Simple Loan or Mutuum: Quo Rendered A Decision Ordering The Appellant To

SIMPLE
LOAN OR MUTUUM appellant had actually received the written demand

for payment, but he failed to pay.

On January 17, 1961 the appellee filed a complaint in
G.R. No. L-20240 December 31, 1965 the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, account in question. The Justice of the Peace Of
vs. Hinigaran, after hearing, dismissed the case on the
JOSE GRIJALDO, defendant-appellant. ground that the action had prescribed. The appellee
appealed to the Court of First Instance of Negros
Occidental and on March 26, 1962 the court a
FACTS:
quo rendered a decision ordering the appellant to
pay the appellee the sum of P2,377.23 as of
In the year 1943 appellant Jose Grijaldo obtained December 31, 1959, plus interest at the rate of 6%
five loans from the branch office of the Bank of per annum compounded quarterly from the date of
Taiwan, Ltd. in Bacolod City, in the total sum of the filing of the complaint until full payment was
P1,281.97 with interest at the rate of 6% per annum, made. The appellant was also ordered to pay the
compounded quarterly. These loans are evidenced sum equivalent to 10% of the amount due as
by five promissory notes executed by the appellant attorney's fees and costs.
in favor of the Bank of Taiwan, Ltd., as follows: On
June 1, 1943, P600.00; on June 3, 1943, P159.11; on
The appellant appealed directly to this Court. During
June 18, 1943, P22.86; on August 9, 1943,P300.00;
the pendency of this appeal the appellant Jose
on August 13, 1943, P200.00, all notes without due
Grijaldo died. Upon motion by the Solicitor General
dates, but because the loans were due one year
this Court, in a resolution of May 13, 1963, required
after they were incurred. To secure the payment of
Manuel Lagtapon, Jacinto Lagtapon, Ruben Lagtapon
the loans the appellant executed a chattel mortgage
and Anita L. Aguilar, who are the legal heirs of Jose
on the standing crops on his land, Lot No. 1494
Grijaldo to appear and be substituted as appellants
known as Hacienda Campugas in Hinigiran, Negros
in accordance with Section 17 of Rule 3 of the Rules
Occidental.
of Court.
By virtue of Vesting Order No. P-4, dated January 21,

ISSUE:
1946, and under the authority provided for in the
Trading with the Enemy Act, as amended, the assets
in the Philippines of the Bank of Taiwan, Ltd. were Whether or not the obligation to pay is extinguished.
vested in the Government of the United States.
Pursuant to the Philippine Property Act of 1946 of The appellant likewise maintains, in support of his
the United States, these assets, including the loans in contention that the appellee has no cause of action,
question, were subsequently transferred to the that because the loans were secured by a chattel
Republic of the Philippines by the Government of the mortgage on the standing crops on a land owned by
United States under Transfer Agreement dated July him and these crops were lost or destroyed through
20, 1954. These assets were among the properties enemy action his obligation to pay the loans was
that were placed under the administration of the thereby extinguished.
Board of Liquidators created under Executive Order
No. 372, dated November 24, 1950, and in HELD:
accordance with Republic Acts Nos. 8 and 477 and
other pertinent laws. This argument is untenable. The terms of the
promissory notes and the chattel mortgage that the
On September 29, 1954 the appellee, Republic of the appellant executed in favor of the Bank of Taiwan,
Philippines, represented by the Chairman of the Ltd. do not support the claim of appellant. The
Board of Liquidators, made a written extrajudicial obligation of the appellant under the five promissory
demand upon the appellant for the payment of the notes was not to deliver a determinate thing namely,
account in question. The record shows that the the crops to be harvested from his land, or the value
of the crops that would be harvested from his land.
SECTRANS 2010/ ATTY. AGUINALDO 1

Rather, his obligation was to pay a generic thing to other persons provided that the P3
the amount of money representing the total sum of million downpayment shall be returned
the five loans, with interest. The transaction to the Respondent including interest
between the appellant and the Bank of Taiwan, Ltd. based on prevailing compounded bank
was a series of five contracts of simple loan of sums interest.
of money. "By a contract of (simple) loan, one of the 5. Nevertheless, in case there are no
parties delivers to another ... money or other other buyers within the first 6 months,
consumable thing upon the condition that the same no interest shall be charged on the P3
amount of the same kind and quality shall be paid." million.
(Article 1933, Civil Code) The obligation of the 6. However, in the event that on the 6th
appellant under the five promissory notes month the Respondent does not
evidencing the loans in questions is to pay the value purchase the land, the Petitioner has a
nd
thereof; that is, to deliver a sum of money a clear period of another 6 months (2 ) within
case of an obligation to deliver, a generic thing. which to pay the sum of P3 million with
Article 1263 of the Civil Code provides: interest for the last six months only.
The downpayment shall be treated as
In an obligation to deliver a generic thing, loan granted by the Respondent.
the loss or destruction of anything of the
same kind does not extinguish the Petitioner received from Respondent P2 million
obligation. in cash and P1 million in a post-dated check
which was subsequently considered as stale.
The chattel mortgage on the crops growing on Therefore, only P2 million was received as
appellant's land simply stood as a security for the downpayment.
fulfillment of appellant's obligation covered by the Before the check became stale, Petitioner gave
five promissory notes, and the loss of the crops did Respondent the TCT and the Deed of Absolute
not extinguish his obligation to pay, because the Sale of the land.
account could still be paid from other sources aside Subsequently, Respondent decided not to
from the mortgaged crops. purchase the property and notified Petitioner of
this reminding the latter that the amount of P2
million should be considered as a loan payable
Frias vs San Diego-Sison within six months as stipulated in the MOA with
G.R. No. 155223 April 4, 2007 interest computed from such notification.
Petitioner subsequently failed to return the P2
Facts million pesos.
CA ruled that the P2 million downpayment shall
Petitioner is the owner of a house and lot in include interest computed at the time the
Ayala Alabang. disputed amount was considered a loan. Thus,
Petitioner and Dra. Flora San Diego-Sison this petition.
(Respondent) entered into a Memorandum of
Agreement (MOA) over the cited property with Issue:
the following terms:
1. The land is to be sold for P 6.4 million. Whether or not the interest should be limited to the
2. Petitioner will receive P3 million from 1st six months as contained in the MOA?
respondent as downpayment.
3. In light of the downpayment, Ruling:
st
respondent had 6 months (1 ) to notify
the Petitioner of her intention to No. SC ruled in favour of Respondent.
purchase the land. However, the
balance is to be paid within another 6
The SC opined that if the terms of an agreement
months.
are clear and leave no doubt as to the intention
4. Prior to the first six months, the
Petitioner may still offer the cited land

of the contracting parties, the literal meaning of ARWOOD INDUSTRIES, INC. vs. D.M. Consunji, Inc.
its stipulations shall prevail.
It is further required that the various FACTS: Petitioner and respondent, as owner and
stipulations of a contract shall be interpreted contractor, respectively entered into an Agreement
together. for the construction of petitioners condominium.
In this case, the phrase "for the last six months Despite the completion of the project, petitioner
only" should be taken in the context of the was not able to pay respondent the full amount and
entire agreement. left a balance. Repeated demands were left
The MOA speaks of 2 periods of six months unheeded prompting respondent to file a civil case
each. against petitioner, with a prayer among others that
o The 1st six-months was given to the full amount be paid with interest of 2% per
Respondent to make up her mind month, from Nov. 1990 up to the time of payment.
whether or not to purchase Petitioner's RTC ruled in favor of respondent. Petitioner
property. appealed to the CA, particularly opposing the
o The 2nd six-months was given to imposition of the 2% interest. The CA ruled in favor
Petitioner to pay the P2 million loan of the 2% interest.
(downpayment) in the event that
Respondent decided not to buy the Petitioners contention- The imposition of the
property in which case interest will be interest is without basis because (1) although it was
charged "for the last six months only", written in the Agreement, it was not mentioned by
referring to the 2nd six-month period. the RTC in the dispositive portion and (2) the interest
o This means that no interest will be does not apply to the respondents claim but to the
charged for the 1st six-months while monthly progress billing.
Respondent contemplating on whether
to buy the property, but only for the 2
nd ISSUE: WON the RTC and Ca is correct in imposing a
six-months after Respondent had 2% per month interest on the monetary award or
decided not to buy the property. This is the balance of the contract price.
the meaning of the phrase "for the last
six months only". HELD: Yes. The Agreement between the parties is
o Certainly, there is nothing in their the formal expression of the parties rights, duties
agreement that suggests that interest and obligations. It is the best evidence of the
will be charged for 6 months only even intention of the parties. Consequently, upon the
if it takes defendant-appellant an fulfillment by respondent of its obligation to
eternity to pay the loan complete the construction project, petitioner had
This does NOT mean that interest will no longer the correlative duty to pay for respondents services.
be charged after the 2nd six-month period since However, petitioner refused to pay the balance of
such stipulation was made on the logical and the contract price. From the moment respondent
reasonable expectation that such amount would completed the construction of the condominium
be paid within the date stipulated. Therefore, project and petitioner refused to pay in full, there
the monetary interest for the last 6 months was delay on the part of petitioner.
continued to accrue until actual payment of the
loaned amount. Delay in the performance of an obligation is looked
It has been held that for a debtor to continue in upon with disfavor because, when a party to a
possession of the principal of the loan and to contract incurs delay, the other party who performs
continue to use the same after maturity of the his part of the contract suffers damages thereby.
loan without payment of the monetary interest, Obviously, respondent suffered damages brought
would constitute unjust enrichment on the part about by the failure of petitioner to comply with its
of the debtor at the expense of the creditor. obligation on time. And, sans elaboration of the
matter at hand, damages take the form of interest.
Art. 1956. No interest shall be due when not Accordingly, the appropriate measure of damages in
expressly stipulated in writing. this case is the payment of interest at the rate
agreed upon, which is 2% interest for every month
of delay.

It must be noted that the Agreement provided the This definition is, indeed, not without basis. Articles
contractor, respondent in this case, two options in 6.02 and 6.03 of the Agreement, which respectively
case of delay in monthly payments, to wit: a) provides that the (b)alance shall be paid in monthly
suspend work on the project until payment is progress payments based on actual value of the
remitted by the owner or b) continue the work but work accomplished and that the progress
the owner shall be required to pay interest at a rate payments shall be reduced by a portion of the
of two percent (2%) per month or a fraction thereof. downpayment made by the OWNER corresponding
Evidently, respondent chose the latter option, as the to the value of the work completed give sense to
condominium project was in fact already respondents interpretation of monthly progress
completed. The payment of the 2% monthly billings.
interest, therefore, cannot be jettisoned overboard.
SONCUYA V. AZARRAGA
Since the Agreement stands as the law between the
parties, this Court cannot ignore the existence of ROYAL SHIRT FACTORY, INC. v CO
such provision providing for a penalty for every
months delay. Facta legem facunt inter partes. FACTS:
Neither can petitioner impugn the Agreement to
which it willingly gave its consent. From the - The parties entered into a contract wherein
moment petitioner gave its consent, it was bound it is stipulated that 350 pairs of ballet shoes
not only to fulfill what was expressly stipulated in will be sold by Co and that Co had 9 days
the Agreement but also all the consequences which, from delivery of the shoes to make his
according to their nature, may be in keeping with choice of 2 alternatives: a) consider the sale
good faith, usage and law. Petitioners attempt to for the shoes closed at a flat rate, or b)
mitigate its liability to respondent should thus fail. return the remaining unsold ones to Royal.
- Co failed to return the unsold pairs after 9
As a last-ditch effort to evade liability, petitioner days and actually began making partial
argues that the amount of P962,434.78 claimed by payments on account of the purchase price
respondent and later awarded by the lower courts agreed upon.
does not refer to monthly progress billings, the - Co then contended that there was merely a
delayed payment of which would earn interest at 2% consignment of the goods and he wanted to
per month. return the unsold shoes. Royal refused
contending that it was an outright sale.
Petitioner appears confused by a semantics
problem. Monthly progress billings certainly form ISSUE: WoN the sale was an outright sale / WoN Co
part of the contract price. If the amount claimed by is bound by the interest stipulated in the invoice.
respondent is not the monthly progress billings
provided in the contract, what then does such SC: YES! / NO!
amount represent? Petitioner has not in point of fact
convincingly supplied an answer to this query. - OUTRIGHT SALE
Neither has petitioner shown any effort to clarify the o Co accepted the invoice of the
meaning of monthly progress billings to support its ballet shoes and he even noted
position. This leaves us no choice but to agree with down in his own handwriting the
respondent that the phrase monthly progress partial payments that he made.
billings refers to a portion of the contract price o If the sale has been on
payable by the owner (petitioner) of the project to consignment, a stipulation as to
the contractor (respondent) based on the the period of time for the return of
percentage of completion of the project or on work the unsold shoes should have been
accomplished at a particular stage. It refers to that made, however, this was not done
portion of the contract price still to be paid as work - NOT BOUND BY THE INTEREST
progresses, after the downpayment is made. o He did not sign the invoice slip the
stipulated interest was 20%,
hence, not binding

o However, he is bound by the legal SSS (respondent) and Lirag Textile Mills
interest of 6% (Petitioner) entered into a Purchased
- Hence, Co was ordered to pay the balance Agreement which Respondent agreed to
of the purchase price for the ballet shoes + purchase preferred stocks of Petitioner worth
legal interest P1 million subject to conditions:
o For Petitioner to repurchase the
shares of stocks at a regular
interval of one year and to pay
EMERITO M. RAMOS, et al., petitioners, dividends.
vs. o Failure to redeem and pay the
CENTRAL BANK OF THE PHILIPPINES, respondents; dividend, the entire obligation shall
COMMERCIAL BANK OF MANILA, intervenor. become due and demandable and
it shall be liable for an amount
equivalent to 12% of the amount
Facts: This involves question as to applicability of
Tapia ruling wherein the Court held that "the then outstanding as liquidated
obligation to pay interest on the deposit ceases the damages.
moment the operation of the bank is completely Basilio Lirag (Basilio) as President of Lirag Textile
suspended by the duly constituted authority, the Mills signed the Agreement as a surety to
Central Bank," to loans and advances by the Central guarantee the redemption of the stocks, the
Bank payment of dividends and other obligations.
Pursuant to the Agreement, Respondent paid
Petitioner P500,000 on two occasions and the
Held: Respondents have failed to adduce any cogent
latter issued 5,000 preferred stocks with a par
argument to persuade the Court to reconsider its
value of P100 as evidenced by Stock Certificate
Resolution at bar that the Tapia ruling is fully
Nos. 128 and 139.
applicable to the non-payment of interest, during
the period of the bank's forcible closure, on loans After sending Respondent sent demand letters,
Petitioner and Basilio still made no redemption
and advances made by respondent Central Bank.
nor made dividend payments.
Respondent filed an action for specific
Respondent Central Bank itself when it was then
performance and damages against Petitioner:
managing the Overseas Bank of Manila (now
Petitioner contends that there is no obligation
Commercial Bank of Manila) under a holding trust
on their part to redeem the stock certificates
agreement, held the same position in Idelfonso D.
since Respondent is still a preferred stock holder
Yap vs. OBM wherein it argued that "(I)n a suit
of the company and such redemption is
against the receiver of a national bank for money
dependent upon the financial ability of the
loaned to the Bank while it was a going concern, it
company.
was error to permit plaintiff to recover interest on
On the part of Basilio, he contends that his
the loan after the bank's suspension"
liability only arises only if the company is liable
and does not perform its obligations under the
A significant development of the case, the
Agreement.
Government Service Insurance System (GSIS) has

acquired ownership of 99.93% of the outstanding
capital stock of COMBANK. The Court's Resolution
Issue:
manifestly redounds to the benefit of another
government institution, the GSIS, and to the 1) Whether or not the Purchase Agreement
preservation of the banking system. entered into by the Parties is a debt
instrument?
LIRAG TEXTILE MILLS, INC. VS. SSS 2) If so, Is Basilio liable as surety?
3) Whether or not Lirag is liable for the
153 SCRA 338 interest as liquidated damages?

Facts:

Held:
Facts: Angel Warehousing sued Chelda
1) YES, the Purchase Agreement is a debt for the recovery of unpaid loans amounting to
instrument. The terms and conditions of the P20,880 because the post dated checks issued by
Agreement show that parties intended the Chelda were dishonored. Chelda said that Angel
repurchase of preferred shares on the Warehousing charged usurious interests, thus they
respective scheduled dates to be an absolute have no cause of action against them & cant recover
obligation, which does not depend on the the remaining balance.
financial ability of the corporation.
o This absolute obligation on the part of the Issue: W/N illegal terms as to payment of
Petitioner corporation is made manifest by interest likewise renders a nullity the legal terms as
the fact that a surety was required to see to to the payment of the principal debt?
it that the obligation is fulfilled in the event
the principal debtors inability to do so. Ruling: No. The contract of loan with usurious
o It cannot be said that SSS is a preferred interest consists of principal and accessory
stockholder. The rights given by the stipulations and the two stipulations are divisible in
Purchase Agreement to SSS are not rights the sense that the principal debt can stand without
enjoyed by ordinary stockholders. Since the usurious interest (accessory). These are divisible
there was a condition that failure to contracts. In divisible contracts, if the illegal terms
repurchase the stocks on the scheduled can be separated from legal ones, the latter may be
dates renders the entire obligation due and enforced. Illegality lies only as to the prestation to
demandable with interest. These features pay interest, being separable, thus should be
clearly show that intent of the parties to be rendered void. If the principal will be forfeited this
bound therein as debtor and creditor and would unjustly enrich the borrower at the expense
not as a corporation and stockholder. of the lender.

CU-UNJIENG V. MABALACAT
2) YES, Basilio is liable as surety. Thus it follows
that he cannot deny liability for Lirags default. Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for
As surety, he is bound immediately to pay SSS security, Mabalacat mortgaged its property.
the amount then outstanding. Mabalacat failed to pay, but Cu Unjieng extended
the payment. Cu Unjieng filed a case against
Mabalacat for foreclosure of property and payment
3) The award of liquidated damages represented of attorney's fees. It also claims interest over
by 12% of the amount then outstanding is interest. Mabalacat insisted that the agreement for
correct, considering that the petitioners in the the extension of the time of payment had the effect
stipulation of facts admitted having failed to of abrogating the stipulation of the original contract
fulfill their obligations under the Agreement. with respect to the acceleration of the maturity of
The grant of liquidated damages is expressly the debt by non-compliance with the terms of the
provided for the Purchase Agreement in case of mortgage. The issue related on this case is the
contractual breach. interest over interest.

Issue: WoN Cu-Unjieng is entitled to interest over
Since Lirag did not deny its failure to redeem the interest.
preferred shares and the non-payment of
dividends which are overdue, they are bound to Ruling: It is well settled that, under article 1109 of
earn legal interest from the time of demand, in the Civil Code, as well as under section 5 of the
this case, judicial i.e. the time of filing the Usury Law (Act No. 2655), the parties may stipulate
action. that interest shall be compounded; and rests for the
computation of compound interest can certainly be
made monthly, as well as quarterly, semiannually, or
annually. But in the absence of express stipulation
ANGEL WAREHOUSING vs CHELDA for the accumulation of compound interest, no

interest can be collected upon interest until the debt Issue: Whether or not the amount due should be
is judicially claimed, and then the rate at which subject to a simple interest or compounded interest.
interest upon accrued interest must be computed is
fixed at 6 per cent per annum. In this case, there was Ruling:
no compound interest in the agreement.
In cases where no interest stipulated, no
compounded interest could be further earned
DAVID vs. CA
G.R.No. 115821, October 13, 1999 The Court ruled that Article 2212
contemplates the presence of stipulated or
Facts: conventional interest which has accrued when
A writ of attachment over the real demand was judicially made. In cases where no
properties owned by Valentin Afable, Jr.. RTC interest had been stipulated by the parties, as in the
ordered Afable, Jr. To pay David P66,500 plus case of Philippine American Accident Insurance, no
interest from July 24, 1974, until fully paid. RTC accrued conventional interest could further earn
amended its decison and ruled that legal rate of interest upon judicial demand.
interest should be computed from January 4, 1966,
instead of from July 24, 1974.
In this case, no interest was stipulated by
Afable appealed to the Court of Appeals
the parties. In the promissory note denominated
and then to the Supreme Court. In both instances,
Compromise Agreement signed by the Afable, Jr.
the decision of the lower court was affirmed. Entries
which was duly accepted by the David no interest
of judgment were made and the record of the case
was mentioned. That being the case, the interest
was remanded to Branch 27 for the final execution.
should only be subject to a simple interest.
An Alias Writ of Execution was issued by

virtue of which respondent Sheriff Melchor P. Pea

conducted a public auction. Sheriff Pea informed
Topic: Simple Loan or Mutuum; Article 1960
the petitioner that the total amount of the judgment
Velez v. Balzarra
is P270,940.52. The amount included a computation

of simple interest. Afable, however, claimed that
FACTS:
the judgment award should be P3,027,238.50,
Plaintiff Velez filed a complaint for the
because the amount due ought to be based on
return of parcels of land sold by Defendant
compounded interest.
to Plaintiffs husband. She further alleged
that defendants had remained in possession
Although the auctioned properties were
of said land under Contract of Lease but for
sold to the petitioner, Sheriff Pea did not issue the
over 2 years defendants had not paid the
Certificate of Sale because there was an excess in
agreed rentals.
the bid price in the amount of P2,941,524.47, which
Defendant alleged that the real agreement
the petitioner failed to pay despite notice. David
was a loan secured by a mortgage of those
filed a Motion praying that respondent Judge Cruz
lands.
issue an order directing respondent Sheriff Pea to
Trial court found that the payments made
prepare and execute a certificate of sale in his favor.
by defendants were not made by way of
His reason is that compound interest, which is
interest but as payments for the principal.
allowed by Article 2212 of the Civil Code, should
Defendant overpaid therefore Plaintiff
apply in this case.
should return excess.

David claim that in computing the interest
ISSUE: Whether payments were intended to be
due of the P66,500.00, interest should be computed
applied to the principal OR were considered as rents,
at 6% on the principal sum of P66,500.00 pursuant
interests?
to Article 2209 and then interest on the legal

interest should also be computed in accordance
HELD:
with the language of Article 2212 of the Civil Code.
Payments were NOT rents, interests

Neri took possession of land and collected affiliate corporation, private respondent Pio Barretto
fruits. The creditor having enjoyed the Realty Corporation (BARRETTO).
beneficial use of the lands delivered as
security for the loan, it appears to have Sometime in August 1980 Anthony Que, in behalf of
been the intention of the parties that the AUTOWORLD, applied for a direct loan with FNCB.
creditor should be compensated thereby. However, since the Usury Law imposed an interest
Though receipts, payments are called rents, rate ceiling at that time, FNCB informed Anthony
they were prepared by Neri (Ps husband) Que that it was not engaged in direct lending;
and Plaintiff, and defendants in their consequently, AUTOWORLD's request for loan was
ignorance did not look into the wording, denied.
being merely satisfied that they were proofs
of payment. But sometime thereafter, FNCB's Assistant Vice
The liability of plaintiff to return the excess President, Mr. Leoncio Araullo, informed Anthony
payments is in keeping with Article 1895 Que that although it could not grant direct loans it
(Old Civil Code) which provides that, when could extend funds to AUTOWORLD by purchasing
something is received which there is no any of its outstanding receivables at a discount. After
right to collect, and which by mistake has a series of negotiations the parties agreed to
been unduly delivered, the obligation to execute an Installment Paper Purchase ("IPP")
restore it arises. transaction to enable AUTOWORLD to acquire the
The 2 requisites are present: 1) There is no additional capital it needed. The mechanics of the
right to collect these excess sums; and 2) proposed "IPP" transaction was
the amounts have been paid through
mistake by defendants. Such mistake is (1) First, Pio Barretto (BARRETTO) would
shown by the fact that their contracts never execute a Contract to Sell a parcel of land in
intended that either rents or interest should favor of AUTOWORLD for P12,999,999.60
be paid, and by the further fact that when payable in sixty (60) equal monthly
these payments were made, they were installments of P216,666.66. Consequently,
intended by defendants to be applied to the BARRETTO would acquire P12,999,999.60
principal, but they overpaid the amounts worth of receivables from AUTOWORLD;
loaned to them.

(2) FNCB would then purchase the

receivables worth P12,999,999.60 from

BARRETTO at a discounted value of
USURY LAW P6,980,000.00 subject to the condition that
such amount would be "flowed back" to
G.R. No. 128990 September 21, 2000 AUTOWORLD;
INVESTORS FINANCE CORPORATION, petitioner, (3) BARRETTO, would in turn, execute a

vs. Deed of Assignment (in favor of FNCB)
AUTOWORLD SALES CORPORATION, and PIO obliging AUTOWORLD to pay the
BARRETTO REALTY DEVELOPMENT installments of the P12,999,999.60
CORPORATION,respondents. purchase price directly to FNCB; and
FACTS: (4) Lastly, to secure the payment of the

receivables under the Deed of Assignment,
Petitioner Investors Finance Corporation, then BARRETTO would mortgage the property
known also as FNCB Finance (now doing business subject of the sale to FNCB.
under the name of Citytrust Finance Corporation), is
a financing company doing business with private On 17 November 1980 FNCB informed AUTOWORLD
respondent Autoworld Sales Corporation that its Executive Committee approved the proposed
(AUTOWORLD) since 1975. Anthony Que, president "IPP" transaction. The lawyers of FNCB then drafted
of AUTOWORLD, also held the same position at its

the contracts needed and furnished Anthony Que AUTOWORLD advised FNCB that it intended to
with copies thereof. preterminate the two (2) transactions by paying
their outstanding balances in full. It then requested
On 9 February 1981 the parties signed three (3) FNCB to provide a computation of the remaining
contracts to implement the "IPP" transaction: balances. FNCB sent AUTOWORLD its computation
requiring it to pay a total amount of P10,026,736.78,
(1) Contract to Sell whereby BARRETTO sold where P6,784,551.24 was the amount to settle the
a parcel of land to AUTOWORLD, situated in first transaction while P3,242,165.54 was the
San Miguel, Manila, together with the amount to settle the second transaction.
improvements thereon, covered by TCT No.
129763 for the price of P12,999,999.60 On 20 December 1982 AUTOWORLD wrote FNCB
payable in sixty (60) consecutive and equal that it disagreed with the latter's computation of its
monthly installments of P216,666.66. outstanding balances. On 27 December 1982 FNCB
replied that it would only be willing to reconcile its
(2) Deed of Assignment whereby BARRETTO accounting records with AUTOWORLD upon
assigned and sold in favor of FNCB all its payment of the amounts demanded. Thus, despite
rights, title and interest to all the money its objections, AUTOWORLD reluctantly paid FNCB
and other receivables due from P10,026,736.78 through its UCPB account.
AUTOWORLD under the Contract to Sell,
subject to the condition that the assignee On 5 January 1983 AUTOWORLD asked FNCB for a
(FNCB) has the right of recourse against the refund of its overpayments in the total amount of
assignor (BARRETTO) in the event that the P3,082,021.84. According to AUTOWORLD, it
payor (AUTOWORLD) defaulted in the overpaid P2,586,035.44 to settle the first transaction
payment of its obligations. and P418,262.00 to settle the second transaction.
(3) Real Estate Mortgage whereby The parties attempted to reconcile their accounting
BARRETTO, as assignor, mortgaged the figures but the subsequent negotiations broke down
property subject of the Contract to Sell to prompting AUTOWORLD to file an action before the
FNCB as security for payment of its Regional Trial Court of Makati to annul the Contract
obligation under the Deed of Assignment. to Sell, the Deed of Assignment and the Real Estate
Mortgage all dated 9 February 1981. It likewise
After the three (3) contracts were concluded prayed for the nullification of thePromissory
AUTOWORLD started paying the monthly Note dated 18 June 1982 and the Real Estate
installments to FNCB. Mortgage dated 24 June 1982.
On 18 June 1982 AUTOWORLD transacted with FNCB In its complaint, AUTOWORLD alleged that the
for the second time obtaining a loan of aforementioned contracts were only perfected to
P3,000,000.00 with an effective interest rate of 28% facilitate a usurious loan and therefore should be
per annum. AUTOWORLD and BARRETTO, as co- annulled
makers, then signed a promissory note in favor of
FNCB worth P5,604,480.00 payable in sixty (60) FNCB argued that the contracts dated 9 February
consecutive monthly installments of P93,408.00. To 1981 were not executed to hide a usurious loan.
secure the promissory note, AUTOWORLD Instead, the parties entered into a legitimate
mortgaged a parcel of land located in Sampaloc, Installment Paper Purchase ("IPP") transaction, or
Manila, to FNCB. Thereafter, AUTOWORLD began purchase of receivables at a discount, which FNCB
paying the installments. could legally engage in as a financing company. With
regard to the second transaction, the existence of a
In December 1982, after paying nineteen (19) usurious interest rate had no bearing on the
monthly installments of P216,666.66 on the first P3,000,000.00 loan since at the time it was
transaction ("IPP" worth P6,980,000.00) and three perfected on 18 January 1982 Central Bank Circular
(3) monthly installments of P93,408.00 on the No. 871 dated 21 July 1981 had effectively lifted the
second transaction (loan worth P3,000,000.00),

ceiling rates for loans having a period of more than loan to hide itself behind a legal form. Parol
three hundred sixty-five (365) days. evidence is admissible to show that a written
document though legal in form was in fact a device
On 11 July 1988 the Regional Trial Court of Makati to cover usury. If from a construction of the whole
ruled in favor of FNCB declaring that the parties transaction it becomes apparent that there exists a
voluntarily and knowingly executed a legitimate corrupt intention to violate the Usury Law, the
"IPP" transaction or the discounting of receivables. courts should and will permit no scheme, however
AUTOWORLD was not entitled to any ingenious, to becloud the crime of usury." The
reimbursement since it was unable to prove the following circumstances show that such scheme was
existence of a usurious loan. indeed employed:
The Court of Appeals modified the decision of the First, petitioner claims that it was never a party to
trial court and concluded that the "IPP" transaction, the Contract to Sell between AUTOWORLD and

comprising of the three (3) contracts perfected on 9 BARRETTO. As far as it was concerned, it merely
February 1981, was merely a scheme employed by purchased receivables at a discount from BARRETTO
the parties to disguise a usurious loan. It ordered the as evidenced by the Deed of Assignment dated 9
annulment of the contracts and required FNCB to February 1981. Whether the Contract to Sell was
reimburse AUTOWORLD P2,586,035.44 as excess fictitious or not would have no effect on its right to
interest payments over the 12% ceiling rate. claim the receivables of BARRETTO from
However, with regard to the second transaction, the AUTOWORLD since the two contracts were entirely
appellate court ruled that at the time it was separate and distinct from each other.
executed the ceiling rates imposed by the Usury Law
had already been lifted thus allowing the parties to Curiously however, petitioner admitted that its
stipulate any rate of interest. lawyers were the ones who drafted all the three (3)
contracts involved which were executed on the same
ISSUE: day. Also, petitioner was the one who procured the
services of the Asian Appraisal Company to
We stress at the outset that this petition concerns determine the fair market value of the land to be
itself only with the first transaction involving the sold way back in September of 1980 or six (6)
alleged' "IPP" worth P6,980,000.00, which was months prior to the sale. If it were true that
implemented through the three (3) contracts of 9 petitioner was never privy to the Contract to Sell,
February 1981. As to the second transaction, which then why was it interested in appraising the lot six
involves the P3,000,000.00 loan, we agree with the (6) months prior to the sale? And why did
appellate court that it was executed when the ceiling petitioner's own lawyers prepare the Contract to
rates of interest had already been removed, hence Sell? Obviously, petitioner actively participated in
the parties were free to fix any interest rate. the sale to ensure that the appraised lot would serve
as adequate collateral for the usurious loan it gave
to AUTOWORLD.
The pivotal issue therefore is whether the three (3)
contracts all dated 9 February 1981 were executed
to implement a legitimate Installment Paper Second, petitioner insists that the 9 February 1981
Purchase ("IPP") transaction or merely to conceal a transaction was a legitimate "IPP" transaction where
usurious loan. it only bought the receivables of BARRETTO from
AUTOWORLD amounting to P12,999,999.60 at a
discounted price of P6,980,000.00. However, per
HELD:
instruction of petitioner in its letter to BARRETTO
dated 17 November 1980 the whole purchase price
The three (3) contracts were executed to conceal a
of the receivables was to be "flowed back" to
usurious loan. AUTOWORLD. And in its subsequent letter of 24
February 1981 petitioner also gave instructions on
Generally, the courts only need to rely on the face of how BARRETTO should apply the proceeds worth
written contracts to determine the intention of the P6,980,000.00.
parties. "However, the law will not permit a usurious

It can be seen that out of the nine (9) items of have directly loaned the money to AUTOWORLD
appropriation stated (in the letter), Item Nos. 2-8 with an interest rate higher than 12%.
had to be returned to petitioner. Thus, in compliance
with the aforesaid letter, BARRETTO had to yield Thus, although the three (3) contracts seemingly
P4,058,468.47 of the P6,980,000.00 to petitioner to show at face value that petitioner only entered into
settle some of AUTOWORLD's previous debts to a legitimate discounting of receivables, the
it. Any remaining amount after the application of the circumstances cited prove that the P6,980,000.00
proceeds would then be surrendered to was really a usurious loan extended to AUTOWORLD.
AUTOWORLD in compliance with the letter of 17
November 1980; none went to BARRETTO. Petitioner anchors its defense on Sec. 7 of the Usury
Law which states
The foregoing circumstances confirm that the
P6,980,000.00 was really an indirect loan extended Provided, finally, That nothing herein
to AUTOWORLD so that it could settle its previous contained shall be construed to prevent the
debts to petitioner. Had petitioner entered into a purchase by an innocent purchaser of a
legitimate purchase of receivables, then BARRETTO, negotiable mercantile paper, usurious or
as seller, would have received the whole purchase otherwise, for valuable consideration
price, and free to dispose of such proceeds in any before maturity, when there has been no
manner it wanted. It would not have been obliged to intention on the part of said purchaser to
follow the "Application of Proceeds" stated in evade the provisions of the Act and said
petitioner's letter. purchase was not a part of the original
usurious transaction. In any case however,
Third, in its 17 November 1980 letter to BARRETTO, the maker of said note shall have the right
petitioner itself designated the proceeds of the "IPP" to recover from said original holder the
transaction as a "loan." In that letter, petitioner whole interest paid by him thereon and, in
stated that the "loan proceeds" amounting to any case of litigation, also the costs and
P6,980,000.00 would be released to BARRETTO only such attorney's fees as may be allowed by
upon submission of the documents it required. And the court.
as previously mentioned, one of the required
documents was a letter agreement between Indeed, the Usury Law recognizes the legitimate
BARRETTO and AUTOWORLD stipulating that the purchase of negotiable mercantile paper by innocent
P6,980,000.00 should be "flowed back" to purchasers. But even the law has anticipated the
AUTOWORLD. If it were a genuine "IPP" transaction potential abuse of such transactions to conceal
then petitioner would not have designated the usurious loans. Thus, the law itself made a
money to be released as "loan proceeds" and qualification. It would recognize legitimate purchase
BARRETTO would have been the end recipient of of negotiable mercantile paper, whether usurious or
such proceeds with no obligation to turn them over otherwise, only if the purchaser had no intention of
to AUTOWORLD. evading the provisions of the Usury Law and that the
purchase was not a part of the original usurious
Fourth, after the interest rate ceilings were lifted on transaction. Otherwise, the law would not hesitate
21 July 1981 petitioner extended on 18 June 1982 a to annul such contracts. Thus, Art. 1957 of the Civil
direct loan of P3,000,000.00 to AUTOWORLD. This Code provides
time however, with no more ceiling rates to hinder
it, petitioner imposed a 28% effective interest rate Contracts and stipulations, under any cloak
on the loan. And no longer having a need to cloak or device whatever, intended to circumvent
the exorbitant interest rate, the promissory note the laws on usury shall be void. The
evidencing the second transaction glaringly bore the borrower may recover in accordance with
28% interest rate on its face. We are therefore of the the laws on usury.
impression that had there been no interest rate
ceilings in 1981, petitioner would not have resorted
In the case at bar, the attending factors surrounding
to the fictitious "IPP" transaction; instead, it would
the execution of the three (3) contracts on 9
February 1981 clearly establish that the parties

intended to transact a usurious loan. These contracts Solangon vs Salazar
should therefore be declared void. Having declared
the transaction between the parties as void, we are G.R. No. 125944 June 29, 2001
now tasked to determine how much reimbursement
AUTOWORLD is entitled to. The Court of Appeals, Facts:
adopting the computation of AUTOWORLD in its
plaintiff-appellant's brief, ruled
Petitioner-spouses executed 3 real estate
mortgages on a parcel of land situated in
According to plaintiff-appellant, defendant- Bulacan, in favor of the same Respondent
appellee was able to collect Salazar to secure payment of loans of P60 K,
P3,921,217.78 in interests from appellant. P136 K and P230 K payable within 4 months, 1
This is not denied by the appellee. year, and 4 months in that order, with 6%
Computed at 12% the effective interest monthly interest on the first loan, and legal
should have been P1,545,400.00. Hence, interests on the others.
appellant may recover This action was initiated by the Petitioner-
P2,586,035.44, representing overpayment spouses to prevent the foreclosure of the
arising from usurious interest rate charged mortgaged property.
by appellee.
They alleged that they obtained only one loan
from the Respondent which was the P60 K
While we do not dispute the appellate court's secured by the first mortgage. Also, Petitioner-
finding that the first transaction was a usurious loan, spouses opined that the 6% monthly interest
we do not agree with the amount of reimbursement was unconscionable.
awarded to AUTOWORLD. Indeed, it erred in The subsequent mortgages were merely
awarding only the interest paid in excess of the 12% continuations of the first one, which is null and
ceiling. In usurious loans, the creditor can always void.
recover the principal debt. However, the stipulation Moreover, the Respondent assured them that
on the interest is considered void thus allowing the he will not foreclose the mortgage as long as
debtor to claim the whole interest paid. In a loan of they pay the stipulated interest upon maturity
P1,000.00 with interest at 20% per annum or or within a reasonable time thereafter.
P200.00 per year, if the borrower pays P200.00, the Petitioner-spouses substantially paid the loans
whole P200.00 would be considered usurious with interest but were unable to pay it in full.
interest, not just the portion thereof in excess of the
On the other hand, the Respondent claimed that
interest allowed by law. the mortgages were executed to secure 3
separate loans of and that the first two loans
In the instant case, AUTOWORLD obtained a loan of were paid, but the last one was not.
P6,980,000.00. Thereafter, it paid nineteen (19) He denied having represented that he will not
consecutive installments of P216,666.66 amounting foreclose the mortgage as long as the
to a total of P4,116,666.54, and further paid a Petitioner-spouses pay interest.
balance of P6,784,551.24 to settle it. All in all, it paid Lower courts ruled in favour of Respondent.
the aggregate amount of P10,901,217.78 for a debt Thus, this petition.
of P6,980,000.00. For the 23-month period of the
existence of the loan covering the period February
Issue:
1981 to January 1982, AUTOWORLD paid a total of

P3,921,217.78 in interests. Applying the 12% interest
ceiling rate mandated by the Usury Law, Whether or not the 6% monthly interest is
AUTOWORLD should have only paid a total of unconscionable?
P1,605,400.00 in interests. Hence, AUTOWORLD is
entitled to recover the whole usurious interest Ruling:
amounting to P3,921,217.78.
Yes. The SC ruled that this is unconscionable.


While the Usury Law ceiling on interest rates stipulated was 7% per month. However, the RTC
was lifted by C.B. Circular No. 905, nothing in declared that the 7% per month interest is too
the said circular grants lenders carte blanche burdensome and onerous and so the court
authority to raise interest rates to levels which unilaterally reduced the interest rate from 7% per
will either enslave their borrowers or lead to a month to 5% per month. Petitioners filed an MR
hemorrhaging of their assets. alleging that either 5% or 7% per month is
In Medel v. Court of Appeals, the Court decreed exorbitant, unconscionable, unreasonable, usurious
that the 5.5% interest or 66% per annum was and inequitable.
not usurious but held that the same must be
equitably reduced for being iniquitous, ISSUE: WON the interest of 5% month is exorbitant,
unconscionable and exorbitant , and hence, unconscionable, unreasonable, usurious and
contrary to morals (contra bonos mores), if not inequitable.
against the law.
In the case at bench, Petitioner-spouses stand HELD: NO. It is a basic principle in civil law that
on a worse situation. They are required to pay parties are bound by the stipulations in the contracts
the stipulated interest rate of 6% per month or voluntarily entered into by them. Parties are free to
72% per annum which is definitely outrageous stipulate terms and conditions which they deem
and inordinate. convenient provided they are not contrary to law,
Hence, the interest rate must be reduced morals, good customs, public order, or public policy.
equitably. An interest of 12% per annum is
deemed fair and reasonable. The interest rate of 7% per month was voluntarily
agreed upon by RAMOS and the PASCUALs. There is
nothing from the records and, in fact, there is no
allegation showing that petitioners were victims of
fraud when they entered into the agreement with
SPOUSES PASCUAL VS. RAMOS RAMOS. Neither is there a showing that in their
contractual relations with RAMOS, the PASCUALs
FACTS: Petitioners executed a Deed of Absolute Sale were at a disadvantage on account of their moral
with Right to Repurchase with respondent, in dependence, ignorance, mental weakness, tender
consideration of Php 150,000. The petitioners did age or other handicap, which would entitle them to
not exercise their right to repurchase the property the vigilant protection of the courts as mandated by
within the stipulated one-year period; hence, Article 24 of the Civil Code.
respondent prayed that the title over the parcels of
land be consolidated in his favor. Petitioners aver With the suspension of the Usury Law and the
that what was really executed between them and removal of interest ceiling, the parties are free to
the respondent is a real estate mortgage and that stipulate the interest to be imposed on loans. Absent
there was no agreement limiting the period within any evidence of fraud, undue influence, or any vice
which to exercise the right to repurchase and that of consent exercised by RAMOS on the PASCUALs,
they have even overpaid respondent. the interest agreed upon is binding upon them. This
Court is not in a position to impose upon parties
Respondent offered in evidence a document contractual stipulations different from what they
denominated as Sinumpaang Salaysay which had a have agreed upon
provision of an interest of 7% per month on the
principal loan of Php 150,000. RTC ruled that the REFORMINA V. TOMOL
transaction was actually a loan and the payment was
secured by a mortgage of the property, and that the EASTERN SHIPPING v CA
petitioners had made payments which resulted in
overpayment as the interest was at 7% per annum. FACTS:
Respondent filed an MR alleging that the interest
stipulated in the Sinumpaang Salaysay was 7% per - 2 Fiber drums of Riboflavin were shipped
month. The RTC ruled in favor of the respondent from Japan for delivery vessel owned by
acknowledging that the correct interest rate

Eastern Shipping (P) and that the shipment o No interest shall be ordered on
was insured by Mercantile Insurance (R) unliquidated claims/damages until
- Upon arrival in Manila, it was discharged demand can be established with
unto the custody of Metro Port, which it reasonable certainty
stated in its survey that 1 drum was in bad o When demand is established with
order. reasonable certainty, interest shall
- It was then received by Allied Brokerage begin to run from the time the
wherein it stated in its survey that one claim is made
drum was opened and without seal (judicially/extrajudicially)
- Allied then delivered it to the consignees o But if it cannot be reasonably
W/H, which it excepted that 1 drum established at the time demand
contained spillages while the rest was was made = interest to run from
adulterated/fake date of judgment of the court
- R then filed claims against P for the losses - If judgment becomes Final and Executory
sustained by the consignee (which R o Rate of legal interest = 12%
subrogated). o From finality to satisfaction
- LC ruled in favor of R and ordered P to pay o Why? It is already considered as
damages, however, it failed to state when forbearance
the interest rate should commence from
date of filing of complaint at 12% or from
date of judgment of TC at 6%
EASTERN ASSURANCE AND SURETY CORPORATION
ISSUE: When should the interest rate commence and (EASCO), vs. Court of Appeals
at what rate
SC: 6% from the date of decision and 12% from date Facts:
of finality of judgment until payment
1) On April 9, 1981, private respondent
- This case laid down the rules on the interest
Vicente Tan insured his building in
rates:
Dumaguete City against fire with petitioner
- A) when an obligation regardless of its
Eastern Assurance and Surety Corporation
source, is breached, the contravenor can be
(EASCO) for P250,000.00.
held liable for damages
2) On June 26, 1981, the building was
- B) with regard particularly to an award of
destroyed by fire. As his claim for indemnity
interest in the concept of actual and
was refused, private respondent filed a
compensatory damages, the rate of
complaint for breach of contract with
interest, as well as the accrual thereof, shall
damages against petitioner. The RTC Court,
be as follows:
decided in favour of Vicente Tan. In its
- If it consists of payment of money
ruling, the RTC court imposed the rate of
(loan/forbearance)
interest at 12% per annum, and decided
o Interest due imposed = as
that EASCO to pay immediately to Vicente
stipulated in writing and the
Tan the unpaid balance of interest of the
o Interest due = earn legal interest
principal amount of P250,000.00 equivalent
from the time it is judicially
to 6% per annum from June 26, 1981 to
demanded
September 30,1994.
o No stipulation = 12% per annum
3) Petitioner EASCO appealed to the Court of
from date of default (judicial/extra
Appeals, which, on July 30, 1993, affirmed
judicial)
the decision of the trial court. The CA, on
- If it is not loan/forbearance
the authority of prior case, Eastern Shipping
o Interest on amount of damages =
Lines, Inc. v. Court of Appeals, that the
imposed by discretion of court at
interest rate on the amount due should be
6%
6% per annum from June 26, 1981 to

August 24, 1993, and 12% per annum compensatory damages, the rate of
beginning August 25, 1993 until the money interest, as well as the accrual thereof, is
judgment is paid. imposed, as follows:
4) Thereafter, petitioner EASCO tendered
payment of the money judgment in the Par. 3: When the judgment of the court awarding a
amount of P250,000.00 plus interest of 6% sum of money becomes final and executory, the rate
per annum from June 26, 1981 to July 30, of legal interest, whether the case falls under
1993. paragraph 1 or paragraph 2, above, shall be 12% per
5) However, private respondent refused to annum from such finality until its satisfaction, this
accept payment on the ground that the interim period being deemed to be by then an
applicable legal rate of interest was 12% per equivalent to a forbearance of credit.
annum. Subsequently, private respondent
brought the matter to the Insurance Unquestionably, this case falls under the rule stated
Commission. in paragraph 3. The question is whether this rule can
6) Then in, 1995, the parties agreed before the be applied to this case.
hearing officer of the commission that the
interest should be computed from June 26,
The prior Eastern Shipping Lines, case. did not lay
1981 to September 30, 1994. Petitioner
down any new rules because it was just a a
would file with the trial court a motion to
comprehensive summary of existing rules on the
fix the legal rate of interest attaching
computation of legal interest.
thereto a check in the amount of
P250,000.00 with 6% interest per annum.
As to the "cut-off date" for the payment of legal
7) In its appeal EASCO to the SC, it contended
that the CA wrongfully applied the interest:
aforecited paragraph 3 of the suggested
rules of thumb for future guidance [as The trial court's finding on this point is binding.
formulated in Eastern Shipping Lines, Inc. v. Hence, the payment of 12% legal interest per annum
Court of Appeals, and unlawfully ignored or should commence from August 25, 1993, the date
disregarded the agreed cut-off date for the the decision of the trial court became final, up to
payment of the legal rate. September 30, 1994, the agreed "cut-off-date" for
the payment of legal interest. The decision of the CA
Issue: When the judgment of the court is affirmed.
awarding a sum of money becomes final
and executory what is the rate to be
imposed?
PILIPINAS BANK, petitioner,
Held: Petitioner's contentions are without vs.
merit. THE HONORABLE COURT OF APPEALS, and LILIA R.
ECHAUS, respondents.
The prior Eastern Shipping Lines, Inc. v. Court of
Appeals, was held: Facts: private respondent filed a complaint against
petitioner and its president, Constantino Bautista,
for collection of a sum of money. The complaint
I. When an obligation, regardless of its
alleged: (1) that petitioner and Greatland executed a
source, i.e., law, contracts, quasi-contracts,
"Dacion en Pago," wherein Greatland conveyed to
delicts or quasi-delicts, is breached, the
petitioner several parcels of land in consideration of
contravener can be held liable for damages.
the sum of P7,776,335.69; (2) that Greatland
The provisions under "Damages" of the Civil
assigned P2,300,000.00 out of the total
Code govern in determining the measure of
consideration in favor of private respondent; and (3)
recoverable damages.
that notwithstanding her demand for payment,
petitioner refused and failed to pay the said amount
II. With regard particularly to an award of
assigned to her.
interest in the concept of actual and

Petitioner claimed: (1) that its former president had from one person to another and the obligation to
no authority (2) that it never ratified the same; and return the same or a portion thereof is subsequently
(3) that assuming arguendo that the agreement was adjudged.
binding, the conditions stipulated therein were
never fulfilled.
The trial court ruled in favor of private respondent. PNB v CA
Court of Appeals modified the Order dated April 3, FACTS:

1985, by limiting the execution pending appeal
against petitioner to P5,517.707.00 - Province of Isabela issued several checks
drawn against its account with PNB (P) in
Trial court granted the new motion for execution favor of Ibarrola (R), as payments for the
pending appeal. Petitioner complied with the writ of purchase of medicines.
execution pending appeal by issuing two manager's - The checks were delivered to Rs agents
checks in the total amount of P5,517,707.00 who turned them over to R, except 23
checks amounting to P98k.
- Due to failure to receive full amount, R filed
The Court of Appeals rendered a decision in CA-G.R.
case against P
No. CV-06017, which modified the judgment of the
- LC, CA and SC ordered PNB to pay however,
trial court
all 3 courts failed to specify the legal rate of
interest 6% or 12%
Petitioner filed a motion in the trial court praying
that private respondent to refund to her the excess ISSUE: WoN the rate to be used is 6%
payment of P1,898,623.67 with interests at 6%. It
must be recalled that while private respondent was SC: YES!
able to collect P5,517,707.00 from petitioner
pursuant to the writ of advance execution, the final - This case does not involve a loan,
judgment in the main case awarded to private forbearance of money or judgment
respondent damages in the total amount of involving a loan or forbearance of money as
P3,619,083.33 it arose from a contract of sale whereby R
did not receive full payment for her
ISSUE: What interest rate applicable? merchandise.
- When an obligation arises from a contract
HELD: Note that Circular No. 416, fixing the rate of of purchase and sale and not from a
interest at 12% per annum, deals with (1) loans; (2) contract of loan or mutuum, the applicable
forbearance of any money, goods or credit; and rate is 6% per annum as provided in Art.
(3) judgments. 2209 of the NCC
- 6% from filing of complaint until full
(1) the amount of P2,300,000.00 adjudged to be paid payment before finality of judgment
by petitioner to private respondent shall earn - 12% from finality of judgment
interest of 6% per annum - The said obligation arose
from a contract of purchase and sale and not from a
PLANTILLA vs. BALIWAG
contract of loan or mutuum. Hence, what is
358 SCRA 396
applicable is the rate of 6% per annum as provided in

Article 2209 of the Civil Code of the Philippines and
Facts:
not the rate of 12% per annum as provided in
Circular No. 416.

(2) the amount of P1,898,623.67 to be refunded by In a civil case, lower court rendered a decision
private respondent to petitioner shall earn interest ordering:
of 12% per annum. - where money is transferred

o Spouses Orga and Plantilla to reinstate
Suiza as share tenant Facts: Alfa on separate instances was
o That they pay Suiza unrealized shares granted by RCBC 4 letters of credit to facilitate the
from the harvests of coconut fruits purchase of raw materials for their garments
from August until reinstated the business. Alfa executed 4 trust receipts and made
amount of P1,000 with legal interest comprehensive surety agreements wherein the
until fully paid. signatory officers of Alfa agreed in joint/several
The decision, however, did not state the interest capacity to pay RCBC in case the company defaulted.
to be charged. RCBC filed a case versus Alfa for a sum of money.
A writ of execution was issued addressed to The CA awarded only P3M (minimum amount) to
Sheriff Baliwag. RCBC instead of P18M as stipulated in their contract.
Baliwag demanded payment from the spouses
representing the share of Suiza the amount of Issue: W/N the CA can deviate from the
480k, representing the coconut harvest from provisions of the contract between the parties?
Aug 1979 to Jan 1998 at P1,000 with 8 harvests
per year with an interest rate of 12% per annum Ruling: No. Contracting parties may establish
or a total of 222% plus attorneys fees. agreements terms, deemed advisable provided they
Col. Plantilla, administrator of the spouses, filed are not contrary to law/public policy. A contract is a
an administrative complaint against Baliwag law between the parties. In this case its valid
charging him of serious irregularities in because it was not excessive under the Usury Law.
implementation of the writ of execution alleging
that dispositive portion of the decision did not *Atty. Aguinaldo assigned this case because he just
contain 8 harvest per year and Baliwag took it wanted to show us how to compute for the interest
upon himself to specify the number of harvests. in long term deals. He even made a diagram on the
board. Di ko na ilalagay un sa digest because I
assume that my industrious & responsible
Issue: Whether or not Sheriff is guilty of classmates took down notes... = p
irregularities?

Held: RODZSSEN SUPPLY V. FAR EAST

Yes, Baliwag is guilty of malfeasance, not
irregularities. The determination of the amount due Facts: On January 15, 1979, defendant Rodzssen
under the writ properly pertained to the Judge. Yet, Supply, Inc. opened with plaintiff Far East Bank and
respondent assumed the task. For doing so instead Trust Co. a 30-day domestic letter of credit, in the
of pointing out to the court the deficiency of the amount of P190,000.00 in favor of Ekman and
writ, he should be sanctioned. He should not have Company, Inc. (Ekman) for the purchase from the
arrogated unto himself judicial functions that were latter of five units of hydraulic loaders, to expire on
to be performed only by the judge. February 15, 1979. The three loaders were delivered
to defendant for which plaintiff paid Ekman and
which defendant paid plaintiff before expiry date of
LC. The remaining two loaders were delivered to
The computation of the amount due under the writ defendant but the latter refused to pay. Ekman
is not the duty of the sheriff. Such amount should pressed payment to plaintiff. Plaintiff paid Ekman for
have already been specifically stated in the writ if the two loaders and later demanded from defendant
execution issued by the court under Section 3 Rule such amount as it paid Ekman. Defendant refused
39 of the 1997 Rules of Court. All that the sheriff payment contending that there was a breach of
should do upon receipt of that writ is the ministerial contract by plaintiff who in bad faith paid Ekman,
duty of enforcing it. knowing that the two units of hydraulic loaders had
been delivered to defendant after the expiry date of
subject LC.

RCBC vs ALFA Issue: WON petitioner is liable to respondent.

proposal for 5 year restructuring of his past due
Ruling: The SC agrees with the CA that petitioner accounts was approved . He also alleged taht PNB
should pay respondent bank the amount the latter violated their agreement because PNB inserted 21%
expended for the equipment belatedly delivered by instead of 18% in the first promissory note and 18%
Ekman and voluntarily received and kept by instead of 12% in the second promissory note. The 2
petitioner. Equitable considerations behoove us to promissory notes also provided escalation clauses.
allow recovery by respondent. True, it erred in
paying Ekman, but petitioner itself was not without The 2 newly executed promissory notes
fault in the transaction. It must be noted that the novated the three 1979 promissory notes and 11
latter had voluntarily received and kept the loaders Application and Agreement for Commercial Letter of
since October 1979. When both parties to a Credit executed by Mendoza earlier.
transaction are mutually negligent in the
performance of their obligations, the fault of one After sometime, pursuant to the escalation
cancels the negligence of the other and, as in this clause, the interests in the two promissory notes
case, their rights and obligations may be determined were again increased. Due to Mendozas failure to
equitably under the law proscribing unjust pay the 2 promissory notes, PNB foreclosed the real
enrichment. and personal mortgages. Mendoza filed for specific
performance, nullification of foreclosure and
damages.
MENDOZA vs CA
G.R.No. 116710, June 25,2001

Facts: Issue: Whether or not the interest rates imposed on
the 2 newly executed promissory notes were valid.
PNB extended P500,000 credit line and P1
million letter of credit infavor of Mendoza. As Ruling:
security for the credit accomodations, he mortgaged
real and personal properties to PNB. The real estate The Court upheld the validity of the 2 newly
mortgage provided for an escalation clause. executed promissory notes on the ground that
private transactions are presumed to be fair and
He also executed 3 promissory notes regular.
covering the P500,000 credit line in 1979. The said
notes also provided for an interest at the rate of 12% However, it ruled that interest rates
per annum until paid , and that PNB may raise the imposed on the 2 newly executed promissory notes
interest without further notice. are not valid on the ground that Mendoza was not
informed beforehand by PNB of the change in the
He also executed 11 Application and stipulated interest rates.
Agreement for the commercial letter of credit
providing for 9% interest per annum from the date It held that unilateral determination and
of drafts until the arrival of payment in New York imposition of increased interest rates by PNB is
and that the bank may increase the interest without violative of the principle of mutuality of contract.
further notice. The bank sent a letter to Mendoza, Contract changes must be made with the consent of
informing him that the interest rates increased to the contractiong parties. The minds of all parties
14% per annum. must meet as to the proposed modification,
especially wwhen it affects an important aspect of
Mendoza made some proposals for the the agreement. No one receiving a proposal to
restructuring of his past due accounts into 5 year change a contract to which the party is obliged to
term loan and for an additional P2 million letter of answer the proposal, and his silence per se cannot
credit. However, PNB did not approve his proposal be construed as acceptance.
and reduced the letter of credit to P 1 million only.

Mendoza claimed that he was forced to sign DEPOSIT
2 blank promissory notes and claimed that his

seek to repossess the tractor including the
Topic: Deposit; Article 1962 institution of the instant action for replevin.
Calibo v. CA
FACTS:
Respondent Abellas son Mike rented for BISHOP OF JARO V. DELA PENA
residential purposes the house of Petitioner
Calibo. CA Agro-Industrial vs CA
Respondent left a tractor in his sons garage G.R. No. 90027 March 3, 1993
for safekeeping
Petitioner Mike had not paid rentals, Facts
electric and water bills
Mike reassured Calibo that the tractor Petitioner (through its President) purchased 2
would stand as guarantee for its payment parcels of land from spouses Pugao for P350 K
Respondent wanted to take possession of with a downpayment of P75 K.
his tractor but Petitioner said that the Mike Per agreement, the land titles will be
had left the tractor with him as security for transferred upon full payment and will be
the payment of Mikes obligation to him. placed in a safety deposit box (SBDB) of any
Respondent issued postdated checks but bank. Moreover, the same could be withdrawn
Petitioner will only accept check if only upon the joint signatures of a
Respondent executes Promissory Note to representative of the Petitioner and the Pugaos
cover payment for unpaid electric and upon full payment of the purchase price.
water bills. Thereafter, Petitioner and spouses placed the
Petitioner instituted an action for replevin titles in SDB of Respondent Security Bank and
claiming ownership of the tractor and signed a lease contract which substantially
seeking to recover possession thereof from states that the Bank will not assume liability for
petitioner. Likewise, he asserts that the the contents of the SDB.
tractor was left with him, in the concept of Subsequently, 2 renter's keys were given to the
an innkeeper, on deposit and that he may renters one to the Petitioner and the other to
validly hold on thereto until Mike Abella the Pugaos. A guard key remained in the
pays his obligations. possession of the Respondent Bank. The SDB
TC and CA Mike could not have validly can only be opened using these 2 keys
pledged the tractor because he was not the simultaneously.
owner. NO DEPOSIT Afterwards, a certain Mrs. Ramos offered to buy
from the Petitioner the 2 lots that would yield a
ISSUE: WON there was a valid deposit? profit of P285K.
Mrs. Ramos demanded the execution of a deed
HELD: NO of sale which necessarily entailed the
In a contract of deposit, a person receives production of the certificates of title. Thus,
an object belonging to another with the Petitioner with the spouses went to Respondent
obligation of safely keeping it and of Bank to retrieve the titles.
returning the same. Petitioner himself However, when opened in the presence of the
stated that he received the tractor not to Bank's representative, the SDB yielded no such
safely keep it but as a form of security for certificates.
the payment of Mike Abellas obligations. Because of the delay in the reconstitution of the
There is no deposit where the principal title, Mrs. Ramos withdrew her earlier offer to
purpose for receiving the object is not purchase the lots; as a consequence, the
safekeeping. Petitioner allegedly failed to realize the
Consequently, petitioner had no right to expected profit of P285K.
refuse delivery of the tractor to its lawful Hence, Petitioner filed a complaint for damages
owner. On the other hand, private against Respondent Bank.
respondent, as owner, had every right to Lower courts ruled in favour of Respondent
Bank. Thus, this petition.

Issues: no competent proof was presented to show
that Respondent Bank was aware of the
1. Whether or not the disputed contract is an private agreement between the Petitioner
ordinary contract of lease? and the Pugaos that the Land titles were
2. Whether or not the provisions of the cited withdrawable from the SDB only upon both
contract are valid? parties' joint signatures,
3. Whether or not Respondent Bank is liable for and that no evidence was submitted to
damages? reveal that the loss of the certificates of
title was due to the fraud or negligence of
Ruling: the Respondent Bank.
1. No. SC ruled that it is a special kind of deposit

because:
the full and absolute possession and control ART. 1977. OBLIGATION NOT TO MAKE USE OF
of the SDB was not given to the joint renters THING DEPOSITED UNLESS AUTHORIZED.
the Petitioner and the Pugaos.
The guard key of the box remained with the JAVELLANA VS. LIM
Respondent Bank; without this key, neither
of the renters could open the box and vice FACTS: Defendants executed a document in favor of
versa. plaintiff-appellee wherein it states that they have
In this case, the said key had a duplicate received, as a deposit, without interest, money from
which was made so that both renters could plaintiff-appellee and agreed upon a date when they
have access to the box. will return the money. Upon the stipulated due date,
defendants asked for an extension to pay and
Moreover, the renting out of the SDBs is not
binding themselves to pay 15% interest per annum
independent from, but related to or in
on the amount of their indebtedness, to which the
conjunction with, the principal function of a
plaintiff-appellee acceded. The defendants were not
contract of deposit the receiving in custody
able to pay the full amount of their indebtedness
of funds, documents and other valuable
notwithstanding the request made by plaintiff-
objects for safekeeping.
appellee. The lower court ruled in favor of plaintiff-
2. NO. SC opined that it is void.
appellee for the recovery of the amount due.
Generally, the Civil Code provides that the ISSUE: Whether the agreement entered into by the
depositary (Respondent Bank) would be parties is one of loan or of deposit?
liable if, in performing its obligation, it is
found guilty of fraud, negligence, delay or HELD: The document executed was a contract of
contravention of the tenor of the loan. Where money, consisting of coins of legal
agreement. tender, is deposited with a person and the latter is
In the absence of any stipulation, the authorized by the depositor to use and dispose of
diligence of a good father of a family is to the same, the agreement is not a contract of
be observed. deposit, but a loan. A subsequent agreement
Hence, any stipulation exempting the between the parties as to interest on the amount
depositary from any liability arising from said to have been deposited, because the same
the loss of the thing deposited on account could not be returned at the time fixed therefor,
of fraud, negligence or delay would be void does not constitute a renewal of an agreement of
for being contrary to law and public policy deposit, but it is the best evidence that the original
(which is present in the disputed contract) contract entered into between therein was for a
Said provisions are inconsistent with the loan under the guise of a deposit.
Respondent Bank's responsibility as a
depositary under Section 72(a) of the
General Banking Act.
3. NO. SC ruled that:

G.R. Nos. L-26948 and L-26949 October 8, SC: NO
1927
- Art. 1978. When the depositary has
permission to use the thing deposited, the
SILVESTRA BARON, plaintiff-appellant,
contract loses the concept of a deposit and
vs. becomes a loan or commodatum, except
where safekeeping is still the principal
PABLO DAVID, defendant-appellant.
purpose of the contract. The permission
shall not be presumed, and its existence
And must be proved.
- The case does not depend precisely upon
this explicit alternative; for even supposing
GUILLERMO BARON, plaintiff-appellant, that the palay may have been delivered in
vs. the character of deposit, subject to future
sale or withdrawal at plaintiffs' election,
PABLO DAVID, defendant-appellant. nevertheless if it was understood that the
defendant might mill the palay and he has
in fact appropriated it to his own use, he is
FACTS:
of course bound to account for its value.
- In this connection we wholly reject the
- The defendant owns a rice mill, which was defendant's pretense that the palay
well patronized by the rice growers of the delivered by the plaintiffs or any part of it
vicinity. was actually consumed in the fire of
- On January 17, 1921, a fire occurred that January, 1921. Nor is the liability of the
destroyed the mill and its contents, and it defendant in any wise affected by the
was some time before the mill could be circumstance that, by a custom prevailing
rebuilt and put in operation again. among rice millers in this country, persons
- Silvestra Baron (P1) and Guillermo Baron placing palay with them without special
(P2) each filed an action for the recovery of agreement as to price are at liberty to
the value of palay from the defendant (D), withdraw it later, proper allowance being
alleged that: made for storage and shrinkage, a thing
o The palay have been sold by both that is sometimes done, though rarely.
plaintiffs to the D in the year 1920
o Palay was delivered to D at his
special request, with a promise of
compensation at the highest price UNITED STATES, vs. IGPUARA
per cavan
- D claims that the palay was deposited Facts: The defendant Jose igpuara was entrusted
subject to future withdrawal by the with the amount of P2,498 by Montilla and
depositors or to some future sale, which Veraguth. Without the consent of Montilla and
was never effected. D also contended that Veraguth however, Igpuara used the said amount for
in order for the plaintiffs to recover, it is his own ends. Thus, igpuara was charged and
necessary that they should be able to convicted with estafa, for having swindled Juana
establish that the plaintiffs' palay was Montilla and Eugenio Veraguth out of P2,498 which
delivered in the character of a sale, and that he had taken as deposit from the former to be at the
if, on the contrary, the defendant should his disposal. Igpuara was sentenced to pay Juana
prove that the delivery was made in the Montilla P2,498 . The instrument for the deposit
character of deposit, the defendant should reads:
be absolved.
We hold at the disposal of Eugenio Veraguth the sum
ISSUE: WoN there was deposit of two thousand four hundred and ninety-eight pesos

(P2,498), the balance from Juana Montilla's sugar. Judgment appealed from is affirmed
Iloilo, June 26, 1911, Jose Igpuara, for Ramirez
and Co
Igpuara contended that the amount was not deposit ANICETA PALACIO, plaintiff-appellee,
for there was no certificate of deposit, there was no vs.
transfer or delivery of the P2,498 and what DIONISIO SUDARIO, defendant-appellant.
transpired was a loan. If assuming that it was
deposit, this is negotiable. FACTS: The plaintiff made an arrangement for the
pasturing of eighty-one head of cattle, in return for
Issues: Whether or not it is necessary that there be which she has to give one-half of the calves that
transfer or delivery in order to constitute a deposit. might be born and was to pay the defendant one-
half peso for each calf branded. On demand for the
Held: No. whole, forty-eight head of cattle were afterwards
returned to her and this action is brought to recover
A deposit is constituted from the time a the remaining thirty-three.
person receives a thing belonging to
another with the obligation of keeping and Defendant in reply to the demand for the cattle, in
returning it. (Art. 1758, Civil Code.) which he seeks to excuse himself for the loss of the
missing animals.
His contention is without merit because firstly, the
defendant drew up a document declaring that they As a second defense it is claimed that the thirty-
remained in his possession. With the understanding three cows either died of disease or were drowned
that he would, for it has no other purpose. in a flood. The defendant's witnesses swore that of
the cows that perished, six died from overfeeding,
The certificate of deposit in question is not and they failed to make clear the happening of any
negotiable because only instruments payable to flood sufficient to destroy the others.
order are negotiable. Hence, this instrument not
being to order but to bearer, it is not negotiable. HELD: If we consider the contract as one of deposit,
then under article 1183 of the Civil Code, the burden
As for the argument that the depositary may use or of explanation of the loss rested upon the depositary
dispose oft he things deposited, the depositor's and under article 1769 the fault is presumed to be
consent is required thus, the rights and obligations his. The defendant has not succeeded in showing
of the depositary and of the depositor shall cease that the loss occurred either without fault on his
and the rules and provisions applicable to part or by reason of caso fortuito.
commercial loans, commission, or contract which
took the place of the deposit shall be observed. If, however, the contract be not one strictly of
Igpuara however has shown no authorization deposit but one according to a local custom for the
whatsoever or the consent of the depositary for pasturing of cattle, the obligations of the parties
using or disposing of the P2,498. remain the same.
That there was not demand on the same or the next

day after the certificate was signed, does not
operate against the depositor, or signify anything GULLAS vs. NATIONAL BANK
except the intention not to press it. Failure to claim 62 PHIL 519
at once or delay for sometime in demanding
restitution of the things deposited, which was Facts:
immediately due, does not imply such permission to
use the thing deposited as would convert the Atty. Gullas has a current account with PNB.
deposit into a loan. The treasury of the US issued a warrant in the
amount of $361 payable to the order of Bacos.

Gullas and Lopez signed as indorsers of this Facts: Serrano had P350K worth of time
warrant. Thereupon it was cashed by PNB. deposits in Overseas Bank of Manila. He made a
The warrant was subsequently dishonored by series of encashment but was not successful. He
the Insular treasurer. filed a case against Overseas Bank & he also included
At that time, Gullas had a balance of P500 in the Central Bank so that the latter may also be
PNB. From this balance, he also issued some jointly and severally liable. Serrano argued that the
checks which eventually could not be paid when CB failed to supervise the acts of Overseas Bank and
it was sequestered by the Bank. protect the interests of its depositors by virtue of
When it learned of the dishonor, PNB sent constructive trust.
notice to Gullas stating that it applied the
outstanding balances from his current account Issue: W/N the Central Bank is liable?
as payment of the dishonored warrant. Such
notice could not be delivered to him since he Ruling: No. There is no breach of trust from a
was out of town. banks failure to return the subject matter of the
Without any action from Gullas, PNB applied the deposit. Bank deposits are in the nature of irregular
dishonored warrant against his account. deposits. All kinds of bank deposits are to be treated
Because of this, Gullas was unable to pay for the as loans and are to be covered by the law on loans
checks he issued before the application. Art.1980. In reality the depositor is the creditor
Gullas filed a complaint against PNB. while the bank is the debtor. Failure of the
respondent bank to honor the time deposit is failure
to pay its obligation as a debtor.
Issue:

Whether or not PNB has a right to apply a deposit to
the debt of a depositor to the bank?

Held:
SESBRENO V. CA
Yes, PNB has a right to apply the payment against
the account of the depositor.
Facts: Sesbreno entered into a money market, giving
The relation between a depositor and a bank is that 300k to Philfinance. As an exchange, Philfinance
if creditor and debtor. The general rule is that a bank gave checks and confirmation of sale of Delta Motor
has a right to set off of the deposit in its hands for Corp certificates. Checks bounced. Sesbreno is
the payment of any indebtedness to it on the part of running after Philipinas Bank (payee) (Holder of
the depositor. security of primissory note) and Delta (maker). Delta
contends that it is not liable because there was
However, prior to the mailing of the notice of "reconstruction" of debt of Delta to Philfinance, the
dishonor and without waiting for any action by promissory note is not valid anymore. It also
Gullas, the bank made use of the money standing in contends that the document cannot be assigned
his account to make good for the treasury warrant. because its non negotiable. RTC ruled that
At this point recall that Gullas was merely an Philfinance is liable because Philfinance already
indorser. Notice should have been given to him in knows that the liability was already waived and it
order that he might protect his interest. He should still issued the certificate. However, since Philfinance
be awarded with nominal damages because of the was not impleaded, judgment cannot be made
premature action of the Bank. against Philfinance. The issue related in this case is
regarding trasferrability and assignability.

Issue: WoN the non-negotiable instrument is non
SERRANO vs CENTRAL BANK transferrable/assignable

Ruling: Assignable is different from tranferrability.
Negotiable instruments can be indorsed. Non

negotiable instrumets can be assigned. Therefore, Rulng:
non negotiable instrument can be assigned.
The Court ruled that the hotel owner should
be liable for the loss of the revolver, pants and bag
DE LOS SANTOS vs TAN KHEY of the guest.
O.G.No.26695-R, July 30, 1962
Deposit
Facts:
While the law speaks of deposit of effects
Tan Khey was the owner of International by travellers in hotels or inns, personal receipt by the
Hotel located in Iloilo city. Romeo de los Santos innkeeper for safe keeping of effects is not
lodged in Tna Kheys hotel. After arrival, he left the necessaily meant thereby. The reason therefor is the
hotel, depositing his revolver and his bag with the fact that it is the nature of business of an innkeeper
person in charge in the hotel. When he returned to to provide not only lodging for travellers but also to
the hotel, he took his revolver and his bag from the security to their persons and effects. The secuity
person in charge in the hotel and proceeded to his mentioned is not confined to the effects actually
room. He locked the door before sleeping. delivered to the innkeeper but also to all effects
placed within the premises of the hotel. This is
When he woke up, he discovered that the because innkeepers by the neture of their business,
door in his room was opened and his bag and pants, have supervision and controlof their inns and the
wherein he placed his revolver , was missing. He premises threof.
reported the matter to the Assistant Manager of the
hotel, who in turn informed Tan Khey. It is not necessary that the effect was
actually delivered but it is enough that they are
A secret service agent was sent to within the inn. If a guest and goods are within the
investigate and it was found that the wall of the inn, that is sufficient to charge him.
room occupied by De los Santos was only seven feet
high with an open space above through which one The owner of a hotel may exonerate himself
could enter from outside. De los Santos told the from liability by showing that the guest has taken
detective that he lost his revolver. exclusive control of his own goods, but this must be
exclusive custody and control of a guest, and must
Tan Khey disclaimed liability because De los not be held under the supervision and care of the
Santos did not deposit his properties with the innkeeper,ey are kept in a room assigned to a guest
manager despite a notice to that effect was posted or the other proper depository in the house.
in the hotel.
In this case, the guest deposited his effects
Tan Khey contended that to be liable under in the hotel because they are in his room and within
Article 1998 of the Civil Code, the following the premises of the hotel, and therefore, within the
conditions must concur: supervision and control of the hotel owner.
1. Deposit of effects by travellers in hotel

or inn
2. Notice given to hotel keepers or Notice
employees of the effects brought by
guests The Court ruled that there was no doubt
3. Guest or travellers take the precautions that the person in charge had knowledge of his
which said hotel keepers or their revolver, the bag, and pants of the guest, De los
substitutes advised relative to the care Santos.
and vigilance of their effects.
The requirement of notice being evidently
for the purpose of closing the door to fraudulent
Issue: Whether the hotel owner should be held liable claims for non-existent articles, the lack thereof was
for the loss of the effects of the guest?

fatal to De los Santos claim for reparation for the McLouglins key and was able to open the
loss of his eyeglass, ring, and cash. safety deposit box with the assistance of
Lopez, Paiyam and Lainez. Lopez alsto told
Precautions McLoughlin that Tan stole the key assigned
to McLouglin while the latter was asleep.
While an innkeeper cannot free himself McLoughlin insisted that it must be the
from responsibility by posting notices, there can be hotel who must assume responsibility for
no doubt of the innkeepers right to make such the loss he suffered.
regulations in the management of his inn as will Lopez refused to accept responsibility
more effectually secure the property of his guest and relying on the conditions for renting the
operate as protection to himself, and that it is safety deposit box entitled Undertaking
incumbent upon the guest, if he means to hold the For the Use of Safety Deposit Box
inkeeper ho his responsibility, to comply with any
regulation that is just and reasonable, when he is ISSUE: Whether the hotels Undertaking is valid?
requested to do so.
HELD: NO
However, in this case, the notice requiring Article 2003 was incorporated in the New
actual deposit of the effects with the manager was Civil Code as an expression of public policy
an unreasonable regulation. It was unreasonable to precisely to apply to situations such as that
require the guest to deposit his bag ,pants and presented in this case. The hotel business
revolver to the manager. De los Santos had exercised like the common carriers business is
the necessary diligence with respect to the care and imbued with public interest. Catering to the
vigilance of his effects. public, hotelkeepers are bound to provide
not only lodging for hotel guests and
security to their persons and belongings.
Topic: Deposit; Article 2003 The twin duty constitutes the essence of
YHT Realty v. CA the business. The law in turn does not allow
such duty to the public to be negated or
FACTS: diluted by any contrary stipulation in so-
Respondent McLoughlin would stay at called undertakings that ordinarily appear
Tropicana Hotel every time he is here in the in prepared forms imposed by hotel
Philippines and would rent a safety deposit keepers on guests for their signature.
box. In an early case (De Los Santos v. Tan Khey),
The safety deposit box could only be CA ruled that to hold hotelkeepers or
opened through the use of 2 keys, one of innkeeper liable for the effects of their
which is given to the registered guest, and guests, it is not necessary that they be
the other remaining in the possession of the actually delivered to the innkeepers or their
management of the hotel. employees. It is enough that such effects
McLoughlin allegedly placed the following are within the hotel or inn. With greater
in his safety deposit box 2 envelopes reason should the liability of the
containing US Dollars, one envelope hotelkeeper be enforced when the missing
containing Australian Dollars, Letters, credit items are taken without the guests
cards, bankbooks and a checkbook. knowledge and consent from a safety
When he went abroad, a few dollars were deposit box provided by the hotel itself, as
missing and the jewelry he bought was in this case.
likewise missing. Paragraphs (2) and (4) of the undertaking
Eventually, he confronted Lainez and manifestly contravene Article 2003, CC for
Paiyam who admitted that Tan opened the they allow Tropicana to be released from
safety deposit box with the key assigned to liability arising from any loss in the contents
him. McLoughlin went up to his room and/or use of the safety deposit box for any
where Tan was staying and confronted her. cause whatsoever. Evidently, the
Tan admitted that she had stolen undertaking was intended to bar any claim

against Tropicana for any loss of the books as debit to CASH, and credit to Expense
contents of the safety deposit box whether Account No. 2516-20 (p. 18, t.s.n.).
or not negligence was incurred by Tropicana
or its employees. The credit for storage charges decreased the
deductible expense resulting in the corresponding
increase of the taxable income of the petitioner. This
THE WAREHOUSE RECEIPTS LAW is reflected by the entries enclosed in parenthesis in
Exhibit "G", under the heading "Storage Charges". (P.
18, t.s.n.) The alleged reason for this accounting
operation is that, inasmuch as the "Sugar Bodega
Operations" is considered as an expense account,
G.R. No. L-16315 May 30, 1964 entries under it are "debits". Similarly, since "Storage
Charges" constitute "credit", the corresponding
COMMISSIONER OF INTERNAL figures (see Exhibit "C") are enclosed in parenthesis
REVENUE, petitioner, as they decrease the expenses of maintaining the
vs. sugar warehouses.
HAWAIIAN-PHILIPPINE COMPANY, respondent.
Upon investigation conducted by the Bureau, it was
FACTS: found that during the years 1949 to 1957, the
petitioner realized from collected storage fees a
total gross receipts of P212,853.00, on the basis of
The petitioner, a corporation duly organized in
which the respondent determined the petitioner's
accordance with law, is operating a sugar central in
liability for fixed and percentage taxes, 25%
the City of Silay, Occidental Negros. It produces
surcharge, and administrative penalty in the
centrifugal sugar from sugarcane supplied by
aggregate amount of P8,411.99 (Exhibit "5", p. 11,
planters. The processed sugar is divided between the
BIR rec.)
planters and the petitioner in the proportion
stipulated in the milling contracts, and thereafter is
deposited in the warehouses of the latter. (Pp. 4-5, After due hearing the Court of Tax Appeals ordered
t.s.n.) For the sugar deposited by the planters, the the CIR to refund to respondent Hawaiian-Philippine
petitioner issues the corresponding warehouse Company the amount of P8,411.99 representing
receipts of "quedans". It does not collect storage fixed and percentage taxes assessed against it and
charges on the sugar deposited in its warehouse which the latter had deposited with the City
during the first 90 days period counted from the Treasurer of Silay, Occidental Negros
time it is extracted from the sugarcane. Upon the
lapse of the first ninety days and up to the beginning ISSUE:
of the next milling season, it collects a fee of P0.30
per picul a month. Henceforth, if the sugar is not yet Whether or notpetitioner is a warehouseman liable
withdrawn, a penalty of P0.25 per picul or fraction for the payment of the fixed and percentage taxes
thereof a month is imposed. (Exhibits "B-1", "C-1", prescribed in Sections 182 and 191 of the National
"D-1", "B-2", "C-2", p. 10, t.s.n.) Internal Revenue Code
The storage of sugar is carried in the books of the HELD:

company under Account No. 5000, denominated
"Manufacturing Cost Ledger Control"; the storage YES.
fees under Account No. 521620; the expense
accounts of the factory under Account No. 5200; and Respondent disclaims liability under the provisions
the so-called "Sugar Bodega Operations" under quoted above, alleging that it is not engaged the
Account No. 5216, under which is a Sub-Account No. business of storing its planters' sugar for profit; that
20, captioned, "Credits". (Pp. 16-17, t.s.n., Exhibit the maintenance of its warehouses is merely
"F".) The collections from storage after the lapse of incidental to its business of manufacturing sugar and
the first 90 days period are entered in the company's

in compliance with its obligation to its planters. We But prior to the issuance of the license to
find this to be without merit. Respondent, he had on several occasions
received palay for deposit from Plaintiff
It is clear from the facts of the case that, after Gonzales, totaling 368 sacks, for which he issued
manufacturing the sugar of its planters, respondent receipts.
stores it in its warehouses and issues the After he was licensed as a bonded
corresponding "quedans" to the planters who own warehouseman, Go Tiong again received various
the sugar; that while the sugar is stored free during deliveries of palay from Plaintiff, totaling 492
the first ninety days from the date the it "quedans" sacks, for which he issued the corresponding
are issued, the undisputed fact is that, upon the receipts, all the grand total of 860 sacks, valued
expiration of said period, respondent charger, and at P8,600 at the rate of P10 per sack.
collects storage fees; that for the period beginning Noteworthy is that the receipts issued by Go
1949 to 1957, respondent's total gross receipts from Tiong to the Plaintiff were ordinary receipts, not
this particular enterprise amounted to P212,853.00. the "warehouse receipts" defined by the
Warehouse Receipts Act (Act No. 2137).
A warehouseman has been defined as one who On or about March 15, 1953, Plaintiff demanded
receives and stores goods of another for from Go Tiong the value of his deposits in the
compensation (44 Words and Phrases, p. 635). For amount of P8,600, but he was told to return
one to be considered engaged in the warehousing after two days, which he did, but Go Tiong again
business, therefore, it is sufficient that he receives told him to come back.
goods owned by another for storage, and collects A few days later, the warehouse burned to the
fees in connection with the same. In fact, Section 2 ground.
of the General Bonded Warehouse Act, as amended, Before the fire, Go Tiong had been accepting
defines a warehouseman as "a person engaged in deliveries of palay from other depositors and at
the business of receiving commodity for storage." the time of the fire, there were 5,847 sacks of
palay in the warehouse, in excess of the 5,000
That respondent stores its planters' sugar free of sacks authorized under his license.
charge for the first ninety days does not exempt it After the burning of the warehouse, the
from liability under the legal provisions under depositors of palay, including Plaintiff, filed their
consideration. Were such fact sufficient for that claims with the Bureau of Commerce.
purpose, the law imposing the tax would be However, according to the decision of the trial
rendered ineffectual. court, nothing came from Plaintiff's efforts to
have his claim paid.
Thereafter, Gonzales filed the present action
Gonzalez vs Go Tiong against Go Tiong and the Luzon Surety for the
sum of P8,600, the value of his palay, with legal
Facts: interest, damages in the sum of P5,000 and
P1,500 as attorney's fees.
Go Tiong (respondent) owned a rice mill and While the case was pending in court, Gonzales
warehouse, located in Pangasinan. Thereafter, and Go Tiong entered into a contract of
he obtained a license to engage in the business amicable settlement to the effect that upon the
of a bonded warehouseman. settlement of all accounts due to him by Go
Subsequently, respondent Tiong executed a Tiong, he, Gonzales, would have all actions
Guaranty Bond with the Luzon Surety Co to pending against Go Tiong dismissed.
secure the performance of his obligations as Inasmuch as Go Tiong failed to settle the
such bonded warehouseman, in the sum of accounts, Gonzales prosecuted his court action
P18,334, in case he was unable to return the
same. ISSUE:
Afterwards, respondent Tiong insured the
warehouse and the palay deposited therein with Whether or not Plaintiffs claim is governed by the
the Alliance Surety and Insurance Company. Bonded Warehouse Act due to Go Tiongs act of

issuing to the former ordinary receipts, not 576 butlos are part and parcel of the 2, 766 bultos
warehouse receipts? purchased by U. de Poli from Felisa Roman (claimant
& appellee).
RULING:
The quedan was marked as Exhibit D which is a
YES. SC ruled in favor Plaintiff. warehouse receipt issued by the warehouse of U. de
Poli for 576 bultos of tobacco. In the left margin of
the face of the receipt, U. de Poli certifies that he is
Act No. 3893 provides that any deposit made
the sole owner of the merchandise therein
with Respondent Tiong as a bonded
described. The receipt is endorsed in blank; it is not
warehouseman must necessarily be governed
markednon-negotiable or not negotiable.
by the provisions of Act No. 3893.
The kind or nature of the receipts issued by him
Since a sale was consummated between Roman and
for the deposits is not very material much less
U. de Poli, Romans claim is a vendors lien. The
decisive since said provisions are not mandatory
lower court ruled in favor of Roman on the theory
and indispensable
that since the transfer to Asia Banking Corp. (ASIA)
Under Section 1 of the Warehouse Receipts Act, was neither a pledge nor a mortgage, but a security
the issuance of a warehouse receipt in the form for a loan, the vendors lien of Roman should be
provided by it is merely permissive and directory accorded preference over it.
and not obligatory. . "Receipt", under this
section, can be construed as any receipt issued However, if the warehouse receipt issued was non-
by a warehouseman for commodity delivered to negotiable, the vendors lien of Roman cannot
him prevail against the rights of ASIA as indorsee of the
As the trial court well observed, as far as Go receipt.
Tiong was concerned, the fact that the receipts
issued by him were not "quedans" is no valid ISSUE: WON the quedan issued by U. de Poli in favor
ground for defense because he was the principal of ASIA. is negotiable, despite failure to mark it as
obligor. not negotiable?
Furthermore, as found by the trial court, Go
Tiong had repeatedly promised Plaintiff to issue HELD: YES. The warehouse receipt in question is
to him "quedans" and had assured him that he negotiable. It recited that certain merchandise
should not worry; and that Go Tiong was in the deposited in the ware house por orden of the
habit of issuing ordinary receipts (not depositor instead of a la orden, there was no other
"quedans") to his depositors. direct statement showing whether the goods
Furthermore, Section 7 of said law provides that received are to be delivered to the bearer, to a
as long as the depositor is injured by a breach of specified person, or to a specified order or his order.
any obligation of the warehouseman, which However, the use of por orden was merely a
obligation is secured by a bond, said depositor clerical or grammatical error and that the receipt
may sue on said bond. was negotiable.
In other words, the surety cannot avoid liability
from the mere failure of the warehouseman to As provided by the Warehouse Receipts Act, in case
issue the prescribed receipt. the warehouse man fails to mark it as non-
negotiable, a holder of the receipt who purchase if
for value supposing it to be negotiable may, at his
WAREHOUSE RECEIPT: Failure to mark non- option, treat such receipt as imposing upon the
negotiable. warehouseman the same liabilities he would have
incurred had the receipt been negotiable. This
ROMAN V. ASIA BANKING CORPORATION appears to have given any warehouse receipt not
marked non-negotiable practically the same effect
FACTS: U. de Poli, for value received, issued a as a receipt which, by its terms, is negotiable
quedan convering the 576 bultos of tobacco to the provided the holder of such unmarked receipt
Asia Banking Corporation (claimant & appellant). It acquired it for value supposing it to be negotiable,
was executed as a security for a loan. The aforesaid circumstances which admittedly exist in the present

case. Hence, the rights of the indorsee, ASIA, are De Poli was declared insolvent by the Court of First
superior to the vendors lien. Instance of Manila with liabilities to the amount of
several million pesos over and above his assets. An
assignee was elected by the creditors and the
election was confirmed by the court

Among the property taken over the assignee was the
merchandise stored in the various warehouses of
the insolvent. This merchandise consisted principally
of hemp, maguey and tobacco.
Bank of P.I. v. Herridge
The various banks holding warehouse receipts issued
FACTS: by De Poli claim ownership of this merchandise
under their respective receipts, whereas the other
The insolvent Umberto de Poli was for several years creditors of the insolvent maintain that the
engaged on an extensive scale in the exportation of warehouse receipts are not negotiable, that their
Manila hemp, maguey and other products of the endorsement to the present holders conveyed no
country. title to the property, that they cannot be regarded as
pledges of the merchandise inasmuch as they are
He was also a licensed public warehouseman, not public documents and the possession of the
though most of the goods stored in his warehouses merchandise was not delivered to the claimants and
appear to have been merchandise purchased by him that the claims of the holders of the receipts have no
for exportation and deposited there by he preference over those of the ordinary unsecured
himself.chanr creditors.law lib
In order to finance his commercial operations De Poli

established credits with some of the leading banking
institutions doing business in Manila at that time, ISSSUE:
among them the Hongkong & Shanghai Banking
Corporation, the Bank of the Philippine Islands, the Whether or not the warehouse receipts issued are
Asia Banking Corporation, the Chartered Bank of negotiable?
India, Australia and China, and the American Foreign
Banking Corporation. HELD:
De Poli opened a current account credit with the Yes, a warehouseman who deposited merchandise in
bank against which he drew his checks in payment of his own warehouse, issued a warehouse receipts
the products bought by him for exportation. therefore and thereafter negotiated the receipts by
endorsement. The receipt recites that the goods
Upon the purchase, the products were stored in one were deposited por orden of the depositor, the
of his warehouses and warehouse receipts issued warehouseman, but contained no statement that
therefor which were endorsed by him to the bank as the goods were to be delivered to the bearer of the
security for the payment of his credit in the account receipts or to a specified person. It is in the form of
current. a warehouse receipts and was not mark
nonnegotiable.
When the goods stored by the warehouse receipts
were sold and shipped, the warehouse receipt was Therefore the receipts was negotiable warehouse
exchanged for shipping papers, a draft was drawn in receipts and the words por orden must be
favor of the bank and against the foreign purchaser, construed to mean to the order.
with bill of landing attached, and the entire proceeds
of the export sale were received by the bank and
credited to the current account of De Poli.chanroble
PNB v PRODUCERS WAREHOUSE ASSOCIATION

FACTS: warehouseman, for and in behalf
of D.
- PNB (P) is a bank in PH, Producers o The said quedans were endorsed in
Warehouse Association (D) is a domestic blank and physical possession was
corporation doing general warehouse delivered to P as collateral security
business and Phil. Fiber and Produce for the overdraft of Fiber Company
Company (Fiber) is another domestic and
corporation. o That the quedans were in
- D and Fiber entered into a written contract, negotiable form.
wherein Fiber would act as the general - D cannot now deny the existence of the
manager of the business of D and that Fiber quedans
would exercise a general and complete
supervision over the management of the CRUZ vs. VALERO
business of D.
- Nov and Dec 1918 D issued negotiable Facts:
quedans to Fiber for 15k++ piculs of Copra,
which the terms states that
Valero is president of the Luzon Sugar Co. while
o D agreed to deliver that amount of
appellant Cruz had a share amounting to 1,544.38
copra to Fiber or its order
piculs export centrifugal sugar, which was exchanged
o D will deliver the packages noted
for an equal amount of domestic centrifugal sugar.
therein upon the surrender of the
Cruz deposited in the Luzon Sugar Company's
warrant to D
warehouse within its compound, with the obligation
o No transfer of interest/ownership
on its part to deliver it to the appellant on demand,
will be recognized unless
that the appellant was entitled to 238.20 piculs of
registered in the books of D
domestic centrifugal sugar as his share in the 1940-
o The words negotiable warrant
1941 crop. On different dates, the appellant had
were printed in red ink in the
withdrawn several piculs of sugar, reducing reducing
quedan
the number of gallons of molasses.
- Fiber then arranged for overdraft with P for
P1M and to secure it, the subject quedans
were endorsed in blank and delivered by Cruz claims that on December 1941, the Luzon Sugar
Fiber to P, which became the owner and Company (LSC) did not have in its warehouse the
holder thereof. sugar he had stored in its warehouse for safekeeping
and the number of gallons of molasses he had left in
- P later on requested D the delivery of copra
described in the quedans, however, D its possession contained in cylindrical tanks, because
refused to comply despite repeated the Valero had disposed of the same without the
requests of P, stating that it could not be knowledge and consent of appellant and that when
delivered since the goods mentioned are the appellant wanted to withdraw his sugar from the
not in the warehouse. warehouse of LSC, the amount of sugar stored in the
- D stated that the quedans were invalid and warehouse was not manufactured by the Luzon
wrongfully issued and that the copra was Sugar Company but by a different company.
not in its warehouse
- LC ruled in favor of D This was denied by LSC, contending that it had
sufficient amount of sugar manufactured by it and
ISSUE: WoN the quedans were validly negotiated to was in a position to deliver sugar. Its warehouse was
P however bombed by Japanese and the warehouse
damaged by shrapnel and some piculs of centrifugal
SC: YES! sugar were looted, some taken by the Japanese after
the occupation and the remaining brought by the
- The quedans have legal force and effect Japanese Army to Northern Luzon. Thus it became
o They were duly executed by Wicks, impossible the deliver the centrifugal sugar and
as treasurer and Torres as molasses belonging of Cruz.

Issue: Whether or not the LSC still has the obligation Consolidated did not faithfully comply with its duties
to deliver the same amount and kind of sugar stored and obligations. Section 9 of the Warehouse
in its warehouse. Receipts Law does not deem it sufficient as
prerequisite for delivery the mere presentment of
HELD: Since there was enough sugar to cover and the receipt. It further requires that the person to
deliver 1,081.79 piculs of domestic, reserve and whom the goods should be delivered is one who is
additional sugar belonging to the Cruz who, either himself entitled to the propertyor who has
according to the milling contract, was in duty bound written authority from the person so entitled.
to take delivery thereof at the warehouse, since it Presentment of the receipt must be couple with
was established that the LSC compound was ascertainment that the person so presenting it is
bombed on December 1941 by the Japanese who rightfully entitled to take delivery of the goods
also occupied it from 1 January to 20 February 1942, covered by the receipt.
the loss was due to the war or to a fortuitous event
and therefore, the obligation of the depositary to Consolidated did not ascertain the identity of
deliver what has been deposited in him has been Sandoval and Alteza. They have not called up DMG
extinguished by the happening of a fortuitous event, first and ascertained the genuineness of the
which in this case, is the pacific war. The judgment authority in writing before delivering the articles
appealed from is affirmed. considering that they did not know either Sandoval
or Alteza.
This is an appeal from a decision of the Court of First
Instance of Nueva Ecija which orders the defendant Consolidated becomes liable under Section 10 of the
to pay to the plaintiff the sum of P3,000, with WRL for misdelivery. On the contention that DMG
interest thereon at the rate of 6% per annum from was negligent for allowing such permits to fall into
June 26, 1940, and the costs of action. the hands of unauthorized persons, contributory
negligence is not one of the defenses specified in its
answer. In order to for it to be a defense, it must
ESTRADA V. CAR
previously show to have been committed. The

burden of proof is in himself who alleges it as a
DMG INC. vs CONSOLIDATED TERMINALS INC.
defense. It cannot be inferred from the fact that
63 OG 10
persons other than the consignee or owner were

able to take possession of the shipping documents
Facts:
or the permit papers which were supposed to be in
the latters custody.
DMG ordered replacement parts for diesel
conversion engine from Germany.

Upon arrival in Manila, the shipment was placed
in the warehouse of Consolidated Terminals.
CONSOLIDATED vs ARTEX
When DMG demanded for the delivery of the
goods, Consolidated stated that it was already Facts: Consolidated Terminals Inc (CTI)
released and delivered to DMG through a operated a customs warehouse in Manila. It received
delivery permit which was presented by a 193 bales of high density compressed raw cotton
certain Sandoval authorized by Alteza. worth P99k. It was understood that CTI would keep
DMG contends that it has no such employees. It the cotton on behalf of Luzon Brokerage until the
demanded for the payment of such goods. consignee Paramount Textile had opened the
corresponding letter of credit in favor of Adolph
Hanslik Cotton. By virtue of forged permits, Artex
Issue: was able to obtain the bales of cotton and paid P15k.

Whether or not Consolidated is liable to DMG? Issue: W/N CTI as warehouseman was
entitled to the possession of the bales of cotton?
Held:
Ruling: No. CTI had no cause of action. It was not
Yes, Consolidated is liable to DMG. the owner of the cotton. It was not a real party of

interest in the case. CTI was not sued for damages by delivery of the tobacco covered in the warehouse
the real party in interest. receipt.

However, it was found that the tobacco had
LUA KIAN VS. MANILA RAILROAD come from Isabela and not from Cagayan, and the
banks claim was disputed by other creditors of the
insolvent on the ground that, among others, that the
tobacco claimed, being Isabela tobacco, was not
Facts: Manila Railroad received into its custody a correctly described in the warehouse receipt and
shipment of cases of milk, of which 3.171 wwere that, therefore, the receipt was ineffective as against
marked for Cebu and 1,829 for Lua Kia but according the general creditors.
to the bills of lading in Manila Railroad's possession,
Lua Kia was entitled to 2000 cases and Cebu was Issue: Whether the use of the word Cagayan
entitled to 3000 cases. Manila Railroad delivered instead of Isabela in describing the tobacco in the
1,913 cases to Lua Kia, which is 87 cases short in the quedan renders the quedan null and void as
bill of lading. negotiable warehouse receipt for the tobacco
intended to be covered by it.
Issue: WoN manila RailRoad is liable to Lua Kia for
the underlivered cases of milk Ruling:

Ruling. Yes. The legal relationship between an The identity of the tobacco was sufficiently
arrastre operator and the consignee is akin to that established by the evidence. In the warehouse, there
of a depositor and warehouseman. As custodian of was no other tobacco stored nut only the Isabela
the goods discharged from the vessel, it was A's duty tobacco. The debtor also said that Isabela tobacco
like that of nay other depositary to take good care of was the tobacco which he transsfered to American
the goods and turn them over to the party entitled Foreign Banking Corporation. Aside from that, when
to their possession. Under this particular set of the subaccountant of the bank went to the
circumstances, A should have held delivery because warehouse to check which tobacco was covered by
of the discrepancy between the bill of lading and the the warehouse receipt, the assignee and one of his
markings and conducted its own investigation not accountants pointed to him the Isabela tobacco.
unlike that under Sectopm 18 of the Warehouse
Receipts law, or called upon the parties to interplead The intention of the parties to the
such ias in case under Section 17 of the same law, in transaction must prevail against such a technical
order to determint the rightful owner of the goods. objection to the sufficiency of the description of the
tobacco. It might be different if there had been
Cagayan tobacco in the warehouse at the time of the
issuance of the quedan, or if there were any doubt
AMERICAN FOREIGN BANKING CORPORATION vs as to the identity of the tobacco intended to be
HERRIDGE covered by the quedan.
G.R.No.21005, December 20, 1924
The quedan was a negotiable warehouse
Facts: receipt which was duly issued and delivered by the
debtor U. de Poli to American Foreign Banking
U. de Poli was a debtor of American Foreign Corporation and it divested him of his title to said
Banking Corporation. He issued a warehouse receipt, tobacco and transferred the position and the title
commonly known as quedan. The warehouse receipt thereof the American Foreign Banking Corporation.
of the mercahndise covered thereby was described
as Cagayan tabacco en rama. It was indorsed in
blank by U. De Poli to American Foreign Banking
Corporation Topic: Warehouse Receipts Law; sec. 38
PNB v. Atendido
As security for an overdraft. U. De Poli became FACTS:
insolvent and the bank presented its claim for the

Laureano Atendido obtained from PNB a If by the contract of pledge, the pledgor
loan of P3k and pledged 2000 cavans of continues to be the owner of the thing
palay to guarantee payment which were pledged during the pendency of the
then deposited in the warehouse of Cheng obligation, it stands to reason that in case
Siong Lam & Co and to that effect the of loss of the property, the loss should be
borrower endorsed in favour of the bank borne by the pledgor.
the corresponding warehouse receipt. The fact that the warehouse receipt
Before the maturity of the loan, the 2000 covering the palay was delivered, endorsed
cavans of palay disappeared for unknown in blank, to the bank does not alter the
reasons in the warehouse. When the loan situation, the purpose of such endorsement
matured, the borrower failed to pay being merely to transfer the juridical
obligation possession of the property to the pledge
Defendant claimed that the warehouse and to forestall any possible disposition
receipt covering the palay which was given thereof on the part of the pledgor.
as security having been endorsed in blank in Where a warehouse receipt or quedan is
favour of the bank and the palay having transferred or endorsed to a creditor only
been lost or disappeared, he thereby to secure the payment of a loan or debt, the
became relieved of liability. transferee or endorsee does not
automatically become the owner of the
ISSUE: Whether the surrender of the warehouse goods covered by the warehouse receipt or
receipt covering 2000 cavans of palay given as quedan but he merely retains the right to
security, endorsed in blank, to PNB, has the effect of keep and with the consent of the owner to
transferring their title or ownership OR it should be sell them so as to satisfy the obligation from
considered merely as a guarantee to secure the the proceeds of the sale. This is for the
payment of the obligation of Defendant? simple reason that the transaction involved
is not a sale but only a mortgage or pledge,
HELD: and that if the property covered by the
Nature of contract is Pledge supported by quedans or warehouse receipts is lost
the stipulations embodied in the contract without fault or negligence of the
signed by Defendant when he secured the mortgagee or pledge or the transferee or
loan from PNB. endorsee of the warehouse receipt or
The 2000 cavans of palay covered by the quedan, then said goods are to be regarded
warehouse receipt were given to PNB only as lost on account of the real owner,
as a guarantee to secure the fulfilment by mortgagor or pledgor.
Defendant in his obligation. This clearly
appears in the contract wherein it is
expressly stated that said 2000 cavanes of MARTINEZ V. PNB
palay were given as collateral security.
It follows that by the very nature of the Siy Cong Bien vs HSBC
transaction its ownership remains with the
pledgor subject only to foreclosure in case FACTS
of non-fulfillment of the obligation.
By this we mean that if the obligation is not
Plaintiff is a corporation engaged in business
paid upon maturity the most that the
generally, and that the Defendant HSBC is a
pledge can do is to sell the property and
foreign bank authorized to engage in the
apply the proceeds to the payment of the
banking business in the Philippines.
obligation and to return the balance, if any,
On June 25, 1926, Otto Ranft called the office of
to the pledgor. This is the essence of the
the Plaintiff to purchase hemp (abaca), and he
contract, for, according to law, a pledge
was offered the bales of hemp as described in
cannot become the owner of, nor
the contested negotiable quedans.
appropriate to himself the thing given in
The parties agreed to the aforesaid price, and
pledge.
on the same date the quedans, together with

the covering invoice, were sent to Ranft by the o second, that they were pledged by Otto
Plaintiff, without having been paid for the Ranft to the Defendant bank to secure
hemp, but the Plaintiff's understanding was the payment of his preexisting debts to
o that the payment would be made said bank;
against the same quedans, o third, that such of the quedans as were
o and it appear that in previous issued in the name of the Plaintiff were
transaction of the same kind between duly endorsed in blank by the Plaintiff
the bank and the Plaintiff, quedans and by Otto Ranft;
were paid one or two days after their o and fourth, that the two remaining
delivery to them. quedans which were duly endorsed in
Immediately these Quedans were pledged by blank by him.
Otto Ranft to the Defendant HSBC to secure the The bank had a perfect right to act as it did, and
payment of his preexisting debts to the latter. its action is in accordance with sections 47, 38,
The baled hemp covered by these warehouse and 40 of the Warehouse Receipts Act
receipts was worth P31,635; 6 receipts were However, the pertinent provision regarding the
endorsed in blank by the Plaintiff and Otto rights the Defendant bank acquired over the
Ranft, and 2 were endorsed in blank, by Otto aforesaid quedans after indorsement and
Ranft alone delivery to it by Ranft, is found in section 41 of
On the evening of the said delivery date, Otto the Warehouse Receipts Act (Act No. 2137):
Ranft died suddenly at his house in the City of
Manila. o SEC. 41. Rights of person to whom a
When the Plaintiff found out, it immediately receipt has been negotiated. A
demanded the return of the quedans, or the person to whom a negotiable receipt
payment of the value, but was told that the has been duly negotiated acquires
quedans had been sent to the herein Defendant thereby:
as soon as they were received by Ranft. (a) Such title to the goods as the
Shortly thereafter the Plaintiff filed a claim for person negotiating the receipt to
the aforesaid sum of P31,645 in the intestate him had or had ability to convey to
proceedings of the estate of the deceased Otto a purchaser in good faith for value,
Ranft, which on an appeal from the decision of and also such title to the goods as
the committee on claims, was allowed by the the depositor of person to whose
CFI Manila. order the goods were to be
In the meantime, demand had been made by delivered by the terms of the
the Plaintiff on the Defendant bank for the receipt had or had ability to convey
return of the quedans, or their value, which to a purchaser in good faith for
demand was refused by the bank on the ground value, and. . . .
that it was a holder of the quedans in due Therefore, the bank is not responsible for the
course. loss; the negotiable quedans were duly
negotiated to the bank and as far as the record
ISSUE shows, there has been no fraud on the part of
the Defendant.
Whether or not the Quedans endorsed in blank gave Moreover, Plaintiff is estopped to deny that the
the HSBC rightful and valid title to the goods? bank had a valid title to the quedans for the
reason that the Plaintiff had voluntarily clothed
HELD Ranft with all the attributes of ownership and
upon which the Defendant bank relied.
YES. SC ruled in favour of Defendant HSBC. Subsequently, Plaintiff in this case has suffered
the loss of the quedans, but as far as the court
It may be noted, sees it, there is now no remedy available to the
o first, that the quedans in question were Plaintiff equitable estoppel place the loss upon
negotiable in form; him whose misplaced confidence has made the

wrong possible as ruled in National Safe Deposit Ramos and Zoleta, and by the latter to PNB to secure
vs. Hibbs (a US case) a loan cannot be impaired by the fact that the
negotiation between Noah's Ark and RNS
WAREHOUSE RECEIPT: Who may negotiate a Merchandising and St. Therese Merchandising was in
receipt? breach of faith on the part of the merchandising
firms or by the fact that the owner (Noah's Ark) was
PNB v. NOAHS ARK SUGAR REFINERY deprived of the possession of the same by fraud,
mistake or conversion of the person to whom the
FACTS: Defendant issued on several dates warehouse receipt/quedan was subsequently
warehouse receipts, which were substantial in form negotiated if (PNB) paid value therefor in good faith
and contained the terms prescribed by law, to Rosa without notice of such breach of duty, fraud, mistake
Sy and Teresita Ng. Subsequently, some of the or conversion. (See Article 1518, New Civil Code).
warehouse receipts were negotiated and indorsed to And the creditor (PNB) whose debtor was the owner
Luis Ramos and Cresencia Zoleta. Ramos and Zoleta of the negotiable document of title (warehouse
then used the quedans as security for loans obtained receipt) shall be entitled to such aid from the court
by them from PNB. Upon maturity, both failed to of appropriate jurisdiction attaching such document
pay, prompting PNB to demand the delivery of the or in satisfying the claim by means as is allowed by
sugar covered by the quedans indorsed to it by law or in equity in regard to property which cannot
Ramos and Zoleta. Noahs refused to comply with be readily attached or levied upon by ordinary
the demand, PNB filed a case for Specific process. (See Art. 1520, New Civil Code). If the
Performance. quedans were negotiable in form and duly indorsed
to PNB (the creditor), the delivery of the quedans to
The main contention of Noahs was that it was still PNB makes the PNB the owner of the property
the owner of the subject quedans and the quantity covered by said quedans and on deposit with Noah's
of sugar represented thereon because the Ark, the warehouseman. (See Sy Cong Bieng & Co.
corresponding payment of Sy and Ng through checks vs. Hongkong & Shanghai Bank Corp., 56 Phil. 598).
were dishonoured and so they did not acquire
ownership. The it follows that the subsequent In the case at bar, PNB's right to enforce the
indorsers and plaintiff itself did not acquire a better obligation of Noah's Ark as a warehouseman, to
right of ownership than the original vendees or first deliver the sugar stock to PNB as holder of the
indorsers. quedans, does not depend on the outcome of the
third-party complaint because the validity of the
In the answer of Sy and Ng, they alleged that the negotiation transferring title to the goods to PNB as
transaction between them and Noahs, concerning holder of the quedans is not affected by an act of
the quedans, was bogus and simulated. It was part RNS Merchandising and St. Therese Merchandising,
of a complex banking scheme and financial in breach of trust, fraud or conversion against Noah's
maneuvers to avoid VAT payment and other BIR Ark.
assessments.
PNB v SAYO, JR.
ISSUES:
1. WON the non-payment of the purchase price for FACTS
the sugar stock evidenced by the quedans, rendered
invalid the negotiation of said quedans by Sy and Ng - Noahs Ark Sugar Refinery (Noahs) issued
to indorsers Ramos and Zoleta and the subsequent several warehouse receipts (quedans),
negotiation of Ramos and Zoleat to PNB? which were negotiated to Rosa, RNS and St.
2. WON PNB as indorsee of quedans was entitled to Therese (vendees), which were again
delivery of sugar stocks from the warehouseman, negotiated to Luis and Cresencia, which
Noahs Ark? they (Luis and Cresencia) endorsed to PNB
as security for 2 loan agreements.
o Transfer of quedans Noahs
HELD: The validity of the negotiation by RNS Rosa, RNS and St. Therese Luis
Merchandising and St. Therese Merchandising to and Cresencia PNB

- Luis and Cresencia failed to pay their loans
hence PNB demanded delivery of sugar
stocks, however, Noahs Ark refused,
alleging ownership thereof.
- Noahs Ark contended that the agreement
made by them with the vendees was
stopped since the bank dishonored the
payments made by the vendees to Noahs
Ark. As such, the vendees and the endorsers
of the quedans never acquired ownership
thereof.
- Noahs Ark claimed for warehousemans
lien for the storage of the goods.
- LC granted lien
- PNB appealed
ISSUE: WoN PNB is entitled to the stocks of sugar as

the endorsee of the quedans, without paying the
lien
SC: YES
- While PNB is entitled to the stocks of sugar

as the endorsee of the quedans, delivery to
it shall be effected only upon payment of
the storage fees.
- The warehouseman is entitled to the
warehousemans lien that attaches to the
goods invokable against anyone who claims
a right of possession thereon.
- However, in this case, the lien was lost
when R refused to deliver the goods, which
were not anchored to a valid excuse (i.e.
non satisfaction of W/Hman Lien) but on an
adverse claim of ownership. GUARANTY AND SURETYSHIP
- The loss of W/H Mans lien does not
necessarily mean the extinguishment of the
obligation to pay the W/H fees and charges MACHETTI v HOSPICIO DE SAN JOSE
which continues to be a personal liability of
the owners, PNB in this case. However, such FACTS:
fees and charges have ceased to accrue
from the date of the rejection by Noahs Ark
1) In 1916, Romulo Machetti, agreed to construct a
to heed the lawful demand for the release
building in Manila for the Hospicio de San Jose, for
of the goods.
P64,000. One of the conditions of the agreement
was that the contractor should obtain the
"guarantee" of the Fidelity and Surety Company of
the Philippine Islands to the amount of P128,800.
Said contract read:

For value received we hereby guarantee
compliance with the terms and conditions
as outlined in the above contract.

2) Thereafter Machetti constructed the building and, compelled to pay until it is shown that Machetti is
as the work progressed, payments were made to unable to pay. The judgment appealed from is
him from time to time, until the entire contract therefore reversed.
price, except the sum of P4,978.08, was paid.

3) Later on it was found that the work had not been PHIL EXPORT v VP EUSEBIO
carried out in accordance with the specifications
which formed part of the contract and that the FACTS: Respondent entered into contract with SOB
workmanship was not of the standard required, and for construction of Therapy Bldg. SOB demanded
thus the Hospicio presented a counterclaim for bonds to secure performance. Project was delayed
damages for the partial noncompliance with the
terms of the agreement abovementioned, in the DOCTRINE: By guaranty a person, called the
total sum of P71,350. guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter
4) During the duration of the trial however, should fail to do so; if the person binds himself
Machetti, declared insolvent and an order was solidarily with the principal debtor, the contract is
entered suspending the proceeding in the present called suretyship.
case. Thus, the Hospicio filed a motion asking that
the Fidelity and Surety Company be made cross- That the guarantee issued by the petitioner
defendant to the exclusion of Machetti and that the is unconditional and irrevocable does not make the
proceedings be continued as to said company, which petitioner a surety. As a guaranty, it is still
motion was granted and subsequently, the Hospicio characterized by its subsidiary and conditional
filed a complaint against the Fidelity and Surety quality because it does not take effect until the
Company for a judgement against the company fulfillment of the condition. Unconditional guarantee
upon its guaranty. The CFI rendered judgment is still subject to the condition that the principal
against Fidelity. debtor should default in his obligation first before
resort to the guarantor could be had.
ISSUE: Whether or not Fidelity is answerable to the
Hospicio as guaranty of Machetti.
MANILA RAILROAD v ALVENDIA
Facts:
HELD:
CFI sentenced Manila Railroad Co. (MRC) and
A) Guarantor implies an undertaking of guaranty, as Manila Port Service (MPS) to pay Bataan
distinguished from suretyship and in this case, it Refining Corp.
appears that the contract is the guarantor's separate
MPS filed a notice of appeal accompanied by an
undertaking in which the principal does not join, that
appeal bond.
its rests on a separate consideration moving from
Noticing that the appeal bond was only
the principal and that although it is written in
executed by MPS signed by the manager and
continuation of the contract for the construction of
Standard Insurance (as surety) signed by the
the building, it is a collateral undertaking separate
vice-president, the trial court rejected the
and distinct from the latter. All of these
record on appeal.
circumstances are distinguishing features of
It is contended by MRC that the MPS, being a
contracts of guaranty.
mere subsidiary or department of MRC, without
legal personality of its own, the bond filed by
B) On the other hand, a surety undertakes to pay if the former should be a bond for the MRC and
the principal does not pay, the guarantor only binds that the appeal of the latter should have been
himself to pay if the principal cannot pay. The one is given due course.
the insurer of the debt, the other an insurer of the
solvency of the debtor. This latter liability is what the Issue: Whether or not the notice of appeal should
Fidelity Company assumed in this case. Thus, Fidelity be accepted?
having bound itself to pay only the event its
principal, cannot pay it follows that it cannot be

Held: guaranty. The specific stipulations in the Contract
show otherwise.
No, the notice of appeal should be rejected.
While referring to ITM as a guarantor, the
Where there is no principal debtor in the appeal Agreement specifically stated that the corporation
bond, it is void and unenforceable. The mere recital was 'jointly and severally liable. To put emphasis on
in the body of the instrument, We, MRC et. al, as the nature of that liability, the Contract further
principal and the Standard Insurance Co. Inc xxx as stated that ITM was a primary obligor, not a mere
surety does not suffice to make contract binding on surety. Those stipulations meant only one thing: that
the MRC unless it is shown that the same was at bottom, and to all legal intents and purposes, it
authorized by it. Neither the signature nor the was a surety.
acknowledgment indicates that the act of that of the
MRC or that the latter had empowered MPS to Indubitably therefore, ITM bound itself to be
execute the bond in its behalf. The result would be solidarily.
that the appeal bond is void and unenforceable for
lack of principal debtor or obligation.
SEVERINO v SEVERINO
While the surety bound itself to pay jointly and
severally, such an undertaking presupposes that the
obligation is to be enforceable against someone else F: upon the death of x, who left considerable
besides the surety and the latter could always claim property, a litigation ensued between c, xs widow,
that it was never its intention to be the sole person and other heirs of x. a compromise was effected by
obliged thereby. which d, a son of x, took over the property
pertaining to the estate of x at the same time
agreeing to pay P100k to c, payable, first in P40k
IFC v IMPERIAL TEXTILE cash upon the execution of the document of
compromise and the balance, in three equal
Facts: IFC extended to PPIC a loan of installments. G. affixed his name as guarantor
US$7,000,000.00, payable in sixteen (16)
semi-annual installments of US$437,500.00 Upon ds failure to pay the balance, c instituted an
each, beginning June 1, 1977 to December action against d and g, the latter contending that he
1, 1984. On December 17, 1974, a received nothing for affixing his signature as
Guarantee Agreement was executed with guarantor to the contract and that in effect the
Imperial Textile Mills, Inc. (ITM). ITM agreed contract was lacking in consideration as to him.
to guarantee PPIC's obligations under the
loan agreement. PPIC paid the installments Issue: is there a consideration for the guaranty?
due on June 1, 1977, December 1, 1977 and
June 1, 1978. Despite the rescheduling of Ruling: a guarantor or surety is bound by the same
the installment payments, however, PPIC consideration that makes the contract effective
defaulted. IFC demanded ITM and between the principal parties thereto. The
Grandtex, as guarantors of PPIC, to pay the compromise and dismissal of lawsuit is recognized in
outstanding balance. However, the law as a valuable consideration; and the dismissal of
outstanding balance remained unpaid. the action which c instituted against d was an
adequate consideration to support the promise on
Issue: The issue is whether ITM is a surety, and thus the part of d to pay the sums stipulated in the
solidarily liable with PPIC for the payment of the contract subject of the action
loan.
It is neither necessary that the guarantor or surety
Ruling: Yes. The Agreement uses guarantee and should receive any part of the benefit, if such there
guarantors, prompting ITM to base its argument on be accruing to his principal. The true consideration
those words. This Court is not convinced that the use of this contract was the detriment suffered by c in
of the two words limits the Contract to a mere the former action in dismissing the proceeding and it

is immaterial that no benefit may have accrued increase the credit line of MICO, Charles Lee, Chua
either to the principal or his guarantor Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco
and Alfonso Co (hereinafter referred to as
petitioners-sureties), executed another surety
LEE v CA agreement in favor of PBCom on July 28, 1980,
whereby they jointly and severally guaranteed the
FACTS: PBCOM was furnished by a board resolution prompt payment on due of overdrafts, promissory
stating that they authorize President, Mr. Charles notes, discounts, drafts, letters of credit, bills of
Lee, and the Vice-President and General Manager, exchange, trust receipts and all other obligations of
Mr. Mariano A. Sio to apply for, negotiate and secure any kind and nature for which MICO may be held
the approval of commercial loans and other banking accountable by PBCom. It was provided, however,
facilities and accommodations, from the Philippine that their liability shall not at any one time exceed
Bank of Communications, in such sums as they shall the sum of Seven Million Five Hundred Thousand
deem advantageous, the principal of all of which Pesos including interest, costs, charges, expenses
shall not exceed the total amount of TEN MILLION and attorneys fees incurred by MICO in connection
PESOS (P10,000,000.00), Philippine Currency, plus therewith.
any interests.
Upon maturity of all credit availments obtained by
Mico availed of the loans and as security for the MICO from PBCom, the latter made a demand for
loans, MICO through its Vice-President and General payment. For failure of petitioner MICO to pay the
Manager, Mariano Sio, executed on May 16, 1979 a obligations incurred despite repeated demands,
Deed of Real Estate Mortgage over its properties private respondent PBCom extrajudicially foreclosed
situated in Pasig, Metro Manila. MICOs real estate mortgage and sold the said
mortgaged properties in a public auction sale held
On March 26, 1979 Charles Lee, Chua Siok Suy, on November 23, 1982 and PBCom won and applied
Mariano Sio, Alfonso Yap and Richard Velasco, in the proceeds of the purchase price at public auction
their personal capacities executed a Surety of Three Million Pesos to the expenses of the
Agreement in favor of PBCom whereby the foreclosure, interest and charges and part of the
petitioners jointly and severally, guaranteed the principal of the loans, leaving an unpaid balance of
prompt payment on due dates of overdrafts, Five Million Four Hundred Forty-One Thousand Six
promissory notes, discounts, drafts, letters of credit, Hundred Sixty-Three Pesos and Ninety Centavos
bills of exchange, trust receipts, and other exclusive of penalty and interest charges.
obligations of every kind and nature, for which MICO
may be held accountable by PBCom. It was provided, Aside from the unpaid balance, MICO likewise had
however, that the liability of the sureties shall not at another standing obligation and PBCom then
any one time exceed the principal amount of Three demanded the settlement of the aforesaid
Million Pesos plus interest, costs, losses, charges and obligations from herein petitioners-sureties who,
expenses including attorneys . however, refused to acknowledge their obligations
to PBCom under the surety agreements.
On July 14, 1980, petitioner Charles Lee, in his
capacity as president of MICO, wrote PBCom and Hence, PBCom filed a complaint with prayer for writ
applied for an additional loan in the sum of Four of preliminary attachment, alleging that MICO was
Million Pesos). The loan was intended for the no longer in operation and had no properties to
expansion and modernization of the companys answer for its obligations. PBCom further alleged
machineries. Upon approval of the said application that petitioner Charles Lee has disposed or
for loan, MICO availed of the additional loan of Four concealed his properties with intent to defraud his
Million Pesos (as evidenced by Promissory Note TA creditors. Except for MICO and Charles Lee, the
No. 094. sheriff of the RTC failed to serve the summons on
herein petitioners-sureties since they were all
As per agreement, the proceeds of all the loan reportedly abroad at the time. An alias summons
availments were credited to MICOs current checking was later issued but the sheriff was not able to serve
account with PBCom. To induce the PBCom to the same to petitioners Alfonso Co and Chua Siok

Suy who was already sickly at the time and P10k of which were taken by way of loan
reportedly in Taiwan where he later died. from Paulino Candelaria. The partnership
and the co-partners undertook and bound
Petitioners contend that there was no proof that the themselves to pay jointly and severally the
proceeds of the loans or the goods under the trust indebtedness.
receipts were ever delivered to and received by Upon default, Paulino filed civil case against
MICO. But the record shows otherwise. Petitioners- Phil-Am Construction Company and co-
sureties further contend that assuming that there partners for the recovery of loan
was delivery by PBCom of the proceeds of the loans TC ordered all Defendants to pay jointly
and the goods, the contracts were executed by an and severally; CA affirmed
unauthorized person, more specifically Chua Siok Upon filing of complaint, Paulino obtained a
Suy who acted fraudulently and in collusion with writ of attachment against Defendants. The
PBCom to defraud MICO. Sheriff attached properties of 3 partners.
Partnership offered to post a bond of P10k.
ISSUE: Whether or not the individual petitioners, as Phil-Am Construction Company as principal
sureties, may be held liable under the two (2) Surety then represented by the partner Antonio
Agreements executed on March 26, 1979 and July Abad, Santiago Lucero and Meliton Carlos
28, 1980. as guarantors executed a bond of P10k in
favour of Paulino for the lifting of the
RULING: Yes. attachment.
After issuance of writ of execution, Sheriff
The court ruled that it is proven that MICO received found no property of the judgment debtors.
the proceeds of the loan and that PBCom has the Paulino moved for the issuance of writ of
right to to believe that Chua Siok Suy based on the execution against the guarantors of
Certificate issued by the Sectretary of MICO. Defendants.
Guarantor-Plaintiff and co-guarantor
The court ruled that as regards petitioners-sureties Meliton Carlos later paid the creditor and
contention that they obtained no consideration were able to recover from Antonio Abad a
whatsoever on the surety agreements, the court sum of P3800, which they divided equally.
pointed that the consideration for the sureties is the It appeared that the payment made by the
very consideration for the principal obligor, MICO, in plaintiff to Paulino was reduced to the sum
the contracts of loan. of P3665. Plaintiff now demands from
Anastacio Santos the return of the aforesaid
In the case of Willex Plastic Industries Corporation vs. sum but Anastacio refused.
Court of Appeals, we ruled that the consideration
necessary to support a surety obligation need not ISSUE: Whether or not Defendant is bound to pay
pass directly to the surety, a consideration moving Plaintiff what he had advanced to Paulino?
to the principal alone being sufficient. For a
guarantor or surety is bound by the same HELD: YES
consideration that makes the contract effective Article 1838 provides that any guarantor
between the parties thereto. who pays for the debtor shall be
indemnified by the latter even should the
It is not necessary that a guarantor or surety should guaranty have been undertaken without
receive any part or benefit, if such there be, the knowledge of the debtor.
accruing to his principal. IN THIS CASE: The guarantor was the
DE GUZMAN v SANTOS deceased Santiago Lucero, now represented
FACTS: by the plaintiff in her capacity as judicial
Jerry O. Toole, Antonio Abad and Anastacio administratrix, and the debtor is the
Santos formed a general mercantile defendant-appellant. Applying the provision
partnership Philippine American cited, it is obvious that the Defendant is
Construction Company with a capital of legally bound to pay what the Plaintiff had
P14k. advanced to the creditor upon the

judgment, notwithstanding the fact that the Graciano Napa forwarded a protest (Exhibit 4) to the
bond had been given without his provincial board, which protest was later indorsed
knowledge. by said provincial board to the Chief of the Executive
Any person who makes a payment for the Bureau, alleging that the plaintiff municipality
account of another may recover from the violated the provisions of section 2323 of the
debtor the amount of the payment, unless Administrative Code in rejecting his bid.
it was made against the express will of the
latter. In the latter case, he can only The provincial board, passing upon Graciano Napa's
recover from the debtor in so far as the protest and acting under the authority which, in its
payment has been beneficial to the latter. opinion, was granted to it by section 2233 of the
It is evident that Defendant is bound to pay Administrative Code, held that resolution No. 161,
to the plaintiff what the latter had series of 1930, by virtue of which the municipal
advanced to the creditor upon the council of Gasan rejected Graciano Napa's bid and
judgment, and this is more so because it accepted that of Miguel Marasigan, notwithstanding
appears that although Lucero executed the the fact that the latter offered to pay less, was
bond without his knowledge, nevertheless invalid, and suggested that the privilege should be,
he did not object thereto or repudiate the awarded to Graciano Napa who, in its opinion,
same at any time. appeared to be the highest bidder in accordance
with the provisions of sections 2323 and 2319 of the
Administrative Code (Exhibit 9). The Executive
MUNICIPALITY OF GASAN v MARASIGAN Bureau, concurring with the provincial board's points
of view, declared, in turn, that the concession made
FACTS: to Marasigan was illegal in view of the fact that
Graciano Napa was the highest bidder (Exhibit 13).
The plaintiff-appellee municipality, on December 9,
1930, put up at auction the privilege of gathering The plaintiff municipality decided to award the
whitefish spawn in its jurisdictional waters for the privilege of gathering whitefish spawn within its
period of one year from January 1, 1931. Two waters to Graciano Napa, giving him a period of
bidders, Graciano Napa and Miguel Marasigan, seven days, from January 8, 1931 (Exhibit 19-A), to
appeared at the auction. Graciano Napa proposed to deposit the sum of P500.
accept the privilege by paying P5,000 therefor,
Miguel Marasigan proposed to do likewise, but by Graciano Napa not only failed to make the deposit
paying only P4,200. required by the plaintiff but he formally declared,
through his duly authorized representative, that he
The council of the plaintiff-appellee municipality, in yielded the privilege granted him to Miguel
its resolution No. 161 (Exhibit 1) of December 11, Marasigan or to any other person selected by the
1930 rejected Graciano Napa's bid and accepted that municipal authorities.
of the appellant Miguel Marasigan.
One day later plaintiff-appellee municipality sent the
To secure his compliance with the terms of the letter Exhibit 21 to Miguel Marasigan informing him
contract which was immediately formalized by him that the contract between them becomes effective
and the plaintiff, and pursuant to the provisions of on January 14, 1931.
section 8 of resolution No. 128, series of 1925, of the
council of said plaintiff, Miguel Marasigan filed the Prior to this, plaintiff informed Marasigan that the
bond, Exhibit B, subscribed on December 15, 1930, contract granting Marasigan the privilege is
by the defendants-appellants Angel R. Sevilla and suspended & considered ineffective while the
Gonzalo L. Luna, who bound themselves in said protest is pending.
document to pay to the plaintiff the sum of P8,400,
if Miguel Marasigan failed to deposit one-fourth of Plaintiff filed an action to recover from Marasigan,
P4,200 quarterly in advance in the municipal Sevilla and Luana the sum of P 3,780 as part of
treasury of Gasan. license fees which they failed to pay.

ISSUE: w/n respondents are liable On July 1919, Smith, Bell & Co. informed both
Harden and PNB that the expellers had arrived.
HELD: Shortly thereafter Harden, having examined the
machinery in the Plaintiff's bodega, advised the
No. The contract was not only considered not Bank that the expellers were not as ordered.
consummated but cancelled. Consequently, the Bank naturally refused to
accept and pay for the machinery, and the
It ceased to be valid when it was cancelled Plaintiff disposed of them to the best advantage
in the Manila market at a price which was below
Neither the appellant nor his sureties were bound to the price at which Harden had agreed to take
comply with the terms of their respective contracts them.
of fishing privilege and suretyship. The ground upon which the defense is chiefly
rested is that the expellers tendered by the
This is so particularly with respect to the sureties, Plaintiff were "side-drive" instead of "end-drive"
because suretyship cannot exist without a valid expellers, and in support of this contention
obligation. Harden was produced by the Defendant as a
witness, and he denied that the order for
Guaranty is not presumed. expellers had been changed upon his
instructions.
The elimination of the obligation for which said
sureties desired to answer with their bond also
Issue:
rendered the bond also eliminated.
SMITH BELL v PNB Whether or not PNB is subsidiary liable?
FACTS Rulings:
On April 1918, Fred M. Harden applied to Smith, NO. The SC ruled that PNBs liability is primary in
to buy 8 Anderson expellers end drive, latest nature.
model, for the price of P80,000, to be paid on The contract by which the Bank obligated itself
delivery. This would be used for the extraction is both in form and effect an independent
of coconut oil. undertaking on the part of the Bank directly to
the Plaintiff; and inasmuch as the Plaintiff had
It was understood that these expellers would be
manufactured in the US and delivery would be compiled, or offered to comply, with the terms
in the month of February or March of the of said contract, the Bank is bound by its
ensuing year. promise to pay the purchase price.
Its obligation to the Plaintiff is direct and
In order to assure the prompt payment of the
independent. The debt must be considered a
price upon delivery, an arrangement was made
between Harden and the Philippine National liquidated debt, in the sense intended in article
Bank (PNB) whereby the latter bound itself to 1825 of the Civil Code; and the action is now
Smith, Bell & Co. for the payment of the maintainable by the Plaintiff directly against the
contract price, but provided that the expellers Bank without regard to the position of Harden.
would delivered to them and must be new and The Bank is to be considered strictly in the light
in first class working order. of an independent promisor, a consequence
would be that Harden had no authority to
Shortly after the contract was made, Harden
appeared in the office of Smith, Bell & Co. and change the order from end-drive to side-drive
expellers; in other words, that the Bank should
requested them to change the order for the
expellers from "end-drive" to "side-drive;" and be held to be obligated according to the terms
in obedience to this instruction, the house of the order as it stood when the Bank entered
cabled to its agent in New York to change the into the undertaking which is the subject of the
order accordingly, which was done. suit.

Residoro Chua and Enrique Go, Sr. executed
WISE & CO. v KELLY a comprehensive surety agreements to
FACTS: Kelly bought goods and merchandise on guaranty among others, any existing
credit from Wise and Co., with the agreement that indebtedness of Davao Agricultural
Kelly will apply the proceeds of its sale to the Industries Corporation provided that the
discharge of his indebtedness. Lim, as surety for liability shall not exceed at any one time the
Kelly, guaranteed unto Wise & Co. the payment of a aggregate principal sum of P100,000.00.
sum of money which Kelly owes to Wise for goods A promissory note in the amount of
and merchandise received and purchased by Kelly, P100,000.00 was issued in favor of
to be sold in his establishment, upon the condition petitioner. Said note was signed by Enrique
that Kelly will pay over to Wise at the end of each Go, Sr. in his personal capacity and in behalf
month all sums which he may receive from the sale of Daicor. The promissory note was not fully
of said goods and merchandise, and that in the paid despite repeated demands; hence
contrary event, the surety undertakes to pay Wise petitioner filed a complaint for a sum of
such sums as Kelly may fail to turn in. money against Daicor, Enrique Go, Sr. and
Residoro Chua
As alleged by Wise, Kelly has not paid any money Petitioner alleged that by virtue of the
and thus filed a collection case against Kelly and Lim. execution of the comprehensive surety
Lim interposed the defense that the obligation was agreement, private respondent is liable
conditional as to him, and that the fact constituting because said agreement covers not merely
the condition had not occurred. Lower court the promissory note subject of the
dismissed the case against Lim on the ground that complaint, but is continuing; and it
wise has not proven that Kelly had failed to turn over encompasses every other indebtedness the
any money and established the conclusion that Lim Borrower may, from time to time incur with
had incurred no liability. petitioner bank.
The sole issue resolved by respondent court
ISSUE: WON Lim should be held liable. was the interpretation of the
comprehensive surety agreement,
HELD: NO. Lim is not liable for the difference particularly in reference to the
between the amount realized from the sale of the indebtedness evidenced by the promissory
merchandise and the purchase price of the same. note involved in the instant case, said
Lim as surety did not undertake to pay the principal comprehensive surety agreement having
amount due. His agreement was limited to respond been signed by Enrique Go, Sr. and private
for the performance by Kelly of one of the accessory respondent, binding themselves as solidary
pacts, namely, the undertaking to deliver to Wise the debtors of said corporation not only to
total proceeds of the sales of the merchandise for existing obligations but to future ones.
the invoice value of which the promissory note was
given. Wise has not proved that it has NOT in fact
received all the money derived from the sale of the Respondent court said that corollary to that
merchandise mentioned in the note, it follows that agreement must be another instrument
there is no evidence of the existence of the evidencing the obligation in a form of a
condition to which the obligation assumed by Lim promissory note or any other evidence of
was subordinated. In obligations subject to a indebtedness without which the said
suspensive condition the acquisitions of the right on agreement serves no purpose; that since
the part of the creditor depends upon the the promissory notes, which is primarily the
occurrence of the event constituting the conditions. basis of the cause of action of petitioner, is
not signed by private respondent, the latter
can not be liable thereon.

RCBC v ARRO
ISSUE: whether private respondent is liable to pay
FACTS: the obligation evidence by the promissory note?

HELD: - P contends that it should not be liable since
P is merely a guarantor
YES, The comprehensive surety agreement
was jointly executed by Residoro Chua and ISSUE: WoN P ma be held jointly and severally liable
Enrique Go, Sr., President and General with Inter Resin for the amount paid by Interbank to
Manager, respectively of Daicor, 1976 to Manila Bank
cover existing as well as future obligations
which Daicor may incur with the petitioner SC: YES
bank, subject only to the proviso that their - The amount had been paid by InterBank to
liability shall not exceed at any one time the Manila bank
aggregate principal sum of P100,000.00 - The intention of the parties is to secure the
The agreement was executed obviously to payment of the obligation.
induce petitioner to grant any application o CA held-to secure the guarantee
for a loan Daicor may desire to obtain from undertaken by Interbank of the
petitioner bank. The guaranty is a credit accommodation granted to
continuing one which shall remain in full Inter Resin by Manila Bank,
force and effect until the bank is notified of Interbank required P to sign a
its termination. Continuing Guaranty
The surety agreement which was earlier
signed by Enrique Go, Sr. and private DOCTRINE: Although a contract of suretyship is
respondent, is an accessory obligation, it ordinarily not be construed retrospective, in the end
being dependent upon a principal one the intention of the parties as revealed by the
which, in this case is the loan obtained by evidence is controlling
Daicor as evidenced by a promissory note.
What obviously induced petitioner bank to TRADERS INSURANCE v DY
grant the loan was the surety agreement
whereby Go and Chua bound themselves FACTS:
solidarily to guaranty the punctual payment
of the loan at maturity. By terms that are 1) For several years Destilleria Lim Tuaco & Co., Inc.
unequivocal, it can be clearly seen that the had one Dy Eng Giok as its provincial sales agent who
surety agreement was executed to has the duty of turning over the proceeds of his sales
guarantee future debts which Daicor may to the distillery company. In 1951, Dys outstanding
incur with petitioner, as is legally allowable running account was in the sum of P12,898.61.
under the Civil Code Thereafter, a surety bond was executed by Dy as
principal and Traders Insurance as solidary
guarantor, whereby they bound themselves, jointly
WILLEX PLASTICS v CA and severally,

FACTS:
WHEREAS, the contract requires the above
- Inter Resin opened a Letter of Credit with
bounden principal to give a good and
Manila Banking Corp. with security of
sufficient bond in the above stated sum to
Continuing Surety Agreement signed by
secure the full and faithful fulfillment on its
Inter Resin and Investment and
part of said contract; namely, to guarantee
Underwriting Corp (IUCP) wherein they
the full payment of the Principal's obligation
bound themselves solidarily for the.
not to exceed the above stated sum.
- Later Inter Resin together with Willex (P)
executed a continuing guaranty in favor of
IUCP, stating that Inter Resin and P are 2) On the same date, by Eng Giok, as principal, with
Pedro Lopez Dee and Pedro Dy-Liacco, as
solidarily liable. Due to this, IUCP paid
Manila Bank P4M (Letter of Credit) counterboundsmen, subscribed an indemnity
- IUCP then demanded payment of the agreement in favor of appellant Surety Company,
amount, however, Inter Resin and P failed where, in consideration of its surety bond, the three
to do so. Hence, this case agreed to be obligated to the surety company.

Thereafter, Dy contracted obligations in favor of the guaranteed, while his indebtedness prior to
Destilleria in the amount of P41,449.93; and Dy that period was not secured, then in the
made remittances of the same amount absence of express application by the
debtor, any partial payments made by him
3) The distillary, however, applied said remittances should be imputed or applied to the debts
first to Dy Eng Giok's outstanding balance prior to that were guaranteed, since they are
August 4, 1951, before the suretyship agreement regarded as the more onerous debts from
was executed, in the sum of P12,898.61; and the the standpoint of the debtor.
balance of P28,965.88 to Dy's obligations between
August 4, 1951 and August 3, 1952. B) In essence therefore debts covered by a guaranty
are deemed more onerous to the debtor than the
4) Then demanded payment of the remainder from simple obligations because, in their case, the debtor
Dy, and later, from the appellant Surety Company. may be subjected to action not only by the creditor,
The latter paid P10,000.00 (the maximum of its but also by the guarantor, and this even before the
bond) on July 17, 1953, apparently, without guaranteed debt is paid by the guarantor; hence, the
questioning the demand; and then sought payment of the guaranteed debt liberates the
reimbursement from Dy Eng Giok and his counter debtor from liability to the creditor as well as to the
guarantors, who however failed to pay. Because of guarantor, while payment of the unsecured
this the company brought an action to enforce obligation only discharges him from possible action
collection. by only one party, the unsecured creditor.
5) The CFI absolved the counter-guarantors on the C) Thus, payment voluntarily made by appellant was
theory that in so far as they are concerned, the improper since it was not liable under its bond;
payments made by Dy from August 4, 1951 to consequently, it can not demand reimbursement
August 3, 1952, should have been applied to his from the counterbondsmen but only from Dy.
obligations during that period, which were the ones
covered by the surety bond and the counter- D) Ultimately, the application by a creditor depends
guaranty; and since these obligations only amounted upon the debtor acquiescence thereto. In the
to P41,449.93, the payments exceeding the present case, as already noted, there is no evidence
obligations, the CFI concluded that the Surety that the receipts for payment expressed any
Company incurred no liability and the imputation, or that the debtor agreed to the same.
counterbondsmen in turn had nothing to answer for. Judgment is affirmed.
HELD:
SOCONY v CHO SIONG
A) The CFI is correct. There are two reasons why the
remittances by Dy Eng Giok in the sum of P41,864.49 FACTS: Cho Siong entered into contract of agency for
should be applied to the obligation of P41,449.93 distribution of petroleum products, assumed liability
contracted by him during the period covered by the of former agent Tong Kuan. His agency bond was
suretyship agreement: secured by Ong Guan Can. Defaulted in the amount
of P64.00
a.. In the absence of express stipulation, a
guaranty or suretyship operates DOCTRINE: Under the terms of the bond
prospectively and not retroactively; that is signed by the surety, he did not answer for the
to say, it secures only the debts contracted principal obligor save for the Latters acts by virtue
after the guaranty takes effect because a of the contract of agency. He cannot be held liable
guaranty is not presumed, but must be for the debt of a former agent, which the principal
express, and can not extend to more than obligor assumed by virtue of another contract, of
what is stipulated. which said surety was not even aware. A contract of
suretyship is to be strictly interpreted and is not to
be extended beyond its terms.
b.. Since the obligations of Dy between
August 4, 1951 to August 4, 1952, were

Issue: Whether or not the surety is liable to Garon
GARON v PROJECT MOVERS under its surety bond.
Facts:
Held:
Project Movers Realty and Devt Corp (PMRDC)
obtained a loan from Garon. The loan was Yes, the surety is liable in general. The principal
covered by a Promissory note to mature on obligation guaranteed by the surety bond is the
December 19. The stipulated interest rate was assignment of leasehold rights of PMRDC to Garon
36% per annum. over the subject spaces. Garon made a formal
To secure the payment of the loan, PMRDC demand but PMRDC defaulted. As such, PMRDCs
undertook to assign to Garon its leasehold rights liability arose. Consequently, the suretys liability
over a space at the Monumento Plaza likewise arose.
Commercial Complex.
The parties stipulated that failure to pay the Suretyship arises upon the solidary binding of a
note or any portion thereof, or any interest person with the principal debtor, for the purpose of
thereon, shall constitute as default and the fulfilling an obligation. A surety is considered in law
entire obligation shall become due and as being the same party as the debtor in relation to
demandable without need of demand. whatever is adjudged as touching the obligation of
PMRDC obtained another loan from Garon at the latter and their liabilities are interwoven as to be
17% per annum to mature on December 31. It is inseparable. Although a surety contract is
covered by another promissory note and secure secondary to the principal obligation, the liability of
a leasehold rights over another space in the surety is direct, primary and absolute or
Monumento Plaza. equivalent to that of a regular party to the
To secure its obligations to assign the leasehold undertaking.
rights to Garon, PMRDC procured a surety bond
from Stronghold Insurance, which the liability of Note:
the surety will not exceed the sum of P12M and
will expire on Nov 7. Surety in this case was not held liable since its
When PMRDC defaulted in the payment of its undertaking under the surety bond was merely to
obligations, Garon sent a demand letter dated guarantee the assignment of PMRDCs leasehold
Nov 3 requiring PMRDC to execute and deliver a rights and not the payment of the entire obligation
unilateral Deed of Assignment of its leasehold and Garon is seeking to enforce her right to collect
rights over the commercial spaces. the principal debt rather than enforce the security.
Garon also sent a demand letter to the surety
on Nov 6.
REPUBLIC v PAL-FOX LUMBER
For failure to comply with the demand, Garon

filed a complaint for collection of the principal
Facts: Pal-Fox Lumber Co., Inc. was indebted to
obligation against PMRDC and the surety.
the Bureau of Internal Revenue for forest charges
The surety contends that the complaint stated
and surcharges amounting to P11,851.56, and that
no cause of action and was prematurely filed. At
the Far Eastern Surety & Insurance Co., Inc. was
the time Garon sent the demand letter, the
jointly and severally liable with the lumber company
obligation guaranteed by the bond had not yet
for the payment of said forest charges up to
matured.
P5,000.00. Republic moved for reconsideration,
On the part of PMRDC, it denied that it executed
pointing out that the surety company's correct
the promissory noted and alleged instead that
liability under the appealed decision was P5,000.00
they were mere roll-overs. It also alleged that it
plus legal interest from the filing of the complaint. In
already complied with its undertaking under the
other words, the Republic would want the surety
promissory notes when it put up a surety bond.
company to pay the legal interest adjudged by the
And that when Garon chose to demand from
trial court before the case may finally be considered
the surety, she effectively waived the right to
dismissed. Far Eastern's denial of liability for such
claim for it.
interest is based on the stipulation in the bond that

it was bound to the plaintiff "in the sum of rate of 7% per annum from June 24, 1950 until
P5,000.00." finally paid.

Issue: W/N Far Eastern should also pay interest? To guarantee full compliance with the
aforementioned obligation, defendant Marquez, as
Ruling: Yes. Article 2055, paragraph 2, of the Civil principal, and defendant Plaridel Surety & Insurance
Code of the Philippines is clearly applicable. Company, as surety, executed Guaranty Bond P. S. &
If it (the guaranty) be simple or indefinite, it shall I. No. 4220 in favor of the PRATRA, wherein they
comprise not only the principal obligation but also bound themselves, jointly and severally, to pay the
all its accessories, including judicial costs. said amount of P12,000.00 (Exhibit C).

In this guaranty bond, the surety expressly waives its
COMMONWEALTH v CA right to demand payment and notice of non-
payment and agrees that the liabilities of this
This case is about SIGS and ELBA borrowing money guaranty shall be direct and immediate and not
from RCBC worth P4m. Commonwealth being the contingent upon the exhaustion by the PRATRA of
surety. SIGS and ELBA defaulted so RCBC went after whatever remedies it may have against the principal,
Commonwealth. Commonwealth insists on not and that the same shall be valid and continuous until
paying. Lower Court ruled in favor of RCBC and the obligation so guaranteed is paid in full.
ordered Commonwealth to pay the principal debt
plus interest. Commonwealth refused. After making partial payment, Marquez defaulted in
Commonwealth appealed to CA and questions the the payment of the other installments. Plaintiff
ruling of the lower court awarding interest. (focus on demanded from defendants Marquez and Plaridel
interest) Surety & Insurance Company, payment of their
Issue: WoN Commonwealth whould pay principal outstanding obligation. The claim, therefore, of
and interest defendant Plaridel Surety & Insurance Company that
they never received a demand for payment from
Ruling: Obviously, Commonwealth is obliged to pay plaintiff must necessarily fail, considering that it is
the principal being the surety. Regarding the clearly shown in registry return receipts that the
interest, generally no. However because same had been received by the addressee.
Commonwealth refused to pay the principal when
the lower court ordered it to do so, it is now bound
to pay the interest. ISSUES: Whether the surety's liability can exceed the
sum of P12,000.00.
NAMARCO v MARQUEZ
RULING: Yes
FACTS: Properties, rights, obligations, and contracts While the guarantee was for the original amount of
of the Philippine Relief and Trade Rehabilitation the debt of Gabino Marquez, the amount of the
Administration (PRATRA) had been transferred to judgment by the trial court in no way violates the
the Price Stabilization Corporation (PRISCO) and rights of the surety. The judgment on the principal
subsequently all rights and contracts of the PRISCO was only for P10,000.00, while the remaining
involving real estate, fixed assets and stock in trade P9,990.91 represent the moratory interest due on
had been assumed by herein plaintiff, the account of the failure to pay the principal obligation
NAMARCO. from and after the same had fallen due, and default
had taken place. Appellant surety was fully aware
Marquez secured from the PRATRA one tractor and that the obligation earned interest, since the note
one rice thresher, with a total value of P20,000.00 was annexed to its contract, Exhibit "C".
for which the said defendant paid thereon the sum
of P8,000.00 as down payment, thereby leaving a
balance of P12,000.00. Marquez executed a The contract of guaranty executed by the appellant
promissory note in the amount of P12,000.00 Company nowhere excludes this interest, and Article
payable in installments commencing from June 24,
1951 to June 25, 1952, with interest thereon at the

2055, paragraph 2, of the Civil Code of the between Perlas, as principal, and Vizconde
Philippines is clearly applicable. as agent, for the sale of the formers ring.
If any agency was established, it was one
If it (the guaranty) be simple or between Perlas and Pagulayan only, this
indefinite, it shall comprise not only the being the logical conclusion from the use of
principal obligation but also all its the singular I in said clause, in conjunction
accessories, including judicial costs, with the fact that the part of the receipt in
provided with respect to the latter, that which the clause appears bears only the
the guarantor shall only be liable for those signature of Pagulayan.
costs incurred after he has been judicially To warrant anything more than a mere
required to pay. conjecture that the receipt also constituted
Vizconde the agent of Perlas for the same
Compensated sureties are not entitled to have their purpose of selling the ring, the cited clause
contracts interrupted strictissimi juris in their favor should at least have used the plural we,
or the text of the receipt containing that
VIZCONDE v IAC clause should also have carried Vizcondes
FACTS: signature.
Perlas called Vizconde and asked her to sell The joint and several undertaking assumed
an 8 carat diamond ring on a commission by Vizconde in a separate writing below the
for P85k main body of the receipt, Exhibit A,
merely guaranteed the civil obligation
Vizconde later returned the ring.
Afterwards, Vizconde called on Perlas and Pagulayan to pay Perlas the value of the
claimed that there was a sure buyer for ring in the event of her (Pagulayans) failure
to return said article.
the ring, Pilar Pagulayan
What is clear from Exh A is that the ring was
Pagulayan gave a post-dated check; Perlas
entrusted to Pagulayan to be sold on
and Vizconde signed a receipt (Exh. A)
commission; there is no mention therein
The check was dishonoured. After 9 days,
that it was simultaneously delivered to and
Pagulayan paid Perlas P5k against the value
received by Vizconde for the same purpose
of the ring and gave 3 Certificates of Title to
or, therefore, that Vizconde was
guarantee delivery of the balance of such
constituted, or agreed to act as, agent
value (Exh D)
jointly with Pagulayan for the sale of the
Perlas filed a complaint against Pagulayan
ring.
and Vizconde for estafa.
What Vizconde solely undertook was to
TC and CA Vizconde and Pagulayan had
guarantee the obligation of Pagulayan to
assumed a joint agency in favour of Perlas
return the ring or deliver its value; and that
for the sale of the latters ring, which
guarantee created only a civil obligation,
rendered them criminally liable, upon
without more, upon default of the principal.
failure to return the ring or deliver its
Upon the evidence, Vizconde was a mere
agreed value, under Art 315, par 1(b) of the
guarantor, a solidary one to be sure, of the
Revised Penal Code
obligation assumed by Pagulayan to
SOL GEN disagreed; Vizconde cant be
complainant Perlas for the return of the
convicted of estafa based on the Exhibits
latters ring or the delivery of its value.
presented
Whatever liability was incurred by

Pagulayan for defaulting on such obligation
ISSUE: Whether Vizconde was considered as agent of
and this is not inquired into that of
Perlas or mere guarantor of obligation of Pagulayan?
Vizconde consequent upon such default

was merely civil, not criminal.
HELD: Mere guarantor

Nothing in the language of the receipt, Exh
ESTATE OF HEMADY v LUZON SURETY
A, or in the proven circumstances attending
its execution can logically be considered as FACTS:
evidencing the creation of an agency

The Luzon Surety Co. had filed a claim against the mortgaged which appears at the back of the
Estate based on twenty different indemnity indemnity agreement. (Rec. App., pp. 407-408).
agreements, or counter bonds, each subscribed by a
ISSUE: W/N the liability of the guarantor was
distinct principal and by the deceased K. H. Hemady,
terminated upon his death
a surety solidary guarantor) in all of them, in
consideration of the Luzon Surety Co.s of having HELD: NO.
guaranteed, the various principals in favor of
Under the present Civil Code (Article 1311), as well
different creditors.
as under the Civil Code of 1889 (Article 1257), the
The Luzon Surety Co., prayed for allowance, as a rule is that
contingent claim, of the value of the twenty bonds it
Contracts take effect only as between the parties,
had executed in consideration of the counterbonds,
their assigns and heirs, except in the case where the
and further asked for judgment for the unpaid
rights and obligations arising from the contract are
premiums and documentary stamps affixed to the
not transmissible by their nature, or by stipulation
bonds, with 12 per cent interest thereon.
or by provision of law.
The lower court, by order of September 23, 1953,
Under our law, therefore, the general rule is that a
dismissed the claims of Luzon Surety Co., on the
partys contractual rights and obligations are
ground that whatever losses may occur after
transmissible to the successors.
Hemadys death, are not chargeable to his estate,
because upon his death he ceased to be guarantor. Of the three exceptions fixed by Article 1311, the
nature of the obligation of the surety or guarantor
The reasoning of the court below ran as follows:
does not warrant the conclusion that his peculiar
The administratrix further contends that upon the individual qualities are contemplated as a principal
death of Hemady, his liability as a guarantor inducement for the contract. What did the creditor
terminated, and therefore, in the absence of a Luzon Surety Co. expect of K. H. Hemady when it
showing that a loss or damage was suffered, the accepted the latter as surety in the counterbonds?
claim cannot be considered contingent. This Court Nothing but the reimbursement of the moneys that
believes that there is merit in this contention and the Luzon Surety Co. might have to disburse on
finds support in Article 2046 of the new Civil Code. It account of the obligations of the principal debtors.
should be noted that a new requirement has been This reimbursement is a payment of a sum of
added for a person to qualify as a guarantor, that is: money, resulting from an obligation to give; and to
integrity. As correctly pointed out by the the Luzon Surety Co., it was indifferent that the
Administratrix, integrity is something purely reimbursement should be made by Hemady himself
personal and is not transmissible. Upon the death of or by some one else in his behalf, so long as the
Hemady, his integrity was not transmitted to his money was paid to it.
estate or successors. Whatever loss therefore, may
The second exception of Article 1311, p. 1, is
occur after Hemadys death, are not chargeable to
intransmissibility by stipulation of the parties. Being
his estate because upon his death he ceased to be a
exceptional and contrary to the general rule, this
guarantor.
intransmissibility should not be easily implied, but
Another clear and strong indication that the surety must be expressly established, or at the very least,
company has exclusively relied on the personality, clearly inferable from the provisions of the contract
character, honesty and integrity of the now itself, and the text of the agreements sued upon
deceased K. H. Hemady, was the fact that in the nowhere indicate that they are non-transferable.
printed form of the indemnity agreement there is a
Because under the law (Article 1311), a person who
paragraph entitled Security by way of first
enters into a contract is deemed to have contracted
mortgage, which was expressly waived and
for himself and his heirs and assigns, it is
renounced by the security company. The security
unnecessary for him to expressly stipulate to that
company has not demanded from K. H. Hemady to
effect; hence, his failure to do so is no sign that he
comply with this requirement of giving security by
intended his bargain to terminate upon his death.
way of first mortgage. In the supporting papers of
Similarly, that the Luzon Surety Co., did not require
the claim presented by Luzon Surety Company, no
bondsman Hemady to execute a mortgage indicates
real property was mentioned in the list of properties
nothing more than the companys faith and

confidence in the financial stability of the surety, but ISSUE
not that his obligation was strictly personal.
The third exception to the transmissibility of Whether or not Atty. Tanglao is liable?
obligations under Article 1311 exists when they are
not transmissible by operation of law. The RULING
provision makes reference to those cases where the
law expresses that the rights or obligations are NO.
extinguished by death, as is the case in legal support The SC ruled that there is nothing stated in the
(Article 300), parental authority (Article 327), Compromise Agreement to the effect that
usufruct (Article 603), contracts for a piece of work Tanglao became David's surety for the payment
(Article 1726), partnership (Article 1830 and agency of the sum in question. Neither is this inferable
(Article 1919). By contract, the articles of the Civil from any of the clauses thereof, and even if this
Code that regulate guaranty or suretyship (Articles inference might be made, it would be
2047 to 2084) contain no provision that the guaranty insufficient to create an obligation of suretyship
is extinguished upon the death of the guarantor or which, under the law, must be express and
the surety. cannot be presumed.
The only obligation which the Compromise
WISE & CO. v TANGLAO Agreement, in connection with POA, has created
on the part of Tanglao, is that resulting from the
FACTS mortgage of a property belonging to him to
secure the payment of said P640. However, a
In the CFI of Manila, Wise & Co filed a civil case foreclosure suit is not instituted in this case
against Cornelio C. David for the recovery of a against Tanglao, but a purely personal action for
certain sum of money. the recovery of the amount still owed by David.
David was an agent of Wise & Co. and the At any rate, even granting that Defendant
amount claimed from him was the result of a Tanglao may be considered as a surety under
liquidation of accounts showing that he was the cited Compromise the action does not yet
indebted in said amount. lie against him on the ground that all the legal
In said case Wise & Co. asked and obtained a remedies against the debtor have not previously
preliminary attachment of David's property. been exhausted (art. 1830 of the Civil Code, and
To avoid the execution of said attachment, decision of the Supreme Court of Spain of March
David succeeded in having the defendant 2, 1891).
Attorney Tanglao sign a power of attorney in his The Plaintiff has in its favor a judgment against
favor, with a clause (considered a special POA to debtor David for the payment of debt. It does
David) To sign as guarantor for himself in his not appear that the execution of this judgment
indebtedness to Wise & Company of Manila, has been asked for and the Compromise, on the
and to mortgage the Attorneys lot other hand, shows that David has two pieces of
Subsequently, David made a compromise with property the value of which is in excess of the
the petitioner by paying P340 leaving an unpaid balance of the debt the payment of which is
balance of P296 and pledged the lot owned by sought of Tanglao in his alleged capacity as
the Atty as a guaranty for the balance. surety.
Wise & Co. now institutes this case against
Tanglao for the recovery of said unpaid amount.
There is no doubt that under POA, Tanglao SOUTHERN MOTORS v BARBOSA
empowered David, in his name, to enter into a
contract of suretyship and a contract of FACTS: Defendant Barbosa executed a real estate
mortgage of the property described in the mortgage for the only purpose of guaranteeing as
document, with Wise & Co. surety and/or guarantor the payment of the debt
However, David used said power of attorney of one Alfredo Brillantes in favor of Southern
only to mortgage the property and did not enter Motors, Inc. due to the failure of Brillantes to settle
into contract of suretyship. his obligation; plaintiff filed an action against
defendant to foreclose the real estate mortgage.

Defendant filed an answer alleging that the plaintiff interest thereon from January 16, 1934, and
has no right of action against him because the in case of default on their part, that the real
plaintiff did not intent to exhaust all recourses to property subject matter of the mortgage be
collect from the true debtor (Brillantes), sold at public auction so that the proceeds
notwithstanding the fact that the latter is solvent thereof may be applied to the payment of
and has many properties within the Province of the sum in question and the interest
Iloilo. thereon.

ISSUE: WHETHER THE MORTGAGE IN QUESTION
COULD BE FORECLOSED ALTHOUGH PLAINTIFF HAD After the period of ninety days has elapsed
NOT EXHAUSTED, AND DID NOT INTEND TO and Rafael Martinez and Ceferino Ibaez
EXHAUST, THE PROPERTIES OF HIS PRINCIPAL failed to pay the sum in question with the
DEBTOR. interest thereon, the respondent Price filed
a motion praying that the real property
HELD: NO. The right of guarantors, under Art. 2058 mortgaged be sold at public auction for the
of the Civil Code, to demand exhaustion of the payment of his mortgage credit and its
property of the principal debtor, exists only when a interest.
pledge or a mortgage has not been given as special This was denied.
security for the payment of the principal obligation. The petitioner now claims that the
respondent Judge acted with abuse of his
Although an ordinary personal guarantor not a discretion in not transferring the hearing of
mortgagor or pledgor may demand exhaustion of the motion for the sale of the mortgaged
the properties of the principal debtor, the creditor realty and that he exceeded his jurisdiction
may, prior thereto, secure judgment against said in ordering the sale of said property.
guarantor, who shall be entitled, however, to a
deferment of the execution of said judgment ISSUE: Whether or not the order of sale of such
against him until after the properties of the property was proper?
principal debtor shall have been exhausted to
satisfy the obligation involved in the case. HELD:
It is contended that since the petitioner is

not the debtor and as she, on the other
SAAVEDRA v PRICE hand is the owner of the mortgaged realty,
FACTS: she merely acted as surety to Rafael
Martinez, the principal debtor, and as such
This is a proceeding instituted by the she entitled to the benefit of the exhaustion
petitioner to annul the order of May 8, of the property of the principal debtor, in
1939, entered by the Court of First Instance accordance with the provision of article
of Leyte, which provided for the sale at 1830 of the Civil Code.
public auction of the real property
described in Transfer Certificate of Title No.
395 issued in favor of the petitioner, so that We are of the opinion that this last
the proceeds thereof may be applied to the contention is likewise unfounded and
payment of the credit of the respondent untenable.
W.S. Price in the sum of P15,000 o In the first place, this alleged defense
should have been interposed before
the judgment was rendered in this case
In civil case No. 3707 of the Court of First and it is too late to raise it for the first
Instance of Leyte, W.S. Price, plaintiff vs. time as a ground for opposing the
Ceferino Ibaez et al., defendants, said motion to sell the real property in
court rendered judgment ordering the question.
defendants to pay the plaintiff within ninety o In the second place, the contention
days the sum of P15,000, with the legal that the mortgaged real property

belonging to the petitioner cannot be on the construction project. However, Macrogen
sold to pay the debt for the reason that Realty failed to settle respondents progress billings.
she is a mere surety of Rafael Martinez, Bitanga, assured Pyramid that the outstanding
finds no support in the law. account of Macrogen Realty would be paid.Thus,
Pyramid continued the construction project.
It is true that the petitioner is a surety with 2) In August 1998, Pyramid suspended work on the
regard to Rafael Martinez and as such construction project since the conditions that it
surety she is entitled to resort to the imposed for the continuation thereof, including
actions and remedies against him which the payment of unsettled accounts, had not been
law affords her, but we should not lose complied with by Macrogen Realty and eventually,
sight of the fact that she was sued not as a on 1 September 1999, respondent instituted with
surety but as a mortgage debtor for being the Construction Industry Arbitration Commission
the owner of the mortgaged property (CIAC) a case for arbitration against Macrogen Realty
seeking payment by the latter of its unpaid billings
ARROYO v JUNGSAY and project costs. Macrogen, chose to amicably
settle the arbitration case and both parties entered
FACTS: into a Compromise Agreement, with Bitanga acting
- Arroyo (P) is an appointed guardian of an as signatory for and in behalf of Macrogen Realty.
imbecile, while Jungsay et al (D) are the
previous guardian and bondsmen who 3) Under the Agreement, Macrogen Realty agreed to
absconded. pay Pyramid the total amount in six equal monthly
- D, the former guardian of the ward, installments, that if it would default in the payment
absconded with the funds of his ward. of two successive monthly installments, immediate
- LC ordered D to pay P, which the bondsmen execution could issue against it for the unpaid
appealed. D also pointed out properties of balance, without need of judgment from any court
the previous guardian which are now being or tribunal. Bitanga guaranteed the obligations of
rd
adversely claimed by 3 parties Macrogen Realty under the Compromise Agreement
by executing a Contract of Guaranty in favor of
ISSUE: WoN the bondsmen are liable respondent, by virtue of which he irrevocably and
unconditionally guaranteed the full and complete
SC: YES payment of the principal amount of liability of
- For the surety to be not liable, he must be Macrogen Realty.
able to point out property of the principal
debtor which are realizable and is situated
4) However, despite this, Macrogen Realty failed and
within the Philippines to insure the
refused to pay all the monthly installments agreed
fulfillment of the obligation and furnish the
upon in the Compromise Agreement. Thus, on 7
creditor with the means of obtaining its
September 2000, respondent moved for the
fulfillment without delay
issuance of a writ of execution against Macrogen
- The property pointed out by the sureties is
Realty, which was granted.
not sufficient to pay the indebtedness; it is
rd
not salable; it is encumbered to 3 parties
5) The sheriff however filed a return stating that he
BITANGA v PYRAMID was unable to locate any property of Macrogen
Realty, except its bank deposit of P20,242.33, with
the Planters Bank, Buendia Branch. Respondent then
FACTS:
made, on January 3, 2001, a written demand on
petitioner, as guarantor of Macrogen Realty, to pay
1) On March 26 1997, Pyramid entered into an the P6,000,000.00, or to have properties of the
agreement with Macrogen Realty, of which Bitanga Macrogen Realty sufficient to cover the obligation
is the President, to construct for the latter a building, guaranteed. Said demands met no reply.
located in Sucat, Paraaque. Pyramid then
commenced civil, structural, and architectural works

6) As to Marilyns (bitangas wife) liability, Pyramid against the creditor upon the latters
contended that Macrogen Realty was owned and demand for payment from him, and point
controlled by bitanga and Marilyn and/or by out to the creditor available property of the
corporations owned and controlled by them. On the debtor within Philippine territory, sufficient
theory that since the completion of the construction to cover the amount of the debt.
project would have redounded to the benefit of both
petitioner and Marilyn and/or their corporations; B) Said provision imposes a condition for the
and considering, Marilyns interest in a corporation invocation of the defense of excussion. Article 2060
which controls Macrogen Realty, Marilyn cannot be of the Civil Code clearly requires that in order for the
unaware of the obligations incurred by Macrogen guarantor to make use of the benefit of excussion,
Realty and/or petitioner in the course of the he must set it up against the creditor upon the
business operations of the said corporation. latters demand for payment and point out to the
creditor available property of the debtor within the
7) Pyramid filed suit that a judgment be rendered Philippines sufficient to cover the amount of the
ordering petitioner and Marilyn to comply with their debt.
obligation under the Contract of Guaranty by paying
respondent the amount of P6,000,000.000. C) In this case, despite having been served a demand
letter at his office, petitioner still failed to point out
8) Marilyn contended that, since she did not co-sign to the respondent properties of Macrogen Realty
the Contract of Guaranty with her husband; nor was sufficient to cover its debt. Such failure on
she a party to the Compromise Agreement between petitioners part forecloses his right to set up the
respondent and Macrogen Realty. She had no part at defense of excussion.
all in the execution of the said contracts. This was
denied D) Article 2059(5) of the Civil Code thus finds
application and precludes petitioner from
ISSUES: interposing the defense of excussion. We quote:
(1) whether the defendants were liable under the (5) If it may be presumed that an execution
contract of guarantee dated April 17, 2000 entered on the property of the principal debtor
into between Benjamin Bitanga and the plaintiff; would not result in the satisfaction of the
obligation.
(2) whether defendant wife Marilyn Bitanga is liable
in this action; E) Petition is DENIED.
HELD: ONG v PCIB

A) Under a contract of guarantee, the guarantor FACTS: Cho Siong entered into contract of agency for
binds himself to the creditor to fulfill the obligation distribution of petroleum products, assumed liability
of the principal debtor in case the latter should fail of former agent Tong Kuan. His agency bond was
to do so. The guarantor who pays for a debtor, in secured by Ong Guan Can. Defaulted in the amount
turn, must be indemnified by the latter. However, of P64.00
the guarantor cannot be compelled to pay the
creditor unless the latter has exhausted all the DOCTRINE: Under the terms of the bond
property of the debtor and resorted to all the legal signed by the surety, he did not answer for the
remedies against the debtor. This is what is principal obligor save for the Latters acts by virtue
otherwise known as the benefit of excussion. of the contract of agency. He cannot be held liable
for the debt of a former agent, which the principal
Article 2060 of the Civil Code reads: obligor assumed by virtue of another contract, of
which said surety was not even aware. A contract of
suretyship is to be strictly interpreted and is not to
In order that the guarantor may make use
be extended beyond its terms.
of the benefit of excussion, he must set it up

Facts: On October 29, 1920, the National Sporting
MIRA HERMANOS v MANILA TOBACCONISTS Club, of Manila, obligated itself by a promissory note
Facts: payable at four months to pay to Jose Ma. Cacho.
Below the signature of said National Sporting Club,
By virtue of a written contract, Mira Hermanos as signed by the proper officers of the Club, the
(MH) agreed to deliver to Manila Tobacconists following personal guaranty was written: "We
(MT) merchandise for sale on consignment guarantee this obligation." (Sgd.) J. A. Valles, J. L.
under certain specified terms and MT agreed to Mateu, G. J. Heffting, Ed. Chesley, Baldomero Roxas.
th
pay MH on or before the 20 day of each month This note was not paid at maturity. An action was
the invoice value of all the merchandise sold instituted thereon against the National Sporting Club
during the preceding month. and the guarantors. Baldomero Roxas interposed a
MH required MT a bond of 3,000 which was defence claiming the right of division as among the
executed by Provident Insurance (PI). co-sureties, and asking that in case he should be
The volume of the business of MT increased so found liable that he should be held responsible only
that the merchandise received by way of for his aliquot part of the debt.
consignment from MH exceeded 3,000 in value.
MH required MT to post an additional bond of Issue: W/N in case of the insolvency of one or more
2,000 which MT complied, executing a bond of several simple sureties, those who remain solvent
with same conditions with the Manila Compania can be made to pay the entire debt?
de Seguros (MCS) for the excess of 3,000 up to
5,000. Ruling: None of the sureties, so far as this record
After liquidation of the transaction, a balance shows, has been declared bankrupt. The benefit of
was due from MT to MH for the amount of division therefore has not been lost, and the rule
2,200 which MT is unable to pay. declaring each surety liable only for his aliquot part
PI, as surety, only paid 1,300, alleging that the of the guaranteed debt, must hold. The obligation of
remaining 40% should be paid by the other the surety cannot be extended beyond its specified
surety, MCS. limits. A co-surety is entitled to the benefit of
division from the very moment that he contracts the
Issue: Whether or not MCS should be held liable obligation, except where there is stipulation to the
for the remaining 40% of the balance due? contrary.

Held:
TUASON v MACHUCA
No, the bond of 3,000 filed by PI responded for the
obligation of MT up to the some of 3,000, inasmuch F: Universal Trading Company was going to withdraw
as the bond of 2,000 filed by MCS responded for the goods from the Bureau of Customs to be delivered
obligation of MT only insofar as it might exceed to BPI. To withdraw, they gave a bond executed by
3,000 and up to 5,000. Manila Compania de Seguros. That bond was
secured solidarily by Tuason Co. and Machuca of
The provision in the NCC with regard to several Universal Trading. It was to be paid whether or not
sureties of only one debtor for the same debt does Manila Compania already paid CIR. Manila Compania
not apply in this case. Although the two bonds on demanded payment from Tuason. Manila Compania
their face appear to guarantee the same debt filed a case against tuason. Tuason later payed but
coextensively up to 2,000 that of PI alone incurred litigation expenses. Tuason now demands
extending beyond that sum up to 3,000 it was payment from Machuca. Tuason filed a case for
pleaded and conclusively proven that in reality said collection of money from Machuca. The lower court
bonds, or the two sureties, do not guarantee the ruled that Machuca should pay the debt and the
same debt because PI guarantees only the first 3,000 expenses incurred by Tuason in the case for
while MCS only the excess up to 5,000. collection of money.
Issue: Won Machuca should pay the expenses
CACHO v VALLES incurred by Tuason in its case vs. Manila Compania

Ruling: NO! it was not Machucas fault why tuason ISSUES: Whether actual forfeiture of the subject
incurred expenses in the litigation of Manila bonds is necessary for the petitioners to be liable to
Compania and Tuason. If tuason paid Manila ISAC under the Indemnity Agreements?
compania, no litigation expenses will be paid.
RULING: The liability of the guarantor already
triggers the liability of the debtor.
AUTOCORP v INTRA STRATA
Autocrops liability
FACTS: Autocorp Group, represented by its Actual forfeiture of the subject bonds is not
President, petitioner Peter Y. Rodriguez, secured two necessary for petitioners to be liable thereon to ISAC
ordinary re-export bond from private respondent as surety under the Indemnity Agreements.
Intra Strata Assurance Corporation (ISAC) in favor of
public respondent Bureau of Customs (BOC) to Petitioners' obligation to indemnify ISAC became
guarantee the re-export of one unit of Hyundai Excel due and demandable the moment the bonds issued
4-door 1.5 LS and Hyundai Sonata 2.4 GLS, and/or to by ISAC became answerable for petitioners' non-
pay the taxes and duties thereon. compliance with its undertaking with the BOC.
Stated differently, petitioners became liable to
Petitioners executed and signed two Indemnity indemnify ISAC at the same time the bonds issued by
Agreements with identical stipulations in favor of ISAC were placed at the risk of forfeiture by the BOC
ISAC, agreeing to act as surety of the subject bonds. for non-compliance by petitioners with its
Petitioner Rodriguez signed the Indemnity undertaking.
Agreements both as President of the Autocorp
Group and in his personal capacity. It is worthy to note that petitioners did not impugn
the validity of the stipulation in the Indemnity
In sum, ISAC issued the subject bonds to guarantee Agreements allowing ISAC to proceed against
compliance by petitioners with their undertaking petitioners the moment the subject bonds become
with the BOC to re-export the imported vehicles due and demandable, even prior to actual forfeiture
within the given period and pay the taxes and/or or payment thereof. Even if they did so, the Court
duties due thereon. In turn, petitioners agreed, as would be constrained to uphold the validity of such a
surety, to indemnify ISAC for the liability the latter stipulation for it is but a slightly expanded
may incur on the said bonds. contractual expression of Article 2071 of the Civil
Code which provides, inter alia, that the guarantor
Petitioner Autocorp Group failed to re-export the may proceed against the principal debtor the
items guaranteed by the bonds and/or liquidate the moment the debt becomes due and demandable.
entries or cancel the bonds, and pay the taxes and
duties pertaining to the said items despite repeated Art. 2071. The guarantor, even before having paid,
demands made by the BOC, as well as by ISAC. By may proceed against the principal debtor:
reason thereof, the BOC considered the two bonds,
with a total face value of P1,034,649.00, forfeited. (1) When he is sued for the payment;

Failing to secure from petitioners the payment of the (2) In case of insolvency of the principal debtor;
face value of the two bonds, despite several
demands sent to each of them as surety under the (3) When the debtor has bound himself to relieve
Indemnity Agreements, ISAC filed with the RTC on 24 him from the guaranty within a specified period, and
October 1995 an action against petitioners. this period has expired;

Petitioners contend that their obligation to ISAC is (4) When the debt has become demandable, by
not yet due and demandable. They cannot be made reason of the expiration of the period for payment;
liable by ISAC in the absence of an actual forfeiture
of the subject bonds by the BOC and/or an explicit (5) After the lapse of ten years, when the principal
pronouncement by the same bureau that ISAC is obligation has no fixed period for its maturity, unless
already liable on the said bonds. it be of such nature that it cannot be extinguished
except within a period longer than ten years;

Engracio Palanca a judicial administrator
(6) If there are reasonable grounds to fear that the gave bond to guarantee his administration
principal debtor intends to abscond; of the estate of Margarita Jose
The bond was executed by Engracio,
(7) If the principal debtor is in imminent danger of Plaintiff Saenz and two others in favour of
becoming insolvent. the government for the sum of P60k
On the same date, Engracio and 5 others
In all these cases, the action of the guarantor is to executed a bond in favour of Saenz; Yap
obtain release from the guaranty, or to demand a Chuan P20k and the other 4 P5k each
security that shall protect him from any proceedings TC ordered Saenz, as surety in solidum of
by the creditor and from the danger of insolvency of the ex-administrator Engracio to pay the
the debtor. estate the sum of P41k
Saenz paid to the administrator of the
Rodriguezs liability estate P8k; He filed sut against 5 sureties
Petitioner Rodriguez posits that he is merely a who executed the bond
guarantor, and that his liability arises only when the TC acquitted Defendant from the P20k
person with whom he guarantees the credit, claim and ordered the other 4 to pay P2k
Autocorp Group in this case, fails to pay the each.
obligation. Petitioner Rodriguez invokes Article 2079 Both parties appealed. Defendants were
of the Civil Code on Extinguishment of Guaranty, claiming that they are only liable for P1k
which states: each only according to the terms of the
Art. 2079. An extension granted to the debtor by the contract. Plaintiff was claiming that he is
creditor without the consent of the guarantor entitled to maximum sum of P5k for which
extinguishes the guaranty. The mere failure on the each one had bound himself in the contract.
part of the creditor to demand payment after the
debt has become due does not of itself constitute ISSUE: Whether or not Vizmanos is entitled to P20k,
any extension of time referred to herein. a reimbursement of P5k each from the Defendants?

The use of the term guarantee in a contract does not HELD: NO
ipso facto mean that the contract is one of guaranty. The bond of a debtor to protect his surety is
It thus ruled that both petitioners assumed liability not a sub bond nor a second bond with
as a regular party and obligated themselves as respect to the original creditor. It is nothing
original promissors, i.e., sureties. but a substitution of the obligation of the
debtor with respect to his surety, and is
The provisions of the Civil Code on Guarantee, other necessarily governed by the legal provisions
than the benefit of excussion, are applicable and which regulate the right of action of the
[22]
available to the surety. The Court finds no reason surety against the party for whom he gave
why the provisions of Article 2079 would not apply the bond, that is, an action of subrogation
to a surety. which lies with the surety to compel the
debtor to comply with the obligation to
This, however, would not cause a reversal of the reimburse.
Decision of the Court of Appeals. The Court of
This action arising out of subrogation is the
Appeals was correct that even granting arguendo remedy for securing reimbursement of the
that there was a modification as to the effectivity of amount that another has paid, and cannot
the bonds, petitioners would still not be absolved exceed, except there is an express
from liability since they had authorized ISAC to agreement to the contrary, the amount
consent to the granting of any extension, actually paid by the surety in place of the
modification, alteration and/or renewal of the debtor.
subject bonds
IN THIS CASE: The following terms of an

obligation cannot be considered as an

express agreement to the contrary: x x x
SAENZ v YAP CHUAN
bind themselves as such conjointly to
FACTS:

reimburse or pay whatever amounts the Trial Court dismissed the case holding that
latter (the surety) may have to pay or shall provisions of article 2071 of the new Civil Code may
have paid by reason of the judicial bond, be availed of by a guarantor only and not by a surety
inasmuch as this manner of expressing the the complaint, with costs against the plaintiff.
intention of the obligated parties does not
constitute a true disjunctive proposition, ISSUE: The main question to determine is whether
but is merely explanatory of the obligation the last paragraph of article 2071 of the new Civil
as if contracted by the debtor himself, the Code taken from article 1843 of the old Civil Code
only natural and logical interpretation. may be availed of by a surety.
To ask an indemnity of P20k, when the loss
to be indemnified is only P8k is contrary to HELD:
law.
Vizmanos only entitled to an action against A guarantor is the insurer of the solvency of the
4 Defendants for recovery of maximum P5k. debtor; a surety is an insurer of the debt. A
He cannot collect more than the sum which guarantor binds himself to pay if the principal is
he himself was actually compelled to pay. unable to pay; a surety undertakes to pay if the
1
principal does not pay. The reason which could be
invoked for the non-availability to a surety of the
MANILA SURETY v BATU CONSTRUCTION provisions of the last paragraph of article 2071 of the
new Civil Code would be the fact that guaranty like
FACTS: 2
commodatum is gratuitous. But guaranty could also
be for a price or consideration as provided for in
On July 8, 1950, the defendant Batu Construction & article 2048. So, even if there should be a
Company, as principal, and the plaintiff Manila consideration or price paid to a guarantor for him to
Surety & Fidelity Co. Inc., as surety, executed a insure the performance of an obligation by the
surety bond for the sum of P8,812.00 to insure principal debtor, the provisions of article 2071 would
faithful performance of the former's obligation as still be available to the guarantor. In suretyship the
contractor for the construction of the Bacarra surety becomes liable to the creditor without the
Bridge, Project PR-72 (No. 3) Ilocos Norte Province. benefit of the principal debtor's exclusion of his
On the same date, July 8,1950, the Batu properties, for he (the surety) maybe sued
Construction & Company and the defendants Carlos independently. So, he is an insurer of the debt and
N. Baquiran and Gonzales P. Amboy executed an as such he has assumed or undertaken a
indemnity agreement to protect the Manila Surety & responsibility or obligation greater or more onerous
Fidelity Co. Inc.., against damage, loss or expenses than that of guarantor. Such being the case, the
which it may sustain as a consequence of the surety provisions of article 2071, under guaranty, are
bond executed by it jointly with Batu Construction & applicable and available to a surety. The reference in
Company. article 2047 to, the provisions of Section 4, Chapter
3, Title 1, Book IV of the new Civil Code, on solidary
On or about May 30, 1951, the plaintiff received a or several obligations, does not mean that suretyship
notice from the Director of Public Works (Exhibit B) which is a solidary obligation is withdrawn from the
annulling its contract with the Government for the applicable provisions governing guaranty.
construction of the Bacarra Bridge because of its
failure to make satisfactory progress in the execution The plaintiff's cause of action does not fall under
of the works, with the warning that ,any amount paragraph 2 of article 2071 of the new Civil Code,
spent by the Government in the continuation of the because there is no proof of the defendants'
work, in excess of the contract price, will be charged insolvency. The fact that the contract was annulled
against the surety bond furnished by the plaintiff. It because of lack of progress in the construction of the
also appears that a complaint by the laborers in said bridge is no proof of such insolvency. It does not fall
project of the Batu Construction & Company was under paragraph 3, because the defendants have not
filed against it and the Manila Surety and Fidelity bound themselves to relieve the plaintiff from the
Co., Inc., for unpaid wages amounting to P5,960.10. guaranty within a specified period which already has
expired, because the surety bond does not fix any

period of time and the indemnity agreement principal debtors (the defendants) in favor of the
stipulates one year extendible or renewable until the creditor, the Government of the Philippines.
bond be completely cancelled by the person or
entity in whose behalf the bond was executed or by The order appealed from dismissing the complaint is
a Court of competent jurisdiction. It does not come reversed and set aside.
under paragraph 4, because the debt has not
become demandable by reason of the expiration of GEN. INDEMNITY v ALVAREZ
the period for payment. It does not come under
paragraph 5 because of the lapse of 10 years, when FACTS:
the principal obligation has no period for its
maturity, etc., for 10 years have not yet elapsed. It
On February 1954, Appellee General Indemnity
does not fall under paragraph 6, because there is no
Co., Inc., filed a complaint in the CFI Manila
proof that "there are reasonable grounds to fear
against Appellant Estanislao Alvarez for the
that the principal debtor intends to abscond." It does
recovery of the sum of P2,000 representing the
not come under paragraph 7, because the
amount of a loan allegedly taken by the
defendants, as principal debtors, are not in
Appellant from the PNB, which the Appellee
imminent danger of becoming insolvent, there being
guaranteed with an indemnity bond, and for
no proof to that effect.
which Appellant, as counter-guaranty, executed
in Plaintiff's favor a mortgage on his share of
But the plaintiff's cause of action comes under land in a parcel of land .
paragraph 1 of article 2071 of the new Civil Code, The complaint further alleged that the Appellant
because the action brought by Ricardo Fernandez failed to pay said loan, together with interest, to
and 105 persons in the Justice of the Peace Court of PNB as a result of which the bank deducted the
Laoag, province of Ilocos Norte, for the collection of amount thereof Plaintiff's deposit.
unpaid wages amounting to P5,960.10, is in
Thereafter, Appellant averred that the loan in
connection with the construction of the Bacarra
question was secured by him only in
Bridge, Project PR-72 (3), undertaken by the Batu
accommodation of one Hao Lam, and that
Construction & Company, and one of the defendants
Plaintiff agreed not to take any steps against
therein is the herein plaintiff, the Manila Surety and
Appellant and the mortgage executed by him in
Fidelity Co., Inc., and paragraph 1 of article 2071 of
Plaintiff's favor until the latter had failed to
the new Civil Code provides that the guarantor, even
obtain payment from said Hao Lam.
before having paid, may proceed against the
Eight months later, Plaintiff filed a motion for
principal debtor "to obtain release from the
summary judgment saying that Appellang
guaranty, or to demand a security that shall protect
presented no real and meritorious defense and
him from any proceedings by the creditor or from
that it was entitled to a summary judgment in its
the danger of insolvency of the debtor, when he (the
favor, based on the affidavit of its comptroller
guarantor) is sued for payment. It does not provide
Pedro R. Mendiola essentially saying that:
that the guarantor be sued by the creditor for the
o That he has personal knowledge of the
payment of the debt. It simply provides that the
indebtedness of the Defendant.
guarantor of surety be sued for the payment of an
o Notwithstanding said several demands by
amount for which the surety bond was put up to
Plaintiff, Defendant has failed and refused
secure the fulfillment of the obligation undertaken
and still fails and refuses to pay the same.
by the principal debtor. So, the suit filed by Ricardo
The lower courts ruled in favour of Plaintiff.
Fernandez and 105 persons in the Justice of the
Thus this petition.
Peace Court of Laoag, province of Ilocos Norte, for
the collection of unpaid wages earned in connection
with the work done by them in the construction of Issue:
the Bacarra Bridge, Project PR-72(3), is a suit for the
payment of an amount for which the surety bond Whether or not Defendant Alvarez is liable?
was put up or posted to secure the faithful
performance of the obligation undertaken by the Ruling:

NO. The SC ruled that there exists a controversy they issued, thereby releasing them from liabilities
in the complaint and answer as to whether or under these bonds.
not Appellee had actually paid Appellant's
obligation to the Philippine National Bank, a ISSUE: Whether the withdrawal of the stored goods,
matter which should be decided in the wares, and merchandise without notice to them as
affirmative before Appellant, as surety, can sureties released them from any liability for the
claim reimbursement from Appellant, the duties, taxes, and charges they committed to pay
principal debtor. under the bonds they issued?
However, Appellee is correct in saying that said
defense is immaterial to its right to recovery, HELD: NO. By its very nature under the terms of the
since the mortgage deed executed by Appellant laws regulating suretyship, the liability of the surety
in its favor (the genuineness and due execution is joint and several but limited to the amount of the
of which Appellant admitted in his answer) bond, and its terms are determined strictly by the
shows Appellant to be the actual and only terms of the contract of suretyship in relation to the
debtor, and Appellant is precluded from varying principal contract between the obligor and the
this representation by parol evidence. obligee. The definition and characteristics of a
In ruling for the Appellant, the SC opined that suretyship bring into focus the fact that a surety
the last paragraph of Art. 2071 of the New Civil agreement is an accessory contract that introduces a
Code, provides that the only action the third party element in the fulfillment of the principal
guarantor can file against the debtor "to obtain obligation that an obligor owes an obligee. In short,
release from the guaranty, or to demand a there are effectively two (2) contracts involved when
security that shall protect him from any a surety agreement comes into play a principal
proceeding by the creditor and from the danger contract and an accessory contract of suretyship.
of insolvency of the debtor." Under the accessory contract, the surety becomes
An action by the guarantor against the principal directly, primarily, and equally bound with the
debtor for payment, before the former has paid principal as the original promissor although he
the creditor, is premature. possesses no direct or personal interest over the
latters obligations and does not receive any benefit
INTRA STRATA v REPUBLIC therefrom.
FACTS: Grand Textile imported materials from other
countries which, upon arrival, were transferred to Considered in relation with the underlying laws that
Customs Bonded Warehouse. Grand Textile was are deemed read into these bonds, it is at once clear
obliged to pay customs charges. To secure payment that the bonds shall subsist that is, shall remain in
of these obligations, petitioners issued general full force and effect unless the imported articles
warehousing bonds in favor of the Bureau of are regularly and lawfully withdrawn. . .on payment
Customs (BOC). Without payment of any of the of the legal customs duties, internal revenue taxes,
obligations due, Grand Textile withdrew the and other charges to which they shall be subject.
imported goods from storage. BOC demanded Fully fleshed out, the obligation to pay the duties,
payment from Grand Textile as importer and from taxes, and other charges primarily rested on the
the petitioners as sureties. All three failed to pay. principal Grand Textile; it was allowed to warehouse
The government filed a collection suit against the the imported articles without need for prior
parties. payment of the amounts due, conditioned on the
Lower Court ruled against petitioners, CA affirmed. filing of a bond that shall remain in full force and
Petitioners allege that: (1) they were released from effect until the payment of the duties, taxes, and
their obligations under their bonds when Grand charges due. Under these terms, the fact that a
Textile withdrew the imported goods without withdrawal has been made and its circumstances are
payment of taxes, duties, and other charges; and (2) not material to the sureties liability, except to signal
that their non-involvement in the active handling of both the principals default and the elevation to a
the warehoused items from the time they were due and demandable status of the sureties solidary
stored up to their withdrawals substantially obligation to pay. Under the bonds plain terms, this
increased the risks they assumed under the bonds solidary obligation subsists for as long as the
amounts due on the importations have not been

paid. Thus, it is completely erroneous for the the right to intervene in the principal creditor-debtor
petitioners to say that they were released from their relationship; its role becomes alive only upon the
obligations under their bond when Grand Textile debtors default, at which time it can be directly held
withdrew the imported goods without payment of liable by the creditor for payment as a solidary
taxes, duties, and charges. From a commonsensical obligor. A surety contract is made principally for the
perspective, it may well be asked: why else would benefit of the creditor-obligee and this is ensured by
the law require a surety when such surety would be the solidary nature of the sureties undertaking.
bound only if the withdrawal would be regular due Under these terms, the surety is not entitled as a
to the payment of the required duties, taxes, and rule to a separate notice of default, nor to the
other charges? benefit of excussion, and may be sued separately or
together with the principal debtor. Significantly,
We note in this regard the rule that a surety is nowhere in the petitioners bonds does it state that
released from its obligation when there is a material prior notice is required to fix the sureties liabilities.
alteration of the contract in connection with which Without such express requirement, the creditors
the bond is given, such as a change which imposes a right to enforce payment cannot be denied as the
new obligation on the promising party, or which petitioners became bound as soon as Grand
takes away some obligation already imposed, or one Textile, the principal debtor, defaulted. Thus, the
which changes the legal effect of the original filing of the collection suit was sufficient notice to
contract and not merely its form. A surety, however, the sureties of their principals default.
is not released by a change in the contract which
does not have the effect of making its obligation
more onerous. RADIO CORP. OF THE PHILS. v ROA
FACTS:
We find under the facts of this case no significant or
material alteration in the principal contract between The defendant Jesus R. Roa became
the government and the importer, nor in the indebted to the Philippine Theatrical
obligation that the petitioners assumed as sureties. Enterprises, Inc., in the sum of P28,400
Specifically, the petitioners never assumed, nor were payable in seventy-one equal monthly
any additional obligation imposed, due to any installments at the rate of P400 a month
modification of the terms of importation and the commencing thirty days after December 11,
obligations thereunder. The obligation, and one that 1931, with five days grace monthly until
never varied, is on the part of the importer, to pay complete payment of said sum. On that
the customs duties, taxes, and charges due on the same date the Philippine Theatrical
importation, and on the part of the sureties, to be Enterprises, Inc., assigned all its right and
solidarily bound to the payment of the amounts due interest in that contract to the Radio
on the imported goods upon their withdrawal or Corporation of the Philippines.
upon expiration of the given terms. The petitioners In the said contract there was an
lack of consent to the withdrawal of the goods, if accelerating clause that in case the vendee-
this is their complaint, is a matter between them and mortgagor fails to make any of the
the principal Grand Textile; it is a matter outside the payments as hereinbefore provided, the
concern of government whose interest as creditor- whole amount remaining unpaid under this
obligee in the importation transaction is the mortgage shall immediately become due
payment by the importer-obligor of the duties, and payable and this mortgage on the
taxes, and charges due before the importation property herein mentioned as well as the
process is concluded. With respect to the sureties Luzon Surety Bond may be foreclosed by
who are there as third parties to ensure that the the vendor-mortgagee
amounts due are paid, the creditor-obligee's active Roa failed to pay the monthly installment
concern is to enforce the sureties solidary obligation and the whole amount fell due.
that has become due and demandable. The defendant asked for an extension which
was granted.
With regard to the issue on the notice, the surety
does not, by reason of the surety agreement, earn

After the extension given, the surety now liability for other instalments unconnected
argued that they already release from their with the extension of time.
obligation.
HOSPICIO DE SAN JOSE v FIDELITY
ISSUE:
SECURITY BANK v CUENCA
Whether or not the extension granted in DOCTRINE: An extension granted to the debtor
the above copied letter by the plaintiff, by the creditor without the consent of the guarantor
without the consent of the guarantors, the extinguishes the guaranty. The 1989 Loan
herein appellants, extinguishes the latter's Agreement expressly stipulated that its purpose was
liability not only as to the installments due to liquidate, not to renew or extend, the
at that time, as held by the trial court, but outstanding indebtedness. Moreover, respondent
also as to the whole amount of their did not sign or consent to the 1989 Loan
obligation? Agreeement, which had alledgedly extended the
original P8 million credit facility. Hence, his
obligation as a surety should be deemed
HELD:
extinguished, pursuant to Article 2079 of the Civil
Code, which specifically states that [a]n extension
NO, The rule that an extension of time
granted to the debtor by the creditor without the
granted to the debtor by the creditor,
consent of the guarantor extinguishes the guaranty.
without the consent of the sureties,
extinguishes the latter's liability is common An essential alteration in the terms of a
both to Spanish jurisprudence and the Loan Agreement without the consent of the surety
common law; and it is well settled in English extinguishes the latters obligation. The submission
and American jurisprudence that where a that only the borrower, not the surety, is entitled to
surety is liable for different payments, such be notified of any modification in the original loan
as installments of rent, or upon a series of
accommodation is untenable-such theory is contrary
promissory notes, an extension of time as to the to the principle that a surety cannot assume
to one or more will not affect the liability of an obligation more onerous than that of the
the surety for the others principal. That the Indemnity Agreement is a
continuing surety does not authorize the lender to
extend the scope of the principal obligation
VILLA v GARCIA BOSQUE inordinately; A continuing guaranty is one which
FACTS: covers all transaction, including those arising in the
future, which are within the description or
A sale of property was made by the attorney in fact contemplation of the contract of guaranty, until the
for a stated consideration, part of which was paid in expiration or termination thereof.
cash and the balance made payable in deferred
instalments. The attorney in fact then executed a
substituted power of attorney in favor of a third
person to enable the latter to collect the deferred PNB v MANILA SURETY
instalments. Facts:

SC: PNB had opened a letter of credit and advanced
- Extension of time by Creditor to Principal thereon $120K to Edgingtom Oil Refinery for
Debtor; Effect on liability of sureties 8,000 tons of hot asphalt. Of this amount, 2,000
- Where the purchase price of property is tons were released and delivered to Adams &
payable in various installments, an Taguba Corp (ATACO) under a trust receipt
extension of time granted by the creditor to guaranteed by Manila Surety & Fidelity Co.
the debtor with respect to one instalment (MSFC) up to the amount of 75K.
will discharge the sureties, whether simple To pay for the asphalt, ATACo constituted PNB
or solidary, from ALL liability as to such its assignee and atty-in-fact to receive and
instalment bit it DOES NOT AFFECT their collect from the Bureau of Public Works (BPW)

the amount aforesaid out of funds payable to PROVISIONS COMMON TO PLEDGE AND
the assignor under a purchase order. MORTGAGE
ATACO delivered to BPW and the latter
accepted the asphalt to the total value of 400K. ARENAS v RAYMUNDO
After this, PNB regularly collected for 8 months.
Thereafter, it ceased to collect until after 4 Facts: Estanislaua Arenas and Julian La O, brought
years, its investigators found that more money suit against Fausto O. Raymundo (pawnshop owner).
were payable to ATACO from BPW, because the The plaintiffs alleged that the said jewelry, during
latter allowed other creditors to collect funds the last part of April or the beginning of May, 1908,
due to ATACO under the same purchase order. was delivered to Elena de Vega to sell on
PNB demanded from ATACO and MSFC for commission, and that the latter, in turn, delivered it
payment but both refused. to Conception Perello, likewise to sell on
PNB filed a complaint against ATACO and MSFC commission, but that Perello, instead of fulfilling her
to recover the balance with interests and costs. trust, pledged the jewelry in the defendant's
PNB contends that the power of attorney pawnshop. The said jewelry was then under the
obtained from ATACO was merely an additional control and in the possession of the defendant, as a
security in its favor and that it was the duty of result of the pledge by Perello, and that the former
the surety not that of the creditor to see to it refused to deliver it to the plaintiffs.
that the obligor fulfills his obligations and that
the creditor owed the surety no duty of active Issue: W/N the pawnshop should return the jewelry
diligence to collect any sum from the principal to the plaintiffs?
debtor.
Ruling: Yes. In the present suit, it was not proven
that Estanislaua Arenas authorized Perello to pawn
Issue: Whether or not MFSC should be held liable the jewelry given to her by Arenas to sell on
for the unpaid balance? commission. Conception Perello was not the
legitimate owner of the jewelry which she pledged
Held: No, MFSC is not liable. to the defendant Raymundo, for a certain sum that
she received from the latter as a loan, the contract
PNB is not negligent in failing to collect from the of pledge entered the jewelry so pawned cannot
principal debtor but is negligent for its failure in serve as security for the payment of the sum loaned,
collecting the sums due to the debtor from the nor can the latter be collected out of the value of the
Bureau of Public Works, contrary to its duty as said jewelry. The Civil Code prescribes as one of the
holder of an exclusive and irrevocable power of essential requisites of the contracts of pledge and of
attorney to make such collections, since an agent is mortgage, that the thing pledged or mortgaged must
required to act with care of a good father of the belong to the person who pledges or mortgages it.
family and becomes liable for damages which the This essential requisite for the contract of pledge
principal may suffer through non-performance. between Perello and the defendant being absent as
the former was not the owner of the jewelry given in
Even if the assignment with power of attorney from pledge.
the principal debtor were considered as mere
additional security, still by allowing the assigned UNION MOTOR CORP. v CA
funds to be exhausted without notifying the surety,
PNB deprived the former of any possibility of This case is about the spouses respondents who
recoursing against that security. Article 2080 of the bought a jeepney worth 30k. to finance the
Civil Code provides that guarantors even though purchase, the spouses entered into a chattel
they are solidary, are released from their obligation mortgage with Union Motors wherein the security
whenever some act of the creditor they cannot be will be the jeepney. Union motors then transferred
subrogated to the rights, mortgages and the mortgage to a financing company. Receipts and
preferences of the latter. other documents of ownership were issued
however, the jeep is still not in the possession of the
spouses. The spouses tried to have possession of the

jeep but failed. Frustrated, they did not continue the virtue of which, the property had been
payment. LC ruled in favor of the spouses saying that awarded to CDB as highest bidder, is
they are not liable because there is still no delivery. likewise void since the mortgagor was not
Finance Co. claimed there was constructive delivery the owner of the property foreclosed.
because how can the spouses mortgage the property
if they do not own the it. DE LEON v CALALO

Issue: WoN there was delivery FACTS:

Ruling: Non! Chattel mortgage do not prove This case was brought below by respondent Eduardo
delivery. Calalo for the annulment of the mortgage executed
by his brother, Augorio Calalo, in favor of petitioner
Roberto de Leon covering a piece of land and the
DBP v PRUDENTIAL improvements thereon, consisting of a residential
house and a commercial building located at 45/4th
CAVITE DEVELOPMENT v SPOUSES LIM Street, East Tapinac, Olongapo City. Respondent
FACTS: Eduardo alleged that he was the owner of the
Rodolfo Guansing obtained a loan in the property mortgaged, having bought it
amount of P90k from Cavite Devt Bank for P306,000.00 from the spouses Federico and
(CDB) and mortgaged a parcel of land Marietta Malit on September 13, 1984. He claimed
covered by TCT in his name to secure the that, as he was then a member of the merchant
loan. marines and stayed abroad, the Deed of Absolute
When Guansing defaulted in the payment Sale covering the land was made in favor of his
of his loan, CDB foreclosed the mortgage brother, Augorio Calalo; that on April 8, 1985,
and consolidated the title to the property in Augorio executed a Deed of Donation in favor of the
its name minor Julsunthie Calalo, herein respondents son,
R Lim offered to purchase the property who, from the time the property was purchased
from CDB and paid P30k as option money. until the filing of the complaint, had been receiving
She later on discovered that the subject the fruits of the property; that on September 14,
property was originally registered in the 1988, Augorio mortgaged the said property to
name of Perfecto Guansing, father of petitioner Roberto de Leon without his
Rodolfo Guansing. [respondents] knowledge and consent; that the
R filed an action for specific performance mortgage was amended on September 30, 1988;
and damages against CDB for serious that Augorio did not have any right to mortgage the
misrepresentation property because he was not the owner thereof; and
CDB denied that a contract of sale was ever that he (respondent Eduardo) learned only in June
perfected between them and R. Rs letter 1992 that the property was the subject of an
offer clearly states that the sum of P30k extrajudicial foreclosure. Named defendants in the
was given as option money NOT earnest action were petitioner Roberto de Leon, Augorio
money; therefore only an option contract Calalo and Benjamin Gonzales, the sheriff conducting
the foreclosure proceeding.
ISSUE: WON there was a valid foreclosure of the
mortgage and subsequently a contract of sale? In due time, petitioner De Leon filed an answer in
which he claimed to be a mortgagee in good faith,
HELD: NO having previously ascertained the ownership of
NEMO DAT QUOD NON HABET Augorio who occupied and possessed the land in
The sale by CDB to Lim of the property question and in whose name the land was registered
mortgaged by Rodolfo Guansing is deemed in the Register of Deeds and in various other
a nullity for CDB did not have a valid title to documents. He pointed out that even the deed of
the said property. sale attached to respondents complaint showed
CDB never acquired a valid title to the that the land was in Augorios name, clearly proving
property because the foreclosure sale, by that the latter owned the property. Petitioner De

Leon averred that the mortgage in his favor was ERENA v QUERRA-KAUFFMAN
registered with the Register of Deeds and that it had FACTS: Respondent is the owner of a lot with house,
been amended four times. with the TCT kept in a safety deposit box. She left
the key of the box to her husband as she was leaving
ISSUE: W/N the mortgage executed by Augorio for the US. Later on, the daughter of respondent as
Calalo in favor of petitioner De Leon is valid. well as her husband left for the US, and the key was
entrusted to the sister of her husband, Mira Bernal.
HELD: After a few months, respondent asked her sister to
get the TCT in the safety deposit box to be able to
sell the property. When the safe was broken, the
There is no dispute that the land subject of the
items inside were missing, including the title to the
mortgage is titled in the name of Augorio Calalo. Nor
lot and tax declarations, as well as jewelry.
is there any question that petitioner De Leon did not
know of the claim of ownership of respondent

Eduardo Calalo until after the present action was
instituted. As the trial court found, petitioner De
Respondent discovered from Bernal that she and
Leon examined the relevant documents pertaining
Jennifer Ramirez, Victors daughter took the title and
to the land, consisting of the transfer certificate of
mortgaged it to petitioner. There was a woman who
title, the tax declarations in the City Assessors Office
pretended to be the owner of the lot, showing the
and information on the records in the barangay, and
TCT in her name as Vida Dana Querrer and
found that the land was registered in the name of
identification card. Petitioner verified with the Office
Augorio Calalo. Upon due inspection of the property,
of the Register of Deeds that the property was in the
he also found it to be occupied by Augorio Calalo.
name of Vida Dana Querrer and that it was free of
Petitioner had no reason to believe that the land did
any lien or encumbrance. Subsequently, petitioner
not belong to Augorio. Persons dealing with property
was convinced to enter into a Real Estate Mortgage
covered by a torrens certificate of title, as buyers or
Contract which was later on notarized and filed with
mortgagees, are not required to go beyond what
the Office of the Register of Deeds and annotated on
appears on the face of the title. The public interest in
the TCT.
upholding the indefeasibility of torrens titles, as
evidence of the lawful ownership of the land or of

any encumbrance thereon, protects buyers or
mortgagees who, in good faith, rely upon what
Respondent filed a complaint against petitioner,
appears on the face of the certificate of
4 Bernal and Ramirez for Nullification of Deed of Real
title. Petitioner De Leon is a mortgagee in good
Estate Mortgage.
faith.

Whether the money used in acquiring the property
from the original owners came from respondent The RTC ruled in favor of petitioner and declared the
Eduardo Calalo and the title to the property was Deed of Real Estate Mortgage valid. The CA rendered
placed in the name of his brother Augurio Calalo judgment in favor of defendant on the ground that
only because respondent thought he was not in a Real Estate Mortgage contract, it is essential
qualified to acquire lands in the Philippines because that the mortgagor be the absolute owner of the
he had become an American citizen, and that the property to be mortgaged; otherwise the mortgage
land was subsequently donated to respondent is void.
Eduardos son, Julsunthie, are matters not known to
petitioner. Hence, whether Augorio Calalo
committed a breach of trust and whether the
property was validly donated to petitioners son ISSUE: WON THE REAL ESTATE MORTGAGE
Julsunthie are questions which must be resolved in a CONTRACT IS VALID?
separate proceeding.

CEBU INTERNATIONAL v CA


HELD: NO. One of the essential requisites of a into a contract of lease with Asian Cars (R)
mortgage contract is that the mortgagor must be the covering half of the lot for 20 years
absolute owner of the thing mortgaged. A mortgage - The contract allows R to mortgage the
is, thus, invalid if the mortgagor is not the property property as long as the proceeds will be for
owner. In this case, the trial court and the CA are the construction of a building on the land.
one in finding that based on the evidence on record - R mortgaged the property for P6M to
the owner of the property is respondent who was MetroBank, covering the whole lot, and in
not the one who mortgaged the same to the which P signed the documents. R also
petitioner. executed an undertaking wherein the
officers of R are liable personally to the
mortgage
- R defaulted and MetroBank foreclosed the
Petitioner cannot be considered an innocent property.
purchaser for value, relying on the Torrents title. - P filed for annulment of mortgage as it was
While a Torrens title serves as evidence of an acquired through fraud
indefeasible title to the property in favor of the - RTC and CA declared the mortgage and
person whose name appears therein, when the undertaking valid
instrument presented for registration is forged, even
if accompanied by the owners duplicate certificate ISSUE: WON Mortgage allowing R to mortgage the
of title, the registered owner does not thereby lose property was valid
his title, and neither does the assignee of the
mortgagee, for that matter, acquire any right or title SC: YES
to the property. In such a case, the transferee or the - It has long been settled that it is valid so
mortgagee, based on a forged instrument, is not long as valid consent was given. In
even a purchaser or a mortgagee for value protected consenting thereto even granting that
by law. petitioner may not be assuming personal
liability for the debt, her property shall
nevertheless secure and respond for the
performance of the principal obligation
Petitioner cannot also invoke the doctrine of a - The law recognizes instances when persons
mortgagee on good faith. Said doctrine speaks of a not directly parties to a loan agreement
situation where, despite the fact that the mortgagor may give as security their own properties
is not the owner of the mortgaged property, his title for the principal transaction.
being fraudulent, the mortgage contract or any - In this case, the spouses should not be
foreclosure sale arising therefrom are given effect by allowed to disclaim the validity of a
reason of public policy. The doctrine of mortgagee in transaction they voluntarily and knowingly
good faith presupposes that the mortgagor, who is entered into for the simple reason that such
not the rightful owner of the property, has already transaction turned out prejudicial to them
succeeded in obtaining a Torrens title over the later on.
property in his name and that, after obtaining the - Records show that P voluntarily agreed to
said title, he succeeds in mortgaging the property to use their property as collateral for Rs loan,
another who relies on what appears on the said title- hence, no fraud
it does not apply to a situation where the title is still - The undertaking made by R and its officers
in the name of the rightful owner and the mortgagor are valid, hence they are liable to reimburse
is a different person pretending to be the owner. P for the damages they suffered by reason
of the mortgage
PNB v AGUDELO
SPOUSES BELO v PNB
Vda. DE JAYME v CA
FACTS: FACTS:
- Spouses Jayme (P) are the registered
owners of a parcel of land. They entered

1) Eduarda Belo owned an agricultural land with an ISSUE: whether or not the SPA the real estate
area of 661,288 square meters in Panitan, Capiz, mortgage contract, the foreclosure proceedings and
which she leased a portion to respondents spouses the subsequent auction sale involving Eduarda Belo's
Eslabon, for a period of 7 years at the rate of property are valid. And assuming they are valid,
P7,000.00 per year. whether or not the petitioners are required to pay,
as redemption price, the entire claim of respondent
2) Respondents spouses Eslabon obtained a loan PNB in the amount of P2,779,978.72 as of the date
from PNB secured by a real estate mortgage on their of the public auction sale on June 10, 1991.
own 4 residential houses located in Roxas City, as
well as on the agricultural land owned by Eduarda HELD:
Belo. The assent of Eduarda Belo to the mortgage
was acquired through a special power of attorney A) The validity of the SPA and the mortgage contract
which was executed in favor of respondent Marcos cannot anymore be assailed due to petitioners Belo
Eslabon on June 15, 1982. failure to appeal the same after the trial court
rendered its decision affirming their validity.
3) The spouses Eslabon failed to pay their loan
obligation, and so extrajudicial foreclosure B) Also, the SPA executed by Eduarda Belo in favor of
proceedings against the mortgaged properties were the respondents spouses Eslabon and the Real
instituted by PNB and was the highest bidder of the Estate Mortgage executed by the respondents
foreclosed properties at P447,632.00. spouses in favor of respondent PNB are valid. It is
stipulated in paragraph three (3) of the SPA that
4) Meanwhile, Eduarda Belo sold her right of Eduarda Belo appointed the Eslabon spouses "to
redemption to petitioners spouses Enrique and make, sign, execute and deliver any contract of
Florencia Belo under a deed of absolute sale of mortgage or any other documents of whatever
proprietary and redemption rights. Before the nature or kind . . . which may be necessary or proper
expiration of the redemption period, petitioners in connection with the loan herein mentioned, or
spouses Belo tendered payment for the redemption with any loan which my attorney-in-fact may
of the agricultural land which includes the bid price contract personally in his own name
of respondent PNB, plus interest and expenses.
C) ThisSPA was not meant to make her a co-obligor
5) However, PNB rejected the tender of payment of to the principal contract of loan between respondent
petitioners spouses Belo contending that the PNB, as lender, and the spouses Eslabon, as
redemption price should be the total claim of the borrowers. Eduarda Belo consented to be an
bank on the date of the auction sale and custody of accommodation mortgagor in the sense that she
property plus charges accrued and interests signed the SPA to authorize respondents spouses
amounting to P2,779,978.72 to which the spouses Eslabons to execute a mortgage on her land.
disagreed and refused to pay the said total claim of
respondent PNB. Thereafter the\ spouses Belo filed D) An accommodation mortgage isnt void simply
in the RTC an action for declaration of nullity of because the accommodation mortgagor did not
mortgage, with an alternative cause of action, in the benefit from the same. The validity of an
event that the accommodation mortgage be held to accommodation mortgage is allowed under Article
be valid, to compel respondent PNB to accept the 2085 of the New Civil Code which provides that
redemption price tendered by petitioners spouses "(t)hird persons who are not parties to the principal
Belo which is based on the winning bid price of obligation may secure the latter by pledging or
respondent PNB in the extrajudicial foreclosure. The mortgaging their own property."
RTC ruled in favour of the spouses belo.
E) An accommodation mortgagor, ordinarily, is not
6) On appeal, the CA ruled that the petitioners himself a recipient of the loan.
spouses Belo should pay the entire amount due to
PNB under the mortgage deed at the time of the F) There is no doubt that Eduarda Belo, assignor of
foreclosure sale plus interest, costs and expenses. the petitioners, is an accommodation mortgagor.
Section 25 of P.D. No. 694 provides that "the

mortgagor shall have the right to redeem the Alinea and Belarmino loaned P480 from
property by paying all claims of the Bank against Alcantara.
him". From said provision can be deduced that the According to the loan agreement, if the period
mortgagor referred to by that law is one from whom has expired without payment of the loan, the
the bank has a claim in the form of outstanding or house and lot of Alinea and Belarmino will be
unpaid loan; he is also called a borrower or debtor- considered sold to Alcantara.
mortgagor. Alinea and Belarmino failed to pay.
They refused to deliver the property to
G) PNB has no claim against accommodation Alcantara.
mortgagor Eduarda Belo inasmuch as she only Alcantara filed an action against them.
mortgaged her property to accommodate the The defendants contend that the amount
Eslabon spouses who are the loan borrowers of the claimed by Alcantara included the interest and
PNB. The principal contract is the contract of loan that the principal borrowed was only 200 and
between the Eslabon spouses, as that the interest was 280.
borrowers/debtors, and the PNB as lender. The They also alleged as their special defense that
accommodation real estate mortgage which secures they offered to pay Alcantara the sum of 480
the loan is only an accessory contract. Thus, the but the latter had refused to accept the same.
term "mortgagor" in Section 25 of P.D. No. 694
pertains only to a debtor-mortgagor and not to an Issue:
accommodation mortgagor.
1) WON there was a valid mortgage?
H) Moreover, the mortgage contract provides that ". 2) WON the defendants should deliver the
. . the mortgagee may immediately foreclose this property to Alcantara?
mortgage judicially in accordance with the Rules of
Court or extrajudicially in accordance with Act No.
3135, as amended and Presidential Decree No. 385 Held:
Thus, since the mortgage contract in this case is in
the nature of a contract of adhesion as it was 1) No. The property, the sale of which was agreed
prepared solely by respondent, it has to be to by the debtors does not appear mortgaged in
interpreted in favor of petitioners. favor of the creditor because in order to
constitute a valid mortgage it is indispensable
J) While the petitioners, as assignees of Eduarda that the instrument be registered in the Register
Belo, are not required to pay the entire claim of of Property and the document contract does not
respondent PNB against the principal debtors, they constitute a mortgage nor it could possibly be a
can only exercise their right of redemption with mortgage, for the reason that the said
respect to the parcel of land belonging to Eduarda document is not vested with the character and
Belo, the accommodation mortgagor. Thus, they conditions of a public instrument.
have to pay the bid price less the corresponding loan
value of the foreclosed 4 residential lots of the The contract is not a pledge since the said
spouses Eslabon. Thus, petitioners are allowed to property is not personal property and the
redeem only the property registered in the name of debtor continued in possession thereof and was
Eduarda Belo, by paying only the bid price less the never been occupied by the creditor.
corresponding loan value of the foreclosed (4)
residential lots of the respondents spouses Eslabon. It is also not an antichresis by reason that as the
creditor has never been in possession of the
property nor has enjoyed the said property nor
BUSTAMANTE v ROSEL for one moment received its rents.

ALCANTARA v ALINEA 2) Yes. The will of the parties are controlling, In this
Facts: case, a contract of loan and a promise of sale of
a house and lot, the price of which should be
the amount loaned, if within a fixed period of

time such amount should not be paid by the after the sale and not after the end of the period to
debtor-vendor of the property to the creditor- repurchase.
vendee of same. The fact that the parties have
agreed at the same time, in such a manner that Issue: won reyes contention valid
the fulfillment of the promise of sale would
depend upon the nonpayment or return of the Ruling: yes. a stipulation in a purported pacto de
amount loaned, has not produced any change in retro sale that the ownership over the property sold
the nature and legal conditions of either would automatically pass to the vendee in case no
contract, or any essential defect which would redemption was effected within the stipulated
tend to nullify the same. period is contrary to the nature of a true pacto de
retro sale, under which the vendee acquires
ownership of the thing sold immediately upon the
MAHONEY v TUASON execution of the sale, subject only to the vendors
rights of redemption. The said stipulation is a
Facts: P. Blanc, the owner of the jewels, entered into pactum commissorium which enables the mortgagee
a contract of pledge, delivering to the creditor to acquire ownership of the mortgaged property
Mariano Tuason several jewels and other without need of forclosure. It is void. Its insertion in
merchandise for the purpose of securing the the contract is an avowal of the intention to
fulfillment of the obligation which he (Blanc) had mortgage rather than to sell the property.
contracted in favor of the latter who had guaranteed
the payment of a considerable amount of money DAYRIT v CA
which Blanc owed to the Chartered Bank. Creditor
Tuason paid to the Chartered Bank the sum of FACTS: Dayrit, Sumbillo and Angeles entered into a
sixteen thousand pesos (P16,000) which the debtor contract with Mobil Oil Phil, entitled LOAN &
Blanc owed and failed to pay, and that the latter did MORTGAGE AGREEMENT. Defendants violated the
not reimburse Tuason the amount paid to the bank LOAN & MORTGAGE AGREEMENT because they only
together with interests thereon. paid one installment. They also failed to buy the
quantities required in the Sales Agreement.
Issue: W/N Tuason can appropriate the things given
by way of pledge? The plaintiff made a demand, Dayrit answered
acknowledging his liability. Trial Court ruled in favor
Ruling: No. Tuason is entitled to retain and of plaintiff and also ruled that each of the three
appropriate to himself the merchandise received in defendants shall pay 1/3 of the cost. No appeal had
pledge is null and indefensible, because he can only been taken so the decision became final and
recover his credit, according to law, from the executor.
proceeds of the sale of the same. Art. 2088.
Mobil filed for the execution of the judgment. Dayrit
opposed alleging that they had an agreement with
LANUZA v DE LEON Mobil, that he would not appeal anymore but Mobil
would release the mortgage upon payment of his
Spouses lanuza executed a deed of sale with a right 1/3 share.
to repurchase to Reyes. Upon expiration of term to
repurchase, the time was extended without the wife Mobil claimed that the agreement was that it would
of lanuza signing the document. A stipulation to the only release the mortgage if the whole principal
effect that the ownership will only be passed to the mortgaged debt plus the whole accrued interest
vendee if the vendor fails to repurchase the property were fully paid.
was included. The spouses then mortgage the
property to respondent to secure a debt. The debt ISSUE: Whether or not the CFI erred in ordering the
was unpaid and respondent filed a case to foreclose sale at public auction of the mortgaged properties to
the mortgage which was granted. Reyes filed a case answer for the entire principal obligation of Dayrit,
for consolidation, claiming she has the right to the Sumbillo and Angeles.
property. Reyes claims the ownership in the
property automatically passes immediately to him RULING:

While it is true that the obligation is merely joint and ISSUE: WON a real estate mortgage over several
each of the defendant is obliged to pay his 1/3 share properties located in different localities can be
of the joint obligation, the undisputed fact remains separately foreclosed in different places?
that the intent and purpose of the LOAN &
MORTGAGE AGREEMENT was to secure the entire HELD: YES
loan. What the law proscribes is the foreclosure
of only a portion of the property or a
The court ruled that a mortgage directly and number of the several properties
immediately subjects the property upon which it is mortgaged corresponding to the unpaid
imposed, the same being indivisible even though portion of the debt where, before
the debt may be divided, and such indivisibility foreclosure proceedings, partial payment
likewise unaffected by the fact that the debtors are was made by the debtor on his total
not solidarily liable. outstanding loan or obligation.
This also means that the debtor cannot ask
YU v PCIB for the release of any portion of the
FACTS: mortgaged property or of one or some of
P mortgaged their title, interest, and the several lots mortgaged unless and until
participation over several parcels of land the loan thus secured has been fully paid,
located in Dagupan City and Quezon City in notwithstanding the fact that there has
favour of PCIB (R) as security for the been partial fulfillment of the obligation.
payment of a loan in the amount of P9mill Hence, it is provided that the debtor who
P failed to pay the loan; R filed a Petition for has paid a part of the debt cannot ask for
Extrajudicial Foreclosure of Real Estate the proportionate extinguishment of the
Mortgage on the Dagupan City properties. A mortgage as long as the debt is not
Certificate of Sale was issued in favour of R. completely satisfied. In essence,
Subsequently, R filed an Ex-Parte Petition indivisibility means that the mortgage
for Writ of Possession before RTC Dagupan obligation cannot be divided among the
P filed a Motion to Dismiss. They argued different lots, that is, each and every parcel
that the Certificate of Sale is void because under mortgage answers for the totality of
the real estate mortgage is indivisible, the the debt
mortgaged properties in Dagupan City and A.M. No. 99-10-05-0,the Procedure on
Quezon City cannot be separately Extra-Judicial Foreclosure of Mortgage, lays
foreclosed. down the guidelines for extra-judicial
R the filing of two separate foreclosure foreclosure proceedings on mortgaged
proceedings did not violate Article 2089 of properties located in different provinces. It
the Civil Code on the indivisibility of a real provides that the venue of the extra-judicial
estate mortgage since Section 2 of Act No. foreclosure proceedings is the place where
3135 expressly provides that extra-judicial each of the mortgaged property is located.
foreclosure may only be made in the Relevant portion provides:
province or municipality where the
property is situated. R further submits that Where the application concerns the
the filing of separate applications for extra- extrajudicial foreclosure of mortgages
judicial foreclosure of mortgage involving of real estates and/or chattels in
several properties in different locations is different locations covering one
allowed by A.M. No. 99-10-05-0, the indebtedness, only one filing fee
Procedure on Extra-Judicial Foreclosure of corresponding to such indebtedness
Mortgage, as further amended on August 7, shall be collected. The collecting Clerk
2001. of Court shall, apart from the official
TC denied Motion receipt of the fees, issue a certificate of
payment indicating the amount of
indebtedness, the filing fees collected,
the mortgages sought to be foreclosed,

the real estates and/or chattels What happened next are laid out in the OP decision
mortgaged and their respective adverted to above, thus:
locations, which certificate shall serve
the purpose of having the application In response to the above complaints, ASB
docketed with the Clerks of Court of alleged that it encountered liquidity
the places where the other properties problems sometime in 2000 after its
are located and of allowing the creditors [UCPB and Metrobank]
extrajudicial foreclosures to proceed simultaneously demanded payments of
thereat. (Emphasis supplied) their loans; that on May 4, 2000, the
Commission (SEC) granted its petition for
The indivisibility of the real estate mortgage rehabilitation; that it negotiated with UCPB
is not violated by conducting two separate and Metrobank but nothing came out
foreclosure proceedings on mortgaged positive from their negotiation .
properties located in different provinces as
long as each parcel of land is answerable for On the other hand, Metrobank claims that
the entire debt complainants [Dylanco and SLGT] have no
personality to ask for the nullification of the
mortgage because they are not parties to
METROBANK v SLGT the mortgage transaction ; that the
complaints must be dismissed because of
FACTS: the ongoing rehabilitation of ASB; xxx that
its claim against ASB, including the
On October 25, 1995, Dylanco and SLGT each mortgage to the [Project] have already
entered into a contract to sell with ASB for the been transferred to Asia Recovery
purchase of a unit (Unit 1106 for Dylanco and Unit Corporation; xxx.
1211 for SLGT) at BSA Towers then being developed
by the latter. As stipulated, ASB will deliver the units UCPB, for its part, denies its liability to SLGT
thus sold upon completion of the construction or [for lack of privity of contract] [and]
before December 1999. Relying on this and other questioned the personality of SLGT to
undertakings, Dylanco and SLGT each paid in full the challenge the validity of the mortgage
contract price of their respective units. The promised reasoning that the latter is not party to the
completion date came and went, but ASB failed to mortgage contract [and] maintains that
deliver, as the Project remained unfinished at that the mortgage transaction was done in good
time. To make matters worse, they learned that the faith. Finally, it prays for the suspension of
lots on which the BSA Towers were to be erected the proceedings because of the on-going
6
had been mortgaged to Metrobank, as the lead rehabilitation of ASB.
7
bank, and UCPB without the prior written approval
of the Housing and Land Use Regulatory Board In resolving the complaint in favor of
(HLURB). Dylanco and SLGT, the Housing Arbiter
ruled that the mortgage constituted over
Alarmed by this foregoing turn of events, Dylanco, the lots is invalid for lack of mortgage
on August 10, 2004, filed with the HLURB a clearance from the HLURB.
complaint for delivery of property and title and for
the declaration of nullity of mortgage. A similar ISSUE: W/N The declaration of nullity of the entire
complaint filed by SLGT followed three (3) days later. mortgage constituted on the project land site and
At this time, it appears that the ASB Group of the improvements was valid. and
Companies, which included ASB, had already filed
with the Securities and Exchange Commission a HELD:
petition for rehabilitation and a rehabilitation
receiver had in fact been appointed. Both petitioners do not dispute executing the
mortgage in question without the HLURBs prior
written approval and notice to both individual

respondents. Section 18 of Presidential Decree No. The next question to be addressed turns on whether
(PD) 957 The Subdivision and Condominium Buyers or not the nullity extends to the entire mortgage
Protective Decree provides: contract.
SEC. 18. Mortgages. - No mortgage of any The poser should be resolved, as the CA and OP did
unit or lot shall be made by the owner or resolve it, in the affirmative. This disposition stems
developer without prior written approval from the basic postulate that a mortgage contract is,
of the [HLURB]. Such approval shall not be by nature, indivisible. Consequent to this feature, a
granted unless it is shown that the proceeds debtor cannot ask for the release of any portion of
of the mortgage loan shall be used for the the mortgaged property or of one or some of the
development of the condominium or several properties mortgaged unless and until the
subdivision project . The loan value of loan thus secured has been fully paid,
each lot or unit covered by the mortgage notwithstanding the fact that there has been partial
shall be determined and the buyer thereof, fulfillment of the obligation. Hence, it is provided
if any, shall be notified before the release that the debtor who has paid a part of the debt
of the loan. The buyer may, at his option, cannot ask for the proportionate extinguishments of
pay his installment for the lot or unit the mortgage as long as the debt is not completely
directly to the mortgagee who shall apply satisfied.
the payments to the corresponding
mortgage indebtedness secured by the The situation obtaining in the case at bench is within
particular lot or unit being paid for . the purview of the aforesaid rule on the indivisibility
(Emphasis and word in bracket added) of mortgage. It may be that Section 18 of PD 957
allows partial redemption of the mortgage in the
There can thus be no quibbling that the project lot/s sense that the buyer is entitled to pay his installment
and the improvements introduced or be introduced for the lot or unit directly to the mortgagee so as to
thereon were mortgaged in clear violation of the enable him - the said buyer - to obtain title over the
aforequoted provision of PD 957. And to be sure, lot or unit after full payment thereof. Such
Dylanco and SLGT, as Project unit buyers, were not accommodation statutorily given to a unit/lot buyer
notified of the mortgage before the release of the does not, however, render the mortgage contract
loan proceeds by petitioner banks. also divisible. Generally, the divisibility of the
principal obligation is not affected by the
As it were, PD 957 aims to protect innocent indivisibility of the mortgage. The real estate
subdivision lot and condominium unit buyers against mortgage voluntarily constituted by the debtor (ASB)
fraudulent real estate practices. Its preambulatory on the lots or units is one and indivisible. In this case,
clauses say so and the Court need not belabor the the mortgage contract executed between ASB and
matter presently. Section 18, supra, of the decree the petitioner banks is considered indivisible, that is,
directly addresses the problem of fraud and other it cannot be divided among the different buildings or
manipulative practices perpetrated against buyers units of the Project. Necessarily, partial
when the lot or unit they have contracted to acquire, extinguishment of the mortgage cannot be allowed.
and which they religiously paid for, is mortgaged In the same token, the annulment of the mortgage is
without their knowledge, let alone their consent. an all or nothing proposition. It cannot be divided
The avowed purpose of PD 957 compels, as the OP into valid or invalid parts. The mortgage is either
correctly stated, the reading of Section 18 as valid in its entirety or not valid at all. In the present
prohibitory and acts committed contrary to it are case, there is doubtless only one mortgage to speak
void. Any less stringent construal would only accord of. Ergo, a declaration of nullity for violation of
unscrupulous developers and their financiers Section 18 of PD 957 should result to the mortgage
unbridled discretion to follow or not to follow PD being nullified wholly.
957 and thus defeat the very lofty purpose of that
decree. It thus stands to reason that a mortgage It will not avail the petitioners any to feign ignorance
contract executed in breach of Section 18 of the of PD 957 requiring prior written approval of the
decree is null and void. HLURB, they being charged with knowledge of such

requirement since granting loans secured by a real ISSUE: Whether the contract entered into between
estate mortgage is an ordinary part of their business. plaintiff and defendant is a chattel mortgage or a
valid contract of pledge?
CENTRAL BANK v CA

PLEDGE
HELD: Its a contract of pledge. The contract itself
YULIONGSIU v PNB provides that it is a contract of pledge and the
FACTS: Yulongsiu owned 2 vessels and equity in FS- judicial admission that it is a pledge contract cannot
203, which were purchased by him from the be offset without showing of palpable mistake.
Philippine Shipping Commission, by installment.
Plaintiff obtained a loan from defendant and to
guarantee payment, plaintiff pledged the 2 vessels
The pledgee defendant was therefore entitled to
and the equity on FS-203, as evidenced by a pledge
the actual possession of the vessels. The plaintiffs
contract. Plaintiff made a partial payment and the
continued operation of the vessels after the pledge
remaining balance was renewed by the execution of
contract was entered into places his possession
2 promissory notes in the banks favor. These two
subject to the order of the pledge. The pledge can
notes were never paid at all by plaintiff on their
temporarily entrust the physical possession of the
respective due dates.
chattels pledged to the pledgor without invalidating
the pledge. In this case, the pledgor is regarded as
holding the pledge merely as a trustee for the
Defendant bank filed a criminal case against plaintiff pledge.
charging the latter with estafa through falsification

of commercial documents, and the trial court
convicted the plaintiff and was sentenced to
As to the validity of the pledge contract with regard
indemnify the defendant. The corresponding writ of
to delivery, plaintiff alleges that constructive delivery
execution issued to implement the order for
is insufficient to make pledge effective. The Court
indemnification was returned unsatisfied as plaintiff
ruled that type of delivery will depend on the nature
was totally insolvent.
and peculiar circumstances of each case. Since the
defendant bank was, pursuant to the pledge
contract, in full control of the vessels through
Meanwhile, together with the institution of the plaintiff, the former could take actual possession at
criminal action, defendant took physical possession any time during the life of the pledge to make more
of the 2 vessels and transferred the equity on FS-203 effective its security.
to the defendant. Later on, the 2 vessels were sold
by defendant to third parties.
FBDC v YLLAS LENDING

FACTS:
Plaintiff commenced an action for recovery on the
pledged items, and alleges, among others, that the FBDC executed a lease contract in favor of
contract executed was a chattel mortgage so the Tirreno, Inc. (Tirreno) over a unit at the
creditor defendant could not take possession of the Entertainment Center - Phase 1 of the
chattel object thereof until after there has been Bonifacio Global City in Taguig, Metro
default. Manila
Two provisions in the lease contract are
pertinent to the present case: Section 20,
which is about the consequences in case of
default of the lessee, and Section 22, which

is about the lien on the properties of the No, This stipulation is in the nature of a
lease. resolutory condition, for upon the exercise
by the [lessor] of his right to take
Tirreno began to default in its lease possession of the leased property, the
payments in 1999. By July 2000, Tirreno was contract is deemed terminated. This kind of
already in arrears by P5,027,337.91. FBDC contractual stipulation is not illegal, there
and Tirreno entered into a settlement being nothing in the law proscribing such
agreement on 8 August 2000. Despite the kind of agreement.
execution of the settlement agreement, Judicial permission to cancel the agreement
FBDC found need to send Tirreno a written was not, therefore necessary because of the
notice of termination dated 19 September express stipulation in the contract of [lease]
2000 due to Tirreno's alleged failure to that the [lessor], in case of failure of the
settle its outstanding obligations [lessee] to comply with the terms and
FBDC entered and occupied the leased conditions thereof, can take-over the
premises. FBDC also appropriated the possession of the leased premises, thereby
equipment and properties left by Tirreno cancelling the contract of sub-lease. Resort
pursuant to Section 22 of their Contract of to judicial action is necessary only in the
Lease as partial payment for Tirreno's absence of a special provision granting the
outstanding obligations. power of cancellation.
Yllas Lending Corporation and Jose S. We allow FBDC's forfeiture of Tirreno's
Lauraya, in his official capacity as President, properties in the leased premises. By
(respondents) caused the sheriff of Branch agreement between FBDC and Tirreno, the
59 of the trial court to serve an alias writ of properties are answerable for any unpaid
seizure against FBDC. On the same day, rent or charges at any termination of the
FBDC served on the sheriff an affidavit of lease. Such agreement is not contrary to
title and third party claim law, morals, good customs, or public policy.
Despite FBDC's service upon him of an Forfeiture of the properties is the only
affidavit of title and third party claim, the security that FBDC may apply in case of
sheriff proceeded with the seizure of Tirreno's default in its obligations
certain items from FBDC's premises
The sheriff delivered the seized properties PNB v ATENDIDO
to respondents. FBDC questioned the (Re Incorporeal Rights)
propriety of the seizure and delivery of the FACTS:
properties to respondents without an Laureano Atendido (LA) obtained from PNB (P) a
indemnity bond before the trial court. FBDC loan payable in 120 days with interest. To guarantee
argued that when respondents and Tirreno its payment LA pledge to the bank 2,000 cavans of
entered into the chattel mortgage palay which were deposited in a warehouse and to
agreement on 9 November 2000, Tirreno no that effect endorsed in favor of the bank the
longer owned the mortgaged properties as corresponding WH receipt. Before the maturity of
FBDC already enforced its lien on 29 the loan, the cavans of rice dissappeared from the
September 2000. WH. LA failed to pay the loan upon matrity and so
the present action was instituted. LA set up the
ISSUE: Whether or not the dismissal of FBDC's third defense that the quedan covering the palay which
party claim upon the trial court's erroneous was given as security having been endorsed in blank
interpretation that FBDC has no right of ownership in favor of the bank and the palay having been lost
over the subject properties because Section 22 of or disappeared, he thereby became relieved of
the contract of lease is void for being a pledge and a liability.
pactum commissorium?
ISSUE: WoN LA is relieved from liability
HELD:
SC: NO!

The surrender of the warehouse receipt fiven as immediate possession, closing the warehouse with
security, endorsed in blank was NOT that of a final the bank's padlocks.
transfer or that WH receipt but merely as a guaranty
to the fulfillment of the obligation of P3k. This being 4) On April 17, 1914, partnership Ocejo presented,
so, the ownership remains with the pledgor subject for collection, its account for the purchase price of
only to foreclosure in case of nonfulfillment of the sugar, but chua refused to make payment, and
obligation. The pledgor, continuing to be the owner up to the present time the sellers have been unable
of the goods pledged during the pendency of the to collect the purchase price of the merchandise in
obligation in case of the loss of the property, the loss question.
is borne by him.
5) The partnership Ocejo made a demand on the
OCEJO PEREZ v INTERNATIONAL BANK bank for the delivery of the sugar, to which demand
the bank refused to accede. A suit was filed by Ocejo
FACTS: alleging that said defendant was unlawfully holding
the seized sugar, the property of the plaintiff firm
1) On March 7, 1914, Chua Teng Chong, executed to Ocejo, which the bank had received from Chua Teng
the International Banking Corporation a promissory Chong, and prayed for the judgment for the
note, payable one month after date, for the sum of possession of said sugar.
P20,000 which note was also attached to another
private document, signed by Chua, which stated that 6) Subsequently, by agreement of the parties, the
he had deposited with the bank, as security for the sugar was sold and the proceeds of the deposited in
said note, 5,000 piculs of sugar, which were said the bank. Afterwards, a complaint in intervention
stored in a warehouse in Binondo, Manila. was filed by Chua Seco, the assignee of the
insolvency of Chua Teng Chong, asserting a
2) The bank made no effort to exercise any active preferential right to the sugar, or to the proceeds of
ownership over said merchandise until the April 16, its sale contending that the sugar is the property of
when it discovered that the amount of sugar stored the insolvent estate represented by him. The lower
in the said warehouse was much less than what was court rendered judgment in favor of the Oceja
mentioned in the contract. The agreement between
the bank and Chua Teng Chong with respect to the ISSUES:
alleged pledge of the sugar was never recorded in a
public instrument. (a) Did title to the sugar pass to the buyer upon its
delivery to him (chua seco)?
3) On March 24, 1914, the plaintiff partnership
Ocejo, Perez and Co., entered into contract with (b) Assuming to pay that the title passed to the
Chua for the sale to him of sugar where the delivery buyer, did his failure to pay the purchase price
should be made in April. The delivery was completed authorize the seller to rescind the sale?
April 16, 1914, and the sugar was stored in the
buyer's warehouse situated at Muelle de la
(c) Can the pledge of the sugar to the bank be
Industria. On this same date, the bank sent an
sustained upon the evidence as to the circumstances
employee to inspect the sugar described in the
under which it obtained physical possession thereof?
pledge agreement, which should have been stored in
the Calle Toneleros warehouse. It was discovered
that the amount of sugar in that warehouse did not HELD:
exceed 1,800 piculs, it was supposed to have 5,000
piculs of sugar. Eventually, the employee was A) The SC agreed with Chuas contention that he was
informed that the rest of the sugar covered by the entitled to demand payment of the sugar at any time
pledge agreement was stored in the warehouse at after the delivery. No term having been stipulated
No. 119, Muelle de la Industria. The bank's within which the payment should be made, payment
representative immediately went to this warehouse, was demandable at the time and place of the
found 3,200 piculs of sugar, of which he took delivery of the thing sold. The seller did not avail
himself of his right to demand payment as soon as

the right to such payment arose, but as no term for E) As to assignee Chua Seco: He filed a complaint in
payment was stipulated, he was entitled, to require intervention in this suit, in which he contends that
payment to be made at any time after delivery, and by reason of its sale and delivery by plaintiff to the
it was the duty of the buyer to pay the price insolvent, title to the sugar passed to the latter and
immediately upon demand. In essence, the delivery that the pledge set up by the bank is void as to third
had the effect of transmitting the title of the sugar to persons. The title to the sugar having been
the buyer. commenced against him before the declaration of
insolvency, the assignee, Chua Seco, has a better
B) Failure on the part of the buyer to pay the price right to its possession or to the product of its sale
on demand: Article 1506 of the Civil Code provides during the pendency of this action. The decision of
that the contract of sale may be rescinded for the the court below is therefore reversed, and it is
same causes as all other obligations, in addition to decided that the assignee of the bankruptcy of Chua
the special causes enumerated in the preceding Teng Chong is entitled to the product of the sale of
articles. It is also observed that the article does not the sugar here in question, to wit, P10,826.76,
distinguish the consummated sale from the merely together with the interest accruing thereon,
perfected sale. In the contract of the sale the reserving proceedings. So ordered.
obligation to pay the price is correlative to the
obligation to deliver the thing sold. Nonperformance CRUZ v LEE
by one of the parties authorizes the other to exercise
the right, conferred upon him by the law, to elect to SARMIENTO v JAVELLANA
demand the performance of the obligation or its Facts:
rescission.
Spouses Villasenor obtained a loan from
C) The sugar here in question could not be possibly Javellana to be paid within one year with an
have been the subject matter of the contract of interest of 25% p.a. evidenced by to documents.
pledge which the parties undertook to create by the They pledged 4,000 worth of jewels.
private document, inasmuch as it was not at the Upon maturity, the Spouses requested for an
time the property of the bank, and this constitutes extension.
an indispensable requisite for the creation of a After 7 years, Villasenor offered to pay the loan
pledge. and redeem the jewels.
Javellana refused on the ground that
D) It is not shown that an effort was made to pledge redemption period has already expired and he
the sugar, the subject matter of this case. Though it has already bought the jewels from the wife of
happened that the day the sugar was delivered, the Villasenor.
Chua gave the bank's representative the keys of the Villasenor brought an action against Javellana to
warehouse on the Muelle de la Industria in which compel the return of the jewels pledged.
the sugar was stored, it was not because of an
agreement concerning the pledge of the sugar. From Issues:
the facts, no attempt was made to enter into any
agreement for the pledge of the sugar here in 1) WON Villasenor can still redeem the jewels?
question. The bank took possession of that sugar 2) WON the right to redeem has already expired?
under the erroneous belief, based upon the false
statement of Chua Teng Chong, that it was a part of
the lot mentioned in the private document. Even Held:
assuming that an attempt was made to pledge the
sugar and that delivery was made in accordance with 1) Yes. As the jewels in question were in the
the agreement, the pledge so established would be possession of the defendant to secure the
void as against third persons since it is provided payment of a loan of 1,500 with interest
Article 1865 of the Civil Code that a pledge is without thereon and for having subsequently extended
effect as against third persons "if the certainty of the the term of the loan indefinitely, and so long as
date does not appear by public instrument." the value of the jewels pledged was sufficient to
secure the payment of the capital and the

accrued interest, the defendant is bound to
return the jewels or their value to the plaintiffs, Issue: W/N the the essential procedural requisites
and the plaintiffs have the right to demand the for the auction sale had been satisfied?
same upon the payment by them of the sum of
1,500 plus interest. Ruling: Yes. Under the Civil Code, the foreclosure of
a pledge occurs extrajudicially, without intervention
2) An action for recovery of the goods which were by the courts. All the creditor needs to do, if the
pledged to secure the payment of a loan credit has not been satisfied in due time, is to
evidenced by a document is an action on a proceed before a Notary Public to the sale of the
written contract which has a prescriptive period thing pledged.
of 10 years from the date on which the debtor
may have paid the debt and demanded the MANILA SURETY v VELAYO
return of the goods pledged.
F: Manila Surety & Fidelity Co., upon request of
In this case, the expiration of the contract was in Rodolfo Velayo, executed a bond for P2,800.00 for
1912 and the action to recover was filed in the dissolution of a writ of attachment obtained by
1920, therefore, the action has not yet one Jovita Granados in a suit against Rodolfo Velayo
prescribed. in the Court of First Instance of Manila. Velayo
undertook to pay the surety company an annual
premium of P112.00 and provided collateral jewelry
PARAY v RODRIGUEZ with the authority to sell in case Manila Surety will
be obliged to pay. Judgment having been rendered
Facts: Respondents were the owners, in their in favor of Jovita Granados and against Rodolfo
respective personal capacities, of shares of stock in a Velayo, and execution having been returned
corporation known as the Quirino-Leonor-Rodriguez unsatisfied, the surety company was forced to pay
1
Realty Inc. Sometime during the years 1979 to 1980, P2,800.00 that it later sought to recoup from Velayo;
respondents secured by way of pledge of some of and upon the latter's failure to do so, the surety
their shares of stock to petitioners Bonifacio and caused the pledged jewelry to be sold, realizing
Faustina Paray ("Parays") the payment of certain therefrom a net product of P235.00 only The surety
loan obligations. When the Parays attempted to files a claim against Velayo because the security Is
foreclose the pledges on account of respondents insufficient. Velayo claims the sale of the jewelry
failure to pay their loans, respondents filed even if insufficient extinguishes the principal
complaints with the Regional Trial Court (RTC) of obligation.
Cebu City and , sought the declaration of nullity of
the pledge agreements. However the RTC, in its Issue: Won Velayos contention is correct
3
decision dated 14 October 1988, dismissed the
complaint and gave "due course to the foreclosure Ruling: Yes! The sale of the thing pledged shall
and sale at public auction of the various pledges. extinguish the principal obligation, whther or not the
Respondents then received Notices of Sale which proceeds of the sale are equal to the amount of the
indicated that the pledged shares were to be sold at principal obligation, interest and expenses in a
public auction. However, before the scheduled date proper case.
of auction, all of respondents caused the
consignation with the RTC Clerk of Court of various REAL MORTGAGE
amounts. It was claimed that respondents had
attempted to tender these payments to the Parays, VIOLA v EPCIB
but had been rebuffed. Notwithstanding the
consignations, the public auction took place as FACTS: Via a contract denominated as CREDIT LINE
scheduled, with petitioner Vidal Espeleta AND REAL ESTATE MORTGAGE AGREEMENT FOR
successfully bidding. Respondents instead filed on 13 PROPERTY LINE (Credit Line Agreement) executed
November 1991 a complaint seeking the declaration on March 31, 1997, Leo-Mers Commercial, Inc., as
of nullity of the concluded public auction. Petitioners the Client, and its officers spouses Leopoldo and
now argue that the essential procedural requisites Mercedita Viola (petitioners) obtained a loan
for the auction sale had been satisfied.

through a credit line facility in the maximum amount ISSUE: whether the mortgage contract also secured
of P4,700,000.00 from the Philippine Commercial the penalty fee per month on the outstanding
International Bank (PCI Bank), which was later amount as stipulated in the Credit Line Agreement.
merged with Equitable Bank and became known as
Equitable PCI Bank, Inc. RULING: A mortgage must sufficiently describe the
debt sought to be secured, which description must
To secure the payment of the loan, petitioners not be such as to mislead or deceive, and an
executed also on March 31, 1997 a Real Estate obligation is not secured by a mortgage unless it
Mortgage in favor of PCIBank over their two parcels comes fairly within the terms of the mortgage.
of land.
In the case at bar, the parties executed two separate
Petitioners availed of the full amount of the loan. documents on March 31, 1997 the Credit Line
Subsequently, they made partial payments and Agreement granting the Client a loan through a
made no further payments and despite demand, credit facility in the maximum amount of
they failed to pay their outstanding obligation. P4,700,000.00, and the Real Estate Mortgage
contract securing the payment thereof.
Respondent thus extrajudicially foreclosed the Undisputedly, both contracts were prepared by
mortgage before the Office of the Clerk of Court & respondent and written in fine print, single space.
Ex-Officio Provincial Sheriff of the Regional Trial
Court (RTC) of Marikina City. The mortgaged The provision of the mortgage contract does not
properties were sold on April 10, 2003 for specifically mention that, aside from the principal
P4,284,000.00 at public auction to respondent, after loan obligation, it also secures the payment of a
which a Certificate of Sale dated April 21, 2003 was penalty fee of three percent (3%) per month of the
issued. outstanding amount to be computed from the day
deficiency is incurred up to the date of full payment
More than five months later or on October 8, 2003, thereon, which penalty was expressly stipulates in
petitioners filed a complaint for annulment of the Credit Line Agreement.
foreclosure sale. They claim that:
a) they had made substantial payments Since an action to foreclose must be limited to the
b) the foreclosure proceedings and auction amount mentioned in the mortgage and the
sale were not only irregularly and penalty fee of 3% per month of the outstanding
prematurely held but were null and void obligation is not mentioned in the mortgage, it must
because the mortgage debt is only be excluded from the computation of the amount
P2,224,073.31 on the principal obligation secured by the mortgage.
and P1,455,137.36 on the interest, or a
total of only P3,679,210.67 as of April 15, Penalty fee is entirely different from bank
2003, but the mortgaged properties were charges. The phrase bank charges is normally
sold to satisfy an inflated and erroneous understood to refer to compensation for services. A
principal obligation of P4,783,254.69, plus penalty fee is likened to a compensation for
3% penalty fee per month or 33% per year damages in case of breach of the obligation. Being
and 15% interest per year, which amounted penal in nature, such fee must be specific and fixed
to P14,024,623.22 as of September 30, by the contracting parties, unlike in the present case
2002; which slaps a 3% penalty fee per month of the
c) that the parties never agreed and outstanding amount of the obligation.
stipulated in the real estate mortgage
contract that the 15% interest per annum
on the principal loan and the 3% penalty fee DILAG v HEIRS OF RESSURECCION
per month on the outstanding amount FACTS:
would be covered or secured by the BEFORE 1936: Laureano Marquez (LM) was
mortgage; indebted to Fortunato Resurreccion (FR) in
the sum of P5k as the balance of purchase
price of a parcel of land which LM bought
and received from FR.

FR was in turn indebted to Luzon Surety On September 30, 1950, respondents Pedro B.
Company in the same amt, secured by a Bautista, Dativa Corrales Bautista, Inocencio C.
mortgage on 3 parcels of land one of Campos, and the Flash Taxi Company jointly and
which was bought by LM from him severally applied for and obtained a credit
AS EARLY AS 193: LM had agreed to pay accommodation from the petitioner bank in the sum
FRs indebtedness to Luzon Surety Company of P100,000.00, and as a security therefor executed
by way of satisfaction of his own in favor of the bank, in one single document, a real
indebtedness to FR in the same amt estate mortgage over four parcels of land, and a
LM failed to pay indebtedness of FR to the chattel mortgage on some movie equipment and
Luzon Surety Company, and the latter thirty taxicabs. Respondents having failed to pay the
foreclosed judicially the mortgage executed total amount of P128,902.42 due on the credit
in its favour by FR accommodation referred to, the petitioner bank
Since LM did not fulfil his promise, FR procured the extrajudicial foreclosure of the real
commenced an action against LM to estate mortgage in accordance with Act No. 3135, as
recover the value of lost properties amended, and at the foreclosure sale on January 9,
LM sale at public auction of 5 parcels of 1956, the bank acquired the properties mortgaged
land mentioned in FRs complaint is invalid as the highest bidder for the sum of P68,365.60.
because they are not specifically described
in the mortgage deed. LM acquired those Claiming a balance of P62, 749.72 still due, the
parcels of land subsequent to the execution petitioner bank, instead of foreclosing respondents'
of mortgage deed. chattel mortgage, filed against them on may 22,
In the fifth clause of said document 1956, Civil Case No. 29752 for the collection of said
Laureano Marquez stipulated that inasmuch balance. The lower court, on June 30, 1956,
as the five parcels of land described in the rendered judgment ordering defendants to pay the
fourth clause were not sufficient to cover all plaintiff bank, jointly and severally, the sum of P62,
his obligations in favor of Fortunato 749.72, with interest thereon at the rate of 7% per
Resurreccion, he also constituted a annum from May 22, 1956 until the said amount is
mortgage in favor of the latter and his fully paid.
assignees on any other property he then
might have and on those he might acquire On September 18,1956, the court issued an order to
in the future. execute said judgment; it does not appear, though,
that plaintiff sought the enforcement of the writ of
ISSUE: WON such a stipulation constitute a valid execution.
mortgage on the 5 other parcels of land which LM
subsequently acquired? On April 24, 1957, the court issued another order for
the execution of the judgement, pursuant to which
HELD: NO the sheriff of Manila published a "Notice of Sale,"
LM could not legally mortgage any property setting for sale at public auction on May 13, 1957
he did not yet own. In order that a the rights, interest or participation of respondents
mortgage may be validly constituted the on the certificate of public convenience registered in
instrument by which it is created must be the name of the Flash Taxi Co. in cases Nos. 32578 of
recorded in the Registry of Deeds and so far the Public Service Commission.
as the additional parcels of land are
concerned, the registration of Deed of On May 13, 1957, the sheriff sold the rights,
Mortgage did not affect and could not have interests, or participation of respondents in the
affected them because they were not certificate of public convenience in question to the
specifically described therein. plaintiff bank as the highest bidder for the amount of
P60,371.25, and two days later, on May 15, the
PBCOM v MACADAEG sheriff issued to plaintiff the corresponding
certificate of sale.
FACTS:

Respondents Pedro B. Bautista, et al., filed in the and maintain instead a personal action for the
court below a "Petition To Set Aside Order dated recovery of the unpaid balance of its credit (De la
June 8, 1957, Confirming Sheriffs Sale of may 15, Rama vs. Sajo, 45 Phil., 703; Salomon vs. Dantees, 63
1957 and to Declare its Nullity," claiming, as grounds Phil., 522; Brancharch Motor Co. vs. Rangal, et al., 68
for the petitions, that they had other properties Phil., 287, 290). This petitioner did by filing civil Case
which they had pointed out to the plaintiff bank with No. 29752 for the collection of the unpaid balance of
which the judgement could be satisfied that the law respondents' indebtedness; and the validity and
grants to the judgement debtor the right to direct correctness of the action was admitted by
which of his properties should be sold in execution respondents themselves when they confessed
of a judgement; that the sale of the certificate of judgement thereto. The court in fact decision
public convenience in question would mean pursuant to such confession of judgement, and the
irreparable damage to them and would prove of decision has long since been final and executory.
work about forth drivers employed in their taxicab
business; and that defendants had no objection to PRUDENTIAL BANK v PANIS
bearing the expenses of the sale sought to be
revoked and of any subsequent execution sales in HOME BANKERS v CA
satisfaction of the judgement. Facts:
Plaintiff bank opposed the petition, contending that Private respondents entered into a Contract
there was no showing that the sheriff's sale in to Sell Agreement with TransAmerican
question was irregular or not in accordance with law; through Engr. Garcia over portions of land
that the subject of the execution sale being personal with one unit three-storey townhouse to be
property, and a certificate of sale having already built on each portion.
been delivered to it by the sheriff, the court could no Engr. Garcia obtained a loan from petitioner
longer set aside said sale and as security executed a mortgage over
the property subject to the Contract to Sell
ISSUE: W/N the sheriffs sale was irregular and with the private respondents. Petitioner
therefore null and void. registered its mortgage on these titles
without any other encumbrance or lien
HELD: annotated therein.
When the loan was due, Engr. Garcia failed
The alleged nullity is claimed to arise from the fact to pay hence petitioner instituted an
that the real estate and chattel mortgage executed extrajudicial foreclosure on the subject lots.
by respondents to secure their credit Private respondents prayed for the
accommodation with the petitioner bank was annulment of the mortgage in favor of
indivisible, and that consequently, the bank had no petitioner.
legal right to extra judicially foreclose only the real Petitioner filed its Answer contending that
estate mortgage and leave out the chattel mortgage, private respondents have no cause of action
and then sue respondents for a supposed deficiency against it; that at the time of the loan
judgement; and for this reason, respondents assert application and execution of the promissory
that the judgement in the bank's favor for such note and real estate mortgage by Garcia,
deficiency in Civil Case No. 29752 is a nullity. there were no known individual buyers of
the subject land nor annotation of any
The argument is fallacious because the mere contracts, liens or encumbrances of third
embodiment of the real estate mortgage and the persons on the titles of the subject lots; that
chattel mortgage in one document does not fuse the loan was granted and released without
both securities into an indivisible whole. Both notifying HLURB as it was not necessary.
remain distinct agreements, differing not only in the CA ruled in favor of private respondents
subject-matter of the contract but in the but in the saying that despite the contracts to sell,
governing legal provisions. Petitioner bank, Garcia/TransAmerican did not apprise
therefore, had every right to foreclose the real petitioner of the existence of these
estate mortgage and waive the chattel mortgage, contracts nor did petitioner exhaust any

effort to inquire into their existence since loan, it undertook a thorough check on the
petitioner merely relied on the purported property and found the titles free from liens
clean reconstituted titles in the name of and encumbrances would not suffice. It
Garcia; that the mortgage of the subject was incumbent upon petitioner to inquire
lots without the consent of the buyers and into the status of the lots which includes
the authorization of the HLURB is a clear verification on whether Garcia had secured
violation of P.D. No. 957; that the mortgage the authority from the HLURB to mortgage
contract is void and unenforceable against the subject lots. Petitioner failed to do so.
private respondents. We likewise find petitioner negligent in
failing to even ascertain from Garcia if there
ISSUES: are buyers of the lots who turned out to be
private respondents. Petitioners want of
1. WON HLURB has jurisdiction over the case? knowledge due to its negligence takes the
2. WON the mortgage is valid? place of registration - thus it is presumed to
3. WON petitioner is a mortgagee in good know the rights of respondents over the lot
faith and since the titles on their face were - and the conversion of its status as
free from any claims, liens and mortgagee to buyer-owner will not lessen
encumbrances at the time of the mortgage, the importance of such knowledge.
it is not obliged under the law to go beyond
the certificates of title registered under the SAMANILLA v CAJUCOM
Torrens system and had every reason to
rely on the correctness and validity of those MOBIL PHILIPPINES v DIOCARES
titles.? FACTS:
The parties Mobil and Diocares entered an
HELD: agreement wherein on cash basis, Mobil will deliver
minimum of 50k liters of petroleum a month. To
1. HLURB has jurisdiction. The Court ruled in a secure this, diocares executed a Real Mortgage.
prior case that the jurisdiction of the Diocares failed to pay the balance of their
HLURB to regulate the real estate trade is indebtedness and Mobil filed an action for the
broad enough to include jurisdiction over collection of the balance of the purchase amount or
complaints for specific performance of the that the Real Property mortgaged by Diocares be
sale, or annulment of the mortgage, of a sold to a public auction and the proceeds be applied
condominium unit, with damages. to the payment of the obligation. LC did not grant
2. THE MORTGAGE IS VOID. Under Section 18 foreclosure on the ground that the mortgage was
of P.D. No. 957, it is provided that no not validly executed (not registered).
mortgage on any unit or lot shall be made
by the owner or developer without prior ISSUE: WON failure to register the Real Mortgage
written approval of the HLURB Such would render it invalid
approval shall not be granted unless it is
shown that the proceeds of the mortgage SC: NO!
loan shall be used for the development of - If the instrument is not recorded, the
the condominium or subdivision project and mortgage is nevertheless binding between
effective measures have been provided to the parties. Its conclusion, however, is that
ensure such utilization. Without the prior what was thus created was merely a
written approval of the HLURB, the latter personal obligation but did not establish a
has the jurisdiction to annul the mortgage real estate mortgage.
for being void. - The mere fact that there is as yet no
3. Petitioner is NOT A MORTGAGEE IN GOOD compliance with the requirement that it be
FAITH. Petitioner knew that the loan it was recorded cannot be a bar to foreclosure
extending to Garcia/TransAmerican was for
the purpose of the development of the MCCULLOUGH v VELOSO
eight-unit townhouses. Petitioners
insistence that prior to the approval of the

FACTS: having sold the property to Serna, and the latter
having assumed the obligation to pay the plaintiff
1) On March 23, 1920, the plaintiff McCullough & the unpaid balance of the price secured by the
Co., sold to Mariano Veloso the "McCullough mortgage upon the property, he no more obligation
Building," and the land thereon, for the price of and it is upon Serna to pay the plaintiff.
P700,000. Veloso paid P50,000 cash on account at
the execution of the contract, leaving a balance of HELD:
P650,000 to be paid.
A) The mortgage is merely an encumbrance upon
2) Veloso assumed also the obligation to insure the the property and does not extinguish the title of the
property for not less than P500,000, as well as to pay debtor, who does not, therefore, lose his principal
all legal taxes that might be imposed upon the attribute as owner, that is, the right to dispose. the
property, and in the event of his failure to do so, the fact that the plaintiff recognized the efficaciousness
plaintiff should pay said taxes at the expense of of that sale cannot prejudice him, which sale the
Veloso, with the right to recover of him the amounts defendant had the right to make and the plaintiff
thus paid, with interest at 7 per cent per year. To cannot oppose and which, at all events, could not
secure the payment of these amounts, Veloso affect the mortgage, since it follows the property
mortgaged the property purchased whoever the possessor may be.
3) It was, also, stipulated that in case of failure on B) The Mortgage Law in force at the promulgation of
the part of Veloso to comply with any of the the Civil Code and referred to in the latter, provided,
stipulations contained in the mortgage deed, all the among other things, that the debtor should not pay
installments with the interest thereon shall become the debt upon its maturity after a judicial or notarial
due, and the creditor shall then have the right to demand for payment has been made by the creditor
bring the proper action for the collection of the upon him. Accordingly, the obligation of the new
unpaid part of the debt. possessor to pay the debt originated only from the
right of the creditor to demand payment of him, it
4) On August 21, 1920, Mariano Veloso, in turn, sold being necessary that a demand for payment should
the property, with the improvements thereon for have previously been made upon the debtor and the
P100,00 to Joaquin Serna, who agreed to respect the latter should have failed to pay.
mortgage of the property in favor of the plaintiff and
to assume Mariano Veloso's obligation to pay the C) The Civil Code imposes the obligation of the
plaintiff the balance due of the price of the estate on debtor to pay the debt stand although the property
the respective dates when payments should be mortgaged to secure the payment of said debt may
made according to the contract between Mariano have been transferred to a third person.
Veloso and the plaintiff.

5) Veloso paid P50,000 on account of the P650,000,
and Serna made several payments up to the total SANTIAGO v DIONISIO
sum of P250,000. Subsequently, however, neither
Veloso, nor Serna, made any payment upon the last DOCTRINE: All persons having or claiming an
installments, by virtue of which delay, the whole interest in the mortgaged premises subordinate in
obligation became due, and Veloso lost the right to right to that of the holder of the mortgage should be
the installments stipulated in his contract with the made defendants in the action for the foreclosure of
plaintiff. the mortgage. Intervening as a subordinate
lienholder in a foreclosure case merely to oppose
6) Upon a liquidation of the debt of Mariano Veloso the confirmation of the sale upon learning that such
in favor of the plaintiff, including the interest due, a sale had been made, is no the same as being a
with the result that Veloso owed exactly party to the suit to the extent of being bound by the
P510,047.34. Thus, the plaintiff brings this action to judgement in the foreclosure suit.
recover of the defendant the sum due of
P510,047.34. The defendant contends however that

The effect of the failure to implead a With regard to the redemption period, it is settled
subordinate lienholder or subsequent purchaser or that the buyer in a foreclosure sale becomes the
both is to render the foreclosure ineffective as absolute owner of the property purchased if it is not
against them, with the result that there remains in redeemed during the period of one year after the
their favor the unforeclosed equity of redemption. registration of the sale. As such, he is entitled to the
possession of the said property and can demand it
any time following the consolidation of ownership in
his name and the issuance to him of a new TCT. If
PADERES v CA the buyer demands the possession of the property
Facts: before the expiration period, he has to post a bond.
No bond is required after the redemption period if
Manila International Construction Corporation the property is not redeemed.
(MICC) mortgaged 21 properties in favor of
Banco Filipino (BF) for a loan of P1.8M. The
mortgaged was registered with the Registry of VELASCO v CA
Deeds.
2 of the lots were later sold to Spouses Paderes Facts: November 10, 1965, Alta Farms
and Spouses Bergardo. secured from the GSIS a Three Million Two
MICC failed to pay the loan.
Hundred Fifty Five Thousand Pesos
Without any redemption having been made
within the reglementary period, Banco Filipino
(P3,255,000.00) loan and an additional loan
foreclosed the properties extra judicially. of Five Million Sixty-Two Thousand Pesos
BF won as the highest bidder in the auction sale. (P5,062,000.00) on October 5, 1967, to
Paderes and Bergardo filed a petition stating finance a piggery project. Alta Farms
that their right is superior than BF since they are defaulted in the payment because of this that
buyers in good faith and are still entitled to Alta Farms executed a Deed of Sale With
redeem. Assumption of Mortgage with Asian
Engineering Corporation on July 10, 1969
Issue: WON Paderes and Bergardo has still rights
but without the previous consent or approval
over the properties?
of the GSIS and in direct violation of the
Held: provisions of the mortgage contracts. Even
without the approval of the Deed of Sale
No. Sale or transfer cannot affect or release the With Assumption of Mortgage by the GSIS,
mortgage. A purchaser is necessarily bound to Asian Engineering Corporation executed an
acknowledge and respect the encumbrance to which Exclusive Sales Agency, Management and
is subjected the purchased thing and which is at the
Administration Contract in favor of Laigo
disposal of the creditor in order that he, under the
terms of the contract, may recover the amount of his
Realty Corporation, with the intention of
credit therefrom. converting the piggery farm into a
subdivision. After developing the area, on
For a recorded real estate mortgage is a right in rem, December 4, 1969, Laigo entered into a
a lien on the property whoever its owner may be contract with Amable Lumanlan, one of the
because the personality of the owner is disregarded. petitioners, to construct for the home buyers,
The mortgage subsists notwithstanding changes of 20 houses on the subdivision. Petitioner
ownership. The last transferee is just as much of a
Lumanlan allegedly constructed 20 houses
debtor as the first one. A mortgage lien is
inseparable from the property mortgaged. All for the home buyers and for which he claims
subsequent purchasers thereof must respect the a balance of P309,187.76 from the home
mortgage, whether the transfer to them be with or buyers and Laigo. Out of his claim,
without the consent of the mortgagee. For the petitioner Lumanlan admits that Mrs. Rhody
mortgage until discharged, follows the property. Laigo paid him in several checks totalling

P124,855.00 but which checks were all Urbana, they also own the rents of the mortgaged
dishonoured. On December 29, 1969, Laigo property.
entered into a contract with petitioner Pepito
Bank of America v American Realty
Velasco to construct houses for the home
buyers who agreed with Velasco on the F: Petitioner Bank of America NT & SA (BANTSA) is an
prices and the downpayment. Petitioner international banking and financing institution Bank
Velasco constructed houses for various of America International Limited (BAIL), on the other
home buyers, who individually agreed with hand, is a limited liability company organized and
Velasco, as to the prices and the existing under the laws of England.
downpayment to be paid by the individual
home buyers.When neither Laigo nor the BANTSA and BAIL on several occasions granted three
individual home buyers paid for the home major multi-million United States (US) Dollar loans to
the following corporate borrowers and which are
constructed, Velasco wrote the GSIS to 3
foreign affiliates of private respondent.
intercede for the unpaid accounts of the
home buyers. Due to the default in the payment of the loan
amortizations, BANTSA and the corporate borrowers
Issue: W/N GSIS is liable to the petitioners signed and entered into restructuring agreements.
for the cost of the materials and labor As additional security for the restructured loans,
furnished by them in construction of the 63 private respondent ARC (American Realty) as third
houses now owned by the GSIS? party mortgagor executed two real estate
mortgages, over its parcels of land including
improvements thereon, located at Bulacan.
Ruling: Yes. GSIS should pay the
petitioners. GSIS assumed ownership of the
Eventually, the corporate borrowers defaulted in the
houses built by petitioners and was benefited payment of the restructured loans prompting
by the same. Art. 2127, the mortgage petitioner BANTSA to file civil actions before foreign
extends to the natural accessions, to the courts for the collection. This includes the property
improvements, growing fruits, rents. of American Realty. Petitioners already filed
collection cases in foreign courts. It also filed an
extrajudicial foreclosure on the property in Bulacan
AFABLE v BELANDO in which American Realty question because the
petitioners cannot file a case for collection and a
Afable brought a suit against Belando for an unpaid case for extrajudicial foreclosure at the same time.
promissory note. Judgment was rendered in favor of
him and because Belando has no money, the rents in Issue: Won the contention of respondents are valid
her property was given to Afable. It turns out, before
Afable filed a case for the collection of money, Ruling: yes! The mortgagee cannot have both
another creditor of Belando, La Urbana, already had remedies. He has only one cause of action, i.e., non-
a lien on the property because Belando borrowed payment of the mortgage debt; hence, he cannot
money from La Urbana and as a security, Belando split up his cause of action by filing a compliant for
mortgaged the property being rented to La Urbana. payment of the and another complaint for
La Urbana filed a petition to intervene in the case of foreclosure.
Afable v Belando and claims that since the property
was mortgaged to them, they also own the rents and PEOPLES BANK v DAHICAN LUMBER
the rents cannot be given to Afable.
Issue: Won the contention of La Urbana is valid FACTS: On September 8, 1948, Atlantic Gulf & Pacific
Company of Manila, a West Virginia corporation
Ruling: Yes. The mortgage extends to the rents not licensed to do business in the Philippines
yet received when the obligation becomes due. In hereinafter referred to as ATLANTIC sold and
this case, because the property was mortgaged to La assigned all its rights in the Dahican Lumber

concession to Dahican Lumber Company BANK gave DALCO and DAMCO up to April 1, 1953 to
hereinafter referred to as DALCO. Thereafter, to pay the overdue promissory note.
develop the concession, DALCO obtained various
loans from the People's Bank & Trust Company. After July 13, 1950 the date of execution of the
mortgages mentioned above DALCO purchased
As security for the payment of the abovementioned various machineries, equipment, spare parts and
loans, DALCO executed in favor of the BANK the supplies in addition to, or in replacement of some of
latter acting for itself and as trustee for the Export- those already owned and used by it on the date
Import Bank of Washington D.C. a deed of aforesaid. Pursuant to the provision of the mortgage
mortgage covering five parcels of land together with deeds quoted theretofore regarding "after acquired
all the buildings and other improvements existing properties," the BANK requested DALCO to submit
thereon and all the personal properties of the complete lists of said properties but the latter failed
mortgagor located in its place of business. to do so.
On the same date, DALCO executed a second The alleged sales of equipment, spare parts and
mortgage on the same properties in favor of supplies by CONNELL and DAMCO to It, was
ATLANTIC to secure payment of the unpaid balance subsequently rescinded by the parties.
of the sale price of the lumber concession.
The BANK, in its own behalf and that of ATLANTIC,
Both deeds contained the following provision demanded that said agreements be cancelled but
extending the mortgage lien to properties to be CONNELL and DAMCO refused to do so. As a result,
subsequently acquired referred to hereafter as ATLANTIC and the BANK commenced foreclosure
"after acquired properties" by the mortgagor: proceedings.
All property of every nature and description Main contentions of plaintiffs as appellants are the
taken in exchange or replacement, and all following: that the "after acquired properties" were
buildings, machinery, fixtures, tools subject to the deeds of mortgage mentioned
equipment and other property which the heretofore; that said properties were acquired from
Mortgagor may hereafter acquire, suppliers other than DAMCO and CONNELL; that
construct, install, attach, or use in, to, upon, even granting that DAMCO and CONNELL were the
or in connection with the premises, shall real suppliers, the rescission of the sales to DALCO
immediately be and become subject to the could not prejudice the mortgage lien in favor of
lien of this mortgage in the same manner plaintiffs.
and to the same extent as if now included
therein, and the Mortgagor shall from time The defendants-appellants contend that the
to time during the existence of this mortgages aforesaid were null and void as regards
mortgage furnish the Mortgagee with an the "after acquired properties" of DALCO because
accurate inventory of such substituted and they were not registered in accordance with the
subsequently acquired property. Chattel Mortgage Law.
ISSUES:
Both mortgages were registered in the Office of the
Register of Deeds. In addition thereto DALCO and
1. are the so-called "after acquired properties"
DAMCO pledged to the BANK 7,296 shares of stock
of DALCO and 9,286 shares of DAMCO to secure the covered by and subject to the deeds of
same obligations. mortgage subject of foreclosure?
2. assuming that they are subject thereto, are
Upon DALCO's and DAMCO's failure to pay the fifth the mortgages valid and binding on the
promissory note upon its maturity, the BANK paid properties aforesaid inspite of the fact that
the same to the Export-Import Bank of Washington they were not registered in accordance with
D.C., and the latter assigned to the former its credit
the provisions of the Chattel Mortgage
and the first mortgage securing it. Subsequently, the
Law?

RULING: Defendant executed and delivered to
Plaintiff a mortgage on certain real estate,
1. it is crystal clear that all property of every which is particularly described therein,
nature and description taken in exchange or including the building erected thereon, in
replacement, as well as all buildings, order to guarantee the payment of certain
machineries, fixtures, tools, equipments, sum of money; Another mortgage upon the
same property to secure the payment of an
and other property that the mortgagor may
additional sum of money
acquire, construct, install, attach; or use in, Plaintiff commenced an action to recover
to upon, or in connection with the premises said sums and to foreclose said mortgages
that is, its lumber concession "shall when neither of said sums of money
immediately be and become subject to the secured by said mortgages was fully paid
lien" of both mortgages in the same manner and satisfied
and to the same extent as if already Def denied; alleged that the sum of P3k
included in said mortgages for the payment
included therein at the time of their
of expenses was excessive
execution. TC Judge Ostrand ordered foreclosure of
Such stipulation is neither unlawful nor said mortgages
immoral, its obvious purpose being to While Sheriff tried to sell the property
maintain, to the extent allowed by included in said mortgages, Def interposed
circumstances, the original value of the an objection that a certain cinematograph
properties given as security. Indeed, if such which had been constructed upon the
properties were of the nature already property mortgaged was not included
referred to, it would be poor judgment on therein and that it should not, therefore, be
the part of the creditor who does not see to sold under said execution.
it that a similar provision is included in the Despite objection, Sheriff sold the property
contract. mortgaged together with the buildings
2. the chattels were placed in the real erected thereon
properties mortgaged to plaintiffs, they Def objected to the confirmation of said
came within the operation of Art. 415, sale; said cinematograph in question was
paragraph 5 and Art. 2127 of the New Civil created by simply reforming a building
Code. It is not disputed in the case at bar located on the land at the time said
that the "after acquired properties" were mortgage was executed and delivered; that
it was not a new structure on said land; that
purchased by DALCO in connection with,
it was the result of changing and altering a
and for use in the development of its building already upon the land, for the
lumber concession and that they were purpose of making it into a cinematograph
purchased in addition to, or in replacement TC Judge Harvey confirmed said sale
of those already existing in the premises on
July 13, 1950. In Law, therefore, they must ISSUE: WON the sale under execution by the sheriff
be deemed to have been immobilized, with of certain real property including the buildings
thereon should be confirmed?
the result that the real estate mortgages

involved herein which were registered as HELD: YES
such did not have to be registered a Questions presented by Camps have been
second time as chattel mortgages in order discussed by this court and decided against
to bind the "after acquired properties" . his contention in the case of Bischoff v.
Pomar and Compania General de Tabacos.
In that case, this court discussed the very
articles of the Mortgage Law upon which
PHIL SUGAR ESTATE v CAMPS Camps now seeks relief. In that case the
FACTS: Court said:

So that even though no mention required by law, the fact that such assignment was
had been made of said machinery not registered in the property register is no obstacle
and tramway in the mortgage to the transfer of the dominion or ownership of said
instrument, the mortgage of the credit in the sum therein stated in favor of Lopez. In
property whereon they are located as much as the assignment or alienation of a credit,
in understood by law to extend to made by the owner thereof in favor of another, is
them and they must be considered prior to the act of its registration, and entirely
as included therein, as well as all independent of such formality to such an extent
other improvements, unless there that, if any question should arise over the contract
was an express stipulation between the assignor and the assignee, it would
between the parties that they have to be decided according to common law
should be excluded. without need of previous registration of the title,
which shows that a credit secured by a mortgage
IN THIS CASE: the buildings erected may be assigned or alienated, and is a perfectly valid
thereon" were expressly included in the contract even if it were not registered.
mortgage. Nothing in the form of buildings
was exclude. The buildings, therefore, were Also, the registration of the assignment or alienation
manifestly included in the mortgage. of a credit secured by mortgage, required, among
others, of the Mortgage Law, is only necessary in
TADY-Y v PNB order that it may be effectual as against third
parties.
PRUDENTIAL BANK v ALVIAR

LOPEZ v ALVAREZ BPI v CONCEPCION
FACTS: Appellee Evaristo holds a lien over the estate
of one Vicente Lopez as the latter executed a LITONJUA v L&R CORPORATION
mortgage deed in favor of Evaristo. On April 5, 1904,
Evaristo assigned his lien on the estate to appellant FACTS:
Manuel Lopez through a public instrument but the - Spouses Litonjua (P) obtained a loan from L
same was not registered in the Registry of Deeds. & R Corporation (R) Aug 6, 1974 (P200k)
Appellee Grindrod is a creditor of Evaristo, to whom and Mar 27, 1978 (P200k) which are
the latter promised to pay his obligation through the secured by a mortgage on 2 parcels of land
sugar yielded by the hacienda, said agreement was owned by P
entered into July 7, 1900. But the hacienda was not - However, P sold to Phil White House Auto
able to increase the sugar it yielded and defendant Supply (PWHAS) the subject parcels of land,
On August 5, 1904, Grindrod who feared of not without prior written consent of R,
getting paid obtained a preliminary attachment over pursuant to the Mortgage agreement that
all the property of Evaristo including the lien that they have.
was assigned to appellant. The same was registered - Upon default of P, R initiated an
on August 12, 1904. A dispute arised over the extrajudicial sale and won the bidding.
rightful owner of the lien, defendants main - P later on filed for redemption of the
contention is that since the assignment made to property but R refused to do accept the
Lopez was not registered it is not binding and has no payment contending that P violated the
effect. contract
- R informed the Sheriff and Register of
ISSUE: WON THE ASSIGNMENT OF A MORTGAGE Deeds, stating: (1) that the sale of the
CREDIT NEED TO BE REGISTERED FOR IT TO BE VALID mortgaged properties to PWHAS was
AND EFFECTIVE? without its consent, in contravention of
their Deed of Real Estate Mortgage; and (2)
HELD: NO. Although the Civil Code provides that A that it was not the spouses Litonjua, but
mortgage credit may be alienated or assigned to a PWHAS, who was seeking to redeem the
third person, wholly or partially, with the formalities foreclosed properties,
- Register of Deeds issued TCT in favor of R

- A complaint for Quieting of Title, million loan which covered a Quezon City property in
Annulment of Title and Damages with Leopoldo Dario's name and was annotated on the
preliminary injunction was filed by the title. For non-payment of the principal obligation,
spouses Litonjua and PWHAS against R UNIONBANK extrajudicially foreclosed the property
- LC ruled in favor of R and affirmed by CA mortgaged on August 1993 and sold the same at
public auction, with itself posting the highest bid.
ISSUE: WON paragraphs 8 and 9 of the Real Estate
Mortgage are valid and enforceable; 2) One week before the one-year redemption period
expired, private respondents filed a complaint with
SC: NO! the RTC against the mortgagors, UNIONBANK and
- Art. 2130 stipulation forbidding alienation the Register of Deeds annulment of sale and real
of mortgaged property is VOID estate mortgage reconveyance and prayer for
- A real mortgage is merely an encumbrance; restraining notice of lis pendens was annotated on
it does not extinguish the title of the the title.
debtor, whose right to dispose a
principal attribute of ownership is not 3) On October 1994, the RTC issued a TRO enjoining
thereby lost. Thus, a mortgagor had every the redemption of property within the statutory
right to sell his mortgaged property, which period and its consolidation under UNIONBANK's
right the mortgagee cannot oppose. name.
- Although the provision does not absolutely
prohibit the mortgagor from selling his 4) Without notifying private respondents,
mortgaged property; but what it does not UNIONBANK consolidated its title over the
outrightly prohibit, it nevertheless achieves. foreclosed property on October 1994, UNIONBANK's
- For all intents and purposes, the stipulation name was issued in the new TCT.
practically gives the mortgagee the sole
prerogative to prevent any sale of the
5) Private respondents filed an amended complaint,
mortgaged property to a third party.
alleging that they, not the mortgagors, are the true
- The mortgagee can simply withhold its
owners of the property mortgaged and insisting on
consent and thereby, prevent the
the invalidity of both the mortgage and its
mortgagor from selling the property. This
subsequent extrajudicial foreclosure. They claimed
creates an unconscionable advantage for
that the original title, was entrusted to a certain
the mortgagee and amounts to a virtual
Atty. Reynaldo Singson preparatory to its
prohibition on the owner to sell his
administrative reconstitution after a fire gutted the
mortgaged property. In other words,
Quezon City Hall building. Mortgagor Leopoldo,
stipulations like those covered by paragraph
private respondent Fermina's son, obtained the
8 (requiring P to acquire prior consent of R
property from Atty. Singson, had the title
before alienating the property) of the
reconstituted under his name without private
subject Deed of Real Estate Mortgage
respondents' knowledge, executed an ante-dated
circumvent the law, specifically, Article
deed of sale in his favor and mortgaged the property
2130 of the New Civil Code.
to UNIONBANK.
- Being contrary to law, paragraph 8 of the
subject Deed of Real Estate Mortgage is not
binding upon the parties. 6) On December 1994, the RTC admitted the
aforementioned amended complaint. UNIONBANK
filed its answer ad cautelam asserting its status as an
UNION BANK v CA innocent mortgagee for value whose right or lien
upon the property mortgaged must be respected
even if, the mortgagor obtained his title through
FACTS:
fraud. It also averred that the action had become
"moot and academic by the consolidation of the
1) A real estate mortgage was executed on foreclosed property on 24 October 1994" in its
December 1991 by spouses Dario (hereafter name.
mortgagors) in favor of UNIONBANK to secure a P3

7) On appeal, the CA nullified the consolidation of August 1999, declaring UNIONBANK's prayer for writ
ownership, which was the prior judgment in the RTC, of preliminary injunction moot and academic, is
ordered the Register of Deeds to cancel the hereby REINSTATED. Let this case be remanded to
certificate of title in UNIONBANK's name and to the Regional Trial Court for trial on the merits.
reinstate TCT of respondents.
DBP v LICUANAN
ISSUE: Whether UNIONBANK is a mortgagee in good
faith and for value with a right to consolidate DOCTRINE: All persons having or claiming an
ownership over the foreclosed property with the interest in the mortgaged premises subordinate in
redemption period having expired and there having right to that of the holder of the mortgage should be
been no redemptioners. made defendants in the action for the foreclosure of
the mortgage. Intervening as a subordinate
HELD: lienholder in a foreclosure case merely to oppose
the confirmation of the sale upon learning that such
A) The SC disagrees with the CAs judgment that a sale had been made, is no the same as being a
consolidation deprived private respondents of their party to the suit to the extent of being bound by the
property without due process. Because the buyer in judgement in the foreclosure suit.
a foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during The effect of the failure to implead a
the period of one year after the registration of the subordinate lienholder or subsequent purchaser or
sale. In effect, consolidation took place as a matter both is to render the foreclosure ineffective as
of right since there was no redemption of the against them, with the result that there remains in
foreclosed property and the TRO expired upon their favor the unforeclosed equity of redemption.
dismissal of the complaint.

DBP v GO
C) UNIONBANK need not have informed private
Facts:
respondent that it was consolidaint its title over the
property, upon the expiration of the redemption
In 1982, Go obtained a loan from DBP evidenced
period, without the judgment debtor having made
by two promissory notes, one for 194K payable
use of his right of redemption, the ownership of the
quarterly for 5 years and the other 300K payable
property sold becomes consolidated in the
quarterly for 7 years.
purchaser. Upon failure to redeem foreclosed realty,
consolidation of title becomes a matter of right on He mortgaged his real and personal property.
the part of the auction buyer, and the issuance of a A contract provision states that DBP can
certificate of title in favor of the purchaser becomes unilaterally increase the interest rate and
ministerial upon the Register of Deeds. requires Go to insure the mortgaged properties.
DBP increased its interest rate to 35% then
lowered it to 29%.
C) At any rate, the consolidation of ownership over
the mortgaged property in favor of UNIONBANK and Go failed to pay the loan.
the issuance of a new title in its name during the In 1986, DBP extrajudicially foreclosed the
pendency of an action for annulment and property and was declared the winner as the
reconveyance will not cause injury to private highest bidder in the auction sale.
respondents because as purchaser at a public Go filed an action to annul the auction sale.
auction, UNIONBANK is only substituted to and Both RTC and CA declared that the extrajudicial
acquires the right, title, interest and claim of the foreclosure was void because loan has not yet
judgment debtors or mortgagors to the property at mature at the time of the foreclosure sale (the
the time of levy. With the main action for foreclosure was done less than 5 years from the
reconveyance pending before the RTC, the notice of execution of the contract).
lis pendens, sufficiently protects private
respondents interest over the property. Thus the
Decision of the Court of Appeals is REVERSED and Issue: WON the extrajudicial foreclosure should
SET ASIDE. The order of the trial court dated 7 be declared null and void?

Held: facts disclose, involves an extrajudicial
foreclosure sale. Act No. 3135, as amended
Yes. The mortgage contract states that petitioner
by Act No. 4118 otherwise known as "An
may resort to either judicial or extrajudicial
foreclosure in case of default. Petitioner opted for
Act to Regulate the Sale of Property under
extrajudicial foreclosure. However, both the trial Special Powers Inserted in or Annexed to
court and the CA declared that the extrajudicial Real Estate Mortgages" applies in cases of
foreclosure void for being premature. For all intents extrajudicial foreclosure sale.
and purposes, there has been no foreclosure.
Therefore, this Court or any court cannot issue a writ
of execution to judicially foreclose the property.

FIESTAN v CA BANK OF AMERICA v AMERICAN REALTY

Facts: Dionisio Fiestan and Juanita CHIENG v SPOUSE SANTOS
Arconada owners of a parcel of land (Lot
FIRST MARBELLA v GATMAYTAN
No. 2B) situated in Ilocos Sur covered by
FACTS:
TCT T-13218 which they mortgaged to the
R is the registered owner of Fontavilla No.
Development Bank of the Philippines (DBP) 501 (condo unit), Marbella I Condominium,
as security for their P22,400.00 loan. Lot Roxas Blvd under CCT No. 1972
No. 2-B was acquired by the DBP as the P filed a Petition for Extradudicial
highest bidder at a public auction sale on foreclosure of the condominium unit of R
August 6, 1979 after it was extrajudicially and alleged that P is a duly organized
foreclosed by the DBP in accordance with association of the tenants and homeowners
Act No. 3135, as amended by Act No. 4118, of Marbella I Condominium; that R is a
member thereof but has unpaid association
for failure of petitioners to pay their dues amounting to P3.2mill; that R refused
mortgage indebtedness. On April 13,1982, to to pay his dues despite demand
the DBP sold the lot to Francisco Peria in a P - that it is expressly provided under
Deed of Absolute Sale. Francisco Peria Section 20 of Republic Act (R.A.) No. 4726
mortgaged said lot to the PNB Vigan Branch that it has the right to cause the
as security for his loan of P115,000.00 as extrajudicial foreclosure of its annotated
required by the bank to increase his original lien on the condominium unit. Its petition
loan from P49,000.00 to P66,000.00 until it then is cognizable by the RTC under
Administrative Matter No. 99-10-05
finally reached the approved amount of
R objected to P's right to file the petition
P115,000.00. Since petitioners were still in for extra-judicial foreclosure, pointing out
possession of Lot No. 2-B, the Provincial that the latter does not hold a real estate
Sheriff ordered them to vacate the premises. mortgage on the condominium unit or a
special power of attorney to cause the
Issue: W/N there was a valid extrajudicial extra-judicial foreclosure sale of said unit.
foreclosure sale? - there is even a pending litigation
regarding the validity of petitioner's
constitution as a homeowners
Ruling: Yes. The formalities of a levy, as an association and its authority to assess
essential requisite of a valid execution sale association dues, annotate unpaid
under Section 15 of Rule 39 and a valid assessments on condominium titles
attachment lien under Rule 57 of the Rules and enforce the same through
of Court, are not basic requirements before extrajudicial foreclosure sale
an extrajudicially foreclosed property can be Clerk of Court, as Ex-Officio Sheriff,
sold at public auction. The case at bar, as the recommended to RTC Exec. Judge :

Under the facts given, no mortgage exists Ex-Oficio Sheriff is precluded from acting on
between the petitioner and respondent. the application for extrajudicial foreclosure
Evidently, it is not one of those IN THIS CASE: the only basis of petitioner
contemplated under Act 3135 as amended for causing the extrajudicial foreclosure of
by Act 4118. The allegation simply does not the condominium unit of respondent is a
show a mortgagor-mortgagee relationship notice of assessment annotated on CCT No.
since respondent liability arises from his 1972 in accordance with Section 20 of R.A.
failure to pay dues, assessments and No. 4726. However, neither annotation nor
charges due to the petitioner. law vests it with sufficient authority to
foreclose on the property
As clearly stated, the authority of the The notice of assessment contains no
Executive Judge under Administrative provision for the extrajudicial foreclosure of
Matter No. 99-10-05-0, as amended dated the condominium unit. All that it states is
March 1, 2001, covers extra-judicial that the assessment of petitioner against
foreclosure of real estate mortgages under respondent for unpaid association dues
R.A. No. 3135 and chattel mortgages under constitutes a "first lien against [the]
P.D. No. 1508. There is nothing in the above condominium unit
mentioned Circular which authorizes the Section 20 of RA 4726 does not grant P
Executive Judge and/or the Ex-Officio special authority to foreclose. It merely
Sheriff to extra judicially foreclose prescribes the procedure by which
properties covered by obligations other petitioner's claim may be treated as a
than the said mortgages. Hence, the subject superior lien - i.e., through the annotation
petition is not proper for extra-judicial thereof on the title of the condominium
foreclosure under the supervision of the unit.
Executive Judge. Dismissal of the subject While the law also grants petitioner the
petition is recommended option to enforce said lien through either
the judicial or extrajudicial foreclosure sale
TC denied request for extrajudicial of the condominium unit, Section 20 does
foreclosure of the subject condo unit and not by itself, ipso facto, authorize judicial as
dismissed the petition; It not within the extra-judicial foreclosure of the
authority of Exec. Judge to supervise and condominium unit. Petitioner may avail
approve the extrajudicial foreclosures of itself of either option only in the manner
mortgage provided for by the governing law and rules.
As already pointed out, A.M. No. No. 99-10-
ISSUE: WON P has a right to file a petition for 05-0, as implemented under Circular No. 7-
extrajudicial foreclosure? 2002, requires that petitioner furnish
evidence of its special authority to cause
HELD: NO the extrajudicial foreclosure of the
In order to avail itself of a writ condominium unit.
of mandamus, petitioner must establish
that it has a clear right to the extrajudicial LANGKAAN REALTY v UCPB
foreclosure sale of the condominium unit of
respondent. Under Circular No. 7- BOHANAN v CA
2002, implementing Supreme Court
Administrative Matter No. 99-10-05-0, it is METROBANK v WONG
mandatory that a petition for extrajudicial FACTS: Mindanao Grains, Inc. applied for a credit
foreclosure be supported by evidence that accommodation with petitioner. As security for such
petitioner holds a special power or credit accommodation, respondent Wong executed
authority to foreclose a real estate mortgage in favor of petitioner. Due to
Without proof of petitioner's special MGIs failure to pay the obligation, petitioner filed
authority to foreclose, the Clerk of Court as an application for extrajudicial foreclosure which
was published in Pagadian Times once, for three

consecutive weeks setting the date for the auction the mortgagor. When petitioner failed to
sale. No notice was posted in the municipality or city send the notice of foreclosure sale to
where the mortgaged property was situated. The respondent, he committed a contractual
auction sale proceeded and petitioner was adjudged breach sufficient to render the foreclosure
as the sole and highest bidder. After the expiration sale null and void.
of the one year redemption period, ownership was 2. The general rule is that non-compliance
consolidated and TCT correspondingly issued in the with the posting requirement is fatal to the
name of petitioner. validity of the foreclosure proceedings. The
Olizon case was an exception due to the
unusual nature of the attendant facts and
peculiarity of the confluent circumstances
Respondent unaware of the foregoing which are not present in the instant case.
developments, applied for a credit accommodation While the law recognizes the right of the
with another bank, only to find out that his property bank to foreclose a mortgage upon the
was already foreclosed by petitioner. Respondent mortgagors failure to pay his obligation, it
filed a case assailing the validity of the extrajudicial is important that such right be exercised
foreclosure on the ground that petitioner did not according to its clear mandate. Each and
comply with the procedural requirements of law. every requirement of the law must be
complied with

PNB v CA
Petitioner on the other hand justifies his claim by
citing Olizon v. CA, (1) that its failure to comply with PNB v NEPOMUCENO PRODUCTIONS, INC.
the posting requirement did not necessarily result in FACTS:
the nullification of the foreclosure sale since it PNB granted respondents (R) a credit line to finance
complied with the publication requirement; and (2) the filming of the movie Pacific Connection. The
that personal notice of the foreclosure proceedings loan was secured by mortgages on Rs real and
to respondent is not a condition sine qua non for its personal properties (Malugay property, Forbes Park
validity. Property and motion picture equipments). However,
R defaulted in their obligation. PNB sought
foreclosure of the mortgaged properties where pNB
was the highest bidder. R filed for annulment of
ISSUE: 1. WON PERSONAL NOTICE TO RESPONDENT foreclosure sale since it is null and void for lack of
IS A CONDITION SINE QUA NON TO THE VALIDITY OF publication of the notice of sale. LC annulled
THE FORECLOSURE PROCEEDINGS? foreclosure.

2. WON PETITIONERS NON-COMPLIANCE ISSUE: WoN the foreclosure sale was valid despite
WITH THE POSTING REQUIREMENT IS FATAL TO THE lack of publication
VALIDITY OF THE FORECLOSURE PROCEEDINGS?
SC: NO!
- Act 3135, governing EJF of mortgages on
real property is specific with regard to the
HELD: posting and publication requirements of the
notice of sale, which requires:
1. Section 3 of Act no. 3135 only requires: (1) o Posting of notices of sale in 3
the posting of notices of sale in three public public places
places, and (2) the publication of the same o Publication of the same in a
in a newspaper of general circulation. newspaper of general circulation.
Personal notice to the mortgagor is not o FAILURE TO PUBLISH the notice of
necessary. Nevertheless, the parties are not sale constitutes a jurisdictional
precluded from exacting additional defect, which INVALIDATES the
requirements. In the case at bar, it was sale.
stipulated that notice should be served to

- RE: WAIVER OF PUBLICATION HELD:
REQUIREMENTS
o PNB and R have absolutely NO A) Section 4 of Act 3135 provides that the
RIGHT to waive the posting and sale must take place between the hours of
publication requirements of the nine in the morning and four in the
law. afternoon.
o The principal object of a notice of
sale in a foreclosure of mortgage is B) A creditor may foreclose on a real estate
not so much to notify the mortgage only if the debtor fails to pay the principal
mortgagor as to inform the public obligation when it falls due. But the foreclosure of a
generally of the nature and mortgage does not extinguish a debtors obligation
condition of the property to be to his creditor. The proceeds of a sale at public
sold, and of the time, place and auction may not be sufficient to extinguish the
terms of the sale liability of the former to the latter. For this reason,
- Notice is given to secure bidders and Section 4 of Act 3135 should be construed in such a
prevent a sacrifice of the property way that affords the creditor greater opportunity to
- Statutory requirement of Publication is satisfy his claim without unduly rewarding the
mandatory not for the mortgagors benefit, debtor for not paying his just debt.
rd
but for the public or 3 persons.
C) The word between ordinarily means in the
PNB v SPOUSES CABATINGAN time interval that separates. Thus, between the
FACTS: hours of nine in the morning and four in the
afternoon merely provides a time frame within
1) Respondent spouses Cabatingan obtained two which an auction sale may be conducted. Therefore,
loans, secured by a real estate mortgage, in the total a sale at public auction held within the intervening
amount of P421,200 from petitioner PNB. They were period provided by law is valid, without regard to the
unable to fully pay their obligation despite having duration or length of time it took the auctioneer to
been granted more than enough time to do so. conduct the proceedings. Since it was conducted
within the time frame provided by law, the sale was
2) Thus, PNB extrajudicially foreclosed on the valid.
mortgage. Thereafter, a notice of extrajudicial sale
was issued. Pursuant to this, the properties were
sold at public auction on November 5, 1991. PNB MONZON v RELOVA
was the highest bidder.
DOCTRINE: Any person having a lien on the
3) On March 16, 1993, respondent property subsequent to the mortgage or deed of
spouses filed in the RTC a complaint for trust under which the property is sold, may redeem
annulment of extrajudicial foreclosure of the same at any time within the term of one year
real estate mortgage and the November 5, from and after the date of sale.
1991 auction sale.
Even if, for the sake of argument, Rule 68 is
4) Petitioners claimed that the provisions of ACT no. to be applied to extrajudicial foreclosure of
3135 must be observed strictly. Thus, because the mortgages, such right can only be given to second
public auction of the foreclosed properties was held mortgagees who are made parties to the (judicial)
for only 20 minutes (instead of seven hours as foreclosure. While a second mortgagee is a proper
required by law), the consequent sale was void. and in a sense even a necessary party to a
Thus, the RTC issued an order annulling the sale at proceeding to foreclose a first mortgage on real
public auction. property, he is not an indispensable party, because a
valid decree may be made, as between the
ISSUE: Whether a sale at public auction, to be valid, mortgagor and the first mortgagee, without regard
must be conducted the whole day from 9:00 a.m. to the second mortgagee; but the consequence of a
until 4:00 p.m. of the scheduled auction day. failure to make the second mortgagee a party to the
proceeding is that the lien of the second mortgagee

on the equity of redemption is not affected by the A party may file a petition to set aside the
decree of foreclosure. foreclosure sale to cancel the writ of possession
in the same proceeding where the writ was
SAGUAN v PBCOM requested. However, in this case, petitioners do
Facts: not challenge the validity of the foreclosure only
the contention that the excess proceeds were
Saguan obtained a loan of 3M from PBC and not returned to them.
mortgaged his 5 lands.
Saguan defaulted.
PBC extrajudicially foreclosed the property and
won as the highest bidder in the auction sale. 2) No. The foreclosure of petitioners properties
Because Saguan failed to redeem, the properties was meant to answer only the obligation
were consolidated in the name of PBC which secured by the mortgage. Even if the petitioners
later on filed a writ of possession. have remaining obligations with the respondent,
Saguan filed an opposition since PBC failed to these obligations were not collateralized by the
return the excess amount of the extrajudicial foreclosed mortgage.
foreclosure sale.
PBC points to Saguans remaining unsecured
obligations with the former to which the excess The petitioners remedy lies in a separate civil
or surplus proceeds were applied. action for collection of a sum of money and not
an action to set aside the foreclosure sale.
Issue:
SUICO v CA
1) WON the writ of possession should be issued?
2) WON PBC may unilaterally apply the excess QUIRINO GONZALES v CA
proceeds to petitioners remaining unsecured
obligations? Facts: Petitioners applied for credit accommodations
with respondent bank, which the bank approved
granting a credit line of Php900,000.00. Petitioners
Held: obligations were secured by a real estate mortgage
on four parcels of land. Also, petitioners had made
1) Yes. A writ of possession is an order enforcing a certain advances in separate transactions from the
judgment to allow a persons recovery of bank in connection with QGLCs exportation of logs
possession of real or personal property. This and executed a promissory note in 1964.
writ may be issued either 1) within the one-year Due to petitioners long default in the payment of
redemption period, upon filing of the bond, 2) their obligations under the credit line, the bank
after the lapse of the redemption period, foreclosed the mortgage and sold the properties
without the need of a bond. covered to the highest bidder in the auction.
Respondent bank, alleging non-payment of the
balance of QGLCs obligation after the proceedings
In this case, the issuance of RTC of a writ of of the foreclosure sale were applied and non-
possession in favor of PBC is proper since the payment of promissory notes despite repeated
redemption period has already expired. The demands, filed a complaint for sum of money against
duty of the trial court to grant a writ of petitioners.
possession in such instances is ministerial, and Petitioners, on the other hand, asserted that the
the court may not exercise discretion or complaint states no cause of action and assuming
judgment. Even if the excess proceeds were not that it does, the same is barred by prescription or
returned to the petitioner, the writ is still valid. void for want of consideration.

Issue: Whether or not the cause of action is barred
by prescription.

Held: An action upon a written contract, an

obligation created by law, and a judgment must be The defendant failed to pay the obligation within the
brought within 10 years from the time the right of period set by the Court; so the property in question
action accrues. was sold at public auction on Jan. 30, 1952(should be
The finding of the trial court that more than ten 1953) per order of the court, by the deputy sheriff of
years had elapsed since the right to bring an action Maasin, Leyte, to the plaintiffs, they being the only
on the Banks first to sixth causes had arisen is not bidders for P2,475.
disputed. The Bank contends, however, that the The certificate of sheriff's sale contained the
notices of foreclosure sale in the foreclosure provision that the said property is subject "to
proceedings of 1965 are tantamount to formal redemption within one year from the date hereof in
demands upon petitioners for the payment of their the manner provided by the law applicable to the
past due loan obligations with the Bank; hence, said case." On March 11, 1953, the plaintiffs filed a
notices of foreclosure sale interrupted the running of motion for the confirmation of the sale executed by
the prescriptive period. the sheriff, which was unopposed by the defendant.
The Banks contention has no merit. Prescription of The sale was confirmed by the Court on March 21,
actions is interrupted when they are filed before the 1953.
court, when there is a written extrajudicial demand Thereafter, the plaintiffs filed a petition for writ of
by the creditors, and when there is any written possession; by virtue of such petition the court
acknowledgment of the debt by the debtor. adjudicated possession to the plaintiffs on Aug. 15,
The law specifically requires a written extrajudicial 1953. On Aug. 20, 1953, the deputy clerk issued the
demand by the creditor which is absent in the case writ of possesion prayed for by the plaintiffs.
at bar. The contention that the notices of On Jan. 26, 1954, the defendant deposited with the
foreclosure are tantamount to a written extrajudicial court the sum of P2,783.93, P2,772 of which was in
demand cannot be appreciated, the contents of said the concept of redemption deposit to be delivered
notices not having been brought to light. to Generosa Cayanong and her husband.
But even assuming that the notices interrupted the The oppositor Francisco Pilapil, on Feb. 11, 1954,
running of the prescriptive period, the argument filed an opposition to the defendants' motion of Jan.
would still not lie for the following reasons: 26, 1954, claiming that the property, subject of
The Bank seeks the recovery of the deficient amount foreclosure, having been sold at a judicial
of the obligation after the foreclosure of the foreclosure sale, was not subject to redemption after
mortgage. Such suit is in the nature of a mortgage the judicial sale was confirmed, title thereto having
action because its purpose is to enforce the been fully vested and consolidated in favor of
mortgage contract. A mortgage action prescribes Cayanong and Bellones, their assignees and
after ten years from the time the right of action successors-in-interest.
accrued.
The law gives the mortgagee the right to claim for
the deficiency resulting from the price obtained in ISSUE: Whether the property subject of foreclosure,
the sale of the property at public auction and the having been sold at a judicial foreclosure sale is
outstanding obligation proceedings. In the present subject to redemption after the judicial sale was
case, the Bank, as mortgagee, had the right to claim confirmed.
payment of the deficiency after it had foreclosed the
mortgage in 1965. as it filed the complaint only on RULING:
January 27, 1977, more than ten years had already In a foreclosure of mortgage under Rule 70 of the
elapsed, hence, the action had then prescribed. Rules of Court, there is no right of redemption after
the sale is confirmed, although there is an equity of
redemption in favor of the mortgagor or junior
PIANO v CAYANONG encumbrancer, consisting in the right to redeem the
mortgaged property within the 90-day period, or
FACTS: On March 17, 1952, the plaintiffs even thereafter, but before the confirmation of the
commenced an action to foreclose a mortgage sale.
executed by the defendant in favor of the plaintiffs
upon a parcel of land. The parties-litigant submitted It is only in cases of foreclosures of mortgages in
a compromise agreement. favor of banking and credit institutions (Sec. 76,
General Banking Act [Rep. Act 337]), to the

Philippine National Bank (Acts Nos. 2747, and 2938), loan obligation to respondent Carmencita
and in extrajudicial foreclosures (Act 3135 as San Diego.
amended by Act 4118), where, by express provision, A final notice of demand for payment had
the law allows redemption. In all other foreclosure been sent to them, despite which they still
cases, there is no legal redemption. failed to pay. Hence, respondent
Carmencita San Diegos resort to
The sheriff, therefore, has no authority to grant or extrajudicial foreclosure, provided no less in
insert a period of redemption in the certificate of the parties Amendment of Real Estate
sale, when the same is conducted pursuant to Rule Mortgage.
70 and, wanting in said authority, any insertion The rule has been, and still is, that in real
therein has no validity and effect. Once the judicial estate mortgage, when the principal
sale is confirmed by the court, the rights are vested obligation is not paid when due, the
in the purchaser (Sec. 3, Rule 70). mortgagee has the right to foreclose on the
mortgage and to have the mortgaged
property seized and sold with the view of
applying the proceeds thereof to the
LANDRITO v CA payment of the obligation
FACTS: IN THIS CASE: The validity of the
P obtained a loan of P350k from R and extrajudicial foreclosure on 11 August 1993
secured payment by executing a deed of was virtually confirmed by the trial court
real estate mortgage of their parcel of land when it dismissed petitioners complaint,
at Muntinlupa; obtained again another and rightly so, what with the fact that
loan P 1mill and was granted by R with an petitioners failed to exercise their right of
amendment of real estate mortgage redemption within the 1-year period
P defaulted and refused to comply with therefor counted from the registration of
their obligation despite repeated demands the sheriffs certificate of sale.
R filed a petition for the extrajudicial It appears from the evidence on record that
foreclosure of the mortgage. Mortgaged despite due notice and publication of the
property was sold in a public auction with R same in a newspaper of general, P did not
as highest bidder. R registered sheriffs bother to attend the foreclosure sale nor
certificate of sale. raise any question regarding the propriety
P filed a complaint for annulment of the of the sale.
extrajudicial foreclosure and auction sale It was only on November 9, 1994, or more
and alleged that said foreclosure and than one year from the registration of the
auction sale were null and void for failure to Sheriffs Certificate of Sale, that P filed the
comply with requirements of notice and instant complaint. Clearly, P had slept on
publication; the mortgaged property was their rights and are therefore guilty of
illegally foreclosed; application for laches, which is defined as the failure or
consolidation of title was premature neglect for an unreasonable or explained
because the Rs Husband granted them an length of time to do that which, by
extension of the period of redemption exercising due diligence, could or should
TC granted Rs Motion to Dismiss; action have been done earlier, failure of which
already barred by laches. CA affirmed gives rise to the presumption that the
person possessed of the right or privilege
ISSUE: WON the extrajudicial foreclosure and public has abandoned or has declined to assert the
auction sale of the subject parcel of land are valid same.
and lawful? In Lazo v. Republic Surety & Insurance Co.,
Inc., this Court has made it clear that it is
HELD: YES only where, by voluntary agreement of the
Records indubitably show that at the time parties, consisting of extensions of the
of the foreclosure sale on 11 August 1993, redemption period, followed by
petitioners were already in default in their commitment by the debtor to pay the

redemption price at a fixed date, will the ISSUE:
concept of legal redemption be converted
into one of conventional redemption. 1. Whether Ramirez had acquired any right by
IN THIS CASE: There is no showing virtue of her having redeemed the property
whatsoever that petitioners agreed to pay in question beyond the one-year
the redemption price on or before 11 redemption period?
November 1994, as allegedly set by Mrs. 2. What will be the effect of the redemption
San Diegos husband. On the contrary, their by Ramirez on private respondent
act of filing their complaint on 09 Marmeto?
November 1994 to declare the nullity of the
foreclosure sale is indicative of their refusal HELD:
to pay the redemption price on the alleged
deadline set by the husband. At the very 1. Yes, by accepting the redemption price
least, if they so believed that their loan after the statutory period for redemption
obligation was only for P1,000,000.00, had expired, PNB is considered to have
petitioners should have made an offer to waived the one (1) year period within which
redeem within one (1) year from the Ramirez could redeem the property. There
registration of the sheriffs certificate of is nothing in the law which prevents such a
sale, together with a tender of the same waiver. Allowing a redemption after the
amount. This, they never did. lapse of the statutory period, when the
buyer at the foreclosure does not object but
METROBANK v TAN even consents to the redemption, will
uphold the policy of the law. Thus, there is
IBAAN RURAL BANK v CA no doubt that the redemption made by
petitioner Ramirez is valid.
RAMIREZ v CA 2. The rule is well settled that a second
FACTS: One Ronnie Garcia executed a first mortgage mortgagee merely takes what is called an
over a parcel of land in favor of PNB as a security for equity of redemption and thus a second
a loan granted by PNB. The deed was registered with mortgagee has to wait until after the
the Register of Deeds and annotated in the title of debtor's obligation to the first mortgagee
the mortgaged property. During the subsistence of has been fully settled. The rights of a
the first mortgage, Ronnie executed a second second mortgagee are strictly subordinate
mortgage over the same property in favor of private to the superior lien of the first mortgagee.
respondent Marmeto which was also recorded on In the case at bar, the proper foreclosure of
the title. For failure to pay his loan, PNB extra- the first mortgage gave, not only the first
judicially foreclosed the mortgage and a Certificate mortgagor, but also subsequent lien holders
of Sale was issued in its favor on Nov. 8, 1977. The like Marmeto, the right to redeem the
second mortgage was also extra-judicially foreclosed property within the statutory period.
and a Certificate of Sale was issued in favor of Marmeto failed to make the redemption
Marmeto on June 27, 1978. but instead it was the petitioner who made
such redemption.
On February 1980, Ronnie executed a Waiver and
Renunciation of Rights with respect to his right of
redemption with respect to the first mortgage in TOLENTINO v CA
favor of his father. The latter assigned his right to
petitioner Nimfa Ramirez, who in turn paid the total SPOUSES OLIVEROS v PRESIDING JUDGE
redemption price to PNB which accepted it. FACTS:
Meanwhile, Ronnie having not exercised his right of The mortgagors (P) obtained 2 loans for the
redemption over the second mortgage, Marmeto construction of the Cabuyao Commercial Complex
filed in court for the Consolidation of Ownership for P58M as evidenced by promissory notes from
over the mortgaged property to which petitioner Metrobank (R). To secure the loans, Spouses
Ramirez filed an adverse claim. Oliveros and Nevalga executed a Deed of Real Estate
Mortgage in favor of Metrobank over the 3 parcels

of land together with all the buildings and of Sale was then registered in the Registry of Deeds
improvements existing thereon. Due to the failure of of Quezon City.
mortgagors to pay their loan, Metrobank instituted
an EJF over the Real Estate Mortgage. Metrobank 2) Thereafter Chinabank filed with the RTC a
won the bid. Mortgagors failed to redeem the petition for issuance of a writ of possession, which
property hence, Metrobank consolidated its title to was granted, thus placing Chinabank in possession
the subject property. Metrobank demanded P to of the 45 parcels of land. Then, spouses Ordinario,
turn over the actual possession of the property but filed a motion for reconsideration praying that the
the mortgagors failed and refused to do so. parcel of land be excluded from the above order
Metrobank filed a writ of possession which the alleging, that they purchased the land covered on
Petitioner Spouses opposed claiming thata pending which was constructed their townhouse and that the
case was in another court for nullification of mortgage foreclosure cannot prevail over their
foreclosure proceedings. superior right as legitimate buyers of the area.

ISSUE: WoN a writ of possession is proper when 3) To this, Chinabank filed its opposition to
there is a pending case to nullify the foreclosure sale respondents motion for reconsideration. The trial
court denied Sps Ordinarios motion for
SC: YES! reconsideration. On appeal, this was overturned by
- Metrobank purchased the properties at a the CA.
public auction following the EJF of the
subject properties. Certificate of sale over
HELD:
the properties were issued in favor of
Metrobank and registered with RD. P as
A) Under Section 7 of Act No. 3135, the purchaser in
mortgagors failed to redeem the properties
a foreclosure sale is entitled to possession of the
within the 1 year period of redemption
property. Thus the writ prayed for by petitioner
hence Metrobank consolidated its
granting it possession has to be issued as a matter of
ownership over the subject properties.
course, being a ministerial duty of the trial court to
- Metrobank having consolidated its title to
grant such writ of possession. No discretion is left
the mortgaged properties is even more
entitled now to possession thereof and for the trial court.
makes more unmistakable its right to file an
ex parte motion for the issuance of a writ of B) Under the Rules of Court a third-party claimant or
possession. a stranger to the foreclosure suit, like respondents
- The issuance of the writ of possession herein, can opt to file a remedy known as terceria
becomes a mere ministerial duty on the against the sheriff or officer effecting the writ by
part of the judge, regardless of WoN there serving on him an affidavit of his title and a copy
is a pending action for nullification of the thereof upon the judgment creditor. By the terceria,
sale at public auction or foreclosure itself the officer shall not be bound to keep the property
and could be answerable for damages. A third-party
CHINA BANK v ORDINARIO claimant may also resort to an independent
"separate action," the object of which is the
recovery of ownership or possession of the property
FACTS:
seized by the sheriff, as well as damages arising from
wrongful seizure and detention of the property
1) Petitioner ChinaBank granted 3 loans to
despite the third-party claim. If a "separate action" is
TransAmerican owned by spouses Garcia, secured by
the recourse, the third-party claimant must institute
real estate mortgages constituted by Jesus Garcia 45
in a forum of competent jurisdiction an action,
parcels of land The contracts of mortgage were all
distinct and separate from the action in which the
registered in the same Registry. Subsequently for
judgment is being enforced, even before or without
failure of TransAmerican to pay its loans, Chinabank
need of filing a claim in the court that issued the
foreclosed extrajudicially the three real estate
writ. Both remedies are cumulative and may be
mortgages which were then sold at public auction
availed of independently of or separately from the
for P38,004,205.01 to the same bank. The Certificate

other. Availment of the terceria is not a condition Alberto Barretto, complying with the condition
sine qua non to the institution of a "separate action." imposed in said document of the donation paid
to each of his brothers and nephews, and in
C) In essence, the Court of Appeals committed exchange for the sums received as such price his
palpable error when it granted Spouses Ordinarios co-donees assigned and conveyed to him one-
motion for reconsideration and set aside the orders eight part of the third of the said hacienda and
dated April 10, 1991 and September 21, 1992 of the whatever rights and interests the grantors might
RTC. Thus, the appealed Decision and Resolution of have by virtue of the said donation in favor of
the Court of Appeals are REVERSED and SET ASIDE. the plaintiff Barretto.
The orders of the RTC, Branch 90, Quezon City, It is to be noted that the plaintiff bought one-
directing the issuance of a writ of possession in favor eight undivided part of the third of the whole
of petitioner bank are AFFIRMED. hacienda of Balintagac and paid to every
claimant the price of the eight part sold to him.
ANTICHRESIS The third part of the ownership of the hacienda
was transferred to the plaintiff by the donor
Guadalupe Barretto.

DELA VEGA v BALLILOS Antonio and Ricardo, as grantors, sold and
conveyed all their rights and actions included
BARRETTO v BARRETTO and derived from the said hypothecary credit for
the price of P14,000 which would be paid by the
Facts: grantee and vendee by installments and in the
manner prescribed in the said deed, assigning to
After the death of Juan Antonio Barretto, Sr., his him, besides, all the rights which the said
brothers had over the two-third parts of the said
son Juan Antonio Grandpre, in his own behalf
and as the executor of his father, mortgaged, hacienda.
the cultivated half of said hacienda in favor of
Antonio Vicente Barretto as security for the
Issue: WON there was a transfer of ownership to
amount of P11,000 which the latter loaned to
Alberto?
him.
By verbal agreement, Antonio will collect his
Held:
credit from the products of the property.
His three children and heirs Antonio Ma
No. the plaintiff did not obtain by assignment, sale,
Barretto, Ricardo Esteban Barretto, and
or transfer, as expressed in said deeds, the
Guadalupe Barretto came to succeed after the
ownership of the said hacienda of Balintagac, but
death of Antonio.
only the hypothecary credit which the heirs of the
Guadalupe made a donation inter vivos in favor
deceased creditor Antonio Vicente Barretto had
of the plaintiff Alberto Barretto of the undivided
inherited from the latter, after the plaintiff had
one-third part of the hypothecary credit and of
obtained from his other brothers the conveyance of
the rights belonging to her deceased father
their respective rights to the donation.
Antonio Vicente Barretto, assigning to the
donee all the rights and actions which she might

have in the foreclosure proceedings exhibited at
the trial of the present action, on the condition The rights acquired by the creditor were transmitted
that as soon as the donee Alberto Barretto by hereditary title through operation of law to the
could collect the said one-third part of the credit heirs of the same Antonio M.a, Ricardo Esteban, and
or should obtain the assignment of the property Guadalupe, Barretto y Rocha and these in turn
of the debtor, he would divide what was assigned, sold and transferred the credit with all
donated, into nine equal parts among the donee their rights as hypothecary creditors, as well as the
himself and six living brothers and the heirs of right to the usufruct of all the hacienda of Balintagac
their two brothers now dead, each receiving to the plaintiff Alberto Barretto.
one-ninth part.


When in the record of an action it is fully established property given in antichresis depend upon the full
that the parties indebted in a certain amount, which payment of the debt and its interests, after the
is secured with a mortgage over of their hacienda, liquidation of the amounts entered on the account
having delivered to the creditor not only the of the debtors and received by the creditor.
mortgaged half but the whole hacienda, not in the
nature of an assignment of property in payment of a
debt, still unpaid, but with the object that the LEGAZPI & SALCEDO v CELESTIAL
creditor may collect by means of usufruct his credit
and the interest agreed upon, the verbal contract ANGELES v SEC. OF JUSTICE
which is inferred from such facts and presumed to
have been entered into between the parties, PANDO v GIMENEZ
although not set in any document, deserves in law
the name of antichresis as defined in Article 1881 of FACTS: This action was instituted for the purpose of
the Civil Code. foreclosing a mortgage executed by defendant
Antonio Gimenez. Massy Teague was also impleaded
for having purchased at public auction one of the
mortgaged properties.
By the antichresis a creditor acquires a
right to receive the fruits of real property In order to secure the payment of P8,000 which the
of his debtor, with the obligation to apply defendant Gimenez owed the plaintiff, he
them to the payment of the interest, if mortgaged the house at No. 655 Santa Mesa,
due, and afterwards to the principal of his Manila, and the leasehold right on the lot upon
credit. which it stands (Exhibit A). This was payable on
October 27, 1925, but, in spite of nonpayment, the
creditor, who is the plaintiff herein, did not foreclose
the mortgage.
The creditor in antichresis cannot by mere
possession of the real property which he received by The defendant was leaving the City of Manila in
virtue of an antichresis acquire ownership over the order to attend to his business in the Province of
same for failure of the debtor to pay the debt within Cagayan, and at the special instance and request of
the stipulated time, any agreement to the contrary the herein plaintiff, said defendant gave to the
being void; and the debtor on his part cannot plaintiff the full control, and complete and absolute
recover the enjoyment and use of the real property administration of the building and the parcel of land
given in antichresis to the creditor, without having on which said building was erected, situated in Santa
previously paid the latter all his debt and interests Mesa, District of Santa Mesa, mortgaged to the
thereon, the creditor being entitled to ask the courts plaintiffIt and it was agreed between them that the
that the said real property be sold to satisfy his plaintiff would collect the rents of said house, in
credit. order to apply them to the payment of interest on
the amount of the indebtedness.

For default in the payment of taxes for the years
With regard to prescription, the creditor in
1925 and 1926, the house was on November 23,
antichresis can never by prescription acquire the
1926 sold at public auction, and, for failure to
ownership of the real property received in
exercise the right of legal redemption, the City of
antichresis, as he entered into the possession of the
Manila, the attachment creditor and vendor of the
same not as an owner but as a creditor with right
property, executed a final deed of sale in favor of the
only to collect his credit from the fruits of said real
purchaser, the other defendant Massy Teague.
property.
Furthermore, for default in the payment of the rents

due on the lot of said house for the years 1925 to
The extinguishment of the right as creditor and the 1928, the Santa Mesa estate, the lessor of said land,
termination of his use and possession of the real

cancelled the lease on July 13, 1928, pursuant to the Civil Code provisions touching the obligations of the
terms of the contract. antichretic creditor, to wit:
The appellant Gimenez contends that the plaintiff The creditor is obliged to pay the taxes and
was responsible for the delinquency in the payment charges which burden the estate, in the
of both the tax on the house and the rent of the lot, absence of an agreement to the contrary.
which caused him the loss of the said house and the
leasehold right on the lot, because the plaintiff was He shall also be obliged to pay any expenses
at that time in charge of the administration of the necessary for its preservation and repair.
premises with the obligation to attend to the
payment of the tax and the rents. Any sums he may expend for such purposes
shall be chargeable against the fruits. (Art.
The plaintiff denied that he had such obligation, 1882, Civil Code.)
alleging that his duties were confined to the
collection of the rents of the house in order to apply These obligations arise from the very nature of the
them to the payment of the interest on the covenant, and are correlated with the plaintiff's
mortgage. acquired right to take charge of the property and
collect the fruits for himself.
Such was in fact the original agreement; but the
appellant asserts that it was modified by the letter.

PERALTA v QUIMPO
ISSUE: Whether or not the the administration of the 51 OG No. 3 p. 1383, Sept 1954
property in question assumed by the plaintiff toward NO COPY AVAILABLE
the end of October, 1925 is antichretic in character.

RULING: VILLANUEVA v IPONDO

Taking into account the language of the letter Exhibit CHATTEL MORTGAGE
1 and the appellant's unimpeached testimony, we
are constrained to hold that it has been proved by a
preponderance of evidence, that even though at first ALEMAN v CATERA
the plaintiff had only undertaken to collect the rents
of the house, later on, towards the end of October, ALLIED BANK v SALAS
1925, he assumed the obligation to pay both the tax FACTS: Petitioner-bank (through petitioners
on the house, and the rent of the lot. predecessor) granted Gencor Marketing, Inc. a time
loan and was secured by a Deed of Chattel Mortgage
As to the consideration contained in the judgment over certain printing machineries and equipments;
appealed from to the effect that, in view of the said deed was recorded in the Chattel Mortgage
reduction of the rent of the house in May, 1926, the Registry in Feb. 7, 1974. Gencor failed to pay
plaintiff would not have accepted the administration prompting petitioner to extra judicially foreclose the
under the conditions alleged by the defendant- mortgage and requested the Sheriff of Quezon City
appellant, it must be remembered that the plaintiff to effect the said foreclosure. Upon issuance of the
took over such complete administration months Notice of Sheriffs sale, private respondent filed a
before such reduction of rents, and it does not motion in court to enjoin the public auction alleging
appear that the reduction was foreseen. that the properties have been previously levied and
attached by the Sheriff of Rizal.
From all these circumstances it follows that the
administration of the property in question assumed Metrobank is a creditor of Gencors president and
by the plaintiff toward the end of October, 1925 is claims the properties as the exclusive property of
antichretic in character, and therefore justice and the president doing business under the firm name of
equity demand that application be here made of the Gencor Printing and as such may not be foreclosed

and sold at auction. During the trial it was admitted superior to the levy on attachment made on the
by petitioner that the properties belonged to the same by private respondent as creditor of chattel
president and not to Gencor. mortgagor Clarencio Yujuico. What may be attached
by private respondent as creditor of said chattel
ISSUE: WHO between the two claimants has a better mortgagor is only the equity or right of redemption
right over the property. of the mortgagor.
HELD: Petitioner has the better right. Even though MAKATI LEASING v WEAREVER TEXTILES
petitioner admitted that it was the president and not
gencor who owned the properties, the Court TSAI v CA
nevertheless finds that the chattel mortgage over FACTS:
the printing machineries and equipment was ratified - Ever Textile (R) obtained a P3M loan from
and approved by Clarencio Yujuico. As earlier stated PBCOM (P), with Real Property and Chattel
and as pointed out by petitioner, it was Clarencio Mortgage over the lot, where its factory
Yujuico as president of Gencor Marketing, Inc., who stands and the chattels located therein as
signed the promissory note evidencing the time loan enumerated in its attached schedule
nd
granted by petitioner's predecessor General Bank - A 2 loan was obtained secured by a
and Trust Company in favor of Gencor Marketing, Chattel Mortgage over personal properties
Inc. listed in its attached list, which is similar to
st
the attached list to the 1 mortgage.
nd
Finding the chattel mortgage to be valid, the Court - On the same date of the 2 loan, R
takes special note of the fact that said chattel purchased various machines and
mortgage was registered and duly recorded in the equipments
Chattel Mortgage Registry of Quezon City on - Later, R filed insolvency proceedings
February 7, 1974, prior to April 22, 1977, the date - P commenced an extrajudicial foreclosure
the writ of attachment of the properties in question (EJF), wherein P won the bid and the
was issued. This is a significant factor in determining properties were leased and later sold to
who of two contending claimants should be given Tsai. P sold the factory, properties and the
preference over the same properties in question. contested machineries of R.
- R filed for annulment of sale contending
The registration of the chattel mortgage more than that the machineries bought by R which are
three years prior to the writ of attachment issued by not included in the list should be excluded
respondent judge is an effective and binding notice from the sale to TSAI
to other creditors of its existence and creates a real - P contended that the machineries, which
right or a lien, which being recorded, follows the are connected to the land, are part of the
7
chattel wherever it goes. The chattel mortgage lien real estate stated in the Mortgage.
attaches to the property wherever it may be. Thus, - RTC and CA ruled in favor of R.
private respondent as attaching creditor acquired
the properties in question subject to petitioner's ISSUE: WoN the contested machineries (property
nd
mortgage lien as it existed thereon at the time of the bought by R on the same day that the 2 loan was
attachment. executed) should be inlcluded in the auction sale and
sale to TSAI

In this regard, it must be stressed that the right of
SC: NO!
those who so acquire said properties should not and
- Based on the pieces of evidence, the true
cannot be superior to that of the creditor who has in
intention of P and R is to treat machinery
his favor an instrument of mortgage executed with
and equipment as chattels.
the formalities of law, in good faith, and without the
8 - The controverted machineries are not
least indication of fraud.
covered by or included in either of the 2
mortgages
Applying the foregoing principle to the case at bar,
- The machineries were not included in the
the Court finds the lien of petitioner's chattel
Notice of Sale
mortgage over the mortgaged properties in question

- An immovable may be considered a court also ordered the foreclosure of the chattel
personal property if there is a stipulation as mortgage. It held petitioner corporation bound by
when it is used as security in the payment the stipulations.
of an obligation where a chattel mortgage is
executed over it, as in the case at bar.

DOCTRINE: a chattel mortgage shall be deemed to ISSUE: Whether it is valid and effective to have a
cover only the property described therein and not clause in a chattel mortgage that purports to
like or substituted property thereafter acquired by likewise extend its coverage to obligations yet to be
the mortgagor and placed in the same depository as contracted or incurred.
the property originally mortgaged.

HELD:
ACME SHOE v CA
A) Contracts of security are either personal or real. In
FACTS:
contracts of personal security, such as a guaranty or
a suretyship, the faithful performance of the
1) Petitioner Chua Pac, the president and general obligation by the principal debt or is secured by the
manager of co-petitioner Acme Shoe, executed on personal commitment of another.
June 1978, for and in behalf of the company, a
chattel mortgage in favor of private respondent
B) In contracts of real security, such as a pledge, a
Producers Bank of the Philippines as security for
mortgage or an antichresis, that fulfillment is
petitioner's corporate loan of P3,000,000.00. It was
secured by an encumbrance of property in pledge,
stated that:
the placing of movable property in the possession of
the creditor; in chattel mortgage, by the execution of
In case the MORTGAGOR executes subsequent the corresponding deed substantially in the form
promissory note or notes either as a renewal of the prescribed by law; in real estate mortgage, by the
former note, as an extension thereof, or as a new execution of a public instrument encumbering the
loan, or is given any other kind of accommodations real property covered thereby; and in antichresis, by
such as overdrafts, letters of credit, acceptances and a written instrument granting to the creditor the
bills of exchange, releases of import shipments on right to receive the fruits of an immovable property
Trust Receipts, etc., this mortgage shall also stand as with the obligation to apply such fruits to the
security for the payment of the said promissory note payment of interest, if owing, and thereafter to the
or notes and/or accommodations without the principal of his credit upon the essential condition
necessity of executing a new contract and this that if the obligation becomes due and the debtor
mortgage shall have the same force and effect as if defaults, then the property encumbered can be
the said promissory note or notes and/or alienated for the payment of the obligation, but that
accommodations were existing on the date thereof. should the obligation be duly paid, then the contract
This mortgage shall also stand as security for said is automatically extinguished proceeding from the
obligations and any and all other obligations of the 8
accessory character of the agreement.
MORTGAGOR to the MORTGAGEE of whatever kind
and nature, whether such obligations have been
C) While a pledge, real estate mortgage, or
contracted before, during or after the constitution of
antichresis may secure after-incurred obligations so
this mortgage
long as these future debts are accurately described,
a chattel mortgage, can only cover obligations
2) On 10 and 11 January 1984, the bank yet again existing at the time the mortgage is constituted.
extended to petitioner corporation a loan of
P1,000,000.00 covered by four promissory notes for
D) Although a promise expressed in a chattel
P250,000.00 each. Due to financial constraints, the
mortgage to include debts that are yet to be
loan was not settled at maturity. The bank then
contracted can be a binding commitment that can be
applied for an extra judicial foreclosure of the
compelled upon, the security itself, however, does
chattel mortgage, with the Sheriff of prompting
not come into existence or arise until after a chattel
Acme to file an injunction, which was dismissed. The
mortgage agreement covering the newly contracted

debt is executed either by concluding a fresh chattel deed of chattel mortgage over the motor
mortgage or by amending the old contract. Refusal vehicle.
on the part of the borrower to execute the Colarina failed to pay the monthly amortization
agreement so as to cover the after-incurred accumulating an unpaid balance of P131,607.00.
obligation can constitute an act of default on the Despite repeated demands, he failed to make
part of the borrower of the financing agreement the necessary payment.
whereon the promise is written but the remedy of MFS filed a Complaint for Foreclosure of Chattel
foreclosure can only cover the debts extant at the Mortgage with Replevin.
time of constitution and during the life of the chattel Upon the filing of a Replevin Bond, a Writ of
mortgage sought to be foreclosed. Replevin was issued. Summons, together with a
copy of the Writ of Replevin, was served on
E) A chattel mortgage, as hereinbefore so intimated, Colarina who voluntarily surrendered physical
must comply substantially with the form prescribed possession of the vehicle to the Sheriff.
by the Chattel Mortgage Law itself. One of the The motor vehicle was turned over by the
requisites, under Section 5 thereof, is an affidavit of sheriff to Magna Financial Services Group, Inc.
good faith. The fact, .that the statute has provided The trial court rendered judgment in favor of
that the parties to the contract must execute an MFS and asked Coralina to pay the unpaid
oath that the mortgage is made for the purpose of balance and foreclose the chattel mortgage.
securing the obligation specified in the conditions Colarina appealed to the Regional Trial Court
thereof, and for no other purpose, and that the same which affirmed in toto the decision of the MTCC.
is a just and valid obligation, and one not entered CA reversed the decision of MTCC and RTC
into for the purpose of fraud means that the debt stating that MTC and the RTC erred in ordering
referred to in the law is a current, not an obligation the defendant to pay the unpaid balance of the
that is yet merely contemplated. purchase price of the subject vehicle
irrespective of the fact that the instant
F) In the chattel mortgage here involved, the only complaint was for the foreclosure of its chattel
obligation specified in the chattel mortgage contract mortgage.
was the P3,000,000.00 loan which petitioner
corporation later fully paid. By virtue of Section 3 of Issue:
the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel 1) WON MFS can avail of the two remedies,
mortgage void or terminated. In other words, A payment of unpaid balance and foreclosure of
mortgage that contains a stipulation in regard to chattel mortgage?
future advances in the credit will take effect only 2) WON there was actual foreclosure?
from the date the same are made and not from the
date of the mortgage.
Held:

CERNA v CA 1) No. Article 1484, paragraph 3, provides that if
the vendor has availed himself of the right to
MAGNA FINANCIAL v COLARINA foreclose the chattel mortgage, he shall have no
further action against the purchaser to recover
Facts: any unpaid balance of the purchase price. Any
agreement to the contrary shall be void. In other
Elias Colarina bought on installment from words, in all proceedings for the foreclosure of
Magna Financial Services (MFS) one Suzuki chattel mortgages executed on chattels which
Multicab. have been sold on the installment plan, the
After making a down payment, Colarina mortgagee is limited to the property included in
executed a promissory note for the balance of the mortgage.
P229,284.00 payable in 36 equal monthly
installments. To secure payment, Colarina Petitioner resolutely declared that it has opted
executed an integrated promissory note and for the remedy provided under Article 1484(3)

of the Civil Code, that is, to foreclose the chattel Depositario and private respondent Guinhawa to pay
mortgage. The petitioners prayer contains two the loan. There was a deficiency in the amount of
remedies, payment of unpaid balance and P5,158.06 where BISLA made a demand to pay the
foreclosure of chattel mortgage. Such a scheme same. Petitioner BISLA (plaintiff therein) filed a
is not only irregular but is a flagrant complaint for the recovery of a sum of money
circumvention of the prohibition of the law. By constituting the deficiency after foreclosure of the
praying for the foreclosure of the chattel, chattel mortgage put up by the principal borrower
Magna Financial Services Group, Inc. renounced Depositario against the latter and his solidary co-
whatever claim it may have under the maker Guinhawa (herein private respondent) as
promissory note. defendants. Eventually, a stipulation of facts was
entered into between BISLA and Guinhawa. They
2) No. In the case at bar, there is no dispute that agreed to drop Depositario, as "his whereabouts
the subject vehicle is already in the possession being unknown now and he could not be served with
of the petitioner, Magna Financial Services summons". The creditor claims that he can maintain
Group, Inc. However, actual foreclosure has not an action for deficiency and claim P5k balance.
been pursued, commenced or concluded by it.
Where the mortgagee elects a remedy of Issue: WoN creditor can claim remaining balance
foreclosure, the law requires the actual
foreclosure of the mortgaged chattel. It is the Ruling: Yes! The creditor may maintain an action for
actual sale of the mortgaged chattel that would deficiency although the chattel mortgage law Is
bar the creditor (who chooses to foreclose) from silent on this point. The reason is tat a chattel
recovering any unpaid balance. And it is deemed mortgage is only given as a security and not as
that there has been foreclosure of the mortgage payment for the debt in case of failure of payment
when all the proceedings of the foreclosure,
including the sale of the property at public PAMECA WOOD v CA
auction, have been accomplished. FACTS: On April 17, 1980, petitioner PAMECA Wood
Treatment Plant, Inc. (PAMECA) obtained a loan of
US$267,881.67, or the equivalent of P2,000,000.00
Be that as it may, although no actual foreclosure from respondent Bank. By virtue of this loan,
as contemplated under the law has taken place petitioner PAMECA, through its President, petitioner
in this case, since the vehicle is already in the Herminio C. Teves, executed a promissory note for
possession of Magna Financial Services Group, the said amount, promising to pay the loan by
Inc. and it has persistently and consistently installment.
avowed that it elects the remedy of foreclosure,
the Court of Appeals, thus, ruled correctly in As security for the said loan, a chattel mortgage was
directing the foreclosure of the said vehicle also executed over PAMECA's properties in
without more. Dumaguete City, consisting of inventories, furniture
and equipment, to cover the whole value of the
loan.
BA FINANCE v CA
On January 18, 1984, and upon petitioner PAMECA's
BICOL SAVINGS v GUINHAWA failure to pay, respondent bank extrajudicially
foreclosed the chattel mortgage, and, as sole bidder
F: Victorio Depositario together with private in the public auction, purchased the foreclosed
respondent Jaime Guinhawa, acting as solidary co- properties for a sum of P322, 350.00.
maker, took a loan from petitioner Bicol Savings and
Loan Association (BISLA) payable every 19th day of On June 29, 1984, respondent bank filed a
each month. To secure the payment of the foregoing complaint for the collection of the balance.
loan obligation, the principal borrower Victorio
Depositario put up as security a chattel mortgage Petitioners submit that Articles 1484 and 2115 of the
which was a Yamaha Motorcycle. Said motorcycle Civil Code be applied in analogy to the instant case
was eventually foreclosed by reason of the failure of to preclude the recovery of a deficiency claim.

Lavides negotiated with ICC Leasing. ICC
ISSUES: Whether the foreclosure of the chattel agreed to finance the purchase of the new
mortgage valid buses via a loan and proposed a 3-yr term
for the payment. The new buses to be
RULING: purchased were to be used by Superlines as
The court did not find anything irregular or security for the loan.
fraudulent in the circumstance that respondent bank Diamond Motors sold to Superlines 5 new
was the sole bidder in the sale, as all the legal buses and was registered under the name
procedures for the conduct of a foreclosure sale of Superlines.
have been complied with, thus giving rise to the Superlines executed 2 docus Deed of
presumption of regularity in the performance of Chattel Mortgage over said buses a security
public duties. for the purchase price of buses in P13mill
loaned by ICC to Superlines; a Continuing
The effects of foreclosure under the Chattel Guaranty to pay jointly and severally in
Mortgage Law run inconsistent with those of pledge favour of ICC the amount of P13mill
under Article 2115. Whereas, in pledge, the sale of After paying only 7 monthly amortizations,
the thing pledged extinguishes the entire principal Superlines defaulted in the payment of its
obligation, such that the pledgor may no longer obligation to ICC.
recover proceeds of the sale in excess of the amount ICC filed a complaint for collection of sum of
of the principal obligation, Section 14 of the Chattel money with a prayer for a writ of replevin
Mortgage Law expressly entitles the mortgagor to TC dismissed; ICC and Superlines forged a
the balance of the proceeds, upon satisfaction of the consumer loan agreement and not an
principal obligation and costs. amortized commercial loan.
CA reversed;
Since the Chattel Mortgage Law bars the creditor- - ICC and Superlines entered into an
mortgagee from retaining the excess of the sale amortized commercial loan agreement
proceeds there is a corollary obligation on the part with ICC as creditor-mortgagee and
of the debtor-mortgagee to pay the deficiency in Superlines as debtor-mortgagor, and
case of a reduction in the price at public auction. ordered Superlines and Lavides to pay
jointly and severally the sum of P5mill
As correctly pointed out by the trial court, the said as deficiency
article applies clearly and solely to the sale of - It was Diamond Motors Corporation
personal property the price of which is payable in and not ICC which sold the subject
installments. Although Article 1484, paragraph (3) buses to Superlines. It held that no
expressly bars any further action against the evidence had been presented by
purchaser to recover an unpaid balance of the price, Superlines to show that ICC bought the
where the vendor opts to foreclose the chattel said buses from Diamond Motors
mortgage on the thing sold, should the vendee's Corporation under a special
failure to pay cover two or more installments, this arrangement and that ICC sold the
provision is specifically applicable to a sale on buses to Superlines. The appellate
installments. court also ruled that Article 1484(3) is
applicable only where there is vendor-
vendee relationship between the
SUPERLINES v ICC
parties and since ICC did not sell the
FACTS:
buses to Superlines, the latter cannot
Superlines decided to acquire five (5) new
invoke said law.
buses from the Diamond Motors

Corporation for the price of P10k. However,
ISSUE: WON there was an amortized commercial
Superlines lacked financial resources for the
loan agreement?
purpose so by virtue of a board resolution,

it authorized its President and Gen Mgr
HELD: YES
Lavides to look for a loan for the purchase
of said buses.

DIAMOND is the seller of the five units of the mortgagee the right to maintain an
buses and not the plaintiff action to recover the deficiency after
No convincing evidence, except the self- foreclosure of the chattel mortgage would
serving testimony of defendant Manolet be to overlook the fact that the chattel
Lavides, was presented to prove that there mortgage is only given as security and not
was an internal arrangement between the as payment for the debt in case of failure of

plaintiff, as financing agent, and Diamond, payment. Both the Chattel Mortgage Law
as seller of the buses. In fact, defendant and Act 3135 governing extra-judicial
Lavides admitted under oath that foreclosure of real estate mortgage, do not
DIAMOND and plaintiff did not enter into contain any provision, expressly or
transaction over the sale of the buses impliedly, precluding the mortgagee from
The evidence shows that the transaction recovering deficiency of the principal
between the parties was an "amortized obligation.
commercial loan" to be paid in installments
P failed to adduce a preponderance of
evidence to prove that R and Diamond ESGUERRA v CA
Motors Corporation entered into a special
arrangement relative to the issuance of BPI CREDIT v CA
certificates of registration over the buses
under the name of petitioner Superlines. SERVICEWIDE v CA
P were also unable to prove that
respondent purchased from Diamond FACTS:
Motors Corporation the new buses. In
contrast, the vehicle invoices of Diamond Respondents executed a promissory note

Motors Corporation irrefragably show that and a chattel mortgage over a vehicle they
it sold the said buses to petitioner bought from the mortgagee itself, C. R.
Superlines. The net proceeds of the loan Tecson Enterprises, for the payment in
were remitted by respondent to petitioner installments of the vehicle. C. R. Tecson
Superlines and the latter remitted the same Enterprises, on the same date, assigned in
to Diamond Motors Corporation in payment favor of Filinvest Credit Corporation. The
of the purchase price of the buses. In fine, respondents were aware that the new
respondent and Diamond Motors mortagee is Filinvest.
Corporation had no direct business Respondent spouses by way of Deed of Sale
transactions relative to the purchase of the with Assumption of Mortgage transferred
buses and the payment of the purchase and delivered the vehicle to Conrado
price thereof. Tecson.
The evidence on record shows that under Subsequently, Filinvest assigned all its rights
the Promissory Note, Chattel Mortgage and as mortgagee to petitioner.
Continuing Guaranty, respondent was the Respondents failed to pay the installments
creditor-mortgagee of petitioner Superlines and despite demands from petitioner-
and not the vendor of the new buses. mortgagee to pay or to return the vehicle.
Hence, petitioners cannot find refuge in Petitioner filed a complaint for Replevin but
Article 1484(3) of the New Civil Code. the respondents alleged in their Answer
What should apply was the Chattel that they can no longer be held liable as
Mortgage executed by petitioner Superlines they had already conveyed the car to
and R in relation to the Chattel Mortgage Conrado Tecson.
Law.
This Court had consistently ruled that if in ISSUE:
an extra-judicial foreclosure of a chattel
mortgage a deficiency exists, an
1. WON the assignment of credit by the
independent civil action may be instituted
creditor-mortgagee quires the notice and
for the recovery of said deficiency. To deny
consent of the debtor- mortgagor?

2. WON the assignment of credit by the upon since it is already the owner of the
debtor- mortgagor requires the notice and subject jalousies.
consent of the creditor-mortgagee?
ISSUE: WoN R may levy the jalousies
HELD:
SC: NO!
1. Only notice to the debtor-mortgagor of the - When the glass and wooden jalousies were
assignment of credit is required. His delivered and installed in the leased
consent is not required. premises, P became the owner thereof, due
2. In contrast, consent of the creditor- to the contract between P and Capitol in
mortgagee to the alienation of the which it stated that all permanent
mortgaged property is necessary in order to improvements made by lessee shall belong
bind said creditor. Since the assignee of the to the lessor and that said improvements
credit steps into the shoes of the creditor- hav been considered as part of the monthly
mortgagee to whom the chattel was rentals.
mortgaged, it follows that the assignee's - The fact that Capitol failed to pay R the
consent is necessary in order to bind him of purchase price of the items levied upon did
the alienation of the mortgaged thing by not prevent the transfer of ownership to
the debtor-mortgagor. This is tantamount Capitol and then to P.
to a novation. As the new assignee,
petitioner's consent is necessary before
respondent spouses' alienation of the UY v ZAMORA
vehicle can be considered as binding against
third persons. Petitioner is considered a FACTS:
third person with respect to the sale with
mortgage between respondent spouses and 1) At the instance of plaintiff Uy, the MTC ordered
third party defendant Conrado Tecson. the attachment of a vehicle belonging to Zamora.
The writ was levied on the vehicle on August 11,
1960. Subsequently, the Municipal Court rendered
CONCURRENCE AND PREFERENCE OF CREDITS judgment for the plaintiff Uy and ordered defendant
Zamora to pay the sum of P1,740. Zamora appealed
to the CFI.
DE BARRETTO v VILLANUEVA
2) While the case was pending appeal, the Allied
SAMPAGUITA PICTURES v JALWINDOR Finance, Inc. intervene. According to it, the vehicle,
FACTS: which was attached by the Sheriff, had previously
- Sampaguita (P) is the owner of a building been mortgaged to it by Zamora to secure the
which its roofdeck was leased to Capitol payment of a loan and that at the time of the filing
300 (Capitol), wherein it was agreed that of the complaint in intervention, a balance of
whatever improvements introduced therein P2,451.93 remained in its favor. Allied, prayed that
by Capitol will later be owned by P. Zamora be ordered to pay P2,451.93 as principal.
- Capitol purchased on credit from Jalwindor
(R) glass and wooden jalousies which were 3) On January 12, 1961, Uy and Zamora, submitted
DELIVERED and INSTALLED in the leased to the court a compromise agreement wherein
premises by R, replacing the existing Zamora admitted being indebted to Uy. Since the
windows of P. motor vehicle had already been sold on order of the
- Capitol failed to pay and R filed an action Court for P2,500 to prevent depreciation, defendant
for collection of sum of money against Zamora agreed to have plaintiff Uy's credit paid out
Capitol. of the proceeds of the sale.
- R made a levy on the glass and wooden
jalousies in question, which P intervened in 4) The court found defendant Zamora to be liable to
the case alleging that it cannot be levied plaintiff Uy in the amount of P2,500, and to the

intervenor in the amount of P2,451.93, plus interest. insolvency, the spouses Elizes filed a complaint
Uy claims preference on the basis of a lien arising in the CFI against the Fidelity Savings Bank for
from the attachment of the vehicle on August 11, the recovery of the balance of their time
1960. On the other hand, allied bases its claim to deposits.
preference on a Deed of Chattel Mortgage covering In the judgment rendered in that case, the
the same motor vehicle. Fidelity Savings Bank was ordered to pay the
Elizes spouses the sum plus accumulated
ISSUE: Which of the two credits is preferred? interest.
In another case, the spouses Padilla secured a
HELD: judgment against the Fidelity Savings Bank for
the sums as the balance of their time deposits,
A) Considering the fact that Allied Finance, Inc. plus interests, moral and exemplary damages
registered its mortgage only on August 24, 1960, or and attorney's fees.
subsequent to the date of the writ of attachment The lower court (having cognizance of the
obtained by plaintiff Uy on August 11, 1960, the liquidation proceeding), upon motions of the
credit of the intervenor cannot prevail over that of Elizes and Padilla spouses and over the
the plaintiff. opposition of the Central Bank, directed the
latter as liquidator, to pay their time deposits as
preferred judgments, evidenced by final
B) The SC disagreed with the lower courts decision
judgments, within the meaning of article
upheld Allieds credit on the ground that, being
2244(14)(b) of the Civil Code.
embodied in a public instrument of an earlier date
(June 20, 1960), it should take precedence over Central Bank contends that the final judgments
secured by the Elizes and Padilla spouses do not
plaintiff's lien by attachment (August 11, 1960),
enjoy any preference because (a) they were
pursuant to Article 2244 of the Civil Code, for the
rendered after the Fidelity Savings Bank was
reason that, as already stated, the credit of the
declared insolvent and (b) under the charter of
Allied cannot be considered as preferred until the
the Central Bank and the General Banking Law,
same has been recorded in the Motor Vehicles
no final judgment can be validly obtained
Office.
against an insolvent bank.

C) A mortgage of motor vehicles, in order to affect
third persons, should not only be registered in the
Issue: Whether a final judgment for the payment
Chattel Mortgage Registry, but the same should also
of a time deposit in a savings bank which judgment
be recorded in the Motor Vehicles Office The
was obtained after the bank was declared insolvent,
decision of the lower court is reversed, without
is a preferred claim against the bank?
pronouncement as to costs.
Held:

No. It should be noted that fixed, savings, and
CORDOVA v REYES current deposits of money in banks and similar
institutions are not true deposits. They are
CENTRAL BANK v MORFE considered simple loans and, as such, are not
preferred credits.
Facts:
The aforequoted section 29 of the Central Bank's
The Monetary Board found the Fidelity Savings charter explicitly provides that when a bank is found
Bank to be insolvent. The Board directed the to be insolvent, the Monetary Board shall forbid it to
Superintendent of Banks to take charge of its do business and shall take charge of its assets.
assets, forbade it to do business and instructed Evidently, one purpose in prohibiting the insolvent
the Central Bank Legal Counsel to take legal bank from doing business is to prevent some
actions. depositors from having an undue or fraudulent
Prior to the institution of the liquidation preference over other creditors and depositors.
proceeding but after the declaration of

We are of the opinion that such judgments cannot Issue: is c entitled to claim pro rata share in the
be considered preferred and that article 2244(14)(b) value of the property in question.
does not apply to judgments for the payment of the
deposits in an insolvent savings bank which were Ruling: no. the action filed by c to collect the unpaid
obtained after the declaration of insolvency. cost of the construction of the duplex apartment is
far from being a general liquidation of the estate of x
In the Rohr case, the general principle of equity that and y.
the assets of an insolvent are to be distributed
ratably among general creditors applies with full Although the lower court found that there were no
force to the distribution of the assets of a bank. A known creditors other than c and psb, this cannot be
general depositor of a bank is merely a general conclusive. It will not bar other creditors in the event
creditor, and, as such, is not entitled to any they show up and present their claims against psb,
preference or priority over other general creditors. claiming they have also preferred claims against the
property. Consequently, the transfer certificate of
The assets of a bank in process of liquidation are title issued to psb which is supposed to be
held in trust for the equal benefit of all creditors, indefeasible would remain constantly unstable and
and one cannot be permitted to obtain an advantage questionable. Such could not have been the
or preference over another by an attachment, intention of article 2243 of the civil code although it
execution or otherwise. considers claims and credits under article 2242 as
statutory liens. Neither does the de barreto caes
Considering that the deposits in question, in their sanction such instability.
inception, were not preferred credits, it does not
seem logical and just that they should be raised to
the category of preferred credits simply because the
depositors, taking advantage of the long interval
between the declaration of insolvency and the filing
of the petition for judicial assistance and
supervision, were able to secure judgments for the
payment of their time deposits.
MANABAT v LAGUNA FED

PHIL SAVINGS BANK v LANTIN

F: c built a duplex apartment house on a registered
lot of spouses x and y, using his own money, P25k to
finish the construction. Meanwhile, x and y obtained
from psb a loan secured by a mortgage to complete
construction. At the time of the registration of the
mortgage, the transfer certificate of title over the
property was free from all liens and encumbrances.
PSB foreclosed the mortgage, and being the highest
bidder a new certificate of title was subsequently
issued in its favor
C filed an action against the spouses to collect the

unpaid cost of construction. As x and y did not have
any properties to satisfy the judgment rendered in
his favor, c demanded from psb a pro rata share in
the value of the duplex apartment in accordance
with article 2242.

Simple Loan or Mutuum: Quo Rendered A Decision Ordering The Appellant To

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Simple Loan or Mutuum: Quo Rendered A Decision Ordering The Appellant To

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SIMPLE

LOAN OR MUTUUM appellant had actually received the written demand

By virtue of Vesting Order No. P-4, dated January 21,

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INVESTORS FINANCE CORPORATION, petitioner, (3) BARRETTO, would in turn, execute a

FACTS: (4) Lastly, to secure the payment of the

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The trial court ruled in favor of private respondent. PNB v CA

Court of Appeals modified the Order dated April 3, FACTS:

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

3. NO. SC ruled that:

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That there was not demand on the same or the next

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1. Deposit of effects by travellers in hotel

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The storage of sugar is carried in the books of the HELD:

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In order to finance his commercial operations De Poli

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ISSUE: WoN PNB is entitled to the stocks of sugar as

- While PNB is entitled to the stocks of sugar

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SMITH BELL v PNB Whether or not PNB is subsidiary liable?

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