1.

GR L 33157 June 29 1982 Lopez v CA

Petitioner obtained a loan from prudential bank payable in one year with an interest of 10% per
annum secured by a surety bond under a promissory note with the Philippine American
insurance company (Philamgen) as his surety. In return for the security, petitioner is to be bound
under an indemnity agreement and a ded of assignment of shares of stock in favor of said
insurance company, endorsing in blank and delivering the stock certificate to the latter. The
assignment of the shares was made due to a commitment made by dterminate third parties to
the surety that in case petitioner defaults in payment said third parties would by the shares from
the surety and the oriceeds will be paid to the bank. When the obligation became due, and
petitioner faile to pay, PPhhilamgen paid the loan and subsequently sued petitioner for
reimbursement. The trial court after hearing dismissed the complaint finding that the transfer of
stock in the name of Philamgen was absolute and had exrtinguished Petitioners obligation
underthe indemnity agreement. On appeal, the Court of Appeals held that the stock assignment
made in favor of the surety was a pledge, intended as a secuirityy for the payment of the
obligation of petitioner to the surety. In this petition for review, petitioner claims that the transfer
of shares ws a dacion en pago; and that there was novation of the indemnity contract when the
surety an the determinate third parties agreed that the latter would but the shares of stock from
the former so that the bank obligations of petitioner could be paid from the proceeds.
The Supreme court held that considering the indemnity agreement connotes a continuing
obligation for petitioner towards the surety while the stock assignment indicates a complete
discharge of the same obligation, the existence of the indemnity greement is inconsistent with
the theory of an absolute sale for and In consideration of the same ndertaking of the surety, and
stromg cpmgemt reasons exist to conclude that the surety and petitioner intended te stock
assignement as a pledge; that the assignment of stock is not a dation in payment since the
obligation of the petitioner towards thesurety has not matured at the time the same was
executeds; and that therewas no novation of the obligation by substitution of debtor since it was
not estaboished nor shown that petitioner would be released from responsibility.
## not dation in payment because the debt or obligation of the petitioner to this surety has not
matured whien the petitioner alienated his 4000 shares of stock to his surety. PEttioners
obligation would arise only when he would default in the payment of the principal obligation (the
loan) to the bank and the surety had to pay for it. Such fact being adverse to the nature and
concepts of dation in payment, the same could not have been constituted when the stock
assignment was executed. Moreover, there is no express provision in the terms of the stock
assignment between the surety and the petitioner that the principal obligation (which is the oan)
is immediately extinguished by reason of such assignment.
## In case of doubt, pledge is presumed

In case of doubt, pledge is presumed in case of doubt as to whether a transaction is pledge or

a dation in payment, the presumption is in favor of pledge, the latter being the lesser
transmission of rights and interests
- If the deed of assignment of stocks executed by the principal debtor in favor of his surety
speaks of an outright sale, te fact that the debtoralso executed an indemnity agreement
(which connotes a continuing obligation of debtor to surety) to indemnify the surety against
all losses which it may incur in consequence of it having become a surety upon a bond in
favor of the principal creditor was held as inconsistent with the thory of an absolute sale and
 as proof (together with other circumstances) that the parties intended the stock assignment
as a pledge to complement the indemnity agreement and should sufficiently guarantee the
indemnification of the surety should it be required to pay the creditor.

2. GR L-59355 January 13 1989 Maniila Banking Corp v Teodoro Jr

Essence of Pledge

It is of course of the essence of a contract of pledge or mortgage that when the principla
obligation becomes due., the things in which the pledge or mortgage consists may be
alienated for the payment of the creditor ()/Article 2087 NCCP
Fx: On April 265 1966, defendants together with Teodoro Senior Jointly and severally executed in
favor of plaintiff a promissory note for the sum of 10.420K payable in 129 days or on august 25 1966
at 12% interest per annum. Defendants faioled to pay the said amount inspite of repeated demands
and the obligation as of September 30, 1969 stood at 15.1377.11 including accrued interests and
service charge
On may 3 66 and june 20 66 defendants Teodoro senior and jr executed in favor of plaintiff 2
promissory notes for 8 k and 10000 respectivley payable in 120 days at 12% per annum.
Father and son made partial payment on may 3 66 promissory note but none for june 20 leaving still
an unpaid balance of 8934.74 as of September 30 1969 including accrued interest and service
charge
The 3 promissory notes stipulated that any interst due if notpaid at the endo f ever month shall be
added to the total amount then due, the whole amount to bear interest at the rate of 12% per annum
until fully paid; and in case of collection through an atty., the makers shall j and s pay 10 % of the
amount over due as attys fees which in no case shall be less than 200
An assignment of rights, receivables, title or interest under a contract to guarantee an obligation is,
in effect, a pledge or mortgage and not an absolute conveyance of title which confers ownership on
the ssignee. In case of doubt as to whether a transaction is a pledge (or mortgage) or a dation in
payment, the presumption is in favor of pledge, the latter being the leser transmission of rights and
interests
3. GR L- 6310 November 26, 1954 Parqui v PNB

4. GR 131679 Feb 1 2000 Cavite Development Bank v Lim

A forclosure sale, though essentially a forced sale, is still a sale in accordance with Article 1458 of
the Civil Code, under which the mortgagor in default, the forced seller, becomes obliged to transfer
the ownership of the thing sold to the highest bidder, who, in turn, is obligaed to pay therefor the bid
price in money or its equivalent. Being a sale, the rule that the seller must be the owner of the thing
sold also applies in a foreclosure sale This is the reason why Article 2085 of the Civil Code, in
providing for the essential requisites of the contract of mortgage and pledge, requires, among other
things, that the mortgagor or pledger be the absolute owner of the thing pledged or mortgaged, in
anticipation of a possible foreclosure saleshould the mortgagor default in the payment of the loan.
5. GR 48941 May 6 1946 Dilag v Legal heirs of Resurreccion
Future property cannot be pledged or mortgaged
 6. GR 32260 Dec 29 1930 PNB v Rocha
A pledge or mortgage executed by one who is not the owner of the property pledged or mortgaged is
ithout legal existence and registration cannot validate it.
7. GR L- 17072 Oct 31 1961 Vda de Bautista v Marcos
The owner of the property, such as before the issuance of a patent to the mortgagor, is void and
innefective.
8. GR L 13057 Montano v Lim Ang
The fact that the cattel mortgage of a car was executed on a date earlier than the transfer of the
registration certificate thereof in the naeme of the buyer-mortgagor but after the perfection of the
contract of sale, does not render the said mortgage made by the latter in favor of the seller invalid,
because the registration of the transfer of motor vehicles and of the certificates of license for their
use in the Motor Vehicles Offices (now Land Transportation Office) merely constitutes and
administrative proceeding which does not bear any essential relation to the contract entered into
between the parties
9. GR L- 64159 September 10 1985, duran v iac
Facts: A deed of sale of ten lots was made by D in favor of R who mortgaged the same property to E
in whose favor a certificate of Sale was issued by the sheriff after foreclosure proceedings and sale
at public autction of the property. D claims that the deed of sale in favor of R is a forgery.
At the time the mortgage was executed, E, in good faith, actually believed R to be the owner, as
evidenced by the registration of the property in her name.

Held. Even on the supposition that the sale was void, the general rule that the direct result of a
previous illegal contract cannot e valid (on the theory that the spring cannot rise higher than its
source) cannot apply here for we are confronted with the functionings of the Torrens System of
Registration. The Dctrine to follow is simple enough: A fraudulent or forged document of sale may
become the root of a valid title if the certificate of title has already been transferred from the name of
the owner to the name of the forger or the nae indicated by the forger
E ewas a buyer (morgagee) in good faith and for value at the time the mortgage was executed. The
fact that at the time tof the foreclusre proceedings E may have already known of Ds claim is
immaterial. A mortgagee has the right to rely on what appears in the certificate of title and, in the
absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on te face of said certificate.
If the rule were otherwise, the efficacy and conclusiveness of Torrens certificates of title would be
futile and nugatory, Where innocent third persons relying on the correctness of the certificate of title
issued, acquire rights over the property, the court cannot disregard such rights and order the total
cancellation of the certificate for that would impair ublic confidence in the certificate of title;
otherwise, everyone dealing with property registered under the Torrens System would have to
inquire in every instance as to whether the title had bee regularly or irregularly issued by the court.
Indeed thisi s contrary to the the evident purpose of the law.
Article 2085 which requires that the mortgagor must have the free disposal of the property or at least
have legal authority to do so, does not apply where the property involved is registered under the
torrens system. While it is true that under Article 2085 it is essential that the mortgagor be the
absolute owner of the property mortgaged, a mortgagee has the right to rely upon what appears in
the certificate of title and does not have to inquire further. Stated differently, an innocent purchaser
for value (like mortgagee) relying on a Torrens title issued is protected.
10. GR 150730 Jan 31 2005 Llanto v Alzona
This is the doctrine of the mortgagee in good faith The public interest in upholding the
indefeasibility of a certificate of title as evidence of lawful ownership of the land or of any
encumbrance thereon,protects a buyer or mortgagee who, in good faith, relied upon what appears
on the face of the certificate of title
11. GR L-4080 September 21, 1953 Martinez v pnb
As of February 1942, the estate of Pedro Rodriguez was indebted to the defendant Philippine
National Bank in the amount of P22,128.44 which represented the balance of the crop loan obtained
by the estate upon its 1941-1942 sugar cane crop. Sometime in February 1942, Mrs. Amparo R.
Martinez, late administratrix of the estate upon request of the defendant bank through its Cebu
branch endorsed and delivered to the said bank two (2) quedans according to plaintiff-appellant
issued by the Bogo-Medellin Milling co. where the sugar was stored covering 2,198.11 piculs of
sugar belonging to the estate, although according to the defendant-appellee, only one quedan
covering 1,071.04 piculs of sugar was endorsed and delivered. During the last Pacific war, sometime
in 1943, the sugar covered by the quedan or quedans was lost while in the warehouse of the Bogo-
Medellin Milling Co. In the year 1948, the indebtedness of the estate including interest was paid to
the bank, according to the appellant, upon the insistence of land pressure brought to bear by the
bank. Under the theory and claim the sometime in February 1942, when the invasion of the Province
of Cebu by the Japanese Armed Forces was imminent, the administratrix of the estate asked the
bank to release the sugar so that it could be sold at a god price which was about P25 per picul in
order to avoid its possible loss due to the invasion, but that the bank refused that request and as a
result the amount of P54,952.75 representing the value of said sugar was lost, the present action
was brought against the defendant bank to recover said amount. After trial, the Court of First
Instance of Manila dismissed the complaint on the ground that the transfer of the quedan or quedans
representing the sugar in the warehouse of the Bogo-Medellin Milling Co. to the bank did not transfer
ownership of the sugar, and consequently, the loss of said sugar should be borne by the plaintiff
appellant. administrator Jose R. Martinez is now appealing from that decision. We agree with the
trial court that at the time of the loss of the sugar during the war, sometime in 1943, said sugar still
belonged to the estate of Pedro Rodriguez. It had never been sold to the bank so as to make the
latter owner thereof. The transaction could not have been a sale, first, because one of the essential
elements of the contract of sale, namely, consideration was not present. If the sugar was sold, what
was the price? We do not know, for nothing was said about it. Second, the bank by its charter is not
authorized to engage in the business of buying and selling sugar. It only accepts sugar as security
for payment of its crop loans and later on pursuant to an understanding with the sugar planters, it
sell said sugar for them, or the planters find buyers and direct them to the bank. The sugar was
given only as a security for the payment of the crop loan. This is admitted by the appellant as shown
by the allegations in its complaint filed before the trial court and also in the brief for appellant filed
before us. According to law, the mortgagee or pledge cannot become the owner of or convert and
appropriate to himself the property mortgaged r pledged (Article 1859, old Civil Code; Article 2088,
new Civil code). Said property continues t belong to the mortgagor or pledgor. The only remedy
given to the mortgagee or pledgee is to have said property sold at public auction and the proceeds
of the sale applied to the payment of the obligation secured by the mortgage or pledge. The position
and claim of plaintiff-appellant is rather inconsistent and confusing. First, he contends that the
endorsement and delivery of the quedan or quedans to the bank transferred the ownership of the
sugar to said bank so that as owner, the bank should suffer the loss of the sugar on the principle that
"a thing perishes for the owner". We take it that by endorsing the quedan, defendant was supposed
to have sold the sugar to the bank for the amount of the outstanding loan of P22,128.44 and the
interest then occured. That would mean that plaintiff's account with the bank has been entirely
liquidated and their contractual relations ended, the bank suffering the loss of the amount of the loan
and interest But plaintiff-appellant in the next breath contends that had the bank released the sugar
in February 1942, plaintiff ]could have sold it for P54,952.75, from which the amount of the loan and
interest could have been deducted, the balance to have been retained by plaintiff, and that since the
loan has been entirely liquidated in 1948, then the whole expected sale price of P54,952.75 should
now be paid by the bank to appellant. This second theory presupposes that despite the indorsement
of the quedan plaintiff still retained ownership of the sugar, a position that runs counter to the first
theory of transfer of ownership to the bank. In the course of the discussion of this case among the
members of the Tribunal, one or two them who will dissent from the majority view sought to cure and
remedy this apparent inconsistency in the claim of appellant and sustain the theory that the
endorsement of the quedan made the bank the owner of the sugar resulting in the payment of the
loan, so that now, the bank should return to appellant the amount of the loan it improperly collected
in 1948. In support of the theory of transfer of ownership of the sugar to the bank by virtue of the
endorsement of the quedan, reference was made to the Warehouse Receipts Law, particularly
section 41 thereof, and several cases decided by this court are cited. In the first place, this claim is
inconsistent with the very theory of plaintiff appellant that the sugar far from being sold to the bank
was merely given as security for the payment of the crop loan. In the second place, the authorities
cited have not directly applicable. In those cases this court held that for purposes of facilitating
commercial transaction, the endorse of transferee of a warehouse receipt or quedan should be
regarded as the owner of the goods covered by it. In other words, as regards the endoser or
transferor, even if he were the owner of the goods, he may not take possession and dispose of the
goods without the consent of the endorse or transferee of the quedan or warehouse receipt; that in
some cases the endorse of a quedan may sell the goods and apply the proceeds of the sale to the
payment of the debt; and as regards third persons, the holder of a warehouse receipt or quedan is
considered the owner of the goods covered by it. To make clear the view of this court in said court in
two of these cases cited which are typical. As to the first of action, we hold that in January, 1919, the
bank became and remained the owner of the five quedans Nos. 30, 35, 38, 41, and 42; that they
were in form negotiable, and that, as such owner, it was legally entitled to the possession and
control of the property therein described at the time the insolvency petition was filed and had a right
to sell it and apply the proceeds of the sale to its promissory notes, cured by the three quedans Nos.
33, 36, and 39, which the bank surrendered to the firm. (Philippine Trust Co. vs. National Bank, 42
Phil., 413, 427). ... Section 58 provides that within the meaning of the Act "to "purchase" includes to
take as mortgagee or pledgee' and clear that, as to the legal title to the property covered by a
warehouse receipt, a pledgee is on the same footing as a vendee except that the former is under the
obligation of surrendering his title upon the payment of the debt secured. To hold otherwise would
defeat one of the principal purposes of the Act, i. e., to furnish a basis for commercial credit. (Bank of
the Philippine Islands vs. Herridge, 47 Phil. 57, 70). It is obvious that where the transaction involved
in the transfer of a warehouse receipt or quedan is not a sale but pledge or security, the transferee
or endorsee does not become the owner of the goods but that he may only have the property sold
then satisfy the obligation from the proceeds of the sale. From all this, it is clear that at the time the
sugar in question was lost sometime during the war, estate of Pedro Rodriguez was still the owner
thereof. It is further contended in this appeal that the defendant appellee failed to excercise due care
for the preservation of the sugar, and that the loss was due to its negligence as a result of which the
appellee incurred the loss. In the first place, this question was not raised in the court below. Plaintiff's
complaint to make any allegation regarding negligence in the preservation of this sugar. In the
second place, it is a fact that the sugar was lost in the possession of the warehouse selected by the
appellant to which it had originally delivered and stored it, and for causes beyond the bank's control,
namely, the war. In connection with the claim that had the released the sugar sometime in February,
1942, when requested by the plaintiff, said sugar could have been sold at the rate of P25 a picul or a
total of P54,952.75, the amount of the present claim, there is evidence to show that the request for
release was not made to the bank itself but directly to the official of the warehouse the Bogo
Medellin Milling Co. and that bank was not aware of any such request, but that therefore April 9,
1942, when the Cebu branch of the defendant was closed, the bank through its officials offered the
sugar for sale but that there were no buyers, perhaps due to the unsettled and chaotic conditions
that obtaining by reason of the enemy occupation. In conclusion, we hold that where a warehouse
receipt or quedan is transferred or endorsed to a creditor only to secure the payment of a loan or
debt, the transferee or endorsee does not automatically become the owner of the goods covered by
the warehouse receipt or quedan but he merely retains the right to keep and with the consent of the
owner to sell them so as to satisfy the obligation from the proceeds of the sale, this for the simple
reason that the transaction involved is not a sale covered by the quedans of warehouse receipts is
lost without the fault or negligence of the mortgagee or pledgee or quedan, then said goods are to
be regarded as lost on account of the real owner, mortgagor or pledgor.1wphl.nt In view of the
foregoing, the decision appealed from is hereby affirmed, with costs. Bengzon, Padilla, Tuason,
Reyes, Jugo, Bautista Angelo, and Labrador, JJ., concur.
12. GR L-40018 December 15 1975 Northern motors inc v Coquia
The pledgee or mortgagee is not obligated to file an independent action for the enforcement of his
credit. To do so would be a nullification of his lien and would defeat the purpose of the pledge or
mortgage which is to give him preference over the property given as security for the satisfaction of
his credit
13. GR 128669 10-04-02 Vda de Jayme v ca

FACTS: The spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700, situated
in the Municipality of Mandaue On January 8, 1973, they entered into a Contract of Lease5 with
George Neri, president of Airland Motors Corporation (now Cebu Asiancars Inc.), covering one-half
of Lot 2700. The lease was for twenty (20) years. The terms and conditions of the lease contract
stipulated that Cebu Asiancars Inc. (hereafter, Asiancars) may use the leased premises as a
collateral to secure payment of a loan which Asiancars may obtain from any bank, provided that the
proceeds of the loan shall be used solely for the construction of a building which, upon the
termination of the lease or the voluntary surrender of the leased premises before the expiration of
the contract, shall automatically become the property of the Jayme spouses (the lessors). A Special
Power of Attorney\7 dated January 26, 1974, was executed in favor of respondent George Neri, who
used the lot to secure a loan of P300,000 from the General Bank and Trust Company. The loan was
fully paid on August 14, 1977 In October 1977, Asiancars obtained a loan of P6,000,000 from the
Metropolitan Bank and Trust Company (MBTC). The entire Lot 2700 was offered as one of several
properties given as collateral for the loan. As mortgagors, the spouses signed a Deed of Real Estate
Mortgage dated November 21, 1977 in favor of MBTC. It stated that the deed was to secure the
payment of a loan obtained by Asiancars from the bank. To assure the Jayme spouses, Neri and the
other officers of Asiancars, executed an undertaking .In it they promised, in their personal capacities
and/or in representation of Cebu Asiancars, Inc., "to compensate Mr. & Mrs. Graciano Jayme for any
and all or whatever damage they may sustain or suffer by virtue and arising out of the mortgage to
MBTC. In addition, Neri wrote a letter dated September 1, 1981 addressed to Mamerta Jayme
acknowledging her "confidence and help" extended to him, his family and Asiancars. He promised to
pay their indebtedness to MBTC before the loan was due. Meeting financial difficulties and incurring
an outstanding balance on the loan, Asiancars conveyed ownership of the building on the leased
premises to MBTC, by way of "dacion en pago." Asiancars failed to pay.
Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was held on February 4,
1981. MBTC was the highest bidder for P1,067,344.35. A certificate of sale was issued and was
registered with the Register of Deeds. Petitioners claim that Neri and Asiancars did not tell them that
the indebtedness secured by the mortgage was for P6,000,000 and that the security was the whole
of Lot 2700. Petitioners allege that the deed presented to the Jayme spouses was in blank, without
explanation on the stipulations contained therein, except that its conditions were identical to those of
the stipulations when they mortgaged half the lots area previously with General Bank. Petitioners
also alleged that the Jayme spouses were illiterate and only knew how to sign their names. That
because they did not know how to read nor write, and had given their full trust and confidence to
George Neri, the spouses were deceived into signing the Deed of Real Estate Mortgage. Their
intention as well as consent was only to be bound as guarantors.
ISSUE: WON the dacion en pago by Asiancars in favor of MBTC is valid and binding despite the
stipulation in the lease contract that ownership of the building will vest on the Jaymes at the
termination of the lease.
HELD: In the case at bar, when Asiancars failed to pay its obligations with MBTC, the properties
given as security (one of them being the land owned by the Jaymes) became subject to foreclosure.
When several things are given to secure the same debt in its entirety, all of them are liable for the
debt, and the creditor does not have to divide his action by distributing the debt among the various
things pledged or mortgaged. Even when only a part of the debt remains unpaid, all the things are
liable for such balance. The debtor cannot ask for the release of one or some of the several
properties pledged or mortgaged (or any portion thereof) or proportionate extinguishment of the
pledge or mortgage unless and until the debt secured has been fully paid. The alienation of the
building by Asiancars in favor of MBTC for the partial satisfaction of its indebtedness is, in our view,
also valid. The ownership of the building had been effectively in the name of the lessee-mortgagor
(Asiancars), though with the provision that said ownership be transferred to the Jaymes upon
termination of the lease or the voluntary surrender of the premises. The lease was constituted on
January 8, 1973 and was to expire 20 years thereafter, or on January 8, 1993. The alienation via
dacion en pago was made by Asiancars to MBTC on December 18, 1980, during the subsistence of
the lease. At this point, the mortgagor, Asiancars, could validly exercise rights of ownership,
including the right to alienate it, as it did to MBTC
14. GR 109305 10-02-00 insurance services and commercial traders v ca

Where the mortgagee acts with undue haste in granting mrtgage loans and does not ascertain the
ownership of the lands being mortgaged, as well as the authority of the supposed agent executing the
mortgage, it cannot be considered an innocent mortgagee.

15. Gr /l40824 February 23 1989 GSIS v CA

The rule that persons dealing with registered lands can solely on the certificate of title does not apply to
banks which solely on the certificate of title does not aply to banks which should exercise more care and
prudence in dealing with registered lands, than private individuals, for their business is one affected
with public interest. If a bank failed to observe due diligence in ascertaining the real owner of registered
land given as security for a loan especially where the amount thereof is substantial, it cannot be
considered a mortgagee in good faith. This doctrine can well apply to the GSISm, a government
corporation created for the purpose of providing social security and sinsured benefits to government
employees, whiose funds come from the monthly contributions of its members.

So long as valid consent was given, the fact that the loan was given solely for the benefit of the principal
debor would not invalidate the mortgage.