Development Bank of the Philippines vs.
Court of Appeals and It is obvious from the above-quoted paragraphs that DBP had
Lydia Cuba
G.R. NO. 118342
FACTS:
Lydia P. Cuba is a grantee of a Fishpond Lease
Agreement from the Government.
She obtained loans from the Development Bank of the
Philippines under the terms stated in the
Promissory Notes. As security for said loans,
she executed two Deeds of Assignment of her
Leasehold Rights. She failed to pay her loan on
the scheduled dates thereof in accordance with
the terms of the Promissory Notes. Without
foreclosure proceedings, whether judicial or
extra-judicial, defendant DBP appropriated the
Leasehold Rights of her over the fishpond in
question.
ISSUE:
Whether or not the act of DBP in appropriating to itself Cuba’s
leasehold rights over the fishpond without foreclosure proceedings
contrary to Article 2088 of the Civil Code.
RULING:
Yes. It is contrary to Article 2088 of the Civil Code.
ART. 2088. The creditor cannot appropriate the things given by way
of pledge or mortgage, or dispose of them. Any stipulation to the
contrary is null and void.
DBP, however, exceeded the authority vested by condition no. 12 of
the deed of assignment. As admitted by it during the pre-trial, it had
without foreclosure proceedings, whether judicial or extrajudicial,
appropriated the leasehold rights of plaintiff Lydia Cuba over the
fishpond in question. Its contention that it limited itself to mere
administration by posting caretakers is further belied by the deed of
conditional sale it executed in favor of CUBA. The deed stated:
“WHEREAS, the Vendor DBP by virtue of a deed of
assignment executed in its favor by the herein vendees [Cuba
spouses] the former acquired all the rights and interest of the latter
over the above-described property;
The title to the real estate property and all improvements
thereon shall remain in the name of the Vendor until after the
purchase price, advances and interest shall have been fully paid.
appropriated and taken ownership of CUBA’s leasehold rights
merely on the strength of the deed of assignment.
DBP cannot take refuge in condition no. 12 of the deed of
assignment to justify its act of appropriating the leasehold rights. As
stated earlier, condition no. 12 did not provide that CUBAs default
would operate to vest in DBP ownership of the said rights. Besides,
an assignment to guarantee an obligation, as in the present case, is
virtually a mortgage and not an absolute conveyance of title which
confers ownership on the assignee.”
BUSTAMANTE VS ROSEL
FACTS: On March 8, 1987, at Quezon City, Norma Rosel entered into
a loan agreement with petitioner Natalia Bustamante and her late
husband Ismael C. Bustamante. When the loan was about to mature
on March 1, 1989, respondents proposed to buy at the pre-set price
of P200,000.00, the seventy (70) square meters parcel of land
covered by TCT No. 80667, given as collateral to guarantee payment
of the loan. Petitioner, however, refused to sell and requested for
extension of time to pay the loan and offered to sell to respondents
another residential lot located at Road 20, Project 8, Quezon City,
with the principal loan plus interest to be used as down payment.
Respondents refused to extend the payment of the loan and to
accept the lot in Road 20 as it was occupied by squatters and
petitioner and her husband were not the owners thereof but were
mere land developers.
On March 1, 1989, petitioner tendered payment of the
loan to respondents which the latter refused to accept insisting on
petitioner's signing a prepared deed of absolute sale of the
collateral. Respondents filed with the Regional Trial Court, Quezon
City, a complaint for specific performance with consignation against
petitioner and her spouse. On the other hand, on March 5, 1990,
petitioner filed in the Regional Trial Court, Quezon City a petition for
consignation, and deposited the amount of P153,000.00 with the
City Treasurer of Quezon City on August 10, 1990. When petitioner
refused to sell the collateral and barangay conciliation failed,
respondents consigned the amount of P47,500.00 with the trial
court. The Trial Court is in favor of the Petitioners. Respondents
appealed from the decision to the Court of Appeals. the Court of
Appeals rendered decision reversing the ruling of the Regional Trial
Court.
ISSUE: Whether petitioner failed to pay the loan at its maturity date
and whether the stipulation in the loan contract was valid and
enforceable
HELD: Petitioner did not fail to pay the loan. The loan was due for
payment on March 1, 1989. On said date, petitioner tendered
payment to settle the loan which respondents refused to accept,
insisting that petitioner sell to them the collateral of the loan. When
respondents refused to accept payment, petitioner consigned the
amount with the trial court. We note the eagerness of respondents
to acquire the property given as collateral to guarantee the loan.
The sale of the collateral is an obligation with a suspensive
condition. It is dependent upon the happening of an event, without
which the obligation to sell does not arise. Since the event did not
occur, respondents do not have the right to demand fulfillment of
petitioner's obligation, especially where the same would not only be
disadvantageous to petitioner but would also unjustly enrich
respondents considering the inadequate consideration
(P200,000.00) for a 70 square meter property situated at
Congressional Avenue, Quezon City.
Respondents argue that contracts have the force of law
between the contracting parties and must be complied with in good
faith. 21 There are, however, certain exceptions to the rule,
specifically Article 1306 of the Civil Code, which provides:
Art. 1306. The contracting parties may
establish such stipulations, clauses, terms and
conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.
A scrutiny of the stipulation of the parties reveals a subtle intention
of the creditor to acquire the property given as security for the loan.
This is embraced in the concept of pactum commissorium, which is
proscribed by law. The elements of pactum commissorium are as
follows: (1) there should be a property mortgaged by way of
security for the payment of the principal obligation, and (2) there
should be a stipulation for automatic appropriation by the creditor
of the thing mortgaged in case of non-payment of the principal
obligation within the stipulated period.
Ong vs. Roban Lending Corp, G.R. No.172592 July 9, 2008 – Pactum
Commissorium
FACTS: On various dates, petitioner Spouses Wilfredo N. Ong and
Edna Sheila Paguio-Ong obtained several loans from respondent
Roban Lending Corporation in the total amount of P4, 000,000.
These loans were secured by real estate mortgage on Spouses Ong‘s
parcel of lands. Later Spouses Ong and Roban executed an
Amendment to Amended Real Estate Mortgage consolidating their
loans inclusive of charges thereon which totaled P5,916,117.50.
They also executed:
a.) Dacion in Payment Agreement - Wherein Sps. Ong assigned the
Tarlac properties to Roban in settlement of their total obligation
b.) Memorandum of Agreement - Where the parties agreed to
agreed to consolidate and restructure all loans, all past due and
delinquent since 19 April 2000, and outstanding obligations totaling
P5,916,117.50. Spouses Ong also:
b.1) Signs a promissory note amounting to the outstanding loan
b.2) Promise to pay: W/in 1 year otherwise the Sps. Ong agree to
execute the "DACION IN PAYMENT" agreement,
Thereafter Sps. Ong then filed a Complaint before the RTC for
declaration of mortgage contract as abandoned, annulment of
deeds, illegal exaction, unjust enrichment, accounting, and
damages, alleging that the Memorandum of Agreement and the
Dacion in Payment executed are void for being pactum
commissorium.
In its Answer with counterclaim, Roban alleged that the dacion in
payment agreement is valid because it is a special form of payment
recognized under Article 1245 of the Civil Code. RTC ruled in favor of
Roban, finding that there was no pactum commissorium. The Court
of Appeals upheld the RTC decision.
ISSUE: WON the MOA and Dacion in Payment contracts constitute
pactum commissorium or dacion en pago.
HELD: PACTUM COMMISSORIUM which is prohibited under Article
2088 of the Civil Code which provides that the creditor cannot
appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is null and void.
The elements of pactum commissorium, which enables the
mortgagee to acquire ownership of the mortgaged property without
the need of any foreclosure proceedings, are: (1) there should be a
property mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within the
stipulated period.
Here, Memorandum of Agreement and the Dacion in Payment
contain no provisions for foreclosure proceedings nor redemption.
Under the Memorandum of Agreement, the failure by the
petitioners to pay their debt within the one-year period gives
respondent the right to enforce the Dacion in Payment transferring
to it ownership of the properties covered by TCT No. 297840.
Respondent, in effect, automatically acquires ownership of the
properties upon Spouses Ong’s failure to pay their debt within the
stipulated period.
In a true dacion en pago, the assignment of the property
extinguishes the monetary debt. In the case at bar, the alienation of
the properties was by way of security, and not by way of satisfying
the debt. The Dacion in Payment did not extinguish petitioners'
obligation to respondent. On the contrary, under the MOA
executed on the same day as the Dacion in Payment, Sps. Ong had
to execute a promissory note for P5,916,117.50 which they were to
pay within one year.
SIDE ISSUE: USURIOUS INTEREST
In a true dacion en pago, the assignment of the property
extinguishes the monetary debt.
In the case at bar, the alienation of the properties was by way of
security, and not by way of satisfying the debt.
The Dacion in Payment did not extinguish petitioners' obligation to
respondent. On the contrary, under the Memorandum of
Agreement executed on the same day as the Dacion in Payment,
petitioners had to execute a promissory note for P5,916,117.50
which they were to pay within one year.
DISPOSITION: WHEREFORE, the challenged Court of Appeals
Decision is REVERSED and SET ASIDE.
Civil Case No. 9322 is REMANDED to the court of origin only for the
purpose of receiving evidence on petitioners' prayer for accounting
THE MANILA BANKING CORPORATION vs. ANASTACIO TEODORO,
JR. and GRACE ANNA TEODORO
Facts:
T here are three promissory notes executed in this case which
contains stipulation that any interest due if not paid at the end of
every 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 attorney-at-law, the
makers shall, jointly and severally, pay 10% of the amount over-due
as attorney's fees, which in no case shall be less than P200.00.
First was on April 25, 1996, defendants, together with Anastacio
Teodoro, Sr., jointly and severally, executed in favor of plaintiff a
Promissory Note (No. 11487) for the sum of P10,420.00 payable in
120 days, or on August 25, 1966, at 12% interest per annum but
failed to pay despite repeated demands including accrued interest
and service charge.
Second,were on May 3, 1966 and June 20, 1966, defendants
Anastacio Teodoro, Sr. (Father) and Anastacio Teodoro, Jr. (Son)
executed in favor of plaintiff two Promissory Notes (Nos. 11515 and
11699) for P8, 000.00 and P1, 000.00 respectively, payable in 120
days at 12% interest per annum. Father and Son made a partial
payment on the May 3, 1966 promissory Note but none on the June
20, 1966 Promissory Note, leaving still an unpaid balance of P8,
934.74.
It appears that on January 24, 1964, the Son executed in favor of
plaintiff a Deed of Assignment of Receivables from the Emergency
Employment Administration in the sum of P44, 635.00. The Deed of
Assignment provided that it was for and in consideration of certain
credits, loans, overdrafts and other credit accommodations
extended to defendants as security for the payment of said sum and
the interest thereon, and that defendants do hereby remise, release
and quitclaim all its rights, title, and interest in and to the accounts
receivables
In their stipulations of Fact, it is admitted by the parties that Manila
Banking Corporation extended loans to defendants on the basis and
by reason of certain contracts entered into by the defunct
Emergency Employment Administration (EEA) with defendants for
the fabrication of fishing boats, and that the Philippine Fisheries
Commission succeeded the EEA after its abolition; that non-
payment of the notes was due to the failure of the Commission to
pay defendants after the latter had complied with their contractual
obligations; and that the President of plaintiff Bank took steps to
collect from the Commission, but no collection was effected.
Issue:
Whether or not plaintiff claim is already considered paid by the
Deed of Assign. judgment of Receivables by the Son;
Ruling:
Supreme Court held in the negative.
The position of appellants, however, is that the deed of assignment
is a quitclaim in consideration of their indebtedness to appellee
bank, not mere guaranty, in view of the following provisions of the
deed of assignment:
... the Assignor do hereby remise, release and
quit-claim unto said assignee all its rights, title and interest in the
accounts receivable described hereunder. (Emphasis supplied by
appellants, first par., Deed of Assignment).
that the title and right of
possession to said account receivable is to remain in said assignee
and it shall have the right to collect directly from the debtor, and
whatever the Assignor does in connection with the collection of said
accounts, it agrees to do so as agent and representative of the
Assignee and it trust for said Assignee .
It is evident that the assignment of receivables executed by
appellants on January 24, 1964 did not transfer the ownership of
the receivables to appellee bank and release appellants from their
loans with the bank incurred under promissory notes.
The Deed of Assignment provided that it was for and in
consideration of certain credits, loans, overdrafts, and their credit
accommodations in the sum of P10,000.00 extended to appellants
by appellee bank, and as security for the payment of said sum and
the interest thereon; that appellants as assignors, remise, release,
and quitclaim to assignee bank all their rights, title and interest in
and to the accounts receivable assigned (lst paragraph). It was
further stipulated that the assignment will also stand as a
continuing guaranty for future loans of appellants to appellee bank
and correspondingly the assignment shall also extend to all the
accounts receivable; appellants shall also obtain in the future, until
the consideration on the loans secured by appellants from appellee
bank shall have been fully paid by them.
CITIBANK vs. SABENIANO
G.R.No. 156132, October 16, 2006
FACTS: Petitioner Citibank is a banking corporation duly authorized
under the laws of the USA to do commercial banking activities n the
Philippines. Sabeniano was a client of both Petitioners Citibank and
FNCB Finance. Respondent filed a complaint against petitioners
claiming to have substantial deposits, the proceeds of which were
supposedly deposited automatically and directly to respondent’s
account with the petitioner Citibank and that allegedly petitioner
refused to despite repeated demands. Petitioner alleged that
respondent obtained several loans from the former and in default,
Citibank exercised its right to set-off respondent’s outstanding loans
with her deposits and money. RTC declared the act illegal, null and
void and ordered the petitioner to refund the amount plus interest,
ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of the
respondent.
ISSUE: Whether petitioner may exercise its right to set-off
respondent’s loans with her deposits and money in Citibank-Geneva
RULING: Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the principal amount
of P318,897.34 and P203,150.00 plus 14.5% per annum
2. The remittance of US $149,632.99 from respondent’s Citibank-
Geneva account is declared illegal, null and void, thus Citibank is
ordered to refund said amount in Philippine currency or its
equivalent using exchange rate at the time of payment.
3. Citibank to pay respondent moral damages of P300,000,
exemplary damages for P250,000, attorney’s fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding
loans of P1,069,847.40 inclusive off interest.
PRUDENTIAL BANK V. ALVIAR & ALVIAR (2005)
Obligation Secured
A “blanket mortgage clause,” also known as a “dragnet clause” is
one which is specifically phrased to subsume all debts of past or
future origins. Mortgages of this character enable the parties to
provide continuous dealings, the nature or extent of which may not
be known or anticipated at the time, and they avoid the expense
and inconvenience of executing a new security on each new
transaction.
A “dragnet clause” operates as a convenience and accommodation
to the borrowers as it makes available additional funds without
their having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal services,
recording fees, et cetera.
The “blanket mortgage clause” in the instant case states:
…to secure the payment of the same and those that
may hereafter be obtained, the principal or all of which is hereby
fixed at Two Hundred Fifty Thousand (P250,000.00) Pesos,
Philippine Currency, as well as those that the Mortgagee may
extend to the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee,
whether direct or indirect, principal or secondary…
Facts: Thus, contrary to the finding of the Court of Appeals,
petitioner and respondents intended the real estate mortgage to
secure not only theP250,000.00 loan from the petitioner, but also
future credit facilities and advancements that may be obtained by
the respondents. The terms of the above provision being clear and
unambiguous, there is neither need nor excuse to construe it
otherwise. In the case at bar, the subsequent loans obtained by
respondents were secured by other securities.
Issue: Whether the “blanket mortgage” clause applies even to
subsequent advancements for which other securities were intended
(PNs). NO.
 Reliance on the security test People's Bank and Trust Co. vs Dahican Lumber
The parties having conformed to the “blanket mortgage clause” or
“dragnet clause,” it is reasonable to conclude that they also agreed
to an implied understanding that subsequent loans need not be
Facts:
secured by other securities, as the subsequent loans will be secured
Dahican Lumber Company (DALCO) obtained a loan from petitioner
by the first mortgage. In other words, the sufficiency of the first
bank in payment for the purchase of the Dahican Lumber
security is a corollary component of the “dragnet clause.” But of
concession from petitioner Atlantic Gulf. DALCO executed a deed of
course, there is no prohibition, as in the mortgage contract in issue,
mortgage in favor of petitioner bank covering five parcel of land
against contractually requiring other securities for the subsequent
together with all the buildings and other improvements existing
loans. Thus, when the mortgagor takes another loan for which
thereon and all the personal properties of the mortgagor located in
another security was given it could not be inferred that such loan
its place of business. The same properties were the subject of the
was made in reliance solely on the original security with the
mortgage executed by DALCO in favor of Atlantic for the unpaid
“dragnet clause,” but rather, on the new security given. This is the
balance of the sale.
“reliance on the security test.”
Both deeds contain this provision:
“All property of every nature and description taken in exchange or
Ratio: The “dragnet clause” in the first security instrument
replacement, and all buildings, machinery, fixtures, tools equipment
constituted a continuing offer by the borrower to secure further
and other property which the Mortgagor may hereafter acquire,
loans under the security of the first security instrument, and that
construct, install, attach, or use in, to, upon, or in connection with
when the lender accepted a different security he did not accept the
the premises, shall immediately be and become subject to the lien
offer.
of this mortgage in the same manner and to the same extent as if
In another case, it was held that a mortgage with a “dragnet clause” is
now included therein xxx”
an “offer” by the mortgagor to the bank to provide the security of
Both deeds were registered in the Office of the Register of Deeds.
the mortgage for advances of and when they were made. Thus, it
was concluded that the “offer” was not accepted by the bank when
a subsequent advance was made because (1) the second note was
Issue:
secured by a chattel mortgage on certain vehicles, and the clause
1. Whether or not the deeds of mortgage which covers the “after
therein stated that the note was secured by such chattel mortgage;
acquired properties” were subject of foreclosure.
(2) there was no reference in the second note or chattel mortgage
2. Assuming they are subject thereto, whether or not the mortgages
indicating a connection between the real estate mortgage and the
are valid and binding on the properties aforesaid inspite of the fact
advance; (3) the mortgagor signed the real estate mortgage by her
that they were not registered in accordance with the provisions of
name alone, whereas the second note and chattel mortgage were
the Chattel Mortgage Law.
signed by the mortgagor doing business under an assumed name;
and (4) there was no allegation by the bank, and apparently no
proof, that it relied on the security of the real estate mortgage in
Held:
making the advance.
1. Yes. , it is crystal clear that all property of every nature and
description taken in exchange or replacement, as well as all
A mortgage containing a “dragnet clause” will not be extended to
buildings, machineries, fixtures, tools, equipments, and other
cover future advances unless the document evidencing the
property that the mortgagor may acquire, construct, install, attach;
subsequent advance refers to the mortgage as providing security
or use in, to upon, or in connection with the premises — that is, its
therefor.
lumber concession — "shall immediately be and become subject to
the lien" of both mortgages in the same manner and to the same
Held: It was therefore improper for petitioner in this case to seek
extent as if already included therein at the time of their execution.
foreclosure of the mortgaged property because of non-payment of
As the language thus used leaves no room for doubt as to the
all the 3 promissory notes. While the existence and validity of the
intention of the parties, We see no useful purpose in discussing the
“dragnet clause” cannot be denied, there is a need to respect the
matter extensively. Suffice it to say that the stipulation referred to is
existence of the other security given (PN). The foreclosure of the
common, and We might say logical, in all cases where the properties
mortgaged property should only be for the P250,000.00 loan and for
given as collateral are perishable or subject to inevitable wear and
any amount not covered by the security for the second promissory
tear or were intended to be sold, or to be used — thus becoming
note. This is recognition that while the “dragnet clause” subsists,
subject to the inevitable wear and tear — but with the
the security specifically executed for subsequent loans must first be
understanding — express or implied — that they shall be replaced
exhausted before the mortgaged property can be resorted to.
with others to be thereafter acquired by the mortgagor. Such
stipulation is neither unlawful nor immoral, its obvious purpose
being to maintain, to the extent allowed by circumstances, the
original value of the properties given as security. Indeed, if such
properties were of the nature already referred to, it would be poor
judgment on the part of the creditor who does not see to it that a
similar provision is included in the contract.
2. Chattel Mortgage Law is not applicable in this case. As the
mortgages in question were executed on July 13, 1950 with the old
Civil Code still in force, there can be no doubt that the provisions of
said code must govern their interpretation and the question of their
validity. It happens however, that Articles 334 and 1877 of the old
Civil Code are substantially reproduced in Articles 415 and 2127,
respectively, of the new Civil Code. It is, therefore, immaterial in this
case whether we take the former or the latter as guide in deciding
the point under consideration.
The subject properties are real property.
Grand Farms vs Phils. Shares
Facts:
The petitioners filed annulment and declaration of nullity of the
extrajudicial foreclosure proceedings over their mortgaged
properties, with damages. Respondents admitted petitioners
allegations that there were no formal notice to foreclose the real
estate mortgage was sent to the petitioners. With this, petitioner
filed a motion for summary judgment contending that the
foreclosure was violative of the provisions of the mortgage contract,
specifically par (k), which stated:
k) All correspondence relative to this Mortgage, including demand
letters, summons, subpoena or notifications of any judicial or
extrajudical actions shall be sent to the Mortgagor at the address
given above or at the address that may hereafter be given in writing
by the Mortgagor to the Mortgagee, and the mere act of sending
any correspondence by mail or by personal delivery to the said
address shall be valid and effective notice to the Mortgagor for all
legal purposes, and the fact that any communication is not actually
received by the Mortgagor, or that it has been returned unclaimed
to the Mortgagee, or that no person was found at the address given,
or that the address is fictitious, or cannot be located, shall not
excuse or relieve the Mortgagor from the effects of such notice.
The motion was then opposed by private
respondent which argued that petioners' reliance on said paragraph
of the mortgage contract fails to consider par (b)
and (d) of the same contract, which state:
b) . . . For the purpose of extra-judicial foreclosure, the Mortgagor
(plaintiff) hereby appoints the Mortgagee (BF) his attorney-in-fact to
sell the property mortgaged, to sign all documents and perform any
act requisite and necessary to accomplish said purpose and to
appoint its substitutes as such attorney-in-fact, with the same
powers as above-specified. The Mortgagor hereby expressly waives
the term of thirty (30) days or any other term granted or which may
hereafter be granted him by law as the period which must elapse
before the Mortgagee shall be entitled to foreclose this mortgage, it
being specifically understood and agreed that the said Mortgagee
may foreclose this mortgage at any time after the breach of any
conditions hereof. . . .
xxxxxxxxx
d) Effective upon the breach of any conditions of the mortgage and
in addition to the remedies herein stipulated, the Mortgagee is
hereby likewise appointed attorney-in-fact of the Mortgagor with
full powers and authority, with the use of force, if necessary, to take
actual possession of the mortgaged property, without the necessity
for any judicial order or any permission of power to collect rents, to
eject tenants, to lease or sell the mortgaged property, or any part
thereof, at public or private sale without previous notice or
adverstisement of any kind and execute the corresponding bills of
sale, lease or other agreement that may be deemed convenient, to
make repairs or improvement to the mortgaged property and pay
for the same and perform any other act which the Mortgagor may
deem convenient. Trial Court denied petitioner's motion. As well as
CA. Hence, this case.
Issue: WON it is right for the respondent to proceed with
extrajudicial proceeding without notifying the petitioners.
Held:
The court ruled in favor of the petitioners. Omission, by itself,
rendered the foreclosure defective and irregular for being contrary
to the express provisions of the mortgage contract.
There is thus no further necessity to inquire into the other issues
cited by the trial court, for the foreclosure may be annulled solely
on the basis of such defect.
In the mortgage contract nonetheless rendered personal notice to
the latter indispensable.Said Real Estate Mortgage provides, in Sec.
10 thereof that:
(10) All correspondence relative to this mortgage, including demand
letters, summons, subpoenas, or notifications of any judicial or
extrajudicial actions shall be sent to the Mortgagor at the address
given above or at the address that may hereafter be given in writing
by the Mortgagor to the Mortgagee, and the mere act of sending
any correspondence by mail or by personal delivery to the said
address shall be valid and effective notice to the Mortgagor for all
legal purposes.
While publication of the foreclosure proceedings in the newspaper
of general circulation was complied with, personal notice is still
required, as in the case at bar, when the same was mutually agreed
upon by the parties as additional condition of the mortgage
contract. Failure to comply with this additional stipulation would
render illusory Article 1306 of the New Civil Code of the Philippines
 MEDIDA VS CA
GR 98334
FACTS:
On October 10, 1974 plaintiff spouses, alarmed of losing their right
of redemption over their lot from Mr. Gandioncho, purchaser of the
aforesaid lot at a foreclosure sale of the previous mortgage in
favour of Cebu City Development Bank, went to Tolentino Abellana,
president of defendant Association to obtain a loan. Prior thereto,
their son Teofredo Dolino filed a similar loan application, using the
same lot as security, from defendant Association. Both loan
application were supported by a promissory note in favour of the
defendant Association.
When the loan became due and demandable without paying the
same, defendant association caused the extrajudicial foreclosure of
the mortgage. After complying with posting and publication
requirements, the land was sold in a public auction to the
association being the highest bidder.
ISSUE:
WON a mortgagor, whose property has been extrajudicially
foreclosed and sold at the corresponding foreclosure sale, may
validly execute a mortgage contract over the same property in
favour of a third party during the period of redemption.
DECISION:
The court answer in affirmative.
The real estate mortgage in favour of the petitioner bank was
executed by the respondent spouses during the period of
redemption, during the said period it cannot be said that the
mortgagor is no longer the owner of the foreclosed property since
the rule up to now is the right of the purchaser at a foreclosure sale
is merely inchoate until after the period of redemption has expired
without the right being exercised. The title to the land sold under
mortgage foreclosure remains in the mortgagor or his grantee until
the expiration of the redemption period and the conveyance by the
master’s deed. Therefore, what actually is effected where
redemption is seasonably exercised by the judgment or mortgage
debtor is not the recovery of the ownership but the elimination
from his title of the lien created by the levy on the attachment or
the registration of the mortgage thereto. The redemption does not
give the mortgagor a new title but merely restores to him the title
freed of the encumbrance of the lien foreclosed.
This court also upholds the trial’s court judgment in upholding the
validity of the loan and the real estate mortgage, but annulling the
extrajudicial foreclosure as the same failed to comply with the
requirements in Act No. 3135.
SUICO vs. PHILIPPINE NATIONAL BANK
FACTS: Spouses Suico obtained a loan from PNB secured by a real
estate mortgage on real properties in the name of the former. Sps.
Suico failed to pay the obligation prompting PNB to extrajudicially
foreclose the mortgage over the subject properties. Petitioners,
thereafter filed a complaint alleging that the extrajudicial
foreclosure conducted and the Certificate of Sale and the Certificate
of Finality sale are null and void; During the foreclosure sale, PNB
was the lone bidder. The amount of bid is P8,511,000.00, petitioners
alleged that the outstanding obligation is only P1,991,770.38 since
the amount of the bid grossly exceeded the amount of petitioners’
outstanding obligation as stated in the extrajudicial foreclosure of
mortgage, it was the legal duty of the winning bidder, PNB, to
deliver to the Mandaue City Sheriff the bid price or what was left
thereof after deducting the amount of petitioners’ outstanding
obligation.
PNB failed to deliver the amount of their bid to the
Mandaue City Sheriff or, at the very least, the amount of such bid in
excess of petitioners’ outstanding obligation. PNB moved to dismiss
citing the pendency of another action between the same properties
where PNB was seeking payment of the balance of petitioner’s
obligation not covered by the proceeds of the auction sale. RTC
denied the Motion to Dismiss. PNB asserted, in its answer, that
petitioners had other loans which had likewise become due. PNB
maintained that the outstanding obligation of the petitioners under
their regular and export- related loans was already more than the
bid price of P8,511,000.00, contradicting the claim of surplus
proceeds due the petitioners. Petitioners were well aware that their
total principal outstanding obligation on the date of the auction sale
was P5,503,293.21. The RTC declared the extrajudicial foreclosure
null and void. RTC reasoned that given that petitioners had other
loan obligations which had not yet matured on 10 March 1992 but
became due by the date of the auction sale on 30 October 1992, it
does not justify the shortcut taken by PNB and will not excuse it
from paying to the Sheriff who conducted the auction sale the
excess bid in the foreclosure sale. To allow PNB to do so would
constitute fraud, for not only is the filing fee in the said foreclosure
inadequate but, worse, the same constitutes a misrepresentation
regarding the amount of the indebtedness to be paid in the
foreclosure sale as posted and published in the notice of sale. Such
misrepresentation is fatal because in an extrajudicial foreclosure of
mortgage, notice of sale is jurisdictional. Any error in the notice of
sale is fatal and invalidates the notice.
The Court of Appeals reversed the decision. Petitioners offered to
redeem the properties several times from 6.5M to 7.5M. All those
offers made by the petitioners not only contradicted their very
assertion that their obligation is merely that amount appearing on
the petition for foreclosure but are also indicative of the fact that
they have admitted the validity of the extra judicial foreclosure
proceedings and in effect have cured the impugned defect.
Even assuming that indeed there was a surplus and the PNB is
retaining more than the proceeds of the sale than it is entitled, this
fact alone will not affect the validity of the sale but simply gives the
petitioners a cause of action to recover such surplus. Such failure of
PNB does not constitute jurisdictional defect.
ISSUE: Whether or not the extrajudicial foreclosure is valid.
HELD: YES. Although petitioners denied the amounts reflected in the
Statement of Account from PNB, they did not interpose any defense
to refute the computations therein. Petitioners mere denials, far
from being compelling, had nothing to offer by way of evidence.
This then enfeebles the foundation of petitioners protestation and
will not suffice to overcome the computation of their loan
obligations as presented in the Statement of Account submitted by
PNB. It did not escape the attention of this Court that petitioners
wrote a number of letters to PNB almost two years after the auction
sale in which they offered to redeem the property.
-Notice of Foreclosure-
Statutory provisions governing publication of notice of mortgage
foreclosure sales must be strictly complied with, and that even
slight deviations therefrom will invalidate the notice and render the
sale at least voidable. Nonetheless, we must not also lose sight of
the fact that the purpose of the publication of the Notice of Sheriff’s
Sale is to inform all interested parties of the date, time and place of
the foreclosure sale of the real property subject thereof. Logically,
this not only requires that the correct date, time and place of the
foreclosure sale appear in the notice, but also that any and all
interested parties be able to determine that what is about to be
sold at the foreclosure sale is the real property in which they have
an interest.
Notices are given for the purpose of securing bidders and to prevent
a sacrifice of the property. If these objects are attained, immaterial
errors and mistakes will not affect the sufficiency of the notice; but
if mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of
the property, or to prevent it from bringing a fair price, such
mistakes or omissions will be fatal to the validity of the notice, and
also to the sale made pursuant thereto.
BPI Family Savings Bank, Inc. vs. Golden Power Diesel Sales Center,
Inc.
Facts:
Cedec Transport, Inc. (CEDEC) mortgage two parcel of land covered
by TCT titles situated in Malibay, Pasay City, including all
improvements thereon, in favour of BPI Family to secure a loan of
P6, 570, 000. On the same day, the mortgage was duly annotated on
the titles. On April 5 and November 27 1995, Cedec yet again
obtained additional loans from BPI of P 2, 160, 000, and P 1,
140,000, respectively, and mortgage the same properties. Despite
demand, Cedec however defaulted in its mortgage obligations and
thus led to BPI Family filing a verified petition for extrajudicial
foreclosure of real estate mortgage over the properties under Act
No. 3135.
After due notice and publication, the sheriff sold the properties at
public auction. BPI Family, as the highest bidder, acquired the
properties. The one year redemption period expired without Cedec
redeeming the properties. Thus the properties were consolidated in
the name of BPI Family.
However, despite several demand letters, CEDEC refused to vacate
the properties and to surrender possession to BPI Family. On 31
January 2002, BPI Family filed an Ex-Parte Petition for Writ of
Possession over the properties with Branch 114 of the Regional Trial
Court of Pasay City (trial court). In its 27 June 2002 Decision, the
trial court granted BPI Familyʼs petition. On 12 July 2002, the trial
court issued the Writ of Possession.
On 29 July 2002, respondents Golden Power Diesel Sales Center,
Inc. and Renato C. Tan6 (respondents) filed a Motion to Hold
Implementation of the Writ of Possession. Respondents alleged that
they are in possession of the properties which they acquired from
CEDEC on 10 September 1998 pursuant to the Deed of Absolute Sale
with Assumption of Mortgage (Deed of Sale). Respondents argued
that they are third persons claiming rights adverse to CEDEC, the
judgment obligor and they cannot be deprived of possession over
the properties. Respondents also disclosed that they filed a
complaint before Branch 111 of the Regional Trial Court of Pasay
City, docketed as Civil Case No. 99-0360, for the cancellation of the
Sheriffʼs Certificate of Sale and an order to direct BPI Family to
honor and accept the Deed of Absolute Sale between CEDEC and
respondents.
Issue:
Whether respondents, as vendee merely stepped in the shoes of
Cedec, the vendor or judgment obligor or third persons who claim
rights over the properties adverse to Cedec, thus leading to the
lower court to issue an ex parte writ of possession in favour of the
purchaser in an extrajudicial foreclosure sale ceases to be merely a
ministerial duty?
Ruling:
Respondents argument fails to persuade the Court. It is clear that
respondents acquired possession over the properties pursuant to
the Deed of Sale which provides that for P15,000,000 CEDEC will
sell, transfer and convey to respondents the properties free from all
liens and encumbrances excepting the mortgage as may be
subsisting in favor of the BPI FAMILY SAVINGS BANK.21 Moreover,
the Deed of Sale provides that respondents bind themselves to
assume the payment of the unpaid balance of the mortgage
indebtedness of the VENDOR (CEDEC) amounting to P7,889,472.48,
as of July 31, 1998, in favor of the aforementioned mortgagee (BPI
Family) by the mortgage instruments and does hereby further agree
to be bound by the precise terms and conditions therein
contained.22
In this case, respondents possession of the properties was premised
on the sale to them by CEDEC for the amount of P15,000,000.
Therefore, respondents hold title to and possess the properties as
CEDECʼs transferees and any right they have over the properties is
derived from CEDEC. As transferees of CEDEC, respondents merely
stepped into CEDECs shoes and are necessarily bound to
acknowledge and respect the mortgage CEDEC had earlier executed
in favor of BPI Family. Respondents are the successors-in-interest of
CEDEC and thus, respondentsʼ occupancy over the properties
cannot be considered adverse to CEDEC.
Gist of the case:
In extrajudicial foreclosures of real estate mortgages, the issuance
of a writ of possession is governed by Section 7 of Act No. 3135, as
amended, which provides:
SECTION 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance (Regional Trial
Court) of the province or place where the property or any part
thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the
use of the property for a period of twelve months, to indemnify the
debtor in case it be shown that the sale was made without violating
the mortgage or without complying with the requirements of this
Act. Such petition shall be made under oath and filed in form of an
ex parte motion in the registration or cadastral proceedings if the
property is registered, or in special proceedings in the case of
property registered under the Mortgage Law or under section one
hundred and ninety-four of the Administrative Code, or of any other
real property encumbered with a mortgage duly registered in the
office of any register of deeds in accordance with any existing law,
and in each case the clerk of the court shall, upon the filing of such
petition, collect the fees specified in paragraph eleven of section
one hundred and fourteen of Act Numbered Four hundred and
ninety-six, as amended by Act Numbered Twenty-eight hundred and
sixty-six, and the court shall, upon approval of the bond, order that
a writ of possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
immediately.
This procedure may also be availed of by the purchaser seeking
possession of the foreclosed property bought at the public auction
sale after the redemption period has expired without redemption
having been made.
It is thus settled that the buyer in a foreclosure sale becomes the
absolute owner of the property purchased if it is not redeemed
during the period of one year after the registration of the sale. As
such, he is entitled to the possession of the said property and can
demand it at any time following the consolidation of ownership in
his name and the issuance to him of a new transfer certificate of
title. The buyer can in fact demand possession of the land even
during the redemption period except that he has to post a bond in
accordance with Section 7 of Act No. 3135, as amended. No such
bond is required after the redemption period if the property is not
redeemed. Possession of the land then becomes an absolute right of
the purchaser as confirmed owner. Upon proper application and
proof of title, the issuance of the writ of possession becomes a
ministerial duty of the court.
Thus, the general rule is that a purchaser in a public auction sale of a
foreclosed property is entitled to a writ of possession and, upon an
ex parte petition of the purchaser, it is ministerial upon the trial
court to issue the writ of possession in favor of the purchaser.
There is, however, an exception. Section 33, Rule 39 of the Rules of
Court provides:
Section 33. Deed and possession to be given at expiration of
redemption period; by whom executed or given. - x x x
Upon the expiration of the right of redemption, the purchaser or
redemptioner shall be substituted to and acquire all the rights, title,
interest and claim of the judgment obligor to the property as of the
time of the levy. The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a third
party is actually holding the property adversely to the judgment
obligor.
Therefore, in an extrajudicial foreclosure of real property, when the
foreclosed property is in the possession of a third party holding the
same adversely to the judgment obligor, the issuance by the trial
court of a writ of possession in favor of the purchaser of said real
property ceases to be ministerial and may no longer be done ex
parte. The procedure is for the trial court to order a hearing to
determine the nature of the adverse possession. For the exception
to apply, however, the property need not only be possessed by a
third party, but also held by the third party adversely to the
judgment obligor.
Cecilio Diego vs. Segundo Fernando
G.R. NO. L-15128
FACTS:
Segundo Fernando executed a deed of mortgage in favor of Cecilio
Diego over two parcels of land registered in his name, to secure a
loan of P2,000, without interest, payable within four years from the
date of the mortgage. After the execution of the deed, possession of
the mortgaged properties were turned over to the mortgagee.
Debtor having failed to pay the loan after four years, the mortgagee
Diego made several demands upon him for payment; and as the
demands were unheeded, Diego filed this action for foreclosure of
mortgage.
Defendant Fernando’s defense was that the true transaction
between him and plaintiff was one of antichresis and not of
mortgage; and that as plaintiff had allegedly received a total of 120
cavans of palay from the properties given as security, which, at the
rate of P10 a cavan, represented a value of P5,200, his debt had
already been paid, with plaintiff still owing him a refund of some
P2,720.00.
Lower court ruled in favour of the plaintiff saying that there was no
showing that it was not a true contract of mortgage.
ISSUE:
Whether or not the contract between the parties is one of
mortgage.
RULING:
It is a mortgage.
To be antichresis, it must be expressly agreed between creditor and
debtor that the former, having been given possession of the
properties given as security, is to apply their fruits to the payment
of the interest, if owing, and thereafter to the principal of his credit
so that if a contract of loan with security does not stipulate the
payment of interest but provides for the delivery to the creditor by
the debtor of the property given as security, in order that the latter
may gather its fruits, without stating that said fruits are to be
applied to the payment of interest, if any, and afterwards that of
the principal, the contract is a mortgage and not antichresis.
The above conclusion does not mean, however, that appellee,
having received the fruits of the properties mortgaged, will be
allowed to appropriate them for himself and not be required to
account for them to the appellant.
The true position of appellee herein under his contract with
appellant is a "mortgage in possession" as that term is understood
in American equity jurisprudence; that is, "one who has lawfully
acquired actual or constructive possession of the premises
mortgaged to him, standing upon his rights as mortgagee and not
claiming under another title, for the purpose of enforcing his
security upon such property or making its income help to pay his
debt"
In the present case, the parties having agreed that the loan was to
be without interest, and the appellant not having expressly waived
his right to the fruits of the properties mortgaged during the time
they were in appellee’s possession, the latter, like an antichretic
creditor, must account for the value of the fruits received by him,
and deduct it from the loan obtained by appellant.
DE BARRETO VS VILLANUEVA
FACTS: On May 10, 1948, Rosario Cruzado, as administratix of the
intestate estate of her deceased husband Pedro Cruzado in Special
Proceedings of the Court of First Instance of Manila, obtained from
the defunct Rehabilitation Finance Corporation (RFC) a loan in the
amount of P11,000.00. To secure payment thereof, she mortgaged
the land issued in her name and that of her deceased. As she failed
to pay certain installments on the loan, the mortgage was
foreclosed and the RFC acquired the property for P11,000.00,
subject to her rights as mortgagor to re-purchase the same. The
land was sold back to her conditionally for the amount of
P14,269.03, payable in seven years. Rosario Cruzado, as guardian of
her minor children in Special Proceedings, was authorized by the
court, to sell with the previous consent of the RFC the land in
question together with the improvements thereon for a sum not
less than P19,000. Pursuant to such authority and with the consent
of the RFC, she sold to Pura L. Villanueva for P19,000.00 "all their
rights, interest,' title and dominion and over the herein described
parcel of land together with the existing improvements thereon,
Pura L. Villanueva, the vendee, in consideration of the aforesaid
sale, executed in favor of the vendor Rosario Cruzado a promissory
note undertaking to pay the balance of P17,500.00 in monthly
installments. On April 22, 1953, she made an additional payment of
P5,500.00 on the promissory note. She was, subsequently, able to
secure in her name Transfer Certificate of Title.
As said Pura L. Villanueva had failed to pay the remaining
installments on the unpaid balance of P12,000.00 her promissory
note for the sale of the property in question, a complaint for the
recovery of the same from her and her husband was filed by Rosario
Cruzado in her own right and in her capacity as judicial guardian of
her minor children. Pending trial of the case, a lien was constituted
upon the property in the nature of a levy in attachment in favor of
the Cruzados. After trial, decision was rendered ordering Pura
Villanueva and her husband, jointly and severally, to pay Rosario
Cruzado the sum of P12,000.00. Pura Villanueva having, likewise,
failed to pay her indebtedness of P30,000.00 to Magdalena C.
Barretto, the latter, jointly with her husband, instituted against the
Villanueva spouses an action for foreclosure of mortgage,
impleading Rosario Cruzado and her children as parties defendants.
Decision was rendered in the case absolving the Cruzados from the
complaint and sentencing the Villanuevas to pay the Barrettos,
jointly and severally, the sum of P30,000.00. Upon the finality of this
decision, the Barrettos filed a motion for the issuance of a writ of
execution which was granted by the lower court
ISSUE: WON the court erred in giving due course to the said
vendor's lien.
HELD: In claiming that the decision of the Court, of First Instance of
Manila in Civil Case. Awarding the amount of P12,000.00 in favor of
Rosario Cruzado and her minor children . cannot constitute a basis
for the vendor's lien filed by the appellee Rosario Cruzado,
appellants allege that the action in said civil case was merely to
recover the balance of a promissory note. But while, apparently, the
action was to recover the remaining obligation of promissor Pura
Villanueva on the note, the fact remains that Rosario P. Cruzado as
guardian of her minor children, was an unpaid vendor., of the realty
in question, and the promissory note, was, precisely, for the unpaid
balance of the price of the property bought by, said Pura Villanueva.
Article 2249 of the same Code provides that "if there are two or
more credits with respect to the same specific real property or real
rights, they shall be satisfied pro-rata after the payment of the taxes
and assessment upon the immovable property or real rights.
Application of the above-quoted provisions to the case at bar would
mean that the herein appellee Rosario Cruzado as an unpaid vendor
of the property in question has the right to share pro-rata with the
appellants the proceeds of the foreclosure sale.
DBP vs. CA, and Remington GR.no.126200 - Concurrence and
Preference of Credits
FACTS: Marinduque Mining Corp (Marinduque) obtained loans from
DBP and PNB secured by Real Estate Mortgage and Chattel
Mortgage on all its properties. Marinduque failed to pay its loans to
the two banks so the banks foreclosed the properties of
Marinduque. Upon auction the 2 banks emerged as the highest
bidders during the foreclose proceedings. The banks then assigned
the foreclosed properties to Nonoc Mining, Maricalum Mining,
Island Cement and APT to continue the operations to prevent
deterioration to the foreclosed assets/ properties. Nonoc Mining,
Maricalum Mining, Island Cement were all owned by PNB and DBP.
In the meantime, Marinduque also bought construction material
from private respondent Remington Industrial Supplies Sales
Corporation (Remington) worth P921,755.95. But Marinduque failed
to pay Remington so Remington sought to recover payment by filing
a complaint for sum of money and damages against the debtor,
Marinduque Mining, and its creditors, PNB and DBP. PNB and DPB
are also included as co-defendants due to the foreclosure done by
the banks to the properties of Marinduque
On its 3rd amended complaint, Remington also impleaded as co
defendants PNB, DBP and other assignee corporations (Nonoc
Mining, Maricalum Mining, Island Cement), on the ground that all of
them must be treated in law as one and the same entity by
disregarding the veil of corporate fiction since all of these
corporations share the same or almost the same set of directors.
But on its 4th and last amended complaint, APT was also included as
co-defendant since sometime in 1987, PNB and DBP pursuant to
Resolution No. 50 assigned, transferred and conveyed to the
National Government thru the Asset Privatization Trust (APT) all its
rights and interest over MMC which were earlier assigned to other
corporations.
RTC rendered a decision in favor of Remington and this was
affirmed by CA. Upon petition to SC private respondent Remington
submits that the transfer of the properties was made in fraud of
creditors. The presence of fraud, according to Remington, warrants
the piercing of the corporate veil such that Marinduque Mining and
its transferees could be considered as one and the same
corporation. The transferees, therefore, are also liable for the value
of Marinduque Minings purchases.
ISSUE # 1 WON the articles of the Civil Code on concurrence and
preference of credits are applicable only to the insolvent debtor
HELD NO. There is nothing in the law that shows such limitations. If
we are to interpret this portion of the Code as intended only for
insolvency cases, then other creditor-debtor relationships where
there are concurrence of credits would be left without any rules to
govern them, and it would render purposeless the special laws on
insolvency.
ISSUE # 2 What is the remedy of a preferred creditor under the
articles on concurrence and preference of credits?
HELD: HE CAN COLLECT HIS PRO RATA SHARE UNDER ART. 2249,
which provides that “if there are two or more credits with respect
to the same specific real property or real rights, they shall be
satisfied pro rata, after the payment of the taxes and assessments
upon the immovable property or real right.” However, in order to
make this prorating fully effective, the preferred creditors
enumerated in Nos. 2 to 14 of Article 2242 (or such of them as have
credits outstanding) must necessarily be convened, and the import
of their claims ascertained. It is thus apparent that the full
application of Articles 2249 and 2242 demands that there must be
first some proceeding where the claims of all the preferred creditors
may be bindingly adjudicated, such as insolvency, the settlement of
decedent's estate under Rule 87 of the Rules of Court, or other
liquidation proceedings of similar import.
An exception applies to taxes, which enjoy a similar absolute
preference. If none of the claims is for taxes, a dispute between two
creditors will not enable the Court to ascertain the pro rata dividend
corresponding to each, because the rights of the other creditors
likewise enjoying preference under Article 2242 cannot be
ascertained.
The extra-judicial foreclosure instituted by PNB and DBP is not the
liquidation proceeding contemplated by the Civil Code, so
Remington cannot claim its pro rata share from DBP.
*** WON the fact that some of the directors of the creditor
corporation were also directors of the debtor corporation
sufficient to conclude the presence of fraudulent preference in this
case.
HELD: From Appellee’s Brief: Where one corporation was ‘insolvent
and indebted to another, it has been held that the directors of the
creditor corporation were disqualified, by reason of self-interest,
from acting as directors of the debtor corporation in the
authorization of a mortgage or deed of trust to the former to secure
such indebtedness x x x” (page 105 of the Appellee’s Brief). In the
same manner that “x x x when the corporation is insolvent, its
directors who are its creditors cannot secure to themselves any
advantage or preference over other creditors. xxx If they do, equity
will set aside the transaction at the suit of creditors of the
corporation or their representatives, without reference to the
question of any actual fraudulent intent on the part of the directors,
for the right of the creditors does not depend upon fraud in fact,
but upon the violation of the fiduciary relation to the directors xxx
“x x x directors of insolvent corporation, who are creditors of the
company, cannot secure to themselves any preference or advantage
over other creditors in the payment of their claims. It is not good
morals or good law.
DISPOSITION: WHEREFORE, the petition is GRANTED. The decision
of the Court of Appeals dated October 6, 1995 and its Resolution
promulgated on August 29, 1996 is REVERSED and SET ASIDE. The
original complaint filed in the Regional Trial Court in CV Case No. 84-
25858 is hereby DISMISSED.
J.L. BERNARDO CONSTRUCTION vs. COURT OF APPEALS and
MAYOR JOSE L. SALONGA, respondents.
Facts:
Sometime in 1990, the municipal government of San Antonio,
Nueva Ecija approved the construction of the San Antonio Public
Market. The construction of the market was to be funded by the
Economic Support Fund Secretariat (ESFS), a government agency
working with the USAID. Under ESFS "grant-loan-equity" financing
program, the funding for the market would be composed of a (a)
grant from ESFS, (b) loan extended by ESFS to the Municipality of
San Antonio, and (c) equity or counterpart funds from the
Municipality.
Under the Construction Agreement, the Municipality agreed to
assume the expenses for the demolition, clearing and site filling of
the construction site in the amount of P1,150,000 and, in addition,
to provide cash equity of P767,305.99 to be remitted directly to
petitioners.
Petitioners allege that, although the whole amount of the cash
equity became due, the Municipality refused to pay the same,
despite repeated demands and notwithstanding that the public
market was more than ninety-eight percent (98%) complete as of
July 20, 1991. Furthermore, petitioners maintain that Salonga
induced them to advance the expenses for the demolition, clearing
and site filling work by making representations that the Municipality
had the financial capability to reimburse them later on. However,
petitioners claim that they have not been reimbursed for their
expenses.
On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin
Sugay and Fernando Erana, with the latter three bringing the case in
their own personal capacities and also in representation of J.L.
Bernardo Construction, filed a complaint for breach of contract,
specific performance, and collection of a sum of money, with prayer
for preliminary attachment and enforcement of contractors lien
against the Municipality of San Antonio, Nueva Ecija and Salonga, in
his personal and official capacity as municipal mayor.
Issue:
Whether or not JL Bernardo et al were entitled to the contractor’s
lien as granted by the RTC.
Ruling:
No. Articles 2241 and 2242 enumerate certain credits which enjoy
preference with respect to specific personal or real property of the
debtor. The contractor’s lien claimed JL Bernardo et al is granted
under the third paragraph of Article 2242 which provides that the
claims of contractors engaged in the construction, reconstruction or
repair of buildings or other works shall be preferred with respect to
the specific building or other immovable property constructed.
However, Article 2242 only finds application when there is a
concurrence of credits, i.e. when the same specific property of the
debtor is subjected to the claims of several creditors and the value
of such property of the debtor is insufficient to pay in full all the
creditors. In such a situation, the question of preference will arise,
that is, there will be a need to determine which of the creditors will
be paid ahead of the others. Fundamental tenets of due process will
dictate that this statutory lien should then only be enforced in the
context of some kind of a proceeding where the claims of all the
preferred creditors may be bindingly adjudicated, such as insolvency
proceedings.
This is made explicit by Article 2243 stating that the claims and liens
enumerated in articles 2241 and 2242 shall be considered as
mortgages or pledges of real or personal property, or liens within
the purview of legal provisions governing insolvency.
In this case: LJ Bernardo et al filed an action in the trial court which
did not partake of the nature of an insolvency proceeding. It is
basically for specific performance and damages, hence, even if it is
finally adjudicated that petitioners herein actually stand in the
position of unpaid contractors and are entitled to invoke the
contractor’s lien granted under Article 2242, such lien cannot be
enforced in the present action for there is no way of determining
whether or not there exist other preferred creditors with claims
over the San Antonio Public Market. The records do not contain any
allegation that petitioners are the only creditors with respect to
such property. The fact that no third party claims have been filed in
the trial court will not bar other creditors from subsequently
bringing actions and claiming that they also have preferred liens
against the property involved.
It not having been alleged in their pleadings that they have any
rights as a mortgagee under the contracts, petitioners may only
obtain possession and use of the public market by means of a
preliminary attachment upon such property, in the event that they
obtain a favorable judgment in the trial court.
Procedure for attachment over registered real property: enforced
by the sheriff by filing with the registry of deeds a copy of the order
of attachment, together with a description of the property attached,
and a notice that it is attached, and by leaving a copy of such order,
description, and notice with the occupant of the property, if any. If
judgment be recovered by the attaching party and execution issue
thereon, the sheriff may cause the judgment to be satisfied by
selling so much of the property as may be necessary to satisfy the
judgment. Only in the event that petitioners are able to purchase
the property will they then acquire possession and use of the same.
Case Reference: Phil Savings Bank v. Lantin, which disallowed the
contractor from enforcing his lien pursuant to Article 2242 of the
Civil Code in an action filed by him for the collection of unpaid
construction costs.
Rizal Commercial Banking Corporation vs. Intermediate Appellate
Court and BF Homes
G.R. No. 74851 (December 9, 1999)
Facts: Petitioner RCBC is a mortgagor-creditor of the party
respondent BF Homes. BF Homes, being a distressed firm, filed
before the Securities and Exchange Commission a Petition for
Rehabilitation and for Declaration of Suspension of Payments.
Consequently, RCBC requested the sheriff of Rizal to levy on
execution the properties of party respondent, and consequently
obtained favorable judgment. RCBC being the highest bidder during
the public auction is now seeking for the transfer certificate of titles
from the Register of Deeds issued in its name. It is worthy to note
that it was on October 26, 1984 that RCBC obtained favor over the
execution of the respondent’s properties, and it was only on March
18, 1985 that a Management Committee was organized by the SEC
for BF Homes.
Issue:
Whether or not the Court may depart from the words of the law
which clearly provides that a creditor may levy execution on a firm’s
properties when such execution precedes SEC’s organization of a
Management Committee to act as its receiver.
Held: PD 209-A states that suspension of claims against a
corporation under rehabilitation is counted or figured up only upon
the appointment of a management committee or a rehabilitation
receiver. The holding that suspension of actions for claims against a
corporation under rehabilitation takes effect as soon as the
application or a petition for rehabilitation is filed with the SEC —
may, to some, be more logical and wise but unfortunately, such is
incongruent with the clear language of the law. Suspension of
actions for claims commences only from the time a management
committee or receiver is appointed by the SEC. Petitioner RCBC
rightfully moved for the extrajudicial foreclosure of its mortgage on
October 26, 1984 because a management committee was not
appointed by the SEC until March 18, 1985.
Reasoning: No matter how practical and noble a reason would be, in
order to depart from the words of the law stated in clear and
unambiguous manner, would be to encroach upon legislative
prerogative to define the wisdom of the law. Such is plainly judicial
legislation.
Policy: Paragraph C Section 6 of PD 209-A states that upon
appointment of a management committee rehabilitation receiver,
board or body, pursuant to this Decree, all actions for claims against
corporations, partnerships or associations under management or
receivership, pending before any court, tribunal, board or body shall
be suspended accordingly.
Spouses Sobrejuanite VS. ASB Development Corp., G.R. No.
165675
FACTS OF THE CASE
1. On March 7, 2001, spouses Eduardo and Fidela Sobrejuanite
(Sobrejuanite) filed a Complaint for rescission of contract, refund of
payments and damages, against ASB Development Corporation
(ASBDC) before the Housing and Land Use Regulatory Board
(HLURB).
2. Sobrejuanite alleged that they entered into a Contract to Sell with
ASBDC over a condominium unit and a parking space in the BSA
Twin Tower-B Condominum located at Bank Drive, Ortigas Center,
Mandaluyong City. They averred that despite full payment and
demands, ASBDC failed to deliver the property on or before
December 1999 as agreed. They prayed for the rescission of the
contract; refund of payments amounting to P2,674,637.10; payment
of moral and exemplary damages, attorney’s fees, litigation
expenses, appearance fee and costs of the suit.
3. ASBDC filed a motion to dismiss or suspend proceedings in view
of the approval by the Securities and Exchange Commission (SEC) on
April 26, 2001 of the rehabilitation plan of ASB Group of Companies,
which includes ASBDC, and the appointment of a rehabilitation
receiver. The HLURB arbiter however denied the motion and
ordered the continuation of the proceedings.
ISSUE: Whether the SEC’s approval of the corporate rehabilitation
plan has the effect of suspending the proceeding before HLURB.
RULING: Yes. Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real and
personal, which is the subject of the action pending before the
Commission … whenever necessary in order to preserve the rights
of the parties-litigants and/or protect the interest of the investing
public and creditors: … Provided, finally, That upon appointment of
a management committee, rehabilitation receiver, board or body,
pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership
pending before any court, tribunal, board or body shall be
suspended accordingly.
The purpose for the suspension of the proceedings is to prevent a
creditor from obtaining an advantage or preference over another
and to protect and preserve the rights of party litigants as well as
the interest of the investing public or creditors. Such suspension is
intended to give enough breathing space for the management
committee or rehabilitation receiver to make the business viable
again, without having to divert attention and resources to litigations
in various fora.
The suspension would enable the management committee or
rehabilitation receiver to effectively exercise its/his powers free
from any judicial or extra-judicial interference that might unduly
hinder or prevent the “rescue” of the debtor company.
To allow such other action to continue would only add to the
burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending
claims against the corporation instead of being directed toward its
restructuring and rehabilitation.
MWSS vs Daway
Facts:
MWSS granted Maynilad under a Concession Agreement a twenty-
year period to manage, operate, repair, decommission and refurbish
the existing MWSS water delivery and sewerage services in the
West Zone Service Area, for which Maynilad undertook to pay the
corresponding concession fees on the dates agreed upon in said
agreement which, among other things, consisted of payments of
petitioner’s mostly foreign loans.
To secure the concessionaire’s performance of its obligations under
the Concession Agreement, Maynilad was required to put up a
bond, bank guarantee or other security acceptable to MWSS.
In compliance with this requirement, Maynilad arranged on July 14,
2000 for a three-year facility with a number of foreign banks, led by
Citicorp International Limited, for the issuance of an Irrevocable
Standby Letter of Credit in the amount of US$120,000,000 in favor
of MWSS for the full and prompt performance of Maynilad’s
obligations to MWSS.
Sometime in September 2000, respondent Maynilad requested
MWSS for a mechanism by which it hoped to recover the losses it
had allegedly incurred and would be incurring as a result of the
depreciation of the Philippine Peso against the US Dollar. Failing to
get what it desired, Maynilad issued a Force Majeure Notice on
March 8, 2001 and unilaterally suspended the payment of the
concession fees. In an effort to salvage the Concession Agreement,
the parties entered into a Memorandum of Agreement wherein
Maynilad was allowed to recover foreign exchange losses under a
formula agreed upon between them. Maynilad again filed another
Force Majeure Notice and, since MWSS could not agree with the
terms of said Notice, the matter was referred on August 30, 2001 to
the Appeals Panel for arbitration. This resulted in the parties
agreeing to resolve the issues through an amendment of the
Concession Agreement.
Maynilad served upon MWSS a Notice of Event of Termination,
claiming that MWSS failed to comply with its obligations under the
Concession Agreement and Amendment No. 1 regarding the
adjustment mechanism that would cover Maynilad’s foreign
exchange losses. Maynilad filed a Notice of Early Termination of the
concession.
Issue:
Whether or not the banks are solidary liable with the debtor
(Maynilad).
Held:
Respondent Maynilad’s claim that the banks are not solidarily liable
with the debtor does not find support in jurisprudence.
We held in Feati Bank & Trust Company v. Court of Appeals16 that
the concept of guarantee vis-à-vis the concept of an irrevocable
letter of credit are inconsistent with each other. The guarantee
theory destroys the independence of the bank’s responsibility from
the contract upon which it was opened and the nature of both
contracts is mutually in conflict with each other. In contracts of
guarantee, the guarantor’s obligation is merely collateral and it
arises only upon the default of the person primarily liable. On the
other hand, in an irrevocable letter of credit, the bank undertakes a
primary obligation. We have also defined a letter of credit as an
engagement by a bank or other person made at the request of a
customer that the issuer shall honor drafts or other demands of
payment upon compliance with the conditions specified in the
credit

Panlilio vs RTC
Facts: Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo
Cristobal (petitioners), as corporate officers of Silahis International
Hotel, Inc. (SIHI), filed with RTC Branch 24 a petition for suspension
of payments and rehabilitation. RTC branch 24 issued an order
staying all claims against SIHI upon finding the petition sufficient in
form and substance.
Meanwhile, SSS filed criminal charges againts the petitioners for
violating Sec 28 of R.A. 8282 in relation to Art 315 of RPC.
Petitioners argued that the stay order issued by Branch 24 should
also apply to the criminal charges pending in Branch 51. CA issued a
Decision denying the petition. Hence, this case.
Issue: WON the suspension of all claims as an incident to a
corporate rehabilitation also contemplate the suspension of
criminal charges filed against the corporate officers of the
distressed corporation.
Held: No, A principal feature of corporate rehabilitation is the
suspension of claims against the distressed corporation.
A criminal action has a dual purpose, namely, the punishment of the
offender and indemnity to the offended party. The dominant and
primordial objective of the criminal action is the punishment of the
offender. The civil action is merely incidental to and consequent to
the conviction of the accused. The reason for this is that criminal
actions are primarily intended to vindicate an outrage against the
sovereignty of the state and to impose the appropriate penalty for
the vindication of the disturbance to the social order caused by the
offender. On the other hand, the action between the private
complainant and the accused is intended solely to indemnify the
former.
The rehabilitation of SIHI and the settlement of claims against the
corporation is not a legal ground for the extinction of petitioners’
criminal liabilities. There is no reason why criminal proceedings
should be suspended during corporate rehabilitation, more so, since
the prime purpose of the criminal action is to punish the offender in
order to deter him and others from committing the same or similar
offense, to isolate
him from society, reform and rehabilitate him or, in general, to
maintain social order. As correctly observed in Rosario, it would be
absurd for one who has engaged in criminal conduct could escape
punishment by the
mere filing of a petition for rehabilitation by the corporation of
which he is an officer.
The prosecution of the officers of the corporation has no bearing on
the pending rehabilitation of the corporation, especially since they
are charged in their individual capacities. Such being the case, the
purpose of the law for the issuance of the stay order is not
compromised, since the appointed rehabilitation receiver can still
fully discharge his functions as mandated by law.
BPI VS SEC
GR 164641
FACTS:
The Bank of the Philippine Island (BPI), through its predecessor-in-
interest, Far East Bank and Trust Company, extended credit
accommodation to the ASB Group in the amount of P
86,800,000.00, secured by a two (2) real estate mortgage. On May
2, 2000, the ASB Group filed a petition for rehabilitation and
suspension of payments before the SEC. The ASB group submitted a
proposed rehabilitation plan, this provides, among others, a dacion
en pago by ASB to BPI of one of the properties mortgaged to the
latter with a selling value of P 84,000,000.00. In turn, ASB Group
would require the release of the other property mortgage to BPI.
The dacion will constitute the whole payment of the obligation due
to BPI because the balance was then to be considered to be waived.
BPI opposed the rehabilitation plan. However, on April 26, 2001 SEC
approved the Rehabilitation Plan of ASB Group. BPI filed a petition
for review, the SEC denied the same. BPI the filed petition for
review before the CA but the CA dismissed the petition for lack of
merit. Another motion for reconsideration was filed but the same
was denied for lack of merit, hence this petition.
ISSUE:
WON the SEC erred in approving the Rehabilitation Plan of ASB
Group for it is violative of the rights of secured creditor.
DECISION:
Petition was denied.
Rehabilitation proceedings in our jurisdiction have equitable and
rehabilitative purposes. On the other hand, they attempt to provide
for the efficient and equitable distribution of an insolvent debtor’s
remaining assets to its creditors and on the other to provide debtors
with a fresh start by relieving them of the weight of their
outstanding debts and permitting them to reorganize their affairs.
The rationale of P.D. No. 902-A,as amended, is to effect a feasible
and viable rehabilitation, by preserving a foundering business as
going concern, because the assets of the business are often more
valuable when so maintained than they would be liquidated.
Besides, the rehabilitation plan merely proposes dacion en pago as
settlement of the obligation, BPI has the discretion whether or not
to accept the proposal. Because being a form of contract, dacion en
pago agreement cannot be perfected without the consent of the
parties involve.
 CONSUELO METAL CORP v. PLANTERS DEVELOPMENT BANK & termination of the rehabilitation proceedings or upon
MANINGAS the lifting of the stay order.

2.) While the SEC has jurisdiction to order the dissolution of a

corporation, jurisdiction over the liquidation of the
On 1 April 1996, CMC filed before the SEC a petition to be declared
corporation now pertains to the appropriate regional trial
in a state of suspension of payment, for rehabilitation, and for the
courts. This is the reason why the SEC, in its 29 November
appointment of a rehabilitation receiver or management committee
2000 Omnibus Order, directed that “the proceedings on and
under Section 5(d) of Presidential Decree No. 902-A. On 2 April
implementation of the order of liquidation be commenced at
1996, the SEC, finding the petition sufficient in form and substance,
the Regional Trial Court to which this case shall be
declared that all actions for claims against CMC pending before any
transferred.” This is the correct procedure because the
court, tribunal, office, board, body and/or commission are deemed
liquidation of a corporation requires the settlement of claims
suspended immediately until further order from the SEC.
for and against the corporation, which clearly falls under the
Thereafter, respondent Planters Development Bank (Planters Bank),
jurisdiction of the regular courts. The trial court is in the best
one of CMCs creditors, commenced the extra-judicial foreclosure of
position to convene all the creditors of the corporation,
CMCs real estate mortgage. Public auctions were scheduled on 30
ascertain their claims, and determine their preferences.
January 2001 and 6 February 2001. CMC filed a motion for the
issuance of a temporary restraining order and a writ of preliminary
Rules
injunction with the SEC to enjoin the foreclosure of the real estate
If rehabilitation is no longer feasible and the assets of the
mortgage. RTC denied the motion. CMC filed a petition for certiorari
corporation are finally liquidated, secured creditors shall enjoy
with the Court of Appeals. CMC alleged that the trial court acted
preference over unsecured creditors, subject only to the provisions
with grave abuse of discretion amounting to lack of jurisdiction
of the Civil Code on concurrence and preference of
when it required CMC to file a new petition for dissolution and
credits. Creditors of secured obligations may pursue their security
liquidation with either the SEC or the trial court when the SEC
interest or lien, or they may choose to abandon the preference and
clearly retained jurisdiction over the case. On 13 June 2001, Planters
prove their credits as ordinary claims.
Bank extra-judicially foreclosed the real estate mortgage.

ISSUES:
1.) Whether Planters Banks foreclosure of the real estate
mortgage is valid.
2.) Whether the present case falls under Section 121 of the
Corporation Code, which refers to the SECs jurisdiction
over CMCs dissolution and liquidation, or is only a
continuation of the SECs jurisdiction over CMCs petition
for suspension of payment;

HELD:
1.) Yes, Planters Bank, as a secured creditor, enjoys preference
over a specific mortgaged property and has a right to foreclose
the mortgage under Section 2248 of the Civil Code:
Those credits which enjoy preference in
relation to specific real property or real rights, exclude all others to
the extent of the value of the immovable or real right to
which the preference refers.
The creditor-mortgagee has the right to foreclose the
mortgage over a specific real property whether or not the
debtor-mortgagor is under insolvency or liquidation
proceedings. The right to foreclose such mortgage is merely
suspended upon the appointment of a management
committee or rehabilitation receiver or upon the issuance of a
stay order by the trial court. However, the creditor-mortgagee
may exercise his right to foreclose the mortgage upon the