parcel of land described in the first cause of action of
the complaint, and (b) consolidation of ownership of two portions of another parcel of
(unregistered) land described in the second cause of action of the complaint,
purportedly sold to the plaintiff in two separate deeds of pacto de retro. In its
decision, the CFI ordered the defendants to pay the plaintiff the amount of P1,200
and P300 for the release of mortgage debt and guaranty, respectively, with legal
interest of 6% as of August 15, 1966.
ISSUE: Whether or not the CFI erred in the imposition of legal interest on the
amounts subject of the equitable mortgages
HELD: Yes, the imposition is without legal basis. Article 1956 of the New Civil Code
states that "No interest shall be due unless it has been expressly stipulated in
writing." Furthermore, the plaintiff did not pray for such interest; her thesis was a
consolidation of ownership, which was properly rejected, the contracts being
equitable mortgages.
22. JARDENIL VS. SOLAS
G.R. NO. L-47878, July 24, 1942
Moran, J.
5 | Page
Transactions
FACTS: This is an action for foreclosure of mortgage. The mortgage deed includes a
stipulation that the defendant Solas will pay the interest of 12 percent on the loan of
P2, 400 from November 8, 1932 to March 31, 1934. The mortgagee, plaintiff
Jardenil, granted to Solas on the same date of execution of the deed of mortgage,
an extension of one year from the date of maturity within which to make payment,
without making any mention of any interest which the mortgagor should pay during
the additional period.
ISSUE: Is defendant-appellee bound to pay the stipulated interest only up to the

date of maturity as fixed in the promissory note, or up to the date payment is
effected?
HELD: Defendant-appellee has clearly agreed to pay interest only up to the date of
maturity, or until March 31, 1934. As the contract is silent as to whether after that
date, in the event of non-payment, the debtor would continue to pay interest, we
cannot in law, indulge in any presumption as to such interest; otherwise, we would
be imposing upon the debtor an obligation that the parties have not chosen to agree
upon. Article 1755 of the Civil Code provides that "interest shall be due only when it
has been expressly stipulated."
ANZO, Nilo Jr. M.

23. RADIOWEALTH FINANCE COMPANY vs. SPOUSES VICENTE AND MA.
SUMILANG DEL ROSARIO.
G.R. NO. 138739, JULY 6, 2000
PANGANIBAN, J.
FACTS:On March 2, 1991, Spouses Vicente and Maria Sumilang del Rosario
(herein respondents), jointly and severally executed, signed and delivered in favor of
Radiowealth Finance Company (herein petitioner), a Promissory Note for P138,948.
It is hereby agreed that if default be made in the payment of any of the installments
or late payment charges thereon as and when the same becomes due and payable
as specified above, the total principal sum then remaining unpaid, together with the
agreed late payment charges thereon, shall at once become due and payable
without need of notice or demand. Defendants defaulted on the monthly installments.
Despite repeated demands, they failed to pay their obligations under their PN. On
June 7, 1993, plaintiff filed a Complaint for the collection of a sum of money before
the RTC Manila. During the trial, Jasmer Famatico, the credit and collection officer
of plaintiff, presented in evidence the defendants' check payments, the demand
letter, the customer’s ledger card, another demand letter and Metropolitan Bank
dishonor slips. Famatico admitted that he did not have personal knowledge of the
transaction or the execution of any of these pieces of documentary evidence, which
had merely been endorsed to him.
ISSUE: Whether or not the obligation became due and demandable.
HELD: Yes. The act of leaving blank the due date of the first installment did not
necessarily mean that the debtors were allowed to pay as and when they could.
If this was the intention of the parties, they should have so indicated in the PN.
However, it did not reflect any such intention. The Note expressly stipulated that the
debt should be amortized monthly in installments of P11,579.00 for twelve
consecutive months. While the specific date on which each installment would be due
was left blank, the Note clearly provided that each installment should be payable
each month. Furthermore, it also provided for an acceleration clause and a late
6 | Page
Transactions
payment penalty, both of which showed the intention of the parties that the
installments should be paid at a definite date. Had they intended that the debtors
could pay as and when they could, there would have been no need for these two
clauses.Verily,thecontemporaneousandsubsequentacts of the parties manifest their i
ntention andknowledge that the monthly installments would be due and demandable
each month. In this case, the conclusion that the installments had already became
due and demandable is bolstered by the fact that respondents started paying
installments on the PN, even if the checks were dishonored by their drawee bank.
Neither by their avowals that the obligation had not yet matured nor by their claim
that a period for payment should be fixed by a court. Petitioner has established not
only a cause of action against the respondents, but also a due anddemandable
obligation. The obligation of the respondents had matured and they clearly defaulted
whentheir checks bounced.
24. CASA FILIPINA DEVELOPMENT CORPORATION vs. THE DEPUTY

EXECUTIVE SECRETARY, OFFICE OF THE PRESIDENT, MALACAÑANG,
MANILA, AND JOSE VALENZUELA, JR.
G.R. NO. 96494 MAY 28, 1992
MEDIALDEA, J.
FACTS: Private respondent Jose Valenzuela, Jr. filed a complaint against petitioner
Casa Filipina Development Corporation before the Office of Appeals, Adjudication
and Legal Affairs (OAALA) of the then Human Settlements Regulatory Commission
(now Housing and Land Use Regulatory Board) for its failure to execute and deliver
the deed of sale and transfer certificate of title. He alleged therein that he entered
into a contract to sell with petitioner for the purchase of a 120 sq. m. lot for a total
purchase price of P68,400.00 with P16,416.00 as downpayment and the balance of
P51,984.00 to be paid in 12 equal monthly installments of P4,915.16 with 24%
interest per annum starting September 3, 1984; that on October 7, 1985, he made
his full and final payment under O.R. No. 6266; that despite full payment of the lot,
petitioner refused to execute the necessary deed of absolute sale and deliver the
corresponding transfer certificate of title to him; that since October 1985, he had
offered to pay for or reimburse petitioner the expenses for the transfer of the title but
the latter refuses to accept the same; and that he was constrained to hire a lawyer
for a fee to protect his interests. For petitioner's defense, it contended that private
respondent's action is premature because of his failure to comply with the other
conditional requirements of their contract such as payment of transfer expenses, and
that had the latter paid said fees, it would have been very much willing to effect the
transfer of the title.
ISSUE: Whether or not the interest rate of 24% per annum is valid.
HELD: Yes. The ruling in Reformina v. Tomol, it must be underscored, deals

exclusively with cases where damages in the form of interest is due but no specific
rate has been previously set by the parties. In such cases, the legal interest of
12% per annum must be applied. In the present case, however, the interest rate of
24% per annum was mutually agreed upon by petitioner and private respondent in
their contract to sell — this was the interest rate imposed on private respondent for
the payment of the installments on the contract price and there is no reason why this
same interest rate should not be equally applied to petitioner which is guilty of
violating the reciprocal obligation. In Solid Homes Inc. v. Court of Appeals (170
SCRA 63 [1989]), a subdivision owner, in violation of their Offsetting Agreement,
incurred delay in the delivery of a house and lot to the supplier of the construction
7 | Page
Transactions
materials. On review, the issue of which rate of interest — the 6% per annum which
was then the legal interest or the stipulated interest rate of 12% — was raised.
It is, thus, evident that if a particular rate of interest has been expressly
stipulated by the parties, that interest, not the legal rate of interest, shall be applied.
ARPAFO, Josephine
25. SECURITY BANK AND TRUST COMPANY vs. REGIONAL TRIAL COURT OF
MAKATI, BR 61
G.R. NO. 113926, APRIL 30, 1991
PONENTE
FACTS: Private respondent MagtanggolEusebio executed separate promissory

notes in favor of petitioner Security Bank and Trust Co. (SBTC) with a stipulated
interest of 23% per annum. On all of the promissory notes, private respondent Leila
Ventura had signed as co-maker.
Eusebio failed and refused to settle the balance payable and by reason of
which a collection case was filed in court by petitioner SBTC. The court a quo
rendered a judgment in favor of petitioner SBTC and the dispositive portion states
that the interest due should only be 12% annum.
ISSUE: Whether or not the 23% rate of interest per annum agreed upon by petitioner
bank and respondents is allowable and not against the Usury Law.
HELD: Yes. The rate of interest was agreed upon by the parties freely. Significantly,
respondent did not question that rate. It is not for respondent court a quo to change
the stipulations in the contract where it is not illegal. Furthermore, Article 1306 of the
New Civil Code provides that contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. We find no valid
reason for the respondent court a quo to impose a 12% rate of interest on the
principal balance owing to petitioner by respondent in the presence of a valid
stipulation. 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.
Hence, only in the absence of a stipulation can the court impose the 12% rate of
interest.
The promissory notes were signed by both parties voluntarily. Therefore,

stipulations therein are binding between them. Respondent Eusebio, likewise, did
not question any of the stipulations therein. In fact, in the Comment filed by
respondent Eusebio to this court, he chose not to question the decision and instead
expressed his desire to negotiate with the petitioner bank for "terms within which to
settle his obligation."
8 | Page
Transactions
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo,

is hereby AFFIRMED with the MODIFICATION that the rate of interest that should be
imposed be 23% per annum.
26. PNB vs. CA

G.R. NO. 88880, APRIL 30, 1991
PONENTE
FACTS: In July 1982, private respondent Ambrosio Padilla applied for, and was
granted by petitioner PNB, a credit line of P1.8 million, secured by a real estate
mortgage, for a term of two (2) years, with 18% interest per annum. Private
respondent executed in favor of the PNB a Credit Agreement, two (2) promissory
notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract.
The instruments that are in contention are the Promissory Notes and the Real Estate
Mortgage Contract which uniformly authorized the PNB to increase the stipulated
18% interest per annum “within the limits allowed by law at any time depending on
whatever policy it [PNB] may adopt in the future; Provided, that, the interest rate on
this note shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board.”
Private respondent renewed his credit line on July 4, 1984 with a request that
the "increase of the interest rate of my mortgage loan be from 18% to 21%." PNB
replied a month thereafter and said that such request cannot be granted as "Existing
Loan Policies of the bank requires 32% for loan of more than one year." Padilla
thereafter reiterated his request to which PNB replied that his interest rate has now
increased to 41% per annum.
Padilla protested the increase of his interest rates through another letter to
PNB and like rubbing salt on his wound, the petitioner informed him on October 29,
1984, that “the interest rate on your outstanding line/loan is hereby adjusted from
41% p.a. to 48% p.a. Left with no recourse, private respindent filed a complaint
against PNB in the RTC praying that the latter declare the increases in interest rate
as illegal, not valid nor binding. The RTC of Manila ruled in favor of PNB dismissing
the complaint because the increases of interest were properly made.
The private respondent appealed to the Court of Appeals and the CA

reversed the trial court.
9 | Page
Transactions
ISSUE: Whether the bank, within the term of the loan which it granted to the private
respondent, may unilaterally change or increase the interest rate stipulated therein at
will and as often as it pleased.
HELD: No. Although Section 2, P.D. No. 116 of January 29, 1973, authorizes the
Monetary Board to prescribe the maximum rate or rates of interest for loans or
renewal thereof and to change such rate or rates whenever warranted by prevailing
economic and social conditions, it expressly provides that “such changes shall not
be made oftener than once every twelve months.”
In this case, PNB, over the objection of the private respondent, and without
authority from the Monetary Board, within a period of only four (4) months, increased
the 18% interest rate on the private respondent’s loan obligation three times. Those
increases were null and void, for if the Monetary Board itself was not authorized to
make such changes oftener than once a year, even less so may a bank which is
subordinate to the Board.
Secondly, while the private respondent-debtor did agree that the interest rate
may be increased during the life of the contract “to such increase within the rate
allowed by law, as the Board of Directors of the MORTGAGEE may prescribe” or
“within the limits allowed by law," no law was ever passed in July to November 1984
increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% (per
annum), and no documents were executed and delivered by the debtor to effectuate
the increases.
Furthermore, the unilateral action of the PNB in increasing the interest rate on
the private respondent’s loan, violated the mutuality of contracts ordained in Article
1308 of the Civil Code.“ART. 1308. The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them.”
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on their
essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties, is
void. It would have invested the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal footing, the weaker party’s (the
debtor) participation being reduced to the alternative “to take it or leave it”.
The increases imposed by PNB also contravene Art. 1956 of the Civil Code
which provides that “no interest shall be due unless it has been expressly stipulated
in writing.”
The debtor herein never agreed in writing to pay the interest increases fixed by the
PNB beyond 24% per annum, hence, he is not bound to pay a higher rate than
10 | P a g e
Transactions
that.That an increase in the interest rate from 18% to 48% within a period of four (4)
months is excessive, as found by the Court of Appeals, is indisputable.
ARQUILLO, Buena
27. THE ROYAL SHIRT FACTORY, INC. vs. CO BON TIC
G.R. NO. L-6313, MAY 14, 1954
MONTEMAYOR, J.
FACTS:The defendant had 9 days from delivery of the shoes to make his choice of
the two alternatives, that is to consider the sale of the 350 pairs of shoes closed at
the flat rate of P7 per pair, sales tax included, or, at the expiration of 9 days to pay
for the shoes sold at P8 per pair, and to return the remaining unsold ones to plaintiff.
At the expiration of the 9 days stipulated, failed to return the shoes, and actually
began making partial payments on account of the purchase price agreed upon.
ISSUE:Whether it was an outright sale as contended by the plaintiff, or a sale merely

on consignment.
HELD:It was a straight sale at the rate of P7 per pair of shoes. It was evidently not
only accepted by the defendant but on it he noted down in his own handwriting the
different partial payments of P500, P528 and lastly of the controversial P420 by
check. e obviously accepted the straight sale to him on credit of the whole 350 pairs
of shoes for P2,450 and made partial payments on account thereof. if the sale had
been on consignment, a stipulation as to the period of time for the return of the
unsold shoes should have been made; but evidently that had not been done and
defendant kept the shoes unsold more or less indefinitely, but giving the same
excuse that he could not return them to the plaintiff because he did not know where
to return them.
28. JOSUE SONCUYA vs. JUAN AZARRAGA, ET AL.

G.R. No. L-43579, JUNE 14, 1938
DIAZ, J.
FACTS: By reason of the proceedings had in case No. 11489 of the Court of First
Instance of Manila, entitled "Testate Estate of the Deceased Juan Azarraga y
Galvez", the defendants surnamed Azarraga became indebted to Attorney
LeodegarioAzarraga, who represented them in said case, for attorney's fees. parties
also agree that the parcels of land located in Bay-ang, New Washington, Capiz, P. I.,
are specially mortgaged and subject to the payment of the fees of said attorney of
the testate estate, which fees shall be fixed by the court, and said attorney may hold
said lands under no obligation to pay any rent until his fees shall have been fully
paid: Provided, however, that if, at the end of the period of five years from the date of
the approval of this project of partition, said parties shall not have been able to pay in
full the fees of said attorney, then said parcels of land, Nos. 81, 82 and 83, located in
Bay-ang, shall be definitely adjudicated to said attorney, Mr. LeodegarioAzarraga, as
his property, in payment of his fees, and all sums which he may have received from
time to time from the interested parties in these testate proceedings, within the said
period, shall be returned to said parties: Provided, further, that in case said
interested parties in the testate proceedings shall be able to pay in full the fees of the
11 | P a g e
Transactions
attorney for the estate before the expiration of said period of five years, then said
parcels of land situated in Bay-ang shall continue in the possession of said attorney
for an additional period of three years from the date of the last payment in the event
that said attorney may have kept livestock in said lands.
About nine months after the court approved, aid attorney decided to sell and
did sell to the plaintiff his credit against the defendants for the sum of P2,500 with all
the rights inherent therein in accordance with the agreements and stipulations
appearing in said document.
When the plaintiff became the creditor of the defendants Azarraga by virtue of
the sale and cession which Attorney Azarraga had made in his favor of the rights
which said attorney had, he allowed the defendants an extension of a few years over
the five years with in which they would have to pay him his credit, or up to February
16, 1926, but with the express condition that they would pay him interest at the rate
of 12 per cent per annum, from August 30, 1924 This term was later extended to
April 26, 1926 on the request of the defendants.
Aside from the above transactions between the plaintiff and the defendants
Azarraga, one of the latter, Joaquin Azarraga, executed in favor of the former, the
deed known as Exhibit E of the record and dated October 14, 1922, by which he sold
to the plaintiff, for the sum of P4,000, his portion of the inheritance in the testate
estate of the late Juan Azarraga y Galvez, consisting of an undivided tract of land.
By virtue of the transfer made to him by Joaquin Azarraga and also of the
terms conditions enumerated in said Exhibit A, the plaintiff took possession of
practically the whole land of the defendants Azarraga.
ISSUES:1. Was the contract entered into by-the Azarraga brothers, the defendants
herein, with Attorney LeodegarioAzarraga from whom the plaintiff derived his right, a
sale with pacto de retro, or an assignment in payment of a debt, or was it an
antichresis partaking of the nature of what was anciently known as pactocomisorio,
or a mortgage, or was it merely a loan with real estate security?
2. Was the contract executed by the defendant Joaquin Azarraga, on the one hand,
and the plaintiff, on the other, embodied in Exhibit E, a sale with pacto de retro or
simply a loan with real estate security?
HELD: 1. It is considered as a antichresis or pactocomisorio — not an assignment in

payment of a debt, or a sale with pacto de retro because there is nothing in Exhibit A
to indicate that such was the intention of the defendants Azarraga or, at least, that
they bound themselves to deliver the land in question to the plaintiff and that the
latter should pay them the value thereof; and because there was what may be
considered the resolutory condition of five years — was converted into a simple loan
by the decisive circumstance that plaintiff chose to collect thereafter, and the obligors
agreed to pay him, 12 per cent annual interest. It is only in contracts of loan, with or
without guaranty, that interest may be demanded.
2. Considering the various novations which, as has been said, had taken place and
had been extended not only to the Azarraga brothers with respect to their obligation
of P3,000 or P2,700, but also to the defendant Joaquin Azarraga as regard his
12 | P a g e
Transactions
personal debt of P4,000. He novated it on February 16, 1926, considering it from the
time on as a simple loan, inasmuch as on that date he began to charge the said
defendant 12 per cent annual interest with the latter's assent and confirmity
BAUTISTA, Cecille Catherine
29. RELUCIO vs. BRILLANTE-GARFIN
G.R. NO. 76518, JULY 13, 1990
FELICIANO, J.
FACTS:Private respondent Zeida B. Brillante-Garfin filed a complaint for specific

performance with damages against petitioner Irene P. Relucio, to compel the latter to
execute, in compliance with the Contract to Buy and Sell, a final deed of sale in favor
of the former over two (2) residential subdivision lots in the Mariano Village
Subdivision, Naga City. Private respondent alleged that the lots, which have a total
contract price of P10,800.00, have already been paid for, as she had already paid
P200.00 as down payment, and had subsequently completed payment of 128 equal
monthly installments of P89.45 each amounting to P11,450.00; that as the law allows
the charging of interest only as monetary interest or as compensatory interest, none
of which have obtained in her case, as she had never incurred in delay in the
payment of installments due, the stipulated interest of six percent (6%) per annum
on the outstanding balance is null and void; and that the amount of 650.00
representing overpayment be returned to her.
Petitioner alleged that private respondent is obliged to pay interest on the

installment payments of the unpaid outstanding balance even if paid on their "due
dates" per schedule of payments; that private respondent had actually been in
arrears in the amount of P4,269.40, representing such interest as of June 1979,
which therefore entitled petitioner to cancel the contract in question.
ISSUE:Whether or not petitioner has the right to rescind the contract for private
respondent's continued refusal to pay the monthly installments on the contract price
HELD:No. Vendor and vendee are legally free to stipulate for the payment of either
the cash price of a subdivision lot or its installment price. Should the vendee opt to
purchase a subdivision lot via the installment payment system, he is in effect paying
interest on the cash price, whether the fact and rate of such interest payment is
disclosed in the contract or not. The contract for the purchase and sale of a piece of
land on the installment payment system in the case at bar is not only quite lawful; it
also reflects a very wide spread usage or custom in our present day commercial life.
Despite private respondent's failure to fully pay the stipulated price of the two lots in
question, petitioner, however, could not validly rescind the contract not being lawfully
entitled to do so. Petitioner failed to rebut private respondents' allegations that the
former had failed to introduce required improvements in the subdivision.
30. STATE INVESTMENT HOUSE, INC. vs. COURT OF APPEALS

G.R. NO. 90676, JUNE 19, 1991
FELICIANO, J.
FACTS:Respondent spouses Rafael and Refugio Aquino pledged certain shares of

stock to petitioner State Investment House, Inc. in order to secure a loan of
P120,000.00 designated as Account No. IF-82-0631-AA. Prior to the execution of the
pledge, respondent-spouses, as an accommodation to and together with the
spouses Jose and Marcelina Aquino, signed an agreement (Account No. IF-82-1379-
13 | P a g e
Transactions
AA) with petitioner State for the latter's purchase of receivables amounting to
P375,000.00. When Account No. IF-82-0631-AA fell due, respondent spouses paid
the same partly with their own funds and partly from the proceeds of another loan
which they obtained also from petitioner State designated as Account No.
IF-82-0904-AA. This new loan was secured by the same pledge agreement executed
in relation to Account No. IF-820631-AA. When the new loan matured, State
demanded payment. Respondents expressed willingness to pay, requesting that
upon payment, the shares of stock pledged be released. Petitioner State denied the
request on the ground that the loan which it had extended to the spouses Jose and
Marcelina Aquino (Account No. IF-82-1379- AA) had remained unpaid.
When respondent spouses learned that their shares of stock pledged with
State will be sold at public auction, they filed a case alleging that the intended
foreclosure sale was illegal because from the time the obligation under Account No.
IF-82-0904-AA became due, they had been able and willing to pay the same, but
petitioner had insisted that respondents pay even the loan account of Jose and
Marcelina Aquino which had not been secured by the pledge.
ISSUE: Whether or not respondent spouses were in delay, if not, what should they
have been held liable for in accordance with law
HELD:No. Since respondent Aquino spouses were held not to have been in delay,
they were properly liable only for: (a) the principal of the loan or P110,000.00; and (b)
regular or monetary interest in the amount of seventeen percent (17%) per annum.
They were not liable for penalty or compensatory interest, fixed by the promissory
note in Account No. IF-82-0904-AA at two percent (2%) per month or twenty-four
(24%) per annum.
However, the fact that the respondent Aquino spouses were not in default did
not mean that they, as a matter of law, were relieved from the payment not only of
penalty or compensatory interest at the rate of twenty-four percent (24%)per annum
but also of regular or monetary interest of seventeen percent (17%) per annum. The
regular or monetary interest continued to accrue under the terms of the relevant
promissory note until actual payment is effected.
BAUTISTA, Rodmel L.
31. EASTERN SHIPPING LINES, INC. vs. COURT OF APPEALS
G.R. NO. 97412 JULY 12, 1994
VITUG, J.
FACTS:Eastern Shipping Lines [Eastern] is a common carrier engaged in

transportation of goods. It was supposed to deliver goods to the consignee wherein
the latter’s goods was covered by marine insurance policy by Mercantile Insurance
Company, Inc. [Mercantile]. The goods upon reaching the consignee were damaged
and thus claimed benefits from Mercantile which made the latter be subrogated to
the case at bar. Mercantile filed damage against Eastern which was granted by the
lower court with the imposition of 12% interest. Eastern contends that neither the
contract was explicit in imposing the rate of interest, thus, at most, the interest after
the judgment should have only been 6%.
ISSUE:Whether the imposition of 12% interest by the lower court was justified.
14 | P a g e
Transactions
HELD: No. In deciding the case, the Court laid down principle with regard to the
imposition of interest for the payment of damages, to wit:
“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 [Art 1956
NCC]. 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.
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. 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, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.”
32. CASTELO vs. COURT OF APPEALS

G.R. NO. 96372 MAY 22, 1995
FELICIANO, J.
FACTS:Petitioner Castelo, et. al. entered a “Deed of Conditional Sale” of a real

property located in Espana, Sampaloc, Manila in 1982 with private respondent Dela
Rosa. The latter gave an initial payment and the rest to be paid at a certain period.
Dela Rosa was not able to pay such balance. Case was filed in court and petitioners
won in the lower court that rescinded the contract. But the appellate court ruled in
favor of Dela Rosa. The main issue when the case was elevated with the high court
is to what was the proper rate of interest to be imposed and how should it be
computed. The terms of the contract stated as follows:
“xxxxxxxxx
b.) The balance of P163,408.00 to be paid on or before December 31, 1982
without interest and penalty charges;
c.) Should the said balance [remain unpaid] by the VENDEE, the VENDORS
hereby agree to give the VENDEE a grace period of SIX (6) months or up to
June 30, 1983 to pay said balance provided that interest at the rate of 12%
per annum shall be charged and 1% penalty charge a month shall be
imposed on the remaining diminishing balance.”
15 | P a g e
Transactions
ISSUE:Whether the contract fully states the intention of the parties with regard to the
proper computation of interest in case of defaulted payments.
HELD: Yes. The Court held,

“The stipulation in the "Deed of Conditional Sale" requiring the
payment of interest is not unlawful. The validity of the contract of conditional
sale itself has not been put to question by private respondent dela Rosa and
there is nothing in the record to suggest that the same may be contrary to
law, morals, good custom, public order or public policy. Accordingly, the
contractual stipulation must be regarded as binding and enforceable as the
law between the parties.
X xx
Summarizing the import of the contractual stipulation of the parties:

(1) During the period from 1 January 1983 up to 30 June 1983, private
respondent vendee dela Rosa was bound to pay interest at the rate of
12% per annum on the unpaid balance of P163,408.00.
(2) Commencing on 1 July 1983, and until full payment, dela Rosa was
bound to pay interest at the rate of 12% per annum plus another 12% per
annum (or 1% penalty charge a month), or a total of 24% per annum to be
computed on the "remaining diminishing [unpaid] balance."
BUTRON, Princess May M.

33. ATLANTIC GULF AND PACIFIC COMPANY OF MANILA, INC., vs. COURT
OF APPEALS, CARLITO D. CASTILLO, HEIRS OF CRISTETA CASTILLO and
CORNELIO CASTILLO
G.R. NOS. 114841-42, AUGUST 23, 1995
REGALADO, J.
FACTS: In 1982, petitioner company commenced the construction of a steel

fabrication plant in Bauan, Batangas, necessitating dredging operations at the
Batangas Bay in an area adjacent to the real property of private respondents. As an
offshoot of said dredging operations, an action for damages against herein petitioner.
Private respondents alleged that during the on-going construction of its steel
and fabrication yard, petitioner's personnel and heavy equipment trespassed into the
adjacent parcels of land belonging to private respondents without their consent.
These heavy equipment damaged big portions of private respondents' property.
They further alleged that as a result, the sea silt and water overflowed and were
deposited upon their land. Consequently, the said property which used to be
agricultural lands principally devoted to rice production and each averaging an
annual net harvest of 75 cavans, could no longer be planted with palay as the soil
became infertile, salty, unproductive and unsuitable for agriculture.
Petitioner company denied all the allegations of private respondents and

contended that its personnel and equipment had neither intruded upon nor occupied
any portion of private respondents' landholdings.
16 | P a g e
Transactions
The trial court ruled in favor of the private respondents and ordered petitioner-
company to pay damages. Upon appeal to the Court of Appeals, the appellate court
affirmed the decision with modification.
ISSUE: Whether or not the damages awarded were unconscionable, unreasonable

and excessive, clearly not warranted under Articles 20 and 2176 of the Civil Code.
HELD: The evidence on record indubitably support the findings of the trial and
appellate courts that petitioner company is liable for the destruction of the property of
herein private respondents and consequently entitle the latter to an award of the
damages prayed for. Such conclusions and findings of fact by the lower courts are
entitled to great weight on appeal and will not be disturbed except for strong and
cogent reasons, none of which, however, obtain in the case at bar. The fact that the
appellate court adopted the findings of the trial court, as in this case, makes the
same binding upon the Supreme Court, for the factual findings of said appellate
court are generally binding on the latter. For that matter the findings of the Court of
Appeals by itself, and which are supported by substantial evidence, are almost
beyond the power of review by the Supreme Court.
However, this Court finds that respondent Court of Appeals committed a

reversible error of law in increasing the amount of damages awarded to private
respondents by the court a quo.
Respondent appellate court exceeded its jurisdiction when it modified the

judgment of the trial court by increasing the award of damages in favor of private
respondents who, in the first place, did not interpose an appeal therefrom. This being
the case, they are presumed to be satisfied with the adjudication made by the lower
court. As to them, the judgment of the court below may be said to have attained
finality.
34. CRISMINA GARMENTS, INC., vs. COURT OF APPEALS and NORMA

SIAPNO
G.R. NO. 128721 MARCH 9, 1999
PANGANIBAN, J.
FACTS: During the period from February 1979 to April 1979, herein petitioner, which
was engaged in the export of girls' denim pants, contracted the services of the
respondent, the sole proprietress of the D'Wilmar Garments, for the sewing of
20,762 pieces of assorted girls’s denims. The petitioner was obliged to pay in the
total amount of P76,410.00. The respondent sewed the materials and delivered the
same in good order condition. At first, the respondent was told that the sewing of
some of the pants was defective. She offered to take delivery of the defective pants.
However, she was later told by petitioner's representative that the goods were
already good. She was told to just return for her check of P76,410.00. However, the
petitioner failed to pay her the aforesaid amount. This prompted her to hire the
services of counsel who wrote a letter to the petitioner demanding payment of the
aforesaid amount within ten (10) days from receipt thereof. A letter was sent to
respondent’s counsel, averring, inter alia, that the pairs of jeans sewn by her,
numbering 6,164 pairs, were defective and that she was liable to the [petitioner] for
the amount of P49,925.51 which was the value of the damaged pairs of denim pants
and demanded refund of the aforesaid amount.
17 | P a g e
Transactions
Thereafter, the respondent filed her complaint against the petitioner for the
collection of the principal amount of P76,410.00. The trial court ruled in favor of the
respondent. The Court of Appeals affirmed said decision except for the award of
attorney’s fees which was deleted.
ISSUE: Whether or not it is proper to impose interest at the rate of twelve percent
(12%) per annum for an obligation that does not involve a loan or forbearance of
money in the absence of stipulation of the parties.
HELD: No. The Court sustained petitioner's contention that the interest rate should
be computed at six percent (6%) per annum.
In Eastern Shipping Lines, Inc. v. Court of Appeals,the Court gave the

following guidelines for the application of the proper interest rates:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

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.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. 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.
2. 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. 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 . . . the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to forbearance of
credit.
Because the amount due in this case arose from a contract for a piece of
work, not from a loan or forbearance of money, the legal interest of six percent (6%)
per annum should be applied. Furthermore, since the amount of the demand could
be established with certainty when the Complaint was filed, the six percent (6%)
18 | P a g e
Transactions
interest should be computed from the filing of the said Complaint. But after the
judgment becomes final and executory until the obligation is satisfied, the interest
should be reckoned at twelve percent (%12) per year.
CUEVAS, May Zyra

35. PILIPINAS BANK vs. CA
G.R. NO. 97873, AUGUST 12, 1993
QUIASON, J.
FACTS: Respondent filed a complaint against petitioner, alleging (1) that petitioner
and Greatland Realty Corporation executed a "Dacion en Pago," wherein it
conveyed to petitioner several parcels of land in consideration of the sum of
P7,776,335.69; (2) that Greatland assigned P2,300,000.00 out of the total
consideration of the Dacion en Pago, in favor of private respondent; and (3) that
notwithstanding her demand for payment, petitioner in bad faith, refused and failed
to pay the said amount assigned to her.
Upon appeal, the RTC and the CA, ordered Pilipinas Bank to pay her the P2,
300,000.00 with legal interest. The Court of Appeals stated that the action involves
forbearance of money, as the principal award was the overdue debt. Applying
Central Bank Circular No. 416, the Court of Appeals held that the applicable rate of
interest is 12% per annum. Petitioner argues that the applicable law is Article 2209
of the Civil Code, not the Central Bank Circular No. 416, said article saying that if the
obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.
ISSUE: What is the applicable rate of interest?
HELD: P.D. No. 116, the Monetary Board of Central Bank issued Central Bank
Circular No. 416, which provides: that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in
the absence of express contract as to such rate of interest, shall be twelve (12%) per
cent per annum.
Circular No. 416, fixing the rate of interest at 12% per annum, deals with (1)
loans; (2) forbearance of any money, goods or credit; and (3) judgments. Judgments
spoken of and referred to in Circular No. 416 are "judgments in litigation involving
loans or forbearance of any money, goods or credits.
Any other kind of monetary judgment which has nothing to do with nor
involving loans or forbearance of any money, goods or credits does not fall within the
coverage of the said law for it is not, within the ambit of the authority granted to the
Central Bank." The amount to be paid was a portion of the P7,776,335.69 which
petitioner was obligated to pay Greatland as consideration for the sale of several
parcels of land. The amount of P2,300,000.00 was assigned by Greatland in favor of
private respondent. The said obligation therefore arose from a contract of purchase
and sale and not from a contract of loan or mutuum. Hence, what is applicable is the
rate of 6% perannum as provided in Article 2209 of the Civil Code of the Philippines
and not the rate of 12% per annum as provided in Circular No. 416
36. TIO KHE CHO vs. CA
19 | P a g e
Transactions
G.R. NO. 76101-02, SEPTEMBER20,1991
FERNAN, C.J
FACTS: Petitioner shipped bags of imported fishmeals and insured thesame

with respondent insurance company Eastern Assurance &SuretyCorp (EASCO).
During transit, the bags were found out to be damaged thus rendering the fishmeals
useless. Petitioner filed a claim before theEASCO which denied the same, prompting
the former to sue the latter.
The trial court rendered judgment ordering EASCO and Far Eastern Shipping
to pay petitioner solidarily the sum of unpaid premiums with interest at the legal rate
from the filing of the complaint. The sheriff enforcing the writ of execution reportedly
fixed the legal rate of interest at twelve (12%). Respondent moved to quash the writ
alleging that the legal interest to be computed should be six (6%) per cent per
annum in accordance with Article 2209 of the Civil Code and not twelve (12%) per
cent as insisted upon by petitioner's counsel. The CA reduced the interest to 6% per
annum.
ISSUE:What is the applicable rate of interest?
HELD: Petitioner maintains that not only is it unjust and unfair but it is also contrary
to the correct interpretation of the fixing of interest rates under Sections 243 and 244
of the Insurance Code. And since petitioner's claims is based on an insurance
contract, then it is the Insurance Code which must govern and not the Civil Code.
The court stated that the Insurance Code is not pertinent to the instant case.
It applies only when the court finds an unreasonable delay or refusal in the payment
of the claims.
Neither does Circular No. 416 of the Central Bank which raised the legal rate
of interest from six (6%) to twelve (12%) per cent apply to the case at bar as by the
petitioner. The adjusted rate mentioned in the circular refers only to loans or
forbearances of money, goods or credits and court judgments thereon but not to
court judgments for damages arising from injury to persons and loss of property
which does not involve a loan.
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz the Court declared
that the legal rate of interest is six (6%) per cent per annum, and not twelve (12%)
per cent, where a judgment award is based on an action for damages for personal
injury, not use or forbearance of money, goods or credit. In the same vein, the Court
held in GSIS vs. Court of Appeals, that the rates under the Usury Law (amended by
P.D. 116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article 2209 of the
Civil Code. And in the light of the fact that the contending parties did not allege the
rate of interest stipulated in the insurance contract, the legal interest was properly
pegged by the Appellate Court at six (6%) per cent.
CUYEGKENG, ChrystenGiann C.
37. A.C. ENTERPRISES, INC., vs. CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION and DEE CONSTRUCTION CORPORATION
G.R. NO. 101444 MAY 9, 1995
QUIASON, J.
20 | P a g e
Transactions
FACTS: Private respondent in its Second Partial Motion for Reconsideration insists
that it is entitled to interest at the rate of 12% per annum on the monetary award
given them by the Construction Industry Arbitration Commission (CIAC). It contends
that under Executive Order No. 1008 dated February 4, 1985 and the Rules of
Procedure Governing Construction Arbitration, arbitral awards are final and
"inappealable" and pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals, 234 SCRA 78 (1994), monetary awards in all judgments that became final
and executory, regardless of the nature of the obligation, shall bear legal interest of
12% per annum. The obligation that was breached in the arbitration case at bench
was not based on a loan or forbearance of money, and therefore was not covered by
Central Bank Circular No. 416.
In Reformina v. Tomol, Jr., 139 SCRA 260 (1985), the Supreme Court made it
clear that the award of legal interest at 12% per annum under said Central Bank
Circular shall be adjudged only in cases involving the loan or forbearance of money.
However, in Eastern Shipping Lines, Inc., we held that when the judgment awarding
a sum of money becomes final and executory, the monetary award shall earn
interest at 12% per annum from the date of such finality until its satisfaction,
regardless of whether the case involves a loan or forbearance of money. The reason
is that this interim period is deemed to be by then equivalent to a forbearance of
credit.
ISSUE:Whether or not legal interest of 12% per annum shall set in from the moment
a judgment has become “final and inappealable”
HELD: No. It appears that private respondent equated, and wrongly at that, the term
"final and inappealable" as used in E.O. No. 1008 and the Rules of Procedure
Governing Construction Arbitration with the term "final and executory" as used
in Eastern Shipping Lines, Inc. A "final and inappealable" judgment is not the same
as a "final and executory" one. The former becomes executory only as in the case of
an award by the CIAC after the lapse of 30 days from receipt of notice thereof and
no petition for review to the Supreme Court is made (Rules of Procedure Governing
Construction Arbitration, Art. XVI, Sec. 1).The CIAC award did not become "final and
executory" until after service of a copy of the Resolution dated April 8, 1992 of this
Court, denying the motion for reconsideration.
38. PHILIPPINE NATIONAL BANK, vs.COURT OF APPEALS, CAPITOL CITY

DEVELOPMENT BANK, PHILIPPINE BANK OF COMMUNICATIONS, and F.
ABANTE MARKETING
G.R. NO. 107508 APRIL 25, 1996
KAPUNAN, J.
FACTS: A check was issued by the Ministry of Education and Culture payable to F.
Abante Marketing. This check was drawn against Philippine National Bank. F.
Abante, a client of Capitol City Development Bank (Capitol), deposited the
questioned check in its savings account with said bank. In turn, Capitol deposited the
same in its account with the Philippine Bank of Communications (PBCom) which, in
turn, sent the check to petitioner for clearing. Petitioner cleared the check as good
21 | P a g e
Transactions
and, thereafter, PBCom credited Capitol's account for the amount stated in the
check.
However, on October 19, 1981, petitioner returned the check to PBCom and
debited PBCom's account for the amount covered by the check, the reason being
that there was a "material alteration" of the check number. PBCom then proceeded
to debit the account of Capitol for the same amount, and subsequently, sent the
check back to petitioner. Petitioner, however, returned the check to PBCom. Capitol
could not, in turn, debit F. Abante Marketing's account since the latter had already
withdrawn the amount. Capitol demanded the re-crediting of the amount. PBCom
followed suit from petitioner. The parties demanded the re-crediting of the amount.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional
Trial Court of Manila against PBCom which, in turn, filed a third-party complaint
against petitioner for reimbursement/indemnity with respect to the claims of Capitol.
Petitioner, on its part, filed a fourth-party complaint against F. Abante Marketing.
Regional Trial Court ordered PBCom to re-credit or reimburse plaintiff Capitol

City Development Bank the amount of P97,650.00, plus interest of 12 percent and
ordered to pay Capitol City Development Bank attorney's fees in the amount of Ten
Thousand (P10,000.00) Pesos; but PBCom is entitled to reimbursement/indemnity
from PNB; and Philippine National Bank to be, in turn reimbursed or indemnified by
F. Abante Marketing for the same amount.
Court of Appeals modified by exempting PBCom from liability to plaintiff-

appellee for attorney's fees and ordering PNB to honor the check for P97,650.00,
with interest as declared by the trial court, and pay plaintiff-appellee attorney's fees
of P10,000.00. Petitioner appealed.
ISSUE: Whether or not the award of attorney's fees is proper.
HELD: No. The amount of P10,000.00 as attorney's fees was deleted. The trial court
and the Court of Appeals failed to explicitly state the rationale for the said award. In
Consolidated Bank & Trust Corporation (Solidbank) v. Court of Appeals the Supreme
Court ruled that: the award of attorney's fees lies within the discretion of the court
and depends upon the circumstances of each case. However, the discretion of the
court to award attorney's fees under Article 2208 of the Civil Code of the Philippines
demands factual, legal and equitable justification, without which the award is a
conclusion without a premise and improperly left to speculation and conjecture. It
becomes a violation of the proscription against the imposition of a penalty on the
right to litigate. The reason for the award must be stated in the text of the court's
decision. If it is stated only in the dispositive portion of the decision, the same shall
be disallowed. As to the award of attorney's fees being an exception rather than the
rule, it is necessary for the court to make findings of fact and law that would bring the
case within the exception and justify the grant of the award.
DAVID, SheiglaNerie V.
39. SENTINEL INSURANCE CO., INC. vs. CA
G.R. NO. L-52482, FEBRUARY 23, 1990
REGALADO, J.
22 | P a g e
Transactions
FACTS: Petitioner Sentinel Insurance Co., Inc., was the surety in a contract of
suretyship entered into with NemesioAzcueta, Sr., doing business under 'Malayan
Trading’. Both of them bound themselves, 'jointly and severally, to fully and
religiously guarantee the compliance with the terms and stipulations of the credit line
granted by private respondent Rose Industries, Inc., in favor of Azcueta, in the
amount of P180,00.00. Between November 23 to December 23, 1974, Azcueta
made various purchases of tires, batteries and tire tubes from the private respondent
but failed to pay, prompting the latter to demand payment but because Azcueta failed
to settle his accounts, the case was referred to the Insurance Commissioner who
invited the attention of the petitioner on the matter and the latter cancelled the
Suretyship Agreement on May 13, 1975 with due notice to the private respondent.
Meanwhile, private respondent filed with the Makati CFI a complaint for collection of
sum of money against petitioner and Azcueta.
The CFI ruled in favor of the respondent and ordered the petitioner to pay
interest on the principal obligation at the rate of 14% per annum at the rate of 2%
every 45 days commencing from April 30, 1975 until the amount is fully paid.
The petitioner filed a motion for clarification of the judgment because it would
appear that aside from the 14% interest imposed on the principal obligation, an
additional 2% every 45 days corresponding to the additional penalty has been
imposed against the petitioner which imposition would be usurious.
The judge denied the motion on the theory that the judgment, having become
final and executory, can no longer be amended or corrected.
The petitioner then filed a petition with the CA. The CA granted the petition,
stating that courts are empowered, even after decisions have become final, to
correct clerical errors or mistakes in the decisions.
Hence, the present petition.

ISSUE: Whether or not the imposition of interest is proper. 
 
HELD: No. The CA did not err in ordering the clarification of the decision of the trial
court by amending the questioned part of its dispositive portion to include the phrase
damage dues to modify the stated rate of 2%, removing any misconception that it is
being imposed as interest.
To clarify an ambiguity or correct a clerical error in the judgment, the court

may resort to the pleadings filed by the parties, the findings of fact and the
conclusions of law expressed in the text or body of the decision.
Indeed, this was what the CA did in resolving the original petition. It examined
the complaint filed against the petitioner and noted that to "order defendant to pay
interest at 14 per centum and damage dues at the rate of 2% every 45 days
commencing from April 30, 1975 up to the time the full amount is fully paid."
23 | P a g e
Transactions
The statement that the imposition of 2% interest every 45 days commencing
from April 30, 1975 on top of the 14% per annum (as would be the impression from a
superficial reading of the dispositive portion of the trial court's decision) would be
usurious is a sound observation. It should, however, be stressed that such
observation was on the theoretical assumption that the rate of 2% is being imposed
as interest, not as damage dues which was the intendment of the trial court.
Certainly, the damage dues in this case do not include and are not included in
the computation of interest as the two are of different categories and are distinct
claims which may be demanded separately.While interest forms part of the
consideration of the contract itself, damage dues (penalties, and so forth) are usually
made payable only in case of default or non-performance of the contract.
40. PHILAM vs. CA
G.R. NO. L-47180, MAY 19, 1980
ABAD SANTOS, J.
FACTS: The respondent filed a Civil Case against the petitioner. The CFI ordered
the petitioner to pay Concordia Navalta the amount of 75,000.00 with legal interest
and attorney’s fees.
The petitioner appealed the decision to the CA. The CA affirmed the decision
of the lower court. Accordingly, the petitioner paid what was ordered.The petitioner
was then advised by the respondent and her counsel that the payment did not satisfy
the judgment because a compound interest or an additional sum of P10,375.77 must
be paid.
The petitioner refused to pay the additional sum. The respondent secured a
writ of execution for the same which the petitoner sought to quash. In resolving the
question, the respondent judge issued an order in favor of the respondent, issuing a
writ of execution.
Hence, this petition.
ISSUE: Whether or not the petitioner is obligated to pay compound interest under
the judgment. 
HELD: No. The judgment ordered the payment of simple "legal interest" only. It said
nothing about the payment of compound interest. Accordingly, when the respondent
judge ordered the payment of compound interest he went beyond the confines of his
own judgment which had been affirmed by the Court of Appeals and which had
become final. Fundamental is the rule that execution must conform to that ordained
or decreed in the dispositive part of the decision. Likewise, a court cannot, except for
clerical errors or omissions, amend a judgment that has become final.
DESOACIDO, JamesMareck
41. SANTULAN vs. FULE
G.R. NO. L-59664 DECEMBER 26, 1984
24 | P a g e
Transactions
AQUINO,J.
FACTS: This case is about the collection of legal interest on the sum of P30,000 as
the value of improvements on a foreshore land, which interest was not included in
this Court's decision of December 15, 1977 in Santulan vs. Executive
Secretary, L-28021, 80 SCRA 548.
In that decision this Court affirmed the order of the Undersecretary of

Agriculture and Natural Resources dated December 14, 1954 which gave due
course to the lease application of Julian Santulan provided that he reimbursed
Antonio Lusin the appraised value of the existing improvements (pp. 574-5, 80
SCRA).
When the case was remanded to the trial court, Judge Fule in his order of
September 2, 1981 directed the heirs of Santulan to reimburse the heirs of Lusin the
sum of P30,000 as the value of the improvements "with legal interest" from
1955 until paid. He affirmed said order in his order of January 13, 1982. Santulan's
heirs appealed under Republic Act No. 5440 from the order imposing 6% legal
interest.
ISSUE: WON the imposition of legal interest by the trial court when the fruits have
been gathered by the possessor and it was not agreed upon by the parties was
correct?
HELD: We hold that the order is devoid of legal basis. It is obviously not sanctioned
by article 2209 of the Civil Code which provides that "if the obligation consists in the
payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is
six percent per annum. "
Santulan's obligation to reimburse Lusin the value of his improvements was

intended to avoid unjust enrichment. Interest was not demanded by Lusin when the
case was pending in the administrative agencies and in the courts. This Court's final
judgment, which is the law of the case, did not provide for interest. There is no
reason for the trial court to add interest to the judgment.
The exaction of interest is not only illegal. It is also manifestly unjust under
the facts of this protracted controversy. Lusin and his heirs have received the fruits of
the disputed land since they have been in possession thereof. As noted in Trillana
vs. Manansala, 96 Phil. 865, no interest is to be satisfied because the fruits gathered
by the possessor are considered as interest.
42. RUIZ vs. CANEBA

G.R. NO. 84884, DECEMBER 3, 1990.
PARAS, J.
25 | P a g e
Transactions
FACTS:Private respondents ZenaidaSangalang and Adolfo Cruz are common-law
spouses and owners in common of a 2-storey house and lots described in Transfer
Certificate of Title (TCT) No. 56053 of the Registry of Deeds of Caloocan City but
registered only in the name of ZenaidaSangalang. Petitioners, the spouses Eulalio
M. Ruiz and Iluminada M. Ruiz are the lessees of Door No. 1 of the aforesaid two
storey house divided into 2 doors, for a monthly rental of P650.00.Eulalio Ruiz and
ZenaidaSangalang executed an agreement where it was provided that Ruiz will buy
the house and lot for the sum of P175,000.00to be paid as follows: SIXTY FIVE
THOUSAND PESOS (P65,000.00) down payment and will assume the amount of
balance of THIRTY ONE THOUSAND FIVE HUNDRED PESOS (P31,500.00) with
the BANK OF THE PHILIPPINE ISLAND, Marulas Branch, Metro Manila; that after
payment of said balance mortgage, a balance of seventy eight thousand five
hundred pesos (P78,500.00) will be payable on or before December 31, 1983; my
failure to comply with the above conditions of payment, the said property above
described will be open for sale and all partial payments will be refunded by Miss
Zenaida S. Sangalang".There is disagreement however as to the amount paid to
Sangalang on the balance of P78,500.00. Sangalang maintains that she received
only P33,793.00 while Ruiz insists that they paid P53,073.00.
Thus, the Ruiz spouses filed a complaint on April 24, 1984 for specific
performance with damages against ZenaidaSangalang and Adolfo Cruz.In any
event, the trial court found that the Ruiz spouses failed to pay in full the balance of
P78,500.00 on or before December 31, 1983 as stipulated and even on the
extended period of March 22, 1984. Hence, the Ruiz spouses are not entitled to their
prayer for specific performance with damages. In the same breath, the trial court
decided that it is only fair that ZenaidaSangalang return/refund to the Ruiz spouses
the payment made by the latter. On appeal to the Supreme Court the Ruiz’s claim for
payment of interest as Sangalang was not able to pay the refund after the decision
was rendered by the trial court after two failed motion for executions were granted at
the rate of 24% interest compounded annually, the alleged legal rate under Central
Bank Circular.
ISSUE: WON The Claim for interest is well founded despite not being ordered by the
trial court in its judgment?
HELD: 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 (Canonizado v. Ordoñez-Benitez, 149 SCRA 555 [1987]).
DIAZ, Karl Adrian

43. JOVEN vs. VENTURANZA
GR NO. L-26058, OCTOBER 28, 1977
MAKASIAR, J.
26 | P a g e
Transactions
FACTS: Original plaintiff Felix Cortes, substituted by AmparoJoven de Cortes upon
the death of the former, and plaintiff Noel Cortes, filed an action for the foreclosure of
real estate mortgage against defendants Venturanza and Oledan.
Plaintiff Felix Cortes, original owner of nine parcels of land and plaintiff Noel
Cortes, owner of 24 parcels of land, sold their properties to defendants who agreed
to pay jointly and severally the total sum of P716,573.90 with interest of 6% per
annum under a Deed of Sale with Purchase Money Mortgage. As security, the
defendants mortgaged the 33 parcels of land registered in the Register of Deeds
Bulacan. However, when the obligation on the mortgage fell due on December 1,
1962, defendants failed and refused to pay despite demands for payment. For their
defense, defendants Venturanza alleged that the balance was not yet due and
demandable and that such obligation to pay the balance was conditioned upon the
sale of their haciendas in Cagayan de Oro and Camarines Sur by expropriation. On
the other hand, defendants Oledan alleged that the cause of action against them has
been extinguished and therefore did not become due and demandable by reason of
novation of the original agreement which affected the material changes in the
manner and condition of time of payment of the balance of the mortgage obligation.
Also, by way of cross-claim, defendants Oledan alleged that they entered into an
agreement with their co-defendants Venturanza and sold all their shares, ownership
and interest in the property subjects of the deed of sale with purchase money
mortgage.
ISSUE: Whether or not plaintiffs are entitled to an action to foreclose the real estate
mortgage constituted on the 33 parcels of land for failure of defendants to secure the
payment of the balance when the obligation became due and demandable.
HELD: Yes. On the defendants Venturanza’s defense that the complaint was filed
prematurely, there is no dispute that plaintiffs filed their complaint on December 12,
1962; that under the term of the contract, the defendants were given until January 1,
1962 within which to pay their obligation; and that January 1, 1962 had passed
without the defendants having paid to the plaintiffs the sum of P576,573.90 and the
corresponding interest thereon notwithstanding repeated demands for payment.
Therefore, when plaintiffs filed the complaint on December 12, 1962, the
effects of default as against the defendants had already arisen. Besides, no less
than the defendants Venturanzasthemselves admitted in their brief that they were
delayed in the payment of the balance of their obligation to the plaintiffs. One cannot
admit being delayed in the payment of his obligation unless he believes that his
obligation is already due and demandable. Stated otherwise, there is no delay if the
obligation is not yet due.
The alleged cause of their default in paying the balance of the price, for
failure to receive the price for the purchase of their haciendas in Cagayan de Oro
and Camairnes Sur, is neither force majeure nor an act of God. Hence, their failure
to pay is not justified.
As to the defense of defendants Oledan, the agreement relied upon by

defendants does not show that plaintiffs intervened in, much less gave their consent
to, the substitution. The plaintiffs denied having consented to the transfer of rights
from the Oledans to the Venturanzas alone. Thus, defendants Oledan failed to
establish animus novandi, whether expressed or implied, on the part of the creditors,
the Corteses, plaintiffs. Thus, the defendants Venturanzas and Oledans are ordered
to pay jointly and severally plaintiffs-appellees.
27 | P a g e
Transactions
44. RCBC vs. CA

GR NOS L-128833, 128834, 128866, APRIL 20, 1998
MELO, J.
FACTS: Respondent Goyu& Sons, Inc. (GOYU) applied for credit facilities and
accommodations with petitioner RCBC at its Binondo Branch which amounted to
P117M. As security for its credit facilities with RCBC, GOYU executed tow real estate
mortgages and two chattel mortgages in favor of RCBC. GOYU obtained in its name
a total of ten insurance policies from Malayan Insurance Company, Inc. (MICO). In
February 1992, Alchester Insurance Agency, Inc, the insurance agent where GOYU
obtained the Malayan insurance policies, issued nine endorsements in favor of
RCBC, seemingly upon instructions of GOYU.
On April 27, 1992, one of GOYU’s factory buildings in Valenzuela was gutted
by fire. Consequently, GOYU submitted its claim for indemnity on account of the loss
insured against. MICO denied the claim on the ground that the insurance policies
were either attached pursuant to writs of attachments/garnishments issued by
various courts or that the insurance proceeds were also claimed by other creditors of
GOYU alleging better rights to the proceeds than the insured.
RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over
the proceeds of the insurance policies, but said claims were also denied for the
same reasons that MICO denied GOYU’s claims.
ISSUE: Whether or not the RCBC, as mortgagee, has any right over the insurance
policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
HELD: Yes. It is settled that a mortgagor and a mortgagee have separate and
distinct insurable interests in the same mortgaged property, such that one of them
may insure the same property for his own sole benefit. It is to be noted that nine
endorsement documents were prepared by Alchester, in favor of RCBC. RCBC, in
good faith, relied upon the endorsement documents sent to it, as per stipulation.
Over and above this, GOYU continued, in the meantime, to enjoy the benefits of the
credit facilities extended to it by RCBC.
GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the interest of the
person in whose name or for whose benefit it is made. The peculiarity of the
circumstances presents a justification to take exception to the application of the said
provision. It has been established that it was the intention of the parties to designate
RCBC as the party for whose benefit the insurance policies were taken out.
GOYU continued until the occurrence of the fire, to enjoy the benefits of the
credit facilities extended by RCBC which was conditioned upon the endorsement of
the insurance policies to be taken by GOYU to cover the mortgaged properties.
Thus, the insurance proceeds may, therefore, be exclusively applied to

RCBC, which under the factual circumstances of the case, is truly the person or
entity for whose benefit the policies were clearly intended.
DOMINGO, Julie-Anne D.
45. BRIONES vs. CAMMAYO, ET AL.
28 | P a g e
Transactions
G.R. NO. L- 23559, OCTOBER 4, 1971
DIZON, J.
FACTS:Aurelio G. Briones filed an action in the Municipal Court of Manila against

defendants, all surnamed Cammayo, to recover from them, jointly and severally, the
amount of P1,500.00, plus damages, attorney's fees and costs of suit. The
defendants answered that a mortgage contract was executed for securing the
payment of P1,500.00 for a period of one year, without interest, but the plaintiff
delivered to the defendant Primitivo only the sum of P1,200.00 and withheld the sum
of P300.00 which was intended as advance interest for one year; that on account of
said loan of P1,200.00, defendant Primitivo paid to the plaintiff the total sum of
P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as part
payment of the account but as an interest of the said loan for an extension of
another term of one year; and that said contract of loan entered into between plaintiff
and defendant Primitivo is a usurious contract. Briones denied the allegations of the
counterclaim. The Municipal Court rendered judgment sentencing the defendants to
pay the plaintiff with interests thereon plus attorney's fees. The Court of First
Instance of Manila also ordered the defendants to pay the plaintiff. Defendants claim
that the trial court erred in sentencing them to pay the principal of the loan
notwithstanding its finding that the same was tainted with usury. It is not now
disputed that the contract of loan in question was tainted with usury.
ISSUE: Whether the creditor is entitled to collect from the debtor the amount
representing the principal obligation
HELD: Yes. Under Act 2655 a usurious contract is void; that the creditor had no right
of action to recover the interest in excess of the lawful rate; but that this did not
mean that the debtor may keep the principal received by him as loan — thus unjustly
enriching himself to the damage of the creditor. The Usury Law, by its letter and
spirit, did not deprive the lender of his right to recover from the borrower the money
actually loaned to and enjoyed by the latter. In simple loan with stipulation of
usurious interest, the prestation of the debtor to pay the principal debt, which is the
cause of the contract, is not illegal. The illegality lies only as to the prestation to pay
the stipulated interest; hence, being separable, the latter only should be deemed
void, since it is the only one that is illegal. The principal debt remaining without
stipulation for payment of interest can be recovered by judicial action. And in case of
such demand, and the debtor incurs in delay, the debt earns interest from the date of
the demand. Such interest is not due to stipulation, for there was none, the same
being void. Rather, it is due to the general provision of law that in obligations to pay
money, where the debtor incurs in delay, he has to pay interest by way of damages.
46. ANGEL JOSE WAREHOUSING CO., INC. vs. CHELDA ENTERPRISES

and DAVID SYJUECO
G.R. NO. L- 25704, APRIL 24, 1968
BENGZON, J.P.,J.
FACTS: Plaintiff corporation filed suit against the partnership Chelda Enterprises and
David Syjueco, its capitalist partner, for recovery of alleged unpaid loans in the total
amount of P20,880.00, with legal interest from the filing of the complaint, plus
attorney's fees of P5,000.00. Alleging that post dated checks issued by defendants
to pay said account were dishonored, that defendants' industrial partner, Chellaram I.
Mohinani, had left the country, and that defendants have removed or disposed of
their property, or are about to do so, with intent to defraud their creditors, preliminary
29 | P a g e
Transactions
attachment was also sought. A writ of attachment over the real properties owned by
Valentin Afable, Jr.. RTC ordered Afable, Jr. To pay David P66,500 plus interest from
July 24, 1974, until fully paid. RTC amended its decison and ruled that legal rate of
interest should be computed from January 4, 1966, instead of from July 24, 1974.
Afable appealed to the Court of Appeals and then to the Supreme Court. In both
instances, the decision of the lower court was affirmed. Entries of judgment were
made and the record of the case was remanded to Branch 27 for the final execution.
An Alias Writ of Execution was issued by virtue of which respondent Sheriff Melchor
P. Peña conducted a public auction. Sheriff Peña informed the petitioner that the
total amount of the judgment is P270,940.52. The amount included a computation of
simple interest. Afable, however, claimed that the judgment award should be
P3,027,238.50, because the amount due ought to be based on compounded
interest. Although the auctioned properties were sold to the petitioner, Sheriff Peña
did not issue the Certificate of Sale because there was an excess in the bid price in
the amount of P2,941,524.47, which the petitioner failed to pay despite notice. David
filed a Motion praying that respondent Judge Cruz issue an order directing
respondent Sheriff Peña to prepare and execute a certificate of sale in his favor. His
reason is that compound interest, which is allowed by Article 2212 of the Civil Code,
should apply in this case. David claim that in computing the interest due of the
P66,500.00, interest should be computed at 6% on the principal sum of P66,500.00
pursuant to Article 2209 and then “interest on the legal interest” should also be
computed in accordance with the language of Article 2212 of the Civil Code.
ISSUE: Whether compounded interest could be further earned where no interest is

stipulated
HELD:No. In cases where no interest stipulated, no compounded interest could be

further earned. The Court ruled that Article 2212 contemplates the presence of
stipulated or conventional interest which has accrued when demand was judicially
made. In cases where no interest had been stipulated by the parties, as in the case
of Philippine American Accident Insurance, no accrued conventional interest could
further earn interest upon judicial demand. In this case, no interest was stipulated by
the parties. In the promissory note denominated “Compromise Agreement” signed by
the Afable, Jr. which was duly accepted by the David no interest was mentioned.
That being the case, the interest should only be subject to a simple interest.
DUBLADO, Jerika Joy K.

47. PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES vs. IAC
G.R. NO. 73198, SEPTEMBER 2, 1992
NOCON, J.
FACTS: On May 21, 1974, Davao Timber Corporation, DATICOR for brevity, and the
Private Development Corporation (PDCP) entered into a loan agreement whereby
PDCP extended to DATICOR a loan in foreign currency equivalent to US$
265,000.00 and another in the amount of P2,500,000.00 for the purpose of
establishing a kiln drying and woodworking plant in Mati, Davao Oriental.
30 | P a g e
Transactions
In the beginning, PDCP was charging a total of nineteen (19%) per cent
interest per annum on the peso loan and eighteen and three-fourths (18-3/4%) per
cent on the foreign currency loan. The penalty charges was increased to two (2%)
per cent per month with regard to the peso loan, PDCP began charging a total of
forty two (42%) per cent per annum on the peso loan. DATICOR obtained a loan of
P4.4 million pesos and has paid a total of about P3 million pesos, the remaining
balance on the principal debt left unpaid is about P1.4 million pesos, to which
respondents must still pay the petitioner.
ISSUE: Whether or not PDCP violated the Usury Law.
HELD:YES. Inasmuch as the loan agreement herein was entered into on May 21,
1974, the prevailing law applicable is Act No. 2655, otherwise known as the Usury
Law, as amended by P.D. No. 116, which took effect on January 29, 1974. Section 2
of Act No. 2655 provides: "No person or corporation shall directly or indirectly take or
receive money or other property, real or personal, or choses in action, a higher rate
of interest or greater sum of value including commission premiums, fines and
penalties for the loan or renewal thereof or forbearance of money, goods or credit,
where such loan or renewal or forbearance is secured in whole or in part by a
mortgage upon real estate, the title to which is duly registered or by a document
conveying such real estate at an interest, than twelve percent per annum." The usury
law therefore, as amended by Presidential Decree 116, fixed all interest rates for all
loans with maturity of more than 360 days at twelve (12%) per cent per annum
including premiums, fines and penalties.
The law should not be interpreted to mean forfeiture of the principal loan as
that would be unjustly enriching the borrower. The unpaid principal debt still stands
and remains valid but the stipulation as to the usurious interest is void, consequently,
the debt is to be considered without stipulation as to the interest.
48. SANCHEZ vs. BUENVIAJE

G.R. NO. L-57314, NOVEMBER 29, 1983
ABAD SANTOS, J.
FACTS:On August 25, 1976, Alejo Sanchez sued Teodoro Sanchez and Leonor
Santilles in the Municipal Court of Bato, Camarines Sur, for the recovery of
P2,000.00 which the latter had promised to pay in two notes. Said notes also
contained stipulations for interest at the rate of 10% per month The Municipal Court
rendered judgment ordering Teodoro Sanchez only to pay to Alejo Sanchez
P2,000.00 plus interest thereon at the legal rate from the filing of the complaint.
ISSUE:Whether or not in a loan with usurious interest both the loan and the usurious
interest are void.
31 | P a g e
Transactions
HELD:NO. It is now well-settled that: "the Usury Law (Act No. 2655), by its letter and
spirit, does not deprive the lender of his right to recover of the borrower the money
actually loaned this only in the case that the interest collected is usurious. The law,
as it is now, does not provide for the forfeiture of the capital in favor of the debtor in
usurious contract.
GUERRERO, Juan Paolo R.

49. CA AGRO-INDUSTRIAL DEVELOPMENT CORP vs. THE HONORABLE
COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY
G.R. NO. 90027 MARCH 3, 1993
DAVIDE, JR., J.
FACTS:On 3 July 1979, petitioner (through its President, Sergio Aguirre) and the
spouses Ramon and Paula Pugao entered into an agreement whereby the former
purchased from the latter two (2) parcels of land for a consideration of P350,625.00.
A down payment has been made and an agreement that until the full purchase price
has been paid, the certificates of title shall be kept in the safety deposit box of any
bank. The safety deposit box was that of Security Bank with the following
stipulations: a) The bank is not a depositary of the contents of the safe and it has
neither the possession nor control of the same, and b) The bank has no interest
whatsoever in said contents, except herein expressly provided, and it assumes
absolutely no liability in connection therewith. After the execution of the contract, two
(2) renter's keys were given to the renters — one to Aguirre (for the petitioner) and
the other to the Pugaos. A guard key remained in the possession of the respondent
Bank. The safety deposit box has two (2) keyholes, one for the guard key and the
other for the renter's key, and can be opened only with the use of both keys.
Petitioner claims that the certificates of title were placed inside the said box. A
certain Mrs. Ramos wanted to buy the said lands and the parties agreed thereto, but,
when they opened the safety deposit box, the titles were not there and the sale did
not materialize. As a result, the Pugao spouses sued the bank but the latter invoked
the stipulations.
ISSUE:Whether or not the contract was that of a lease or a deposit.

HELD: It was neither both, it was a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643 because the full
and absolute possession and control of the safety deposit box was not given to the
joint renters — the petitioner and the Pugaos. The guard key of the box remained
with the respondent Bank; without this key, neither of the renters could open the box.
On the other hand, the respondent Bank could not likewise open the box without the
renter's key. In this case, the said key had a duplicate which was made so that both
renters could have access to the box. We observe, however, that the deposit theory
itself does not altogether find unanimous support even in American jurisprudence.
We agree with the petitioner that under the latter, the prevailing rule is that the
relation between a bank renting out safe-deposit boxes and its customer with respect
to the contents of the box is that of a bail or and bailee, the bailment being for hire
and mutual benefit. This is just the prevailing view because: There is, however, some
support for the view that the relationship in question might be more properly
characterized as that of landlord and tenant, or lessor and lessee. It has also been
suggested that it should be characterized as that of licensor and licensee. The
relation between a bank, safe-deposit company, or storage company, and the renter
of a safe-deposit box therein, is often described as contractual, express or implied,
32 | P a g e
Transactions
oral or written, in whole or in part. But there is apparently no jurisdiction in which any
rule other than that applicable to bailments governs questions of the liability and
rights of the parties in respect of loss of the contents of safe-deposit boxes.
50. ATOK FINANCE CORPORATION vs. COURT OF APPEALS, SANYU
CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA,
PABLITO BERMUNDO and LEOPOLDO HALILI
G.R. NO. 80078 MAY 18, 1993
FELICIANO, J.
FACTS:Atok and Sanyu Chemical entered into a Continuing Suretyship Agreement

in favor of AtokFinancewith the latter being the creditor and Sanyu Chemical and
several stockholders as sureties. Sanyu Chemical, in consideration of receipt from
Atok Finance of the amount of P105,000.00, assigned several receivables in favor of
Atok. Later, additional trade receivables were assigned by Sanyu Chemical to Atok
Finance with a total face value of P100,378.45. Atok Finance commenced action
against Sanyu Chemical, and the sureties before the RTC to collect the sum of
P120,240.00. Atok Finance alleged that Sanyu Chemical had failed to collect and
remit the amounts due under the trade receivables. Sanyu Chemical and the
individual private respondents sought dismissal of Atok's claim upon the ground that
such claim had prescribed under Article 1629 of the Civil Code and for lack of cause
of action. The private respondents contended that the Continuing Suretyship
Agreement, being an accessory contract, was null and void since, at the time of its
execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance.
It is the contention of respondents that the suretyship agreement is null and

void because it is notin consonance with the laws on guaranty and security. The said
agreement was entered into by theparties two years before the Deed of Assignment
was executed.
Thus, allegedly, it ran counter to the provision that guaranty cannot exist
independently because by nature it is merely an accessory contract: first, because
this contract, just like guaranty, cannot exist without a valid obligation (Art. 2052, Civil
Code); and, second, although it may be given as security for future debt (Art. 2053,
C.C.), the obligation contemplated in the case at bar cannot be considered 'future
debt' as envisioned by this law.
ISSUE: Whether or not a surety agreement, being an accessory contract, be

effected to secure future (non-existing) debts. May the continuing suretyship
agreement be declared null and void for alleged lack of consideration since there
was still no pre-existing obligation for the surety to attach to.
HELD: Surety agreements may secure future debts. 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.
ILAGAN, Kerstin Kaye L.

51. ONGSIAKO vs. THE WORLD WIDE INSURANCE AND SURETY CO., INC.
G.R. NO. L- 12077, JUNE 27, 1958
33 | P a g e
Transactions
BAUTISTA ANGELO, J.
FACTS: Catalina de Leon executed in favor of Augusto Ongsiako a promissory note

in the amount of P1,200.00, payable in 90 days after date, with interest at 1% per
month. Thereafter, a surety bond was executed by the principal debtor, and the
World Wide Insurance & Surety Co., Inc., as surety, whereby they bound to pay said
amount jointly and severally to the creditor. Having the obligation unpaid on the date
of its maturity notwithstanding the demands made upon the principal debtor and the
surety, the creditor brought an action to recover the same from them. Judgment was
rendered in favor of the creditor.
In the judgment, the principal debtor was ordered to pay the creditor. The
surety was likewise ordered to pay the creditor but with the proviso that “execution
should not issue against [the surety] until a return is made by the Sheriff upon
execution against [the principal debtor] showing that the judgment against her
remained unsatisfied in whole or in part; and provided, further, that [the principal
debtor] shall reimburse to [the surety] whatever amount the latter might pay under
this judgment together with such expenses as may be necessary to effectuate said
reimbursement.”
ISSUE:Whether or not the surety only acted as a guarantor and as such its liability
cannot be exacted until after the property of the principal shall have been exhausted.
HELD: NO. The surety has no justification whatever to resist the claim of the creditor
for in the judgment appealed from it is precisely provided that execution of judgment
should not issue against the surety until after it is shown that the execution of the
judgment against the principal debtor has been returned by the sheriff unsatisfied,
which was the only excuse given by said surety in not fulfilling its commitment under
the bond. And yet, the surety appealed from said judgment just to put up the
additional defense that its liability under the bond has already expired because of the
condition that its liability shall expire on February 10, 1952. The Court considers this
stipulation as unfair and unreasonable for it practically nullifies the nature of the
undertaking assumed by the surety. It should be noted that the principal obligation is
payable 90 days from date of issue, which falls on February 10, 1952. Only on this
date can demand for payment be made on the principal debtor. If the principal debtor
should fail to pay and resort is made to the surety for payment on the next day, it
would be unfair for the surety to allege that its liability has already expired. As the
terms of the bond should be given a reasonable interpretation, it is logical to hold
that the liability of the surety attaches as soon as the principal debtor defaults, and
notice thereof is given the surety within reasonable time to enable it to take steps to
protect its interest. After all, the surety has a remedy under the law, which is to
foreclose the counterbond put up by the principal debtor.
52. CITIZENS SURETY AND INSURANCE COMPANY, INC. vs. COURT OF

APPEALS
G.R. NO. L-48958, JUNE 28, 1988
GUTIERREZ, JR., J.
FACTS: Citizens Surety and Insurance Company, Inc. issued 2 surety bonds to
guarantee compliance by the principal Pascual M. Perez Enterprises of its obligation
under a Contract of Sale of Goods entered into with Singer Sewing Machine Co. In
consideration of the issuance of the aforesaid bonds, the principal debtor executed
indemnity agreements wherein he obligated himself and the Enterprises to indemnify
34 | P a g e
Transactions
the surety jointly and severally, whatever payments advances and damage it may
suffer or pay as a result of the issuance of the surety bonds. In addition, the principal
debtor put up a collateral security by executing a deed of assignment of his stock
lumber and thereafter, by executing a second real estate mortgage in favor of the
surety to guarantee the fulfillment of said obligation.
The principal debtor failed to comply with its obligation with the creditor.
Consequently, the surety was compelled to pay, as it did pay. The principal debtor
was able to partially indemnify the surety leaving an unpaid balance.
Notwithstanding several demands for the unpaid portion, the principal debtor failed
to reimburse the surety. The surety filed a money claim against the estate of the late
Nicasia Sarmiento which was being administered by the principal debtor. In opposing
the money claim, the principal debtor asserts that the surety bonds and the
indemnity agreements had been extinguished by the execution of the deed of
assignment.
ISSUE:Whether or not the surety bonds are extinguished by virtue of the execution
of the deed of assignment.
HELD: No. The deed of assignment cannot be regarded as an absolute conveyance

whereby the obligation under the surety bonds was automatically extinguished. The
subsequent acts of the principal debtor bolster the fact that the deed of assignment
was intended merely as a security for the issuance of the 2 surety bonds. Partial
payments were made after the execution of the deed of assignment to satisfy the
obligation under the 2 surety bonds. Since later payments were made to pay the
indebtedness, it follows that no debt was extinguished upon the execution of the
deed of assignment. Moreover, a second real estate mortgage was executed and
eventually cancelled. If indeed the deed of assignment extinguished the obligation,
there was no reason for a second mortgage to still have to be executed.
The proper procedure was for the surety to collect the remaining unpaid
portion of the surety from the sales of lumber and to return whatever remained to the
principal debtor. The Court cannot order the return because the estate of the spouse
of the principal debtor has not asked for any return of excess lumber or its value.
LASCANO, Karell Marie

53. DURAN vs. IAC
G.R. NO. L-64159, SEPTEMBER 10, 1985
PONENTE
FACTS:Duran owned 2 parcels of land covered by a Transfer Certificate of Title of

the Register of Deeds of Caloocan City. She left the Philippines in June 1954 and
returned in May 1966.
On May 13, 1963, a Deed of Sale of the two lots mentioned was made in
favor of Duran's mother who, on December 3, 1965, mortgaged the same property to
Tiangco. When Duran came to know about the mortgage made by her mother, she
wrote the Register of Deeds of Caloocan City informing the latter that she had not
given her mother any authority to sell or mortgage any of her properties in the
Philippines. Failing to get an answer from the registrar, she returned to the
Philippines. Meanwhile, when her mother failed to redeem the mortgage properties,
foreclosure proceedings were initiated by Tiangco and, ultimately, the sale by the
sheriff and the issuance of Certificate of Sale in favor of the latter.
35 | P a g e
Transactions
Duran claims that the Deed of Sale in favor of her mother is a forgery, saying
that at the time of its execution in 1963 she was in the United States. On the other
hand, the adverse party alleges that the signatures of Duran in the said Deed are
genuine and, consequently, the mortgage made by her mother in favor of Tiangco is
valid.
ISSUE: Whether Tiangco was a buyer in good faith and for value
HELD: YES. An innocent purchaser for value relying on a torrens title issued is
protected. A mortgagee has the right to rely on what appears in the certificate of title
and, in the absence of anything to excite suspicion, he is under no obligation to look
beyond the certificate and investigate the title of the mortgagor appearing on the
face of said certificate.
In the case at bar, Tiangco, in good faith relied on the certificate of title in the
name of Duran’s mother and even on the supposition that the sale was void, the
general rule that the direct result of a previous illegal contract cannot be valid (on the
theory that the spring cannot rise higher than its source) cannot apply here for the
Court is confronted with the functionings of the Torrens System of Registration. The
doctrine to follow is simple enough: a fraudulent or forged document of sale may
become the ROOT of a valid title if the certificate of title has already been transferred
from the name of the true owner to the name of the forger or the name indicated by
the forger.
54. CABUHAT vs. CA
G.R. NO. 122425, SEPTEMBER 28, 2001
PONENTE:
FACTS: Mary Ann Arede was barely three days old when Mercedes Arede informally
adopted her as the latter's own daughter. In December, 1972, Mercedes purchased a
parcel of land situated in Bagbag, Ligtong, Rosario, Cavite registered in Mary Ann
Arede's name and the corresponding title was issued by the Register of Deeds of
Cavite on December 9, 1972.
Upon reaching the age of majority and unknown to Mercedes, Mary Ann
Arede obtained a reconstituted owner's duplicate of TCT thru the use of a falsified
court order supposedly issued by the Regional Trial Court of Cavite on December
16, 1988, whereby the court purportedly directed the Register of Deeds of Cavite to
issue another owner's duplicate copy of TCT, which Mary Ann Arede claimed to have
lost. Using this reconstituted title, Mary Ann Arede mortgaged the land to the Rural
Bank, of Noveleta, Cavite on February 28, 1989. Upon release of the mortgage, the
land was again mortgaged by Mary Ann Arede on May 16, 1990, this time to
FlordelizaCabuhat for the amount of P300,000.00, which mortgage was registered
by Cabuhat on the following day at the Register of Deeds of Cavite.
It appeared however that prior to the second mortgage on May 16, 1990, the
subject lot was sold by Mary Ann Arede to Mercedes Arede in consideration of the
sum of P100,000.00 as evidenced by a Deed of Sale dated January 17, 1990.
Unfortunately, this sale was not registered by Mercedes. Hence, upon knowledge of
the mortgage to Cabuhat, Mercedes was prompted to commence the instant suit for
annulment of title.
ISSUE: Whether Cabuhat is was an innocent mortgagee for value
36 | P a g e
Transactions
HELD: Yes. The record shows that Cabuhat loaned the amount of P300,000.00 to
Mary Ann, proving that not only was she an innocent mortgagee for value, but also
one who in good faith relied on the clean title of Mary Ann. In accepting such a
mortgage, Cabuhat was not required to make further investigation of the title
presented to her to bind the property being given as security for the loan.
In fine, the prevailing jurisprudence is that a mortgagee has a right to rely in

good faith on the certificate of title of the mortgagor of the property given as security
and in the absence of any sign that might arouse suspicion, has no obligation to
undertake further investigation. Hence, even if the mortgagor is not the rightful owner
of, or does not have a valid title to, the mortgaged property, the mortgagee in good
faith is nonetheless entitled to protection.
LIMJAP, Michelle F.
55. A. FRANCISCO REALTY AND DEVELOPMENT CORPORATION vs.
COURT OF APPEALS
G.R. NO. 125055 OCTOBER 30, 1998
MENDOZA, J.
FACTS: A. Francisco Realty and Development Corporation granted a loan of P7.5

Million to spouses Romulo and ErlindaJavillonar, in consideration of which the latter
executed the following documents: (a) a promissory note stating an interest charge
of 4% per month for six months; (b) a deed of mortgage over realty; and (c) an
undated deed of sale of the mortgaged property in favor of the mortgagee. The
promissory note expressly provided that upon "failure of the MORTGAGOR to pay
the interest without prior arrangement with the MORTGAGEE, full possession of the
property will be transferred and the deed of sale will be registered. For this purpose,
the owner's duplicate of TCT No. 58748 was delivered to petitioner. Petitioner claims
that private respondents failed to pay the interest and, as a consequence, it
registered the sale of the land in its favor on February 21, 1992. Petitioner
demanded possession of the mortgaged realty and the payment of 4% monthly
interest from May 1992, plus surcharges. As respondent spouses refused to vacate,
petitioner filed the present action for possession before the Regional Trial Court in
Pasig City. In their answer, respondents admitted liability on the loan but alleged that
it was not their intent to sell the realty as the undated deed of sale was executed by
them merely as an additional security for the payment of their loan. The RTC
rendered decision in favor of petitioner. On appeal, the Court of Appeals reversed
the decision of the trial court and ruled that the deed of sale was void for being in
fact a pactumcommissorium which is prohibited by Art. 2088 of the Civil Code.
ISSUE: Whether or not the agreement constitutes pactumcommissorium.
HELD: Yes. The stipulations in the promissory notes providing that, upon failure of
respondent spouses to pay interest, ownership of the property would be
automatically transferred to petitioner and the deed of sale in its favor would be
registered, are in substance a pactumcommissorium. They embody the two
elements of pactumcommissorium, to wit: The prohibition on pactumcommissorium
stipulations is provided for by Article 2088 of the Civil Code: (1) that there should be
a pledge or mortgage wherein a property is pledged or mortgaged by way of security
for the payment of the principal obligation; and (2) that there should be a stipulation
for an automatic appropriation by the creditor of the thing pledged or mortgaged in
the event of non-payment of the principal obligation within the stipulated period. The
37 | P a g e
Transactions
contention that the proscribed stipulation should be found in the mortgage deed itself
to be declared void is without merit. Court categorically ruled that a mortgagee's
mere act of registering the mortgaged property in his own name upon the
mortgagor's failure to redeem the property amounted to the exercise of the privilege
of a mortgagee in a pactumcommissorium.Thus, the subject transaction is void
rendering the registration of the deed of sale covering the subject lot also void.
56. DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS

G.R. NO. 118367. JANUARY 5, 1998
DAVIDE, JR., J.
FACTS: Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 from
the Government. She obtained loans from the Development Bank of the Philippines
in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms
stated in the Promissory Notes. As security for said loans, Cuba executed two Deeds
of Assignment of her Leasehold Rights. Subsequently, Cuba failed to pay her loan on
the scheduled dates. Without foreclosure proceedings, whether judicial or extra-
judicial, DBP appropriated the Leasehold Rights of Cuba over the fishpond in
question. After DBP has appropriated the Leasehold Rights of Cuba over the
fishpond in question, DBP, in turn, executed a Deed of Conditional Sale of the
Leasehold Rights in favor of Cuba over the same fishpond in question. After which, a
new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued in
favor Cuba only, excluding her husband. When Cuba failed to pay the amortization
as stated in Deed of Conditional Sale, DBP sent a Notice of Rescission thru Notarial
Act. After the Notice of Rescission, DBP took possession of the Leasehold Rights of
the fishpond in question. Thereafter, DBP conducted a public bidding and thereafter
executed a Deed of Conditional Sale in favor of AgripinaCaperal. Caperal was
awarded Fishpond Lease Agreement No. 2083-A. Thus, Cuba filed a
complaintagainst DBP and AgripinaCaperal filed Cuba for the declaration of nullity of
DBP’s appropriation of Cuba’s rights, title, and interests over a 44-hectare fishpond
located in Bolinao, Pangasinan, for being violative of Article 2088 of the Civil Code
The trial court resolved the issue in favor of Cuba. On appeal, the Court of Appeals
declared as valid the act of DBP in appropriating Cuba’s leasehold rights and interest
under Fishpond Lease Agreement No. 2083.
ISSUE: Whether the act of DBP in appropriating to itself CUBA’s leasehold rights
over the fishpond in question without foreclosure proceedings was contrary to Article
2088 of the Civil Code and, therefore, invalid.
HELD: Yes. Condition no. 12 did not provide that the ownership over the leasehold
rights would automatically pass to DBP upon CUBA’s failure to pay the loan on
time. It merely provided for the appointment of DBP as attorney-in-fact with
authority, among other things, to sell or otherwise dispose of the said real rights, in
case of default by Cuba and to apply the proceeds to the payment of the loan. This
provision is in conformity with Article 2087 of the Civil Code, which authorizes the
mortgagee to foreclose the mortgage and alienate the mortgaged property for the
payment of the principal obligation. DBP, however, exceeded the authority vested by
condition no. 12 of the deed of assignment when it appropriated the leasehold rights
without foreclosure proceedings. Besides, an assignment to guarantee an obligation,
as in the present case, is virtually a mortgage and not an absolute conveyance of
title which confers ownership on the assignee. At any rate, DBP’s act of
appropriating CUBA’s leasehold rights was violative of Article 2088 of the Civil Code,
38 | P a g e
Transactions
which forbids a creditor from appropriating, or disposing of, the thing given as
security for the payment of a debt.
LUNAR, Lorena Lerma M.
57. LAO vs. CA
275 SCRA 237, G.R. No. 115307, (1997)
PANGANIBAN, J.
FACTS: Private Respondent Better Homes Realty and Housing Corporation filed a
complaint for unlawful detainer against Petitioner Manuel Lao. Petitioner claimed that
he is the true owner of the house and lot located at Unit I, No. 21 N. Domingo Street,
Quezon City and that the private respondent purchased the same from petitioner’s
family corporation, N. Domingo Realty & Development Corporation but alleged the
agreement was actually a loan secured by mortgage.
ISSUE: Is the contract an Absolute Sale or an Equitable Mortgage?
HELD:Based on the conduct of the petitioner and private respondent and even the
terminology of the second option to purchase, the intent and agreement between
them was undoubtedly one of equitable mortgage and not of sale.
First, possession of the property in the controversy remained with Petitioner

Manuel Lao who was the beneficial owner of the property, before, during and after
the alleged sale.It is settled that a “pacto de retro sale should be treated as a
mortgage where the (property) sold never left the possession of the vendors.”
Second, the option given to Manuel Lao to purchase the property in

controversy had been extended twice through documents executed by Mr. Tan Bun
Uy, President and Chairman of the Board of Better Homes Realty & Housing
Corporation. The wording of the first extension is a revelation that the parties really
intended to be bound by a loan with mortgage, not by a pacto de retro.
Third, Manuel Lao and his brother were in such “dire need of money” that
they mortgaged their townhouse units registered under the name of N. Domingo
Realty Corporation, the family corporation put up by their parents, to Private
Respondent Better Homes Realty & Housing Corporation. In retrospect, it is easy to
blame Petitioner Manuel Lao for not demanding a reformation of the contract to
reflect the true intent of the parties. But this seeming inaction is sufficiently
explained by the Lao brothers’ desperate need for money, compelling them to sign
the document purporting to be a sale after they were told that the same was just for
“formality.”
There was no sale of the disputed property. Hence, it still belongs to

petitioner ’s family corporation, N. Domingo Realty & Development
Corporation. Private respondent, being a mere mortgagee, has no right to eject
petitioner. Private respondent, as a creditor and mortgagee, “ xxx cannot
appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.”
58. STATEMENT INVESTMENT HOUSE vs. CA

254 SCRA 368, G.R. No. 115548(1996) 
FRANCISCO, J.
39 | P a g e
Transactions
FACTS: Spouses Canuto and Ma. Aranzazu Oreta, and the Solid Homes, Inc.
(SOLID) executed Contract to Sell No. 36 involving a parcel of land. Upon signing of
the contract, the spouses Oreta made payment amounting to P7,869.40, with the
agreement that the balance shall be payable in monthly installments of P45 1.70, at
12% interest per annum.SOLID executed several real estate mortgage contracts in
favor of State Investment Homes, (sic) Inc. (STATE) over its subdivided parcels of
land, one of which is the subject lot. SOLID failed to comply with its mortgage
obligations contract, STATE extra-judicially foreclosed the mortgaged properties
including the subject lot. Spouses Oreta filed a complaint before the Housing and
Land Use Regulatory Board, HLURB, against the developer SOLID and STATE for
failure on the part of SOLID “to execute the necessary absolute deed of sale as well
as to deliver title to said property.
ISSUE: Are private respondent spouses Oreta’s unregistered rights over the subject
property superior to the registered mortgage rights of petitioner State Investment
House, Inc. (STATE)?
HELD: Yes. STATE’s registered mortgage right over the property is inferior to that of
respondents-spouses’ unregistered right. The unrecorded sale between
respondents-spouses and SOLID is preferred for the reason that if the original owner
(SOLID, in this case) had parted with his ownership of the thing sold then he no
longer had ownership and free disposal of that thing so as to be able to mortgage it
again. Registration of the mortgage is of no moment since it is understood to be
without prejudice to the better right of third parties.
The Court took judicial notice of the uniform practice of financing institutions
to investigate, examine and assess the real property offered as security for any loan
application especially where, as in this case, the subject property is a subdivision lot
located at Quezon City, M.M. It is a settled rule that a purchaser or mortgagee
cannot close its eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that there was no defect in
the title of the vendor or mortgagor. Petitioner’s constructive knowledge of the defect
in the title of the subject property, or lack of such knowledge due to its negligence,
takes the place of registration of the rights of respondents-spouses. Hence,
petitioner was not a purchaser or mortgagee in good faith. Petitioner cannot solely
rely on what merely appears on the face of the Torrens Title.
MAGBUHOS, Denise
59. FLANCIA vs. COURT OF APPEALS
G.R. NO. 146997, APRIL 26, 2005
CORONA, J.
FACTS: Plaintiffs spouses Godofredo and Dominica Flancia purchased from

defendant Oakland Development Resources Corp. a parcel of land in Quezon City.
Defendant corporation authorized plaintiffs to transport all their personal belongings
to their house at the aforesaid lot. On December 24, 1992, plaintiffs received a copy
of the execution foreclosing the mortgage issued by the RTC, Branch 98 ordering
defendant Sheriff Ernesto Sula to sell at public auction several lots formerly owned
by defendant corporation including subject lot of plaintiffs. Plaintiffs said that the
alleged mortgage of subject lot is null and void as it is not authorized by plaintiffs
40 | P a g e
Transactions
pursuant to Art. 2085 of the Civil Code which requires that the mortgagor must be
the absolute owner of the mortgaged property.
Defendant William Ong Genato, then filed his answer averring that co-
defendant Oakland Development Resources Corporation mortgaged to Genato two
parcels of land including that of the Flancia’s as security and guaranty for the
payment of a loan in the sum of P2,000,000.00. The said real estate mortgage has
been duly annotated at the back of TCT No. 366380. Due to non-payment of the
loan, defendant Genato filed an action for foreclosure of the real estate mortgage
against co-defendant corporation. The trial court ruled against defendant corporation
and ordered defendant Sheriff Ernesto Sula to cause the sale at public auction of the
properties covered by TCT No. 366380.
Genato said plaintiffs have no cause of action against him and that the
alleged plaintiffs’ Contract to Sell is not registered with the Register of Deeds of
Quezon City to affect defendant Genato and the latter is thus not bound by the
plaintiffs’ Contract to Sell. Genato likewise avers that registered mortgage is superior
to plaintiffs’ alleged Contract to Sell and it is sufficient for defendant Genato as
mortgagee to know that the subject TCT No. 366380 was clean at the time of the
execution of the mortgage contract with defendant corporation.
ISSUES:Whether or not the registered mortgage constituted over the property was
valid.
HELD: YES, the registered mortgage constituted over the property was valid. Under
Art. 2085 of the Civil Code, the essential requisites of a contract of mortgage are: (a)
that it be constituted to secure the fulfillment of a principal obligation; (b) that the
mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons
constituting the mortgage have the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose.
All these requirements are present in this case. As to the first essential
requisite of a mortgage, it is undisputed that the mortgage was executed on May 15,
1989 as security for a loan obtained by Oakland from Genato. As to the second and
third requisites, we need to discuss the difference between a contract of sale and a
contract to sell.
In a contract of sale, title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved
by the vendor and is not to pass to the vendee until full payment of the purchase
price. Otherwise stated, in a contract of sale, the vendor loses ownership over the
property and cannot recover it unless and until the contract is resolved or rescinded;
in a contract to sell, title is retained by the vendor until full payment of the price.
In the contract between petitioners and Oakland, aside from the fact that it
was denominated as a contract to sell, the intention of Oakland not to transfer
ownership to petitioners until full payment of the purchase price was very clear. Acts
of ownership over the property were expressly withheld by Oakland from petitioner.
All that was granted to them by the "occupancy permit" was the right to possess it.
Clearly, when the property was mortgaged to Genato in May 1989, what was in
effect between Oakland and petitioners was a contract to sell, not a contract of sale.
Oakland retained absolute ownership over the property.
41 | P a g e
Transactions
Ownership is the independent and general power of a person over a thing for
purposes recognized by law and within the limits established thereby. According to
Art. 428 of the Civil Code, this means that:
“The owner has the right to enjoy and dispose of a thing, without other
limitations than those established by law.”
Aside from the jus utendi and the jus abutendi inherent in the right to enjoy
the thing, the right to dispose, or the jus disponendi, is the power of the owner to
alienate, encumber, transform and even destroy the thing owned. Because Oakland
retained all the foregoing rights as owner of the property, it was entitled absolutely to
mortgage it to Genato. Hence, the mortgage was valid.
60. PREMIER DEVELOPMENT BANK vs. COURT OF APPEALS

G.R. NO. 128122, MARCH 18, 2005
GARCIA, J.
FACTS: Two different persons with exactly the same name, i.e., Vicente T.
Garaygay, each claimed exclusive ownership of Lot 23 located in Quezon City by
virtue of an owner’s duplicate certificate each had possession of during the period
material covering said lot. One held TCT No. 9780 (as registered in the Manila
Registry before the creation of Quezon City) and the other, TCT No. 9780 (693) (the
new TCT No. under the Quezon City Registry after the creation of Quezon City).
On April 17, 1979, one of the two Vicente T. Garaygays, a resident of Cebu
City (hereinafter referred to as Garaygay of Cebu), executed a deed of sale over the
lot described in and covered by his TCT No. 9780 (693) in favor of his
nephew, Joselito P. Garaygay. The sale notwithstanding, the owner’s duplicate
certificate remained for some time in the seller’s possession.
In another transaction, the other Vicente T. Garaygay, a resident of Rizal

(hereinafter referred to as Garaygay of Rizal), sold to Liberto G. Yambao and Jesus
B. Rodriguez the same property described in TCT 9780.
A fire gutted a portion of the Quezon City hall and destroyed in the process
the original copy of TCT No. 9780 (693) on file with the Registry of Deeds of Quezon
City. It was thereafter reconstituted.
The deed of sale executed by Garaygay of Cebu in favor of Joselitowas

registered. Thereafter, thru the efforts of same Engr. Cortez, Lot 23 was subdivided
into three (3) lots, namely: Lot 23-A, Lot 23-B and Lot 23-C for which TCT Nos.
14414, 14415 and 14416, respectively, were issued.
Joselito sold Lot 23-A to Lilian Toundjis who, pursuant to a Contract to Sell
undertook to pay Joselito the balance of the P2.5 Million purchase price once she is
placed in possession of a fenced-off property. And, for shares of stock, Joselito
assigned Lot 23-B and Lot 23-C to Century Realty and Development
Corporation which, after securing TCT Nos. 34390 and 34391 therefor,
mortgaged the same to Premiere Development Bank, Inc. to secure a P2.5 Million
loan.
ISSUE: Whether or not the mortgage constituted in favor of Premiere Development

Bank was valid.
42 | P a g e
Transactions
HELD: NO. Premiere Bank cannot be accorded the status of an innocent mortgagee
for value vis-à-vis the mortgage of the lots constituted in its favor by Century Realty.
Premiere Bank acted in bad faith because despite the existence of alleged ‘shanties’
which are in fact and in truth big structures in the said lot Premiere Bank proceeded
in the execution of the mortgage contract.
If the land mortgaged is in the possession of a person other than the

mortgagor, the mortgagee is required to go beyond the certificate of title and make
inquiries as to the rights of the actual possessors. Failure to do so would make him a
mortgagee in bad faith and thus invalidate the mortgage.
MANUEL, Maxine
61. DELA MERCED vs. GSIS
G.R. NO. 140398, SEPTEMBER 11, 2001
YNARES-SANTIAGO, J.
FACTS:On September 25, 1956, Spouses Zulueta obtained a loan from GSIS, as
security for which they mortgaged the lands covered by TCT No. 26105 of the
Antonio Subdivision Village with stipulation that certain lots within TCT No. 26105
shall be excluded from the mortgage because they have been either previously sold
to third parties or donated to the government.
On September 3, 1957, the Zulueta spouses executed a contract to sell

whereby they. undertook to sell to Francisco dela Merced and Evarista Mendoza lots
identified as Lots 6, 7, 8 and 10, Block 2, Antonio Subdivision covered by TCT No.
26105. On October 26, 1972, after full payment by Col. dela Merced of the purchase
price, a Deed of Absolute Sale was executed by the Zuluetas in his favor.
On October 15, 1957, another loan was extended by GSIS to the Zulueta
spouses, secured by a mortgage on the properties included in TCT Nos. 26105 and
50256 also within the Antonio Subdivision.
Upon default of Spouses Zulueta, GSIS extrajudicially foreclosed the

mortgage and was able to acquire the mortgaged property. Spouses Manlongat
purchased Lot 6, Block 2 of Antonio Village from a public sale conducted by GSIS.
Petitioner Col. Francisco dela Merced instituted a Civil Case against GSIS
and the spouses Zulueta, praying, among others, that the foreclosure sale of Lot 6,
Block 2 among others be declared null and void, since the mortgage executed by
Spouses Zulueta and GSIS, was also void from the beginning. Petitioners aver that
when Spouses Zulueta mortgaged their property to GSIS on October 15, 1957, they
were no longer the owners of the lots subject of this litigation, the same having been
sold to Francisco dela Merced by virtue of the contract to sell executed on
September 3, 1957. Hence, the mortgage was void from its inception and GSlS, as
mortgagee, acquired no better right notwithstanding the registration of the mortgage.
Respondent maintained that the lots being claimed by petitioners were

included in the real estate mortgage executed by the Zuluetas in favor of GSIS.
While Spouses Manlongat alleged that since Francisco dela Merced never
registered the contract to sell and deed of absolute sale with the Register of Deeds,
43 | P a g e
Transactions
the same cannot affect the rights of third persons such as their daughter, Elizabeth
Manlongat, who dealt in good faith with GSIS as the prior registered owner.
ISSUE: Whether the unregistered sale in favor of petitioners is superior to a

registered mortgage in favor of respondents.
HELD: Yes, Petitioners' rights of ownership over the properties in dispute, albeit
unregistered, are superior to the registered mortgage rights of GSIS over the same.
The execution and validity of the contract to sell dated September 3, 1957 executed
by the Zulueta spouses, as the former subdivision owner, in favor of Francisco dela
Merced, are beyond cavil. There is also no dispute that the contract to sell was
entered into by .the parties before the third mortgage was constituted on October 15,
1957 by the Zuluetas in favor of GSIS on the property covered by TCT No. 26105,
which included the subject lots. Francisco dela Merced was able to fully pay the
purchase price to the vendor, who later executed a deed of absolute sale in his favor.
However, the Zuluetas defaulted on their loans; hence, the mortgage was foreclosed
and the properties were sold at public auction to GSIS as the highest bidder.
Registered mortgage right over the property is inferior to that of unrecorded

sale for the reason that if the original owner had parted with his ownership of the
thing sold then he no longer had ownership and free disposal of that thing so as to
be able to mortgage it again. Registration of the mortgage is of no moment since it is
understood to be without prejudice to the better right of third parties.
Therefore, the registered right of GSIS as mortgagee of the property is

inferior to the unregistered right of Francisco dela Merced. The unrecorded sale
between Francisco dela Merced as the vendee of, the property and the Zuluetas, the
original owners, is preferred for the same reason stated above.
62. NAVARRO vs. LAGUNA DEVELOPMENT BANK

G.R. NO. 129428 FEBRUARY 27, 2003
SANDOVAL-GUTIERREZ, J.
FACTS: The late Catalino Navarro and his wife Consuelo Hernandez originally
owned Lot No. 1513-A. They sold 5/6 of the unsegregated portion of the lot to their
children, namely, Leticia, Esther, Benjamin, Luciana and Leoniza, all surnamed
Navarro. By virtue of the sale, TCT No. 244200 was issued in their names. Spouses
Benjamin and Rosita Navarro, herein petitioners, are listed therein as co-owners of
the property.
Without the knowledge and consent of petitioners Spouses Benjamin and

Rosita Navarro, spouses Donalito Velasco and Esther Navarro, conspiring with the
latter’s sister Luciana Navarro, executed a falsified Deed of Absolute Sale wherein
they made it appear that the entire lot was sold to said spouses Velasco
for P35,000.00. TCT No. 244200 was thus cancelled and in lieu thereof, TCT No.
114526 was issued in the names of spouses Velasco. Subsequently, they mortgaged
the property to respondent Second Laguna Development Bank to secure payment of
a loan.
Upon failure of spouses Velasco to pay their loan, respondent bank had the
mortgage foreclosed. Petitioners Spouses Benjamin and Rosita Navarro, introducing
themselves as attorneys-in-fact of Esther Navarro-Velasco, wrote respondent bank,
offering to redeem the property for P450,000.00. However, they failed to do so.
44 | P a g e
Transactions
Hence, ownership thereof was consolidated in the name of respondent bank under
TCT No. 168230 issued.
Petitioners filed a complaint against respondent bank and spouses Velasco

praying for the (a) annulment of the mortgage; (b) cancellation of TCT No. 168230 in
the name of respondent bank.
In their complaint, petitioners alleged that the sale of the lot with respect to
their 1/6 share is void ab initio considering that their signatures appearing in the
Deed of Absolute Sale were falsified. Consequently, the mortgage contract involving
their share executed by spouses Velasco and respondent bank is likewise void.
ISSUE: Whether Petitioners are estopped from questioning the validity of the
mortgage and its foreclosure.
HELD: Yes, It bears reiterating that in their two letters to respondent bank earlier
mentioned, petitioners did not state that spouses Velasco falsified their signatures
appearing in the Deed of Absolute Sale. Nor did they question the validity of the
mortgage and its foreclosure. Indeed, those letters could have led respondent bank
to believe that petitioners recognized the validity of the Deed of Absolute Sale and
the mortgage as well as its subsequent foreclosure.
Article 1431 of the Civil Code states that "through estoppel an admission or
representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon."A person, who by his
deed or conduct has induced another to act in a particular manner, is barred from
adopting an inconsistent position, attitude or course of conduct that thereby causes
loss or injury to another.
MORELOS, Michelle
63. URSAL VS. COURT OF APPEALS

G.R. No. 142411, October 14, 2005
AUSTRIA-MARTINEZ, J.:
FACTS: The spouses Jesus and CristitaMoneset (Monesets) are the registered
owners of a 333-square meter land together with a house thereon situated at Sitio
Laguna, Basak, Cebu City. On January 9, 1985, they executed a “Contract to Sell
Lot & House” in favor of petitioner WinifredaUrsal. After paying six monthly
installments, petitioner stopped paying due to the Monesets’ failure to deliver to her
the transfer certificate of title of the property as per their agreement; and because of
the failure of the Monesets to turn over said title, petitioner failed to have the contract
of sale annotated thereon.Unknown to petitioner, the Monesets executed on
November 5, 1985 an absolute deed of sale in favor of Dr. Rafael Canora, Jr. over
the said property for P14,000.00.
On September 15, 1986, the Monesets executed another sale, this time
with pacto de retro with RestitutoBundalo.On the same day, Bundalo, as attorney-in-
fact of the Monesets, executed a real estate mortgage over said property with Rural
Bank of Larena (hereafter Bank) located in Siquijor for the amount
of P100,000.00.For the failure of the Monesets to pay the loan, the Bank served a
notice of extrajudicial foreclosure dated January 27, 1988 on Bundalo. Ursal filed an
action for declaration of non-effectivity of mortgage and damages against the
45 | P a g e
Transactions
Monesets, Bundalo and the Bank due to fraud and bad faith in mortgaging the
property.
ISSUE: Whether the Bank failed to look beyond the transfer certificate of title of the
property for which it must be held liable
HELD: We agree. Banks cannot merely rely on certificates of title in ascertaining the
status of mortgaged properties; as their business is impressed with public interest,
they are expected to exercise more care and prudence in their dealings than private
individuals. Indeed, the rule that persons dealing with registered lands can rely solely
on the certificate of title does not apply to banks.Petitioner’s rights were limited to
asking for specific performance and damages from the Monesets. Specific
performance, however, is no longer feasible at this point as explained above. This
being the case, it follows that petitioner never had any cause of action against
respondent Bank. Having no cause of action against the bank and not being an
owner of the subject property, petitioner is not entitled to redeem the subject
property.
64. RIZAL COMMERCIAL BANKING CORPORATION VS. COURT OF

APPEALS
G.R. No. 128866, April 20, 1998
MELO, J.:
FACTS: GOYU applied for credit facilities and accommodations with RCBC at its
Binondo Branch. A credit facility in the amount of P30 million was initially
granted. Upon GOYU’s application and Uy’s and Lao’s recommendation, RCBC’s
executive committee increased GOYU’s credit facility to P50 million, then to P90
million, and finally to P117 million.As security for its credit facilities with RCBC,
GOYU executed two real estate mortgages and two chattel mortgages in favor of
RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro
Manila. GOYU obtained in its name a total of ten insurance policies from MICO. On
April 27, 1992, one of GOYU’s factory buildings in Valenzuela was gutted by fireand
it claimed indemnity from MICO but the latter denied the claim on the ground that the
insurance policies were either attached pursuant to writs of attachments/
garnishments issued by various courts or that the proceeds were also claimed by
other creditors of GOYU. GOYU, alleging better rights to the proceeds, filed for
specific performance and damges before the RTC of Manila. The trial court ruled in
favor of GOYU for the fire loss claims but ordered it to pay RCBC its loan
obligations. On appeal to the CA, it affirmed the ruling with regard to the liabilities of
MICO and RCBC. The trial court and appellate courts both held that, since the
endorsements do not bear the signature of any officer of GOYU, they concluded that
the endorsements are defective. The CA then ordered GOYU to pay its obligation to
RCBC without any interest, surcharges and penalties.
ISSUE: Whether RCBC, as mortgagee, has any right over the insurance policies
taken by GOYU, the mortgagor, in case of the occurrence of loss.
HELD: RCBC has a right over the insurance proceeds.It is settled that a
mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same property
for his own sole benefit. There is no question that GOYU could insure the
mortgaged property for its own exclusive benefit. In the present case, although it
appears that GOYU obtained the subject insurance policies naming itself as the sole
46 | P a g e
Transactions
payee, the intentions of the parties as shown by their contemporaneous acts, must
be given due consideration in order to better serve the interest of justice and equity.
To permit GOYU to capitalize on its non-confirmation of these endorsements

while it continued to enjoy the benefits of the credit facilities of RCBC which believed
in good faith that there was due endorsement pursuant to their mortgage contracts,
is to countenance grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the peculiar
circumstances obtaining in this case, the Court is bound to recognize RCBC’s right
to the proceeds of the insurance policies if not for the actual endorsement of the
policies, at least on the basis of the equitable principle of estoppel.
MUPAS, Janelle
65. RAMIREZ vs. COURT OF APPEALS
G.R. NO. 133841, AUGUST 15, 2003
CARPIO-MORALES, J.
FACTS: Private respondents spouses Loreto Claravall and Victoria Claravall

executed a deed of sale in favor of the spouses Francisco Ramirez, Jr. and Carolina
Ramirez covering a parcel of land with an option to repurchase the property within a
period of two years. At the expiration of the two-year period, the Claravalls failed to
redeem the property, prompting them to file a complaint against the spouses
Ramirez to compel the latter to sell the property back to them. After trial, judgment
was rendered in favor of the spouses Ramirez which was, on appeal, affirmed by the
Court of Appeals. On review, however, this Court, finding that the Deed of Absolute
Sale with option to repurchase executed was one of equitable mortgage, reversed
the decision. Following the death of Francisco Ramirez, Jr., private respondents filed
a complaint for accounting and damages against herein petitioners.
Petitioners alleged that the complaint does not state a cause of action since
prior to the date when redemption was to be effected, the registered owners of the
property were the spouses Ramirez who were entitled to the rentals and fruits
thereof.
ISSUE: Whether petitioner’s contention that they own the subject property is correct.
HELD:The flaw in petitioners’ argument stems from their submission that the
spouses Ramirez, as “vendees,” were the owners of the property after it was
registered in their names following the execution of the deed of sale in their favor.
The declaration, however, by this Court in the first case that the deed of sale with
option to repurchase entered into by the spouses Ramirez and private respondents
was an equitable mortgage necessarily takes the deed out of the ambit of the law on
sales and puts into operation the law on mortgage. It is a well-established doctrine
that the mortgagor’s default does not operate to vest the mortgagee the ownership of
the encumbered property and the act of the mortgagee in registering the mortgaged
property in his own name upon the mortgagor’s failure to redeem the property
amounts to pactumcommissorium, a forfeiture clause declared by this Court as
contrary to good morals and public policy and, therefore, void. Before perfect title
over a mortgaged property may thus be secured by the mortgagee, he must, in case
of non-payment of the debt, foreclose the mortgage first and thereafter purchase the
mortgaged property at the foreclosure sale.
66. PRUDENTIAL BANK vs. ALVIAR

G.R. NO. 150197, JULY 28, 2005
47 | P a g e
Transactions
TINGA, J.
FACTS: On July 1975, SpsAlviar executed a Real Estate Mortgage in favor of

Prudential Bank. The mortgage was registered and secures the payment of the 250k
loan and those that may hereafter be obtained by the Mortgagor. On October 1976,
Don Alviar executed a promissory note (PN) for P2.64M. This was secured by a
“hold out” on his foreign currency SA with the bank. On December 1976, the Sps
executed for Donalco Trading, as President/Chairman of the Board, and VP, another
PN worth P545k. The loan was secured by “Clean- Phase out Temporary Overdraft
(TOD)”. On March 1977, Bank informed Donalco of the approval of the loan, which
will be used to liquidate the overdraft. This loan PN was secured by Deeds of
assignment on two PN executed by Bancom Realty and the chattel mortgage on
various heavy and transpo equipment. On March 1979, the Sps paid the Bank 2M to
be applied to the obligations of Alviar Realty, and for the release of the REM for the
P450k PN. The Bank accepted the payment and released the mortgage. On
January 1980, the Bank moved for extrajudicial foreclosure of the mortgage due to
the total unpaid obligation of P1.6M on the 3 PNs. Resp. Sps the foreclosure is
unlawful since they had already paid the loan that was secured by the REM
Petitioner Bank contends that the payment was for Alviar Realty and not for
the P450k PN and that the blanket mortgage clause or “dragnet clause” covers not
only the P250k loan but all subsequent loans obtained by the Sps, therefore the
foreclosure was valid. The Sps on the other hand contends that the dragnet clause
cannot be applied because the PNs were secured by different forms of security
ISSUE: WON real estate mortgage secures only the first loan of P250,000.
HELD:Two schools of thought: (1) Dragnet clause cover all debts, including future
ones; (2) it will not secure a note that is separately covered by another security. The
SC chose the 2nd school of thought. It held that dragnet clauses are entered into with
an implied understanding that subsequent loans need not be secured by other
securities, as said loans will be secured by the first mortgage. The court held that the
first security (dragnet) is a continuing offer by the borrower to secure future loans,
and when the lender accepts a different security, then he did not accept the offer.
The 1st and 2nd PNs were secured by different securities. 1st PN by the blanket
mortgage in question, and the 2nd PN by the foreign currency savings account.
The foreclosure of the REM should only be for the P250k loan. It can only be
foreclosed as to the 2nd note if the proceeds of the FC/SA that secures it is not
enough to cover the 2nd loan.
PADILLA, Ysabel Jean

67. UNION BANK OF THE PHILIPPINES vs. HON. COURT OF APPEALS
G.R. NO. 164910, SEPTEMBER 30, 2005
YNARES-SANTIAGO, J.
FACTS: D’Rossa Incorporated (DRI) agreed to mortgage its parcels of land in favor
of Union Bank of the Philippines (Union Bank) as security for the credit facility of
Josephine Marine Trading Corporation (JMTC). JMTC availed P3 million from the
credit line.
48 | P a g e
Transactions
Subsequently, Union Bank increased the credit facility of JMTC to P27 million, from
which JMTC availed of about P18 million. Upon JMTC’s failure to pay its obligation,
Union Bank instituted foreclosure proceedings on DRI’s properties. DRI’s properties
were auctioned where Union Bank was declared the highest bidder for
P15,300,000.00.
Thereafter, DRI filed a supplemental complaint seeking to declare the public

sale as null. It claimed that its liability is only P3 million which was the liability
incurred by JMTC under its first agreement with Union Bank. However, Union Bank
alleged that DRI was liable to JMTC’s total outstanding obligations, regardless of
whether it was incurred during or subsequent to the first agreement.
The RTC dismissed the complaint for lack of merit. On appeal, the CA
reversed said decision. While it upheld Union Bank’s right to foreclose, it found that
DRI’s mortgage liability is pegged at P3 million and which was later amended and
increased to P8.61 million. It ruled that DRI could not be held liable for more than
P8.61 million even if JMTC availed more than this amount.
ISSUE: Whether the liability of DRI is limited only to P8.61 million.
HELD: No. The pertinent provisions of the Real Estate Mortgage provide the parties’
intent to constitute DRI’s real estate properties as continuing securities, liable for the
current as well as the future obligations of JMTC. Indeed, a mortgage liability is
usually limited to the amount mentioned in the contract, but where the intent of the
contracting parties is manifest that the mortgage property shall also answer for future
loans or advancements, the same is valid and binding between the parties. This is
what the SC referred to as “blanket mortgage clause” or “dragnet clause”. A
“blanket mortgage clause,” also known as a “dragnet clause” in American
jurisprudence, is one which is specifically phrased to subsume all debts of past or
future origins.
In this case, DRI expressly agreed to secure all the obligations of JMTC,
whether presently owing or subsequently incurred. Thus, its liability is not limited to
P8.61 million only. Even if DRI is considered as an accommodation mortgagor only,
its liability would still exceed P8.61 million.
68. DAVID MAGLAQUE vs. PLANTERS DEVELOPMENT BANK

G.R. NO. 109472. MAY 18, 1999
PARDO, J.
49 | P a g e
Transactions
FACTS: The spouses EgmidioMaglaque and Sabina Payawal were the owners of a
parcel of land, situated in San Miguel Bulacan. On March 1974, the spouses
Maglaque obtained a loan of P2,000 from the Bulacan Development Bank evidenced
by a promissory note, payable on or before March 19, 1975, in two installments, the
first payment of P1,000.00, shall be due on September 19, 1974, and the second
payment of P1,000.00, shall be due on March 19, 1975, with interest at 12% per
annum. To secure the loan, the spouses executed a deed of real estate mortgage on
said land, including its improvements.
On September that same year, Sabina Payawal died. On December 1977,

EgmidioMaglaque paid Planters Development Bank the amount of P2,000.00, which
the bank accepted. On April 9, 1979, EgmidioMaglaque died.
On September 15, 1978, for non-payment in full of the loan, the bank extra-
judicially foreclosed on the real estate mortgage. The bank was the highest bidder.
After the lapse of the redemption period, the bank consolidated its title to the
property and became its registered owner. Meanwhile, David Maglaque, as heir of
the deceased spouses filed with the CFI ofBulacan a complaint for annulment of
the sale conducted by the Provincial Sheriff of Bulacan, reconveyance of title, with
damages, and injunction. The RTC and the CA both dismissed the complaint for lack
of merit.
ISSUE: Whether the Bank should have filed its claim in the settlement of estate of
the deceased mortgagors.
HELD: NO. According to Rule 86, Section 7 of the Revised Rules of Court, the rule is
that a secured creditor holding a real estate mortgage has 3 options in case of death
of the debtor. These are:
(l) to waive the mortgage and claim the entire debt from the estate of the
mortgagor as an ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an
ordinary claim; and
(3) to rely on the mortgage exclusively, foreclosing the same at anytime
before it is barred by prescription, without right to file a claim for any
deficiency.
Obviously, respondent bank availed itself of the third option. Thus, the SC
affirms in full the appealed decision.
PANGANIBAN, Muriel Ielaine B.

69. NORTHERN MOTORS, INC. vs. COQUIA
G.R. NO. L-40018, DECEMBER 15, 1975
50 | P a g e
Transactions
AQUINO, J.
FACTS: A Motion for Reconsideration of the Court's Resolution holding that the lien
of Northern Motors, Inc., as chattel mortgagee, over certain taxicabs is superior to
the levy made on the said cabs by respondent Honesto Ong, the assignee of the
unsecured judgment creditor of the chattel mortgagor, Manila Yellow Taxicab Co.,
Inc. Ong invokes his supposed "legal and equity status" vis-a-vis the mortgaged
taxicabs. He also contends that his sole recourse was to levy upon the taxicabs
which were in the possession of the judgment-debtor Manila Yellow Taxicab Co.,
while Northern Motors, Inc., as unpaid seller and mortgagee, still has "an
independent legal remedy" to recover the unpaid balance of the price against the
mortgagor.
Furthermore, Ong admits "that the mortgagee's right to the mortgaged

property is superior to that of the judgment creditor", but he contends that the rights
of the purchasers of the cars at the execution sale should be respected. He reasons
out they were not parties to the mortgage and that they acquired the cars prior to the
mortgagee's assertion of its rights thereto.
ISSUE: Whether respondent Ong has the right to levy upon the mortgaged taxicabs?
HELD: No. The essence of the chattel mortgage is that the mortgaged chattels
should answer for the mortgage credit and not for the judgment credit of the
mortgagor's unsecured creditor. The mortgagee is not obligated to file an
"independent action" for the enforcement of his credit. To require him to do so would
be a nullification of his lien and would defeat the purpose of the chattel mortgage
which is to give him preference over the mortgaged chattels for the satisfaction of his
credit. Respondent Ong's proposition is devoid of any legal sanction and is glaringly
contrary to the nature of a chattel mortgage. To uphold that contention is to destroy
the essence of chattel mortgage as a paramount encumbrance on the mortgaged
chattel.
The other argument raised by respondent Ong is also untenable. The third-
party claim filed by Northern Motors, Inc. should have alerted the purchasers to the
risk which they were taking when they took part in the auction sale. Moreover, at an
execution sale the buyers acquire only the right of the judgment-debtor which in this
case was a mere right or equity of redemption. The sale did not extinguish the pre-
existing mortgage lien.
Thus, the Court denied the Motion for Reconsideration filed by Ong and the
Sheriff of Manila.
70. PNB vs. RBL ENTERPRISES, INC.

G.R. NO. 149569, MAY 28. 2004
PANGANIBAN, J.
FACTS: Sometime in 1987, respondents opened a prawn hatchery in San Enrique,

Negros Occidental and for this purpose, leased from Nelly Bedrejo a parcel of land
where the operations were conducted. In order to increase productions and improve
the hatchery facilities, respondents applied for and was approved a loan of
P2,000,000.00, by petitioner PNB. To secure its payment, a real estate mortgage
over 2 parcels of land and another real estate and chattel mortgage over the
buildings, culture tanks and other hatchery facilities located in the leased property of
51 | P a g e
Transactions
Nelly Bedrejo, were executed by the respondents in favor of PNB. PNB partially
release on several dates a total sum of P 1,000,000 less the advance interests.
However, during the mid-part of the construction of the improvements, PNB refused
to release the balance allegedly because respondents failed to comply with the
bank’s requirement that Nelly Bedrejo should execute an undertaking or a ‘lessors’
conformity’ provided in Real Estate and Chattel Mortgage contract. The said
undertaking states that "It is a condition of this mortgage that while the obligations
remained unpaid, the acquisition by the lessor of the permanent improvements
covered by this Real Estate Mortgage as provided for in the covering Lease
Contract, shall be subject to this mortgage. For this purpose, the mortgagor hereby
undertakes to secure the lessor’s conformity hereto." For the alleged failure on the
part of the respondents, PNB foreclosed the mortgaged properties.
Thereafter, respondents instituted an action against PNB. Petitioner PNB filed

its Answer with Counterclaim alleging that the lessor's conformity was not an
additional requirement but was already part of the terms and conditions contained in
the Real Estate and Chattel Mortgage contract and that the release of the balance of
the loan was conditioned on the compliance and submission of the required lessors’
conformity.
ISSUE: Whether the non-release of the balance of the loan by petitioner PNB is
justified?
HELD: No. PNB's contention that the lessor’s signature in the conforme portion of
the Real Estate and Chattel Mortgage Contract was a condition precedent to the
release of the balance of the loan to respondents is not persuasive. If the parties
truly intended to suspend the release of the P1,000,000 balance of the loan until the
lessor’s conformity to the Mortgage Contract would have been obtained, such
condition should have been plainly stipulated either in that Contract or in the Credit
Agreement. The tenor of the language used provision on the contract, as well as its
position relative to the whole Contract, negated the supposed intention to make the
release of the loan subject to the fulfillment of the clause. Nowhere did PNB explicitly
state that the release of the second half of the loan accommodation was subject to
the mortgagor’s procurement of the lessor’s conformity to the Mortgage Contract.
Absent such a condition, the efficacy of the Credit Agreement stood, and petitioner
was obligated to release the balance of the loan. Its refusal to do so constituted a
breach of its reciprocal obligation under the Loan Agreement.
RECALDE, Alberto Jr., D.

71. PAMECA WOOD TREATMENT PLANT, INC vs. COURT OF APPEALS and
DBP
G.R. NO. 106435. JULY 14, 1999
GONZAGA-REYES, J.
FACTS: PAMECA loaned P2,000,000.00 from respondent Bank. PAMECA, through

its President Teves, executed a promissory notepromising to pay the loan by
installment. A chattel mortgage consisting of inventories, furniture and equipment,
was made to cover the loan. Upon default, the Bank extrajudicially foreclosed the
chattel mortgage and purchased the same for P322,350.00. Respondent bank filed a
complaint for the collection of the balance of P4,366,332.46 against petitioner
PAMECA and private petitioners herein, as solidary debtors with PAMECA under the
promissory note. The RTC, affirmed by the CA ordered that the plaintiffs pay the
amounts prayed for. They also invoke that Art. 2015 applies in the case at bar in that
52 | P a g e
Transactions
deficiencies and excesses in auction sales of thing pledged can no longer be
recovered as it applies to chattel mortgage as well. 
 
ISSUE: Whether deficiencies can be recovered by the bank in a Chattel Mortgage
sale.
HELD: YES. In pledge, the sale of the thing pledged extinguishes the entire principal
obligation, such that the pledgor may no longer recover proceeds of the sale in
excess of the amount of the principal obligation. The Chattel Mortgage Law
expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of
the principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-
mortgagee from retaining the excess of the sale proceeds there is a corollary
obligation on the part of the debtor-mortgagee to pay the deficiency in case of a
reduction in the price at public auction.The lower court overlooked the fact that the
chattels included in the chattel mortgage are only given as security and not as a
payment of the debt, in case of a failure of payment.
The theory of the lower court would lead to the absurd conclusion that if the
chattels mentioned in the mortgage, given as security, should sell for more than the
amount of the indebtedness secured, that the creditor would be entitled to the full
amount for which it might be sold, even though that amount was greatly in excess of
the indebtedness.
Lastly, the language of the note as signed by the petitioners show that private
petitioners intended to bind themselves solidarily as co-makers with petitioner
PAMECA in the loan.
72. DIZON vs. GABORRO
G.R. NO. L-36821, JUNE 22, 1978
GUERRERO, J.
FACTS:Jose Dizon was the owner three parcels of land. To secure a loan of
P38,000.00 to DBP and P93,831.91 to PNB, he constituted a first and second
mortgage lien over the same parcels. Upon default, the lands were extrajudicially
foreclosed in 1959. After that, Gaborro and Dizon made a 'Deed of Sale with
Assumption of Mortgage' for P131,831.91. A second contract called “Option to
Purchase Real Estate” was executed the same day. The said contract gave Dizon
the option to repurchase said parcels within 5 years. Dizon assigned his right of
redemption to Gaborro.
In 1961, Dizon wrote a letter to Gaborro, offering to reimburse Gaborro of

what he paid to the banks but without tendering any cash, and demanding an
accounting of the income and of the property, contending that the transaction they
entered into was one of antichresis. Gaborro did not accede to the demands. In
1962, Dizon sued Gaborro alleging that the documents Deed of Sale With
Assumption of Mortgage and the Option to Purchase Real Estate did not express the
true intention and agreement between the parties; that their real agreement was not
an absolute sale of the said parcels of land but merely an equitable mortgage. DBP
contended that by October 1959, Dizon was not the owner but only had a right of
redemption to the lands. The trial court and the Court of Appeals held that such
contract was an absolute sale.
53 | P a g e
Transactions
ISSUE: Whether the 'Deed of Sale with Assumption of Mortgage', and "Option to
Purchase Real Estate" is an absolute sale or an equitable mortgage.
HELD:No. Such an instrument cannot be legally considered a real and

unconditional sale of the parcels of land because there was absolutely no money
consideration AND because the properties had already been previously sold at a
foreclosure sale divesting the petitioner of his right to ownership. The only legal
effect of this Option Deed is to grant Dizon the right to recover the properties upon
reimbursing Gaborro of the total sums of money that he may have paid to DBP and
PNB on account of the mortgage debts, the said right to be exercised within the
stipulated 5 years period.
The agreement between Dizon and Gaborro s one of those innominate

contracts under Art. 1307 of the New Civil Code but partaking of the nature of the
antichresis insofar as the principal parties are concerned. Reformation of the
contract is thereby called for. Jurisprudence is to the effect that the purchaser of land
sold at public auction under a writ of execution only has an inchoate right in the
property, subject to be defeated and terminated within the period of 12 months from
the date of sale, by a redemption on the part of the owner. Therefore, the judgment
debtor in possession of the property is entitled to remain therein during the period
allowed for redemption.
A judgment debtor, whose property is may transfer his right of redemption to

any one whom he may desire. The right to redeem land sold under execution within
12 months is a property right and may be sold voluntarily by its owner and may also
be attached and sold under execution.
RECENO, Pia Mitzi

73. BARRETTO vs. VILLANUEVA
G.R. No. L-14938 DECEMBER 29, 1962
REYES, J.B.L., J.:
FACTS: Rosario mortgaged the property to the Rehabilitation Finance Corporation

(RFC) to secure repayment of a loan of P11,000, in installments, but that the debtor
failed to pay some of the installment where the RFC, on 24 August 1949, foreclosed
the mortgage, and acquired the property, subject to the debtors right to redeem or
repurchase the said property; and that on 25 September 1950, the RFC consolidated
its ownership, and the certificate of title of the Cruzados was cancelled and a new
certificate issued in the name of the RFC.
While on 26 July 1951 the RFC did execute a deed selling back the property
to the erstwhile mortgagors and former owners Cruzados in installments, subject to
54 | P a g e
Transactions
the condition (among others) that the title to the property and its improvements "shall
remain in the name of the Corporation (RFC) until after said purchase price,
advances and interest shall have been fully paid", as of 27 September 1952,
Cruzado had only paid a total of P1,360, and had defaulted on six monthly
amortizations; for which reason the RFC rescinded the sale, and forfeited the
payments made, in accordance with the terms of the contract of 26 July 1951.
Meanwhile, on 10 March 1953 that the Cruzados sold to Pura L. Villanueva

all "their rights, title, interest and dominion on and over" the property, lot, house, and
improvements for P19,000.00, the buyer undertaking to assume payment of the
obligation to the RFC. However, the buyer could only pay P5,500 on account of the
note, for which reason the vendor obtained judgment for the unpaid balance. In the
meantime, the buyer Villanueva was able to secure a clean certificate of title (No.
32526), and mortgaged the property to appellant Magdalena Barretto to secure a
loan of P30,000.03, said mortgage having been duly recorded.
Pura Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
foreclosed the mortgage in her favor, obtained judgment, and upon its becoming final
asked for execution on 31 July 1958. On 14 August 1958, Cruzado filed a motion for
recognition for her "vendor's lien" in the amount of P12,000.00 plus legal interest,
invoking Articles 2242, 2243, and 2249 of the new Civil Code. After hearing, the
court below ordered the "lien" annotated on the back of Certificate of Title No. 32526,
with the proviso that in case of sale under the foreclosure decree the vendor's lien
and the mortgage credit of appellant Barretto should be paid pro rata from the
proceeds
ISSUE: Whether or not their right as mortgagees (Barettos) remain superior to the
unrecorded claim of herein appellee (Cruzado) for the balance of the purchase price
of her rights, title, and interest in the mortgaged property.
HELD: The right of the mortgagees (Barrettos) remain superior. It is clear from the
facts above-stated that ownership of the property had passed to the Rehabilitation
Finance Corporation since 1950, when it consolidated its purchase at the foreclosure
sale and obtained a certificate of title in its corporate name. The subsequent contract
of resale in favor of the Cruzados did not revest ownership in them, since they failed
to comply with its terms and conditions, and the contract itself provided that the title
should remain in the name of the RFC until the price was fully paid.
Therefore, when after defaulting in their payments due under the resale
contract with the RFC the appellant Cruzados sold to Villanueva "their rights, title,
interest and dominion" to the property, they merely assign whatever rights or claims
they might still have thereto; the ownership of the property rested with the RFC. The
sale from Cruzado to Villanueva, therefore, was not much a sale of the land and its
improvements as it was a quitclaim deed in favor of Villanueva. In law, operative sale
was that from the RFC to the latter, and it was the RFC that should be regarded as
55 | P a g e
Transactions
the true vendor of the property. At the most, the Cruzados transferred to Villanueva
an option to acquire the property, but not the property itself, and their credit,
therefore, can not legally constitute a vendor's lien on the corpus of the property that
should stand on an equal footing with mortgaged credit held by appellants Barretto.
74. PHILIPPINE SAVINGS BANK vs. LANTIN

G.R. No. L-33929. September 2, 1983
Ponente
FACTS: Involved in this case is a duplex-apartment house on a lot covered by TCT

No. 86195 situated at San Diego Street, Sampaloc, Manila, and owned by the
spouses Filomeno and Socorro Tabligan.The duplex-apartment house was built for
the spouses by private respondent Candido Ramos, a duly licensed architect and
building contractor, at a total cost of P32,927.00. The spouses paid private
respondent the sum of P7,139.00 only. Hence, the latter used his own money,
P25,788.50 in all, to finish the construction of the duplex-apartment.
Meanwhile, on December 16, 1966, February 1, 1967, and February 28,

1967, the spouses Tabligan obtained from petitioner Philippine Savings Bank three
(3) loans in the total amount of P35,000.00, the purpose of which was to complete
the construction of the duplex-apartment. To secure payment of the loans, the
spouses executed in favor of the petitioner three (3) promissory notes and three (3)
deeds of real estate mortgages over the property subject matter of this litigation. All
deeds of mortgages executed were duly registered.
The spouses failed to pay their monthly amortizations. As a result thereof, the
petitioner bank foreclosed the mortgages, and at the public auction held on July 23,
1969, was the highest bidder.Upon the other hand, the private respondent filed an
action against the spouses to collect the unpaid cost of the construction of the
duplex-apartment before the Court of First Instance of Manila. During its pendency,
the private respondent succeeded in obtaining the issuance of a writ of preliminary
attachment, and pursuant thereto, had the property in question attached.
Consequently, a notice of adverse claim was annotated at the back of Transfer
Certificate of Title No. 86195.
On August 26, 1968, a decision was rendered in Civil Case No. 69228 in
favor of the private respondent and against the spouses. A writ of execution was
accordingly issued but was returned unsatisfied.
As the spouses did not have any properties to satisfy the judgment in Civil
Case No. 69228, the private respondent addressed a letter to the petitioner for the
delivery to him (private respondent) of his pro-rata share in the value of the duplex-
56 | P a g e
Transactions
apartment in accordance with Article 2242 of the Civil Code. The petitioner refused to
pay the pro-rata value prompting the private respondent to file the instant action.
ISSUE: Whether or not the private respondent is entitled to claim a pro-rata share in
the value of the property in question.
HELD: The private respondent’s claim must remain subordinate to the petitioner
bank’s title over the property evidenced by TCT No. 101864. In the case at bar,
although the lower court found that "there were no known creditors other than the
plaintiff and the defendant herein," this cannot be conclusive. It will not bar other
creditors in the event they show up and present their claims State petitioner bank,
claiming that they also have preferred liens against the property involved.
Consequently, Transfer Certificate of Title No. 101864 issued in favor of the bank
which is supposed to be indefeasible would remain constantly unstable and
questionable. Such could not have been the intention of Article 2243 of the Civil
Code although it considers claims and credits under Article 2242 as statutory liens.
Neither does the De Barreto case sanction such instability. In fact, an annotation, as
suggested above, would insure to the benefit of the public, particularly those who
may subsequently wish to buy the property in question or who have a business
transaction in connection therewith. It would facilitate the enforcement of a legal
statutory right which cannot be barred by laches (See Manila Railroad Co. v. Luzon
Stevedoring Co., 100 Phil. 135).
Under the De Barreto decision, the full application of Articles 2242 and 2249
demands that there must first be some proceeding where the class of all the
preferred creditors may be bindingly adjudicated, such as insolvency, the settlement
of a decedent’s estate under Rule 87 of the Rules of Court, or other liquidation
proceedings of similar import.
RUTOR, Lyndon
75. A.C. RANSOM LABOR UNION-CCLU vs. NLRC
G.R. No. L-69494 May 29, 1987
MELENCIO-HERRERA, J.
FACTS:In two previous CIR cases, AC RANSOM Corporation was held guilty of
ULP of interference and discrimination and thus ordered to reinstate 22 employees
with backwages from July 25, 1969 until actually reinstated, amounting to at P
199,276.00, and without loss of seniority rights and other privileges appurtenant to
their employment. Successive executions were filed but was opposed until Later this
was reduced to 164,984.00. RANSOM later was granted clearance to cease
operation due to financial difficulties and terminate its employment without prejudice
to the right of the subject employees to seek redress of grievances under existing
laws and decrees.
57 | P a g e
Transactions
Sometime in 1974, the UNION filed another Motion for Execution alleging that
although RANSOM had assumed a posture of suffering from business reverse, its
officers and principal stockholders had organized a new corporation, the Rosario
Industrial Corporation. Execution still failed.
UNION again filed an ex-parte Motion for Writ of Execution and Garnishment
praying that the Writ issue against the Officers/Agents of RANSOM personally and or
their estates.
LA Tito F. Genilo issued in 1980, an Order declaring private corp ROSARIO

and its officer liable and that a writ of execution be issued for P 164,984.00 against
respondent corporation and its officers/agents. NLRC, on appeal, modified the
Decision by relieving the officers and agents, holding only its president as liable for
the backwages.
The SC in the first Certiorari, set aside the NLRC order and reinstated with
modification the Order of the Labor Arbiter Tito F. Genilo of 1980 that personal
liability for the backwages due the 22 strikers shall be limited to Ruben Hernandez,
who was President of RANSOM in 1974, jointly and severally with other Presidents
of the same corporation who had been elected as such after 1972 or up to the time
the corporate life was terminated. MR was sought by both parties.
ISSUE: Whether or not alleged bankruptcy of RANSOM furnishes no justification for

non-payment of backwages to the employees
HELD: NO, the alleged bankruptcy of RANSOM furnishes no justification for non-
payment of backwages to the employees concerned taking into consideration Article
110 of the Labor Code, which provides:
ART. 110. Worker preference in case of bankruptcy. - In the event of bankruptcy
or liquidation of an employer's business, his workers shall enjoy first preference
as regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Unpaid wages shag be paid in full before other creditors may establish any
claim to a share in the assets of the employer.
The term "wages" refers to all remunerations, earnings and other benefits in
terms of money accruing to the employees or workers for services rendered.
They are to be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
Section 10. Payment of wages in case of bankruptcy.-Unpaid wages earned by

the employees before the declaration of bankruptcy or judicial liquidation of the
employer's business shall be given first preference and shall be paid in full
58 | P a g e
Transactions
before other creditors may establish any claim to a share in the assets of the
employer.
The foregoing provisions are but in consonance with the principles of social
justice and protection to labor guaranteed by past and present Constitutions and are
not really being given any retroactive effect when applied herein.
The right of the employees concerned to backwages awarded them had

already vested at the time and even before clearance was granted. Note should also
be taken of the fact that the clearance was without prejudice to the right of subject
employees to seek redress of grievances under existing laws and decrees.
The worker preference applies even if the employer's properties are

encumbered by means of a mortgage contract, as in this case. So that, when
machinery and equipment of RANSOM were sold to Revelations Manufacturing
Corporation for P 2M in 1975, the right of the 22 laborers to be paid from the
proceeds should have been recognized, even though it is claimed that those
proceeds were turned over to the Commercial Bank and Trust Company (Comtrust)
in payment of RANSOM obligations, since the workers' preference is over and above
the claim of other creditors.
Workers are to be paid in full before other creditors may establish any claim
to a share in the assets of the employer:
... even if the employer's properties are encumbered by means of a
mortgage contract, still the workers' wages which enjoy first preference
in case of bankruptcy or liquidation are duly protected by an automatic
first lien over and above all other earlier encumbrances on the said
properties. Otherwise, workers' wages may be imperilled by foreclosure
of mortgages, and as a consequence, the aforecited provision of the New
Labor Code would be rendered meaningless.
76. DBP vs. NLRC
G.R. NO. 108031, MARCH 1, 1995
BELLOSILLO, J.:
FACTS: Private respondent Leonor A. Ang was a personnel officer with Tropical
Philippines Wood Industries, Inc. (TPWII), a corporation engaged in the manufacture
and sale of veneer, plywood and sawdust panel boards.
Later petitioner DBP, as mortgagee of TPWII, foreclosed its plant facilities and
equipment. As a consequence private respondent was verbally terminated from the
service.
Aggrieved, private respondent filed with the Labor Arbiter a complaint for
separation pay, 13th month pay, vacation and sick leave pay, salaries and
allowances against TPWII, its GM, and petitioner.
59 | P a g e
Transactions
LA found TPWII primarily liable to private respondent but only for her
separation pay and vacation and sick leave pay because her other claims were later
paid after the complaint was filed. The GM was absolved. But with respect to
petitioner, it was held subsidiarily liable in the event the company failed to satisfy the
judgment. The LA rationalized that the right of an employee to be paid benefits due
him from the properties of his employer is superior to the right of the latter's
mortgage,
NLRC affirmed LA’s ruling.
ISSUE: Whether public respondent committed grave abuse of discretion in holding

that Art. 110 of the Labor Code, as amended, which refers to worker preference in
case of bankruptcy or liquidation of an employer's business is applicable to the
present case notwithstanding the absence of any formal declaration of bankruptcy or
judicial liquidation of TPWII.
HELD: YES, public respondent gravely abused its discretion in affirming the decision
of the Labor Arbiter. Art. 110 should not be treated apart from other laws but applied
in conjunction with the pertinent provisions of the Civil Code and the Insolvency Law
to the extent that piece-meal distribution of the assets of the debtor is avoided.
In in DBP v. Santos, thethen art 100 of the Labor code in rel. to sec 10 Rule
VIII, Book III, of the Revised Rules and Regulations Implementing the Labor Code,
was interpreted to mean that:
. . . a declaration of bankruptcy or a judicial liquidation must be present before
the worker's preference may be enforced. Thus, Article 110 of the Labor Code
and its implementing rule cannot be invoked by the respondents in this case absent
a formal declaration of bankruptcy or a liquidation order. The rationale is that to hold
Art. 110 to be applicable also to extrajudicial proceedings would be putting the
worker in a better position than the State which could only assert its own prior
preference in case of a judicial proceeding.
Said art and implementing rules were amended but although the terms
"declaration" (of bankruptcy) or "judicial" (liquidation) have been notably eliminated,
still in DBP v. NLRC, this Court did not alter its original position that the right to
preference given to workers under Art. 110 cannot exist in any effective way prior to
the time of its presentation in distribution proceedings.
The rationale has been expressed in the recent case of DBP v. Secretary of
Labor (G.R. No. 79351, 28 November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an advantage of
having his credit satisfied first ahead of other claims which may be
established against the debtor. Logically, it becomes material only when the
properties and assets of the debtors are insufficient to pay his debts in full; for
if the debtor is amply able to pay his various creditors in full, how can the
necessity exist to determine which of his creditors shall be paid first or
whether they shall be paid out of the proceeds of the sale (of) the debtor's
specific property. Indubitably, the preferential right of credit attains
60 | P a g e
Transactions
significance only after the properties of the debtor have been inventoried and
liquidated, and the claims held by his various creditors have been established
In the present case, there is as yet no declaration of bankruptcy nor judicial

liquidation of TPWII. Hence, it would be premature to enforce the worker's
preference.
PREFERENCE DISTINGUISHED FROM LIEN.

A preference applies only to claims which do not attach to specific properties.
A lien creates a charge on a particular property. The right of first preference as
regards unpaid wages recognized by Article 110 does not constitute a lien on the
property of the insolvent debtor in favor of workers. It is but a preference of credit in
their favor, a preference in application. It is a method adopted to determine and
specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent's assets. It is a right to a first preference in the discharge of
the funds of the judgment debtor . . .
In the words of Republic v. Peralta, supra:
Article 110 of the Labor Code does not purport to create a lien in favor
of workers or employees for unpaid wages either upon all of the properties or
upon any particular property owned by their employer.Claims for unpaid wages
do not therefore fall at all within the category of specially preferred claims
established under Articles 2241 and 2242 of the Civil Code, except to the extent that
such claims for unpaid wages are already covered by Article 2241, number 6:
"claims for laborers: wages, on the goods manufactured or the work done;" or by
Article 2242, number 3, "claims of laborers and other workers engaged in the
construction reconstruction or repair of buildings, canals and other works, upon said
buildings, canals and other works . . . . To the extent that claims for unpaid wages fall
outside the scope of Article 2241, number 6, and 22421 number 3, they would come
within the ambit of the category of ordinary preferred credits under Article 2244.
The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation for whose security it was constituted
(Article 2176, Civil Code). It creates a real right which is enforceable against the
whole world. It is a lien on an identified immovable property, which a preference is
not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of
the Civil Code on classification of credits. The preference given by Article 1l0, when
not falling within Article 2241 (6) and Article 2242 (3), of the Civil Code and not
attached to any specific property, is all ordinary preferred credit although its impact is
to move it from second priority to first priority in the order of preference established
by Article 2244 of the Civil Code.
SACRO, MarielleKrizza
77. PHILIPPINE NATIONAL BANK vs. TERESITA CRUZ, ET.AL.
G.R.NO. 80593, DECEMBER 18, 1989
GANCAYCO, J.
61 | P a g e
Transactions
FACTS: Sometime in 1980, Aggregate Mining Exponents (AMEX) laid-off about
seventy percent (70%) of its employees because it was experiencing business
reverses. The retained employees, herein respondents, which constituted thirty
percent (30%) of the work force, were not paid their wages. The non-payment of
salaries went on until July 1982 when AMEX completely ceased its operations.
Subsequently, AMEX entered into an operating agreement with T.M. San Andres
Development Corporation for the lease of the former’s machineries. The employees
sought redress from the Labor Arbiter, claiming non-payment of wages and
separation pay. Ruling in favor of the unpaid employees, the Labor Arbiter ordered
AMEX, T.M. San Andres Development Corporation and petitioner PNB, the
mortgagee-creditor of AMEX, to effectuate the payment of respondents’ claims. PNB
appealed with the NLRC, but the latter affirmed the Labor Arbiter’s decision. In the
present petition, PNB now questions the preference of the workers’ lien over any
other claim. PNB also argues that the workers’ lien does not apply to the employer’s
properties which are encumbered by mortgage contracts.
ISSUE: Whether or not the workers’ lien enjoys preference over other claims and
can be imposed upon the mortgaged properties of the employer.
HELD: Yes. Article 110 of the Labor Code upholds the preference accorded to the
workers. The phrase “any provision of law to the contrary notwithstanding” stated in
said provision indicates that the preference shall prevail despite the order set forth in
Articles 2241 to 2245 of the Civil Code concerning the classification, concurrence
and preference of credits. Furthermore, the Civil Code provisions must yield to
Article 110 of the Labor Code because the latter was signed into law decades after
the Civil Code took effect. It has been established that whenever two statutes of
different dates and of contrary tenor are of equal theoretical application to a
particular case, the statute of later date must prevail being a later expression of
legislative will. Moreover, the pronouncement of the Court in A.C. Ransom Labor
Union-CCLU vs. NLRC is to the effect that, the worker preference applies even if the
employer’s properties are encumbered by means of a mortgage contract and that
any conflict between Article 110 of the Labor Code and Articles 2241 to 2245 of the
Civil Code must be resolved in favor of the former.
78. DPB vs. SANTOS

G.R.NO. 78261-62, MARCH 8, 1989
GUTIERREZ, JR., J.
FACTS: In two separate cases againstRiverside Mills Corporation (RMC), the Labor
Arbiter awarded separation pay, wages, and other monetary benefits to the individual
complainants belonging to Philippine Association Of Free Labor Unions (PAFLU-
RMC CHAPTER) and SamahangDiwangManggagawasa RMC-FFW CHAPTER,
herein private respondents, in the total amount of P85,961,058.70. The Deputy
Sheriff, however, failed to collect said amount so he levied upon the personal and
real properties of RMC. Meanwhile, DBP obtained a writ of possession of all the
properties of RMC after having extra-judicially foreclosed the same at public auction.
The writ of possession prevented the scheduled auction sale of the RMC properties
which were levied upon by the private respondents. In a petition filed by the private
62 | P a g e
Transactions
respondents, the Labor Arbiter TeodoricoDogelio declared the latter’s preference as
regards the wages and other benefits due them. On appeal, the NLRC remanded the
case to respondent Labor Arbiter Ariel Santos, who likewise declared that the former
employees of RMC enjoy first preference as regards separation pay and other
benefits over the encumbrances asserted by DBP. In the present petition, DBP now
argues that there must be a judicial declaration, or at least, a cognizance by an
appropriate court or administrative agency of bankruptcy of the employer. On the
other hand, respondents contend, among others, that under Article 110 of the Labor
Code and its implementing rule, the claims of the laborers for unpaid wages and
other monetary benefits due them for services rendered prior to bankruptcy enjoy
first preference in the satisfaction of credits against a bankrupt company.
ISSUE: Whether or not the workers’ preference under Article 110 of the Labor Code
can be enforced even if there’s no declaration of bankruptcy of the employer or
judicial liquidation of its properties.
HELD: No. A declaration of bankruptcy or a judicial liquidation must be present

before the worker's preference may be enforced. Article 110 of the Labor Code and
its implementing rule cannot be invoked by the respondents absent a formal
declaration of bankruptcy or a liquidation order. Article 110 must not be viewed in
isolation and must always be reckoned with the provisions of the Civil Code.
Furthermore, as explained in the case of Philippine Savings Bank v. Lantin, the
reason behind the necessity for a judicial proceeding or a proceeding in rem before
the concurrence and preference of credits may be applied, is that proceedings in
rem, such as insolvency and settlement of a decedent’s estate, are binding against
the whole world. All persons having interest in the subject matter involved, whether
they were notified or not, are equally bound. Consequently, a liquidation of similar
import or 'other equivalent general liquidation must also necessarily be a proceeding
in rem so that all interested persons whether known to the parties or not may be
bound by such proceeding.
SAN JOSE, Riza Kristina E.

79. ONG vs. COURT OF APPEALS
G.R. NO. 112830, FEBRUARY 1, 1996
BELLOSILLO, J.
FACTS: Jerry Ong filed with the RTC of Quezon City a petition for the surrender of
titles of two parcels of land which were not redeemed after being foreclosed and sold
to him. The Rural Bank of Olongapo (RBO) filed a motion to dismiss contending that
it was undergoing liquidation and that it is the liquidation court which has exclusive
jurisdiction to take cognizance of the petitioner’s claim.
The RTC denied the motion to dismiss holding that the subject lots were no
longer considered assets of RBO when its liquidation was commenced.The appellate
court reversed the decision and noted that the provisions of R.A. No. 265 states that
the liquidation court shall have jurisdiction to adjudicate disputed claims against the
63 | P a g e
Transactions
bank. “Disputed claims” refer to all claims, whether they be against the assets of the
insolvent bank, for specific performance, breach of contract, damages, or whatever.
ISSUE: Whether or not the liquidation court has jurisdiction over petitioner’s claim.
HELD: Yes, the petition should have been filed with the liquidation court. The judicial
liquidation is intended to prevent multiplicity of actions against the insolvent bank.
The lawmaking body contemplated that for convenience only one court, if possible,
should pass upon the claims against the insolvent bank.
It is not necessary that a claim be initially disputed in a court or agency before

it is filed with the liquidation court. Since RBO is insolvent, other claimants not privy
to their transaction may be involved. As far as those claimants are concerned, in the
absence of certificates of title in the name of petitioner, subject lots still form part of
the assets of the insolvent bank.
80. BANCO FILIPINO vs. NATIONAL LABOR RELATIONS COMMISSION

G.R. NO. 82135, AUGUST 20, 1990
MEDIALDEA, J.
FACTS:Banco Filipino was placed under receivership, and later ordered liquidated
by the Monetary Board. Mr. Dizon, the Executive Vice President of Banco Filipino,
filed with the liquidator a request for the payment to him of the cash equivalent of his
vacation and sick leave credits and unexpended/unused reimbursable allowance.
His claims were not paid by the liquidator upon counsel’s advice that Dizon’s claim
should be treated as a claim of a creditor and should therefore be processed
pursuant to the liquidation plan as approved by the Monetary Board.
Dizon filed a complaint with the labor arbiter. The labor arbiter upheld her
jurisdiction and promulgated a decision in favor of Dizon but withheld his demand for
payment of moral damages and attorney’s fees. Both parties appealed to the NLRC
which increased the award due Dizon and further ordered payment of damages and
attorney’s fees.
ISSUE: Whether or not the NLRC has jurisdiction over Dizon’s money claims.
HELD: Yes, the NLRC has jurisdiction. There is nothing in Sec. 29 of R.A. No. 265
which suggests that the jurisdiction of the liquidation court to adjudicate claims
against the insolvent bank is exclusive. Article 217 of the Labor Code explicitly
provides that labor arbiters have original and exclusive jurisdiction over money
claims of an employee against his employer.
64 | P a g e
Transactions
We do not think that this jurisdiction would be lost simply because a former
employer had been placed under liquidation. The legislature deemed it wise to
confer jurisdiction over labor disputes to a body exclusively of others and We are not
prepared to divest such authority from the labor arbiter and the NLRC absent any
clear provision of law to that effect.
TAMBAOAN, Joan Carmel S.

81. PAJUYO vs. CA
430 SCRA 492, G.R. No. 146364, JUNE 3, 2004
CARPIO, J.
FACTS:Petitioner Colito T. Pajuyo (“Pajuyo”) paid P400 to a certain Pedro Perez for
the rights over a 250-square meter lot in Barrio Payatas, Quezon City. He then
constructed a house made of light materials on the lot where he and his family lived
from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra

(“Guevarra”) executed a Kasunduan or agreement. The said Kasunduan provides
that Pajuyo, as owner of the house, allow Guevarra to live in the house for free
provided Guevarra would maintain the cleanliness and orderliness of the house.
Guevarra promised that he would voluntarily vacate the premises on Pajuyo’s
demand.
Sometime in September 1994, Pajuyo informed Guevarra of his need of the

house and demanded that Guevarra vacate the house. Guevarra refused which
prompted Pajuyo to file an ejectment case against Guevarra with the Metropolitan
Trial Court of Quezon City, Branch 31 (“MTC”).
The MTC and RTC ruled in favor of Pajuyo. However, on appeal the Court of
Appeals reversed the MTC and RTC rulings, which held that
the Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a
landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is
not a lease contract but acommodatum because the agreement is not for a price
certain.
ISSUE: Whether or not the Kasunduan is a contract of commodatum.
HELD:No. In a contract of commodatum, one of the parties delivers to another

something not consumable so that the latter may use the same for a certain time and
65 | P a g e
Transactions
return it. An essential feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for a certain
period. Thus, the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent need of the thing, he
may demand its return for temporary use. If the use of the thing is merely tolerated
by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil Code, precarium is a kind
of commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to

Guevarra was not essentially gratuitous. While the Kasunduan did not require
Guevarra to pay rent, it obligated him to maintain the property in good condition. The
imposition of this obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different from that of a
commodatum. Case law on ejectment has treated relationship based on tolerance as
one that is akin to a landlord-tenant relationship where the withdrawal of permission
would result in the termination of the lease. The tenant’s withholding of the property
would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as bailee would still have the duty to turn over possession
of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum. These contracts certainly involve the obligation to
deliver or return the thing received. The Supreme Court held Pajuyo has a better
right of possession over the property involved than Guevarra.
82. REPUBLIC vs. SANDIGANBAYAN

G.R. NO. 166859, APRIL 12, 2011
BERSAMIN, J.
FACTS: This is a consolidated case initiated by the Republic on the alleged ill’gotten
wealth of the Marcos. Among the sequestered property was the sizable block of
shares representing 20% of the outstanding capital stock of San Miguel Corporation
(SMC).
One of the impleaded defendants was Eduardo M. Cojuangco, Jr. who served
as a public officer during the Marcos administration. During the period of his
incumbency as a public officer, he acquired assets, funds, and other property grossly
and manifestly disproportionate to his salaries, lawful income and income from
legitimately acquired property.Allegedly, Cojuangco purchased a block of 33,000,000
shares of SMC stock through the 14 holding companies owned by the CIIF Oil Mills.
66 | P a g e
Transactions
The subject SMC shares were purchased from loan proceeds from UCPB
and advances from the CIIF Oil Mills. The Sandiganbayan ruled that the coco levy
funds were prima facie public funds. This ruling of the Sandiganbayan became the
basis for the sequestration of the SMC shares of stocks.
ISSUE:Whether or not Cojuangco had committed breach of any fiduciary duties as

an officer and member of the Board of Directors of the UCPB for purchasing the
questioned SMC stocks with the proceeds of the loan he obtained from UCPB.
HELD:No. The Amended Complaint contained no clear factual allegation on which to

predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31
of the Corporation Code. Although the trust relationship supposedly arose from
Cojuangco’s being an officer and member of the Board of Directors of the UCPB, the
link between this alleged fact and the borrowings or advances was not established.
Nor was there evidence on the loans or borrowings, their amounts, the approving
authority, etc.
The thrust of the Republic that the funds were borrowed or lent might even
preclude any consequent trust implication. In a contract of loan, one of the parties
(creditor) delivers money or other consumable thing to another (debtor) on the
condition that the same amount of the same kind and quality shall be paid. Owing to
the consumable nature of the thing loaned, the resulting duty of the borrower in a
contract of loan is to pay, not to return, to the creditor or lender the very thing loaned.
This explains why the ownership of the thing loaned is transferred to the debtor upon
perfection of the contract. Ownership of the thing loaned having transferred, the
debtor enjoys all the rights conferred to an owner of property, including the right to
use and enjoy (jus utendi), to consume the thing by its use (jus abutendi), and to
dispose (jus disponendi), subject to such limitations as may be provided by law.
Evidently, the resulting relationship between a creditor and debtor in a contract of
loan cannot be characterized as fiduciary.
A trust receipt transaction is not classified as a simple loan and is

characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115) punishes
the dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of another regardless of whether the latter is the owner.
Based on the foregoing, a debtor can appropriate the thing loaned without
any responsibility or duty to his creditor to return the very thing that was loaned or to
report how the proceeds were used. Nor can he be compelled to return the proceeds
and fruits of the loan, for there is nothing under our laws that compel a debtor in a
contract of loan to do so. As owner, the debtor can dispose of the thing borrowed
and his act will not be considered misappropriation of the thing. The only liability on
his part is to pay the loan together with the interest that is either stipulated or
provided under existing laws.
67 | P a g e
Transactions
TEJANO, Sherina
83. ADVOCATES FOR TRUTH IN LENDING, INC. vs. BANGKO SENTRAL
MONETARY BOARD
G.R. NO. 192986, JANUARY 15, 2013
REYES, J.
FACTS: Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-
stock corporation organized to engage in pro bono concerns and activities relating to
money lending issues. R.A. No. 265, which created the Central Bank (CB) of the
Philippines on June 15, 1948, empowered the CB-MB to, among others, set the
maximum interest rates which banks may charge for all types of loans and other
credit operations, within limits prescribed by the Usury Law. On March 17, 1980, the
Usury Law was amended by Presidential Decree (P.D.) No. 1684, giving the CB-MB
authority to prescribe different maximum rates of interest which may be imposed for
a loan or renewal thereof or the forbearance of any money, goods or credits,
provided that the changes are effected gradually and announced in advance. In its
Resolution No. 2224 dated December 3, 1982, the CB-MB issued CB Circular No.
905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its
General Provisions, removed the ceilings on interest rates on loans or forbearance
of any money, goods or credits. The Circular then went on to amend Books I to IV of
t h e C B ’s " M a n u a l o f R e g u l a t i o n s f o r B a n k s a n d O t h e r F i n a n c i a l
Intermediaries" (Manual of Regulations) by removing the applicable ceilings on
specific interest rates. On June 14, 1993, President Fidel V. Ramos signed into law
R.A. No. 7653 establishing the BangkoSentralngPilipinas (BSP) to replace the CB.
ISSUE: Whether or not the lifting of the ceilings for interest rates authorize
stipulations charging excessive, unconscionable, and iniquitous interest
HELD: No. It is settled that nothing in CB Circular No. 905 grants lenders a carte
blanche authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets. As held in Castro v. Tan: The
imposition of an unconscionable rate of interest on a money debt, even if knowingly
and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property, repulsive to the common sense
of man. It has no support in law, in principles of justice, or in the human conscience
nor is there any reason whatsoever which may justify such imposition as righteous
and as one that may be sustained within the sphere of public or private morals.
Stipulations authorizing iniquitous or unconscionable interests have been

invariably struck down for being contrary to morals, if not against the law.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the
lender’s right to recover the principal of a loan, nor affect the other terms thereof.
Thus, in a usurious loan with mortgage, the right to foreclose the mortgage subsists,
and this right can be exercised by the creditor upon failure by the debtor to pay the
debt due. The debt due is considered as without the stipulated excessive interest,
and a legal interest of 12% per annum will be added in place of the excessive
interest formerly imposed.
68 | P a g e
Transactions
84. PHILIPPINE PHOSPHATE FERTILIZER CORP. vs. KAMALIG
RESOURCES INC.
G.R. NO. 165608, DECEMBER, 13, 2007
TINGA, J.
FACTS: Kamalig Resources Inc. was a reseller of fertilizers purchased from

Philippine Phosphate Fertilizer Corp. (Philphos). Pursuant to their agreement,
Kamalig purchased and made advanced payment for fertilizer products of various
grade to Philphos. Prior to the release of the commodities, however, Kamalig sent
letters requesting for readjustments which, in turn, were granted. Subsequently,
Philphos informed Kamalig that the latter made overwithdrawals of stocks in Manila
and Ilo-ilo, hence, obliged to pay the former P546,645.30. Philphos demanded that
the amount be settled on or before July 31, 1986, otherwise 34% interest per annum
will be charged against Kamalig. Kamalig denied making overwithdrawals and
refused to make payments.
A case for the collection of the sum of money was filed before the RTC of
Makati, which ruled in favor of Philphos. On appeal, the Court of Appeals reversed
the ruling of the trial court. Hence, this petition to the Supreme Court.
ISSUE: Whether or not Kamalig is liable to pay P546,645.30 with 34% interest per
annum
HELD: No, petition does not have merit. The Supreme Court held that the
overwithdrawals were caused by Philphos’ failure to comply with the policy of using
prescribed forms. The Court furthers that as Philphos could have prevented the loss,
it is but fair that it should suffer the loss. Thus, the value of the unauthorized
withdrawals should be for the account of Philphos and not shifted to Kamalig. As to
the interest, the Court reaffirmed that no stipulation was made showing that the
parties intended to pay for interest. Pursuant to Article 1956 of the Civil Code, no
interest shall be due unless it has been expressly stipulated in writing. Unilateral
imposition of interest, like what Philphos did in this case, shall not be allowed.
VALENCIA, CharlonReinier O.
85. CITIBANK N.A. vs. SPS. LUIS AND CARMELITA CABAMONGAN and
their sons LUIS CABAMONGAN JR. and LITO CABAMONGAN
G.R. NO. 146918, MAY 2, 2006
AUSTRIA-MARTINEZ, J.
FACTS: On August 16, 1993, Respondent Spouses opened a joint “and/or” foreign
currency time deposit from herein petitioner bank. It was a deposit in trust for their
sons, amounting to $55,216.69 for a term of 182 days or until February 14, 1994, at
2.5625 per cent interest per annum.
69 | P a g e
Transactions
On November of that same year, a woman introducing herself as Carmelita

Cabamongan went to the Makati branch of petitioner and indicated her intention of
pre-terminating the said foreign currency deposit. She presented several proof of
identification, including a passport and three cards. The transaction was done after
40 minutes with said person getting the deposited money. The account officer
realized that said person left an identification card, prompting her to call the
residence of respondents. She was able to talk to the wife of LitoCabamongan and
immediately relayed this information to Sps. Cabamongan who was apparently in
America.
Herein respondent spouses immediately informed the bank on the matter but
the latter was nevertheless convinced that it was Carmelita who made the pre-
termination. This prompted respondents to file a case for specific performance.
The decision of the court, which was upheld by the appellate courts, ordered
herein petitioners to pay the respondents of the amount of the deposit plus legal
interest. The appellate court, however, modified the court’s ruling by stating that legal
interest should only run from the time extra-judicial demand was made.
Petitioners are questioning, among others, the imposition of an interest rate

on the amount demanded, stating that such is not a loan or forbearance of money.
ISSUE: Whether or not the amount of interest imposed is proper and if so, when
should it be imposed
HELD: The Court ruled that the time deposit subject matter of herein petition is a
simple loan. The provisions of the New Civil Code on simple loan govern the contract
between a bank and its depositor. Specifically, Article 1980 thereof categorically
provides that ". . . savings . . . deposits of money in banks and similar institutions
shall be governed by the provisions concerning simple loan." Thus, the relationship
between a bank and its depositor is that of a debtor-creditor, the depositor being the
creditor as it lends the bank money, and the bank is the debtor which agrees to pay
the depositor on demand.
As to the interest rate, the stipulated interest rate of 2.562% per annum shall
apply for the 182-day contract period from August 16, 1993 to February 14, 1994.
For the period from the date of extra-judicial demand, September 16, 1994, until full
payment, the rate of 12% shall apply. As for the intervening period between February
15, 1994 to September 15, 1994, the rate of interest then prevailing granted by
Citibank shall apply since the time deposit provided for roll over upon maturity of the
principal and interest.
70 | P a g e
Transactions
86. DURBAN APARTMENTS CORP. vs. PIONEER INSURANCE AND SURETY

CORP.
G.R. NO. 179419, JANUARY 12, 2011
NACHURA, J.
FACTS: Respondent herein, by right of subrogation, filed a complaint for recovery of

damages against herein petitioner. The records of the case disclose that one Jeffrey
See checked in at City Garden Hotel, petitioner’s business name, on April 30 2002.
Mr. See was driving a Suzuki Grand Vitara, the keys of which he surrendered to
petitioner’s attendant, and thereafter a parking customer claim stub was given to
him. On May 1,2002, he was informed by the hotel that his vehicle was carnapped
while it was parked unattended in front of Equitable PCI Bank.
Herein respondent indemnified Mr. See for the loss and thereafter, filed a
claim against petitioner for their negligence in the loss of said vehicle. Respondent
showed evidence pointing out to a similar previous case of carnapping involving
petitioner and noted their lack of precaution to prevent a repetition of such incident.
In their answer, herein petitioner stated that See never checked in at the hotel
and was merely a guest of one Mr. Montero. It further claimed that Mr. See merely
requested their attendant to park the vehicle at any available parking space to which
they merely obliged as a special privilege.
Petitioner failed to appear during pre-trial and thus, the Court granted
respondent’s motion to present ex-parte. The evidence presented showed that
petitioner has an agreement with Equitable PCI Bank to use the latter’s parking
space as petitioner only has 12 parking spaces for guests. A decision in favor of
respondent herein was issued holding petitioner liable for the loss of Mr. See’s
vehicle.
ISSUE: Whether or not petitioner is liable for the loss of the vehicle and on what
ground does said liability stand on?
HELD: The Court upheld the ruling of the lower court, stating that respondent was
able to prove that a contract of necessary deposit existed between the insured See
and petitioner.
Records show that upon arrival at the City Garden Hotel, Mr. See gave notice
to the doorman and parking attendant of the said hotel about his Vitara when he
71 | P a g e
Transactions
entrusted its ignition key to the latter. The attendant issued a valet parking customer
claim stub to Mr. See, parked the Vitara at the Equitable PCI Bank parking area, and
placed the ignition key inside a safety key box while Mr. See proceeded to the hotel
lobby to check in. The Equitable PCI Bank parking area became an annex of City
Garden Hotel when the management of the said bank allowed the parking of the
vehicles of hotel guests thereat in the evening after banking hours.
Clearly, the insured deposited his vehicle for safekeeping with petitioner,
through the latter’s employee. In turn, the attendant issued a claim stub to Mr. See.
Thus, the contract of deposit was perfected from Mr. See’s delivery, when he handed
over to the attendant the keys to his vehicle, which the latter received with the
obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss
of See’s vehicle.
YOUNG, Wesley
87. SPS LADANGA VS ASENETA

G.R. NO. 145874, SEPTEMBER 30, 2005
CORONA, J.
FACTS: Bernardo Aseneta and Salvacion Ladanga are both reared and educted by
Celemencia Ladanga. Bernardo was legally adopted by Clementia while Salvacion is
her niece. During her lifetime Clemenia complained of not receiving rentals of her
property from Salvacion, with whom she entrusted such collection. Upon
investigation, Bernado found out that said properties was sold by Clementia to
Salvacion for a price much lower that its fair market value and he also alleged that it
was fraudulent because upon inquiry with Clementia the latter denied of the sale.
Upon his instance, Bernardo was awarded with the guardianship of spinster
Clementia. By such power, Bernardo filed several actions of reconveyance.
Clementia died during pendency of said cases and was thereafter substituted by her
legal heir Bernardo.Bernardo won the case for which the land subject of simulated
sale was ordered to be returned. However, it was discovered that Salvacion sold the
land to another during pendency of case decided.
Bernardo filed contempt proceedings against Salvacion.
ISSUE: Whether selling property annotated with lis pendens is contempt.
HELD: No. A land annotated with lis pendens can be sold. The only effect only of
such annotation is that the land sold is subject to the outcome of the case
In order there be contempt in case of land annotated with lis pendens, there
should first be custodial legis by the court on the subject property. If there be
custodial legis then selling the same when the property is in safekeeping of the court
and without its consent is a clear disobedience and disrespect of the authority of the
court holding the property.
There being no custodia legis over the property in this case, then charge of
contempt shall not be sustained
72 | P a g e
Transactions
YOUNG, Wesley
88. LAND BANK OF THE PHILIPPINES vs PAGAYATAN
G.R. NO. 182572, JUNE 18, 2012
SERENO, J.
FACTS: Lubrica is the assignee of Federico C. Suntay over certain parcels of

agricultural land a portion of the said property with an area of 311.7682 hectares,
was placed under the land reform.The Department of Agrarian Reform (DAR) and
the LBP fixed the value of the land at ₱5,056,833.54 which amount was deposited in
cash and bonds in favor of Lubrica.
Petitioners rejected the valuation of their properties, hence the Office of the
Provincial Agrarian Reform Adjudicator (PARAD) conducted summary administrative
proceedings for determination of just compensation and thereafter fixed the
preliminary just compensation at ₱51,800,286.43 for the 311.7682 hectares and
₱21,608,215.28 for the 128.7161 hectares. LBP Contested it before RTC
Petitioners filed separate Motions to Deposit the Preliminary Valuation ,

praying among others that LBP deposit the preliminary compensation determined by
the PARAD.
The Court of Appeals held that the trial court correctly ordered LBP to deposit
the amounts provisionally determined by the PARAD as there is no law which
prohibits LBP to make a deposit pending the fixing of the final amount of just
compensation. A TRO was subsequenty issued enjoining the owners to collect the
provisional value of the land determinded by PARAD, notwithstanding approval of
the court for LBP to make such deposit provisionally determined.
An order was made to the effect that the cash deposit and bonds be turned
over to clerk of court. One of the heirs contended that it is in violation of the TRO
enjoining collection and that there was no necessity to physically transfer possession
to latter since the bonds and MC was in clerk of court’s name
ISSUE: Whether TRO on collection of monetary proceeds proscribes such amount to

be placed in custodia legis
HELD: NO. There is an existing order for LBP to pay the provisional amount
determined by PARAD but was subject to TRO on collection. If collection is enjoined
and the money ordered be not delivered it is improper if the interested party will be
the depositor and depositary at the same time. The solution of court a quo to place it
in custodial legis is perfectly valid and called upon by aforementioned fact.
For property to be in custodia legis, it must have been lawfully seized and
taken by legal process and authority, and placed in the possession of a public officer
such as a sheriff, or of an officer of the court empowered to hold it such as a
receiver.[15] Therefore, it was only a natural consequence for respondent judge to
order the physical turnover of the deposits, which had already been placed under the
name of the Clerk of Court
Lubrica is the assignee of Federico C. Suntay over certain parcels of

agricultural land a portion of the said property with an area of 311.7682 hectares,
73 | P a g e
Transactions
was placed under the land reform.The Department of Agrarian Reform (DAR) and
the LBP fixed the value of the land at ₱5,056,833.54 which amount was deposited in
cash and bonds in favor of Lubrica.
Petitioners rejected the valuation of their properties, hence the Office of the
Provincial Agrarian Reform Adjudicator (PARAD) conducted summary administrative
proceedings for determination of just compensation and thereafter fixed the
preliminary just compensation at ₱51,800,286.43 for the 311.7682 hectares and
₱21,608,215.28 for the 128.7161 hectares. LBP Contested it before RTC
Petitioners filed separate Motions to Deposit the Preliminary Valuation ,

praying among others that LBP deposit the preliminary compensation determined by
the PARAD.
The Court of Appeals held that the trial court correctly ordered LBP to deposit
the amounts provisionally determined by the PARAD as there is no law which
prohibits LBP to make a deposit pending the fixing of the final amount of just
compensation. A TRO was subsequenty issued enjoining the owners to collect the
provisional value of the land determinded by PARAD, notwithstanding approval of
the court for LBP to make such deposit provisionally determined.
An order was made to the effect that the cash deposit and bonds be turned
over to clerk of court. One of the heirs contended that it is in violation of the TRO
enjoining collection and that there was no necessity to physically transfer possession
to latter since the bonds and MC was in clerk of court’s name.
74 | P a g e

4e Civ Rev

Diunggah oleh

Informasi Dokumen

Judul Asli

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

4e Civ Rev

Diunggah oleh

Hak Cipta:

Format Tersedia

CREDIT TRANSACTIONS

CIVIL LAW REVIEW 2 –

CASE TITLE PAGE NO.

AGA, Greg Mari

ISSUE: Is defendant-appellee bound to pay the stipulated interest only up to the

ANZO, Nilo Jr. M.

ISSUE: Whether or not the obligation became due and demandable.

24. CASA FILIPINA DEVELOPMENT CORPORATION vs. THE DEPUTY

HELD: Yes. The ruling in Reformina v. Tomol, it must be underscored, deals

FACTS: Private respondent MagtanggolEusebio executed separate promissory

The promissory notes were signed by both parties voluntarily. Therefore,

IN VIEW OF THE FOREGOING, the decision of the respondent court a quo,

26. PNB vs. CA

The private respondent appealed to the Court of Appeals and the CA

ISSUE:Whether it was an outright sale as contended by the plaintiff, or a sale merely

28. JOSUE SONCUYA vs. JUAN AZARRAGA, ET AL.

HELD: 1. It is considered as a antichresis or pactocomisorio — not an assignment in

FACTS:Private respondent Zeida B. Brillante-Garfin filed a complaint for specific

Petitioner alleged that private respondent is obliged to pay interest on the

30. STATE INVESTMENT HOUSE, INC. vs. COURT OF APPEALS

FACTS:Respondent spouses Rafael and Refugio Aquino pledged certain shares of

FACTS:Eastern Shipping Lines [Eastern] is a common carrier engaged in

“When the obligation is breached, and it consists in the payment

When an obligation, not constituting a loan or forbearance of money, is

When the judgment of the court awarding a sum of money becomes

32. CASTELO vs. COURT OF APPEALS

FACTS:Petitioner Castelo, et. al. entered a “Deed of Conditional Sale” of a real

HELD: Yes. The Court held,

Summarizing the import of the contractual stipulation of the parties:

BUTRON, Princess May M.

FACTS: In 1982, petitioner company commenced the construction of a steel

Petitioner company denied all the allegations of private respondents and

ISSUE: Whether or not the damages awarded were unconscionable, unreasonable

However, this Court finds that respondent Court of Appeals committed a

Respondent appellate court exceeded its jurisdiction when it modified the

34. CRISMINA GARMENTS, INC., vs. COURT OF APPEALS and NORMA

In Eastern Shipping Lines, Inc. v. Court of Appeals,the Court gave the

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,

2. When an obligation, not constituting a loan or forbearance of money, is

CUEVAS, May Zyra

ISSUE: What is the applicable rate of interest?

36. TIO KHE CHO vs. CA

FACTS: Petitioner shipped bags of imported fishmeals and insured thesame

ISSUE:What is the applicable rate of interest?

38. PHILIPPINE NATIONAL BANK, vs.COURT OF APPEALS, CAPITOL CITY

Regional Trial Court ordered PBCom to re-credit or reimburse plaintiff Capitol

Court of Appeals modified by exempting PBCom from liability to plaintiff-

ISSUE: Whether or not the award of attorney's fees is proper.

Hence, the present petition.

To clarify an ambiguity or correct a clerical error in the judgment, the court

Hence, this petition.

In that decision this Court affirmed the order of the Undersecretary of

Santulan's obligation to reimburse Lusin the value of his improvements was

42. RUIZ vs. CANEBA

DIAZ, Karl Adrian

As to the defense of defendants Oledan, the agreement relied upon by

44. RCBC vs. CA

Thus, the insurance proceeds may, therefore, be exclusively applied to

FACTS:Aurelio G. Briones filed an action in the Municipal Court of Manila against

46. ANGEL JOSE WAREHOUSING CO., INC. vs. CHELDA ENTERPRISES

ISSUE: Whether compounded interest could be further earned where no interest is

HELD:No. In cases where no interest stipulated, no compounded interest could be

DUBLADO, Jerika Joy K.