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E. G.R. No.

L-49940 September 25, 1986

GEMMA R. HECHANOVA, accompanied by her husband, NICANOR HECHANOVA, JR., and


PRESCILLA R. MASA, accompanied by her husband, FRANCISCO MASA, petitioners,
vs.
HON. MIDPANTAO L. ADIL, Presiding Judge, Branch II, Court of First Instance of Iloilo, THE
PROVINCIAL SHERIFF OF ILOILO, and PIO SERVANDO, respondents.

FACTS:

The case under review is for the annulment of a deed of sale executed by defendant Jose Y. Servando in
favor of his co-defendants, he petitioners herein, covering three parcels of land. Claiming that the said
parcels of land were mortgaged to him in 1970 by the vendor, who is his cousin, to secure a loan of
P20,000.00, the plaintiff Pio Servando impugned the validity of the sale as being fraudulent, and prayed
that it be declared null and void and the transfer certificates of title issued to the vendees be cancelled,
or alternatively, if the sale is not annulled, to order the defendant Jose Servando to pay the amount of
P20,000.00, plus interests, and to order defendants to pay damages.

The defendants moved to dismiss the complaint on the grounds that it did not state a cause of action,
the alleged mortgage being invalid and unenforceable since it was a mere private document and was
not recorded in the Registry of Deeds; and that the plaintiff was not the real party in interest and, as a
mere mortgagee, had no standing to question the validity of the sale. The motion was denied on the
ground that this action is actually one for collection.

Later, defendant Jose Y. Servando died and the defendants filed a Manifestation and Motion, informing
the trial court accordingly, and moving for the dismissal of the complaint pursuant to Section 21 of Rule
3 of the Rules of Court, pointing out that the action was for. recovery of money based on an actionable
document to which only the deceased defendant was a party. The motion to dismiss was denied .

Plaintiffs motion to declare defendants in default was granted.

On the day the default order was issued, defendants Hechanova and Masa filed their Answers, denying
the allegations of the complaint and repeating, by way of special and affirmative defenses, the grounds
stated in their motions to dismiss.

Subsequently, judgment by default was rendered against the defendants

Court of Appeals: Dismmissed the appeal and issued an order granting the writ of execution prayed for
by plaintiff. Hence, this petition.

ISSUE:

Whether or not there was a valid mortgage.

HELD: NO

It is clear from the records of this case that the plaintiff has no cause of action. Plaintiff has no standing
to question the validity of the deed of sale executed by the deceased defendant Jose Servando in favor
of his co-defendants Hechanova and Masa. No valid mortgage has been constituted plaintiff's favor, the
alleged deed of mortgage being a mere private document and not registered; moreover, it contains a
stipulation (pacto comisorio) which is null and void under Article 2088 of the Civil Code. Even assuming
that the property was validly mortgaged to the plaintiff, his recourse was to foreclose the mortgage, not
to seek annulment of the sale.
F. G.R. No. L-53955 January 13, 1989

THE MANILA BANKING CORPORATION, plaintiff-appellee,


vs.
ANASTACIO TEODORO, JR. and GRACE ANNA TEODORO, defendants-appellants.

Formoso & Quimbo Law Office for plaintiff-appellee.

Serafin P. Rivera for defendants-appellants.

FACTS:

1 April 1966, Spouses Teodoro together with Teodoro Sr executed a PN in favour of Manila
Banking Corp (MBC);
- Payable within 120 days (until Aug), with 12% interest per annum;
- They failed to pay and left balance of 15k as of September 1969;
2 May and June 1966, executed two PNs;
- 8k and 1k respectively payable within 120 days and 12% per annum;
- They made partial payment but still left 8.9k balance as of September 1969;
3 It appears than in 1964, Teodoro Jr executed a Deed of Assignment of Receivables in favour
of MBC from Emergency Employment Administration;
- Amounted to 44k;
- The deed provided it was for consideration of certain credits, loans, overdrafts and
other credit accommodations extended to the spouses and Teodoro Sr as security for
the payment of said sum and interest thereon; and that they release and quitclaim all
its rights, title and interest in the receivables;
4 In the stipulations of fact, it was admitted by the parties:
- That MBC extended loans to the spouses and Teodoro Jr because of certain contracts
entered into by latter with EEA for fabrication of fishing boats and that the Philippine
Fisheries Commission succeeded EEA after its abolition;
- That non-payment of the PNs was due to failure of the Commission to pay spouses;
- That the Bank took steps to collect from the Commission but no collection was
effected;
5 For failure of the spouses and Teodor Sr to pay, MBC instituted against them;
- Teodoro Sr subsequently died so suit only against the spouses;
6 TC favoured MBC; MFR denied;
- Spouses appealed to CA but since issue pure question of law, CA forwarded to SC;

Issues:

W/N the assignment of receivables has the effect of payment of all the loans
contracted by the spouses; No.

W/N MBC must exhaust all legal remedies against PFC before it can proceed against
the spouses. No

HELD:

Assignment of credit:

- An agreement by virtue of which the owner of a credit(assignor) by a legal cause (e.g.


sale, dation in payment, exchange or donation) and without the need of the consent of
the debtor, transfers his credit and its accessory rights to another(assignee) who
acquires the power to enforce it to the same extent as the assignor could have
enforced it against the debtor;
- May be in form of:
o Sale
o Dation in payment - when a debtor, in order to obtain a release from his debt,
assigns to his creditor a credit he has against a third person;
o Donation when it is by gratuitous title;
o Guaranty creditor gives as a collateral, to secure his own debt in favour of the
assignee, without transmitting ownership;
- Obligations between the parties will depend upon the juridical relation which is the
basis of the assignment;

What is the legal effect of the Assignment (since its validity is not in question):

1 Assignment of receivables in 1964 did not transfer the ownership of the receivables to
MBC and release the spouses from their loans;
- Consideration was for certain credits, loans, overdrafts and credit accommodations
worth 10k extended by MBC to spouses and as security for the payment of said
sum and interest thereon; also quitclaim of rights to MBC of their interest in the
receivables;
- Stipulated also that it was a continuing guaranty for future loans and
correspondingly, the assignment shall extend to all accounts receivable;

Contention of spouses: not mere guaranty since it was stipulated:

- That the assignor release and quitclaim to assignee all its rights, title and interest
in the accounts receivable;
- That title and right of possession to account receivable is to remain in assignee
and it shall have right to collect directly from the debtor; that whatever the
assignor does in connection with collection of such, it does so as agent and
representative and in trust of assignee;
- SC: character of transaction is not determined by the language in document but by
intention of the parties;;
- If it was intended to secure the payment of money, it must be construed as a
pledge.
- A transfer of property by the debtor to a creditor, even if sufficient on its farm to
make an absolute conveyance, should be treated as a pledge if the debt continues
in existence and is not discharged by the transfer;

Assignment of receivables did not result from sale or by virtue of a dation in payment;

- At time the deed was executed, the loans were non-existent yet;
- At most, it was a dation for 10k, the amount of credit with MBC indicated in the
deed; at the time of execution, there was no obligation to be extinguished except
for the 10k;
- 1292: in order that an obligation may be extinguished by another which substitutes
the same, it is imperative that it be so declared in unequivocal terms, or that the
old and the new obligations be on every point incompatible with each other;

Deed of assignment intended as collateral security for the loans, as a continuing


guaranty for whatever sums that would be owing by spouses;
- In case of doubt as to whether a transaction is a pledge or a dation in payment, the
presumption is in favor of pledge, the latter being the lesser transmission of rights
and interests (Lopez v CA);
2 MBC need not exhaust all legal remedies against PFC:
- Spouses, not being released by the assignment, remain as the principal debtors of
MBC, rather than mere guarantors;
- The deed merely guarantees said obligations;
- 2058 (creditor must have exhausted property of debtor and resorted to all legal
remedies before it can proceed to guarantor) does not apply to them;
- Appellants are both the principal debtors and the pledgors or mortgagors;
- MBC did try to collect but at OP, it was disapproved; so the loan was basically
unsecured;

DISMISSED.
G. G.R. No. 3227 March 22, 1907

PEDRO ALCANTARA, plaintiff-appellee,


vs.
AMBROSIO ALINEA, ET AL., defendants-appellants.

S.D. Reyes for appellants.


J. Gerona for appellee.

FACTS:

Alcantara alleged that on the February 29, 1904, the defendants, Alinea and Belarmino,
borrowed from him the sum of P480, payable in January 1905 under the agreement that if, at
the expiration of the said period, said amount should not be paid it would be understood that
the house and lot owned by the defendants be considered as absolutely sold to Alcantara for
the said sum. However, notwithstanding that the time for the payment of said sum has expired
and no payment has been made, the defendants refused to deliver to Alcantara the said
property, openly violating that which they contracted to do and depriving him to his loss of the
rents which Alcantara should have received from February 1905.

The defendants answered denying all the allegations, and alleged that the amount claimed
included the interest; and that the principal borrowed was only P200 and that the interest was
P280, although in drawing the document by mutual consent of the parties, the amount of
indebtedness was made to appear in the sum of P480; and that as their special defense
defendants alleged that they offered to pay the plaintiff the sum of 480 pesos, but the plaintiff
had refused to accept the same.

CFI rendered a judgment ordering the defendants to deliver to the plaintiff the house and lot.

Issue: W/N the contract is pactum commissorium and thus prohibited by law.

Held: No, pactum commissorium indicates the existence of the contracts of mortgage or of
pledge or that of antichresis, none of which have coincided in the loan indicated herein.

Ratio:

We have in this 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 debtor-vendor of the property to the creditor-vendee of same.

If the promise of sale is not vitiated because, according to the agreement between the parties,
the price of the same is to be the amount loaned and not repaid, neither would the loan be null
or illegal, for the reason that the added agreement provides that in the event of failure of
payment the sale of property as agreed will take effect, the consideration being the amount
loaned and not paid. No article of the Civil Code, under the rules or regulations of which such
double contract was executed, prohibits expressly, or by inference from any of its provisions,
that an agreement could not be made in the form in which the same has been executed.

The property, the sale of which was agreed to by the debtors, does not appear mortgaged in
favor of the creditor, because in order to constitute a valid mortgage it is indispensable that
the instrument be registered in the Register of Property, in accordance with article 1875, and
the document of contract, does not constitute a mortgage, nor could it possibly be a mortgage,
for the reason of said document is not vested with the character and conditions of a public
instrument.

By the aforesaid document, said property could not be pledged, not being personal property,
and notwithstanding the said double contract the debtor continued in possession thereof and
the said property has never been occupied by the creditor.
Neither was there ever any contract of antichresis by reason of the said contract of loan, as is
provided in articles 1881, inasmuch as the creditor-plaintiff has never been in possession
thereof, nor has he enjoyed the said property, nor for one moment ever received its rents;
therefore, there are no proper terms in law, taking into consideration the terms of the
conditions contained in the contract, whereby this court can find that the contract was null,
and under no consideration whatever would it be just to apply to the plaintiff articles 1859 and
1884 of the same code.

The contract (pactum commissorium) referred to in Law (fifth Partida), and perhaps included in
the prohibition and declaration of nullity expressed in articles 1859 and 1884 of the Civil Code,
indicates the existence of the contracts of mortgage or of pledge or that of antichresis, none of
which have coincided in the loan indicated herein.

It is a principle in law, that the will of the contracting parties is the law of contracts and that a
man obligates himself to that to which he promises to be bound, a principle in accordance with
the Novisima Recopilacion, and article 1091 of the Civil Code. That which is agreed to in a
contract is law between the parties.

It was agreed between plaintiff and defendants herein that if defendants should not pay the
loan of 480 pesos in January 1905, the property belonging to the defendants and described in
the contract should remain sold for the aforesaid sum, and such agreement must be complied
with, inasmuch as there is no ground in law to oppose the compliance with that which has
been agreed upon, having been so acknowledged by the obligated parties.

The document of contract has been recognized by Alinea and by the witnesses who signed
same with him, being therefore an authentic and efficacious document; and as the amount
loaned has not been paid and continues in possession of the debtor, it is only just that the
promise of sale be carried into effect, and the necessary instrument be executed by the
vendees.
H. G.R. No. 77465 May 21, 1988

SPOUSES UY TONG & KHO PO GIOK, petitioners,


vs.
HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C. EJERCITO, Judge of the Court
of First Instance of Manila, Branch XXXVII and BAYANIHAN AUTOMOTIVE
CORPORATION, respondents.

Platon A. Baysa for petitioner.

Manuel T. Ybarra for respondents.

FACTS:

Petitioners Uy Tong (also known as Henry Uy) and Kho Po Giok (SPOUSES) used to be the owners of
Apartment No. 307 of the Ligaya Building, together with the leasehold right for ninety- nine (99) years
over the land on which the building stands. The land is registered in the name of Ligaya Investments,
Inc. It appears that Ligaya Investments, Inc. owned the building which houses the apartment units but
sold said apartment and leased a portion of the land in which the building stands to the SPOUSES.

The SPOUSES purchased from private respondent Bayanihan Automotive, Inc. (BAYANIHAN) seven (7)
units of motor vehicles for a total amount of P47,700.00 payable in three (3) installments.

After making a downpayment of P7,700.00, the SPOUSES failed to pay the balance of P40,000.00. Due
to these unpaid balances, BAYANIHAN filed an action for specific performance against the SPOUSES,
which judgment was rendered in favor of BAYANIHAN.

Pursuant to said judgment, an order for execution pending appeal was issued by the trial court and a
deed of assignment was executed by the SPOUSES over the subject apartment together with the
leasehold right over the land on which the building stands. The SPOUSES acknowledged receipt of the
sum of P3,000.00 more or less, paid by BAYANIHAN pursuant to the said judgment.

Notwithstanding the execution of the deed of assignment the SPOUSES remained in possession of the
premises. Subsequently, they were allowed to remain in the premises as lessees for a stipulated
monthly rental.

Despite the expiration of the said period, the SPOUSES failed to surrender possession of the premises
in favor of BAYANIHAN. This prompted BAYANIHAN to file an ejectment case against them which was
however dismissed on the ground that BAYANIHAN was not the real party in interest, not being the
owner of the building.

Demands to vacate the subject apartment made by BAYANIHAN's counsel was again ignored by the
SPOUSES, an action for recovery of possession with damages was filed with the CFI which rendered
decision in favor of plaintiff.

CA: affirmed in toto the decision.

MR: Denied.

Hence, this petition.

ISSUE:

Whether or not the deed of assignment is null and void because it is in the nature of a pactum
commissorium and/or was borne out of the same.

HELD:

The prohibition on pactum commissorium stipulations is provided for by Article 2088 of the Civil Code:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose
of the same. Any stipulation to the contrary is null and void.

The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there
should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the
payment of the principal obligation; and (2) that there should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the
principal obligation within the stipulated period.

A perusal of the terms of the questioned agreement evinces no basis for the application of the pactum
commissorium provision. First, there is no indication of 'any contract of mortgage entered into by the
parties. It is a fact that the parties agreed on the sale and purchase of trucks.

There is no case of automatic appropriation of the property by BAYANIHAN. When the SPOUSES
defaulted in their payments of the second and third installments of the trucks they purchased,
BAYANIHAN filed an action in court for specific performance. The trial court rendered favorable
judgment for BAYANIHAN and ordered the SPOUSES to pay the balance of their obligation and in case
of failure to do so, to execute a deed of assignment over the property involved in this case. The
SPOUSES elected to execute the deed of assignment pursuant to said judgment.

Clearly, there was no automatic vesting of title on BAYANIHAN because it took the intervention of the
trial court to exact fulfillment of the obligation, which, by its very nature is ". . anathema to the
concept of pacto commissorio" [Northern Motors, Inc. v. Herrera, G.R. No. L-32674, February 22, 1973,
49 SCRA 392]. And even granting that the original agreement between the parties had the badges
of pactum commissorium, the deed of assignment does not suffer the same fate as this was executed
pursuant to a valid judgment.

This being the case, there is no reason to impugn the validity of the said deed of assignment.

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