BANK OF THE PHILIPPINE ISLANDS, INC.vs. SPS.

NORMAN AND ANGELINA YU and

TUANSON BUILDERS CORPORATION represented by PRES. NORMAN YU
G.R. No. 184122. January 20, 2010.
DOCTRINE: The courts have authority to reduce penalty charges when these are unreasonable and
iniquitous.
FACTS:
Norman and Angelina Yu, doing business as Tuanson Trading, and Tuanson Builders Corporation
(Tuanson Builders) borrowed various sums totaling P75 million from Far East Bank and Trust
Company. For collateral, they executed real estate mortgages over several of their properties. In
1999, unable to pay their loans, the Yus and Tuanson Builders requested a loan restructuring, which
the bank, now merged with Bank of the Philippine Islands (BPI), granted. By this time, the Yus loan
balance stood at P33,400,000.00. The restructured loan used the same collaterals, with the exception
of Transfer Certificate of Title 40247 that secured a loan of P1,600,000.
Despite the restructuring, however, the Yus still had difficulties paying their loan. They asked BPI to
release some of the mortgaged lands since their total appraised value far exceeded the amount of the
remaining debt. When BPI ignored their request, the Yus withheld payments on their amortizations.
Thus, BPI extrajudicially foreclosedthe mortgaged properties in Legazpi City and in Pili, Camarines
Sur. But the Yus sought by court action against BPI and the winning bidder, Magnacraft Development
Corporation (Magnacraft), the annulment of the foreclosure sale.
In the course of the proceedings, however, the Yus and Magnacraft entered into a compromise
agreement that affirmed the latters ownership of three out of the 10 parcels of land that were
auctioned. By virtue of this agreement, the court dismissed the complaint against Magnacraft, without
prejudice to the Yus filing a new one against BPI.
On October 24, 2003 the Yus filed their new complaint before the Regional Trial Court (RTC) of
Legazpi City, Branch 1, in Civil Case 10286 against BPI for recovery of alleged excessive penalty
charges, attorneys fees, and foreclosure expenses that the bank caused to be incorporated in the
price of the auctioned properties.hi1
In its answer, BPI essentially admitted the foreclosure of the mortgaged properties
for P39,055,254.95, broken down as follows: P33,283,758.73 as principal debt; P2,110,282.78 as
interest; and P3,661,213.46 as penalty charges. BPI qualified that the total of P39,055,254.95
corresponded only to the Yus debt as of date of filing of the petition. The notice of the auction sale
said that the total was "inclusive of interest, penalty charges, attorneys fee and expenses of this
foreclosure."
ISSUE: Whether or not BPI imposed excessive penalty charges and interest: over P5 million in
penalty charges computed at 36% per annum. In addition, BPI collected a 14% yearly interest on the
principal, bringing the combined penalty charges and interest to 50% of the principal per annum.
RULING:
Penalty charge, which is liquidated damages resulting from a breach, falls under item (6) or finance
charge. A finance charge "represents the amount to be paid by the debtor incident to the extension of
credit." The lender may provide for a penalty clause so long as the amount or rate of the charge and
the conditions under which it is to be paid are disclosed to the borrower before he enters into the
credit agreement.
In this case, although BPI failed to state the penalty charges in the disclosure statement, the
promissory note that the Yus signed, on the same date as the disclosure statement, contained a
penalty clause that said: "I/We jointly and severally, promise to further pay a late payment charge on
any overdue amount herein at the rate of 3% per month." The promissory note is an acknowledgment
of a debt and commitment to repay it on the date and under the conditions that the parties agreed
on. It is a valid contract absent proof of acts which might have vitiated consent.

The question is whether or not the reference to the penalty charges in the promissory note constitutes
substantial compliance with the disclosure requirement of the Truth in Lending Act. The RTC and CA
relied on the ruling in New Sampaguita as authority that the non-disclosure of the penalty charge
renders its imposition illegal. But New Sampaguita is not attended by the same circumstances. What
New Sampaguita disallowed, because it was not mentioned either in the disclosure statement or in
the promissory note, was the unilateral increase in the rates of penalty charges that the creditor
imposed on the borrower. Here, however, it is not shown that BPI increased the rate of penalty charge
that it collected from the Yus.
The ruling that is more in point is that laid down in The Consolidated Bank and Trust Corporation v.
Court of Appeals, a case cited in New Sampaguita. The Consolidated Bank ruling declared valid the
penalty charges that were stipulated in the promissory notes. What the Court disallowed in that case
was the collection of a handling charge that the promissory notes did not contain.
The Court has affirmed that financial charges are amply disclosed if stated in the promissory note in
the case of Development Bank of the Philippines v. Arcilla, Jr. The Court there said, "Under Circular
158 of the Central Bank, the lender is required to include the information required by R.A. 3765 in the
contract covering the credit transaction or any other document to be acknowledged and signed by the
borrower. In addition, the contract or document shall specify additional charges, if any, which will be
collected in case certain stipulations in the contract are not met by the debtor." In this case, the
promissory notes signed by the Yus contained data, including penalty charges, required by the Truth
in Lending Act. They cannot avoid liability based on a rigid interpretation of the Truth in Lending Act
that contravenes its goal.
Nonetheless, the courts have authority to reduce penalty charges when these are unreasonable and
iniquitous.Considering that BPI had already received over P2.7 million in interest and that it seeks to
impose the penalty charge of 3% per month or 36% per annum on the total amount dueprincipal
plus interest, with interest not paid when due added to and becoming part of the principal and also
bearing interest at the same ratethe Court finds the ruling of the RTC in its original
decision reasonable and fair. Thus, the penalty charge of 12% per annum or 1% per month is
imposed.

ELIGIO P. MALLARI vs. GOVERNMENT SERVICEINSURANCE SYSTEM and THE PROVINCIAL

SHERIFFOF PAMPANGA
G.R. No. 157659. January 25, 2010.
DOCTRINE: The mortgagor or his successor-in-interest must redeem the foreclosed property within
one year from the registration of the sale with the Register of Deeds in order to avoid the title from
consolidating in the purchaser. By failing to redeem thuswise, the mortgagor loses all interest over the
foreclosed property. The purchaser, who has a right to possession that extends beyond the expiration
of the redemption period, becomes the absolute owner of the property
FACTS:
In 1968, Mallari obtained two loans totaling P34,000.00 from GSIS. To secure the performance of his
obligations, he mortgaged two parcels of land registered under his and his wife names. However, he
paid GSIS about ten years after contracting the obligations only P10,000.00 onMay 22,
1978 and P20,000.00 on August 11, 1978.
GSIS sent a telegraphic demand to him to update his account. Mallari requested a final accounting,
but did not do anything more. Nearly three years later, GSIS applied for the extrajudicial foreclosure of
the mortgage by reason of his failure to settle his account. Mallari persuaded the sheriff to hold the
publication of the foreclosure notice in abeyance, to await action on his pending request for final
accounting. GSIS responded to his request and rendered a detailed explanation of the account and
finally commenced extrajudicial foreclosure proceedings against him because he had meanwhile
made no further payments.

Mallari sued GSIS and the Provincial Sheriff of Pampanga to enjoin them from proceeding against him
for injunction. The RTC decided in his favor, nullifying the extrajudicial foreclosure and auction
sale.GSIS appealed to the CA, which reversed the RTC decision.
Granting the ex parte motion of GSIS, the RTC issued a writ of execution cum writ of
possession ordering the sheriff to place GSIS in possession of the properties. The sheriff failed to
serve the writ, however, partly because of the petitioners request for an extension of time within which
to vacate the properties. It is noted that GSIS acceded to the request.In the meanwhile, Mallari filed a
motion to hold GSIS, et al. in contempt of court for painting the fence of the properties during the
pendency of his motion for reconsideration and/or to quash the writ of execution.
ISSUE: Whether or not the issuance of the writ of execution cum writ of possession is invalid as
Mallari was not notified of the motion seeking its issuance.
RULING:
The Court sustain the CA, and confirm that the Mallari, as defaulting mortgagor, was not entitled
under Act 3135, as amended, and its pertinent jurisprudence to any prior notice of the application for
the issuance of the writ of possession.
A writ of possession, which commands the sheriff to place a person in possession of real property,
may be issued in: (1) land registration proceedings under Section 17 of Act No. 496; (2) judicial
foreclosure, provided the debtor is in possession of the mortgaged property, and no third person, not a
party to the foreclosure suit, had intervened; (3) extrajudicial foreclosure of a real estate mortgage,
pending redemption under Section 7 of Act No. 3135, as amended by Act No. 4118; and (4) execution
sales, pursuant to the last paragraph of Section 33, Rule 39 of the Rules of Court.
Anent the redemption of property sold in an extrajudicial foreclosure sale made pursuant to the
special power referred to in Section 1 of Act No. 3135, as amended, the debtor, his successor-ininterest, or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which the property is sold has the right to
redeem the property at anytime within the term of one year from and after the date of the sale, such
redemption to be governed by the provisions of Section 464 to Section 466 of the Code of Civil
Procedure, to the extent that said provisions were not inconsistent with the provisions of Act 3135.
Accordingly, the mortgagor or his successor-in-interest must redeem the foreclosed property within
one year from the registration of the sale with the Register of Deeds in order to avoid the title from
consolidating in the purchaser. By failing to redeem thuswise, the mortgagor loses all interest over the
foreclosed property. The purchaser, who has a right to possession that extends beyond the expiration
of the redemption period, becomes the absolute owner of the property when no redemption is
made, that it is no longer necessary for the purchaser to file the bond required under Section 7 of Act
No. 3135, as amended, considering that the possession of the land becomes his absolute right as the
lands confirmed owner.The consolidation of ownership in the purchasers name and the issuance to
him of a new TCT then entitles him to demand possession of the property at any time, and the
issuance of a writ of possession to him becomes a matter of right upon the consolidation of title in his
name.
The court can neither halt nor hesitate to issue the writ of possession. It cannot
exercise any discretion to determine whether or not to issue the writ, for the issuance of the writ to the
purchaser in an extrajudicial foreclosure sale becomes a ministerial function.
It is clear from the foregoing that a non-redeeming mortgagor like the petitioner had no more right to
challenge the issuance of the writ of execution cum writ of possession upon theex parte application of
GSIS. He could not also impugn anymore the extrajudicial foreclosure, and could not undo the
consolidation in GSIS of the ownership of the properties, which consolidation was already irreversible.
Hence, his moves against the writ of execution cum writ of possession were tainted by bad faith, for
he was only too aware, being his own lawyer, of the dire consequences of his non-redemption within
the period provided by law for that purpose.

FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS) AND
ROLANDO BORJA, DEPUTY SHERIFFvs.SPS. ERNESTO AND LEONOR C. CAYETANO
G.R. No. 179909. January 25, 2010.

DOCTRINE:It is a general rule in the law of agency that, in order to bind the principal by a mortgage
on real property executed by an agent, it must upon its face purport to be made, signed and sealed in
the name of the principal, otherwise, it will bind the agent only.

FACTS:

Leonor C. Cayetano executed a special power of attorney in favor of her daughter Teresita C. Tabing
authorizing her to contract a loan from petitioner in an amount not more than P300,000.00 and to
mortgage her two (2) lots located in Barangay Carolina, Naga City. For the approval of the loan,
Cayetano also executed an affidavit of non-tenancy. Petitioner loaned TabingP100,000.00 secured by
two (2) promissory notes and a real estate mortgage over Cayetanos two (2) properties. The
mortgage document was signed by Tabing and her husband as mortgagors in their individual
capacities, without stating that Tabing was executing the mortgage contract for and in behalf of the
owner.

Petitioner foreclosed the mortgage for failure of the respondents and the spouses Tabing to pay the
loan. A notice of public auction sale, to be conducted on September 18, 1991, was sent to
respondents. The subject properties were sold to petitioner for P160,000.00. Subsequently, petitioner
consolidated its title and obtained new titles in its name after the redemption period lapsed without
respondents taking any action.

More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter to petitioner expressing the
intent to repurchase the properties for two hundred fifty thousand pesos (P250,000.00) with proposed
terms of payment. Petitioner refused the offer stating that the minimum asking price for the properties
was five hundred thousand pesos (P500,000.00) and it was not amenable to the proposed terms of
payment. Petitioner nevertheless gave respondents the chance to buy back the properties by joining a
bidding to be set in some future date. However, respondents filed on December 18, 1996 a complaint
for annulment of mortgage and extrajudicial foreclosure of the properties with damages in the RTC of
Naga City. Respondents sought nullification of the real estate mortgage and extrajudicial foreclosure
sale, as well as the cancellation of petitioners title over the properties.

After trial, the RTC rendered judgment in favor of the respondents, holding that the Cayetano cannot
be bound by the real estate mortgage executed by the agent (Tabing) unless it is shown that the same
was made and signed in the name of the principal; hence, the mortgage will bind the agent only. The
trial court also found that there was no compliance with the requirement of publication of the

foreclosure sale in a newspaper of general circulation as provided in Act No. 3135, as amended. Such
requisite must be strictly complied with as any slight deviation therefrom will render the sale
voidable.The Court of Appeals affirmed the RTCs ruling. It held that it must be shown that the real
estate mortgage was executed by the agent on-behalf of the principal, otherwise the agent may be
deemed to have acted on his own and the mortgage is void. However, the appellate court further
declared that the principal loan agreement was not affected, which had become an unsecured credit.
The Court of Appeals denied petitioners motion for reconsideration.

ISSUE: Whether or not the principal is bound by the real estate mortgage executed by the authorized
agent in her own name without indicating the principal.

RULING:

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was
in fact authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it
ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of
attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the
mortgage. This is especially true where the agent himself is a party to the instrument. However clearly
the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in
fact it is executed by the agent for and on behalf of his principal and as the act and deed of the
principal, it is not valid as to the principal.

There is no absolute rule on what constitutes laches. It is a creation of equity and applied not really to
penalize neglect or sleeping upon ones rights but rather to avoid recognizing a right when to do so
would result in a clearly inequitable situation. The question of laches, we said, is addressed to the
sound discretion of the court and each case must be decided according to its particular
circumstances. Verily, in a number of cases, it had been held that laches, the essence of which is the
neglect to assert a right over a long period of time, may prevent recovery of a titled property.

In the present case, records clearly show that respondents could have filed an action to annul the
mortgage on their properties, but for unexplained reasons, they failed to do so. They only questioned
the loan and mortgage transactions in December 1996, or after the lapse of more than five (5) years
from the date of the foreclosure sale. It bears noting that the real estate mortgage was registered and
annotated on the titles of respondents, and the latter were even informed of the extrajudicial
foreclosure and the scheduled auction. Instead of impugning the real estate mortgage and opposing
the scheduled public auction, respondents lawyer wrote a letter to petitioner and merely asked that
the scheduled auction be postponed to a later date. Even after five (5) years, respondents still failed
to oppose the foreclosure and the subsequent transfer of titles to petitioner when their agent, Tabing,
acting in behalf of Cayetano, sent a letter proposing to buy back the properties. It was only when the
negotiations failed that respondents filed the instant case. Clearly, respondents slept on their rights.

ASIAN TERMINALS, INC. vs. DAEHAN FIRE AND MARINE INSURANCE CO., LTD.
G.R. No. 171194. February 4, 2010.

DOCTRINE: The relationship between the consignee and the arrastre operator is akin to that existing
between the consignee and/or the owner of the shipped goods and the common carrier, or that
between a depositor and a warehouseman. In the performance of its obligations, an arrastre operator
should observe the same degree of diligence as that required of a common carrier and a
warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre operators
duty is to take good care of the goods and to turn them over to the party entitled to their possession.

FACTS:

Doosan Corporation shipped twenty-six (26) boxes of printed aluminum sheets on board the vessel
Heung-A Dragon owned by Dongnama Shipping Co., Ltd. The shipment was consigned to Access
International. Doosan insured the subject shipment with Daehan Fire and Marine Insurance Co., Ltd.
under an "all-risk" marine cargo insurance policy, payable to its settling agent in the Philippines, the
Smith Bell & Co., Inc. (Smith Bell). When vessel arrived in Manila and the containerized van was
discharged and unloaded in apparent good condition, as no survey and exceptions were noted in the
Equipment Interchange Receipt (EIR) issued by petitioner. The container van was stored in the
Container Yard of the Port. On July 18, 2000, Access International requested from petitioner and the
licensed Customs Broker, Victoria Reyes Lazo, a joint survey of the shipment at the place of storage
in the Container Yard, but no such inspection was conducted.

Petitioner released, the shipment and delivered it to Access Internationals warehouse in Binondo,
Manila. Access together with its surveyor, Lloyds Agency, conducted an inspection and noted that
only twelve (12) boxes were accounted for, while fourteen (14) boxes were missing. Access
International thus filed a claim against petitioner and V. Reyes Lazo for the missing shipment
amounting to $34,993.28. For failure to collect its claim, Access International sought indemnification
from respondent in the amount of $45,742.81. Respondent paid the amount of the claim and Access
International accordingly executed a Subrogation Receipt in favor of the former.

Daehan, represented by Smith Bell, instituted the present case against the petitioner and Reyes Lazo
before the RTC. Respondent alleged that the losses, shortages and short deliveries sustained by the
shipment were caused by the joint fault and negligence of Dongnama, petitioner and V. Reyes Lazo.
ISSUE: Whether or not the Asian Terminal Inc. is liable for the loss of the subject shipment.

RULING:

The relationship between the consignee and the arrastre operator is akin to that existing between the
consignee and/or the owner of the shipped goods and the common carrier, or that between a
depositor and a warehouseman. In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a warehouseman.
Being the custodian of the goods discharged from a vessel, an arrastre operators duty is to take good
care of the goods and to turn them over to the party entitled to their possession.
The loss of 14 out of 26 boxes of printed aluminum sheets is undisputed. Records show that the
subject shipment was discharged from the vessel and placed under the custody of petitioner for a
period of seven days. Thereafter, the same was withdrawn from the container yard by the customs
broker, then delivered to the consignee. It was after such delivery that the loss of 14 boxes was
discovered. Hence, the complaint against both the arrastre operator and the customs broker. In a
claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance with the
obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since the
safekeeping of the goods is its responsibility, it must prove that the losses were not due to its
negligence or to that of its employees. To prove the exercise of diligence in handling the subject
cargoes, petitioner must do more than merely show the possibility that some other party could be
responsible for the loss or the damage. It must prove that it exercised due care in the handling
thereof. Petitioner failed to do this. Instead, it insists that it be exonerated from liability, because the
customs brokers representative received the subject shipment in good order and condition without
exception. The appellate courts conclusion on this matter is instructive. The signature of the
person/broker representative merely signifies that said person thereby frees the ATI from any liability
for loss or damage to the cargo so withdrawn while the same was in the custody of such
representative to whom the cargo was released. It does not foreclose any remedy or right of the
consignee to prove that any loss or damage to the subject shipment occurred while the same was
under the custody, control and possession of the arrastre operator. Considering that both petitioner
and V. Reyes Lazo were negligent in the performance of their duties in the handling, storage and
delivery of the subject shipment to the consignee, resulting in the loss of 14 boxes of printed
aluminum sheets, both shall be solidarily liable for such loss.

G.G. SPORTSWEAR MANUFACTURING CORP. and NARESH K. GIDWANI vs.

BANCO DE ORO UNIBANK, INC., PHILIPPINE INVESTMENT ONE (SPV-AMC), INC. and THE
OFFICE OF THE CLERK OF COURT AND EX OFFICIO SHERIFF OF THE REGIONAL TRIAL
COURT OF MAKATI CITY, BRANCH 133, as represented by ATTY. ENGRACIO M. ESCASINAS,
JR.
G.R. No. 184434. February 8, 2010.

DOCTRINE: If the loan obligation was transferred by the creditor to a third person or entity and the
latter did not contest former creditors ownership of the loan receivables and its right to foreclose the
mortgages, the foreclosure will be valid.

FACTS:
G.G. Sportswear and Naresh Gidwani mortgaged a lot in Aranda, Makati, and a house and lot in BelAir Village, also in Makati, to Equitable-PCI Bank, now the respondent Banco de Oro Unibank, Inc.
(BDO), to secure a P20,357,000.00 loan to G.G. Sportswear. On April 25, 1996, to secure an
additional P11,643,000.00 loan that BDO gave G.G. Sportswear, the parties amended the real estate
mortgages to include such loan. G.G. Sportswear was unable to pay its loans.

BDO told G.G. Sportswear in a letter that the bank transferred on that date its "past due loan
obligation with the bank," totaling US$12,257,581.31 as of December 31, 2004, to Philippine
Investment One (SPV-AMC), Inc., "including all interest, fees, charges, penalties, and
securities/collaterals, if any."

Subsequently, however, respondent BDO applied with the Ex Officio Sheriff of Makati for the
foreclosure of the properties mortgaged with the bank. The notice of sheriffs sale scheduled the
auction of the properties on May 31, 2007 but this was subsequently rescheduled to July 18, 2007. At
any rate, the sheriff auctioned off the Aranda property to BDO on June 21, 2007. Petitioners filed an
action with the Regional Trial Court (RTC) of Makati, in Civil Case 07-631, to annul the foreclosure,
hold respondent BDO in indirect contempt, award damages, and enjoin further foreclosure by TRO
and preliminary injunction. They alleged that, as a result of BDOs transfer of G.G. Sportswears loan
receivables to PIO in 2005, BDO lost the right to foreclose. In its answer, BDO denied transferring
petitioner G.G. Sportswears loan receivables to PIO.

ISSUE: Whether or not the foreclosure initiated by BDO is valid despite the banks apparent
assignment of its credit to another entity.

RULING:

First. The mortgaged properties were due for foreclosure. Admittedly, G.G. Sportswear had defaulted
on the loans secured by the subject mortgages. Petitioners had, therefore, no right to complain about
losing their properties to foreclosure.

Second. The issue of which party owns the loan receivables and, consequently, had the right to
foreclose the mortgages is essentially an issue between BDO and PIO. This issue is the concern of
G.G. Sportswear and Gidwani but only to the extent that they are entitled to ensure that the proceeds
of the foreclosure sale were paid to the right party. PIO, which had been impleaded in the case, did

not contest BDOs ownership of the loan receivables and its right to foreclose the mortgages. Besides,
the real estate mortgages presented for foreclosure remained in BDOs name. No document has been
presented superseding it.
For the above reasons, it cannot be said that petitioners G.G. Sportswear and Gidwani have
established a right to the main relief they want, namely, the arrest of the foreclosure sale of their
mortgaged properties after they had admitted not paying their loans. As for their claim that BDO had
bloated G.G. Sportswears outstanding obligation, the remedy if this turns out to be true is to direct
BDO to return the excess proceeds with damages as the circumstances may warrant.
Since there is a valid cause to foreclose on the mortgages, petitioners G.G. Sportswear and Gidwani
cannot claim that the irreparable damage they wanted to prevent by their application for preliminary
injunction is the loss of their properties to auction sale. Their real injury, if it turns out that the right to
foreclose belongs to PIO rather than to BDO, is payment of the proceeds of the auction sale to the
wrong party rather than to their creditor. But this kind of injury is purely monetary and is compensable
by an appropriate judgment against BDO. It is not in any sense an irreparable injury.

CUA LAI CHU, CLARO G. CASTRO, and JUANITA CASTRO vs. HON. HILARIO L. LAQUI,
Presiding Judge, Regional Trial Court, Branch 218, Quezon City and PHILIPPINE BANK OF
COMMUNICATION
G.R. No. 169190. February 11, 2010.

DOCTRINE: The purchaser at an extrajudicial foreclosure sale has a right to the possession of the
property even during the one-year redemption period provided the purchaser files an indemnity bond.
After the lapse of the said period with no redemption having been made, that right becomes absolute
and may be demanded by the purchaser even without the posting of a bond.

FACTS:

Petitioners obtained a loan in the amount of P3,200,000 from Philippine Bank of Communication. To
secure the loan, petitioners executed in favor of the bank a Deed of Real Estate Mortgage. Petitioners
executed an Amendment to the Deed of Real Estate Mortgage increasing the amount of the loan
by P1,800,000, bringing the total loan amount to P5,000,000. For failure of petitioners to pay the full
amount of the outstanding loan upon demand, the bank applied for the extrajudicial foreclosure of the
real estate mortgage. Upon receipt of a notice of the extrajudicial foreclosure sale, petitioners filed a
petition to annul the extrajudicial foreclosure sale with a prayer for temporary restraining order (TRO).
At the foreclosure sale, the bank emerged as the highest bidder. A certificate of sale was executed in
its favor.

After the lapse of the one-year redemption period, the bank filed in the Registry of Deeds of Quezon
City an affidavit of consolidation to consolidate its ownership and title to the foreclosed property, the
same was granted. Further, it applied for the issuance of a writ of possession of the foreclosed
property which the petitioners opposed. The trial court granted the banks motion for a declaration of
general default and allowed private respondent to present evidence ex parte. Undeterred, petitioners
filed in the Court of Appeals a petition for certiorari. The appellate court dismissed the petition

ISSUE: Whether or not the writ of possession was properly issued in favor of the respondent bank.

RULING:

In Navarra v. Court of Appeals, the purchaser at an extrajudicial foreclosure sale applied for a writ of
possession after the lapse of the one-year redemption period. The Court ruled that the purchaser at
an extrajudicial foreclosure sale has a right to the possession of the property even during the one-year
redemption period provided the purchaser files an indemnity bond. After the lapse of the said period
with no redemption having been made, that right becomes absolute and may be demanded by the
purchaser even without the posting of a bond. Possession may then be obtained under a writ which
may be applied for ex parte pursuant to Section 7 of Act No. 3135, as amended by Act No. 4118, thus:

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

In the present case, the certificate of sale of the foreclosed property was annotated on TCT No. 22990
on 7 June 2002. The redemption period thus lapsed on 7 June 2003, one year from the registration of
the sale. When private respondent applied for the issuance of a writ of possession on 18 August 2004,
the redemption period had long lapsed. Since the foreclosed property was not redeemed within one
year from the registration of the extrajudicial foreclosure sale, private respondent had acquired an
absolute right, as purchaser, to the writ of possession. It had become the ministerial duty of the lower
court to issue the writ of possession upon mere motion pursuant to Section 7 of Act No. 3135, as
amended.

Further, the right to possession of a purchaser at an extrajudicial foreclosure sale is not affected by a
pending case questioning the validity of the foreclosure proceeding. The latter is not a bar to the

former. Even pending such latter proceeding, the purchaser at a foreclosure sale is entitled to the
possession of the foreclosed property.

PHILIPPINE NATIONAL BANK, AS THE ATTORNEY-IN-FACT OF OPAL PORTFOLIO

INVESTMENTS (SPV-AMC), INC. vs. MERCEDES CORPUZ, REPRESENTED BY HER
ATTORNEY-IN-FACT VALENTINA CORPUZ
G.R. No. 180945. February 12, 2010.

DOCTRINE: Banks are expected to be more cautious than ordinary individuals in dealing with lands,
even registered ones, since the business of banks is imbued with public interest. It is of judicial notice
that the standard practice for banks before approving a loan is to send a staff to the property offered
as collateral and verify the genuineness of the title to determine the real owner or owners.

FACTS:

Mercedes Corpuz delivered her owners duplicate copy of Transfer Certificate of Title (TCT) 32815 to
Dagupan City Rural Bank as security against any liability she might incur as its cashier. She later left
her job and went to the United States. On October 24, 1994 the rural bank where she worked
cancelled its lien on Corpuzs title, she having incurred no liability to her employer. Without Corpuzs
knowledge and consent, however, Natividad Alano, the rural banks manager, turned over Corpuzs
title to Julita Camacho and Amparo Callejo.

Conniving with someone from the assessors office, Alano, Camacho, and Callejo prepared a falsified
deed of sale, making it appear that on February 23, 1995 Corpuz sold her land to one "Mary Bondoc"
for P50,000.00. They caused the registration of the deed of sale, resulting in the cancellation of her
TCT and the issuance of a new one in Bondocs name. About a month later the trio executed another
fictitious deed of sale with "Mary Bondoc" selling the property to the spouses Rufo and Teresa
Palaganas for only P15,000.00. This sale resulted in the issuance of TCT 63466 in favor of the
Palaganases. Nine days later the Palaganases executed a deed of sale in favor of spouses Virgilio
and Elena Songcuan for P50,000.00. Finally, four months later the Songcuans took out a loan of P1.1
million from PNB and, to secure payment, they executed a real estate mortgage on their title. Before
granting the loan, the PNB had the title verified and the property inspected.

ISSUE: Whether or not petitioner PNB is a mortgagee in good faith, entitling it to its lien on the title to
the property in dispute.

RULING:

As a rule, the Court would not expect a mortgagee to conduct an exhaustive investigation of the
history of the mortgagors title before he extends a loan. But PNB is not an ordinary mortgagee; it is a
bank. Banks are expected to be more cautious than ordinary individuals in dealing with lands, even
registered ones, since the business of banks is imbued with public interest. It is of judicial notice that
the standard practice for banks before approving a loan is to send a staff to the property offered as
collateral and verify the genuineness of the title to determine the real owner or owners.

It is evident from the faces of those titles that the ownership of the land changed from Corpuz to
Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than
three months and mortgaged to PNB within four months of the last transfer. The information in turn
should have driven the PNB to look at the deeds of sale involved. It would have then discovered that
the property was sold for ridiculously low prices. Yet the PNB gave the property an appraised value
of P781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an
otherwise reasonable person cannot be considered as an innocent mortgagee for value.

G.R. No. 187556

May 5, 2010

PLANTERS DEVELOPMENT BANK v JAMES NG and ANTHONY NG

DOCTRINE:
Under Section 8 of Act 3135, as amended by Act 4118, it can file with the court which issues the writ
of possession a petition for cancellation of the writ within 30 days after the purchaser-mortgagee was
given possession.

FACTS:
On various occasions in 1997, James Ng and his brother Anthony obtained loans from petitioner
amounting to P25,000,000.00 to secure which they mortgaged two parcels of land situated in San
Francisco del Monte, Quezon City. Respondents failed to settle their loan obligation, hence, petitioner
instituted extrajudicial foreclosure of the mortgage before Notary Public Stephen Z. Taala. The Notice
of Auction Sale was published in Metro Profile, a newspaper of general circulation. The highest bidder
at the auction sale was petitioner to which was issued a Certificate of Sale that was registered with
the Register of Deeds of Quezon City on May 19, 1999. As respondents failed to redeem the
mortgage within one year, petitioner filed on June 26, 2001, an ex-parte petition for the issuance of a
writ of possession. In the meantime, respondents instituted an action for Annulment of Certificate of
Sale, Promissory Note and Deed of Mortgage. The court issued a writ of preliminary injunction
restraining petitioner from consolidating its title to the properties and committing any act of
dispossession that would defeat respondents right of ownership. After numerous incidents arising
from petitioners petition for issuance of a writ of possession and respondents complaint for
annulment which incidents reached this Court, petitioner was finally to present evidence ex parte on
its petition for the issuance of a writ of possession. The court denied the issuance of a writ of
possession.

Petitioner asseverates that the court cannot cite as ground for denial of the issuance of a writ of
possession questions relating the validity of the mortgage or its foreclosure. Respondents counter that
there are no facts or the facts are insufficient to entitle petitioner to a writ of possession.

ISSUE:
WON questions relating the validity of the mortgage or its foreclosure is a ground for denial of an
issuance of a writ of possession

HELD:
The petition is meritorious. It is settled that questions regarding the validity of a mortgage or its
foreclosure as well as the sale of the property covered by the mortgage cannot be raised as ground to
deny the issuance of a writ of possession. Any such questions must be determined in a subsequent

proceeding as in fact, herein respondents commenced an action for Annulment of Certificate of Sale,
Promissory Note and Deed of Mortgage. Since respondents failed to redeem the mortgage within the
reglementary period, entitlement to the writ of possession becomes a matter of right and the issuance
thereof is merely a ministerial function. The judge to whom an application for a writ of possession is
filed need not look into the validity of the mortgage or the manner of its foreclosure. Until the
foreclosure sale is annulled, the issuance of the writ of possession is ministerial. In fact, even during
the period of redemption, the purchaser is entitled as of right to a writ of possession provided a bond
is posted to indemnify the debtor in case the foreclosure sale is shown to have been conducted
without complying with the requirements of the law. More so when, as in the present case, the
redemption period has expired and ownership is vested in the purchaser. The defaulting mortgagor is
not without any expedient remedy, however. For under Section 8 of Act 3135, as amended by Act
4118, it can file with the court which issues the writ of possession a petition for cancellation of the writ
within 30 days after the purchaser-mortgagee was given possession.

G.R. No. 171201

June 18, 2010
SPOUSES BENEDICT and MARICEL DY TECKLO v RURAL BANK OF PAMPLONA, INC.
represented by its President/Manager, JUAN LAS,
1

DOCTRINE:
Mortgage; Blanket Mortgage Clause.
A blanket mortgage clause is designed to lower the cost of loans to borrowers, at the same time
making the business of lending more profitable to banks. It is meant to save time, loan closing
charges, additional legal services, recording fees, and other costs.

Mortgage; Impact of Foreclosure; Extinction of Mortgage.

After the foreclosure of the mortgaged property, the mortgage is extinguished and the purchaser at
auction sale acquires the property free from such mortgage. Any deficiency amount after foreclosure
cannot constitute a continuing lien on the foreclosed property, but must be collected by the
mortgagee-creditor in an ordinary action for collection.

Mortgage; Redemption; Process and Calculation of Redemption Price

In order to effect redemption, the judgment debtor or his successor -in-interest need only pay the
purchaser at the public auction sale the redemption amount composed of (1) the price which the
purchaser at the public auction sale paid for the property and (2) the amount of any assessment or
taxes which the purchaser may have paid on the property after the purchase, plus the applicable
interest.
FACTS:
On 20 January 1994, spouses Roberto and Maria Antonette Co obtained from respondent Rural Bank
of Pamplona, Inc. a P100,000.00 loandue in three months or on 20 April 1994. The loan was secured
by a real estate mortgage on a residential lot owned by spouses Co located in San Felipe, Naga City.
The mortgage was registered in the Register of Deeds of Naga City on 21 January 1994 One of the
stipulations in the mortgage contract was that the mortgaged property would also answer for the
future loans of the mortgagor. Pursuant to this provision, spouses Co obtained on 4 March 1994 a
second loan from respondent bank in the amount of P150,000.00 due in three months or on 2 June
1994.1avvphi1Petitioners, spouses Benedict and Maricel Dy Tecklo, meanwhile instituted an action for
collection of sum of money against spouses Co. In the said case, petitioners obtained a writ of
attachment on the mortgaged property of spouses Co. The notice of attachment was annotated on the
TCT of the mortgaged property as Entry No. 58941. When the two loans remained unpaid after
becoming due and demandable, respondent bank instituted extrajudicial foreclosure proceedings. In
its 5 September 1994 petition for extrajudicial foreclosure, respondent bank sought the satisfaction
solely of the first loan although the second loan had also become due. At the public auction scheduled
on 19 December 1994, respondent bank offered the winning bid of P142,000.00, which did not include
the second loan. The provisional certificate of sale to respondent bank was annotated on the TCT of
the mortgaged property as Entry No. 60794.
Petitioners then exercised the right of redemption as successors-in-interest of the judgment debtor.
Stepping into the shoes of spouses Co, petitioners tendered on 9 August 1995 the amount
of P155,769.50, based on the computation made by the Office of the Provincial Sheriff. Respondent
bank objected to the non-inclusion of the second loan. It also claimed that the applicable interest rate
should be the rate fixed in the mortgage, which was 24% per annum plus 3% service charge per
annum and 18% penalty per annum. However, the Provincial Sheriff insisted that the interest rate
should only be 12% per annum. Respondent bank then sought annulment of the redemption,
injunction, and damages in the Regional Trial Court (Branch 61) of Naga City docketed as Civil Case
No. RTC 96-3521.
The trial court ruled, among others, that the second loan, not having been annotated on the TCT of
the mortgaged property, could not bind third persons such as petitioners. Applying the 24% per annum
interest rate fixed in the mortgage, the trial court computed the redemption price as P 167,076.57. In
its 22 May 1998 Decision, the trial court dismissed respondent banks complaint for annulment of
redemption and ordered petitioners to pay respondent bank the deficiency of P11,307.07

The appellate court ruled that the redemption amount should have included the second loan even
though it was not annotated on the TCT of the mortgaged property. In its 17 May 2005 Decision, the
Court of Appeals affirmed the trial courts decision with the modification that petitioners pay
respondent bank the deficiency amountingP204,407.18, with interest at the rate of 24% per annum
from 22 May 1998 until fully paid. Aggrieved, petitioners filed a motion for reconsideration, which the
Court of Appeals denied. Hence, the present petition for review.
ISSUE:
The sole issue is whether the redemption amount includes the second loan in the amount
of P150,000.00 even if it was not included in respondent banks application for extrajudicial
foreclosure.
HELD:
The Court finds the petition meritorious.
Petitioners pointed out that the second loan was not annotated as an additional loan on the TCT of
the mortgaged property. Petitioners argued that the second loan was just a private contract between
respondent bank and spouses Co, which could not bind third parties unless duly registered.
Petitioners stressed that respondent banks application for extrajudicial foreclosure referred solely to
the first loan. Respondent bank insisted that the mortgage secured not only the first loan but also
future loans spouses Co might obtain from respondent bank. According to respondent bank, this was
specifically provided in the mortgage contract. Respondent bank contended that petitioners, as
redemptioner by virtue of the preliminary attachment they obtained against spouses Co, should
assume all the debts secured by the mortgaged property. The mortgage contract in this case contains
a blanket mortgage clause. A blanket mortgage clause, which makes available future loans without
need of executing another set of security documents, has long been recognized in our jurisprudence.
It is meant to save time, loan closing charges, additional legal services, recording fees, and other
costs. A blanket mortgage clause is designed to lower the cost of loans to borrowers, at the same time
making the business of lending more profitable to banks. Settled is the rule that mortgages securing
future loans are valid and legal contracts.
The act of registration which creates a constructive notice to the whole world and binds third persons.
By definition, registration is the ministerial act by which a deed, contract, or instrument is inscribed in
the records of the office of the Register of Deeds and annotated on the back of the TCT covering the
land subject of the deed, contract, or instrument. A person dealing with registered land is not required
to go beyond the TCT to determine the liabilities attaching to the property. He is only charged with
notice of such burdens on the property as are duly annotated on the TCT. To require him to do more is
to defeat one of the primary objects of the Torrens system.
The case involved a mortgage contract containing a provision that future loans would also be secured
by the mortgage. The Court ruled that since the mortgage contract containing the blanket mortgage
clause was already annotated on the TCT of the mortgaged property, subsequent loans need not be
separately annotated on the said TCT in order to bind third parties Petitioner-appellant advances the
argument that the latter loans should have also been noted on TCT 2417. But we believe there was
no necessity for such a notation because it already appears in the said title that aside from the
amount of P840 first borrowed by the mortgagors, other obligations would also be secured by the
mortgage. As already stated, it was incumbent upon any subsequent mortgagee or encumbrancer of
the property in question to have examined the books or records of the PNB, as first mortgagee, the
credit standing of the debtors.
Records of the present case show that the mortgage contract, containing the provision that future
loans would also be secured by the mortgage, is duly annotated on the TCT of the mortgaged
property. This constitutes sufficient notice to the world that the mortgage secures not only the first loan
but also future loans the mortgagor may obtain from respondent bank. Applying the doctrine laid down
in Tad-Y v. Philippine National Bank, the second loan need not be separately annotated on the said
TCT in order to bind third parties such as petitioners. However, it should be noted the curious fact that
respondent banks petition for extrajudicial foreclosure was solely for the satisfaction of the first loan
although the second loan had also become due and demandable. In its Appellants Brief filed in the

Court of Appeals, respondent bank even admitted that the second loan was not included in its bid at
the public auction sale. To quote from page 5 of the Appellants Brief filed by respondent bank:
For failure to pay the first loan, the mortgage was foreclosed and the property covered by TCT No.
24196 was sold at public auction on December 19, 1994, for P142,000, which was the bid of the
mortgagee bank. The bank did not include in its bid the second loan of P150,000. For its failure to
include the second loan in its application for extrajudicial foreclosure as well as in its bid at the public
auction sale, respondent bank is deemed to have waived its lien on the mortgaged property with
respect to the second loan. Of course, respondent bank may still collect the unpaid second loan, and
the interest thereon, in an ordinary collection suit before the right to collect prescribes .After the
foreclosure of the mortgaged property, the mortgage is extinguished and the purchaser at auction sale
acquires the property free from such mortgage. Any deficiency amount after foreclosure cannot
constitute a continuing lien on the foreclosed property, but must be collected by the mortgageecreditor in an ordinary action for collection. In this case, the second loan from the same mortgage
deed is in the nature of a deficiency amount after foreclosure.
In order to effect redemption, the judgment debtor or his successor -in-interest need only pay the
purchaser at the public auction sale the redemption amount composed of (1) the price which the
purchaser at the public auction sale paid for the property and (2) the amount of any assessment or
taxes which the purchaser may have paid on the property after the purchase, plus the applicable
interest. Respondent banks demand that the second loan be added to the actual amount paid for the
property at the public auction sale finds no basis in law or jurisprudence. Coming now to the
computation of the redemption amount, Section 78 of Republic Act No. 337, otherwise known as the
General Banking Act, governs in cases where the mortgagee is a bank. Applying Section 78 of the
General Banking Act, the 24% per annum interest rate specified in the mortgage should apply. Thus,
the redemption amount should be 167,076.88. After deducting petitioners tender of P155,769.50,
there is a deficiency of P11,307.18 on the redemption amount, as computed above. Petitioners should
thus pay respondent bank the deficiency amounting to P11,307.18, with interest at the rate of 24% per
annum from 22 May 1998 until fully paid.

G.R. No. 183374

June 29, 2010
Eastern Shipping Lines, Inc. v. Court of Appeals. Marsman Drysdale vs. Philippine
Geoanalytics, et al.
G.R. No. 183376
Gotesco Properties vs. Marsman Drysdale Land, Inc., et al.,
DOCTRINE:
Legal Interest.
An interest of 12% per annum on the outstanding obligation must be imposed from the time of
demand as the delay in payment makes the obligation one of forbearance of money.
FACTS:
On February 12, 1997, Marsman Drysdale Land, Inc. and Gotesco Properties, Inc. entered into a Joint
Venture Agreement (JVA) for the construction and development of an office building on a land owned
by Marsman Drysdale in Makati City.
Via Technical Services Contract (TSC) dated July 14, 1997, the joint venture engaged the services of
the Philippine Geo analytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing,
seismic study and geotechnical engineering for the project. PGI, was, however, able to drill only four
or five boreholes needed to conduct its subsurface soil exploration and laboratory testing, justifying
its failure to drill the remaining borehole to the failure on the part of the joint venture partners to clear
the area where the drilling was to be made. PGI was able to complete its seismic study though.
PGI then billed the joint venture on November 24, 1997 for 284, 553.50 representing the cost of
partial subsurface soil exploration; and on January 15, 1998 for 250, 800.00 representing the cost of
the completed seismic study. Despite repeated demands from PGI, the joint venture failed to pay its
obligations. Due to unfavorable economic conditions at the time, the joint venture was cut

short and the planned building project was eventually shelved. PGI subsequently filed on
November 11, 1999 a complaint for a collection of sum of money and damages at the RTC of Quezon
City against Marsman Drysdale and Gotesco.
ISSUE:
WON the 12% legal interest should apply
HELD:
An interest of 12% per annum on the outstanding obligation must be imposed from the time of
demand as the delay in payment makes the obligation one of forbearance of money, conformably with
this Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. Marsman Drysdale and Gotesco
should bear legal interest on their respective obligations. Interest of 12% per annum on the respective
obligations of Marsman Drysdale and Gotesco is imposed, computed from the last demand or on
January 5, 1999 up to the finality of the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall be 12% per
annum computed from the time the judgment becomes final and executory until it is fully satisfied. The
appealed decision is, in all other respects, affirmed.

G.R. No. 186550 : July 05, 2010

ASIAN CATHAY FINANCE AND LEASING CORPORATION VS. SPOUSES CESARIO GRAVADOR
AND NORMA DE VERA AND SPOUSES EMMA CONCEPCION G. DUMIGPI AND FEDERICO L.
DUMIGPI
FACTS:
On October 22, 1999, petitioner Asian Cathay Finance and Leasing Corporation (ACFLC) extended a
loan of Eight Hundred Thousand Pesos (P800,000.00) to Cesario Gravador, with Norma de Vera and
Emma Concepcion Dumigpi as co-makers. The loan was payable in sixty (60) monthly installments of
P24,400.00 each. To secure the loan, respondent Cesario executed a real estate mortgage over his
property in Sta. Maria, Bulacan, covered by Transfer Certificate of Title No. T-29234.
Gravador paid the initial installment due in November 1999. However, they were unable to pay the
subsequent ones. Gravador requested for an additional period to settle their account, but ACFLC
denied the request. ACFLC filed a petition for extrajudicial foreclosure of mortgage with the Office of
the Deputy Sheriff of Malolos, Bulacan.
Gravador claimed that the real estate mortgage is null and void. They pointed out that the mortgage
does not make reference to the promissory note dated October 22, 1999. The promissory note does
not specify the maturity date of the loan, the interest rate, and the mode of payment; and it illegally
imposed liquidated damages. The real estate mortgage, on the other hand, contains a provision on
the waiver of the mortgagor's right of redemption, a provision that is contrary to law and public policy.
ISSUE:
Whether or not the amount of P1,871,480.00 demanded by ACFLC from Gravador s is
unconscionable and excessive ACFLC insist on the interest rate provided on the note even it failed to
provide respondents with the disclosure statement prior to the consummation of the loan transaction?
HELD:
The amount claimed by ACFLC is unconscionable. Interest rates, whenever unconscionable, may be
equitably reduced or even invalidated.
The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust.
Stipulations authorizing the imposition of iniquitous or unconscionable interest are contrary to morals,
if not against the law. Under Article 1409 of the Civil Code, these contracts are inexistent and void
from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be
waived.

[G.R. No. 163825 : July 13, 2010]

VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO
MAGLASANG, AND PATROCINIA MONILAR, VS. PHILIPPINE COUNTRYSIDE RURAL BANK
(LILOAN, CEBU), INC. AND TEOFILO SOON, JR.,
FACTS:
On July 22, 1997, spouses Rosendo Maglasang and Patrocinia Monilar obtained a loan from PCRB
for P1,070,000.00. The subject loan was evidenced by a promissory note and was payable on
January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in
favor of PCRB a real estate mortgage over their property, Lot 12868-H-3-C including the house
constructed thereon owned by petitioners Mary Melgrid and Bonifacio Cortel the spouses
Maglasang's daughter and son-in-law, respectively. Aside from the subject loan, the spouses
Maglasang obtained two other loans from PCRB which were covered by separate promissory notes
and secured by mortgages on their other properties.
Before the subject loan became due, the spouses Maglasang and the spouses Cortel asked PCRB's
permission to sell the subject properties. They likewise requested that the subject properties be
released from the mortgage since the two other loans spouses Maglasang and the spouses Cortel
claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to
their request but required first the full payment of the subject loan. The spouses Maglasang and the
spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties for P1,750,000.00
and used the amount to pay the subject loan with PCRB.
ISSUE:
Whether Banate can demand restitution of the amount paid for the subject properties on the theory
that the new agreement with Mondigo is deemed rescinded?
HELD:
There can be no restitution of the amount paid.
It is not binding on the bank for lack of authority of PCRB's branch manager, then the prayer for
restitution of the amount paid would have no legal basis
Art 2154. If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises. Notwithstanding the payment made by Banate, she
is not entitled to recover anything from PCRB under Article 2154.
There could not have been any payment by mistake to PCRB, as the check which Banate issued as
payment was to her co-petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check
was simply endorsed by the payee to PCRB in payment of the subject loan that the Maglasangs owed
PCRB.

G.R. No. 174096 : July 20, 2010

SPOUSES DIVINIA C. PUBLICO AND JOSE T. PUBLICO VS. TERESA BAUTISTA
FACTS:
Spouses Divinia and Jose Publico obtained on April 12, 1996 a P200,000 loan from Teresa Bautista
which was secured by a real estate mortgage over a real property covered by Transfer Certificate of
Title (TCT) No. T-244828.
The REM, "Kasulatan ng Pagkakautang na may Panagot provides, that the loan would bear interest
and penalties to would be paid within one-and-a-half years, failing which the mortgaged property
would be sold pursuant to Act 3135. Petitioners surrendered the owners' copy of TCT No. T-244828 to
respondent. Petitioners borrowed from respondent the owners' copy of the title in order to re-

mortgage the property covered thereby to secure another loan the proceeds of which would be used
to pay respondent.
Petitioners thereupon obtained a P200,000 loan from Hiyas Bank. They, however, failed to settle their
obligation to respondent. Respondent, fearing that Hiyas Bank might foreclose the mortgage, offered
Hiyas Bank to pay petitioners' loan.
ISSUE:
Whether Spouses Publico were deprived of the equity of redemption and whether there was a valid
subrogation.
HELD:
Since the payment advanced by respondent on petitioners' behalf redounded to their benefit and
Divinia never objected to it when she came to learn of it. It is thus immaterial that Divinia was
unaware of respondent's action for the law ultimately allows recovery to the extent that the debtorspetitioners were benefited.
Petitioners can exercise their equity of redemption within the period provided, and even thereafter,
provided they do so before the foreclosure sale is confirmed by the trial court.

[G.R. No. 182398 : July 20, 2010]

BENNY Y. HUNG VS. BPI CARD FINANCE CORP.
FACTS:
Guess Footwear and BPI Express Card Corporation entered into two merchant agreements dated
August 1994 and 16 November 1994, whereby Guess agreed to honor validly issued BPI Express
Credit Cards presented by cardholders in the purchase of its goods and services. In the first
agreement, Benny Hung signed as owner and manager of Guess. He signed the second agreement
as president of Guess Footwear which he also referred to as B & R Sportswear Enterprises.
From May 1997 to January 1999, BPI mistakenly credited, through three hundred fifty-two (352)
checks, Three Million Four Hundred Eighty Thousand Four Hundred Twenty-Seven Pesos and 23/100
(P3,480,427.23) to the account of Guess Footwear. When informed of the overpayments petitioner
Benny Hung transferred Nine Hundred Sixty-Three Thousand Six Hundred Four Pesos and 03/100
(P963,604.03) from the bank account of B & R Sportswear Enterprises to BPI's account as partial
payment.
ISSUE:
Whether or not there is an imposable rate of legal interest when the judgment of the court awarding a
sum of money becomes final and executory, the rate of legal interest?
HELD:
It shall be 12% per annum from such finality until its satisfaction.
Since this case before us involves an obligation not arising from a loan or forbearance of money, the
applicable interest rate is 6% per annum. The legal interest rate of 6% shall be computed from 4
October 1999, the date the letter of demand was presumably received by the defendant. And in
accordance with the aforesaid decision, the rate of 12% per annum shall be charged on the total
amount outstanding, from the time the judgment becomes final and executory until its satisfaction.
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.

[G.R. No. 171925 : July 23, 2010]

SOLIDBANK CORPORATION, (NOW METROPOLITAN BANK AND TRUST COMPANY), VS.
PERMANENT HOMES, INCORPORATED
FACTS:
PERMANENT HOMES is a real estate development company, and to finance its housing project
known as the "Buena Vida Townhomes" located within Merville Subdivision, Paranaque City, it applied
and was subsequently granted by SOLIDBANK with an "Omnibus Line" credit facility in the total
amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE MILLION as time loan for a term
of up to three hundred sixty (360) days, with interest thereon at prevailing market rates, and subject to
monthly repricing. To secure the aforesaid loan, PERMANENT HOMES initially mortgaged three (3)
townhouse units within the Buena Vida project in Paranaque. At the time, however, the instant
complaint was filed against SOLIDBANK, a total of thirty six (36) townhouse units were mortgaged
with said bank.
However, to the specific provisions as afore-quoted, there was a standing agreement by the parties
that any increase or decrease in interest rates shall be subject to the mutual agreement of the parties.
SOLIDBANK unilaterally and arbitrarily accelerated the interest rates without any declared basis of
such increases, of which PERMANENT HOMES had not agreed to, or at the very least, been
informed of. This is contrary to their earlier agreement that any interest rate changes will be subject to
mutual agreement of the parties. PERMANENT HOMES further admits that it was not able to protest
such arbitrary increases at the time they were imposed by SOLIDBANK, for fear that SOLIDBANK
might cut off the credit facility it extended to PERMANENT HOMES.
ISSUE:
Whether or not the increases in the interest rates on [Permanent's] loans are void for having been
unilaterally imposed without basis and whether or not the parties validly enter into an express
agreement regarding the applicable interest rates on Permanent's loan availments subsequent to the
initial thirty-day (30) period.
HELD:
The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982
of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took
effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and
unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on
any interest that may be charged on a loan.
Although interest rates are no longer subject to a ceiling, the lender still does not have an unbridled
license to impose increased interest rates. The lender and the borrower should agree on the imposed
rate, and such imposed rate should be in writing.
The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said
stipulations

[G.R. No. 171982 : August 18, 2010]

DEVELOPMENT BANK OF THE PHILIPPINES VS. TRADERS ROYAL BANK and PRIVATIZATION
AND MANAGEMENT OFFICE (VICE ASSET PRIVATIZATION TRUST)
FACTS:
In 1980, Phil-Asia Food Industries Corporation (Phil-Asia) obtained a loan accommodation from
Traders Royal Bank (TRB) in the form of four letters of credit with a total amount of P92,290,845.58.
The loan was used for the importation of machineries and equipment for the establishment of a soya
beans processing plant. In a letter dated 30 April 1980, Development Bank of the Philippines (DBP)
issued a guaranty in favor of TRB to answer for the cost of the importation covered by the letters of

credit to the extent of $8,015,447.13. Phil-Asia and DBP made partial payments on the loan covered
by the letters of credit, leaving a balance of P8,432,381.78. When Phil-Asia and DBP failed to pay the
balance despite demands, TRB filed with the trial court a complaint to collect the unpaid balance of
the letters of credit against Phil-Asia and DBP. The Asset Privatization Trust (APT) now the
Privatization and Management Office was later impleaded as defendant because it allegedly acquired
the distressed accounts of DBP, which includes that of Phil-Asia.
DBP claimed that it was not liable for the importation from the supplier Emi Disc Corporation since its
guaranty covers only importation from Archer Daniels Midland Corporation. DBP alleged that the
change in supplier was without its consent and thus, not covered by its guaranty. DBP also alleged
that there was overpayment of the loan covered by the letters of credit.
For its part, Phil-Asia likewise alleged that there was in fact overpayment since the total amount of
the letters of credit was only P92,290,845.58, whereas the payments of Phil-Asia and DBP totaled
P100,395,434.10, resulting in an overpayment of P8,104,588.52. Furthermore, Phil-Asia averred that
its obligation had been extinguished by novation.
TRB denied that there was overpayment. TRB explained that the amount applied to the principal
credited to Phil-Asia was reduced or adjusted because some payments made by DBP were
erroneously credited to Phil-Asia. Besides, as stated in the adjusted Statement of Account, there were
some payments which were erroneously reflected as principal payments which should have been
applied to outstanding and unpaid interests.
On the other hand, APT maintained that it did not assume the obligations incurred or might have been
incurred by DBP with Phil-Asia's creditors.
ISSUE:
Whether the importation of machineries covered by the subject letters of credit are covered by the
DBP Guarantee.
HELD:
Both the trial court and the appellate court found that DBP was duly informed by TRB of the change of
supplier from Archer Daniels Midland Corporation to Emi Disc Corporation. DBP did not object to the
change of supplier and even paid TRB's letters of credit covering the importation from Emi Disc
Corporation. We agree with the conclusion of the Court of Appeals that such acts of DBP clearly
indicate its acquiescence or approval of the amendment on the letters of credit as regards the change
of supplier. Thus, the importation from EMI Disc Corporation is still covered by the DBP guaranty.
The party who alleges an affirmative defense, or claims that there is subrogation, has the burden of
proof to establish the same. DBP failed to prove its claim that APT should be held liable.

SPS. ANTONIO AND LETICIA VEGA VS. SOCIAL SECURITY SYSTEM, ET AL.,
[G.R. NO. 181672, SEPTEMBER 20, 2010.]
FACTS:
Magdalena Reyes owned a piece of titled land in Pilar Village, Las Pinas City. On August 17, 1979,
she got a housing loan from SSS for which she mortgaged her land. Late 1979, Reyes asked the Sps
Vega to assume the loan and buy her house and lot since she was to emigrate.
An employee at SSS said, however, that SSS did not approve of members transferring their
mortgaged homes. But the Sps Vega (Vegas) could make a private arrangement with Reyes provided
that they pay the monthly amortizations on time. Vegas agreed for Reyes to execute in their favor a
deed of assignment of real property with assumption of mortgage and paid Reyes P20,000 after she
undertook to update the amortizations before leaving the country. The Vegas took possession of the
house in January 1981.
Reyes did not execute the deed of assignment. She left the country and left her sister (Julieta Ofilada)
a special power of attorney to convey ownership of property.

Sometime between 1983 and 1984, Ofilada executed the deed of assignment in favor of the Vegas,
kept the original and gave the Vegas two copies, one to be given to the Home Development Mortgage
Fund and kept the other. A storm in 1984 resulted in flood and destroyed their personal copy.
In 1992, the Vegas learned that Reyes did not update the amortizations because they received a
notice to Reyes from the SSS. They told the SSS that they already gave the payment to Reyes but,
since it appeared indifferent, on January 6, 1992, the Vegas updated the amortization and paid
P115,738.48 to the SSS. They negotiated seven additional remittances and the SSS accepted P8,681
more from the Vegas.
On April 16, 1993, PDC filed an action for sum of money against Reyes before the RTC of Manila,
claiming that Reyes borrowed from Apex Mortgage and Loans Corporation (Apex) P46,500 to buy the
lot and construct a house on it. Apex assigned Reyes credit to PDC on December 29, 1992. RTC:
Reyes must pay the PDC the loan of P46,398 plus interest and penalties beginning April 11, 1979 as
well as attorneys fees and costs. Unable to pay, RTC issued a writ of execution against Reyes and its
Sheriff levied on the property in Pilar Village.
On Feb 16, 1994, the Vegas requested the SSS to acknowledge their status as subrogees and to give
them an update of the account so they could settle it in full. SSS did not reply. RTC sheriff published a
notice for the auction sale of the property on Feb 24, March 3 and 10, 1994. He also gave notice to
the Vegas on March 20. The Vegas filed an affidavit of third party claimant and a motion to quash the
levy on the property. However, RTC directed the sheriff to proceed with the execution.
The Vegas got a telegram informing them that the SSS intended to foreclose on the property to satisfy
the unpaid debt of P38,789.58. The Vegas requested from the SSS in writing for the exact amount of
the indebtedness and for assurance that they would be entitled to the discharge of the mortgage and
delivery of the proper subrogation documents upon payment. They also sent a P37,521.95 managers
check that SSS refused to accept.
The Vegas filed an action for consignation, damages, and injunction with application for preliminary
injunction and TRO against SSS, PDC, the RTC sheriff and the Register of Deeds before the RTC in
Las Pinas. While the case was pending, SSS released the mortgage to PDC. A writ of possession
evicted the Vegas from the property. RTC decided in favor of the Vegas. CA reversed.

ISSUE:
Whether Reyes validly sold her SSS-mortgaged property to the Vegas given a provision in the
mortgage agreement that she could not do so without the written consent of SSS.

RULING:
Yes. SC reversed CA decision. The Vegas were able to present adequate proof of Reyes sale of the
property to them. The Vegas proved the loss of the deed of assignment in their favor and what it
contained, they offered strong corroboration of the fact of Reyes sale of the property to them. They
took possession of the house and lot after they bought it. They also paid for the amortizations to the
SSS. And when SSS wanted to foreclose the property, the Vegas sent a managers check for the
balance of the loan.

Article 1237 of the Civil Code cannot apply in this case since the debtor (Reyes) consented to the
transfer of ownership of the mortgaged property to the Vegas. Although Paragraph 4 of the mortgage
agreement which states that Reyes must secure the consent of SSS before selling the property, is
valid and binding in the sense that SSS cannot be compelled to recognize the sale before the loan is
completely paid, it does not absolutely forbid her, as owner, from selling the property while the loan

remained unpaid. Such stipulation is against public policy, being an undue impediment or interference
on the transmission of property.

Article 2129 of the Civil Code gives SSS the option of collecting from the third person in possession of
the mortgaged property.

CENTURY SAVINGS BANK, petitioner, vs. SPOUSES DANILO T. SAMONTE and ROSALINDA M.
SAMONTE, respondents.
[G.R. No. 176212. October 20, 2010.]
FACTS:
The present controversy stemmed from the two loans, in the aggregate amount of Three Million Five
Hundred Thousand Pesos (P3,500,000.00), extended by petitioner to respondents. Each loan was
secured by a promissory note and deed of real estate mortgage executed by respondents in favor of
petitioner.
When respondents defaulted in the payment of their loans by the latter part of 1999, petitioner initiated
before the notary public extrajudicial foreclosure proceedings over the mortgaged properties, pursuant
to Act No. 3135, also known as "An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages," as amended.

Section 3 of Act No. 3135 provides for the following pre-requisites for an extrajudicial sale:

SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least
three public places of the municipality or city where the property is situated, and if such property is
worth more than four hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in the municipality or city.

Hence, petitioner caused the publication of a Notice of Sale dated November 12, 1999, prepared by
Notary Public Enriqueto I. Magpantay (Magpantay), in the Challenger News.

Respondents filed a Complaint dated October 22, 2001, seeking the annulment of the extrajudicial
foreclosure sale of their real properties. Among respondents contentions was that the extrajudicial
foreclosure proceedings initiated by petitioner failed to comply with the posting requirements under
Section 3 of Act No. 3135, as amended. On the other hand, petitioner insisted that the extrajudicial
foreclosure sale was duly conducted in accordance with law.
ISSUE:
Whether or not the Notice requirement for extrajudicial foreclosure is complied with.
RULING:
Yes. Respondents did not present any evidence at all to establish that the notices of sale were not
posted as required under Section 3 of Act No. 3135, as amended. Instead, respondents merely

focused on how Notary Public Magpantays Certificate of Posting was worded, and emphasized on
technicalities and semantics. Respondents insist that the phrase on the 15 th day of November 1999,
I have caused the posting of three (3) copies of Notice of Sale in the Certificate of Posting meant that
Notary Public Magpantay posted the notices for only one day, i.e., on November 15, 1999. This is a
rather specious interpretation of the aforequoted phrase. It is more logical and reasonable to
understand the same phrase as to mean that the notices were posted beginning November 15, 1999
until the issuance of the certificate on December 9, 1999. There is also no basis to require the notary
publics certificate to exactly state that the notices of sale were posted at public places. Notary
Public Magpantays use of the words conspicuous places in his certificate already satisfactorily
complies with the legal requirement for posting. The adjective public may refer to that which is
exposed to general view, and conspicuous is a synonym thereof.

Moreover, it bears to stress that the Certificate of Posting is actually evidence presented by the
petitioner to establish that copies of the Notice of Sale were indeed posted as required by Act No.
3135, as amended.

In addition, despite any defect in the posting of the Notice of Sale, the Court reiterates its ruling in
previous jurisprudence that the publication of the same notice in a newspaper of general circulation is
already sufficient compliance with the requirement of the law.

RIZAL COMMERCIAL BANKING CORPORATION VS. PEDRO P. BUENAVENTURA

[G.R. NO. 176479. OCTOBER 6, 2010]
DOCTRINE:
Mortgage; foreclosure; default is pre-requisite. Foreclosure is valid only when the debtor is in default
in the payment of his obligation. It is a necessary consequence of non-payment of mortgage
indebtedness. As a rule, the mortgage can be foreclosed only when the debt remains unpaid at the
time it is due.
FACTS:
Pedro P. Buenaventura and his first wife (now deceased) owned a townhouse unit in Casa Nueva
Manila Townhouse, Quezon City. On December 27, 1994, they obtained a loan from petitioner. As
security for the loan, they mortgaged the townhouse to petitioner. Under the loan agreement,
respondent was to pay RCBC a fixed monthly payment with adjustable interest for five years.
Respondent received a Notice of Public Auction of the mortgaged townhouse unit. He wrote Atty.
Saturnino Basconcillo, the notary public conducting the auction sale, demanding the cancellation of
the auction sale. However, the notary public proceeded with the public sale on May 25, 1999, where
RCBC emerged as the highest bidder. The Notary Publics Certificate of Sale was registered with the
Register of Deeds on September 28, 2000.

Respondent filed with the Regional Trial Court (RTC) of Quezon City a complaint for Annulment of
Sale and Damages against RCBC, notary public Saturnino Basconcillo, and the Registrar of Deeds of
Quezon City. RCBC failed to timely file an Answer and was declared in default.

The RTC found that respondent made regular payments of the monthly amortizations as they fell due,
as evidenced by his passbooks and the various deposit slips acknowledged by RCBC.

The CA ruled that the foreclosure sale was premature. It held that respondent made valid and
sufficient payments on his loan obligation. It found respondents evidence as sufficient proof to negate
default on his part in paying the monthly amortizations.

ISSUE:
Whether or not a mortgagee can foreclose even though the mortgagee is not in default.

RULING:
No. Foreclosure is valid only when the debtor is in default in the payment of his obligation. It is a
necessary consequence of non-payment of mortgage indebtedness. As a rule, the mortgage can be
foreclosed only when the debt remains unpaid at the time it is due.

DEVELOPMENT BANK OF THE PHILIPPINES VS. ENVIRONMENTAL AQUATICS, INC., ET AL

[G.R. NO. 174329, OCTOBER 20, 2010]

FACTS:
Respondents Environmental Aquatics, Inc. (EAI) and Land Services and Management Enterprises,
Inc. (LSMEI) loaned P1,792,600 from petitioner Development Bank of the Philippines (DBP). As
security for the loan, LSMEI mortgaged to DBP its 411-square meter parcel of land situated in New
Manila, Quezon City.
EAI and LSMEI failed to pay the loan. DBP applied for extrajudicial foreclosure of the real estate
mortgage. During the 19 December 1990 public auction, the ex-officio sheriff sold the property to DBP
as the highest bidder for P1,507,000.
On 15 May 1991, LSMEI transferred its right to redeem the property to respondent Mario Matute
(Matute). In his 27 July 1991 letter, Atty. Julian R. Vitug, Jr. (Atty. Vitug, Jr.) informed DBP that his
client Matute was interested in redeeming the property by paying the P1,507,000 purchase price, plus
other costs. In its 29 August 1991 letter, DBP informed Atty. Vitug, Jr. that Matute could redeem the
property by paying the remaining balance of EAI and LSMEI's loan. As of 31 August 1991, the loan
amounted to P19,279,106.22.
The RTC allowed Matute to redeem the property at its P1,507,000 purchase price. The question is
whether, as the defendant DBP contends, the redemption should be made by paying to the Bank the
entire amount owed by plaintiffs-corporations "in the amount of P18,301,653.11 as of the date of
foreclosure on December 12, 1990", invoking Sec. 16 of Executive Order No. 81 otherwise known as
the 1986 Revised Charter of DBP. On the other hand, the plaintiffs contend that this redemption may
be made only by reimbursing the defendant Bank what it has paid for at the auction sale made to it
(sic), in the amount of P1,507,000.00, pursuant to Section 5 of Act No. 3135 and Sections 26 to 30 of
Rule 39 of the Revised Rules of Court.

Court of Appeals affirmed with modification the RTC's 7 January 1994 Decision. The Court of Appeals
imposed a 16% annual interest on the remaining balance of the loan. The Court of Appeals held that:
The dearth of merit in appellant bank's position is, however, evident from the fact that, as hereinbefore
quoted, paragraph 4 of the September 10, 1976 Deed of Real Estate Mortgage executed in its favor
by appellees SMEI provided for three options by which the extrajudicial foreclosure thereof may be
effected. Thereunder given the choice of resorting to "Act No. 3135 as amended, or Republic Act No.
85 as amended, or Act No. 1508 as amended", appellant bank undoubtedly opted for the first of the
aforesaid laws as may be gleaned from the following prayer it interposed in the application for
foreclosure of mortgage it filed with the Ex-Officio Sheriff of Quezon City on October 25, 1990.

ISSUE:
Whether or not the lower courts erred in finding that the bank chose Act No. 3135 as the governing
law for the extrajudicial foreclosure of the property, including the determination of the redemption
price, and in ruling that the redemption price is equivalent to the P1,507,000 purchase price.

RULING:
Section 16 of Executive Order (EO) No. 81 states that the redemption price for properties mortgaged
to and foreclosed by DBP is equivalent to the remaining balance of the loan. Section 16 states that,
Any mortgagor of the Bank whose property has been extrajudicially sold at public auction shall x x x
have the right to redeem the real property by paying to the Bank all of the latters claims against him,

as determined by the Bank. The lower courts ruled that the redemption price for the property is
equivalent only to what DBP paid during the public auction because DBP chose Act No. 3135 as the
governing law for the extrajudicial foreclosure. The Supreme Court disagreed with this saying that
Republic Act (RA) No. 85 and Act No. 1508 do not provide a procedure for extrajudicial foreclosure of
real estate mortgage. When DBP stated in its letter to the ex-officio sheriff that the property be sold
at public auction in accordance with the provisions of Act 3135, it did so merely to find a proceeding
for the sale. Also, EO No. 81, being a special and subsequent law, amended Act No. 3135 insofar as
the as redemption price is concerned.

PACIFIC REHOUSE CORPORATION, ET AL. VS. EIB SECURITIES, INC

[G.R. NO. 184036, OCTOBER 13, 2010]

FACTS:
On various dates during the period June 2003 to March 2004, plaintiffs bought 60,790,000 Kuok
Properties, Inc. ("KPP") shares of stock through the Philippine Stock Exchange ("PSE"). The KPP
shares were acquired by plaintiffs through their broker, defendant EIB. Also on various dates in July
and August 2003, plaintiffs bought/acquired 32,180,000 DMCI shares of stock through the PSE. Of
these shares, 16,180,000 were likewise acquired by the plaintiffs through their broker, defendant EIB,
while the remaining 16,000,000 DMCI shares were transferred from Westlink Global Equities, Inc.

Plaintiffs and defendant EIB agreed to sell the 60,790,000 KPP shares of plaintiffs to any party for the
price of P0.14 per share. As agreed by plaintiffs and defendant, the sale of the KPP shares of
plaintiffs was made with an option on the part of the plaintiffs to buy back or reacquire the said KPP
shares within a period of thirty (30) days from the transaction date, at the buy-back price of P0.18 per
share. When the last day of the 30-day buy back period for the KPP shares came, plaintiff were
undecided on whether or not to exercise their option to reacquire said shares. Thus, plaintiffs and
defendant EIB agreed that plaintiffs would have an extended period of until 03 June 2004 to exercise
their option to buy back/reacquire the KKP shares that had been sold. Eventually, plaintiffs decided
not to exercise their option to buy back the KPP shares and did not give any buy-back instruction/s to
their broker, defendant EIB.

Without plaintiffs prior knowledge and consent, defendant EIB sold plaintiffs 32,180,000 DMCI shares
of stock for an average price of P0.24 per share. Defendant EIB sold the DMCI shares of plaintiffs for
an average price of only P0.24 per share despite full knowledge by defendant EIB that the sale would
result in a substantial loss to the plaintiffs of around P4.5 Million since plaintiffs acquired the DMCI
shares at P0.38 per share.

Plaintiffs wrote to defendant EIB to demand that their 32,180,000 DMCI shares be transferred to
Westlink Global Equities Inc. ("Westlink"). Since the 32,180,000 DMCI shares belonging to plaintiffs

had already been sold by defendant EIB without plaintiffs prior knowledge and consent as early as
June 2004, defendant EIB could not comply with the demand of plaintiffs as stated in their demand
letters.

Plaintiffs replead all of the foregoing allegations. The sale by defendant EIB of the 32,180,000 DMCI
shares of plaintiffs was done with malice and fraudulent intent.

The notices of sale issued by EIB covering the sale of the KKP shares of petitioners clearly show that
the very same KKP shares sold to third parties albeit under a buy-back arrangement and the
"Property" of petitioners were made the collaterals to secure the payment of the reacquisition. Since
the possession of the KKP shares and the "Property" were placed in EIB, a third party by common
agreement, then the accessory contract in the case at bar is a contract of pledge governed by Arts.
2085 to 2092 of the Civil Code, which are provisions common to pledge and mortgage, and Arts. 2093
to 2139 on pledge.

ISSUE:
Whether or not the pledge on KKP Shares/Property is valid.

RULING:

No. It is indispensable that the pledgor is the absolute owner of the thing pledged (second element).
In the case at bar, the KKP shares were sold to third parties by EIB at PhP 0.14 and, as a result,
petitioners lost their right of ownership over the KKP shares. Hence, from the time of the sale,
petitioners were no longer the absolute owners of said shares, making the pledge constituted over
said KKP shares null and void.

Also, it is necessary under Art. 2085 that the person constituting the pledge has the free disposal of
his or her property, and in the absence of that free disposal, that he or she be legally authorized for
the purpose (third element). This element is absent in the case at bar. Petitioners no longer have the
free disposal of the KKP shares when EIB sold said shares at the stock exchange as they are no
longer the owners of the shares. Thus, there was no valid pledge constituted on the KKP shares.

The notice of sale, assuming it incorporates the accessory contract of pledge, merely stated
Property as collateral in addition to KKP shares. This is a blatant violation of Art. 2096, which
provides that a pledge shall not take effect against third persons if description of the thing pledged
and the date of the pledge do not appear in a public instrument. The thing pledged must be amply
and clearly described and specifically identified. Evidently, the word Property is vague, broad, and
confusing as to the ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code.

Worse, the notice of sale is not in a public instrument as required by said legal provision; therefore,
the pledge on property is void and without legal effect.

Moreover, the notices of sale must be construed against EIB. Any ambiguity in a contract whose terms
are susceptible of different interpretations must be read against the party who drafted it.
The DMCI shares which EIB construed to be included within the ambit of the word property cannot
be considered the thing pledged to secure the buy back of the KKP shares in view of the vagueness
of the word Property and the non-applicability of the SDAA to the sale of the KKP shares.

ASSET BUILDERS CORPORATION VS. STRONGHOLD INSURANCE CO., INC.

[G.R. NO. 187116. OCTOBER 18, 2010]

FACTS:
Asset Builders Corporation (ABC) entered into an agreement with Lucky Star Drilling & Construction
Corporation (Lucky Star) as part of the completion of its project to construct the ACG Commercial
Complex on "NHA Avenue corner Olalia Street, Barangay Dela Paz, Antipolo City." As can be gleaned
from the "Purchase Order," Lucky Star was to supply labor, materials, tools, and equipment including
technical supervision to drill one (1) exploratory production well on the project site.

To guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold
which issued two (2) bonds in favor of petitioner.

On May 20, 2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax) as advance payment,
representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling work. By July
18, 2006, just a few days before the agreed completion date of 60 calendar days, Lucky Star
managed to accomplish only ten (10) % of the drilling work. On the same date, petitioner sent a
demand letter to Lucky Star for the immediate completion of the drilling work with a threat to cancel
the agreement and forfeit the bonds should it still fail to complete said project within the agreed
period.
On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for Damages to Lucky
Star. On August 16, 2006, ABC sent a Notice of Claim for payment to Stronghold to make good its
obligation under its bonds.

Despite notice, ABC did not receive any reply either from Lucky Star or Stronghold, prompting it to file
its Complaint for Rescission with Damages against both before the RTC. Stronghold denied any
liability arguing that ABC had not shown any proof that it made an advance payment of 50% of the
contract price of the project. It further averred that ABCs rescission of its contract with Lucky Star
virtually revoked the claims against the two bonds and absolved them from further liability.

Lucky Star, on the other hand, failed to file a responsive pleading within the prescribed period and,
thus, was declared in default by the RTC. RTC rendered the assailed decision ordering Lucky Star to
pay ABC but absolving Stronghold from liability.

ISSUE:
Whether or not respondent is liable as surety.

RULING:
As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor.
That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a
principal contract. Although the contract of a surety is in essence secondary only to a valid principal
obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any benefit therefrom. Let it be stressed that
notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety
assumes liability as a regular party to the undertaking.

Suretyship, in essence, contains two types of relationship the principal relationship between the
obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the
principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the
suretys solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not
change in any material way the obligees relationship with the principal obligor. Neither does it make
the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance does not
give the surety the right to intervene in the principal contract. The suretys role arises only upon the
obligors default, at which time, it can be directly held liable by the obligee for payment as a solidary
obligor.

In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time frame
despite petitioners demand for completion, it was already in delay. Due to this default, Lucky Stars
liability attached and, as a necessary consequence, respondents liability under the surety agreement
arose.

Accordingly, after liability has attached to the principal, the obligee or, in this case, the petitioner, can
exercise the right to proceed against Lucky Star or respondent or both. Contrary to the trial courts
ruling, respondent insurance company was not automatically released from any liability when
petitioner resorted to the rescission of the principal contract for failure of the other party to perform its
undertaking. Precisely, the liability of the surety arising from the surety contracts comes to life upon
the solidary obligors default. It should be emphasized that petitioner had to choose rescission in
order to prevent further loss that may arise from the delay of the progress of the project. Without a
doubt, Lucky Stars unsatisfactory progress in the drilling work and its failure to complete it in due time
amount to non-performance of its obligation.

Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement from a co-debtor
(the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus,
respondent is entitled to reimbursement from Lucky Star for the amount it may be required to pay
petitioner arising from its bonds.

ANICETO G. SALUDO, JR. VS. SECURITY BANK CORPORATION

[G.R. NO. 184041, OCTOBER 13, 2010]

FACTS:
Booklight was extended an omnibus line credit facility by SBC in the amount ofP10,000,000.00. Said
loan was covered by a Credit Agreement and a Continuing Suretyship with petitioner as surety, both
documents dated 1 August 1996, to secure full payment and performance of the obligations arising
from the credit accommodation.
For failure to settle the loans upon maturity, demands were made on Booklight and petitioner for the
payment of the obligation but the duo failed to pay.
BC filed against Booklight and herein petitioner an action for collection of sum of money with the RTC.
Booklight asserted that the amount demanded by SBC was not based on the omnibus credit line
facility of 30 May 1996, but rather on the amendment of the credit facilities on 15 October 1996
increasing the loan line fromP8,000,000.00 to P10,000,000.00.
Petitioner alleged that under the Continuing Suretyship, it was the parties understanding that his
undertaking and liability was merely as an accommodation guarantor of Booklight. He countered that
he came to know that Booklight offered to pay SBC the partial payment of the loan and proposed the
restructuring of the obligation. Petitioner argued that said offer to pay constitutes a valid tender of
payment which discharged Booklights obligation to the extent of the offer.
RTC ruled that petitioner is jointly and solidarily liable with Booklight under the Continuing Suretyship
Agreement. The Court of Appeals affirmed in toto the ruling of the RTC.
ISSUE:
Whether or not petitioner should be held solidarily liable for the second credit facility extended to
Booklight.
RULING:
Yes. Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day
financial and commercial practice. A bank or financing company which anticipates entering into a
series of credit transactions with a particular company, normally requires the projected principal debtor
to execute a continuing surety agreement along with its sureties. By executing such an agreement,
the principal places itself in a position to enter into the projected series of transactions with its creditor;
with such suretyship agreement, there would be no need to execute a separate surety contract or
bond for each financing or credit accommodation extended to the principal debtor. A continuing
suretyship covers current and future loans, provided that, with respect to future loan transactions, they
are within the description or contemplation of the contract of guaranty.

Petitioner argues that the approval of the second credit facility necessitates his consent considering
the onerous and solidary liability of a surety. This is contrary to the express waiver of his consent to
such renewal.

G.R. No. 190755

November 24, 2010

LAND BANK OF THE PHILIPPINES, vs. ALFREDO ONG

DOCTRINE:
The creditor is not bound to accept payment or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a stipulation to the contrary.

FACTS:
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi
City in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo
trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term
and would mature on February 28, 1997, while the balance of PhP 10 million would be payable in
seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an acceleration
clause wherein any default in payment of amortizations or other charges would accelerate the
maturity of the loan.

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9,
1996, they sold three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong,
Evangelines mother, under a Deed of Sale with Assumption of Mortgage.

Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and
assumption of mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo
and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the agreement with the
Spouses Sy but provided them with requirements for the assumption of mortgage. They were also told
that Alfredo should pay part of the principal which was computed at PhP 750,000 and to update due
or accrued interests on the promissory notes so that Atty. Hingco could easily approve the assumption
of mortgage.

ISSUE:
Whether or not the novation of the loan agreement is applicable and the rate of interest to be
imposed.

HELD:
No. Novation must be expressly consented to. Moreover, the conflicting intention and acts of the
parties underscore the absence of any express disclosure or circumstances with which to deduce a
clear and unequivocal intent by the parties to novate the old agreement.

Novation which consists in substituting a new debtor in the place of the original one, may be made
even without the knowledge or against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.
As to applicable interest, the 12% per annum rate under CB Circular No. 416 shall apply only to loans
or forbearance of money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment of indemnities in the concept of damage
arising from the breach or a delay in the performance of obligations in general," with the
application of both rates reckoned "from the time the complaint was filed until the [adjudged] amount
is fully paid." In either instance, the reckoning period for the commencement of the running of the
legal interest shall be subject to the condition "that the courts are vested with discretion, depending on
the equities of each case, on the award of interest."
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.

G.R. No. 181560

November 15, 2010

VITARICH CORPORATION, Petitioner, vs. CHONA LOSIN, Respondent.

DOCTRINE:
As a general rule, one who pleads payment has the burden of proving it. The burden rests on the
debtor to prove payment, rather than on the creditor to prove non-payment. The debtor has the
burden of showing with legal certainty that the obligation has been discharged by payment.
FACTS:
Respondent Chona Losin was in the fastfood and catering services business named Glamours
Chicken House, with address at Parang Road, Cotabato City. Since 1993, Vitarich, particularly its
Davao Branch, had been her supplier of poultry meat. 3 In 1995, however, her account was transferred
to the newly opened Vitarich branch in General Santos City.

In the months of July to November 1996, Losins orders of dressed chicken and other meat products
allegedly amounted to P921,083.10. During this said period, Losins poultry meat needs for her
business were serviced by Rodrigo Directo and Allan Rosa, both salesmen and authorized collectors
of Vitarich, and Arnold Baybay, a supervisor of said corporation. Unfortunately, it was also during the
same period that her account started to experience problems because of the fact that Directo
delivered stocks to her even without prior booking which is the customary process of doing business
with her.

On August 24, 1996, Directos services were terminated by Vitarich without Losins knowledge. He left
without turning over some supporting invoices covering the orders of Losin. Rosa and Baybay, on the
other hand, resigned on November 30, 1996 and December 30, 1996, respectively. Just like Directo,
they did not also turn over pertinent invoices covering Losins account.

ISSUE:
Whether or not an obligation consists in the payment of sum of money, the legal interest rate of
interest is to be used.
HELD:
Yes. Inasmuch as the case at bar involves an obligation not arising from a loan or forbearance of
money, but consists in the payment of a sum of money, the legal rate of interest is 6% per annum of
the amount demanded. Interest shall continue to run from February 12, 1997, the date when Vitarich
demanded payment of the sum amounting to P921,083.10 from Locsin (and not from the time of the
filing of the Complaint) until finality of the Decision (not until fully paid). The rate of interest shall
increase to 12% per annum only from such finality until its satisfaction, the interim period being
deemed to be equivalent to a forbearance of credit.

Article 1249, paragraph 2 of the Civil Code provides, the delivery of promissory notes payable to
order, or bills of exchange or other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor they have been impaired.

In the case at bar, no cash payment was proved. It was neither confirmed that the checks issued by
Losin were actually encashed by Vitarich. Thus, the Court cannot consider that payment, much less
overpayment, made by Locsin.

G.R. No. 176381

December 15, 2010

PCI LEASING AND FINANCE, INC., Petitioner, vs. TROJAN METAL

INCORPORATED, WALFRIDO DIZON, ELIZABETH DIZON, and JOHN DOE,

INDUSTRIES

DOCTRINE:
The sale to a third party of the mortgaged equipment and collection of the proceeds of the sale can be
deemed in the exercise of its right to foreclose the chattel mortgage as creditor-mortgagee.

FACTS:
Sometime in 1997, respondent Trojan Metal Industries, Inc. (TMI) came to petitioner PCI Leasing and
Finance, Inc. (PCILF) to seek a loan. Instead of extending a loan, PCILF offered to buy various
equipment TMI owned, namely: a Verson double action hydraulic press with cushion, a Hinohara
powerpress 75-tons capacity, a USI-clearing powerpress 60-tons capacity, a Watanabe powerpress
60-tons capacity, a YMGP powerpress 30-tons capacity, a YMGP powerpress 15-tons capacity, a
lathe machine, a vertical milling machine, and a radial drill. Hard-pressed for money, TMI agreed.
PCILF and TMI immediately executed deeds of sale 5 evidencing TMIs sale to PCILF of the various
equipment in consideration of the total amount of P 2,865,070.00.

PCILF and TMI then entered into a lease agreement,6 dated 8 April 1997, whereby the latter leased
from the former the various equipment it previously owned. Pursuant to the lease agreement, TMI
issued postdated checks representing 24 monthly installments. The monthly rental for the Verson
double action hydraulic press with cushion was in the amount of P62,328.00; for the Hinohara
powerpress 75-tons capacity, the USI-clearing powerpress 60-tons capacity, the Watanabe
powerpress 60-tons capacity, the YMGP powerpress 30-tons capacity, and the YMGP powerpress 15tons capacity, the monthly rental was in the amount of P49,259.00; and for the lathe machine, the
vertical milling machine, and the radial drill, the monthly rental was in the amount of P22,205.00.

The lease agreement required TMI to give PCILF a guaranty deposit of P1,030,350.00, which would
serve as security for the timely performance of TMIs obligations under the lease agreement, to be
automatically forfeited should TMI return the leased equipment before the expiration of the lease
agreement.

ISSUE:
Whether the sale with lease agreement the parties entered into was a financial lease or a loan
secured by chattel mortgage.
HELD:
In a true financial leasing, whether under RA 5980 or RA 8556, a finance company purchases on
behalf of a cash-strapped lessee the equipment the latter wants to buy but, due to financial limitations,
is incapable of doing so. The finance company then leases the equipment to the lessee in exchange
for the latters periodic payment of a fixed amount of rental.

In this case, however, TMI already owned the subject equipment before it transacted with PCILF.
Therefore, the transaction between the parties in this case cannot be deemed to be in the nature of a
financial leasing as defined by law.

In the present case, since the transaction between PCILF and TMI involved equipment already owned
by TMI, it cannot be considered as one of financial leasing, as defined by law, but simply a loan
secured by the various equipment owned by TMI.

G.R. No. 179395

December 15, 2010

MAXWELL HEAVY EQUIPMENT CORPORATION, Petitioner, vs. ERIC UYCHIAOCO YU,

Respondent.

DOCTRINE:
The creditor is not bound to accept payment or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a stipulation to the contrary.
FACTS:
On 3 April 2001 and 2 May 2001, Maxwell obtained loans from BPI, G. Araneta Avenue Branch, in the
total sum of P8,800,000.00 covered by two Promissory Notes and secured by a real estate mortgage
over two lots registered in Yus name. Promissory Note No. 1-6743742-001 for P800,000.00 was due
on 26 March 2002 while Promissory Note No. 1-6743742-002 for P8,000,000.00 was due on 24 April
2002. Yu signed as Maxwells co-maker in the Promissory Note covering the P8,000,000 loan. It
appears that Yu did not sign as co-maker in the Promissory Note for P800,000.

Maxwell defaulted in the payment of the loans, forcing Yu to pay BPI P8,888,932.33 representing the
principal loan amounts with interest, through funds borrowed from his mother, Mina Yu, to prevent the
foreclosure of his real properties.

Thereafter, Yu demanded reimbursement from Maxwell of the entire amount paid to BPI. However,
Maxwell failed to reimburse Yu. Consequently, Yu filed with the trial court a complaint for sum of
money and damages.

ISSUE:
Whether or not Maxwells transactions with BPI were accommodation loans for Yus benefit
HELD:
In this case, the question of whether Maxwells transactions with BPI were accommodation loans for
Yus benefit is clearly factual, and thus, beyond the Courts review.

Moreover, factual findings of the trial court, when affirmed by the Court of Appeals, will not be
disturbed by this Court. As a rule, such findings by the lower courts are entitled to great weight and
respect, and are deemed final and conclusive on this Court when supported by the evidence on
record. The foregoing principle applies to the present controversy.

In this case, the Court of Appeals affirmed the trial courts finding that "it was Yu who accommodated
Maxwell by allowing the use of his real properties as collateral [for Maxwells loans]." The appellate

court concurred with the trial court that Maxwell is the principal borrower since it was Maxwell which
paid interest on the loans.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.

The above provision grants the plaintiff (Yu) the right to recovery and creates an obligation on the part
of the defendant (Maxwell) to reimburse the plaintiff. In this case, Yu paid BPI P8,888,932.33,
representing the amount of the principal loans with interest, thereby extinguishing Maxwells loan
obligation with BPI. Pursuant to Article 1236 of the Civil Code, Maxwell, which was indisputably
benefited by Yus payment, must reimburse Yu the same amount of P8,888,932.33.

G.R. No. 174006

December 8, 2010

BANK OF COMMERCE and STEPHEN Z. TAALA, Petitioners, vs. Spouses ANDRES and ELIZA
FLORES, Respondents.

DOCTRINE:
It is well settled that mortgages given to secure future advance or loans are valid and legal contracts,
and that the amounts named as consideration in said contracts do not limit the amount for which the
mortgage may stand as security if from the four corners of the instrument the intent to secure future
and other indebtedness can be gathered.

FACTS:
Respondents filed a case for specific performance against petitioners before the Regional Trial Court
(RTC) of Quezon City, docketed as Civil Case No. Q-98-35425. Respondents are the registered
owners of a condominium unit in Embassy Garden Homes, West Triangle, Quezon City, registered
under Condominium Certificate of Title (CCT) No. 2130, issued by the Register of Deeds of Quezon
City.

On October 22, 1993, respondents borrowed money from petitioner bank in the amount of Nine
Hundred Thousand Pesos (P900,000.00). Respondents executed a Real Estate Mortgage 5 over the
condominium unit as collateral, and the same was annotated at the back of CCT No. 2130.

On October 3, 1995, respondents again borrowed One Million One Hundred Thousand Pesos
(P1,100,000.00) from petitioner bank, which was also secured by a mortgage over the same property
annotated at the back of CCT No. 2130.6

On January 2, 1996, respondents paid One Million Eleven Thousand Five Hundred Fifty-Five Pesos
and 54 centavos (P1,011,555.54), as evidenced by Official Receipt No. 147741 7 issued by petitioner
bank. On the face of the receipt, it was written that the payment was "in full payment of the loan and
interest." Respondents then asked petitioner bank to cancel the mortgage annotations on CCT No.
2130 since the loans secured by the real estate mortgage were already paid in full. However, the bank
refused to cancel the same and demanded payment of Four Million Six Hundred Thirty-Three
Thousand Nine Hundred Sixteen Pesos and Sixty-Seven Centavos (P 4,633,916.67), representing the
outstanding obligation of respondents as of February 27, 1998. Respondents requested for an
accounting which would explain how the said amount was arrived at.

ISSUE:
Whether the real estate mortgage over the subject condominium unit is a continuing guaranty for the
future loans of respondent spouses despite the full payment of the principal loans annotated on the
title of the subject property.
HELD:
Yes. It is petitioner banks contention that the said undertaking, stipulated in the Deed of Real Estate
Mortgage dated October 22, 1993 and October 3, 1995, is a continuing guaranty meant to secure
future debts or credit accommodations granted by petitioner bank in favor of respondents. On the
other hand, respondents posit that, since they have already paid the loans secured by the real estate
mortgages, the mortgage should not be foreclosed because it does not include future debts of the
spouses or debts not annotated at the back of CCT No. 2130.

A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage
must be limited to the amount mentioned in the mortgage contract. Under Article 2053 of the Civil
Code, a guaranty may be given to secure even future debts, the amount of which may not be known
at the time the guaranty is executed. This is the basis for contracts denominated as a continuing
guaranty or suretyship. A continuing guaranty is not limited to a single transaction, but contemplates a
future course of dealing, covering a series of transactions, generally for an indefinite time or until
revoked. It is prospective in its operation and is generally intended to provide security with respect to
future transactions within certain limits, and contemplates a succession of liabilities, for which, as they
accrue, the guarantor becomes liable. In other words, a continuing guaranty is one that covers all
transactions, including those arising in the future, which are within the description or contemplation of
the contract of guaranty, until the expiration or termination thereof.

A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the object is
to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a
certain period, especially if the right to recall the guaranty is expressly reserved. In other jurisdictions,
it has been held that the use of particular words and expressions, such as payment of "any debt," "any
indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be
furnished the principal debtor "at any time" or "on such time" that the principal debtor may require, has
been construed to indicate a continuing guaranty.

G.R. No. 172020

December 6, 2010

TRADERS ROYAL BANK, Petitioner,

CASTAARES, Respondents.

vs.

NORBERTO

CASTAARES

and

MILAGROS

DOCTRINE:
A pledge or mortgage given to secure future advancements is a continuing security and is not
discharged by the repayment of the amount named in the mortgage until the full amount of all
advancements shall have been paid.

FACTS:
Respondent-spouses Norberto and Milagros Castaares are engaged in the business of exporting
shell crafts and other handicrafts. Between 1977 and 1978, respondents obtained from petitioner
Traders Royal Bank various loans and credit accommodations. Respondents executed two real estate
mortgages (REMs) dated April 18, 1977 and January 25, 1978 covering their properties (TCT Nos. T38346, T-37536, T-37535, T-37192 and T-37191). As evidenced by Promissory Note No. BD-77-113
dated May 10, 1977, petitioner released only the amount of P35,000.00 although the mortgage deeds
indicated the principal amounts as P86,000.00 and P60,000.00.

Respondents were further granted additional funds on various dates under promissory notes they
executed in favor of the petitioner. For failure of the respondents to pay their outstanding loans with
petitioner, the latter proceeded with the extrajudicial foreclosure of the real estate mortgages.

ISSUE:
Whether or not the nature of the amounts of principal loan indicated in the REMs long after obligations
have matured and the mortgage foreclosed due to their failure to fully settle their outstanding
accounts with petitioner.
HELD:
No. The subject REMs contain the following provision:

That, for and in consideration of certain loans, overdrafts and other credit accommodations obtained,
from the Mortgagee by the Mortgagor and/or SPS. NORBERTO V. CASTAARES & MILAGROS M.
CASTAARES and to secure the payment of the same, the principal of all of which is hereby fixed at
EIGHTY-SIX THOUSAND PESOS ONLY (P86,000.00) Pesos, Philippine Currency, as well as those
that the Mortgagee may hereafter extend to the Mortgagor x x x, including interest and expenses or
any other obligation owing to the Mortgagee, whether direct or indirect, principal or secondary, as
appears in the accounts, books and records of the Mortgagee x.

In this case, however, respondents admitted they received all the amounts under the promissory
notes presented by the petitioner. The consideration in the execution of the REMs consist of those
credit accommodations to fund their export transactions. Respondents as an afterthought raised issue
on the nature of the amounts of principal loan indicated in the REMs long after these obligations have
matured and the mortgage foreclosed due to their failure to fully settle their outstanding accounts with
petitioner. Having expressly agreed to the terms of the REMs which are phrased to secure all such
loans and advancements to be obtained from petitioner, although the principal amount stated therein
were not released at one time and under several, not just one, subsequently issued promissory notes,
respondents may not be allowed to complain later that the amounts they received were unrelated to
the REMs.

Philippine Bank of Communications vs. Spouses Jose C. Go and Elvy T. Go

G.R. No. 175514 February 14, 2011
FACTS:
Spouses Go secured two loans from PBCom evidenced by two promissory notes. The loan was

payable for ten years and secured by two pledge agreements covering shares of stocks in Ever
Gotesco Resources and Holdings Inc. Two years later, however, the shares of stock plunged to less
than 0.04 per share, as a result, PBCom, as pledgee, notified Go in writing that it was renouncing the
pledge agreements. Thereafter the bank alleging that Spouses Go defaulted on the two (2)
promissory notes, having paid only three (3) installments on interest payments covering the months of
September, November and December 1999, filed a complaint for sum of money. Consequently, the
entire balance of the obligations of Go became immediately due and demandable.
On the other hand, Spouses Go filed their Answer with Counterclaim denying the material allegations
in the complaint and stating, among other matters, that:
9. Contrary to the plaintiffs proferrence, defendant Jose C. Go had made substantial
payments in terms of his monthly payments. There is, therefore, a need to do some
accounting works (sic) to reconcile the records of both parties.
10. While demand is a necessary requirement to consider the defendant to be in
delay/default, such has not been complied with by the plaintiff since the former is not aware of
any demand made to him by the latter for the settlement of the whole obligation.
11. Undeniably, at the time the pledge of the shares of stock were executed, their total value is
more than the amount of the loan or at the very least, equal to it. Thus, plaintiff was fully
secured insofar as its exposure is concerned.
ISSUE:
Whether or not respondents Sps. Go were not in default on the basis of their denial of knowledge of
the information pertaining to the loan.
RULING:
No.
Rule 8, Section 10 of the Rules of Civil Procedure contemplates three (3) modes of specific denial,
namely: xxx (3) by stating that the defendant is without knowledge or information sufficient to form a
belief as to the truth of a material averment in the complaint, xxx
In this case, Spouses Go are not disclaiming knowledge of the transaction or the execution of the
promissory notes or the pledge agreements sued upon. The matters in contention are, as the CA
stated, whether or not respondents were in default, whether there was prior demand, and the amount
of the outstanding loan. These are the matters that the parties disagree on and by which reason they
set forth vastly different allegations in their pleadings which each will have to prove by presenting
relevant and admissible evidence during trial.
Furthermore, in stark contrast to other cases where one of the parties disclaimed knowledge of
something so patently within his knowledge, in this case, respondents Spouses Go categorically
stated in the Answer that there was no prior demand, that they were not in default, and that the
amount of the outstanding loan would have to be ascertained based on official records. Petition is
hereby DENIED.

Carolina Hernandez-Nievera, et. al. v. Wilfredo Hernandez, et.al.

G.R. No. 171165, 14 February 2011, SECOND DIVISION, (Peralta, J.)

FACTS:
Project Movers Realty & Development Corporation (PMRDC), one of the respondents, entered into
different agreements with the other respondents Home Insurance & Guaranty Corporation (HIGC) and
Land Bank of the Philippines through its president Mario Villamor in reference to construction projects
contemplated to be executed in Batangas and Caloocan City. PMRDC then entered into a

Memorandum of Agreement (MOA) with petitioners Carolina Hernandez-Nievera, Margarita H. Malvar

and Demetrio P. Hernandez wherein PMRDC was given the option to buy pieces of land owned by the
former within 12 months from the date of the instrument along with the payment of option money. It
was further stated that in case there is failure to avail within the stipulated option period of 12 months,
the option money shall be forfeited in favor of the vendor and the vendee shall return all the Transfer
Certificates of Title (TCT) of the covered parcels of land to the former.

When PMRDC decided to convey more properties to its Asset Pool, it entered a Deed of Assignment
and Conveyance with LBP and Demetrio, who acted through the same special power of attorney used
in the MOA. The DAC sought to transfer and assign some lands in Area II to the asset pool in
exchange for a number of shares of stock which had been issued in favor and in the name of
Demetrio.

PMRDC admits that they did not avail the express stipulation of 12-month option period in the MOA.
Hernandez-Nievera, et. al. demands that the TCTs be returned to them but PMRDC refused
contending that the properties were already transferred and assigned to the Asset Pool pursuant to
the DAC. Hernandez-Nievera, et. al. filed an action to rescind the MOA and to declare the DAC a
nullity. The trial court ruled in favor of Hernandez-Nievera. Aggrieved, the other party appealed to the
Court of Appeals which reversed and set aside the ruling of the trial court. Hence, this petition.

ISSUE:
Whether or not the Memorandum of Agreement was novated by the Deed of Assignment and
Conveyance

RULING:

YES.

Citing the case of California Bus Lines, Inc. v. State Investment House, Inc.
There are two ways which could indicate, in fine, the presence of novation
and thereby produce the effect of extinguishing an obligation by another which
substitutes the same. The first is when novation has been explicitly stated and
declared in unequivocal terms. The second is when the old and the new obligations
are incompatible on every point. The test of incompatibility is whether the two
obligations can stand together, each one having its independent existence. If they
cannot, they are incompatible, and the latter obligation novates the first. Corollarily,
changes that breed incompatibility must be essential in nature and not merely
accidental. The incompatibility must take place in any of the essential elements of
the obligation such as its object, cause or principal conditions thereof; otherwise, the

change would be merely modificatory in nature and insufficient to extinguish the

original obligation.

Lotto Restaurant Corporation vs. BPI Family Savings Bank, Inc., 646 SCRA 699, G.R. No.
177260 March 30, 2011
DOCTRINE:
The Court has previously upheld as valid the proviso in loans that the interest rate would be made to
depend on the prevailing market rate. Such provision does not signify an automatic increase in the
interest. It simply means that the bank may adjust the interest according to the prevailing market
rate. This may result to either an increase or a decrease in the interest.
Foreclosure is but a necessary consequence of non-payment of mortgage indebtedness. The
creditor-mortgagee has the right to foreclose the mortgage, sell the property, and apply the proceeds
of the sale to the satisfaction of the unpaid loan.
FACTS:
Petitioner Lotto got a loan of P3,000,000.00 from the DBS Bank at an interest rate of 11.5% per
annum. The promissory note it executed provided that Lotto would pay DBS a monthly amortization
of P35,045.69 for 180 months. To secure payment of the loan, Lotto, represented by Suat Kim Go
(Go), its General Manager, mortgaged to DBS a condominium unit that belonged to it.
Lotto paid its monthly amortizations for 12 months but in January 2001, after DBS increased the
interest to 19% per annum, Lotto contested the increase and stopped paying the loan. After
respondent BPI Family Savings Bank, Inc. (BPI) acquired DBS, Lotto tried to negotiate with BPI for
reduction of interest but the latter agreed to reduce it to only 14.7% per annum, which was still
unacceptable to Lotto.
On October 21, 2002 BPI foreclosed the mortgage on Lottos condominium unit to satisfy its unpaid
claim of P5,283,470.26, which included interest, penalties, fire insurance premium, attorneys fees,
and estimated foreclosure expenses. BPIs computation applied an interest rate of 19% per annum for
the period December 24, 2000 to November 24, 2001; and 14.7% per annum for the period December
24, 2001 to October 10, 2002.
To stop the foreclosure, Lotto filed against BPI with the Regional Trial Court (RTC) of Manila an action
for reformation or annulment of real estate mortgage with prayer for a temporary restraining order
(TRO) and preliminary injunction. On January 11, 2005 the RTC rendered a decision in Lottos
favor, finding that DBS breached the stipulations in the promissory note when it unilaterally increased
the interest rate on its loan from 11.5% to 19% per annum.
Aggrieved, BPI appealed to the Court of Appeals (CA), which reversed the RTC Decision. The CA
held that Lotto was estopped from questioning the validity of the promissory note and the real estate
mortgage since, having authorized Go to take out a loan from the bank, it followed that it also
authorized her to provide the security that the loan required.
As to the increase in the interest rate, the CA found that the 11.5% rate provided in the promissory
note pertained only to the period from December 24, 1999 to December 24, 2000. The note provided
that, upon the lapse of that period, the loan would already bear an interest based on the prevailing
market rate. The increase from 11.5% to 19% for the subsequent period was thus valid.
With the denial of its motion for reconsideration, Lotto filed the present petition for review.
ISSUES:
1. Whether or not DBS, now BPI, validly adjusted the rate of interest on Lottos loan from 11.5% to
19% per annum beginning on December 24, 2000; and
2. Whether or not BPI has the right to foreclose the real estate mortgage for non-payment of the loan.
RULING:

One. Lotto insists that DBS had no right to unilaterally increase the interest rate on its loan from
11.5% to 19% per annum after the passage of a year. Lotto argues that DBS could, under the terms
and conditions of the promissory note, make such adjustments only after 180 months following the
execution of the promissory note.
But, paragraphs 7 and 8 of the promissory note clearly provide that the 11.5% interest rate per annum
applied only to the first year of the loan. It is plainly that the 11.5% per annum interest was to apply to
the period December 24, 1999 to December 24, 2000. They form but one statement of the stipulated
interest rate and the period to which such interest rate applied. Additionally, the statement of
applicable interest rate bears an asterisk sign, which footnoted the information that "[t]hereafter
interest to be based on prevailing market rate." This means that the rate of interest would be adjusted
to the prevailing market rate after December 24, 2000.
The Court has previously upheld as valid the proviso in loans that the interest rate would be made to
depend on the prevailing market rate. Such provision does not signify an automatic increase in the
interest. It simply means that the bank may adjust the interest according to the prevailing market rate.
This may result to either an increase or a decrease in the interest.
Two. Lotto claims that the real estate mortgage that Go executed was void since it did not authorize
her to execute the same and since DBS did not sign it. But Lotto admitted in its complaint below that
Go had obtained a loan from DBS on its behalf, with the condominium unit as collateral. With this
admission, Lotto should be deemed estopped from assailing the validity and due execution of that
mortgage deed.
As to BPIs right to foreclose, the records show that Lotto defaulted in its obligation when it
unjustifiably stopped paying its amortizations after the first year. Consequently, there is no question
that BPI had a clear right to foreclose on Lottos collateral. The Court held in Equitable PCI Bank, Inc.
v. OJ-Mark Trading, Inc. that foreclosure is but a necessary consequence of non-payment of
mortgage indebtedness. The creditor-mortgagee has the right to foreclose the mortgage, sell the
property, and apply the proceeds of the sale to the satisfaction of the unpaid loan.

Juan vs. Yap, Sr., 646 SCRA 753, G.R. No. 182177 March 30, 2011
DOCTRINE:
An implied trust arising from mortgage contracts is not among the trust relationships the Civil Code
enumerates. The Code itself provides, however, that such listing does not exclude others established
by the general law on trust x x x. Under the general principles on trust, equity converts the holder of
property right as trustee for the benefit of another if the circumstances of its acquisition makes the
holder ineligible in x x x good conscience [to] hold and enjoy [it].

FACTS:
On 31 July 1995, the spouses Maximo and Dulcisima Caeda (Caeda spouses) mortgaged to
petitioner Richard Juan (petitioner), employee and nephew of respondent Gabriel Yap, Sr.
(respondent), two parcels of land in Talisay, Cebu to secure a loan of P1.68 million, payable within
one year. The Contract was prepared and notarized by Atty. Antonio Solon (Solon). Petitioner,
represented by Solon, sought the extrajudicial foreclosure of the mortgage. Although petitioner and
respondent participated in the auction sale, the properties were sold to petitioner for tendering the
highest bid of P2.2 million. No certificate of sale was issued to petitioner, however, for his failure to
pay the sales commission.

Respondent and the Caeda spouses executed a memorandum of agreement (MOA) where (1) the
Caeda spouses acknowledged respondent as their "real mortgagee-creditor x x x while Richard Juan
[petitioner] is merely a trustee" of respondent; (2) respondent agreed to allow the Caeda spouses to
redeem the foreclosed properties for P1.2 million; and (3) the Caeda spouses and respondent
agreed to initiate judicial action "either to annul or reform the [Contract] or to compel Richard Juan to
reconvey the mortgagees rights" to respondent as trustor. Three days later, the Caeda spouses and
respondent sued petitioner in the Regional Trial Court of Cebu City (trial court) to declare respondent
as trustee of petitioner vis a vis the Contract, annul petitioners bid for the foreclosed properties,
declare the Contract "superseded or novated" by the MOA, and require petitioner to pay damages,
attorneys fees and the costs. The Caeda spouses consigned with the trial court the amount of P1.68
million as redemption payment.
In his Answer, petitioner insisted on his rights over the mortgaged properties. Petitioner also
counterclaimed for damages and attorneys fees and the turn-over of the owners copy of the titles for
the mortgaged properties.

Petitioner relies on the terms of the Contract, and argues that respondents proof of a resulting trust
created in his favor is weak. Petitioner also assails the award of damages to respondent for lack of
basis. On the other hand, respondent questions the propriety of this petition for raising only factual
questions, incompatible with the office of a petition for review on certiorari. Alternatively, respondent
argues that the pieces of parol evidence the CA used to anchor its ruling are more than sufficient to
prove the existence of an implied trust between him and petitioner.

ISSUE:
Whether an implied trust arose between petitioner and respondent, binding petitioner to hold the
beneficial title over the mortgaged properties in trust for respondent.

RULING:
The Court held in the affirmative. An implied trust arising from mortgage contracts is not among the
trust relationships the Civil Code enumerates. The Code itself provides, however, that such listing
"does not exclude others established by the general law on trust x x x." Under the general principles
on trust, equity converts the holder of property right as trustee for the benefit of another if the
circumstances of its acquisition makes the holder ineligible "in x x x good conscience [to] hold and
enjoy [it]." As implied trusts are remedies against unjust enrichment, the "only problem of great
importance in the field of constructive trusts is whether in the numerous and varying factual situations
presented x x x there is a wrongful holding of property and hence, a threatened unjust enrichment of
the defendant."

Applying these principles, this Court recognized unconventional implied trusts in contracts involving
the purchase of housing units by officers of tenants associations in breach of their obligations, the
partitioning of realty contrary to the terms of a compromise agreement, and the execution of a sales
contract indicating a buyer distinct from the provider of the purchase money. In all these cases, the
formal holders of title were deemed trustees obliged to transfer title to the beneficiaries in whose favor
the trusts were deemed created. We see no reason to bar the recognition of the same obligation in a
mortgage contract meeting the standards for the creation of an implied trust.

Edralin vs. Philippine Veterans Bank, 645 SCRA 75, G.R. No. 168523 March 9, 2011
DOCTRINE:
During the period of redemption, the mortgagee is entitled to a writ of possession upon depositing the
approved bond. When the redemption period expires without the mortgagor exercising his right of
redemption, the mortgagor is deemed to have lost all interest over the foreclosed property, and the
purchaser acquires absolute ownership of the property.

FACTS:
Respondent Philippine Veterans Bank (Veterans Bank) is a commercial banking institution created
under Republic Act (RA) No. 3518, as amended by RA No. 7169.

On February 5, 1976, Veterans Bank granted petitioner spouses Fernando and Angelina Edralin
(Edralins) a loan in the amount of Two Hundred Seventy Thousand Pesos ( P270,000.00). As security
thereof, petitioners executed a Real Estate Mortgage (REM) in favor of Veterans Bank over a real
property situated in the Municipality of Paraaque and registered in the name of petitioner Fernando
Edralin. The REM was registered with the Registry of Deeds of the Province of Rizal.

The Edralins failed to pay their obligation to Veterans Bank. Thus, on June 28, 1983, Veterans Bank
filed a Petition for Extrajudicial Foreclosure of the REM with the Office of the Clerk of Court and ExOfficio Sheriff of Rizal.

In due course, the foreclosure sale was held on September 8, 1983, in which the Ex-Officio Sheriff of
Rizal sold the mortgaged property at public auction. Veterans Bank emerged as the highest bidder at
the said foreclosure sale and was issued the corresponding Certificate of Sale. The said Certificate of
Sale was registered with the Registry of Deeds of the Province of Rizal and annotated at the back of
TCT No. 204889 under Entry No. 83-62953/T-No. 43153-A on October 25, 1983.

Upon the Edralins failure to redeem the property during the one-year period provided under Act No.
3135, Veterans Bank acquired absolute ownership of the subject property. Consequently, Veterans
Bank caused the consolidation of ownership of the subject property in its name on January 19,
1994. The Register of Deeds of Paraaque, Metro Manila cancelled TCT No. 204889 under the name
of Fernando Edralin and replaced it with a new transfer certificate of title, TCT No. 78332, in the name
of Veterans Bank on February 3, 1994.

Despite the foregoing, the Edralins failed to vacate and surrender possession of the subject property
to Veterans Bank. Thus, on May 24, 1996, Veterans Bank filed an Ex-Parte Petition for the Issuance
of a Writ of Possession, before Branch 274 of the Regional Trial Court (RTC) of Paraaque City. The
same, however, was dismissed for Veterans Banks failure to prosecute.

On July 29, 2003, Veterans Bank again filed an Ex-Parte Petition for Issuance of Writ of
Possession, this time docketed as Land Registration Case No. 03-0121, before the RTC of
Paraaque City. Veterans Bank divulged in its Certification against Forum-Shopping that the earlier
case, LRC No. 96-060, involving the same subject matter and parties, was dismissed.

The Edralins moved to dismiss the petition on the ground that the dismissal of LRC No. 96-060
constituted res judicata.

ISSUES:
1.Whether the issuance of a writ of possession under Act [No.] 3135 is proper; and
2. Whether the consolidation of ownership of the extrajudicially foreclosed property through a Deed of
Sale is in accordance with law.

RULING:
Yes to both questions.

The issuance of a writ of possession is outlined in Section 7 of Act No. 3135, as amended by Act No.
4118, which provides:

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

During the period of redemption, the mortgagee is entitled to a writ of possession upon depositing the
approved bond. When the redemption period expires without the mortgagor exercising his right of
redemption, the mortgagor is deemed to have lost all interest over the foreclosed property, and the
purchaser acquires absolute ownership of the property. The purchasers right is aptly described thus:

Consequently, the purchaser, who has a right to possession after the expiration of the redemption
period, becomes the absolute owner of the property when no redemption is made. In this regard, the
bond is no longer needed. The purchaser can demand possession at any time following the
consolidation of ownership in his name and the issuance to him of a new TCT. After consolidation of
title in the purchasers name for failure of the mortgagor to redeem the property, the purchasers right
to possession ripens into the absolute right of a confirmed owner. At that point, the issuance of a writ
of possession, upon proper application and proof of title becomes merely a ministerial function.
Effectively, the court cannot exercise its discretion.

Therefore, the issuance by the RTC of a writ of possession in favor of the respondent in this case is
proper.

Pactum commissorium is "a stipulation empowering the creditor to appropriate the thing given as
guaranty for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings,
without further formality, such as foreclosure proceedings, and a public sale." "The elements of
pactum commissorium, which enable the mortgagee to acquire ownership of the mortgaged property
without the need of any foreclosure proceedings, are: (1) there should be a property mortgaged by
way of security for the payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal
obligation within the stipulated period."

The second element is missing to characterize the Deed of Sale as a form of pactum commissorium.
Veterans Bank did not, upon the petitioners default, automatically acquire or appropriate the
mortgaged property for itself. On the contrary, the Veterans Bank resorted to extrajudicial foreclosure
and was issued a Certificate of Sale by the sheriff as proof of its purchase of the subject property
during the foreclosure sale. That Veterans Bank went through all the stages of extrajudicial
foreclosure indicates that there was no pactum commissorium.

Star Two (SPV-AMC), Inc. vs. Ko, 646 SCRA 371, G.R. No. 185454 March 23, 2011
DOCTRINE:
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in favor of
another party, called the obligee. The surety agreement is an accessory contract; and the surety
becomes directly, primarily, and equally bound with the principal as the original promissor although the
former possesses no direct or personal interest over the latters obligations and does not receive any
benefit therefrom. Pursuant to Article 2054 of the Civil Code that a guarantor [or surety] may bind
himself for less, but not for more than the principal debtor, both as regards the amount and the
onerous nature of the conditions, respondents limited their liability to P50M, which is less than
Jianshes liability to RCBC.

FACTS:
Jianshe Motorcycle Industries Philippines Corporation (Jianshe) obtained various credit facilities or
loan accommodations from Rizal Commercial Banking Corporation (RCBC) from 2003-2004 to
finance its importation of motorcycles, motorcycle parts, motorcycle accessories, and other related
goods. To secure the goods imported by Jianshe, RCBC required it to execute trust receipts over
these goods. Moreover, to secure payment of all existing and future obligations of Jianshe to RCBC,
respondents Howard Ko, Jimmy Ong, Min Min See Ko, and Grace Ng Ong executed a
Comprehensive Surety Agreement3 dated September 3, 2002, with a limited liability ofP50 M.

Despite demand, Jianshe failed to pay its obligations. RCBC thus filed a Complaint for Specific
Perfomance with Prayer for a Writ of Preliminary Attachment against Jianshe as principal and
respondents as sureties, before the Regional Trial Court (RTC) of Makati City on December 27, 2005.

On March 17, 2006, Howard Ko filed a Motion to Dismiss on the ground that RCBCs claim had
already been paid, waived, abandoned, or otherwise extinguished. Min Min See Ko adopted Howard
Kos motion. On June 15, 2006, the RTC ordered the immediate discharge of the attachment issued
against Howard Ko and Min Min See Ko, but denied Howard Kos Motion to Dismiss. Unsatisfied,
Howard Ko and RCBC filed their respective Motions for Reconsideration. Howard Ko likewise filed a
Motion to Set Case for Hearing for Reception of Evidence.

In an Order dated December 13, 2006, the RTC granted Howard Kos motion and accordingly
dismissed the case against respondents, leaving Jianshe as the only defendant. In dismissing the

case, the trial court stated that there was sufficient evidence to prove that Howard Ko paid an amount
more than the limit provided under the Comprehensive Surety Agreement.

Aggrieved by the dismissal of the case against respondents, RCBC filed a Motion for Partial
Reconsideration.15 It likewise filed a Manifestation/Substitution of Parties, considering that it had sold,
transferred, and assigned all its rights and interests in the present case to petitioner Star Two (SPVAMC), Inc.

On August 31, 2007, the RTC denied RCBCs motion for reconsideration, but granted the inclusion of
petitioner as plaintiff in substitution of RCBC.

Petitioner thus elevated the matter to the CA through a petition for certiorari under Rule 65 of the
Rules of Court. On October 15, 2008, the CA rendered the assailed Decision denying petitioners
petition. The CA also denied its motion for reconsideration on November 13, 2008. Hence, this
petition.

ISSUE:
Whether the respondents are still liable.

RULING:
Respondents acted as sureties under the Comprehensive Surety Agreement to secure the obligations
of Jianshe to RCBC. A contract of suretyship is an agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of another party, called the obligee. The surety agreement is an accessory
contract; and the surety becomes directly, primarily, and equally bound with the principal as the
original promissor although the former possesses no direct or personal interest over the latters
obligations and does not receive any benefit therefrom.

Pursuant to Article 2054 of the Civil Code that "a guarantor [or surety] may bind himself for less, but
not for more than the principal debtor, both as regards the amount and the onerous nature of the
conditions," respondents limited their liability to P50 M, which is less than Jianshes liability to RCBC.
Howard Ko complied with his obligations and made payments to RCBC through the following modes:

First mode of payment: certificates of time deposit of Howard Ko and Howard Ko and/or Harry Ko
which were admitted by RCBC as applied for the payment of Jianshes obligation. Second mode of
payment: official receipts and trust receipt debit advices which were debited from Howard Kos current
account (1-155-13110-1) and savings account (1-155-30805-9) and applied as payment to Jianshes
obligation. Third mode of payment: certificates of time deposit of Howard Ko which were withdrawn

upon maturity and deposited to Jianshes RCBC Savings Account No. 1-166-30810-6. Thereafter, the
said amounts were debited by RCBC as payment to several trust receipts issued to [Jianshe]. Fourth
mode of payment: certificates of time deposit of Harry Ko and Liu Guo Xuan which were admitted as
payment by RCBC. The proceeds of these CTDs were borrowed by Howard Ko from Harry Ko and Liu
Guo Xuan to be applied as payment for Jianshes obligations.

These modes of payment were adequately explained by respondents and supported by documentary
evidence. We quote with approval the CAs observations in this wise:

The evidence in favor of the [respondents] consisted of no less than RCBC documents showing that
said bank debited from their various accounts the amounts which Jianshe owed RCBC under the trust
receipts. In the subject petition, the petitioner has not claimed that these evidence were fabricated. It
cannot say that, if present at the hearing or, if there would be another hearing, it could prove that the
RCBC documents were false. It cannot because those were genuine RCBC documents.

All it can say is that these were payments for "a different credit line" or different "trust receipts"
secured by the Comprehensive Surety Agreement which remains unpaid.

Petitioner, however, could not even allege the specific "different credit line" or other trust receipt. In
the absence thereof, it could only mean that the payments were for the Jianshe accounts.

The Court notes that the pieces of evidence presented by respondents were documents, such as
official receipts, trust debit advices, and passbooks, issued by no less than petitioner itself. Payments
were made by respondents through the active participation of RCBC, primarily by debiting the subject
amounts from respondents accounts with the bank. Admittedly, it was Jianshe, as the principal, which
owed RCBC. Nowhere in petitioners pleadings was it claimed that respondents also owed the bank
aside from their obligation as surety to secure the principal obligation of Jianshe. Undoubtedly, the
debited amounts from Howard Kos accounts were made to satisfy his obligation as surety. Petitioner
cannot now claim that the payments were made by Jianshe as principal and not by respondents as
sureties simply because the receipts were issued in the name of Jianshe. As aptly observed by the
CA, the issuance of the receipts in the name of Jianshe was done only to indicate that it was the
principal obligor. The issuance of the receipts does not erase the fact that various amounts were
debited from the accounts of Howard Ko, and certificates of time deposit in the name of Howard Ko
were applied as payment for Jianshes obligations.

G.R. No. 171628

June 13, 2011

ARMANDO V. ALANO [Deceased], Substituted by Elena Alano-Torres, * Petitioner, vs.

PLANTER'S DEVELOPMENT BANK, as Successor-in-Interest of MAUNLAD SAVINGS and
LOAN ASSOCIATION, INC.,***
FACTS:

Brothers Armando and Agapito Alano inherited from their father a parcel of land. The petitioner
executed a Special Power of Attorney authorizing his brother to sell their property in Manila. From the
proceeds of the sale, the brothers purchased a residential house. On June 27, 1990, Agapito V. Alano,
Jr. died. He left the property to his wife Lydia and children. Petitioner executed an Affidavit of adverse
claim but due to the assurance of his nieces that they would put things right, petitioner agreed to delay
the filing of a case in court. Meanwhile, Lydia filed with the Register of Deeds of Quezon City an
Affidavit of Cancellation of Adverse Claim which caused the cancellation of the adverse claim. By
virtue of a Deed of Absolute Sale allegedly executed by her children in her favor, TCT No. 18990 was
cancelled and a new one, TCT No. 90388, was issued solely in her name.
On February 8, 1994, Slumberworld, Inc.s President, Melecio A. Javier, and Treasurer, Lydia,
obtained from Maunlad Savings and Loan Association, Inc. a loan of P2.3 million, secured by a Real
Estate Mortgage over the property covered by TCT No. 90388.
Petitioner filed a Complaint against Lydia, Melecio A. Javier, Maunlad Savings and Loan Association,
Inc. and the Register of Deeds of Quezon City before the Regional Trial Court (RTC) of Quezon City.
He sought the cancellation of TCT No. 90388, the issuance of a new title in his name for his one-half
share of the Quezon City property, and the nullification of real estate mortgage insofar as his one-half
share is concerned.
ISSUES:
(1) Whether Maunlad Savings and Loan Association, Inc. is a mortgagee in good faith is a
question of fact, which is beyond the jurisdiction of this Court
(2) Whether Maunlad Savings and Loan Association, Inc. has no obligation to look beyond the
title considering that there was no adverse claim annotated on TCT No. 90388 covering the
mortgaged property.
HELD:
The petition has merit.
The instant case is an exception to the rule that factual issues may not be raised in a petition under
Rule 45 of the Rules of Court.
The rule that only questions of law may be raised in a petition for review on certiorari under Rule 45 of
the Rules of Court is not without exception. A review of factual issues is allowed when there is a
misapprehension of facts or when the inference drawn from the facts is manifestly mistaken. This
case falls under exception.
Maunlad Savings and Loan Association, Inc. is not a mortgagee in good faith.
The general rule that a mortgagee need not look beyond the title does not apply to banks and
other financial institutions as greater care and due diligence is required of them. Imbued with
public interest, they "are expected to be more cautious than ordinary individuals." Thus,
before approving a loan, the standard practice for banks and other financial institutions is to
conduct an ocular inspection of the property offered to be mortgaged and verify the
genuineness of the title to determine the real owner or owners thereof. Failure to do so makes
them mortgagees in bad faith.
In this case, petitioner contends that Maunlad Savings and Loan Association, Inc. failed to exercise
due diligence in inspecting and ascertaining the status of the mortgaged property because during the
ocular inspection, the credit investigator failed to ascertain the actual occupants of the subject
property and to discover petitioners apartment at the back portion of the subject property.

G.R. No. 172227

June 29, 2011

SPOUSES WILFREDO PALADA and BRIGIDA PALADA, * Petitioners, vs.

CORPORATION and SHERIFF MAYO DELA CRUZ, Respondents.
FACTS:

SOLIDBANK

In February or March 1997, spouses Wilfredo and Brigida Palada, applied for a P3 million loan from
Solidbank Corporation. On March 17, 1997, petitioners received from the bank the amount of P1
million as additional working capital evidenced by a promissory note and secured by a real estate
mortgage in favor of the bank covering several real properties situated in Santiago City. The
petitioners failed to pay the obligation and the bank foreclosed the mortgage and sold the properties
at public auction.
On August 19, 1999, petitioners filed a Complaint for nullity of real estate mortgage and sheriffs
certificate of sale. Petitioners alleged that the bank, without their knowledge and consent, included
their properties among the list of properties mortgaged; that it was only when they received the notice
of sale from the sheriff in August 1998 that they found out about the inclusion of the said properties;
that despite their objection, the sheriff proceeded with the auction sale; and that the auction sale.
The bank averred that since petitioners were collaterally deficient, they offered TCT Nos. T-237695, T237696, T-225131 and T-225132 as additional collateral; that although the said properties were at that
time mortgaged to the Philippine National Bank (PNB), and that when petitioners obligation to PNB
was extinguished, they delivered the titles of the four properties to the bank.
ISSUE
Whether the real estate mortgage and the auction sale is invalid
HELD
We do not agree.
There is nothing on the face of the real estate mortgage contract to arouse any suspicion of insertion
or forgery. Below the list of properties mortgaged are the signatures of petitioners. Except for the bare
denials of petitioner, no other evidence was presented to show that the signatures appearing on the
dorsal portion of the real estate mortgage contract are forgeries.
Likewise flawed is petitioners reasoning that TCT Nos. T-225131 and T-225132 could not have been
included in the list of properties mortgaged as these were still mortgaged with the PNB at that time.
Under our laws, a mortgagor is allowed to take a second or subsequent mortgage on a property
already mortgaged, subject to the prior rights of the previous mortgages.
All told, we find no error on the part of the CA in sustaining the validity of the real estate mortgage as
well as the certificate of sale.

G.R. No. 190107

June 6, 2011
JAPRL DEVELOPMENT CORP., PETER RAFAEL C. LIMSON and JOSE UY AROLLADO vs.
SECURITY BANK CORPORATION,
FACTS:
JAPRL Development Corp.(JAPRL) was granted a credit facility of P50, 000,000 with Security Bank
Corporation (SBC). On November 5, 2001, petitioners Peter Rafael C. Limson and Jose Uy Arollado
JAPRL Chairman and President, respectively, executed a Continuing Suretyship Agreement (CSA) in
favor of SBC wherein they guaranteed the due and full payment and performance of JAPRLs
guaranteed obligations under the credit facility.
In 2003, JAPRLs financial adviser, MRM, convened JAPRLs creditors, SBC included, for the purpose
of restructuring JAPRLs existing loan obligations however, due to inconsistencies SBC soon found
out that JAPRL committed misrepresentations. SBC sent a formal letter of demand dated August 20,
2003 to petitioners JAPRL, Limson and Arollado for the immediate payment of P43, 926,021.41
representing JAPRLs outstanding obligations.
Petitioners failed to comply with SBCs demand, hence, SBC filed on September 1, 2003 a complaint
for sum of money with application for issuance of writ of preliminary attachment before the Regional
Trial Court (RTC) of Makati City against JAPRL, Limson and Arollado.

ISSUE:
Whether Limson and Arollado as sureties may claim protection from rehabilitation court - NO
HELD:
Limson and Arollado, as sureties, whose liability is solidary cannot, therefore, claim protection from
the rehabilitation court, they not being the financially-distressed corporation that may be restored, not
to mention that the rehabilitation court has no jurisdiction over them. Article 1216 of the Civil Code
clearly is not on their side:
ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against any one of them shall not be an obstacle to those which
may subsequently be directed against the others, so long as the debt has not been fully collected.
IN FINE, SBC can pursue its claim against Limson and Arollado despite the pendency of JAPRLs
petition for rehabilitation. For, by the CSA in favor of SBC, it is the obligation of the sureties, who are
therein stated to be solidary with JAPRL, to see to it that JAPRLs debt is fully paid. Finally, contrary to
petitioners position, the appellate courts decision only nullified the suspension of proceedings against
Limson and Arollado. The suspension with respect to JAPRL remains, in line with Philippine Blooming
Mills v. Court of Appeals.

G.R. No. 171805

May 30, 2011
PHILIPPINE NATIONAL BANK, Petitioner, vs. MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE
L. AZNAR (deceased), represented by his heirs; RAMON A. BARCENILLA; ROSARIO T.
BARCENILLA; JOSE B. ENAD (deceased), represented by his heirs; and RICARDO GABUYA
(deceased), represented by his heirs, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners, vs. PHILIPPINE NATIONAL BANK,
Respondent.
FACTS:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate RISCO,
they contributed of P212,720.00 which was used in the purchase of the three (3) parcels of land. The
amount contributed by plaintiffs constituted as liens and encumbrances on the mentioned properties
as annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the
Special Meeting of the Board of Directors of RISCO.
Various subsequent annotations were made on the same titles. Subsequently, a Certificate of Sale
was issued in favor of Philippine National Bank, being the lone and highest bidder of the three (3)
parcels of land. This prompted plaintiffs-appellees to file a complaint seeking the quieting of their
supposed title to the subject properties, declaratory relief, cancellation of TCT and reconveyance with
temporary restraining order and preliminary injunction. Plaintiffs alleged that the subsequent
annotations on the titles are subject to the prior annotation of their liens and encumbrances. The
Court of Appeals ruled in favor of petitioners.
PNB appealed the adverse ruling to the Court of Appeals which, set aside the judgment of the trial
court. Although the Court of Appeals agreed with the trial court that a judgment on the pleadings was
proper, the appellate court opined that the monetary contributions made by Aznar, et al., to RISCO
can only be characterized as a loan secured by a lien on the subject lots, rather than an express trust.
ISSUE:
WHETHER THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS
MADE BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY THEIR LIEN
OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND, RATHER THAN AN
EXPRESS TRUST.
HELD:

We are not persuaded by the contention of Aznar, et al., that the language of the subject Minutes
created an express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It
is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the
beneficiary. Trust relations between parties may either be express or implied. An express trust is
created by the intention of the trustor or of the parties. An implied trust comes into being by operation
of law.

G.R. No. 193178

May 30, 2011
PHILIPPINE SAVINGS BANK, Petitioner, vs. SPOUSES ALFREDO M. CASTILLO AND
ELIZABETH C. CASTILLO, and SPOUSES ROMEO B. CAPATI and AQUILINA M. LOBO,
Respondents.
FACTS:
On May 7, 1997, Alfredo M. Castillo and Elizabeth Capati-Castillo obtained a loan, with real estate
mortgage over their properties, from Philippine Savings Bank, as evidenced by a Promissory Note
with a face value of P2,500,000.00.
From the release of the loan in May 1997 until December 1999, petitioner had increased and
decreased the rate of interest, the highest of which was 29% and the lowest was 15.5% per annum,
per the Promissory Note. Respondents were notified in writing of these changes in the interest rate.
They neither gave their confirmation thereto nor did they formally question the changes. However,
respondent Alfredo Castillo sent several letters to petitioner requesting for the reduction of the interest
rates.5 Petitioner denied these requests. Eventually the properties were foreclosed. Respondents
failed to redeem the property within the one-year redemption period.
On October 1, 2001, respondents filed a case for Reformation of Instruments, Declaration of Nullity of
Notarial Foreclosure Proceedings and Certificate of Sale, Cancellation of Annotations on TCT Nos.
233242 and 227858, and Damages, with a plea for the issuance of a temporary restraining order
(TRO) and/or writ of preliminary prohibitory injunction. The RTC issued a TRO and eventually a
preliminary injuction. Both the RTC and CA ruled that Declaring the questioned increases of interest
as unreasonable, excessive and arbitrary and ordering the defendant Philippine Savings Bank to
refund to the plaintiffs.
ISSUE:
Whether CA erred in declaring that the modifications in the interest rates are unreasonable - NO
HELD
Basic is the rule that there can be no contract in its true sense without the mutual assent of the
parties. If this consent is absent on the part of one who contracts, the act has no more efficacy than if
it had been done under duress or by a person of unsound mind. Similarly, contract changes must be
made with the consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement. In the case of
loan contracts, the interest rate is undeniably always a vital component, for it can make or break a
capital venture. Thus, any change must be mutually agreed upon, otherwise, it produces no binding
effect.
Nevertheless, the validity of the escalation clause did not give petitioner the unbridled right to
unilaterally adjust interest rates. The adjustment should have still been subjected to the mutual
agreement of the contracting parties. In light of the absence of consent on the part of respondents to
the modifications in the interest rates, the adjusted rates cannot bind them notwithstanding the
inclusion of a de-escalation clause in the loan agreement.

G.R. No. 165548

June 13, 2011
PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner, vs. LEY CONSTRUCTION AND
DEVELOPMENT CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 167879
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner, vs.PHILIPPINE REALTY
AND HOLDINGS CORPORATION, Respondent.
FACTS
Between April 1988 and October 1989, the PHRC and LCDC entered into four major construction
projects. LCDC committed itself to the construction of the buildings needed by PRHC, which in turn
committed itself to pay the contract price agreed upon. These were the four construction projects the
parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra

buildings) and a Tektite Building.

Both parties agreed that their foremost objective should be to ensure that the Tektite Building project
would be completed. To achieve this goal, they entered into another agreement. Abcede, the project
construction manager of PHRC, asked LCDC to advance the amount necessary to complete
construction. Its president acceded, on the absolute condition that it be allowed to escalate the
contract price. It wanted PRHC to allow the escalation and to disregard the prohibition contained in
Article VII of the agreements. Abcede replied that he would take this matter up with the board of
directors of PRHC.
Notwithstanding the absence of a signature above PRHCs name, LCDC proceeded with the
construction of the Tektite Building, expending the entire amount necessary to complete the project.
From August to December 1991, it infused amounts totaling P 38,248,463.92. These amounts were
not deposited into the joint account of LCDC and PRHC, but paid directly to the suppliers upon the
instruction of Santos.
ISSUE:
WHETHER THE CONTRACT BETWEEN PHRC and LCDC IS A CONTRACT OF LOAN
HELD:
In a contract of loan, ownership of the money is transferred from the lender to the borrower. In this
case, ownership of the P 36 million was never transferred to PRHC. As previously mentioned, such
amount was paid directly to the suppliers. We find that arrangement between PRHC and LCDC
cannot be construed as a loan agreement but rather, it was an agreement to advance the costs of
construction. In Liwanag v. Court of Appeals et al., we state:
Neither can the transaction be considered a loan, since in a contract of loan once the money is
received by the debtor, ownership over the same is transferred. Being the owner, the borrower can
dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is evident
that Liwanag could not dispose of the money as she pleased because it was only delivered to her for
a single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the
money to Rosales.

SPOUSES FRANCISCO D. YAP and WHELMA S. YAP, petitioners, vs. SPOUSES ZOSIMO DY,
SR. and NATIVIDAD CHIU DY, SPOUSES MARCELINO MAXINO and REMEDIOS L. MAXINO,
PROVINCIAL SHERIFF OF NEGROS ORIENTAL and DUMAGUETE RURAL BANK, INC.,
respondents.
G.R. No. 171868.July 27, 2011
DOCTRINE:
The tender of the redemption money may be made to the purchaser of the land or to the sheriff; If
made to the sheriff, it is his duty to accept the tender and execute the certificate of redemption.
Indivisibility of Mortgage; The doctrine of indivisibility of mortgage does not apply once the mortgage
is extinguished by a complete foreclosure thereof.
FACTS
The spouses Tomas Tirambulo and Salvacion Estorco (Tirambulos) are the registered owners of
several parcels of land located in Ayungon, Negros Oriental. On December 3, 1976, the Tirambulos
executed a Real Estate Mortgage over Lots 1, 4, 5, 6 and 8 in favor of the Rural Bank of Dumaguete,
Inc., predecessor of Dumaguete Rural Bank, Inc. (DRBI), to secure a P105,000 loan extended by the
latter to them. Later, the Tirambulos obtained a second loan for P28,000 and also executed a Real
Estate Mortgage over Lots 3 and 846 in favor of the same bank on August 3, 1978. Subsequently, on
October 27, 1979, the Tirambulos sold all seven mortgaged lots to the spouses Zosimo Dy, Sr. and
Natividad Chiu (the Dys) and the spouses Marcelino C. Maxino and Remedios Lasola (the Maxinos)
without the consent and knowledge of DRBI. This sale, which was embodied in a Deed of Absolute
Sale, was followed by a default on the part of the Tirambulos to pay their loans to DRBI. Thus, DRBI

extrajudicially foreclosed the December 3, 1976 mortgage and had Lots 1, 4, 5, 6 and 8 sold at public
auction on March 31, 1982.
At the auction sale, DRBI was proclaimed the highest bidder and bought said lots for P216,040.93.
The Sheriffs Certificate of Sale stated that the sale is subject to the rights of redemption of the
mortgagor (s) or any other persons authorized by law so to do, within a period of one (1) year from
registration hereof. The certificate of sale, however, was not registered until almost a year later, or on
June 24, 1983. On July 6, 1983, or twelve (12) days after the sale was registered, DRBI sold Lots 1, 3
and 6 to the spouses Francisco D. Yap and Whelma D. Yap (the Yaps) under a Deed of Sale with
Agreement to Mortgage. It is important to note, however, that Lot 3 was not among the five properties
foreclosed and bought by DRBI at public auction. On August 8, 1983, or well within the redemption
period, the Yaps filed a Motion for Writ of Possession alleging that they have acquired all the rights
and interests of DRBI over the foreclosed properties and are entitled to immediate possession of the
same because the one-year redemption period has lapsed without any redemption being made. On
June 1, 1984, the Provincial Sheriff wrote the Dys and the Maxinos informing them of the Yaps refusal
to take delivery of the redemption money and that in view of said development, the tender of the
redemption money was being considered as a consignation.
On June 15, 1984, the Dys and the Maxinos filed Civil Case No. 8426 with the Regional Trial Court of
Negros Oriental for accounting, injunction, declaration of nullity (with regard to Lot 3) of the Deed of
Sale with Agreement to Mortgage, and damages against the Yaps and DRBI. The trial court held that
the Dys and the Maxinos failed to formally offer their evidence; hence, the court could not consider the
same. It also upheld the Deed of Sale with Agreement to Mortgage between the Yaps and DRBI,
ruling that its genuineness and due execution has been admitted by the Dys and the Maxinos and that
it is not contrary to law, morals, good customs, public policy or public order. Thus, ownership of Lots 1,
3 and 6 was transferred to the Yaps. The trial court further held that the Dys and the Maxinos failed to
exercise their rights of redemption properly and timely. They merely deposited the amount of
P50,625.29 with the Sheriff, whereas the amount due on the mortgage deed is P216,040.93.
Aggrieved by the above ruling, the Dys and the Maxinos elevated the case to the CA. The CA held
that the trial court erred in ruling that it could not consider the evidence for the Dys and the Maxinos
allegedly because they failed to formally offer the same. The CA noted that although the testimonies
of Attys. Marcelino C. Maxino and Benjamin V. Diputado were not formally offered, the procedural
lapse was cured when the opposing counsel cross-examined said witnesses. Also, while the original
TSNs of the witnesses for the plaintiffs in Civil Case No. 8426 were burned, the latters counsel who
had copies thereof, furnished the Yaps copies for their scrutiny and comment. The CA further noted
that the trial court also admitted all the documentary exhibits of the Dys and the Maxinos on March 3,
1995. Unfortunately, however, the trial court simply failed to locate the pertinent documents in the
voluminous records of the cases.
On the merits, the CA ruled that the Dys and the Maxinos had proven their cause of action sufficiently.
The CA noted that their claim that Lot 3 was not among the properties foreclosed was duly
corroborated by Atty. Diputado, the Provincial Sheriff who conducted the foreclosure sale. The Yaps
also failed to rebut their contention regarding the formers acceptance of the redemption money and
their delivery of the possession of the three parcels of land to the Dys and the Maxinos. The CA also
noted that not only did the Yaps deliver possession of Lot 3 to the Dys and the Maxinos, they also
filed a Motion to Withdraw the Redemption Money from the Provincial Sheriff and withdrew the
redemption money. As to the question whether the redemption was valid or not, the CA found no need
to discuss the issue. It found that the bank was in bad faith and therefore cannot insist on the
protection of the law regarding the need for compliance with all the requirements for a valid
redemption while estoppel and unjust enrichment operate against the Yaps who had already
withdrawn the redemption money. Hence, the consolidated petitions assailing the appellate court s
decision.
ISSUES:
Whether or not the sale of the mortgage to a third person is valid notwithstanding the lack of written
consent by the mortgagee?
Whether the doctrine of indivisibility of mortgage shall apply once the mortgage is extinguished by a
complete foreclosure?

HELD:
The Supreme Court held that contrary to petitioners contention, the Dys and Maxinos have legal
personality to redeem the subject properties despite the fact that the sale to the Dys and Maxinos was
without DRBIs consent. In Litonjua v. L & R Corporation, 320 SCRA 405 (1999), this Court declared
valid the sale by the mortgagor of mortgaged property to a third person notwithstanding the lack of
written consent by the mortgagee, and likewise recognized the third persons right to redeem the
foreclosed property.
The Supreme Court further held that they cannot subscribe to the Yaps argument on the indivisibility
of the mortgage. As held in the case of Philippine National Bank v. De los Reyes, 179 SCRA 619
(1989), the doctrine of indivisibility of mortgage does not apply once the mortgage is extinguished by a
complete foreclosure thereof as in the instant case.

AMERICAN HOME INSURANCE CO. OF NEW YORK, petitioner, vs. F.F. CRUZ & CO., INC.,
respondent
G.R. No. 174926.August 10, 2011
DOCTRINE
Suretyship; A contract of suretyship is an agreement whereby a party called the surety, guarantees
the performance by another party, called the principal or obligor, of an obligation or undertaking in
favor of another party called the obligee.
Although the contract of suretyship is secondary only to a valid principal obligation, the suretys
liability to the creditor is direct, primary, and absolute.
Suretyship arises upon the solidary binding of a persondeemed the suretywith the principal
debtor, for the purpose of fulfilling an obligation. The prestation is not an original and direct obligation
for the performance of the suretys own act, but merely accessory or collateral to the obligation
contracted by the principal.
FACTS:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by American Home
Insurance Co. of New York (American Home) assailing the Court of Appeals (CA) Decision dated
September 29, 2005 and Resolution dated September 25, 2006 in CA-G.R. CV No. 73960. The
assailed Decision affirmed the Decision of the Regional Trial Court (RTC) of Makati, Branch 137 in
Civil Case No. 93-2585, while the assailed Resolution denied American Homes motion for
reconsideration. In June 1990, the Philippine Ports Authority (PPA) conducted a bidding of a project
for the dredging of the entrance channel and harbor basin of the Cebu International Port in Cebu City.
The PPA awarded the contract to the winning bidder, F.F. Cruz & Co., Inc. (FF Cruz). Pursuant to their
earlier agreement, FF Cruz and Genaro Reyes Construction, Inc. (hereafter referred to as G. Reyes)
executed a Sub-Contract Agreement whereby the latter agreed to undertake the performance of 50%
of the dredging projects estimated volume of 600,000 cubic meters. FF Cruz gave G. Reyes an
advance payment of P2.2 million guaranteed by a surety bond for the same amount issued by
American Home. The surety bond was issued to guarantee payment of the advance payment made
by FF Cruz to G. Reyes for the dredging project in the event that the latter fail to comply with the
terms and conditions of the sub-contract.
As a security for the issuance of the bond, Genaro Reyes, as president of G. Reyes, and his wife
Lydia Reyes, executed an Indemnity Agreement where they agreed to jointly and severally indemnify
American Home and keep the latter harmless against all damages, losses, costs, stamps, taxes,
penalties, charges and expenses of whatever kind and nature which it may sustain or incur as a
consequence of having become a surety, or any extension, renewal, substitution or alteration made
thereof. They likewise undertook to pay, reimburse and make good to American Home all sums which
the latter shall pay on account of the bond. It was also agreed upon that their liability attaches as soon
as demand is received by American Home from FF Cruz, or as soon as it becomes liable to make
payment under the terms of the surety bond.

In a letter dated March 6, 1991, FF Cruz informed G. Reyes that the former mobilized its dredger and
started operation on March 3, 1991. In the same letter, FF Cruz requested G. Reyes to mobilize its
equipment on or before March 20, 1991. On October 21, 1991, G. Reyes complained to the PPA
about the great deal of silt and waste materials that had accumulated in the area which adversely
affected its work accomplishment. In December 1991, G. Reyes informed FF Cruz that the equipment
used for the project had been encountering difficulties because of siltation problems. G. Reyes finally
admitted that continuing the project was no longer a wise investment and called on FF Cruz to take
over the project. FF Cruz thus took over the unfinished project.
Consequently, FF Cruz demanded from American Home the payment of P2.2 million representing the
amount of the bond. American Home, in turn, informed G. Reyes of FF Cruzs demand. As the claim
left unheeded, FF Cruz made a final demand on American Home on July 10, 1993. G. Reyes likewise
ignored American Homes demand to fulfill its obligation set forth in the Indemnity Agreement it
executed in favor of the latter.
On July 29, 1993, American Home filed a Complaint for Sum of Money against G. Reyes, Genaro G.
Reyes and Lydia A. Reyes for the payment of P2,200,000.00 corresponding to the amount of the
bond, plus attorneys fees and litigation expenses. In its complaint, American Home sought the
enforcement of the Indemnity Agreement undertaken by G. Reyes in conjunction with FF Cruzs
demand for the payment of the amount of the surety bond. G. Reyes et al., in turn, filed an Answer
with Counterclaim and Third-Party Complaint against FF Cruz. G. Reyes denied liability to American
Home on the ground that G. Reyes did not fail to comply with its obligation to FF Cruz. It explained
that its (G. Reyes) liability would arise only in case of its failure to comply with the terms and
conditions of the subontract. It insisted that it was FF Cruz who was guilty of breach of its obligations.
In its Third-Party Complaint against FF Cruz, G. Reyes argued that the siltation problems caused by
the former resulted in the reduction of G. Reyes project accomplishment and failure to finish the
project. It also claimed that FF Cruz still has an unpaid balance of more than P5 million as it
recognized only the accomplishment of 57,284.44 cubic meters instead of 184,210 cubic meters
claimed by G. Reyes. In answer to the third-party complaint of G. Reyes, FF Cruz denied that it
caused the siltation problems and argued that the former abandoned the project because it was
incapable of performing its obligations. It also explained that it had no unpaid obligation to G. Reyes
as it paid its accomplishment based on the report of the PPA. FF Cruz thereafter filed a Fourth-Party
Complaint against American Home calling on the surety bond it provided in favor of G. Reyes.
ISSUE:
Whether or not Petitioner is liable to the respondents for the face value in the surety bond?
HELD:
With the violation of the sub-contract, which means fulfillment of the second condition, the liability to
pay the advance payment arose. The payment of the P2.2 million advanced by FF Cruz is the
principal liability of G. Reyes. However, with the issuance of the surety bond, a contract of suretyship
was entered into making American Home equally liable. A contract of suretyship is an agreement
whereby a party called the surety, guarantees the performance by another party, called the principal
or obligor, of an obligation or undertaking in favor of another party called the obligee. By its very
nature, under the laws regulating suretyship, the liability of the surety is joint and several but is limited
to the amount of the bond, and its terms are determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the obligee. he surety is
considered in law as possessed of the identity of the debtor in relation to whatever is adjudged
touching upon the obligation of the latter. Their liabilities are so interwoven as to be inseparable.
Although the contract of suretyship is, in essence, secondary only to a valid principal obligation, the
suretys liability to the creditor is direct, primary, and absolute; he becomes liable for the debt and duty
of another although he possesses no direct or personal interest over the obligations nor does he
receive any benefit therefrom.

UNION BANK OF THE PHILIPPINES, petitioner, vs. ALAIN JUNIAT, WINWOOD APPAREL, INC.,
WINGYAN APPAREL, INC., NONWOVEN FABRIC PHILIPPINES, respondents.
G.R. No. 171569.August 1, 2011
DOCTRINE:
Pledge; A pledge shall not take effect against third persons if a description of the thing pledged and
the date of the pledge do not appear in a public instrument.Under Article 2096 of the Civil Code, [a]
pledge shall not take effect against third persons if a description of the thing pledged and the date of
the pledge do not appear in a public instrument.
In case of doubt as to whether a transaction is one of pledge or dacion en pago, the presumption is
that it is a pledge as this involves a lesser transmission of rights and interests.
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of the obligation. It is a special mode of payment where
the debtor offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt.
Civil Code, Art.2125.In addition to the requisites stated in Article 2085, it is indispensable, in order
that a mortgage may be validly constituted, that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding between
the parties. The persons in whose favor the law establishes a mortgage have no other right than to
demand the execution and the recording of the document in which the mortgage is formalized.
FACTS
Petitioner Union Bank of the Philippines (Union Bank) is a universal banking corporation organized
and existing under Philippine laws. Respondents Winwood Apparel, Inc. (Winwood) and Wingyan
Apparel, Inc. (Wingyan) are domestic corporations engaged in the business of apparel manufacturing.
Both respondent corporations are owned and operated by respondent Alain Juniat (Juniat), a French
national based in Hongkong. Respondent Nonwoven Fabric Philippines, Inc. (Nonwoven) is a
Philippine corporation engaged in the manufacture and sale of various types of nonwoven fabrics. On
September 3, 1992, petitioner filed with the Regional Trial Court (RTC) of Makati, Branch 57, a
Complaint with prayer for the issuance of ex-parte writs of preliminary attachment and replevin against
Juniat, Winwood, Wingyan, and the person in possession of the mortgaged motorized sewing
machines and equipment. Petitioner alleged that Juniat, acting for and in behalf of Winwood and
Wingyan, executed a promissory note dated April 11, 1992 and a Chattel Mortgage dated March 27,
1992 over several motorized sewing machines and other allied equipment to secure their obligation
arising from export bills transactions to petitioner in the amount of P1,131,134.35; that as additional
security for the obligation, Juniat executed a Continuing Surety Agreement dated April 11, 1992 in
favor of petitioner; that the loan remains unpaid; and that the mortgaged motorized sewing machines
are insufficient to answer for the obligation.
On September 10, 1992, the RTC issued writs of preliminary attachment and replevin in favor of
petitioner. The writs were served by the Sheriff upon Nonwoven as it was in possession of the
motorized sewing machines and equipment. Although Nonwoven was not impleaded in the complaint
filed by petitioner, the RTC likewise served summons upon Nonwoven since it was in possession of
the motorized sewing machines and equipment. On September 28, 1992, Nonwoven filed an Answer,
contending that the unnotarized Chattel Mortgage executed in favor of petitioner has no binding effect
on Nonwoven and that it has a better title over the motorized sewing machines and equipment
because these were assigned to it by Juniat pursuant to their Agreement dated May 9, 1992. Juniat,
Winwood, and Wingyan, on the other hand, were declared in default for failure to file an answer within
the reglementary period. On November 23, 1992, petitioner filed a Motion to Sell Chattels Seized by
Replevin, praying that the motorized sewing machines and equipment be sold to avoid depreciation
and deterioration. However, on May 18, 1993, before the RTC could act on the motion, petitioner sold
the attached properties for the amount of P1,350,000.00.
ISSUE
Whether or not there is a transfer of ownership? Or whether or not Respondents have a better right to
the proceeds of the sale?

HELD:
Under Article 2096 of the Civil Code, [a] pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge do not appear in a public instrument.
Hence, just like the chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in
favor of Nonwoven cannot bind petitioner. It bears stressing that there can be no transfer of ownership
if the delivery of the property to the creditor is by way of security. In fact, in case of doubt as to
whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge as this
involves a lesser transmission of rights and interests.
In view of the foregoing, the Supreme Court are constrained to reverse the ruling of the CA.
Nonwoven is not entitled to the proceeds of the sale of the attached properties because it failed to
show that it has a better title over the same.

RAMONA RAMOS and THE ESTATE OF LUIS T. RAMOS, petitioners, vs. PHILIPPINE NATIONAL
BANK, OPAL PORTFOLIO INVESTMENTS (SPV-AMC), INC. and GOLDEN DRAGON STAR
EQUITIES, INC., respondents.
[G.R. No. 178218. December 14, 2011.]

FACTS:
Luis Ramos obtained a credit line under an agricultural loan account from the Philippine National
Bank (PNB), Balayan Branch, for P83,000.00. To secure the loan, the parties executed a Real Estate
Mortgage. From the year 1973, Luis Ramos would renew the loan every year after paying the
amounts falling due therein.

Luis Ramos and PNB entered into a Credit Line Agreement in the amount ofP50,000,000.00 under
the banks sugar quedan financing program.

Luis Ramos procured another availment of P7,800,000.00 that was likewise contained in a promissory
note and for which he executed another Contract of Pledge on the aforementioned quedans on even
date.

Thereafter, Luis Ramos was granted a renewal on the promissory notes dated April 3, 1989 and June
6, 1989. Hence, he executed in favor of PNB the promissory notes dated October 3, 1989 and
October 9, 1989.

Luis Ramos eventually failed to settle his sugar quedan financing loans amounting to P15,600,000.00.
On December 28, 1989, he issued an Authorization authorizing the Philippine National Bank, Balayan

Branch, or any of its duly authorized officer, to dispose and sell all the Quedan Receipts (Warehouse
Receipts) pledged to said bank, after maturity date of the Sugar Quedan Financing line.

Incidentally, the above-mentioned sugar quedans became the subject of three other cases between
PNB and Noahs Ark, which cases have since reached this Court.

Meanwhile, on August 7, 1989, the spouses Luis Ramos and Ramona Ramos (spouses Ramos) also
obtained an agricultural loan of P160,000.00 from PNB. Said loan was evidenced by a promissory
note issued by the spouses on even date. The said loan was secured by the real estate mortgage
previously executed by the parties.

On November 2, 1990, the spouses Ramos fully settled the agricultural loan of P160,000.00. They
then demanded from PNB the release of the real estate mortgage. PNB, however, refused to heed the
spouses demand.

The spouses Ramos filed a complaint for Specific Performance against the PNB, Balayan Branch.
The spouses claimed that the actions of PNB impaired their rights in the properties included in the real
estate mortgage. They alleged that they lost business opportunities since they could not raise enough
capital, which they could have acquired by mortgaging or disposing of the said properties.

PNB countered that the spouses Ramos had no cause of action against it since the latter knew that
the real estate mortgage secured not only their P160,000.00 agricultural loan but also the other loans
the spouses obtained from the bank. Specifically, PNB alleged that the spouses sugar quedan
financing loan ofP15,600,000.00 remained unpaid as the quedans were dishonored by the
warehouseman Noahs Ark. PNB averred that it filed a civil action for specific performance against
Noahs Ark involving the quedans and the case was still pending at that time. As PNB was still unable
to collect on the quedans, it claimed that the spouses Ramos loan obligations were yet to be fully
satisfied. Thus, PNB argued that it could not release the real estate mortgage in favor of the spouses.

ISSUE:
Whether or not the scope and coverage of the real estate mortgage excluded the sugar quedan
financing loan.

RULING:
The real estate mortgage executed by the parties provided that it shall stand as security for any
"subsequent promissory note or notes either as a renewal of the former note, as an extension thereof,
or as a new loan, or is given any other kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import shipments on Trust Receipts, etc." The same

real estate mortgage likewise expressly covered "any and all other obligations of the Mortgagor to the
Mortgagee of whatever kind and nature whether such obligations have been contracted before, during
or after the constitution of this mortgage." Thus, from the clear and unambiguous terms of the
mortgage contract, the same has application even to future loans and obligations of the mortgagor of
any kind, not only agricultural crop loans.

The mortgage contract indisputably provides that the subject properties serve as security, not only for
the payment of the subject loan, but also for "such other loans or advances already obtained, or still to
be obtained." The cross-collateral stipulation in the mortgage contract between the parties is thus
simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist
that the subject properties be released from mortgage since the security covers not only the subject
loan but the two other loans as well.