SIMPLE'LOAN'OR'MUTUUM' of' the' filing' of' the' complaint' unJl' full' payment' was' made.
'
G.R.'No.'L120240''''''December'31,'1965'
REPUBLIC'OF'THE'PHILIPPINES,'plainJff1appellee,
vs.
 resoluJon' of' May' 13,' 1963,' required' Manuel' Lagtapon,'
JOSE'GRIJALDO,'defendant1appellant.'
FACTS:'
In' the' year' 1943' appellant' Jose' Grijaldo' obtained' five' loans'
from'the'branch'office'of'the'Bank'of'Taiwan,'Ltd.'in'Bacolod'
City,'in'the'total'sum'of'P1,281.97'with'interest'at'the'rate'of'
6%' per' annum,' compounded' quarterly.' These' loans' are'
evidenced'by'five'promissory'notes'executed'by'the'appellant'
in' favor' of' the' Bank' of' Taiwan,' Ltd.,' as' follows:' On' June' 1,'
1943,' P600.00;' on' June' 3,' 1943,' P159.11;' on' June' 18,' 1943,'
P22.86;' on' August' 9,' 1943,P300.00;' on' August' 13,' 1943,'
P200.00,' all' notes' without' due' dates,' but' because' the' loans'
were' due' one' year' aber' they' were' incurred.' To' secure' the'
payment' of' the' loans' the' appellant' executed' a' chacel'
mortgage' on' the' standing' crops' on' his' land,' Lot' No.' 1494'
known' as' Hacienda' Campugas' in' Hinigiran,' Negros'
Occidental.'
By' virtue' of' VesJng' Order' No.' P14,' dated' January' 21,' 1946,'
and'under'the'authority'provided'for'in'the'Trading'with'the'
Enemy' Act,' as' amended,' the' assets' in' the' Philippines' of' the'
Bank' of' Taiwan,' Ltd.' were' vested' in' the' Government' of' the'
United'States.'Pursuant'to'the'Philippine'Property'Act'of'1946'
of' the' United' States,' these' assets,' including' the' loans' in'
quesJon,' were' subsequently' transferred' to' the' Republic' of'
the'Philippines'by'the'Government'of'the'United'States'under'
Transfer' Agreement' dated' July' 20,' 1954.' These' assets' were'
among' the' properJes' that' were' placed' under' the'
administraJon' of' the' Board' of' Liquidators' created' under'
ExecuJve' Order' No.' 372,' dated' November' 24,' 1950,' and' in'
accordance' with' Republic' Acts' Nos.' 8' and' 477' and' other'
perJnent'laws.'
On' September' 29,' 1954' the' appellee,' Republic' of' the'
Philippines,' represented' by' the' Chairman' of' the' Board' of'
Liquidators,' made' a' wricen' extrajudicial' demand' upon' the'
appellant' for' the' payment' of' the' account' in' quesJon.' The'
record' shows' that' the' appellant' had' actually' received' the'
wricen'demand'for'payment,'but'he'failed'to'pay.'
On' January' 17,' 1961' the' appellee' filed' a' complaint' in' the'
JusJce'of'the'Peace'Court'of'Hinigaran,'Negros'Occidental,'to'
collect' from' the' appellant' the' unpaid' account' in' quesJon.'
The'JusJce'of'the'Peace'Of'Hinigaran,'aber'hearing,'dismissed'
the' case' on' the' ground' that' the' acJon' had' prescribed.' The'
appellee' appealed' to' the' Court' of' First' Instance' of' Negros'
Occidental'and'on'March'26,'1962'the'court'a'quo'rendered'a'
decision' ordering' the' appellant' to' pay' the' appellee' the' sum'
of' P2,377.23' as' of' December' 31,' 1959,' plus' interest' at' the'
rate' of' 6%' per' annum' compounded' quarterly' from' the' date'
The'appellant'was'also'ordered'to'pay'the'sum'equivalent'to'
10%'of'the'amount'due'as'acorney's'fees'and'costs.'
The' appellant' appealed' directly' to' this' Court.' During' the'
pendency' of' this' appeal' the' appellant' Jose' Grijaldo' died.'
Upon' moJon' by' the' Solicitor' General' this' Court,' in' a'
Jacinto' Lagtapon,' Ruben' Lagtapon' and' Anita' L.' Aguilar,' who'
are' the' legal' heirs' of' Jose' Grijaldo' to' appear' and' be'
subsJtuted' as' appellants' in' accordance' with' SecJon' 17' of'
Rule'3'of'the'Rules'of'Court.'
ISSUE:'
Whether'or'not'the'obligaJon'to'pay'is'exJnguished.'
The'appellant'likewise'maintains,'in'support'of'his'contenJon'
that' the' appellee' has' no' cause' of' acJon,' that' because' the'
loans' were' secured' by' a' chacel' mortgage' on' the' standing'
crops' on' a' land' owned' by' him' and' these' crops' were' lost' or'
destroyed' through' enemy' acJon' his' obligaJon' to' pay' the'
loans'was'thereby'exJnguished.'
HELD:'
This' argument' is' untenable.' The' terms' of' the' promissory'
notes'and'the'chacel'mortgage'that'the'appellant'executed'in'
favor'of'the'Bank'of'Taiwan,'Ltd.'do'not'support'the'claim'of'
appellant.' The' obligaJon' of' the' appellant' under' the' five'
promissory' notes' was' not' to' deliver' a' determinate' thing'
namely,'the'crops'to'be'harvested'from'his'land,'or'the'value'
of' the' crops' that' would' be' harvested' from' his' land.' Rather,'
his' obligaJon' was' to' pay' a' generic' thing' —' the' amount' of'
money' represenJng' the' total' sum' of' the' five' loans,' with'
interest.'The'transacJon'between'the'appellant'and'the'Bank'
of'Taiwan,'Ltd.'was'a'series'of'five'contracts'of'simple'loan'of'
sums' of' money.' "By' a' contract' of' (simple)' loan,' one' of' the'
parJes' delivers' to' another' ...' money' or' other' consumable'
thing'upon'the'condiJon'that'the'same'amount'of'the'same'
kind'and'quality'shall'be'paid."'(ArJcle'1933,'Civil'Code)'The'
obligaJon' of' the' appellant' under' the' five' promissory' notes'
evidencing'the'loans'in'quesJons'is'to'pay'the'value'thereof;'
that' is,' to' deliver' a' sum' of' money' —' a' clear' case' of' an'
obligaJon'to'deliver,'a'generic'thing.'ArJcle'1263'of'the'Civil'
Code'provides:'
In'an'obligaJon'to'deliver'a'generic'thing,'the'loss'or'
destrucJon' of' anything' of' the' same' kind' does' not'
exJnguish'the'obligaJon.'
The' chacel' mortgage' on' the' crops' growing' on' appellant's'
land' simply' stood' as' a' security' for' the' fulfillment' of'
appellant's' obligaJon' covered' by' the' five' promissory' notes,'
and'the'loss'of'the'crops'did'not'exJnguish'his'obligaJon'to'
pay,' because' the' account' could' sJll' be' paid' from' other'
sources'aside'from'the'mortgaged'crops.'
Frias'vs'San'Diego1Sison'
G.R.'No.'155223'''April'4,'2007'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''1'

Facts'
• PeJJoner' is' the' owner' of' a' house' and' lot' in' Ayala'
Alabang.'
• PeJJoner' and' Dra.' Flora' San' Diego1Sison' (Respondent)'
entered'into'a'Memorandum'of'Agreement'(MOA)'over'
the'cited'property'with'the'following'terms:'
1. The'land'is'to'be'sold'for'P'6.4'million.'
2. PeJJoner' will' receive' P3' million' from'
respondent'as'downpayment.'''
3. In'light'of'the'downpayment,'respondent'had'6'
months' (1st)' to' noJfy' the' PeJJoner' of' her'
intenJon' to' purchase' the' land.' However,' the'
balance'is'to'be'paid'within'another'6'months.'
4. Prior'to'the'first'six'months,'the'PeJJoner'may'
sJll' offer' the' cited' land' to' other' persons'
provided'that'the'P3'million'downpayment'shall'
be' returned' to' the' Respondent' including'
interest' based' on' prevailing' compounded' bank'
interest.'
5. Nevertheless,'in'case'there'are'no'other'buyers'
within' the' first' 6' months,' no' interest' shall' be'
charged'on'the'P3'million.'''
6. However,' in' the' event' that' on' the' 6th' month'
the'Respondent'does'not'purchase'the'land,'the'
PeJJoner' has' a' period' of' another' 6' months'
(2nd)'within'which'to'pay'the'sum'of'P3'million'
with' interest' for' the' last' six' months' only.' The'
downpayment' shall' be' treated' as' loan' granted'
by'the'Respondent.'
• PeJJoner' received' from' Respondent' P2' million' in' cash'
and' P1' million' in' a' post1dated' check' which' was'
subsequently' considered' as' stale.' ' Therefore,' only' P2'
million'was'received'as'downpayment.''
• Before' the' check' became' stale,' PeJJoner' gave'
Respondent' the' TCT' and' the' Deed' of' Absolute' Sale' of'
the'land.'
• Subsequently,' Respondent' decided' not' to' purchase' the'
property' and' noJfied' PeJJoner' of' this' reminding' the'
lacer' that' the' amount' of' P2' million' should' be'
considered' as' a' loan' payable' within' six' months' as'
sJpulated'in'the'MOA'with'interest'computed'from'such'
noJficaJon.''
• PeJJoner' subsequently' failed' to' return' the' P2' million'
pesos.''
• CA'ruled'that'the'P2'million'downpayment'shall'include'
interest'computed'at'the'Jme'the'disputed'amount'was'
considered'a'loan.'Thus,'this'peJJon.''
Issue:'
Whether' or' not' the' interest' should' be' limited' to' the' 1st' six'
months'as'contained'in'the'MOA?''
Ruling:'
No.'SC'ruled'in'favour'of'Respondent.''
• The' SC' opined' that' if' the' terms' of' an' agreement' are'
clear' and' leave' no' doubt' as' to' the' intenJon' of' the'
contracJng'parJes,'the'literal'meaning'of'its'sJpulaJons'
shall'prevail.'
• It' is' further' required' that' the' various' sJpulaJons' of' a'
contract'shall'be'interpreted'together.'
• In' this' case,' the' phrase' "for' the' last' six' months' only"'
should'be'taken'in'the'context'of'the'enJre'agreement.'
• The'MOA'speaks'of'2'periods'of'six'months'each.''
o The'1st'six1months'was'given'to'Respondent'to'
make' up' her' mind' whether' or' not' to' purchase'
PeJJoner's'property.''
o The' 2nd' six1months' was' given' to' PeJJoner' to'
pay' the' P2' million' loan' (downpayment)' in' the'
event' that' Respondent' decided' not' to' buy' the'
property' in' which' case' interest' will' be' charged'
"for' the' last' six' months' only",' referring' to' the'
2nd'six1month'period.''
o This' means' that' no' interest' will' be' charged' for'
the' 1st' six1months' while' Respondent'
contemplaJng'on'whether'to'buy'the'property,'
but' only' for' the' 2 nd' six1months' aber'
Respondent' had' decided' not' to' buy' the'
property.'This'is'the'meaning'of'the'phrase'"for'
the'last'six'months'only".''
o Certainly,' there' is' nothing' in' their' agreement'
that'suggests'that'interest'will'be'charged'for'6'
months'only'even'if'it'takes'defendant1appellant'
an'eternity'to'pay'the'loan'
• This' does' NOT' mean' that' interest' will' no' longer' be'
charged' aber' the' 2nd' six1month' period' since' such'
sJpulaJon' was' made' on' the' logical' and' reasonable'
expectaJon'that'such'amount'would'be'paid'within'the'
date'sJpulated.'Therefore,'the'monetary'interest'for'the'
last' 6' months' conJnued' to' accrue' unJl' actual' payment'
of'the'loaned'amount.''
• It' has' been' held' that' for' a' debtor' to' conJnue' in'
possession'of'the'principal'of'the'loan'and'to'conJnue'to'
use'the'same'aber'maturity'of'the'loan'without'payment'
of' the' monetary' interest,' would' consJtute' unjust'
enrichment'on'the'part'of'the'debtor'at'the'expense'of'
the'creditor.'
Art.'1956.'No'interest'shall'be'due'when'not'expressly'
sJpulated'in'wriJng.'
ARWOOD'INDUSTRIES,'INC.'vs.'D.M.'Consunji,'Inc.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''2'
FACTS:' PeJJoner' and' respondent,' as' owner' and' contractor,'
respecJvely' entered' into' an' Agreement' for' the' construcJon'
of' peJJoner’s' condominium.' Despite' the' compleJon' of' the'
project,' peJJoner' was' not' able' to' pay' respondent' the' full'
amount' and' leb' a' balance.' Repeated' demands' were' leb'
unheeded' prompJng' respondent' to' file' a' civil' case' against'
peJJoner,' with' a' prayer' among' others' that' the' full' amount'
be'paid'with'interest'of'2%'per'month,'from'Nov.'1990'up'to'
the' Jme' of' payment.' RTC' ruled' in' favor' of' respondent.'
PeJJoner' appealed' to' the' CA,' parJcularly' opposing' the'
imposiJon'of'the'2%'interest.'The'CA'ruled'in'favor'of'the'2%'
interest.'
PeJJoner’s' contenJon1' The' imposiJon' of' the' interest' is'
without' basis' because' (1)' although' it' was' wricen' in' the'
Agreement,' it' was' not' menJoned' by' the' RTC' in' the'
disposiJve'porJon'and'(2)'the'interest'does'not'apply'to'the'
respondent’s'claim'but'to'the'“monthly'progress'billing”.''
ISSUE:' WON' the' RTC' and' Ca' is' correct' in' imposing' a' 2%' per'
month'interest'on'the'monetary'award'or'the'balance'of'the'
contract'price.'
HELD:'Yes.'The'Agreement'between'the'parJes'is'the'formal'
expression' of' the' parJes’' rights,' duJes' and' obligaJons.' It' is'
the' best' evidence' of' the' intenJon' of' the' parJes.'
Consequently,' upon' the' fulfillment' by' respondent' of' its'
obligaJon' to' complete' the' construcJon' project,' peJJoner'
had' the' correlaJve' duty' to' pay' for' respondent’s' services.'
However,' peJJoner' refused' to' pay' the' balance' of' the'
contract'price.'From'the'moment'respondent'completed'the'
construcJon' of' the' condominium' project' and' peJJoner'
refused' to' pay' in' full,' there' was' delay' on' the' part' of'
peJJoner.''
Delay'in'the'performance'of'an'obligaJon'is'looked'upon'with'
disfavor'because,'when'a'party'to'a'contract'incurs'delay,'the'
other'party'who'performs'his'part'of'the'contract'suffers'
damages'thereby.'Obviously,'respondent'suffered'damages'
brought'about'by'the'failure'of'peJJoner'to'comply'with'its'
obligaJon'on'Jme.''And,'sans'elaboraJon'of'the'macer'at'
hand,'damages'take'the'form'of'interest.''Accordingly,'the'
appropriate'measure'of'damages'in'this'case'is'the'payment'
of'interest'at'the'rate'agreed'upon,'which'is'2%'interest'for'
every'month'of'delay.'
It'must'be'noted'that'the'Agreement'provided'the'contractor,'
respondent'in'this'case,'two'opJons'in'case'of'delay'in'
monthly'payments,'to'wit:'a)'suspend'work'on'the'project'
unJl'payment'is'remiced'by'the'owner'or'b)'conJnue'the'
work'but'the'owner'shall'be'required'to'pay'interest'at'a'rate'
of'two'percent'(2%)'per'month'or'a'fracJon'thereof.''
Evidently,'respondent'chose'the'lacer'opJon,'as'the'
condominium'project'was'in'fact'already'completed.''The'
payment'of'the'2%'monthly'interest,'therefore,'cannot'be'
jersoned'overboard.'
Since'the'Agreement'stands'as'the'law'between'the'parJes,'
this'Court'cannot'ignore'the'existence'of'such'provision'
providing'for'a'penalty'for'every'month’s'delay.''Facta'legem'
facunt'inter'partes.'Neither'can'peJJoner'impugn'the'
Agreement'to'which'it'willingly'gave'its'consent.''From'the'
moment'peJJoner'gave'its'consent,'it'was'bound'not'only'to'
fulfill'what'was'expressly'sJpulated'in'the'Agreement'but'also'
all'the'consequences'which,'according'to'their'nature,'may'be'
in'keeping'with'good'faith,'usage'and'law.'PeJJoner’s'
acempt'to'miJgate'its'liability'to'respondent'should'thus'fail.'
As'a'last1ditch'effort'to'evade'liability,'peJJoner'argues'that'
the'amount'of'P962,434.78'claimed'by'respondent'and'later'
awarded'by'the'lower'courts'does'not'refer'to'“monthly'
progress'billings,”'the'delayed'payment'of'which'would'earn'
interest'at'2%'per'month.'
PeJJoner'appears'confused'by'a'semanJcs'problem.''
“Monthly'progress'billings”'certainly'form'part'of'the'contract'
price.''If'the'amount'claimed'by'respondent'is'not'the'
“monthly'progress'billings”'provided'in'the'contract,'what'
then'does'such'amount'represent?'PeJJoner'has'not'in'point'
of'fact'convincingly'supplied'an'answer'to'this'query.''Neither'
has'peJJoner'shown'any'effort'to'clarify'the'meaning'of'
“monthly'progress'billings”'to'support'its'posiJon.''This'
leaves'us'no'choice'but'to'agree'with'respondent'that'the'
phrase'“monthly'progress'billings”'refers'to'a'porJon'of'the'
contract'price'payable'by'the'owner'(peJJoner)'of'the'
project'to'the'contractor'(respondent)'based'on'the'
percentage'of'compleJon'of'the'project'or'on'work'
accomplished'at'a'parJcular'stage.''It'refers'to'that'porJon'of'
the'contract'price'sJll'to'be'paid'as'work'progresses,'aber'the'
downpayment'is'made.”'
This'definiJon'is,'indeed,'not'without'basis.''ArJcles'6.02'and'
6.03'of'the'Agreement,'which'respecJvely'provides'that'the'
“(b)alance'shall'be'paid'in'monthly'progress'payments'based'
on'actual'value'of'the'work'accomplished”'and'that'“the'
progress'payments'shall'be'reduced'by'a'porJon'of'the'
downpayment'made'by'the'OWNER'corresponding'to'the'
value'of'the'work'completed”'give'sense'to'respondent’s'
interpretaJon'of'“monthly'progress'billings.”'
SONCUYA'V.'AZARRAGA'
ROYAL'SHIRT'FACTORY,'INC.'v'CO'
FACTS:'
- The'parJes'entered'into'a'contract'wherein'it'is'
sJpulated'that'350'pairs'of'ballet'shoes'will'be'sold'
by'Co'and'that'Co'had'9'days'from'delivery'of'the'
shoes'to'make'his'choice'of'2'alternaJves:'a)'
consider'the'sale'for'the'shoes'closed'at'a'flat'rate,'
or'b)'return'the'remaining'unsold'ones'to'Royal.'
- Co'failed'to'return'the'unsold'pairs'aber'9'days'and'
actually'began'making'parJal'payments'on'account'
of'the'purchase'price'agreed'upon.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''3'
 - Co'then'contended'that'there'was'merely'a'
consignment'of'the'goods'and'he'wanted'to'return'
the'unsold'shoes.'Royal'refused'contending'that'it'
was'an'outright'sale.'
ISSUE:'WoN'the'sale'was'an'outright'sale'/'WoN'Co'is'bound'
by'the'interest'sJpulated'in'the'invoice.'
SC:'YES!'/'NO!'
- OUTRIGHT'SALE'
o Co'accepted'the'invoice'of'the'ballet'shoes'
and'he'even'noted'down'in'his'own'
handwriJng'the'parJal'payments'that'he'
made.'
o If'the'sale'has'been'on'consignment,'a'
sJpulaJon'as'to'the'period'of'Jme'for'the'
return'of'the'unsold'shoes'should'have'
been'made,'however,'this'was'not'done'
- NOT'BOUND'BY'THE'INTEREST'
o He'did'not'sign'the'invoice'slip'the'
sJpulated'interest'was'20%,'hence,'not'
binding''
o However,'he'is'bound'by'the'legal'interest'
of'6%'
- Hence,'Co'was'ordered'to'pay'the'balance'of'the'
purchase'price'for'the'ballet'shoes'+'legal'interest'
EMERITO'M.'RAMOS,'et'al.,'peJJoners,'
 by'Stock'CerJficate'Nos.'128'and'139.'''
vs.
 •
CENTRAL'BANK'OF'THE'PHILIPPINES,'respondents;'
COMMERCIAL'BANK'OF'MANILA,'intervenor.'
Facts:'This'involves'quesJon'as'to'applicability'of'Tapia'ruling'
wherein'the'Court'held'that'"the'obligaJon'to'pay'interest'on'
the'deposit'ceases'the'moment'the'operaJon'of'the'bank'is'
completely'suspended'by'the'duly'consJtuted'authority,'the'
Central'Bank,"'to'loans'and'advances'by'the'Central'Bank'
Held:'Respondents'have'failed'to'adduce'any'cogent'
argument'to'persuade'the'Court'to'reconsider'its'ResoluJon'
at'bar'that'the'Tapia'ruling'is'fully'applicable'to'the'non1
payment'of'interest,'during'the'period'of'the'bank's'forcible'
closure,'on'loans'and'advances'made'by'respondent'Central'
Bank.'
Respondent'Central'Bank'itself'when'it'was'then'managing'
the'Overseas'Bank'of'Manila'(now'Commercial'Bank'of'
Manila)'under'a'holding'trust'agreement,'held'the'same'
posiJon'in'Idelfonso'D.'Yap'vs.'OBM'wherein'it'argued'that'
"(I)n'a'suit'against'the'receiver'of'a'naJonal'bank'for'money'
loaned'to'the'Bank'while'it'was'a'going'concern,'it'was'error'
to'permit'plainJff'to'recover'interest'on'the'loan'aber'the'
bank's'suspension"'
A'significant'development'of'the'case,'the'Government'
Service'Insurance'System'(GSIS)'has'acquired'ownership'of'
99.93%'of'the'outstanding'capital'stock'of'COMBANK.'The'
Court's'ResoluJon'manifestly'redounds'to'the'benefit'of'
another'government'insJtuJon,'the'GSIS,'and'to'the'
preservaJon'of'the'banking'system.'
LIRAG'TEXTILE'MILLS,'INC.'VS.'SSS'
153'SCRA'338'
Facts:'
• SSS' (respondent)' and' Lirag' TexJle' Mills' (PeJJoner)'
entered'into'a'Purchased'Agreement'which'Respondent'
agreed'to'purchase'preferred'stocks'of'PeJJoner'worth'
P1'million'subject'to'condiJons:'
o For' PeJJoner' to' repurchase' the' shares' of'
stocks'at'a'regular'interval'of'one'year'and'
to'pay'dividends.''
o Failure'to'redeem'and'pay'the'dividend,'the'
enJre' obligaJon' shall' become' due' and'
demandable' and' it' shall' be' liable' for' an'
amount' equivalent' to' 12%' of' the' amount'
then'outstanding'as'liquidated'damages.'
• Basilio' Lirag' (Basilio)' as' President' of' Lirag' TexJle' Mills'
signed' the' Agreement' as' a' surety' to' guarantee' the'
redempJon'of'the'stocks,'the'payment'of'dividends'and'
other'obligaJons.''
• Pursuant' to' the' Agreement,' Respondent' paid' PeJJoner'
P500,000' on' two' occasions' and' the' lacer' issued' 5,000'
preferred' stocks' with' a' par' value' of' P100' as' evidenced'
Aber' sending' Respondent' sent' demand' lecers,'
PeJJoner'and'Basilio'sJll'made'no'redempJon'nor'made'
dividend'payments.'
• Respondent'filed'an'acJon'for'specific'performance'and'
damages'against'PeJJoner:'
• PeJJoner' contends' that' there' is' no' obligaJon' on' their'
part'to'redeem'the'stock'cerJficates'since'Respondent'is'
sJll' a' preferred' stock' holder' of' the' company' and' such'
redempJon'is'dependent'upon'the'financial'ability'of'the'
company.'
• On'the'part'of'Basilio,'he'contends'that'his'liability'only'
arises'only'if'the'company'is'liable'and'does'not'perform'
its'obligaJons'under'the'Agreement.'
Issue:''
1) Whether' or' not' the' Purchase' Agreement' entered'
into'by'the'ParJes'is'a'debt'instrument?'
2) If'so,'Is'Basilio'liable'as'surety?'
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 3) Whether' or' not' Lirag' is' liable' for' the' interest' as'
liquidated'damages?'
Held:''
1) YES,' the' Purchase' Agreement' is' a' debt' instrument.' The'
terms' and' condiJons' of' the' Agreement' show' that'
parJes' intended' the' repurchase' of' preferred' shares' on'
the' respecJve' scheduled' dates' to' be' an' absolute'
obligaJon,' which' does' not' depend' on' the' financial'
ability'of'the'corporaJon.'
o This'absolute'obligaJon'on'the'part'of'the'PeJJoner'
corporaJon' is' made' manifest' by' the' fact' that' a'
surety'was'required'to'see'to'it'that'the'obligaJon'is'
fulfilled' in' the' event' the' principal' debtor’s' inability'
to'do'so.'
o It'cannot'be'said'that'SSS'is'a'preferred'stockholder.'
The' rights' given' by' the' Purchase' Agreement' to' SSS'
are' not' rights' enjoyed' by' ordinary' stockholders.'
Since' there' was' a' condiJon' that' failure' to'
repurchase' the' stocks' on' the' scheduled' dates'
renders' the' enJre' obligaJon' due' and' demandable'
with' interest.' ' These' features' clearly' show' that'
intent' of' the' parJes' to' be' bound' therein' as' debtor'
and' creditor' and' not' as' a' corporaJon' and'
stockholder.''
2) YES,' Basilio' is' liable' as' surety.' Thus' it' follows' that' he'
cannot' deny' liability' for' Lirag’s' default.' As' surety,' he' is'
bound' immediately' to' pay' SSS' the' amount' then'
outstanding.'
3) The'award'of'liquidated'damages'represented'by'12%'of'
the'amount'then'outstanding'is'correct,'considering'that'
the'peJJoners'in'the'sJpulaJon'of'facts'admiced'having'
failed' to' fulfill' their' obligaJons' under' the' Agreement.'
The'grant'of'liquidated'damages'is'expressly'provided'for'
the'Purchase'Agreement'in'case'of'contractual'breach.''
Since' Lirag' did' not' deny' its' failure' to' redeem' the'
preferred' shares' and' the' non1payment' of' dividends'
which'are'overdue,'they'are'bound'to'earn'legal'interest'
from' the' Jme' of' demand,' in' this' case,' judicial' i.e.' the'
Jme'of'filing'the'acJon.'
ANGEL'WAREHOUSING'vs'CHELDA'
Facts:'' ' Angel' Warehousing' sued' Chelda' for' the'
recovery' of' unpaid' loans' amounJng' to' P20,880' because' the'
post'dated'checks'issued'by'Chelda'were'dishonored.'Chelda'
said'that'Angel'Warehousing'charged'usurious'interests,'thus'
they'have'no'cause'of'acJon'against'them'&'can’t'recover'the'
remaining'balance.''
Issue:' ' W/N'illegal'terms'as'to'payment'of'interest'
likewise'renders'a'nullity'the'legal'terms'as'to'the'payment'of'
the'principal'debt?'
Ruling:'' No.' The' contract' of' loan' with' usurious' interest'
consists' of' principal' and' accessory' sJpulaJons' and' the' two'
sJpulaJons' are' divisible' in' the' sense' that' the' principal' debt'
can'stand'without'the'usurious'interest'(accessory).'These'are'
divisible' contracts.' In' divisible' contracts,' if' the' illegal' terms'
can'be'separated'from'legal'ones,'the'lacer'may'be'enforced.'
Illegality' lies' only' as' to' the' prestaJon' to' pay' interest,' being'
separable,'thus'should'be'rendered'void.'If'the'principal'will'
be' forfeited' this' would' unjustly' enrich' the' borrower' at' the'
expense'of'the'lender.'
CU1UNJIENG'V.'MABALACAT'


Facts:'Cu'Unjieng'e'Hijos'loaned'Mabalacat'163'k,'for'security,'
Mabalacat'mortgaged'its'property.

Mabalacat' failed' to' pay,' but' Cu' Unjieng' extended' the'
payment.' Cu' Unjieng' filed' a' case' against' Mabalacat' for'
foreclosure'of'property'and'payment'of'acorney's'fees.'It'also'
claims' interest' over' interest.' Mabalacat' insisted' that' the''
agreement'for'the'extension'of'the'Jme'of'payment'had'the'
effect' of' abrogaJng' the' sJpulaJon' of' the' original' contract'
with'respect'to'the'acceleraJon'of'the'maturity'of'the'debt'by'
non1compliance' with' the' terms' of' the' mortgage.' The' issue'
related'on'this'case'is'the'interest'over'interest.



Issue:'WoN'Cu1Unjieng'is'enJtled'to'interest'over'interest.

Ruling:' It' is' well' secled' that,' under' arJcle' 1109' of' the' Civil'
Code,' as' well' as' under' secJon' 5' of' the' Usury' Law' (Act' No.'
2655),' the' parJes' may' sJpulate' that' interest' shall' be'
compounded;' and' rests' for' the' computaJon' of' compound'
interest' can' certainly' be' made' monthly,' as' well' as' quarterly,'
semiannually,' or' annually.' But' in' the' absence' of' express'
sJpulaJon' for' the' accumulaJon' of' compound' interest,' no'
interest' can' be' collected' upon' interest' unJl' the' debt' is'
judicially' claimed,' and' then' the' rate' at' which' interest' upon'
accrued'interest'must'be'computed'is'fixed'at'6'per'cent'per'
annum.' In' this' case,' there' was' no' compound' interest' in' the'
agreement.'
DAVID'vs.'CA'
G.R.No.'115821,''October'13,'1999'
Facts:'
' A'writ'of'acachment'over'the'real'properJes'owned'
by' ValenJn' Afable,' Jr..' RTC' ordered' Afable,' Jr.' To' pay' David'
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P66,500'plus'interest'from'July'24,'1974,'unJl'fully'paid.''RTC'
amended' its' decison' and' ruled' that' legal' rate' of' interest'
should' be' computed' from' January' 4,' 1966,' instead' of' from' Topic:'Simple'Loan'or'Mutuum;'ArJcle'1960'
July'24,'1974.''
' Afable'appealed'to'the'Court'of'Appeals'and'then'to' Velez'v.'Balzarra'
the' Supreme' Court.' ' In' both' instances,' the' decision' of' the'
lower' court' was' affirmed.' ' Entries' of' judgment' were' made'
and'the'record'of'the'case'was'remanded'to'Branch'27'for'the'
final'execuJon.' FACTS:'

An' Alias' Writ' of' ExecuJon' was' issued' by' virtue' of' • PlainJff' Velez' filed' a' complaint' for' the' return' of'
which'respondent'Sheriff'Melchor'P.'Peña'conducted'a'public' parcels' of' land' sold' by' Defendant' to' PlainJff’s'
aucJon.' ' Sheriff' Peña' informed' the' peJJoner' that' the' total' husband.' She' further' alleged' that' defendants' had'
amount' of' the' judgment' is' P270,940.52.' ' The' amount' remained'in'possession'of'said'land'under'Contract'
included'a'computaJon'of'simple'interest.' 'Afable,'however,' of' Lease' but' for' over' 2' years' defendants' had' not'
claimed' that' the' judgment' award' should' be' P3,027,238.50,' paid'the'agreed'rentals.'
because'the'amount'due'ought'to'be'based'on'compounded'
interest.' • Defendant' alleged' that' the' real' agreement' was' a'
loan'secured'by'a'mortgage'of'those'lands.'
' Although' the' aucJoned' properJes' were' sold' to' the'
peJJoner,' Sheriff' Peña' did' not' issue' the' CerJficate' of' Sale' • Trial' court' found' that' the' payments' made' by'
because'there'was'an'excess'in'the'bid'price'in'the'amount'of' defendants'were'not'made'by'way'of'interest'but'as'
P2,941,524.47,' which' the' peJJoner' failed' to' pay' despite' payments' for' the' principal.' Defendant' overpaid'
noJce.' David' filed' a' MoJon' praying' that' respondent' Judge' therefore'PlainJff'should'return'excess.'
Cruz' issue' an' order' direcJng' respondent' Sheriff' Peña' to'
prepare' and' execute' a' cerJficate' of' sale' in' his' favor.' His'
reason'is'that'compound'interest,'which'is'allowed'by'ArJcle'
ISSUE:'Whether'payments'were'intended'to'be'applied'to'the'
2212'of'the'Civil'Code,'should'apply'in'this'case.'
principal'OR'were'considered'as'rents,'interests?'
' David'claim'that'in'compuJng'the'interest'due'of'the'
P66,500.00,' interest' should' be' computed' at' 6%' on' the'
principal' sum' of' P66,500.00' pursuant' to' ArJcle' 2209' and'
HELD:'
then'“interest'on'the'legal'interest”'should'also'be'computed'
in' accordance' with' the' language' of' ArJcle' 2212' of' the' Civil' • Payments'were'NOT'rents,'interests'
Code.'
• Neri' took' possession' of' land' and' collected' fruits.'
Issue:'Whether'or'not'the'amount'due'should'be'subject'to'a' The'creditor'having'enjoyed'the'beneficial'use'of'the'
simple'interest'or'compounded'interest.' lands'delivered'as'security'for'the'loan,'it'appears'to'
have' been' the' intenJon' of' the' parJes' that' the'
Ruling:'
creditor'should'be'compensated'thereby.'
In' cases' where' no' interest' sJpulated,' no' compounded'
• Though' receipts,' payments' are' called' rents,' they'
interest'could'be'further'earned'
were' prepared' by' Neri' (P’s' husband)' and' PlainJff,'
The' Court' ruled' that' ArJcle' 2212' contemplates' the' and' defendants' in' their' ignorance' did' not' look' into'
presence' of' sJpulated' or' convenJonal' interest' which' has' the' wording,' being' merely' saJsfied' that' they' were'
accrued' when' demand' was' judicially' made.' ' In' cases' where' proofs'of'payment.'
no'interest'had'been'sJpulated'by'the'parJes,'as'in'the'case'
of' Philippine' American' Accident' Insurance,' no' accrued' • The' liability' of' plainJff' to' return' the' excess'
convenJonal'interest'could'further'earn'interest'upon'judicial' payments' is' in' keeping' with' ArJcle' 1895' (Old' Civil'
demand.' Code)' which' provides' that,' “when' something' is'
received'which'there'is'no'right'to'collect,'and'which'
In'this'case,'no'interest'was'sJpulated'by'the'parJes.'
by'mistake'has'been'unduly'delivered,'the'obligaJon'
In' the' promissory' note' denominated' “Compromise'
to'restore'it'arises.”'
Agreement”'signed'by'the'Afable,'Jr.'which'was'duly'accepted'
by'the'David'no'interest'was'menJoned.''That'being'the'case,'
the'interest'should'only'be'subject'to'a'simple'interest.'
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 • The'2'requisites'are'present:'1)'There'is'no'right'to'
collect'these'excess'sums;'and'2)'the'amounts'have'
been' paid' through' mistake' by' defendants.' Such'
mistake' is' shown' by' the' fact' that' their' contracts'
never' intended' that' either' rents' or' interest' should'
be' paid,' and' by' the' further' fact' that' when' these'
payments' were' made,' they' were' intended' by'
defendants' to' be' applied' to' the' principal,' but' they'
overpaid'the'amounts'loaned'to'them.'
USURY'LAW'
G.R.'No.'128990'''''''September'21,'2000'
INVESTORS'FINANCE'CORPORATION,'peJJoner,
vs.
 implement'the'"IPP"'transacJon:'
AUTOWORLD'SALES'CORPORATION,'and'PIO'BARRETTO'
REALTY'DEVELOPMENT'
CORPORATION,respondents.'
FACTS:'
PeJJoner'Investors'Finance'CorporaJon,'then'known'also'as'
FNCB' Finance' (now' doing' business' under' the' name' of'
Citytrust' Finance' CorporaJon),' is' a' financing' company' doing'
business' with' private' respondent' Autoworld' Sales'
CorporaJon' (AUTOWORLD)' since' 1975.' Anthony' Que,'
president'of'AUTOWORLD,'also'held'the'same'posiJon'at'its'
affiliate' corporaJon,' private' respondent' Pio' Barreco' Realty'
CorporaJon'(BARRETTO).'
SomeJme' in' August' 1980' Anthony' Que,' in' behalf' of'
AUTOWORLD,' applied' for' a' direct' loan' with' FNCB.' However,'
since' the' Usury' Law' imposed' an' interest' rate' ceiling' at' that'
Jme,'FNCB'informed'Anthony'Que'that'it'was'not'engaged'in'
direct'lending;'consequently,'AUTOWORLD's'request'for'loan'
was'denied.'
But'someJme'thereaber,'FNCB's'Assistant'Vice'President,'Mr.'
Leoncio'Araullo,'informed'Anthony'Que'that'although'it'could'
not' grant' direct' loans' it' could' extend' funds' to' AUTOWORLD'
by'purchasing'any'of'its'outstanding'receivables'at'a'discount.'
Aber'a'series'of'negoJaJons'the'parJes'agreed'to'execute'an'
Installment' Paper' Purchase' ("IPP")' transacJon' to' enable'
AUTOWORLD'to'acquire'the'addiJonal'capital'it'needed.'The'
mechanics'of'the'proposed'"IPP"'transacJon'was'—'
(1)' First,' Pio' Barreco' (BARRETTO)' would' execute' a'
Contract' to' Sell' a' parcel' of' land' in' favor' of'
AUTOWORLD' for' P12,999,999.60' payable' in' sixty'
(60)' equal' monthly' installments' of' P216,666.66.'
C o n s e q u e n t l y,' B A R R E T TO' w o u l d' a c q u i r e'
P12,999,999.60' worth' of' receivables' from'
AUTOWORLD;'
(2)'FNCB'would'then'purchase'the'receivables'worth'
P12,999,999.60' from' BARRETTO' at' a' discounted'
value'of'P6,980,000.00'subject'to'the'condiJon'that'
such' amount' would' be' "flowed' back"' to'
AUTOWORLD;'
(3)' BARRETTO,' would' in' turn,' execute' a' Deed' of'
Assignment'(in'favor'of'FNCB)'obliging'AUTOWORLD'
to' pay' the' installments' of' the' P12,999,999.60'
purchase'price'directly'to'FNCB;'and'
(4)' Lastly,' to' secure' the' payment' of' the' receivables'
under' the' Deed' of' Assignment,' BARRETTO' would'
mortgage'the'property'subject'of'the'sale'to'FNCB.'
On' 17' November' 1980' FNCB' informed' AUTOWORLD' that' its'
ExecuJve' Commicee' approved' the' proposed' "IPP"'
transacJon.' The' lawyers' of' FNCB' then' drabed' the' contracts'
needed'and'furnished'Anthony'Que'with'copies'thereof.'
On'9'February'1981'the'parJes'signed'three'(3)'contracts'to'
(1)'Contract'to'Sell'whereby'BARRETTO'sold'a'parcel'
of' land' to' AUTOWORLD,' situated' in' San' Miguel,'
Manila,' together' with' the' improvements' thereon,'
covered' by' TCT' No.' 129763' for' the' price' of'
P12,999,999.60'payable'in'sixty'(60)'consecuJve'and'
equal'monthly'installments'of'P216,666.66.'
(2)'Deed'of'Assignment'whereby'BARRETTO'assigned'
and' sold' in' favor' of' FNCB' all' its' rights,' Jtle' and'
interest' to' all' the' money' and' other' receivables' due'
from' AUTOWORLD' under' the' Contract' to' Sell,'
subject'to'the'condiJon'that'the'assignee'(FNCB)'has'
the' right' of' recourse' against' the' assignor'
(BARRET TO)' in' the' event' that' the' payor'
(AUTOWORLD)' defaulted' in' the' payment' of' its'
obligaJons.'
(3)' Real' Estate' Mortgage' whereby' BARRETTO,' as'
assignor,' mortgaged' the' property' subject' of' the'
Contract' to' Sell' to' FNCB' as' security' for' payment' of'
its'obligaJon'under'the'Deed'of'Assignment.'
Aber' the' three' (3)' contracts' were' concluded' AUTOWORLD'
started'paying'the'monthly'installments'to'FNCB.'
On'18'June'1982'AUTOWORLD'transacted'with'FNCB'for'the'
second' Jme' obtaining' a' loan' of' P3,000,000.00' with' an'
effecJve' interest' rate' of' 28%' per' annum.' AUTOWORLD' and'
BARRETTO,' as' co1makers,' then' signed' a' promissory' note' in'
favor' of' FNCB' worth' P5,604,480.00' payable' in' sixty' (60)'
consecuJve' monthly' installments' of' P93,408.00.' To' secure'
the' promissory' note,' AUTOWORLD' mortgaged' a' parcel' of'
land' located' in' Sampaloc,' Manila,' to' FNCB.' Thereaber,'
AUTOWORLD'began'paying'the'installments.'
In' December' 1982,' aber' paying' nineteen' (19)' monthly'
installments' of' P216,666.66' on' the' first' transacJon' ("IPP"'
worth' P6,980,000.00)' and' three' (3)' monthly' installments' of'
P93,408.00' on' the' second' transacJon' (loan' worth'
P3,000,000.00),' AUTOWORLD' advised' FNCB' that' it' intended'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''7'
to' preterminate' the' two' (2)' transacJons' by' paying' their'
outstanding' balances' in' full.' It' then' requested' FNCB' to'
provide'a'computaJon'of'the'remaining'balances.'FNCB'sent'
AUTOWORLD' its' computaJon' requiring' it' to' pay' a' total'
amount' of' P10,026,736.78,' where' P6,784,551.24' was' the'
amount'to'secle'the'first'transacJon'while'P3,242,165.54'was'
the'amount'to'secle'the'second'transacJon.'
On' 20' December' 1982' AUTOWORLD' wrote' FNCB' that' it'
disagreed' with' the' lacer's' computaJon' of' its' outstanding'
balances.' On' 27' December' 1982' FNCB' replied' that' it' would'
only' be' willing' to' reconcile' its' accounJng' records' with'
A U T O W O R L D' u p o n' p a y m e n t' o f' t h e' a m o u n t s'
demanded.' Thus,' despite' its' objecJons,' AUTOWORLD'
reluctantly' paid' FNCB' P10,026,736.78' through' its' UCPB'
account.'
On'5'January'1983'AUTOWORLD'asked'FNCB'for'a'refund'of'
i t s' o v e r p a y m e n t s' i n' t h e' t o t a l' a m o u n t' o f'
P3,082,021.84.' According' to' AUTOWORLD,' it' overpaid'
P2,586,035.44'to'secle'the'first'transacJon'and'P418,262.00'
to'secle'the'second'transacJon.'
The' parJes' acempted' to' reconcile' their' accounJng' figures'
but' the' subsequent' negoJaJons' broke' down' prompJng'
AUTOWORLD'to'file'an'acJon'before'the'Regional'Trial'Court'
of' MakaJ' to' annul' the' Contract' to' Sell,' the' Deed' of'
Assignment' and' the' Real' Estate' Mortgage' all' dated' 9'
February' 1981.' It' likewise' prayed' for' the' nullificaJon' of'
thePromissory' Note' dated' 18' June' 1982' and' the' Real' Estate'
Mortgage'dated'24'June'1982.'
I n' i t s' co m p l a i nt ,' AU TOWO R L D' a l l e ge d' t h at' t h e'
aforemenJoned' contracts' were' only' perfected' to' facilitate' a'
usurious'loan'and'therefore'should'be'annulled'
FNCB'argued'that'the'contracts'dated'9'February'1981'were'
not' executed' to' hide' a' usurious' loan.' Instead,' the' parJes'
entered' into' a' legiJmate' Installment' Paper' Purchase' ("IPP")'
transacJon,' or' purchase' of' receivables' at' a' discount,' which'
FNCB' could' legally' engage' in' as' a' financing' company.' With'
regard'to'the'second'transacJon,'the'existence'of'a'usurious'
interest'rate'had'no'bearing'on'the'P3,000,000.00'loan'since'
at'the'Jme'it'was'perfected'on'18'January'1982'Central'Bank'
Circular'No.'871'dated'21'July'1981'had'effecJvely'libed'the'
ceiling' rates' for' loans' having' a' period' of' more' than' three'
hundred'sixty1five'(365)'days.''
On' 11' July' 1988' the' Regional' Trial' Court' of' MakaJ' ruled' in'
favor' of' FNCB' declaring' that' the' parJes' voluntarily' and'
knowingly' executed' a' legiJmate' "IPP"' transacJon' or' the'
discounJng' of' receivables.' AUTOWORLD' was' not' enJtled' to'
any'reimbursement'since'it'was'unable'to'prove'the'existence'
of'a'usurious'loan.'
The'Court'of'Appeals'modified'the'decision'of'the'trial'court'
and' concluded' that' the' "IPP"' transacJon,' comprising' of' the'
three'(3)'contracts'perfected'on'9'February'1981,'was'merely'
a'scheme'employed'by'the'parJes'to'disguise'a'usurious'loan.'
It'ordered'the'annulment'of'the'contracts'and'required'FNCB'
to' reimburse' AUTOWORLD' P2,586,035.44' as' excess' interest'
payments'over'the'12%'ceiling'rate.'However,'with'regard'to'
the'second'transacJon,'the'appellate'court'ruled'that'at'the'
Jme' it' was' executed' the' ceiling' rates' imposed' by' the' Usury'
Law' had' already' been' libed' thus' allowing' the' parJes' to'
sJpulate'any'rate'of'interest.'
ISSUE:'
We'stress'at'the'outset'that'this'peJJon'concerns'itself'only'
with' the' first' transacJon' involving' the' alleged'' "IPP"' worth'
P6,980,000.00,'which'was'implemented'through'the'three'(3)'
contracts' of' 9' February' 1981.' As' to' the' second' transacJon,'
which' involves' the' P3,000,000.00' loan,' we' agree' with' the'
appellate'court'that'it'was'executed'when'the'ceiling'rates'of'
interest' had' already' been' removed,' hence' the' parJes' were'
free'to'fix'any'interest'rate.'
The'pivotal'issue'therefore'is'whether'the'three'(3)'contracts'
all' dated' 9' February' 1981' were' executed' to' implement' a'
legiJmate' Installment' Paper' Purchase' ("IPP")' transacJon' or'
merely'to'conceal'a'usurious'loan.''
HELD:'
The' three' (3)' contracts' were' executed' to' conceal' a' usurious'
loan.''
Generally,'the'courts'only'need'to'rely'on'the'face'of'wricen'
contracts'to'determine'the'intenJon'of'the'parJes.'"However,'
the'law'will'not'permit'a'usurious'loan'to'hide'itself'behind'a'
legal'form.'Parol'evidence'is'admissible'to'show'that'a'wricen'
document'though'legal'in'form'was'in'fact'a'device'to'cover'
usury.' If' from' a' construcJon' of' the' whole' transacJon' it'
becomes' apparent' that' there' exists' a' corrupt' intenJon' to'
violate' the' Usury' Law,' the' courts' should' and' will' permit' no'
scheme,' however' ingenious,' to' becloud' the' crime' of'
usury."' The' following' circumstances' show' that' such' scheme'
was'indeed'employed:'
First,' peJJoner' claims' that' it' was' never' a' party' to'
the'Contract'to'Sell'between'AUTOWORLD'and'BARRETTO.'As'
far'as'it'was'concerned,'it'merely'purchased'receivables'at'a'
discount' from' BARRETTO' as' evidenced' by' the' Deed' of'
Assignment'dated'9'February'1981.'Whether'the'Contract'to'
Sell'was'ficJJous'or'not'would'have'no'effect'on'its'right'to'
claim' the' receivables' of' BARRETTO' from' AUTOWORLD' since'
the' two' contracts' were' enJrely' separate' and' disJnct' from'
each'other.'
Curiously' however,' peJJoner' admiced' that' its' lawyers' were'
the' ones' who' drabed' all' the' three' (3)' contracts'
involved' which' were' executed' on' the' same' day.' Also,'
peJJoner' was' the' one' who' procured' the' services' of' the'
Asian'Appraisal'Company'to'determine'the'fair'market'value'
of'the'land'to'be'sold'way'back'in'September'of'1980'or'six'
(6)'months'prior'to'the'sale.'If'it'were'true'that'peJJoner'was'
never'privy'to'the'Contract'to'Sell,'then'why'was'it'interested'
in'appraising'the'lot'six'(6)'months'prior'to'the'sale?'And'why'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''8'
did' peJJoner's' own' lawyers' prepare' the' Contract' to' Sell?'
Obviously,' peJJoner' acJvely' parJcipated' in' the' sale' to'
ensure' that' the' appraised' lot' would' serve' as' adequate'
collateral'for'the'usurious'loan'it'gave'to'AUTOWORLD.'
Second,' peJJoner' insists' that' the' 9' February' 1981'
transacJon' was' a' legiJmate' "IPP"' transacJon' where' it' only'
bought' the' receivables' of' BARRETTO' from' AUTOWORLD'
amounJng' to' P12,999,999.60' at' a' discounted' price' of'
P6,980,000.00.' However,' per' instrucJon' of' peJJoner' in' its'
lecer' to' BARRETTO' dated' 17' November' 1980' the' whole'
purchase'price'of'the'receivables'was'to'be'"flowed'back"'to'
AUTOWORLD.' And' in' its' subsequent' lecer' of' 24' February'
1981' peJJoner' also' gave' instrucJons' on' how' BARRETTO'
should'apply'the'proceeds'worth'P6,980,000.00.'
It'can'be'seen'that'out'of'the'nine'(9)'items'of'appropriaJon'
stated' (in' the' lecer),' Item' Nos.' 218' had' to' be' returned' to'
peJJoner.' Thus,' in' compliance' with' the' aforesaid' lecer,'
BARRETTO'had'to'yield'P4,058,468.47'of'the'P6,980,000.00'to'
peJJoner'to'secle'some'of'AUTOWORLD's'previous'debts'to'
it.' Any' remaining' amount' aber' the' applicaJon' of' the'
proceeds' would' then' be' surrendered' to' AUTOWORLD' in'
compliance'with'the'lecer'of'17'November'1980;'none'went'
to'BARRETTO.'
The' foregoing' circumstances' confirm' that' the' P6,980,000.00'
was'really'an'indirect'loan'extended'to'AUTOWORLD'so'that'it'
could' secle' its' previous' debts' to' peJJoner.' Had' peJJoner'
entered' into' a' legiJmate' purchase' of' receivables,' then'
BARRETTO,'as'seller,'would'have'received'the'whole'purchase'
price,'and'free'to'dispose'of'such'proceeds'in'any'manner'it'
wanted.' It' would' not' have' been' obliged' to' follow' the'
"ApplicaJon'of'Proceeds"'stated'in'peJJoner's'lecer.'
Third,'in'its'17'November'1980'lecer'to'BARRETTO,'peJJoner'
itself' designated' the' proceeds' of' the' "IPP"' transacJon' as' a'
"loan."' In' that' lecer,' peJJoner' stated' that' the' "loan'
proceeds"'amounJng'to'P6,980,000.00'would'be'released'to'
BARRETTO' only' upon' submission' of' the' documents' it'
required.' And' as' previously' menJoned,' one' of' the' required'
documents' was' a' lecer' agreement' between' BARRETTO' and'
AUTOWORLD' sJpulaJng' that' the' P6,980,000.00' should' be'
"flowed' back"' to' AUTOWORLD.' If' it' were' a' genuine' "IPP"'
transacJon' then' peJJoner' would' not' have' designated' the'
money' to' be' released' as' "loan' proceeds"' and' BARRETTO'
would'have'been'the'end'recipient'of'such'proceeds'with'no'
obligaJon'to'turn'them'over'to'AUTOWORLD.'
Fourth,' aber' the' interest' rate' ceilings' were' libed' on' 21' July'
1981' peJJoner' extended' on' 18' June' 1982' a' direct' loan' of'
P3,000,000.00' to' AUTOWORLD.' This' Jme' however,' with' no'
more' ceiling' rates' to' hinder' it,' peJJoner' imposed' a' 28%'
effecJve' interest' rate' on' the' loan.' And' no' longer' having' a'
need' to' cloak' the' exorbitant' interest' rate,' the' promissory'
note' evidencing' the' second' transacJon' glaringly' bore' the'
28%' interest' rate' on' its' face.' We' are' therefore' of' the'
impression' that' had' there' been' no' interest' rate' ceilings' in'
1981,' peJJoner' would' not' have' resorted' to' the' ficJJous'
"IPP"' transacJon;' instead,' it' would' have' directly' loaned' the'
money'to'AUTOWORLD'with'an'interest'rate'higher'than'12%.''
Thus,'although'the'three'(3)'contracts'seemingly'show'at'face'
value' that' peJJoner' only' entered' into' a' legiJmate'
discounJng'of'receivables,'the'circumstances'cited'prove'that'
the' P6,980,000.00' was' really' a' usurious' loan' extended' to'
AUTOWORLD.'
PeJJoner' anchors' its' defense' on' Sec.' 7' of' the' Usury' Law'
which'states'—'
Provided,'finally,'That'nothing'herein'contained'shall'
be'construed'to'prevent'the'purchase'by'an'innocent'
purchaser'of'a'negoJable'mercanJle'paper,'usurious'
or' otherwise,' for' valuable' consideraJon' before'
maturity,' when' there' has' been' no' intenJon' on' the'
part'of'said'purchaser'to'evade'the'provisions'of'the'
Act'and'said'purchase'was'not'a'part'of'the'original'
usurious'transacJon.'In'any'case'however,'the'maker'
of'said'note'shall'have'the'right'to'recover'from'said'
original' holder' the' whole' interest' paid' by' him'
thereon' and,' in' any' case' of' liJgaJon,' also' the' costs'
and' such' acorney's' fees' as' may' be' allowed' by' the'
court.'
Indeed,'the'Usury'Law'recognizes'the'legiJmate'purchase'of'
negoJable'mercanJle'paper'by'innocent'purchasers.'But'even'
the' law' has' anJcipated' the' potenJal' abuse' of' such'
transacJons' to' conceal' usurious' loans.' Thus,' the' law' itself'
made' a' qualificaJon.' It' would' recognize' legiJmate' purchase'
of' negoJable' mercanJle' paper,' whether' usurious' or'
otherwise,'only'if'the'purchaser'had'no'intenJon'of'evading'
the' provisions' of' the' Usury' Law' and' that' the' purchase' was'
not'a'part'of'the'original'usurious'transacJon.'Otherwise,'the'
law' would' not' hesitate' to' annul' such' contracts.' Thus,' Art.'
1957'of'the'Civil'Code'provides'—'
Contracts'and'sJpulaJons,'under'any'cloak'or'device'
whatever,'intended'to'circumvent'the'laws'on'usury'
shall' be' void.' The' borrower' may' recover' in'
accordance'with'the'laws'on'usury.'
In' the' case' at' bar,' the' acending' factors' surrounding' the'
execuJon' of' the' three' (3)' contracts' on' 9' February' 1981'
clearly' establish' that' the' parJes' intended' to' transact' a'
usurious' loan.' These' contracts' should' therefore' be' declared'
void.'Having'declared'the'transacJon'between'the'parJes'as'
void,' we' are' now' tasked' to' determine' how' much'
reimbursement' AUTOWORLD' is' enJtled' to.' The' Court' of'
Appeals,' adopJng' the' computaJon' of' AUTOWORLD' in' its'
plainJff1appellant's'brief,'ruled'—'
According' to' plainJff1appellant,' defendant1appellee'
was' able' to' collect' P3,921,217.78' in' interests' from'
appellant.' This' is' not' denied' by' the' appellee.'
Computed'at'12%'the'effecJve'interest'should'have'
been' P1,545,400.00.' Hence,' appellant' may' recover'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''9'
 P2,586,035.44,' represenJng' overpayment' arising'
from'usurious'interest'rate'charged'by'appellee.'
While'we'do'not'dispute'the'appellate'court's'finding'that'the'
first' transacJon' was' a' usurious' loan,' we' do' not' agree' with'
the' amount' of' reimbursement' awarded' to' AUTOWORLD.'
Indeed,'it'erred'in'awarding'only'the'interest'paid'in'excess'of'
the' 12%' ceiling.' In' usurious' loans,' the' creditor' can' always'
recover' the' principal' debt.' However,' the' sJpulaJon' on' the'
interest' is' considered' void' thus' allowing' the' debtor' to' claim'
the'whole'interest'paid.'In'a'loan'of'P1,000.00'with'interest'at'
20%' per' annum' or' P200.00' per' year,' if' the' borrower' pays'
P200.00,' the' whole' P200.00' would' be' considered' usurious'
interest,'not'just'the'porJon'thereof'in'excess'of'the'interest'
allowed'by'law.'
In' the' instant' case,' AUTOWORLD' obtained' a' loan' of'
P6,980,000.00.' Thereaber,' it' paid' nineteen' (19)' consecuJve'
installments' of' P216,666.66' amounJng' to' a' total' of'
P4,116,666.54,' and' further' paid' a' balance' of' P6,784,551.24'
to' secle' it.' All' in' all,' it' paid' the' aggregate' amount' of'
P10,901,217.78' for' a' debt' of' P6,980,000.00.' For' the' 231
month'period'of'the'existence'of'the'loan'covering'the'period'
February'1981'to'January'1982,'AUTOWORLD'paid'a'total'of'
P3,921,217.78' in' interests.' Applying' the' 12%' interest' ceiling'
rate' mandated' by' the' Usury' Law,' AUTOWORLD' should' have'
only' paid' a' total' of' P1,605,400.00' in' interests.' Hence,'
AUTOWORLD' is' enJtled' to' recover' the' whole' usurious'
interest'amounJng'to'P3,921,217.78.'
Solangon'vs'Salazar'
G.R.'No.'125944''''''June'29,'2001'
Facts:'
• PeJJoner1spouses'executed'3'real'estate'mortgages'on'a'
parcel'of'land'situated'in'Bulacan,'in'favor'of'the'same'
Respondent'Salazar'to'secure'payment'of'loans'of'P60'K,'
P136'K'and'P230'K'payable'within'4'months,'1'year,'and'
4'months'in'that'order,'with'6%'monthly'interest'on'the'
first'loan,'and'legal'interests'on'the'others.''
• This'acJon'was'iniJated'by'the'PeJJoner1spouses'to'
prevent'the'foreclosure'of'the'mortgaged'property.''
• 150,000.' The' peJJoners' did' not' exercise' their' right' to'
They'alleged'that'they'obtained'only'one'loan'from'the'
Respondent'which'was'the'P60'K'secured'by'the'first'
mortgage.'Also,'PeJJoner1spouses'opined'that'the'6%'
monthly'interest'was'unconscionable.''
• The'subsequent'mortgages'were'merely'conJnuaJons'of'
the'first'one,'which'is'null'and'void.'
• Moreover,'the'Respondent'assured'them'that'he'will'not'
foreclose'the'mortgage'as'long'as'they'pay'the'sJpulated'
interest'upon'maturity'or'within'a'reasonable'Jme'
thereaber.'PeJJoner1spouses'substanJally'paid'the'
loans'with'interest'but'were'unable'to'pay'it'in'full.''
• On'the'other'hand,'the'Respondent'claimed'that'the'
mortgages'were'executed'to'secure'3'separate'loans'of'
and'that'the'first'two'loans'were'paid,'but'the'last'one'
was'not.''
• He'denied'having'represented'that'he'will'not'foreclose'
the'mortgage'as'long'as'the'PeJJoner1spouses'pay'
interest.'
• Lower'courts'ruled'in'favour'of'Respondent.'Thus,'this'
peJJon.'
Issue:'
Whether'or'not'the'6%'monthly'interest'is'unconscionable?'
Ruling:'
Yes.'The'SC'ruled'that'this'is'unconscionable.''
• While'the'Usury'Law'ceiling'on'interest'rates'was'libed'
by'C.B.'Circular'No.'905,'nothing'in'the'said'circular'
grants'lenders'carte'blanche'authority'to'raise'interest'
rates'to'levels'which'will'either'enslave'their'borrowers'
or'lead'to'a'hemorrhaging'of'their'assets.'
• In'Medel'v.'Court'of'Appeals,'the'Court'decreed'that'the'
5.5%'interest'or'66%'per'annum'was'not'usurious'but'
held'that'the'same'must'be'equitably'reduced'for'being'
iniquitous,'unconscionable'and'exorbitant','and'hence,'
contrary'to'morals'(‘contra'bonos'mores’),'if'not'against'
the'law.''
• In'the'case'at'bench,'PeJJoner1spouses'stand'on'a'
worse'situaJon.'They'are'required'to'pay'the'sJpulated'
interest'rate'of'6%'per'month'or'72%'per'annum'which'is'
definitely'outrageous'and'inordinate.''
• Hence,'the'interest'rate'must'be'reduced'equitably.'An'
interest'of'12%'per'annum'is'deemed'fair'and'
reasonable.'
SPOUSES'PASCUAL'VS.'RAMOS'
FACTS:' PeJJoners' executed' a' Deed' of' Absolute' Sale' with'
Right'to'Repurchase'with'respondent,'in'consideraJon'of'Php'
repurchase' the' property' within' the' sJpulated' one1year'
period;' hence,' respondent' prayed' that' the' Jtle' over' the'
parcels' of' land' be' consolidated' in' his' favor.' PeJJoners' aver'
that' what' was' really' executed' between' them' and' the'
respondent' is' a' real' estate' mortgage' and' that' there' was' no'
agreement' limiJng' the' period' within' which' to' exercise' the'
right' to' repurchase' and' that' they' have' even' overpaid'
respondent.''
Respondent'offered'in'evidence'a'document'denominated'as'
Sinumpaang'Salaysay'which'had'a'provision'of'an'interest'of'
7%'per'month'on'the'principal'loan'of'Php'150,000.'RTC'ruled'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''10'
that'the'transacJon'was'actually'a'loan'and'the'payment'was'
secured' by' a' mortgage' of' the' property,' and' that' the'
peJJoners' had' made' payments' which' resulted' in'
overpayment' as' the' interest' was' at' 7%' per' annum.'
Respondent'filed'an'MR'alleging'that'the'interest'sJpulated'in'
the'Sinumpaang'Salaysay'was'7%'per'month.'The'RTC'ruled'in'
favor' of' the' respondent' acknowledging' that' the' correct'
interest'rate'sJpulated'was'7%'per'month.'However,'the'RTC'
declared' that' the' 7%' per' month' interest' is' too' burdensome'
and'onerous'and'so'the'court'unilaterally'reduced'the'interest'
rate'from'7%'per'month'to'5%'per'month.'PeJJoners'filed'an'
MR' alleging' that' either' 5%' or' 7%' per' month' is' exorbitant,'
unconscionable,'unreasonable,'usurious'and'inequitable.'
ISSUE:' WON' the' interest' of' 5%' month' is' exorbitant,'
unconscionable,'unreasonable,'usurious'and'inequitable.'
HELD:' NO.' It' is' a' basic' principle' in' civil' law' that' parJes' are'
bound'by'the'sJpulaJons'in'the'contracts'voluntarily'entered'
into' by' them.' ' ParJes' are' free' to' sJpulate' terms' and'
condiJons'which'they'deem'convenient'provided'they'are'not'
contrary'to'law,'morals,'good'customs,'public'order,'or'public'
policy.''
The' interest' rate' of' 7%' per' month' was' voluntarily' agreed'
upon' by' RAMOS' and' the' PASCUALs.' ' There' is' nothing' from'
the' records' and,' in' fact,' there' is' no' allegaJon' showing' that'
peJJoners'were'vicJms'of'fraud'when'they'entered'into'the'
agreement' with' RAMOS.' ' Neither' is' there' a' showing' that' in'
their' contractual' relaJons' with' RAMOS,' the' PASCUALs' were'
at' a' disadvantage' on' account' of' their' moral' dependence,'
ignorance,' mental' weakness,' tender' age' or' other' handicap,'
which' would' enJtle' them' to' the' vigilant' protecJon' of' the'
courts'as'mandated'by'ArJcle'24'of'the'Civil'Code.'
With' the' suspension' of' the' Usury' Law' and' the' removal' of'
interest'ceiling,'the'parJes'are'free'to'sJpulate'the'interest'to'
be' imposed' on' loans.' Absent' any' evidence' of' fraud,' undue'
influence,'or'any'vice'of'consent'exercised'by'RAMOS'on'the'
PASCUALs,' the' interest' agreed' upon' is' binding' upon' them.''
This' Court' is' not' in' a' posiJon' to' impose' upon' parJes'
contractual'sJpulaJons'different'from'what'they'have'agreed'
upon'
REFORMINA'V.'TOMOL'
EASTERN'SHIPPING'v'CA'
FACTS:'
- 2'Fiber'drums'of'Riboflavin'were'shipped'from'
Japan'for'delivery'vessel'owned'by'Eastern'Shipping'
(P)'and'that'the'shipment'was'insured'by'
MercanJle'Insurance'(R)'
- Upon'arrival'in'Manila,'it'was'discharged'unto'the'
custody'of'Metro'Port,'which'it'stated'in'its'survey'
that'1'drum'was'in'bad'order.'
- It'was'then'received'by'Allied'Brokerage'wherein'it'
stated'in'its'survey'that'one'drum'was'opened'and'
without'seal'
- Allied'then'delivered'it'to'the'consignee’s'W/H,'
which'it'excepted'that'1'drum'contained'spillages'
while'the'rest'was'adulterated/fake'
- R'then'filed'claims'against'P'for'the'losses'sustained'
by'the'consignee'(which'R'subrogated).'
- LC'ruled'in'favor'of'R'and'ordered'P'to'pay'damages,'
however,'it'failed'to'state'when'the'interest'rate'
should'commence'–'from'date'of'filing'of'complaint'
at'12%'or'from'date'of'judgment'of'TC'at'6%'
ISSUE:'When'should'the'interest'rate'commence'and'at'what'
rate'
SC:'6%'from'the'date'of'decision'and'12%'from'date'of'finality'
of'judgment'unJl'payment'
- This'case'laid'down'the'rules'on'the'interest'rates:'
- A)'when'an'obligaJon'regardless'of'its'source,'is'
breached,'the'contravenor'can'be'held'liable'for'
damages'
- B)'with'regard'parJcularly'to'an'award'of'interest'in'
the'concept'of'actual'and'compensatory'damages,'
the'rate'of'interest,'as'well'as'the'accrual'thereof,'
shall'be'as'follows:'
- If'it'consists'of'payment'of'money'(loan/
forbearance)'
o Interest'due'imposed'='as'sJpulated'in'
wriJng'and'the'
o Interest'due'='earn'legal'interest'from'the'
Jme'it'is'judicially'demanded'
o No'sJpulaJon'='12%'per'annum'from'date'
of'default'(judicial/extra'judicial)'
- If'it'is'not'loan/forbearance'
o Interest'on'amount'of'damages'='imposed'
by'discreJon'of'court'at'6%'
o No'interest'shall'be'ordered'on'
unliquidated'claims/damages'unJl'demand'
can'be'established'with'reasonable'
certainty'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''11'
 o When'demand'is'established'with'
reasonable'certainty,'interest'shall'begin'to'
run'from'the'Jme'the'claim'is'made'
(judicially/extrajudicially)'
o But'if'it'cannot'be'reasonably'established'
at'the'Jme'demand'was'made'='interest'to'
run'from'date'of'judgment'of'the'court'
- If'judgment'becomes'Final'and'Executory'
o Rate'of'legal'interest'='12%'
o From'finality'to'saJsfacJon'
o Why?'It'is'already'considered'as'
forbearance'
EASTERN'ASSURANCE'AND'SURETY'CORPORATION'(EASCO),'
vs.'Court'of'Appeals

Facts:''
1) On'April'9,'1981,'private'respondent'Vicente'Tan'
insured'his'building'in'Dumaguete'City'against'fire'
with'peJJoner'Eastern'Assurance'and'Surety'
CorporaJon'(EASCO)'for'P250,000.00.''
2) On'June'26,'1981,'the'building'was'destroyed'by'fire.'
As'his'claim'for'indemnity'was'refused,'private'
respondent'filed'a'complaint'for'breach'of'contract'
with'damages'against'peJJoner.'The'RTC'Court,'
decided'in'favour'of'Vicente'Tan.'In'its'ruling,'the'
RTC'court'imposed'the'rate'of'interest'at'12%'per'
annum,'and''decided'that'EASCO'to'pay'immediately'
to'Vicente'Tan'the'unpaid'balance'of'interest'of'the'
principal'amount'of'P250,000.00'equivalent'to'6%'
per'annum'from'June'26,'1981'to'September'
30,1994.'
3) PeJJoner'EASCO'appealed'to'the'Court'of'Appeals,'
which,'on'July'30,'1993,'affirmed'the'decision'of'the'
trial'court.'The'CA,'on'the'authority'of'prior'case,'
Eastern'Shipping'Lines,'Inc.'v.'Court'of'Appeals,'that'
the'interest'rate'on'the'amount'due'should'be'6%'
per'annum'from'June'26,'1981'to'August'24,'1993,'
and'12%'per'annum'beginning'August'25,'1993'unJl'
the'money'judgment'is'paid.'
4) Thereaber,'peJJoner'EASCO''tendered'payment'of'
the'money'judgment'in'the'amount'of'P250,000.00'
plus'interest'of'6%'per'annum'from'June'26,'1981'to'
July'30,'1993.''
5) However,'private'respondent'refused'to'accept'
payment'on'the'ground'that'the'applicable'legal'rate'
of'interest'was'12%'per'annum.'Subsequently,'
private'respondent'brought'the'macer'to'the'
Insurance'Commission.''
6) Then'in,'1995,'the'parJes'agreed'before'the'hearing'
officer'of'the'commission'that'the'interest'should'be'
computed'from'June'26,'1981'to'September'30,'
1994.'PeJJoner'would'file'with'the'trial'court'a'
moJon'to'fix'the'legal'rate'of'interest'acaching'
thereto'a'check'in'the'amount'of'P250,000.00'with'
6%'interest'per'annum.'
7) In'its'appeal'EASCO'to'the'SC,'it'contended'that'the'
CA'wrongfully'applied'the'aforecited'paragraph'3'of'
the'suggested'rules'of'thumb'for'future'guidance'[as'
formulated'in'Eastern'Shipping'Lines,'Inc.'v.'Court'of'
Appeals,'and'unlawfully'ignored'or'disregarded'the'
agreed'cut1off'date'for'the'payment'of'the'legal'rate.'
Issue:'When'the'judgment'of'the'court'awarding'a'
sum'of'money'becomes'final'and'executory'what'is'
the'rate'to'be'imposed?'
Held:'PeJJoner's'contenJons'are'without'merit.'
The'prior'Eastern'Shipping'Lines,'Inc.'v.'Court'of'Appeals,'was'
held:'
I.'When'an'obligaJon,'regardless'of'its'source,'i.e.,'
law,'contracts,'quasi1contracts,'delicts'or'quasi1
delicts,'is'breached,'the'contravener'can'be'held'
liable'for'damages.'The'provisions'under'"Damages"'
of'the'Civil'Code'govern'in'determining'the'measure'
of'recoverable'damages.'
II.'With'regard'parJcularly'to'an'award'of'interest'in'
the'concept'of'actual'and'compensatory'damages,'
the'rate'of'interest,'as'well'as'the'accrual'thereof,'is'
imposed,'as'follows:'
Par.'3:'When'the'judgment'of'the'court'awarding'a'sum'of'
money'becomes'final'and'executory,'the'rate'of'legal'interest,'
whether'the'case'falls'under'paragraph'1'or'paragraph'2,'
above,'shall'be'12%'per'annum'from'such'finality'unJl'its'
saJsfacJon,'this'interim'period'being'deemed'to'be'by'then'
an'equivalent'to'a'forbearance'of'credit.'
UnquesJonably,'this'case'falls'under'the'rule'stated'in'
paragraph'3.'The'quesJon'is'whether'this'rule'can'be'applied'
to'this'case.''
The'prior'Eastern'Shipping'Lines,'case.'did'not'lay'down'any'
new'rules'because'it'was'just'a'a'comprehensive'summary'of'
exisJng'rules'on'the'computaJon'of'legal'interest.''
As'to'the'"cut1off'date"'for'the'payment'of'legal'interest:'
The'trial'court's'finding'on'this'point'is'binding.'Hence,'the'
payment'of'12%'legal'interest'per'annum'should'commence'
from'August'25,'1993,'the'date'the'decision'of'the'trial'court'
became'final,'up'to'September'30,'1994,'the'agreed'"cut1off1
date"'for'the'payment'of'legal'interest.'The'decision'of'the'CA'
is'affirmed.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''12'

PILIPINAS'BANK,'peJJoner,'
 thereof'is'subsequently'adjudged.''
vs.

THE'HONORABLE'COURT'OF'APPEALS,'and'LILIA'R.'ECHAUS,'
respondents.'
Facts:'private'respondent'filed'a'complaint'against'peJJoner'
and'its'president,'ConstanJno'BauJsta,'for'collecJon'of'a'sum'
of'money.'The'complaint'alleged:'(1)'that'peJJoner'and'
Greatland'executed'a'"Dacion'en'Pago,"'wherein'Greatland'
conveyed'to'peJJoner'several'parcels'of'land'in'consideraJon'
of'the'sum'of'P7,776,335.69;'(2)'that'Greatland'assigned'
P2,300,000.00'out'of'the'total'consideraJon'in'favor'of'
private'respondent;'and'(3)'that'notwithstanding'her'demand'
for'payment,'peJJoner'refused'and'failed'to'pay'the'said'
amount'assigned'to'her.'
PeJJoner'claimed:'(1)'that'its'former'president'had'no'
authority'(2)'that'it'never'raJfied'the'same;'and'(3)'that'
assuming'arguendo'that'the'agreement'was'binding,'the'
condiJons'sJpulated'therein'were'never'fulfilled.'
The'trial'court'ruled'in'favor'of'private'respondent.'
Court'of'Appeals'modified'the'Order'dated'April'3,'1985,'by'
limiJng'the'execuJon'pending'appeal'against'peJJoner'to'
P5,517.707.00'
Trial'court'granted'the'new'moJon'for'execuJon'pending'
appeal.'PeJJoner'complied'with'the'writ'of'execuJon'
pending'appeal'by'issuing'two'manager's'checks'in'the'total'
amount'of'P5,517,707.00'
The'Court'of'Appeals'rendered'a'decision'in'CA1G.R.'No.'
CV106017,'which'modified'the'judgment'of'the'trial'court'
PeJJoner'filed'a'moJon'in'the'trial'court'praying'that'private'
respondent'to'refund'to'her'the'excess'payment'of'
P1,898,623.67'with'interests'at'6%.'It'must'be'recalled'that'
while'private'respondent'was'able'to'collect'P5,517,707.00'
from'peJJoner'pursuant'to'the'writ'of'advance'execuJon,'
the'final'judgment'in'the'main'case'awarded'to'private'
respondent'damages'in'the'total'amount'of'P3,619,083.33'
ISSUE:'What'interest'rate'applicable?'
HELD:'Note'that'Circular'No.'416,'fixing'the'rate'of'interest'at'
12%'per'annum,'deals'with'(1)'loans;'(2)'forbearance'of'any'
money,'goods'or'credit;'and'

(3)'judgments.'
(1)'the'amount'of'P2,300,000.00'adjudged'to'be'paid'by'
peJJoner'to'private'respondent'shall'earn'interest'of'6%'per'
annum'1'The'said'obligaJon'arose'from'a'contract'of'purchase'
and'sale'and'not'from'a'contract'of'loan'or'mutuum.'Hence,'
what'is'applicable'is'the'rate'of'6%'per'annum'as'provided'in'
ArJcle'2209'of'the'Civil'Code'of'the'Philippines'and'not'the'
rate'of'12%'per'annum'as'provided'in'Circular'No.'416.'
(2)'the'amount'of'P1,898,623.67'to'be'refunded'by'private'
respondent'to'peJJoner'shall'earn'interest'of'12%'per'
annum.'1'where'money'is'transferred'from'one'person'to'
another'and'the'obligaJon'to'return'the'same'or'a'porJon'
PNB'v'CA'
FACTS:'
- Province'of'Isabela'issued'several'checks'drawn'
against'its'account'with'PNB'(P)'in'favor'of'Ibarrola'
(R),'as'payments'for'the'purchase'of'medicines.'
- The'checks'were'delivered'to'R’s'agents'who'turned'
them'over'to'R,'except'23'checks'amounJng'to'
P98k.'
- Due'to'failure'to'receive'full'amount,'R'filed'case'
against'P'
- LC,'CA'and'SC'ordered'PNB'to'pay'however,'all'3'
courts'failed'to'specify'the'legal'rate'of'interest'–'
6%'or'12%'
ISSUE:'WoN'the'rate'to'be'used'is'6%'
SC:'YES!'
- This'case'does'not'involve'a'loan,'forbearance'of'
money'or'judgment'involving'a'loan'or'forbearance'
of'money'as'it'arose'from'a'contract'of'sale'
whereby'R'did'not'receive'full'payment'for'her'
merchandise.'
- When'an'obligaJon'arises'“from'a'contract'of'
purchase'and'sale'and'not'from'a'contract'of'loan'
or'mutuum,”'the'applicable'rate'is'6%'per'annum'as'
provided'in'Art.'2209'of'the'NCC'
- 6%'from'filing'of'complaint'unJl'full'payment'before'
finality'of'judgment'
- 12%'from'finality'of'judgment'
PLANTILLA'vs.'BALIWAG'
358'SCRA'396'
Facts:'
• In'a'civil'case,'lower'court'rendered'a'decision'ordering:'
o Spouses'Orga'and'PlanJlla'to'reinstate'Suiza'as'
share'tenant'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''13'
 o That' they' pay' Suiza' unrealized' shares' from' the'
harvests' of' coconut' fruits' from' August' unJl'
reinstated' the' amount' of' P1,000' with' legal'
interest'unJl'fully'paid.'
• The' decision,' however,' did' not' state' the' interest' to' be'
charged.'
• A' writ' of' execuJon' was' issued' addressed' to' Sheriff'
Baliwag.'
• Baliwag' demanded' payment' from' the' spouses'
represenJng' the' share' of' Suiza' the' amount' of' 480k,'
represenJng' the' coconut' harvest' from' Aug' 1979' to' Jan'
1998'at'P1,000'with'8'harvests'per'year'with'an'interest'
rate'of'12%'per'annum'or'a'total'of'222%'plus'acorney’s'
fees.'
• Col.' PlanJlla,' administrator' of' the' spouses,' filed' an'
administraJve'complaint'against'Baliwag'charging'him'of'
serious' irregulariJes' in' implementaJon' of' the' writ' of'
execuJon'alleging'that'disposiJve'porJon'of'the'decision'
did' not' contain' 8' harvest' per' year' and' Baliwag' took' it'
upon'himself'to'specify'the'number'of'harvests.'
Issue:'Whether'or'not'Sheriff'is'guilty'of'irregulariJes?'
Held:'
Yes,' Baliwag' is' guilty' of' malfeasance,' not' irregulariJes.' The'
determinaJon' of' the' amount' due' under' the' writ' properly'
pertained'to'the'Judge.'Yet,'respondent'assumed'the'task.'For'
doing'so'instead'of'poinJng'out'to'the'court'the'deficiency'of'
the' writ,' he' should' be' sancJoned.' He' should' not' have'
arrogated' unto' himself' judicial' funcJons' that' were' to' be'
performed'only'by'the'judge.'
The'computaJon'of'the'amount'due'under'the'writ'is'not'the'
duty' of' the' sheriff.' Such' amount' should' have' already' been'
specifically'stated'in'the'writ'if'execuJon'issued'by'the'court'
under' SecJon' 3' Rule' 39' of' the' 1997' Rules' of' Court.' All' that'
the' sheriff' should' do' upon' receipt' of' that' writ' is' the'
ministerial'duty'of'enforcing'it.'
RCBC'vs'ALFA'
Facts:' ' Alfa' on' separate' instances' was' granted' by'
RCBC' 4' lecers' of' credit' to' facilitate' the' purchase' of' raw'
materials' for' their' garments' business.' Alfa' executed' 4' trust'
receipts' and' made' comprehensive' surety' agreements'
wherein' the' signatory' officers' of' Alfa' agreed' in' joint/several'
capacity' to' pay' RCBC' in' case' the' company' defaulted.' RCBC'
filed'a'case'versus'Alfa'for'a'sum'of'money.'The'CA'awarded'
only' P3M' (minimum' amount)' to' RCBC' instead' of' P18M' as'
sJpulated'in'their'contract.'
Issue:' ' W/N'the'CA'can'deviate'from'the'provisions'
of'the'contract'between'the'parJes?'
Ruling:'' No.' ContracJng' parJes' may' establish' agreements'
terms,' deemed' advisable' provided' they' are' not' contrary' to'
law/public'policy.'A'contract'is'a'law'between'the'parJes.'In'
this' case' it’s' valid' because' it' was' not' excessive' under' the'
Usury'Law.''
*Acy.'Aguinaldo'assigned'this'case'because'he'just'wanted'to'
show'us'how'to'compute'for'the'interest'in'long'term'deals.'
He'even'made'a'diagram'on'the'board.'Di'ko'na'ilalagay'un'sa'
digest' because' I' assume' that' my' industrious' &' responsible'
classmates'took'down'notes...'''='p'''
RODZSSEN'SUPPLY'V.'FAR'EAST'




Facts:' On' January' 15,' 1979,' defendant' Rodzssen' Supply,' Inc.'
opened' with' plainJff' Far' East' Bank' and' Trust' Co.' a' 301day'
domesJc' lecer' of' credit,' in' the' amount' of' P190,000.00' in'
favor' of' Ekman' and' Company,' Inc.' (Ekman)' for' the' purchase'
from'the'lacer'of'five'units'of'hydraulic'loaders,'to'expire'on'
February' 15,' 1979.' The' three' loaders' were' delivered' to'
defendant' for' which' plainJff' paid' Ekman' and' which'
defendant' paid' plainJff' before' expiry' date' of' LC.' The'
remaining' two' loaders' were' delivered' to' defendant' but' the'
lacer' refused' to' pay.' Ekman' pressed' payment' to' plainJff.'
PlainJff'paid'Ekman'for'the'two'loaders'and'later'demanded'
from' defendant' such' amount' as' it' paid' Ekman.' Defendant'
refused' payment' contending' that' there' was' a' breach' of'
contract' by' plainJff' who' in' bad' faith' paid' Ekman,' knowing'
that'the'two'units'of'hydraulic'loaders'had'been'delivered'to'
defendant'aber'the'expiry'date'of'subject'LC.



Issue:'WON'peJJoner'is'liable'to'respondent.



Ruling:'The'SC'agrees'with'the'CA'that'peJJoner'should'pay'
respondent' bank' the' amount' the' lacer' expended' for' the'
equipment' belatedly' delivered' by' Ekman' and' voluntarily'
received' and' kept' by' peJJoner.' Equitable' consideraJons'
behoove'us'to'allow'recovery'by'respondent.'True,'it'erred'in'
paying' Ekman,' but' peJJoner' itself' was' not' without' fault' in'
the' transacJon.' It' must' be' noted' that' the' lacer' had'
voluntarily'received'and'kept'the'loaders'since'October'1979.'
When'both'parJes'to'a'transacJon'are'mutually'negligent'in'
the'performance'of'their'obligaJons,'the'fault'of'one'cancels'
the' negligence' of' the' other' and,' as' in' this' case,' their' rights'
and' obligaJons' may' be' determined' equitably' under' the' law'
proscribing'unjust'enrichment.'
MENDOZA'vs'CA'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''14'
 G.R.No.'116710,''June'25,2001'
Facts:''
' PNB' extended' P500,000' credit' line' and' P1' million'
lecer'of'credit'infavor'of'Mendoza.'As'security'for'the'credit'
accomodaJons,'he'mortgaged'real'and'personal'properJes'to'
PNB.' The' real' estate' mortgage' provided' for' an' escalaJon'
clause.''
He' also' executed' 3' promissory' notes' covering' the'
P500,000'credit'line'in'1979.'The'said'notes'also'provided'for'
an'interest'at'the'rate'of'12%'per'annum'unJl'paid','and'that'
PNB'may'raise'the'interest'without'further'noJce.'
He' also' executed' 11' ApplicaJon' and' Agreement' for'
the' commercial' lecer' of' credit' providing' for' 9%' interest' per'
annum'from'the'date'of'drabs'unJl'the'arrival'of'payment'in'
New'York'and'that'the'bank'may'increase'the'interest'without'
further'noJce.'The'bank'sent'a'lecer'to'Mendoza,'informing'
him'that'the'interest'rates'increased'to'14%'per'annum.''
Mendoza'made'some'proposals'for'the'restructuring'
of' his' past' due' accounts' into' 5' year' term' loan' and' for' an'
addiJonal' P2' million' lecer' of' credit.' However,' PNB' did' not'
approve' his' proposal' and' reduced' the' lecer' of' credit' to' P' 1'
million'only.'
Mendoza'claimed'that'he'was'forced'to'sign'2'blank'
promissory' notes' and' claimed' that' his' proposal' for' 5' year'
restructuring'of'his'past'due'accounts'was'approved'.'He'also'
alleged' taht' PNB' violated' their' agreement' because' PNB'
inserted'21%'instead'of'18%'in'the'first'promissory'note'and'
18%' instead' of' 12%' in' the' second' promissory' note.' The' 2'
promissory'notes'also'provided'escalaJon'clauses.'
The'2'newly'executed'promissory'notes'novated'the'
three' 1979' promissory' notes' and' 11' ApplicaJon' and'
Agreement' for' Commercial' Lecer' of' Credit' executed' by'
Mendoza'earlier.'
Aber' someJme,' pursuant' to' the' escalaJon' clause,'
the' interests' in' the' two' promissory' notes' were' again'
increased.'Due'to'Mendoza’s'failure'to'pay'the'2'promissory'
notes,' PNB' foreclosed' the' real' and' personal' mortgages.'
Mendoza' filed' for' specific' performance,' nullificaJon' of'
foreclosure'and'damages.'
Issue:' Whether' or' not' the' interest' rates' imposed' on' the' 2'
newly'executed'promissory'notes'were'valid.'
Ruling:'
' The' Court' upheld' the' validity' of' the' 2' newly'
executed' promissory' notes' on' the' ground' that' private'
transacJons'are'presumed'to'be'fair'and'regular.'
However,'it'ruled'that'interest'rates'imposed'on'the'
2' newly' executed' promissory' notes' are' not' valid' on' the'
ground' that' Mendoza' was' not' informed' beforehand' by' PNB'
of'the'change'in'the'sJpulated'interest'rates.''
It' held' that' unilateral' determinaJon' and' imposiJon'
of'increased'interest'rates'by'PNB'is'violaJve'of'the'principle'
of'mutuality'of'contract.'Contract'changes'must'be'made'with'
the' consent' of' the' contracJong' parJes.' The' minds' of' all'
parJes'must'meet'as'to'the'proposed'modificaJon,'especially'
wwhen' it' affects' an' important' aspect' of' the' agreement.' No'
one' receiving' a' proposal' to' change' a' contract' to' which' the'
party'is'obliged'to'answer'the'proposal,'and'his'silence'per'se'
cannot'be'construed'as'acceptance.'
DEPOSIT'
Topic:'Deposit;'ArJcle'1962'
Calibo'v.'CA'
FACTS:'
• Respondent'Abella’s'son'Mike'rented'for'residenJal'
purposes'the'house'of'PeJJoner'Calibo.'
• Respondent' leb' a' tractor' in' his' son’s' garage' for'
safekeeping'
• PeJJoner' –' Mike' had' not' paid' rentals,' electric' and'
water'bills'
• Mike' 'reassured'Calibo'that'the'tractor'would'stand'
as'guarantee'for'its'payment'
• Respondent'wanted'to'take'possession'of'his'tractor'
but'PeJJoner'said'that'the'Mike'had'leb'the'tractor'
with' him' as' security' for' the' payment' of' Mike’s'
obligaJon'to'him.'
• Respondent' issued' postdated' checks' but' PeJJoner'
will' only' accept' check' if' Respondent' executes'
Promissory' Note' to' cover' payment' for' unpaid'
electric'and'water'bills.'
• PeJJoner' insJtuted' an' acJon' for' replevin' claiming'
ownership' of' the' tractor' and' seeking' to' recover'
possession' thereof' from' peJJoner.' Likewise,' he'
asserts' that' the' tractor' was' leb' with' him,' in' the'
concept'of'an'innkeeper,'on'deposit'and'that'he'may'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''15'
 validly' hold' on' thereto' unJl' Mike' Abella' pays' his'
obligaJons.'
• TC'and'CA'–'Mike'could'not'have'validly'pledged'the'
tractor'because'he'was'not'the'owner.'NO'DEPOSIT'
ISSUE:'WON'there'was'a'valid'deposit?'
HELD:'NO'
• In'a'contract'of'deposit,'a'person'receives'an'object'
belonging' to' another' with' the' obligaJon' of' safely'
keeping' it' and' of' returning' the' same.' PeJJoner'
himself' stated' that' he' received' the' tractor' not' to'
safely' keep' it' but' as' a' form' of' security' for' the'
payment' of' Mike' Abella’s' obligaJons.' There' is' no'
deposit' where' the' principal' purpose' for' receiving'
the'object'is'not'safekeeping.'
• 1.
Consequently,' peJJoner' had' no' right' to' refuse'
delivery' of' the' tractor' to' its' lawful' owner.' On' the'
other'hand,'private'respondent,'as'owner,'had'every'
right' to' seek' to' repossess' the' tractor' including' the'
insJtuJon'of'the'instant'acJon'for'replevin.'
BISHOP'OF'JARO'V.'DELA'PENA'
CA'Agro1Industrial'vs'CA'
G.R.'No.'90027'March'3,'1993'
''
Facts'
• renters'could'open'the'box'and'vice'versa.'
PeJJoner'(through'its'President)'purchased'2'parcels'of'
land'from'spouses'Pugao'for'P350'K'with'a'
downpayment'of'P75'K.''
• box.'
Per'agreement,'the'land'Jtles'will'be'transferred'upon'
full'payment'and'will'be'placed'in'a'safety'deposit'box'
(SBDB)'of'any'bank.'Moreover,'the'same'could'be'
withdrawn'only'upon'the'joint'signatures'of'a'
representaJve'of'the'PeJJoner'and'the'Pugaos'upon'full'
payment'of'the'purchase'price.''
• Thereaber,'PeJJoner'and'spouses'placed'the'Jtles'in'
SDB'of'Respondent'Security'Bank'and'signed'a'lease'
contract'which'substanJally'states'that'the'Bank'will'not'
assume'liability'for'the'contents'of'the'SDB.''
• Subsequently,'2'renter's'keys'were'given'to'the'renters'—'
one'to'the'PeJJoner'and'the'other'to'the'Pugaos.'A'
guard'key'remained'in'the'possession'of'the'Respondent'
Bank.'The'SDB'can'only'be'opened'using'these'2'keys'
simultaneously.''
• Aberwards,'a'certain'Mrs.'Ramos'offered'to'buy'from'the'
PeJJoner'the'2'lots'that'would'yield'a'profit'of'P285K.''
• Mrs.'Ramos'demanded'the'execuJon'of'a'deed'of'sale'
which'necessarily'entailed'the'producJon'of'the'
cerJficates'of'Jtle.'Thus,'PeJJoner'with'the'spouses'
went'to'Respondent'Bank'to'retrieve'the'Jtles.'''
• However,'when'opened'in'the'presence'of'the'Bank's'
representaJve,'the'SDB'yielded'no'such'cerJficates.'
• Because'of'the'delay'in'the'reconsJtuJon'of'the'Jtle,'
Mrs.'Ramos'withdrew'her'earlier'offer'to'purchase'the'
lots;'as'a'consequence,'the'PeJJoner'allegedly'failed'to'
realize'the'expected'profit'of'P285K.''
• Hence,'PeJJoner'filed'a'complaint'for'damages'against'
Respondent'Bank.'
• Lower'courts'ruled'in'favour'of'Respondent'Bank.'Thus,'
this'peJJon.'
Issues:'
Whether'or'not'the'disputed'contract'is'an'ordinary'
contract'of'lease?'
2. Whether'or'not'the'provisions'of'the'cited'contract'are'
valid?'
3. Whether'or'not'Respondent'Bank'is'liable'for'damages?'
Ruling:'
1. No.'SC'ruled'that'it'is'a'special'kind'of'deposit'because:'
• the'full'and'absolute'possession'and'control'of'the'
SDB'was'not'given'to'the'joint'renters'—'the'
PeJJoner'and'the'Pugaos.''
• The'guard'key'of'the'box'remained'with'the'
Respondent'Bank;'without'this'key,'neither'of'the'
• 'In'this'case,'the'said'key'had'a'duplicate'which'was'
made'so'that'both'renters'could'have'access'to'the'
• Moreover,'the'renJng'out'of'the'SDBs'is'not'
independent'from,'but'related'to'or'in'conjuncJon'
with,'the'principal'funcJon'of'a'contract'of'deposit''
the'receiving'in'custody'of'funds,'documents'and'
other'valuable'objects'for'safekeeping.'
2. NO.'SC'opined'that'it'is'void.''
• Generally,'the'Civil'Code'provides'that'the'
depositary'(Respondent'Bank)'would'be'liable'if,'in'
performing'its'obligaJon,'it'is'found'guilty'of'fraud,'
negligence,'delay'or'contravenJon'of'the'tenor'of'
the'agreement.''
• In'the'absence'of'any'sJpulaJon,'the'diligence'of'a'
good'father'of'a'family'is'to'be'observed.''
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 • Hence,'any'sJpulaJon'exempJng'the'depositary'
from'any'liability'arising'from'the'loss'of'the'thing'
deposited'on'account'of'fraud,'negligence'or'delay'
would'be'void'for'being'contrary'to'law'and'public'
policy'(which'is'present'in'the'disputed'contract)'
• Said'provisions'are'inconsistent'with'the'Respondent'
Bank's'responsibility'as'a'depositary'under'SecJon'
72(a)'of'the'General'Banking'Act.'
3. NO.'SC'ruled'that:'
• no'competent'proof'was'presented'to'show'that'
Respondent'Bank'was'aware'of'the'private'
agreement'between'the'PeJJoner'and'the'Pugaos'
that'the''Land'Jtles'were'withdrawable'from'the'
SDB'only'upon'both'parJes''joint'signatures,''
• and'that'no'evidence'was'submiced'to'reveal'that'
the'loss'of'the'cerJficates'of'Jtle'was'due'to'the'
fraud'or'negligence'of'the'Respondent'Bank.''
ART.'1977.'OBLIGATION'NOT'TO'MAKE'USE'OF'THING'
DEPOSITED'UNLESS'AUTHORIZED.'
JAVELLANA'VS.'LIM'
FACTS:'Defendants'executed'a'document'in'favor'of'plainJff1
appellee' wherein' it' states' that' they' have' received,' as' a'
deposit,' without' interest,' money' from' plainJff1appellee' and'
agreed' upon' a' date' when' they' will' return' the' money.' Upon'
the'sJpulated'due'date,'defendants'asked'for'an'extension'to'
pay' and' binding' themselves' to' pay' 15%' interest' per' annum'
on' the' amount' of' their' indebtedness,' to' which' the' plainJff1
appellee' acceded.' The' defendants' were' not' able' to' pay' the'
full' amount' of' their' indebtedness' notwithstanding' the'
request' made' by' plainJff1appellee.' The' lower' court' ruled' in'
favor'of'plainJff1appellee'for'the'recovery'of'the'amount'due.'
ISSUE:'Whether'the'agreement'entered'into'by'the'parJes'is'
one'of'loan'or'of'deposit?'
HELD:'The'document'executed'was'a'contract'of'loan.'Where'
money,'consisJng'of'coins'of'legal'tender,'is'deposited'with'a'
person' and' the' lacer' is' authorized' by' the' depositor' to' use'
and'dispose'of'the'same,'the'agreement'is'not'a'contract'of'
deposit,' but' a' loan.' A' subsequent' agreement' between' the'
parJes' as' to' interest' on' the' amount' said' to' have' been'
deposited,' because' the' same' could' not' be' returned' at' the'
Jme' fixed' therefor,' does' not' consJtute' a' renewal' of' an'
agreement' of' deposit,' but' it' is' the' best' evidence' that' the'
original'contract'entered'into'between'therein'was'for'a'loan'
under'the'guise'of'a'deposit.'
G.R.'Nos.'L126948'and'L126949'''''''''''''October'8,'1927'
SILVESTRA'BARON,'plainJff1appellant,'

vs.

PABLO'DAVID,'defendant1appellant.'
And'
GUILLERMO'BARON,'plainJff1appellant,'

vs.

PABLO'DAVID,'defendant1appellant.'
FACTS:'
- The'defendant'owns'a'rice'mill,'which'was'well'
patronized'by'the'rice'growers'of'the'vicinity.'
- On'January'17,'1921,'a'fire'occurred'that'destroyed'
the'mill'and'its'contents,'and'it'was'some'Jme'
before'the'mill'could'be'rebuilt'and'put'in'operaJon'
again.'
- Silvestra'Baron'(P1)'and'Guillermo'Baron'(P2)'each'
filed'an'acJon'for'the'recovery'of'the'value'of'palay'
from'the'defendant'(D),'alleged'that:'
o The'palay'have'been'sold'by'both'plainJffs'
to'the'D'in'the'year'1920'
o Palay'was'delivered'to'D'at'his'special'
request,'with'a'promise'of'compensaJon'at'
the'highest'price'per'cavan'
- D'claims'that'the'palay'was'deposited'subject'to'
future'withdrawal'by'the'depositors'or'to'some'
future'sale,'which'was'never'effected.'D'also'
contended'that'in'order'for'the'plainJffs'to'recover,'
it'is'necessary'that'they'should'be'able'to'establish'
that'the'plainJffs''palay'was'delivered'in'the'
character'of'a'sale,'and'that'if,'on'the'contrary,'the'
defendant'should'prove'that'the'delivery'was'made'
in'the'character'of'deposit,'the'defendant'should'be'
absolved.'
ISSUE:'WoN'there'was'deposit'
SC:'NO'
- Art.' 1978.' When' the' depositary' has' permission' to'
use' the' thing' deposited,' the' contract' loses' the'
concept' of' a' deposit' and' becomes' a' loan' or'
commodatum,' except' where' safekeeping' is' sJll' the'
principal' purpose' of' the' contract.' The' permission'
shall' not' be' presumed,' and' its' existence' must' be'
proved.'
- The' case' does' not' depend' precisely' upon' this'
explicit'alternaJve;'for'even'supposing'that'the'palay'
may'have'been'delivered'in'the'character'of'deposit,'
subject' to' future' sale' or' withdrawal' at' plainJffs''
elecJon,' nevertheless' if' it' was' understood' that' the'
defendant' might' mill' the' palay' and' he' has' in' fact'
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 appropriated'it'to'his'own'use,'he'is'of'course'bound'
to'account'for'its'value.''
- In' this' connecJon' we' wholly' reject' the' defendant's'
pretense'that'the'palay'delivered'by'the'plainJffs'or'
any' part' of' it' was' actually' consumed' in' the' fire' of'
January,'1921.'Nor'is'the'liability'of'the'defendant'in'
any' wise' affected' by' the' circumstance' that,' by' a'
custom'prevailing'among'rice'millers'in'this'country,'
persons' placing' palay' with' them' without' special'
agreement' as' to' price' are' at' liberty' to' withdraw' it'
later,' proper' allowance' being' made' for' storage' and'
shrinkage,' a' thing' that' is' someJmes' done,' though'
rarely.''
UNITED'STATES,'vs.'IGPUARA'
Facts:'The'defendant'Jose'igpuara''was'entrusted'with'the'
amount'of'P2,498'by'MonJlla'and'Veraguth.'Without'the'
consent'of'MonJlla'and'Veraguth'however,'Igpuara'used'the'
said'amount'for'his'own'ends.'Thus,'igpuara'was'charged'and'
convicted'with'estafa,'for'having'swindled'Juana'MonJlla'and'
Eugenio'Veraguth'out'of'P2,498'which'he'had'taken'as'
deposit'from'the'former'to'be'at'the'his'disposal.'Igpuara'was''
sentenced'to'pay'Juana'MonJlla'P2,498'.'The'instrument'for'
the'deposit'reads:''
We'hold'at'the'disposal'of'Eugenio'Veraguth'the'sum'of'two'
thousand'four'hundred'and'ninety1eight'pesos'(P2,498),'the'
balance'from'Juana'MonJlla's'sugar.'—'Iloilo,'June'26,'1911,'
—'Jose'Igpuara,'for'Ramirez'and'Co'
Igpuara'contended'that'the'amount'was'not'deposit'for'there'
was'no'cerJficate'of'deposit,'there'was'no'transfer'or'delivery'
of'the'P2,498'and'what'transpired'was'a'loan.'If'assuming'
that'it'was'deposit,'this'is'negoJable.''
Issues:'Whether'or'not'it'is'necessary'that'there'be'transfer'
or'delivery'in'order'to'consJtute'a'deposit.''
Held:''No.'
“A'deposit'is'consJtuted'from'the'Jme'a'person'
receives'a'thing'belonging'to'another'with'the'
obligaJon'of'keeping'and'returning'it.'(Art.'1758,'
Civil'Code.)'“'
His'contenJon'is'without'merit'because'firstly,'the'defendant'
drew'up'a'document'declaring'that'they'remained'in'his'
possession.'With'the'understanding'that'he'would,'for'it'has'
no'other'purpose.''
The'cerJficate'of'deposit'in'quesJon'is'not'negoJable'
because'only'instruments'payable'to'order'are'negoJable.'
Hence,'this'instrument'not'being'to'order'but'to'bearer,'it'is'
not'negoJable.''
As'for'the'argument'that'the'depositary'may'use'or'dispose'
ob'he'things'deposited,'the'depositor's'consent'is'required'
thus,'the'rights'and'obligaJons'of'the'depositary'and'of'the'
depositor'shall'cease'and'the'rules'and'provisions'applicable'
to'commercial'loans,'commission,'or'contract'which'took'the'
place'of'the'deposit'shall'be'observed.'Igpuara'however'has'
shown'no'authorizaJon'whatsoever'or'the'consent'of'the'
depositary'for'using'or'disposing'of'the'P2,498.'
That'there'was'not'demand'on'the'same'or'the'next'day'aber'
the'cerJficate'was'signed,'does'not'operate'against'the'
depositor,'or'signify'anything'except'the'intenJon'not'to'
press'it.'Failure'to'claim'at'once'or'delay'for'someJme'in'
demanding'resJtuJon'of'the'things'deposited,'which'was'
immediately'due,'does'not'imply'such'permission'to'use'the'
thing'deposited'as'would'convert'the'deposit'into'a'loan.''
Judgment'appealed'from'is'affirmed''
ANICETA'PALACIO,'plainJff1appellee,'

vs.

DIONISIO'SUDARIO,'defendant1appellant.'
FACTS:'The'plainJff'made'an'arrangement'for'the'pasturing'of'
eighty1one'head'of'cacle,'in'return'for'which'she'has'to'give'
one1half'of'the'calves'that'might'be'born'and'was'to'pay'the'
defendant'one1half'peso'for'each'calf'branded.'On'demand'
for'the'whole,'forty1eight'head'of'cacle'were'aberwards'
returned'to'her'and'this'acJon'is'brought'to'recover'the'
remaining'thirty1three.'
Defendant'in'reply'to'the'demand'for'the'cacle,'in'which'he'
seeks'to'excuse'himself'for'the'loss'of'the'missing'animals.''
As'a'second'defense'it'is'claimed'that'the'thirty1three'cows'
either'died'of'disease'or'were'drowned'in'a'flood.'The'
defendant's'witnesses'swore'that'of'the'cows'that'perished,'
six'died'from'overfeeding,'and'they'failed'to'make'clear'the'
happening'of'any'flood'sufficient'to'destroy'the'others.''
HELD:'If'we'consider'the'contract'as'one'of'deposit,'then'
under'arJcle'1183'of'the'Civil'Code,'the'burden'of'
explanaJon'of'the'loss'rested'upon'the'depositary'and'under'
arJcle'1769'the'fault'is'presumed'to'be'his.'The'defendant'
has'not'succeeded'in'showing'that'the'loss'occurred'either'
without'fault'on'his'part'or'by'reason'of'caso'fortuito.''
If,'however,'the'contract'be'not'one'strictly'of'deposit'but'one'
according'to'a'local'custom'for'the'pasturing'of'cacle,'the'
obligaJons'of'the'parJes'remain'the'same.''
GULLAS'vs.'NATIONAL'BANK'
62'PHIL'519'
Facts:'
• Acy.'Gullas'has'a'current'account'with'PNB.'
• The'treasury'of'the'US'issued'a'warrant'in'the'amount'of'
$361' payable' to' the' order' of' Bacos.' Gullas' and' Lopez'
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 signed' as' indorsers' of' this' warrant.' Thereupon' it' was'
cashed'by'PNB.''
• The'warrant'was'subsequently'dishonored'by'the'Insular'
treasurer.'
• At'that'Jme,'Gullas'had'a'balance'of'P500'in'PNB.'From'
this' balance,' he' also' issued' some' checks' which'
eventually'could'not'be'paid'when'it'was'sequestered'by'
the'Bank.''
• When' it' learned' of' the' dishonor,' PNB' sent' noJce' to'
Gullas' staJng' that' it' applied' the' outstanding' balances'
from' his' current' account' as' payment' of' the' dishonored'
warrant.'Such'noJce'could'not'be'delivered'to'him'since'
he'was'out'of'town.'
• Without' any' acJon' from' Gullas,' PNB' applied' the'
dishonored'warrant'against'his'account.''
• Because'of'this,'Gullas'was'unable'to'pay'for'the'checks'
he'issued'before'the'applicaJon.'
• Gullas'filed'a'complaint'against'PNB.'
Issue:'
Whether'or'not'PNB'has'a'right'to'apply'a'deposit'to'the'debt'
of'a'depositor'to'the'bank?'
Held:'
Yes,'PNB'has'a'right'to'apply'the'payment'against'the'account'
of'the'depositor.''
The'relaJon'between'a'depositor'and'a'bank'is'that'if'creditor'
and'debtor.'The'general'rule'is'that'a'bank'has'a'right'to'set'
off' of' the' deposit' in' its' hands' for' the' payment' of' any'
indebtedness'to'it'on'the'part'of'the'depositor.''
However,' prior' to' the' mailing' of' the' noJce' of' dishonor' and'
without'waiJng'for'any'acJon'by'Gullas,'the'bank'made'use'
of' the' money' standing' in' his' account' to' make' good' for' the'
treasury' warrant.' At' this' point' recall' that' Gullas' was' merely'
an' indorser.' ' NoJce' should' have' been' given' to' him' in' order'
that'he'might'protect'his'interest.'He'should'be'awarded'with'
nominal' damages' because' of' the' premature' acJon' of' the'
Bank.'
SERRANO'vs'CENTRAL'BANK'
Facts:' ' Serrano' had' P350K' worth' of' Jme' deposits'
in'Overseas'Bank'of'Manila.'He'made'a'series'of'encashment'
but'was'not'successful.'He'filed'a'case'against'Overseas'Bank'
&' he' also' included' the' Central' Bank' so' that' the' lacer' may'
also'be'jointly'and'severally'liable.'Serrano'argued'that'the'CB'
failed'to'supervise'the'acts'of'Overseas'Bank'and'protect'the'
interests'of'its'depositors'by'virtue'of'construcJve'trust.'
Issue:' ' W/N'the'Central'Bank'is'liable?'
Ruling:'' No.'There'is'no'breach'of'trust'from'a'bank’s'failure'
to'return'the'subject'macer'of'the'deposit.'Bank'deposits'are'
in'the'nature'of'irregular'deposits.'All'kinds'of'bank'deposits'
are'to'be'treated'as'loans'and'are'to'be'covered'by'the'law'on'
loans' Art.1980.' In' reality' the' depositor' is' the' creditor' while'
the' bank' is' the' debtor.' Failure' of' the' respondent' bank' to'
honor' the' Jme' deposit' is' failure' to' pay' its' obligaJon' as' a'
debtor.'''
SESBRENO'V.'CA'


Facts:'Sesbreno'entered'into'a'money'market,'giving'300k'to'
Philfinance.' As' an' exchange,' Philfinance' gave' checks' and'
confirmaJon'of'sale'of'Delta'Motor'Corp'cerJficates.'Checks'
bounced.' Sesbreno' is' running' aber' Philipinas' Bank' (payee)'
(Holder' of' security' of' primissory' note)' and' Delta' (maker).'
Delta' contends' that' it' is' not' liable' because' there' was'
"reconstrucJon"' of' debt' of' Delta' to' Philfinance,' the'
promissory' note' is' not' valid' anymore.' It' also' contends' that'
the'document'cannot'be'assigned'because'its'non'negoJable.'
RTC' ruled' that' Philfinance' is' liable' because' Philfinance'
already'knows'that'the'liability'was'already'waived'and'it'sJll'
issued' the' cerJficate.' However,' since' Philfinance' was' not'
impleaded,' judgment' cannot' be' made' against' Philfinance.'
The' issue' related' in' this' case' is' regarding' trasferrability' and'
assignability.

Issue:' WoN' the' non1negoJable' instrument' is' non'
transferrable/assignable

Ruling:'Assignable'is'different'from'tranferrability.'NegoJable'
instruments' can' be' indorsed.' Non' negoJable' instrumets' can'
be' assigned.' Therefore,' non' negoJable' instrument' can' be'
assigned.'
DE'LOS'SANTOS'vs'TAN'KHEY'
O.G.No.266951R,''''July'30,'1962'
Facts:''
' Tan' Khey' was' the' owner' of' InternaJonal' Hotel'
located'in'Iloilo'city.'Romeo'de'los'Santos'lodged'in'Tna'Khey’s'
hotel.' Aber' arrival,' he' leb' the' hotel,' deposiJng' his' revolver'
and'his'bag'with'the'person'in'charge'in'the'hotel.' 'When'he'
returned' to' the' hotel,' he' took' his' revolver' and' his' bag' from'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''19'
the'person'in'charge'in'the'hotel'and'proceeded'to'his'room.'
He'locked'the'door'before'sleeping.'
' When'he'woke'up,'he'discovered'that'the'door'in'his'
room'was'opened'and'his'bag'and'pants,'wherein'he'placed'
his' revolver' ,' was' missing.' He' reported' the' macer' to' the'
Assistant' Manager' of' the' hotel,' who' in' turn' informed' Tan'
Khey.'
' A'secret'service'agent'was'sent'to'invesJgate'and'it'
was' found' that' the' wall' of' the' room' occupied' by' De' los'
Santos' was' only' seven' feet' high' with' an' open' space' above'
through' which' one' could' enter' from' outside.' De' los' Santos'
told'the'detecJve'that'he'lost'his'revolver.'
' Tan' Khey' disclaimed' liability' because' De' los' Santos'
did' not' deposit' his' properJes' with' the' manager' despite' a'
noJce'to'that'effect'was'posted'in'the'hotel.''
' Tan' Khey' contended' that' to' be' liable' ' under' ArJcle'
1998'of'the'Civil'Code,'the'following'condiJons'must'concur:'
1. Deposit'of'effects'by'travellers'in'hotel'or'inn'
2. NoJce' given' to' hotel' keepers' or' employees' of'
the'effects'brought'by'guests'
3. Guest' or' travellers' take' the' precauJons' which'
said' hotel' keepers' or' their' subsJtutes' advised'
relaJve'to'the'care'and'vigilance'of'their'effects.''
Issue:'Whether'the'hotel'owner'should'be'held'liable'for'the'
loss'of'the'effects'of'the'guest?'
Rulng:''
' The' Court' ruled' that' the' hotel' owner' should' be'
liable'for'the'loss'of'the'revolver,'pants'and'bag'of'the'guest.'
Deposit'
' While' the' law' speaks' of' “deposit”' of' effects' by'
travellers'in'hotels'or'inns,'personal'receipt'by'the'innkeeper'
for' safe' keeping' of' effects' is' not' necessaily' meant' thereby.'
The'reason'therefor'is'the'fact'that'it'is'the'nature'of'business'
of'an'innkeeper'to'provide'not'only'lodging'for'travellers'but'
also' to' security' to' ' their' persons' and' effects.' The' secuity'
menJoned'is'not'confined'to'the'effects'actually'delivered'to'
the' innkeeper' but' also' to' all' effects' placed' within' the'
premises' of' the' hotel.' This' is' because' innkeepers' by' the'
neture'of'their'business,'have'supervision'and'controlof'their'
inns'and'the'premises'threof.''
' It' is' not' necessary' that' the' effect' was' actually'
delivered' but' it' is' enough' that' they' ' are' within' the' inn.' If' a'
guest'and'goods'are'within'the'inn,'that'is'sufficient'to'charge'
him.'
' The' owner' of' a' hotel' may' exonerate' himself' from'
liability'by'showing'that'the'guest'has'taken'exclusive'control'
of' his' own' goods,' but' this' must' be' exclusive' custody' and'
control' of' a' guest,' and' must' not' be' held' under' the'
supervision' and' care' of' the' innkeeper,ey' are' kept' in' a' room'
assigned' to' a' guest' or' the' other' proper' depository' in' the'
house.'
' In' this' case,' the' guest' deposited' his' effects' in' the'
hotel'because'they'are'in'his'room'and'within'the'premises'of'
the'hotel,'and'therefore,'within'the'supervision'and'control'of'
the'hotel'owner.'
NoJce'
' The' Court' ruled' that' there' was' no' doubt' that' the'
person'in'charge'had'knowledge'of'his'revolver,'the'bag,'and'
pants'of'the'guest,'De'los'Santos.'
' The' requirement' of' noJce' being' evidently' for' the'
purpose' of' closing' the' door' to' fraudulent' claims' for' non1
existent' arJcles,' the' lack' thereof' was' fatal' to' De' los' Santos’'
claim'for'reparaJon'for'the'loss'of'his'eyeglass,'ring,'and'cash.'
PrecauJons'
' While' an' innkeeper' cannot' free' himself' from'
responsibility'by'posJng'noJces,'there'can'be'no'doubt'of'the'
innkeeper’s' right' to' make' such' regulaJons' in' the'
management' of' his' inn' as' will' more' effectually' secure' the'
property' of' his' guest' and' operate' as' protecJon' to' himself,'
and'that'it'is'incumbent'upon'the'guest,'if'he'means'to'hold'
the' inkeeper' ho' his' responsibility,' to' comply' with' any'
regulaJon' that' is' just' and' reasonable,' when' he' is' requested'
to'do'so.'
' However,' in' this' case,' the' noJce' requiring' actual'
deposit'of'the'effects'with'the'manager'was'an'unreasonable'
regulaJon.' ' It' was' unreasonable' to' require' the' guest' to'
deposit' his' bag' ,pants' and' revolver' to' the' manager.' De' los'
Santos'had'exercised'the'necessary'diligence'with'respect'to'
the'care'and'vigilance'of'his'effects.'
Topic:'Deposit;'ArJcle'2003'
YHT'Realty'v.'CA'
FACTS:'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''20'
 • Respondent' McLoughlin' would' stay' at' Tropicana'
Hotel' every' Jme' he' is' here' in' the' Philippines' and'
would'rent'a'safety'deposit'box.''
• The' safety' deposit' box' could' only' be' opened'
through' the' use' of' 2' keys,' one' of' which' is' given' to'
the'registered'guest,'and'the'other'remaining'in'the'
possession'of'the'management'of'the'hotel.''
• McLoughlin' allegedly' placed' the' following' in' his'
safety' deposit' box' –' 2' envelopes' ' containing' US'
Dollars,' one' envelope' containing' Australian' Dollars,'
Lecers,'credit'cards,'bankbooks'and'a'checkbook.'
• When' he' went' abroad,' a' few' dollars' were' missing'
and'the'jewelry'he'bought'was'likewise'missing.''
• Eventually,' he' confronted' Lainez' and' Paiyam' who'
admiced' that' Tan' opened' the' safety' deposit' box'
with' the' key' assigned' to' him.' McLoughlin' went' up'
to' his' room' where' Tan' was' staying' and' confronted'
her.' Tan' admiced' that' she' had' stolen' McLouglin’s'
key' and' was' able' to' open' the' safety' deposit' box'
with' the' assistance' of' Lopez,' Paiyam' and' Lainez.'
Lopez' alsto' told' McLoughlin' that' Tan' stole' the' key'
assigned'to'McLouglin'while'the'lacer'was'asleep.'
• McLoughlin' insisted' that' it' must' be' the' hotel' who'
must'assume'responsibility'for'the'loss'he'suffered.'
• Lopez'refused'to'accept'responsibility'relying'on'the'
condiJons'for'renJng'the'safety'deposit'box'enJtled'
“Undertaking'For'the'Use'of'Safety'Deposit'Box”'
ISSUE:'Whether'the'hotel’s'Undertaking'is'valid?'
HELD:'NO'
• ArJcle'2003'was'incorporated'in'the'New'Civil'Code'
as' an' expression' of' public' policy' precisely' to' apply'
to'situaJons'such'as'that'presented'in'this'case.'The'
hotel'business'like'the'common'carrier’s'business'is'
imbued' with' public' interest.' Catering' to' the' public,'
hotelkeepers'are'bound'to'provide'not'only'lodging'
for' hotel' guests' and' security' to' their' persons' and'
belongings.'The'twin'duty'consJtutes'the'essence'of'
the' business.' The' law' in' turn' does' not' allow' such'
duty' to' the' public' to' be' negated' or' diluted' by' any'
contrary'sJpulaJon'in'so1called'“undertakings”'that'
ordinarily' appear' in' prepared' forms' imposed' by'
hotel'keepers'on'guests'for'their'signature.'
• In'an'early'case'(De'Los'Santos'v.'Tan'Khey),'CA'ruled'
that'to'hold'hotelkeepers'or'innkeeper'liable'for'the'
effects' of' their' guests,' it' is' not' necessary' that' they'
be' actually' delivered' to' the' innkeepers' or' their'
employees.'It'is'enough'that'such'effects'are'within'
the' hotel' or' inn.' With' greater' reason' should' the'
liability' of' the' hotelkeeper' be' enforced' when' the'
missing' items' are' taken' without' the' guest’s'
knowledge' and' consent' from' a' safety' deposit' box'
provided'by'the'hotel'itself,'as'in'this'case.'
• Paragraphs' (2)' and' (4)' of' the' “undertaking”'
manifestly' contravene' ArJcle' 2003,' CC' for' they'
allow' Tropicana' to' be' released' from' liability' arising'
from' any' loss' in' the' contents' and/or' use' of' the'
safety' deposit' box' for' any' cause' whatsoever.'
Evidently,' the' undertaking' was' intended' to' bar' any'
claim'against'Tropicana'for'any'loss'of'the'contents'
of'the'safety'deposit'box'whether'or'not'negligence'
was'incurred'by'Tropicana'or'its'employees.'
THE'WAREHOUSE'RECEIPTS'LAW'
G.R.'No.'L116315'''''''''''''May'30,'1964'
COMMISSIONER'OF'INTERNAL'REVENUE,'peJJoner,'

vs.

HAWAIIAN1PHILIPPINE'COMPANY,'respondent.'
FACTS:'
The' peJJoner,' a' corporaJon' duly' organized' in' accordance'
with' law,' is' operaJng' a' sugar' central' in' the' City' of' Silay,'
Occidental' Negros.' It' produces' centrifugal' sugar' from'
sugarcane' supplied' by' planters.' The' processed' sugar' is'
divided' between' the' planters' and' the' peJJoner' in' the'
proporJon' sJpulated' in' the' milling' contracts,' and' thereaber'
is' deposited' in' the' warehouses' of' the' lacer.' (Pp.' 415,' t.s.n.)'
For'the'sugar'deposited'by'the'planters,'the'peJJoner'issues'
the' corresponding' warehouse' receipts' of' "quedans".' It' does'
not' collect' storage' charges' on' the' sugar' deposited' in' its'
warehouse' during' the' first' 90' days' period' counted' from' the'
Jme'it'is'extracted'from'the'sugarcane.'Upon'the'lapse'of'the'
first' ninety' days' and' up' to' the' beginning' of' the' next' milling'
season,' it' collects' a' fee' of' P0.30' per' picul' a' month.'
Henceforth,' if' the' sugar' is' not' yet' withdrawn,' a' penalty' of'
P0.25' per' picul' or' fracJon' thereof' a' month' is' imposed.'
(Exhibits'"B11",'"C11",'"D11",'"B12",'"C12",'p.'10,'t.s.n.)'
The' storage' of' sugar' is' carried' in' the' books' of' the' company'
under' Account' No.' 5000,' denominated' "Manufacturing' Cost'
Ledger'Control";'the'storage'fees'under'Account'No.'521620;'
the'expense'accounts'of'the'factory'under'Account'No.'5200;'
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and' the' so1called' "Sugar' Bodega' OperaJons"' under' Account'
No.' 5216,' under' which' is' a' Sub1Account' No.' 20,' capJoned,'
"Credits".'(Pp.'16117,'t.s.n.,'Exhibit'"F".)'The'collecJons'from'
storage'aber'the'lapse'of'the'first'90'days'period'are'entered'
in' the' company's' books' as' debit' to' CASH,' and' credit' to'
Expense'Account'No.'2516120'(p.'18,'t.s.n.).'
The' credit' for' storage' charges' decreased' the' deducJble'
expense'resulJng'in'the'corresponding'increase'of'the'taxable'
income' of' the' peJJoner.' This' is' reflected' by' the' entries'
enclosed' in' parenthesis' in' Exhibit' "G",' under' the' heading'
"Storage' Charges".' (P.' 18,' t.s.n.)' The' alleged' reason' for' this'
accounJng'operaJon'is'that,'inasmuch'as'the'"Sugar'Bodega'
OperaJons"' is' considered' as' an' expense' account,' entries'
under' it' are' "debits".' Similarly,' since' "Storage' Charges"'
consJtute'"credit",'the'corresponding'figures'(see'Exhibit'"C")'
are'enclosed'in'parenthesis'as'they'decrease'the'expenses'of'
maintaining'the'sugar'warehouses.'
Upon' invesJgaJon' conducted' by' the' Bureau,' it' was' found'
that' during' the' years' 1949' to' 1957,' the' peJJoner' realized'
from' collected' storage' fees' a' total' gross' receipts' of'
P212,853.00,' on' the' basis' of' which' the' respondent'
determined' the' peJJoner's' liability' for' fixed' and' percentage'
taxes,' 25%' surcharge,' and' administraJve' penalty' in' the'
aggregate'amount'of'P8,411.99'(Exhibit'"5",'p.'11,'BIR'rec.)'
Aber'due'hearing'the'Court'of'Tax'Appeals'ordered'the'CIR'to'
refund' to' respondent' Hawaiian1Philippine' Company' the'
amount'of'P8,411.99'represenJng'fixed'and'percentage'taxes'
assessed' against' it' and' which' the' lacer' had' deposited' with'
the'City'Treasurer'of'Silay,'Occidental'Negros'
ISSUE:'
Whether' or' notpeJJoner' is' a' warehouseman' liable' for' the'
payment' of' the' fixed' and' percentage' taxes' prescribed' in'
SecJons'182'and'191'of'the'NaJonal'Internal'Revenue'Code'
HELD:'
YES.'
Respondent' disclaims' liability' under' the' provisions' quoted'
above,'alleging'that'it'is'not'engaged'the'business'of'storing'
its' planters'' sugar' for' profit;' that' the' maintenance' of' its'
warehouses' is' merely' incidental' to' its' business' of'
manufacturing'sugar'and'in'compliance'with'its'obligaJon'to'
its'planters.'We'find'this'to'be'without'merit.'
It'is'clear'from'the'facts'of'the'case'that,'aber'manufacturing'
the' sugar' of' its' planters,' respondent' stores' it' in' its'
warehouses' and' issues' the' corresponding' "quedans"' to' the'
planters' who' own' the' sugar;' that' while' the' sugar' is' stored'
free' during' the' first' ninety' days' from' the' date' the' it'
"quedans"' are' issued,' the' undisputed' fact' is' that,' upon' the'
expiraJon' of' said' period,' respondent' charger,' and' collects'
storage' fees;' that' for' the' period' beginning' 1949' to' 1957,'
respondent's' total' gross' receipts' from' this' parJcular'
enterprise'amounted'to'P212,853.00.'
A'warehouseman'has'been'defined'as'one'who'receives'and'
stores' goods' of' another' for' compensaJon' (44' Words' and'
Phrases,' p.' 635).' For' one' to' be' considered' engaged' in' the'
warehousing' business,' therefore,' it' is' sufficient' that' he'
receives' goods' owned' by' another' for' storage,' and' collects'
fees' in' connecJon' with' the' same.' In' fact,' SecJon' 2' of' the'
General' Bonded' Warehouse' Act,' as' amended,' defines' a'
warehouseman' as' "a' person' engaged' in' the' business' of'
receiving'commodity'for'storage."'
That' respondent' stores' its' planters'' sugar' free' of' charge' for'
the' first' ninety' days' does' not' exempt' it' from' liability' under'
the' legal' provisions' under' consideraJon.' Were' such' fact'
sufficient'for'that'purpose,'the'law'imposing'the'tax'would'be'
rendered'ineffectual.'
Gonzalez'vs'Go'Tiong'
Facts:'
• Go'Tiong'(respondent)'owned'a'rice'mill'and'warehouse,'
located'in'Pangasinan.'Thereaber,'he'obtained'a'license'
to'engage'in'the'business'of'a'bonded'warehouseman.''
• Subsequently,'respondent'Tiong'executed'a'Guaranty'
Bond'with'the'Luzon'Surety'Co'to'secure'the'
performance'of'his'obligaJons'as'such'bonded'
warehouseman,'in'the'sum'of'P18,334,''in'case'he'was'
unable'to'return'the'same.''
• Aberwards,'respondent'Tiong'insured'the'warehouse'
and'the'palay'deposited'therein'with'the'Alliance'Surety'
and'Insurance'Company.''
• But'prior'to'the'issuance'of'the'license'to'Respondent,'he'
had'on'several'occasions'received'palay'for'deposit'from'
PlainJff'Gonzales,'totaling'368'sacks,'for'which'he'issued'
receipts.'
• Aber'he'was'licensed'as'a'bonded'warehouseman,'Go'
Tiong'again'received'various'deliveries'of'palay'from'
PlainJff,'totaling'492'sacks,'for'which'he'issued'the'
corresponding'receipts,'all'the'grand'total'of'860'sacks,'
valued'at'P8,600'at'the'rate'of'P10'per'sack.'
• Noteworthy'is'that'the'receipts'issued'by'Go'Tiong'to'the'
PlainJff'were'ordinary'receipts,'not'the'"warehouse'
receipts"'defined'by'the'Warehouse'Receipts'Act'(Act'
No.'2137).'
• On'or'about'March'15,'1953,'PlainJff'demanded'from'Go'
Tiong'the'value'of'his'deposits'in'the'amount'of'P8,600,'
but'he'was'told'to'return'aber'two'days,'which'he'did,'
but'Go'Tiong'again'told'him'to'come'back.''
• A'few'days'later,'the'warehouse'burned'to'the'ground.''
• Before'the'fire,'Go'Tiong'had'been'accepJng'deliveries'of'
palay'from'other'depositors'and'at'the'Jme'of'the'fire,'
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 there'were'5,847'sacks'of'palay'in'the'warehouse,'in'
excess'of'the'5,000'sacks'authorized'under'his'license.''
• Aber'the'burning'of'the'warehouse,'the'depositors'of'
palay,'including'PlainJff,'filed'their'claims'with'the'
Bureau'of'Commerce.'
• However,'according'to'the'decision'of'the'trial'court,'
nothing'came'from'PlainJff's'efforts'to'have'his'claim'
paid.'
• Thereaber,'Gonzales'filed'the'present'acJon'against'Go'
Tiong'and'the'Luzon'Surety'for'the'sum'of'P8,600,'the'
value'of'his'palay,'with'legal'interest,'damages'in'the'sum'
of'P5,000'and'P1,500'as'acorney's'fees.''
• While'the'case'was'pending'in'court,'Gonzales'and'Go'
Tiong'entered'into'a'contract'of'amicable'seclement'to'
the'effect'that'upon'the'seclement'of'all'accounts'due'to'
him'by'Go'Tiong,'he,'Gonzales,'would'have'all'acJons'
pending'against'Go'Tiong'dismissed.''
• receipt'issued'by'the'warehouse'of'U.'de'Poli'for'576'bultos'of'
Inasmuch'as'Go'Tiong'failed'to'secle'the'accounts,'
Gonzales'prosecuted'his'court'acJon'
ISSUE:'
Whether'or'not'PlainJff’s'claim'is'governed'by'the'Bonded'
Warehouse'Act'due'to'Go'Tiong’s'act'of'issuing'to'the'former'
ordinary'receipts,'not'warehouse'receipts?'
RULING:'
YES.'SC'ruled'in'favor'PlainJff.'
• but'a'security'for'a'loan,'the'vendor’s'lien'of'Roman'should'be'
Act'No.'3893'provides'that'any'deposit'made'with'
Respondent'Tiong'as'a'bonded'warehouseman'must'
necessarily'be'governed'by'the'provisions'of'Act'No.'
3893.''
• The'kind'or'nature'of'the'receipts'issued'by'him'for'the'
deposits'is'not'very'material'much'less'decisive'since'said'
provisions'are'not'mandatory'and'indispensable''
• Under'SecJon'1'of'the'Warehouse'Receipts'Act,'the'
issuance'of'a'warehouse'receipt'in'the'form'provided'by'
it'is'merely'permissive'and'directory'and'not'obligatory.'.'
"Receipt",'under'this'secJon,'can'be'construed'as'any'
receipt'issued'by'a'warehouseman'for'commodity'
delivered'to'him'
• As'the'trial'court'well'observed,'as'far'as'Go'Tiong'was'
concerned,'the'fact'that'the'receipts'issued'by'him'were'
not'"quedans"'is'no'valid'ground'for'defense'because'he'
was'the'principal'obligor.''
• Furthermore,'as'found'by'the'trial'court,'Go'Tiong'had'
repeatedly'promised'PlainJff'to'issue'to'him'"quedans"'
and'had'assured'him'that'he'should'not'worry;'and'that'
Go'Tiong'was'in'the'habit'of'issuing'ordinary'receipts'
(not'"quedans")'to'his'depositors.'
• Furthermore,'SecJon'7'of'said'law'provides'that'as'long'
as'the'depositor'is'injured'by'a'breach'of'any'obligaJon'
of'the'warehouseman,'which'obligaJon'is'secured'by'a'
bond,'said'depositor'may'sue'on'said'bond.''
• In'other'words,'the'surety'cannot'avoid'liability'from'the'
mere'failure'of'the'warehouseman'to'issue'the'
prescribed'receipt.'
WAREHOUSE'RECEIPT:'Failure'to'mark'“non1negoJable.”'
ROMAN'V.'ASIA'BANKING'CORPORATION'
FACTS:' U.' de' Poli,' for' value' received,' issued' a' quedan'
convering' the' 576' bultos' of' tobacco' to' the' Asia' Banking'
CorporaJon' (claimant' &' appellant).' It' was' executed' as' a'
security' for' a' loan.' The' aforesaid' 576' butlos' are' part' and'
parcel'of'the'2,'766'bultos'purchased'by'U.'de'Poli'from'Felisa'
Roman'(claimant'&'appellee).'
The' quedan' was' marked' as' Exhibit' D' which' is' a' warehouse'
tobacco.' In' the' leb' margin' of' the' face' of' the' receipt,' U.' de'
Poli' cerJfies' that' he' is' the' sole' owner' of' the' merchandise'
therein' described.' The' receipt' is' endorsed' in' blank;' it' is' not'
marked”non1negoJable”'or'“not'negoJable”.'
Since' a' sale' was' consummated' between' Roman' and' U.' de'
Poli,'Roman’s'claim'is'a'vendor’s'lien.'The'lower'court'ruled'in'
favor'of'Roman'on'the'theory'that'since'the'transfer'to'Asia'
Banking' Corp.' (ASIA)' was' neither' a' pledge' nor' a' mortgage,'
accorded'preference'over'it.''
However,'if'the'warehouse'receipt'issued'was'non1negoJable,'
the'vendor’s'lien'of'Roman'cannot'prevail'against'the'rights'of'
ASIA'as'indorsee'of'the'receipt.'
ISSUE:'WON'the'quedan'issued'by'U.'de'Poli'in'favor'of'ASIA.'
is'negoJable,'despite'failure'to'mark'it'as'not'negoJable?'
HELD:'YES.'The'warehouse'receipt'in'quesJon'is'negoJable.'It'
recited'that'certain'merchandise'deposited'in'the'ware'house'
“por' orden”' of' the' depositor' instead' of' “a' la' orden”,' there'
was' no' other' direct' statement' showing' whether' the' goods'
received' are' to' be' delivered' to' the' bearer,' to' a' specified'
person,'or'to'a'specified'order'or'his'order.'However,'the'use'
of'“por'orden”'was'merely'a'clerical'or'grammaJcal'error'and'
that'the'receipt'was'negoJable.''
As' provided' by' the' Warehouse' Receipts' Act,' in' case' the'
warehouse'man'fails'to'mark'it'as'“non1negoJable”,'a'holder'
of' the' receipt' who' purchase' if' for' value' supposing' it' to' be'
negoJable'may,'at'his'opJon,'treat'such'receipt'as'imposing'
upon' the' warehouseman' the' same' liabiliJes' he' would' have'
incurred' had' the' receipt' been' negoJable.' This' appears' to'
have' given' any' warehouse' receipt' not' marked' “non1
negoJable”'pracJcally'the'same'effect'as'a'receipt'which,'by'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''23'
its'terms,'is'negoJable'provided'the'holder'of'such'unmarked'
receipt' acquired' it' for' value' supposing' it' to' be' negoJable,'
circumstances' which' admicedly' exist' in' the' present' case.'
Hence,' the' rights' of' the' indorsee,' ASIA,' are' superior' to' the'
vendor’s'lien.'
Bank'of'P.I.'v.''Herridge'
FACTS:'
The'insolvent'Umberto'de'Poli'was'for'several'years'engaged'
on' an' extensive' scale' in' the' exportaJon' of' Manila' hemp,'
maguey'and'other'products'of'the'country.''
He'was'also'a'licensed'public'warehouseman,'though'most'of'
the' goods' stored' in' his' warehouses' appear' to' have' been'
merchandise'purchased'by'him'for'exportaJon'and'deposited'
there'by'he'himself.chanr'
In' order' to' finance' his' commercial' operaJons' De' Poli'
established' credits' with' some' of' the' leading' banking'
insJtuJons' doing' business' in' Manila' at' that' Jme,' among'
them' the' Hongkong' &' Shanghai' Banking' CorporaJon,' the'
Bank'of'the'Philippine'Islands,'the'Asia'Banking'CorporaJon,'
the' Chartered' Bank' of' India,' Australia' and' China,' and' the'
American'Foreign'Banking'CorporaJon.'
De'Poli'opened'a'current'account'credit'with'the'bank'against'
which'he'drew'his'checks'in'payment'of'the'products'bought'
by'him'for'exportaJon.''
Upon' the' purchase,' the' products' were' stored' in' one' of' his'
warehouses' and' warehouse' receipts' issued' therefor' which'
were' endorsed' by' him' to' the' bank' as' security' for' the'
payment'of'his'credit'in'the'account'current.''
When'the'goods'stored'by'the'warehouse'receipts'were'sold'
and' shipped,' the' warehouse' receipt' was' exchanged' for'
shipping' papers,' a' drab' was' drawn' in' favor' of' the' bank' and'
against' the' foreign' purchaser,' with' bill' of' landing' acached,'
and' the' enJre' proceeds' of' the' export' sale' were' received' by'
the' bank' and' credited' to' the' current' account' of' De'
Poli.chanroble'
De'Poli'was'declared'insolvent'by'the'Court'of'First'Instance'
of' Manila' with' liabiliJes' to' the' amount' of' several' million'
pesos'over'and'above'his'assets.'An'assignee'was'elected'by'
the'creditors'and'the'elecJon'was'confirmed'by'the'court'
Among' the' property' taken' over' the' assignee' was' the'
merchandise' stored' in' the' various' warehouses' of' the'
insolvent.' This' merchandise' consisted' principally' of' hemp,'
maguey'and'tobacco.''
The' various' banks' holding' warehouse' receipts' issued' by' De'
Poli' claim' ownership' of' this' merchandise' under' their'
respecJve' receipts,' whereas' the' other' creditors' of' the'
insolvent' maintain' that' the' warehouse' receipts' are' not'
negoJable,' that' their' endorsement' to' the' present' holders'
conveyed' no' Jtle' to' the' property,' that' they' cannot' be'
regarded'as'pledges'of'the'merchandise'inasmuch'as'they'are'
not'public'documents'and'the'possession'of'the'merchandise'
was'not'delivered'to'the'claimants'and'that'the'claims'of'the'
holders'of'the'receipts'have'no'preference'over'those'of'the'
ordinary'unsecured'creditors.law'lib'
ISSSUE:'
Whether' or' not' the' warehouse' receipts' issued' are'
negoJable?'
HELD:'
Yes,'a'warehouseman'who'deposited'merchandise'in'his'own'
warehouse,' issued' a' warehouse' receipts' therefore' and'
thereaber' negoJated' the' receipts' by' endorsement.' The'
receipt'recites'that'the'goods'were'deposited'“por'orden”'of'
the' depositor,' the' warehouseman,' but' contained' no'
statement'that'the'goods'were'to'be'delivered'to'the'bearer'
of'the'receipts' 'or'to'a'specified'person.'It'is'in'the'form'of'a'
warehouse'receipts'and'was'not'mark'“nonnegoJable”.'
Therefore' the' receipts' was' negoJable' warehouse' receipts'
and' the' words' “por' orden”' must' be' construed' to' mean' “to'
the'order”.'
PNB'v'PRODUCER’S'WAREHOUSE'ASSOCIATION'
FACTS:'
- PNB'(P)'is'a'bank'in'PH,'Producer’s'Warehouse'
AssociaJon'(D)'is'a'domesJc'corporaJon'doing'
general'warehouse'business'and'Phil.'Fiber'and'
Produce'Company'(Fiber)'is'another'domesJc'
corporaJon.'
- D'and'Fiber'entered'into'a'wricen'contract,'wherein'
Fiber'would'act'as'the'general'manager'of'the'
business'of'D'and'that'Fiber'would'exercise'a'
general'and'complete'supervision'over'the'
management'of'the'business'of'D.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''24'
 - Nov'and'Dec'1918'–'D'issued'negoJable'quedans'to'
Fiber'for'15k++'piculs'of'Copra,'which'the'terms'
states'that''
o D'agreed'to'deliver'that'amount'of'copra'
to'Fiber'or'its'order'
o D'will'deliver'the'packages'noted'therein'
upon'the'surrender'of'the'warrant'to'D'
o No'transfer'of'interest/ownership'will'be'
recognized'unless'registered'in'the'books'
of'D'
o The'words'“negoJable'warrant”'were'
printed'in'red'ink'in'the'quedan'
- Fiber'then'arranged'for'overdrab'with'P'for'P1M'
and'to'secure'it,'the'subject'quedans'were'
endorsed'in'blank'and'delivered'by'Fiber'to'P,'which'
became'the'owner'and'holder'thereof.'
- P'later'on'requested'D'the'delivery'of'copra'
described'in'the'quedans,'however,'D'refused'to'
comply'despite'repeated'requests'of'P,'staJng'that'
it'could'not'be'delivered'since'the'goods'menJoned'
are'not'in'the'warehouse.'
- D'stated'that'the'quedans'were'invalid'and'
wrongfully'issued'and'that'the'copra'was'not'in'its'
warehouse'
- LC'ruled'in'favor'of'D'
ISSUE:'WoN'the'quedans'were'validly'negoJated'to'P'
SC:'YES!'
- The'quedans'have'legal'force'and'effect'
o They'were'duly'executed'by'Wicks,'as'
treasurer'and'Torres'as'warehouseman,'for'
and'in'behalf'of'D.'
o The'said'quedans'were'endorsed'in'blank'
and'physical'possession'was'delivered'to'P'
as'collateral'security'for'the'overdrab'of'
Fiber'Company'and''
o That'the'quedans'were'in'negoJable'form.'
- D'cannot'now'deny'the'existence'of'the'quedans''
CRUZ'vs.'VALERO'
Facts:''
Valero'is'president'of'the'Luzon'Sugar'Co.'while'appellant'
Cruz'had'a'share'amounJng'to'1,544.38'piculs'export'
centrifugal'sugar,'which'was'exchanged'for'an'equal'amount'
of'domesJc'centrifugal'sugar.'Cruz'deposited'in'the'Luzon'
Sugar'Company's'warehouse'within'its'compound,'with'the'
obligaJon'on'its'part'to'deliver'it'to'the'appellant'on'demand,''
that'the'appellant'was'enJtled'to'238.20'piculs'of'domesJc'
centrifugal'sugar'as'his'share'in'the'194011941'crop.'On'
different'dates,'the'appellant'had'withdrawn'several'piculs'of'
sugar,'reducing'reducing'the'number'of'gallons'of'molasses.''
Cruz'claims'that'on'December'1941,'the'Luzon'Sugar'
Company'(LSC)'did'not'have'in'its'warehouse'the''sugar'he'
had'stored'in'its'warehouse'for'safekeeping'and'the'number'
of'gallons'of'molasses'he'had'leb'in'its'possession'contained'
in'cylindrical'tanks,'because'the'Valero'had'disposed'of'the'
same'without'the'knowledge'and'consent'of'appellant'and'
that'when'the'appellant'wanted'to'withdraw'his'sugar'from'
the'warehouse'of'LSC,'the'amount'of'sugar'stored'in'the'
warehouse'was'not'manufactured'by'the'Luzon'Sugar'
Company'but'by'a'different'company.''
This'was'denied'by'LSC,'contending'that'it'had'sufficient'
amount'of'sugar'manufactured'by'it'and'was'in'a'posiJon'to'
deliver'sugar.'Its'warehouse'was'however'bombed'by'
Japanese'and'the'warehouse'damaged'by'shrapnel'and'some'
piculs'of'centrifugal'sugar'were'looted,'some'taken'by'the'
Japanese'aber'the'occupaJon'and'the'remaining'brought'by'
the'Japanese'Army'to'Northern'Luzon.'Thus'it'became'
impossible'the'deliver'the'centrifugal'sugar'and'molasses'
belonging'of'Cruz.'
Issue:''Whether'or'not'the'LSC'sJll'has'the'obligaJon'to'
deliver'the'same'amount'and'kind'of'sugar'stored'in'its'
warehouse.'
HELD:''Since'there'was'enough'sugar'to'cover'and'deliver'
1,081.79'piculs'of'domesJc,'reserve'and'addiJonal'sugar'
belonging'to'the'Cruz'who,'according'to'the'milling'contract,'
was'in'duty'bound'to'take'delivery'thereof'at'the'warehouse,''
since'it'was'established'that'the'LSC'compound'was'bombed'
on'December'1941'by'the'Japanese'who'also'occupied'it'from'
1'January'to'20'February'1942,'the'loss'was'due'to'the'war'or'
to'a'fortuitous'event'and'therefore,'the'obligaJon'of'the'
depositary'to'deliver'what'has'been'deposited'in'him'has'
been'exJnguished'by'the'happening'of'a'fortuitous'event,'
which'in'this'case,'is'the'pacific'war.'The'judgment'appealed'
from'is'affirmed.'
This'is'an'appeal'from'a'decision'of'the'Court'of'First'Instance'
of'Nueva'Ecija'which'orders'the'defendant'to'pay'to'the'
plainJff'the'sum'of'P3,000,'with'interest'thereon'at'the'rate'
of'6%'per'annum'from'June'26,'1940,'and'the'costs'of'acJon.'
ESTRADA'V.'CAR'
DMG'INC.'vs'CONSOLIDATED'TERMINALS'INC.'
'63'OG'10'
Facts:'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''25'
• DMG' ordered' replacement' parts' for' diesel' conversion'
engine'from'Germany.'
• Upon' arrival' in' Manila,' the' shipment' was' placed' in' the'
warehouse'of'Consolidated'Terminals.'
• When' DMG' demanded' for' the' delivery' of' the' goods,'
Consolidated' stated' that' it' was' already' released' and'
delivered' to' DMG' through' a' delivery' permit' which' was'
presented'by'a'certain'Sandoval'authorized'by'Alteza.'
• DMG' contends' that' it' has' no' such' employees.' It'
demanded'for'the'payment'of'such'goods.'
Issue:'
Whether'or'not'Consolidated'is'liable'to'DMG?'
Held:'
Yes,'Consolidated'is'liable'to'DMG.''
Consolidated' did' not' faithfully' comply' with' its' duJes' and'
obligaJons.' SecJon' 9' of' the' Warehouse' Receipts' Law' does'
not' deem' it' sufficient' as' prerequisite' for' delivery' the' mere'
presentment'of'the'receipt.'It'further'requires'that'the'person'
to'whom'the'goods'should'be'delivered'is'“one'who'is'either'
himself'enJtled'to'the'property…or'who'has'wricen'authority'
from'the'person'so'enJtled.”'Presentment'of'the'receipt'must'
be'couple'with'ascertainment'that'the'person'so'presenJng'it'
is'righÖully'enJtled'to'take'delivery'of'the'goods'covered'by'
the'receipt.''
Consolidated' did' not' ascertain' the' idenJty' of' Sandoval' and'
Alteza.'They'have'not'called'up'DMG'first'and'ascertained'the'
genuineness'of'the'authority'in'wriJng'before'delivering'the'
arJcles'considering'that'they'did'not'know'either'Sandoval'or'
Alteza.'
Consolidated'becomes'liable'under'SecJon'10'of'the'WRL'for'
misdelivery.' On' the' contenJon' that' DMG' was' negligent' for'
allowing' such' permits' to' fall' into' the' hands' of' unauthorized'
persons,' contributory' negligence' is' not' one' of' the' defenses'
specified' in' its' answer.' In' order' to' for' it' to' be' a' defense,' it'
must'previously'show'to'have'been'commiced.'The'burden'of'
proof' is' in' himself' who' alleges' it' as' a' defense.' It' cannot' be'
inferred'from'the'fact'that'persons'other'than'the'consignee'
or' owner' were' able' to' take' possession' of' the' shipping'
documents'or'the'permit'papers'which'were'supposed'to'be'
in'the'lacer’s'custody.''
CONSOLIDATED'vs'ARTEX'
Facts:'' ' Consolidated'Terminals'Inc'(CTI)'operated'a'
customs' warehouse' in' Manila.' It' received' 193' bales' of' high'
density' compressed' raw' cocon' worth' P99k.' It' was'
understood'that'CTI'would'keep'the'cocon'on'behalf'of'Luzon'
Brokerage'unJl'the'consignee'Paramount'TexJle'had'opened'
the' corresponding' lecer' of' credit' in' favor' of' Adolph' Hanslik'
Cocon.'By'virtue'of'forged'permits,'Artex'was'able'to'obtain'
the'bales'of'cocon'and'paid'P15k.'
Issue:' ' W/N' CTI' as' warehouseman' was' enJtled' to'
the'possession'of'the'bales'of'cocon?'
Ruling:' No.'CTI'had'no'cause'of'acJon.'It'was'not'the'owner'
of' the' cocon.' It' was' not' a' real' party' of' interest' in' the' case.'
CTI'was'not'sued'for'damages'by'the'real'party'in'interest.''
LUA'KIAN'VS.'MANILA'RAILROAD'


Facts:'Manila'Railroad'received'into'its'custody'a'shipment'of'
cases' of' milk,' of' which' 3.171' wwere' marked' for' Cebu' and'
1,829'for'Lua'Kia'but'according'to'the'bills'of'lading'in'Manila'
Railroad's'possession,'Lua'Kia'was'enJtled'to''2000'cases'and'
Cebu' was' enJtled' to' 3000' cases.' Manila' Railroad' delivered'
1,913' cases' to' Lua' Kia,' which' is' 87' cases' short' in' the' bill' of'
lading.



Issue:' WoN' manila' RailRoad' is' liable' to' Lua' Kia' for' the'
underlivered'cases'of'milk



Ruling.' Yes.' The' legal' relaJonship' between' an' arrastre'
operator'and'the'consignee'is'akin'to'that'of''a'depositor'and'
warehouseman.' As' custodian' of' the' goods' discharged' from'
the'vessel,'it'was'A's'duty'like'that'of'nay'other'depositary'to'
take'good'care'of'the'goods'and'turn'them'over'to'the'party'
enJtled' to' their' possession.' Under' this' parJcular' set' of'
circumstances,' A' should' have' held' delivery' because' of' the'
discrepancy'between'the'bill'of'lading'and'the'markings'and'
conducted' its' own' invesJgaJon' not' unlike' that' under'
Sectopm' 18' of' the' Warehouse' Receipts' law,' or' called' upon'
the'parJes'to'interplead'such'ias'in'case'under'SecJon'17'of'
the'same'law,'in'order'to'determint'the'righÖul'owner'of'the'
goods.'
AMERICAN'FOREIGN'BANKING'CORPORATION'vs'HERRIDGE'
G.R.No.21005,''December'20,'1924'
Facts:'
' U.'de'Poli'was'a'debtor'of'American'Foreign'Banking'
CorporaJon.' He' issued' a' warehouse' receipt,' commonly'
known'as'quedan.'The'warehouse'receipt'of'the'mercahndise'
covered'thereby'was'described'as'Cagayan'tabacco'en'rama.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''26'
It' was' indorsed' in' blank' by' U.' De' Poli' to' American' Foreign'
Banking'CorporaJon'
As'security'for'an'overdrab.'U.'De'Poli'became'insolvent'and'
the' bank' presented' its' claim' for' the' delivery' of' the' tobacco'
covered'in'the'warehouse'receipt.''
' However,' it' was' found' that' the' tobacco' had' come'
from'Isabela'and'not'from'Cagayan,'and'the'bank’s'claim'was'
disputed' by' other' creditors' of' the' insolvent' on' the' ground'
that,' among' others,' that' the' tobacco' claimed,' being' Isabela'
tobacco,'was'not'correctly'described'in'the'warehouse'receipt'
and''that,'therefore,'the'receipt'was'ineffecJve'as'against'the'
general'creditors.'
Issue:' Whether' the' use' of' the' word' “Cagayan”' instead' of'
“Isabela”'in'describing'the'tobacco'in'the'quedan'renders'the'
quedan'null'and'void'as'negoJable'warehouse'receipt'for'the'
tobacco'intended'to'be'covered'by'it.'
Ruling:'
' The' idenJty' of' the' tobacco' was' sufficiently'
established'by'the'evidence.'In'the'warehouse,'there'was'no'
other' ' tobacco' stored' nut' only' the' Isabela' tobacco.' The'
debtor'also'said'that'Isabela'tobacco'was'the'tobacco'which'
he' transsfered' to' American' Foreign' Banking' CorporaJon.'
Aside'from'that,'when'the'subaccountant'of'the'bank'went'to'
the' warehouse' to' check' which' tobacco' was' covered' by' the'
warehouse' receipt,' the' assignee' and' one' of' his' accountants'
pointed'to'him'the'Isabela'tobacco.'
' The'intenJon'of'the'parJes'to'the'transacJon'must'
prevail'against'such'a'technical'objecJon'to'the'sufficiency'of'
the' descripJon' of' the' tobacco.' It' might' be' different' if' there'
had' been' Cagayan' tobacco' in' the' warehouse' at' the' Jme' of'
the'issuance'of'the'quedan,'or'if'there'were'any'doubt'as'to'
the' idenJty' of' the' tobacco' intended' to' be' covered' by' the'
quedan.'
' The' quedan' was' a' negoJable' warehouse' receipt'
which'was'duly'issued'and'delivered'by'the'debtor'U.'de'Poli'
to'American'Foreign'Banking'CorporaJon'and'it'divested'him'
of' his' Jtle' to' said' tobacco' and' transferred' the' posiJon' and'
the'Jtle'thereof'the'American'Foreign'Banking'CorporaJon.'
Topic:'Warehouse'Receipts'Law;'sec.'38'
PNB'v.'Atendido'
FACTS:'
• Laureano'Atendido'obtained'from'PNB'a'loan'of'P3k'
and' pledged' 2000' cavans' of' palay' to' guarantee'
payment' which' were' then' deposited' in' the'
warehouse' of' Cheng' Siong' Lam' &' Co' and' to' that'
effect'the'borrower'endorsed'in'favour'of'the'bank'
the'corresponding'warehouse'receipt.'
• Before'the'maturity'of'the'loan,'the'2000'cavans'of'
palay' disappeared' for' unknown' reasons' in' the'
warehouse.' When' the' loan' matured,' the' borrower'
failed'to'pay'obligaJon'
• Defendant' claimed' that' the' warehouse' receipt'
covering' the' palay' which' was' given' as' security'
having'been'endorsed'in'blank'in'favour'of'the'bank'
and' the' palay' having' been' lost' or' disappeared,' he'
thereby'became'relieved'of'liability.'
ISSUE:' Whether' the' surrender' of' the' warehouse' receipt'
covering' 2000' cavans' of' palay' given' as' security,' endorsed' in'
blank,' to' PNB,' has' the' effect' of' transferring' their' Jtle' or'
ownership'OR'it'should'be'considered'merely'as'a'guarantee'
to'secure'the'payment'of'the'obligaJon'of'Defendant?'
HELD:'
• Nature' of' contract' is' Pledge' supported' by' the'
sJpulaJons' embodied' in' the' contract' signed' by'
Defendant'when'he'secured'the'loan'from'PNB.'
• The'2000'cavans'of'palay'covered'by'the'warehouse'
receipt' were' given' to' PNB' only' as' a' guarantee' to'
secure'the'fulfilment'by'Defendant'in'his'obligaJon.'
This' clearly' appears' in' the' contract' wherein' it' is'
expressly' stated' that' said' 2000' cavanes' of' palay'
were'given'as'collateral'security.'
• It'follows'that'by'the'very'nature'of'the'transacJon'
its'ownership'remains'with'the'pledgor'subject'only'
to' foreclosure' in' case' of' non1fulfillment' of' the'
obligaJon.'
• By' this' we' mean' that' if' the' obligaJon' is' not' paid'
upon'maturity'the'most'that'the'pledge'can'do'is'to'
sell' the' property' and' apply' the' proceeds' to' the'
payment'of'the'obligaJon'and'to'return'the'balance,'
if' any,' to' the' pledgor.' This' is' the' essence' of' the'
contract,' for,' according' to' law,' a' pledge' cannot'
become' the' owner' of,' nor' appropriate' to' himself'
the'thing'given'in'pledge.'
• If'by'the'contract'of'pledge,'the'pledgor'conJnues'to'
be' the' owner' of' the' thing' pledged' during' the'
pendency'of'the'obligaJon,'it'stands'to'reason'that'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''27'
 in' case' of' loss' of' the' property,' the' loss' should' be'
borne'by'the'pledgor.''
• The' fact' that' the' warehouse' receipt' covering' the'
palay'was'delivered,'endorsed'in'blank,'to'the'bank'
does' not' alter' the' situaJon,' the' purpose' of' such'
endorsement' being' merely' to' transfer' the' juridical'
possession' ' of' the' property' to' the' pledge' and' to'
forestall'any'possible'disposiJon'thereof'on'the'part'
of'the'pledgor.'
• 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'automaJcally'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'
saJsfy'the'obligaJon'from'the'proceeds'of'the'sale.'
This' is' for' the' simple' reason' that' the' transacJon'
involved'is'not'a'sale'but'only'a'mortgage'or'pledge,'
and'that'if'the'property'covered'by'the'quedans'or'
warehouse' receipts' is' lost' without' fault' or'
negligence' of' the' mortgagee' or' pledge' or' the'
transferee'or'endorsee'of'the'warehouse'receipt'or'
quedan,' then' said' goods' are' to' be' regarded' as' lost'
on'account'of'the'real'owner,'mortgagor'or'pledgor.'
MARTINEZ'V.'PNB'
Siy'Cong'Bien'vs'HSBC'
FACTS'
• PlainJff'is'a'corporaJon'engaged'in'business'generally,'
and'that'the'Defendant'HSBC'is'a'foreign'bank'
authorized'to'engage'in'the'banking'business'in'the'
Philippines.''
• On'June'25,'1926,'Oco'Ranb'called'the'office'of'the'
PlainJff'to'purchase'hemp'(abaca),'and'he'was'offered'
the'bales'of'hemp'as'described'in'the'contested'
negoJable'quedans.''
• The'parJes'agreed'to'the'aforesaid'price,'and'on'the'
same'date'the'quedans,'together'with'the'covering'
invoice,'were'sent'to'Ranb'by'the'PlainJff,'without'
having'been'paid'for'the'hemp,'but'the'PlainJff's'
understanding'was''
o that'the'payment'would'be'made'against'the'
same'quedans,'
o 'and'it'appear'that'in'previous'transacJon'of'
the'same'kind'between'the'bank'and'the'
PlainJff,'quedans'were'paid'one'or'two'days'
aber'their'delivery'to'them.'
• Immediately'these'Quedans'were'pledged'by'Oco'Ranb'
to'the'Defendant'HSBC'to'secure'the'payment'of'his'
preexisJng'debts'to'the'lacer.'
• The'baled'hemp'covered'by'these'warehouse'receipts'
was'worth'P31,635;'6'receipts'were'endorsed'in'blank'
by'the'PlainJff'and'Oco'Ranb,'and'2'were'endorsed'in'
blank,'by'Oco'Ranb'alone'
• On'the'evening'of'the'said'delivery'date,'Oco'Ranb'died'
suddenly'at'his'house'in'the'City'of'Manila.'
• When'the'PlainJff'found'out,'it'immediately'demanded'
the'return'of'the'quedans,'or'the'payment'of'the'value,'
but'was'told'that'the'quedans'had'been'sent'to'the'
herein'Defendant'as'soon'as'they'were'received'by'
Ranb.''
• Shortly'thereaber'the'PlainJff'filed'a'claim'for'the'
aforesaid'sum'of'P31,645'in'the'intestate'proceedings'of'
the'estate'of'the'deceased'Oco'Ranb,'which'on'an'
appeal'from'the'decision'of'the'commicee'on'claims,'
was'allowed'by'the'CFI'Manila.''
• In'the'meanJme,'demand'had'been'made'by'the'
PlainJff'on'the'Defendant'bank'for'the'return'of'the'
quedans,'or'their'value,'which'demand'was'refused'by'
the'bank'on'the'ground'that'it'was'a'holder'of'the'
quedans'in'due'course.''
ISSUE'
Whether'or'not'the'Quedans'endorsed'in'blank'gave'the'
HSBC'righÖul'and'valid'Jtle'to'the'goods?'
HELD'
YES.'SC'ruled'in'favour'of'Defendant'HSBC.'
• It'may'be'noted,''
o first,'that'the'quedans'in'quesJon'were'
negoJable'in'form;''
o second,'that'they'were'pledged'by'Oco'Ranb'
to'the'Defendant'bank'to'secure'the'payment'
of'his'preexisJng'debts'to'said'bank;'
o third,'that'such'of'the'quedans'as'were'issued'
in'the'name'of'the'PlainJff'were'duly'endorsed'
in'blank'by'the'PlainJff'and'by'Oco'Ranb;''
o and'fourth,'that'the'two'remaining'quedans'
which'were'duly'endorsed'in'blank'by'him.''
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''28'
• The'bank'had'a'perfect'right'to'act'as'it'did,'and'its'
acJon'is'in'accordance'with'secJons'47,'38,'and'40'of'
the'Warehouse'Receipts'Act'
• through'checks'were'dishonoured'and'so'they'did'not'acquire'
However,'the'perJnent'provision''regarding'the'rights'
the'Defendant'bank'acquired'over'the'aforesaid'
quedans'aber'indorsement'and'delivery'to'it'by'Ranb,'is'
found'in'secJon'41'of'the'Warehouse'Receipts'Act'(Act'
No.'2137):''
o SEC.'41.'Rights'of'person'to'whom'a'receipt'has'
been'negoJated.'—'A'person'to'whom'a'
negoJable'receipt'has'been'duly'negoJated'
acquires'thereby:'
(a) Such'Jtle'to'the'goods'as'the'person'
negoJaJng'the'receipt'to'him'had'or'had'
ability'to'convey'to'a'purchaser'in'good'
faith'for'value,'and'also'such'Jtle'to'the'
goods'as'the'depositor'of'person'to'whose'
order'the'goods'were'to'be'delivered'by'
the'terms'of'the'receipt'had'or'had'ability'
to'convey'to'a'purchaser'in'good'faith'for'
value,'and.'.'.'.''
• Therefore,'the'bank'is'not'responsible'for'the'loss;'the'
negoJable'quedans'were'duly'negoJated'to'the'bank'
and'as'far'as'the'record'shows,'there'has'been'no'fraud'
on'the'part'of'the'Defendant.''
• Moreover,'PlainJff'is'estopped'to'deny'that'the'bank'
had'a'valid'Jtle'to'the'quedans'for'the'reason'that'the'
PlainJff'had'voluntarily'clothed'Ranb'with'all'the'
acributes'of'ownership'and'upon'which'the'Defendant'
bank'relied.'Subsequently,'PlainJff'in'this'case'has'
suffered'the'loss'of'the'quedans,'but'as'far'as'the'court'
sees'it,'there'is'now'no'remedy'available'to'the'PlainJff'
equitable'estoppel'place'the'loss'upon'him'whose'
misplaced'confidence'has'made'the'wrong'possible'as'
ruled'in'NaJonal'Safe'Deposit'vs.'Hibbs'(a'US'case)'
WAREHOUSE'RECEIPT:'Who'may'negoJate'a'receipt?'
PNB'v.'NOAH’S'ARK'SUGAR'REFINERY'
FACTS:' Defendant' issued' on' several' dates' warehouse'
receipts,' which' were' substanJal' in' form' and' contained' the'
terms' prescribed' by' law,' to' Rosa' Sy' and' Teresita' Ng.'
Subsequently,' some' of' the' warehouse' receipts' were'
negoJated'and'indorsed'to'Luis'Ramos'and'Cresencia'Zoleta.'
Ramos'and'Zoleta'then'used'the'quedans'as'security'for'loans'
obtained' by' them' from' PNB.' Upon' maturity,' both' failed' to'
pay,' prompJng' PNB' to' demand' the' delivery' of' the' sugar'
covered'by'the'quedans'indorsed'to'it'by'Ramos'and'Zoleta.'
Noah’s'refused'to'comply'with'the'demand,'PNB'filed'a'case'
for'Specific'Performance.''
The'main'contenJon'of'Noah’s'was'that'it'was'sJll'the'owner'
of'the'subject'quedans'and'the'quanJty'of'sugar'represented'
thereon' because' the' corresponding' payment' of' Sy' and' Ng'
ownership.' The' it' follows' that' the' subsequent' indorsers' and'
plainJff'itself'did'not'acquire'a'becer'right'of'ownership'than'
the'original'vendees'or'first'indorsers.'
In'the'answer'of'Sy'and'Ng,'they'alleged'that'the'transacJon'
between' them' and' Noah’s,' concerning' the' quedans,' was'
bogus' and' simulated.' It' was' part' of' a' complex' banking'
scheme' and' financial' maneuvers' to' avoid' VAT' payment' and'
other'BIR'assessments.'
ISSUES:'
1.'WON'the'non1payment'of'the'purchase'price'for'the'sugar'
stock' evidenced' by' the' quedans,' rendered' invalid' the'
negoJaJon'of'said'quedans'by'Sy'and'Ng'to'indorsers'Ramos'
and' Zoleta' and' the' subsequent' negoJaJon' of' Ramos' and'
Zoleat'to'PNB?'
2.'WON'PNB'as'indorsee'of'quedans'was'enJtled'to'delivery'
of'sugar'stocks'from'the'warehouseman,'Noah’s'Ark?'
HELD:' The' validity' of' the' negoJaJon' by' RNS' Merchandising'
and' St.' Therese' Merchandising' to' Ramos' and' Zoleta,' and' by'
the'lacer'to'PNB'to'secure'a'loan'cannot'be'impaired'by'the'
fact' that' the' negoJaJon' between' Noah's' Ark' and' RNS'
Merchandising'and'St.'Therese'Merchandising'was'in'breach'
of'faith'on'the'part'of'the'merchandising'firms'or'by'the'fact'
that' the' owner' (Noah's' Ark)' was' deprived' of' the' possession'
of'the'same'by'fraud,'mistake'or'conversion'of'the'person'to'
whom' the' warehouse' receipt/quedan' was' subsequently'
negoJated'if'(PNB)'paid'value'therefor'in'good'faith'without'
noJce' of' such' breach' of' duty,' fraud,' mistake' or' conversion.'
(See' ArJcle' 1518,' New' Civil' Code).' And' the' creditor' (PNB)'
whose'debtor'was'the'owner'of'the'negoJable'document'of'
Jtle'(warehouse'receipt)'shall'be'enJtled'to'such'aid'from'the'
court'of'appropriate'jurisdicJon'acaching'such'document'or'
in' saJsfying' the' claim' by' means' as' is' allowed' by' law' or' in'
equity'in'regard'to'property'which'cannot'be'readily'acached'
or'levied'upon'by'ordinary'process.'(See'Art.'1520,'New'Civil'
Code).' If' the' quedans' were' negoJable' in' form' and' duly'
indorsed'to'PNB'(the'creditor),'the'delivery'of'the'quedans'to'
PNB' makes' the' PNB' the' owner' of' the' property' covered' by'
said' quedans' and' on' deposit' with' Noah's' Ark,' the'
warehouseman.' (See' Sy' Cong' Bieng' &' Co.' vs.' Hongkong' &'
Shanghai'Bank'Corp.,'56'Phil.'598).'
In' the' case' at' bar,' PNB's' right' to' enforce' the' obligaJon' of'
Noah's'Ark'as'a'warehouseman,'to'deliver'the'sugar'stock'to'
PNB' as' holder' of' the' quedans,' does' not' depend' on' the'
outcome'of'the'third1party'complaint'because'the'validity'of'
the' negoJaJon' transferring' Jtle' to' the' goods' to' PNB' as'
holder' of' the' quedans' is' not' affected' by' an' act' of' RNS'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''29'
Merchandising' and' St.' Therese' Merchandising,' in' breach' of' personal'liability'of'the'owners,'PNB'in'this'case.'
trust,'fraud'or'conversion'against'Noah's'Ark.' However,'such'fees'and'charges'have'ceased'to'
accrue'from'the'date'of'the'rejecJon'by'Noah’s'Ark'
PNB'v'SAYO,'JR.'
to'heed'the'lawful'demand'for'the'release'of'the'
FACTS' goods.'

- Noah’s'Ark'Sugar'Refinery'(Noah’s)'issued'several'
warehouse'receipts'(quedans),'which'were'
negoJated'to'Rosa,'RNS'and'St.'Therese'(vendees),'
which'were'again'negoJated'to'Luis'and'Cresencia,'
which'they'(Luis'and'Cresencia)'endorsed'to'PNB'as'
security'for'2'loan'agreements.'

o Transfer'of'quedans'–'Noah’s'!'Rosa,'RNS'
and'St.'Therese'!'Luis'and'Cresencia'!'
PNB'

- Luis'and'Cresencia'failed'to'pay'their'loans'hence'
PNB'demanded'delivery'of'sugar'stocks,'however,'
Noah’s'Ark'refused,'alleging'ownership'thereof.'

- Noah’s'Ark'contended'that'the'agreement'made'by'
them'with'the'vendees'was'stopped'since'the'bank'
dishonored'the'payments'made'by'the'vendees'to'
Noah’s'Ark.'As'such,'the'vendees'and'the'endorsers'
of'the'quedans'never'acquired'ownership'thereof.'

- Noah’s'Ark'claimed'for'warehouseman’s'lien'for'the'
storage'of'the'goods.'

- LC'granted'lien'

- PNB'appealed'

ISSUE:' WoN' PNB' is' enJtled' to' the' stocks' of' sugar' as' the'
endorsee'of'the'quedans,'without'paying'the'lien'

SC:'YES'

- While'PNB'is'enJtled'to'the'stocks'of'sugar'as'the'
endorsee'of'the'quedans,'delivery'to'it'shall'be'
effected'only'upon'payment'of'the'storage'fees.'

- The'warehouseman'is'enJtled'to'the'
warehouseman’s'lien'that'acaches'to'the'goods'
invokable'against'anyone'who'claims'a'right'of'
possession'thereon.'

- However,'in'this'case,'the'lien'was'lost'when'R'
refused'to'deliver'the'goods,'which'were'not'
anchored'to'a'valid'excuse'(i.e.'non'saJsfacJon'of'
W/Hman'Lien)'but'on'an'adverse'claim'of'
ownership.'
- The'loss'of'W/H'Man’s'lien'does'not'necessarily'
mean'the'exJnguishment'of'the'obligaJon'to'pay'
the'W/H'fees'and'charges'which'conJnues'to'be'a'
GUARANTY'AND'SURETYSHIP'
MACHETTI'v'HOSPICIO'DE'SAN'JOSE'
FACTS:'''
1)'In'1916,'Romulo'Macher,'agreed'to'construct'a'building'in'
Manila'for'the'Hospicio'de'San'Jose,'for'P64,000.'One'of'the'
condiJons'of'the'agreement'was'that'the'contractor'should'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''30'
obtain'the'"guarantee"'of'the'Fidelity'and'Surety'Company'of'
the'Philippine'Islands'to'the'amount'of'P128,800.'Said'
contract'read:''
“For'value'received'we'hereby'guarantee'compliance'
with'the'terms'and'condiJons'as'outlined'in'the'
above'contract.'“'
2)'Thereaber'Macher'constructed'the'building'and,'as'the'
work'progressed,'payments'were'made'to'him'from'Jme'to'
Jme,'unJl'the'enJre'contract'price,'except'the'sum'of'
P4,978.08,'was'paid.''
3)'Later'on'it'was'found'that'the'work'had'not'been'carried'
out'in'accordance'with'the'specificaJons'which'formed'part'
of'the'contract'and'that'the'workmanship'was'not'of'the'
standard'required,'and'thus'the'Hospicio'presented'a'
counterclaim'for'damages'for'the'parJal'noncompliance'with'
the'terms'of'the'agreement'abovemenJoned,'in'the'total'
sum'of'P71,350.''
4)'During'the'duraJon'of'the'trial'however,''Macher,'
declared'insolvent'and'an'order'was'entered'suspending'the'
proceeding'in'the'present'case.'Thus,''the'Hospicio''filed'a'
moJon'asking'that'the'Fidelity'and'Surety'Company'be'made'
cross1defendant'to'the'exclusion'of'Macher'and'that'the'
proceedings'be'conJnued'as'to'said'company,'which'moJon'
was'granted'and'subsequently,'the'Hospicio'filed'a'complaint'
against'the'Fidelity'and'Surety'Company'for'a'judgement'
against'the'company'upon'its'guaranty.''The'CFI'rendered'
judgment'against'Fidelity.'
ISSUE:''Whether'or'not'Fidelity'is'answerable'to'the'Hospicio'
as'guaranty'of'Macher.'
HELD:'
A)'Guarantor'implies'an'undertaking'of'guaranty,'as'
disJnguished'from'suretyship'and'in'this'case,'it'appears'that'
the'contract'is'the'guarantor's'separate'undertaking'in'which'
the'principal'does'not'join,'that'its'rests'on'a'separate'
consideraJon'moving'from'the'principal'and'that'although'it'
is'wricen'in'conJnuaJon'of'the'contract'for'the'construcJon'
of'the'building,'it'is'a'collateral'undertaking'separate'and'
disJnct'from'the'lacer.'All'of'these'circumstances'are'
disJnguishing'features'of'contracts'of'guaranty.'
B)''On'the'other'hand,'a'surety'undertakes'to'pay'if'the'
principal'does'not'pay,'the'guarantor'only'binds'himself'to'
pay'if'the'principal'cannot'pay.'The'one'is'the'insurer'of'the'
debt,'the'other'an'insurer'of'the'solvency'of'the'debtor.'This'
lacer'liability'is'what'the'Fidelity'Company'assumed'in'this'
case.'Thus,'Fidelity'having'bound'itself'to'pay'only'the'event'
its'principal,'cannot'pay'it'follows'that'it'cannot'be'compelled'
to'pay'unJl'it'is'shown'that'Macher'is'unable'to'pay.'The'
judgment'appealed'from'is'therefore'reversed.'
PHIL'EXPORT'v'VP'EUSEBIO'
FACTS:' Respondent' entered' into' contract' with' SOB' for'
construcJon'of'Therapy'Bldg.'SOB'demanded'bonds'to'secure'
performance.'Project'was'delayed'
DOCTRINE:' By' guaranty' a' person,' called' the' guarantor,'
binds' himself' to' the' creditor' to' fulfill' the' obligaJon' of' the'
principal' debtor' in' case' the' lacer' should' fail' to' do' so;' if' the'
person' binds' himself' solidarily' with' the' principal' debtor,' the'
contract'is'called'suretyship.'
That' the' guarantee' issued' by' the' peJJoner' is'
uncondiJonal'and'irrevocable'does'not'make'the'peJJoner'a'
surety.'As'a'guaranty,'it'is'sJll'characterized'by'its'subsidiary'
and' condiJonal' quality' because' it' does' not' take' effect' unJl'
the' fulfillment' of' the' condiJon.' UncondiJonal' guarantee' is'
sJll'subject'to'the'condiJon'that'the'principal'debtor'should'
default' in' his' obligaJon' first' before' resort' to' the' guarantor'
could'be'had.'
MANILA'RAILROAD'v'ALVENDIA'
Facts:'
• CFI' sentenced' Manila' Railroad' Co.' (MRC)' and' Manila'
Port'Service'(MPS)'to'pay'Bataan'Refining'Corp.'
• MPS'filed'a'noJce'of'appeal'accompanied'by'an'appeal'
bond.'
• NoJcing'that'the'appeal'bond'was'only'executed'by'MPS'
signed' by' the' manager' and' Standard' Insurance' (as'
surety)' signed' by' the' vice1president,' the' trial' court'
rejected'the'record'on'appeal.'
• It' is' contended' by' MRC' that' the' MPS,' being' a' mere'
subsidiary' or' department' of' MRC,' without' legal'
personality' of' its' own,' the' bond' filed' by' the' former'
should'be'a'bond'for'the'MRC'and'that'the'appeal'of'the'
lacer'should'have'been'given'due'course.'
Issue:'' Whether' or' not' the' noJce' of' appeal' should' be'
accepted?'
Held:''
No,'the'noJce'of'appeal'should'be'rejected.'
Where' there' is' no' principal' debtor' in' the' appeal' bond,' it' is'
void' and' unenforceable.' The' mere' recital' in' the' body' of' the'
instrument,' “We,' MRC' et.' al,' as' principal' and' the' Standard'
Insurance' Co.' Inc' xxx' as' surety”' does' not' suffice' to' make'
contract'binding'on'the'MRC'unless'it'is'shown'that'the'same'
was' authorized' by' it.' Neither' the' signature' nor' the'
acknowledgment'indicates'that'the'act'of'that'of'the'MRC'or'
that'the'lacer'had'empowered'MPS'to'execute'the'bond'in'its'
behalf.'The'result'would'be'that'the'appeal'bond'is'void'and'
unenforceable'for'lack'of'principal'debtor'or'obligaJon.''
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''31'
While'the'surety'bound'itself'to'pay'jointly'and'severally,'such'
an' undertaking' presupposes' that' the' obligaJon' is' to' be'
enforceable'against'someone'else'besides'the'surety'and'the'
lacer'could'always'claim'that'it'was'never'its'intenJon'to'be'
the'sole'person'obliged'thereby.'
IFC'v'IMPERIAL'TEXTILE'
Facts:'' IFC' extended' to' PPIC' a' loan' of' US
$7,000,000.00,' payable' in' sixteen' (16)' semi1annual'
installments'of'US$437,500.00'each,'beginning'June'
1,' 1977' to' December' 1,' 1984.' On' December' 17,'
1974,' a' “Guarantee' Agreement”' was' executed' with'
Imperial' TexJle' Mills,' Inc.' (ITM).' ITM' agreed' to'
guarantee' PPIC's' obligaJons' under' the' loan'
agreement.'PPIC'paid'the'installments'due'on'June'1,'
1977,' December' 1,' 1977' and' June' 1,' 1978.' Despite'
the' rescheduling' of' the' installment' payments,'
however,' PPIC' defaulted.' IFC' demanded' ITM' and'
Grandtex,' as' guarantors' of' PPIC,' to' pay' the'
outstanding' balance.' However,' the' outstanding'
balance'remained'unpaid.'
Issue:'The'issue'is'whether'ITM'is'a'surety,'and'thus'solidarily'
liable'with'PPIC'for'the'payment'of'the'loan.'
Ruling:'Yes.'The'Agreement'uses'“guarantee'and'guarantors”,'
prompJng' ITM' to' base' its' argument' on' those' words.' This'
Court' is' not' convinced' that' the' use' of' the' two' words' limits'
the' Contract' to' a' mere' guaranty.' The' specific' sJpulaJons' in'
the'Contract'show'otherwise.''
''
While' referring' to' ITM' as' a' guarantor,' the' Agreement'
specifically' stated' that' the' corporaJon' was' 'jointly' and'
severally'liable.'To'put'emphasis'on'the'nature'of'that'liability,'
the' Contract' further' stated' that' ITM' was' a' primary' obligor,'
not' a' mere' surety.' Those' sJpulaJons' meant' only' one' thing:'
that'at'bocom,'and'to'all'legal'intents'and'purposes,'it'was'a'
surety.'
''
Indubitably'therefore,'ITM'bound'itself'to'be'solidarily.'
SEVERINO'v'SEVERINO'
F:' upon' the' death' of' x,' who' leb' considerable' property,' a'
liJgaJon'ensued'between'c,'x’s'widow,'and'other'heirs'of'x.'a'
compromise' was' effected' by' which' d,' a' son' of' x,' took' over'
the' property' pertaining' to' the' estate' of' x' at' the' same' Jme'
agreeing' to' pay' P100k' to' c,' payable,' first' in' P40k' cash' upon'
the' execuJon' of' the' document' of' compromise' and' the'
balance,' in' three' equal' installments.' G.' affixed' his' name' as'
guarantor'
Upon' d’s' failure' to' pay' the' balance,' c' insJtuted' an' ' acJon'
against' d' and' g,' the' lacer' contending' that' he' received'
nothing'for'affixing'his'signature'as'guarantor'to'the'contract'
and'that'in'effect'the'contract'was'lacking'in'consideraJon'as'
to'him.'
Issue:'is'there'a'consideraJon'for'the'guaranty?'
Ruling:' a' guarantor' or' surety' is' bound' by' the' same'
consideraJon' that' makes' the' contract' effecJve' between' the'
principal' parJes' thereto.' The' compromise' and' dismissal' of'
lawsuit' is' recognized' in' law' as' a' valuable' consideraJon;' and'
the'dismissal'of'the'acJon'which'c'insJtuted'against'd'was'an'
adequate'consideraJon'to'support'the'promise'on'the'part'of'
d' to' pay' the' sums' sJpulated' in' the' contract' subject' of' the'
acJon'
It' is' neither' necessary' that' the' guarantor' or' surety' should'
receive'any'part'of'the'benefit,'if'such'there'be'accruing'to'his'
principal.' The' true' consideraJon' of' this' contract' was' the'
detriment'suffered'by'c'in'the'former'acJon'in'dismissing'the'
proceeding' and' it' is' immaterial' that' no' benefit' may' have'
accrued'either'to'the'principal'or'his'guarantor'
LEE'v'CA'
FACTS:' PBCOM' was' furnished' by' a' board' resoluJon' staJng'
that'they'authorize'President,'Mr.'Charles'Lee,'and'the'Vice1
President'and'General'Manager,'Mr.'Mariano'A.'Sio'to'apply'
for,' negoJate' and' secure' the' approval' of' commercial' loans'
and' other' banking' faciliJes' and' accommodaJons,' from' the'
Philippine' Bank' of' CommunicaJons,' in' such' sums' as' they'
shall' deem' advantageous,' the' principal' of' all' of' which' shall'
not' exceed' the' total' amount' of' TEN' MILLION' PESOS'
(P10,000,000.00),'Philippine'Currency,'plus'any'interests.''
Mico'availed'of'the'loans'and'as'security'for'the'loans,'MICO'
through'its'Vice1President'and'General'Manager,'Mariano'Sio,'
executed' on' May' 16,' 1979' a' Deed' of' Real' Estate' Mortgage'
over'its'properJes'situated'in'Pasig,'Metro'Manila.'
On'March'26,'1979'Charles'Lee,'Chua'Siok'Suy,'Mariano'Sio,'
Alfonso' Yap' and' Richard' Velasco,' in' their' personal' capaciJes'
executed'a'Surety'Agreement'in'favor'of'PBCom'whereby'the'
peJJoners' jointly' and' severally,' guaranteed' the' prompt'
payment' on' due' dates' of' overdrabs,' promissory' notes,'
discounts,' drabs,' lecers' of' credit,' bills' of' exchange,' trust'
receipts,' and' other' obligaJons' of' every' kind' and' nature,' for'
which' MICO' may' be' held' accountable' by' PBCom.' It' was'
provided,' however,' that' the' liability' of' the' sureJes' shall' not'
at'any'one'Jme'exceed'the'principal'amount'of'Three'Million'
Pesos' plus' interest,' costs,' losses,' charges' and' expenses'
including'acorney’s'.'
On' July' 14,' 1980,' peJJoner' Charles' Lee,' in' his' capacity' as'
president' of' MICO,' wrote' PBCom' and' applied' for' an'
addiJonal' loan' in' the' sum' of' Four' Million' Pesos).' The' loan'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''32'
was' intended' for' the' expansion' and' modernizaJon' of' the'
company’s'machineries.'Upon'approval'of'the'said'applicaJon'
for' loan,' MICO' availed' of' the' addiJonal' loan' of' Four' Million'
Pesos'(as'evidenced'by'Promissory'Note'TA'No.'094.'
As' per' agreement,' the' proceeds' of' all' the' loan' availments'
were' credited' to' MICO’s' current' checking' account' with'
PBCom.' To' induce' the' PBCom' to' increase' the' credit' line' of'
MICO,' Charles' Lee,' Chua' Siok' Suy,' Mariano' Sio,' Alfonso' Yap,'
Richard' Velasco' and' Alfonso' Co' (hereinaber' referred' to' as'
peJJoners1sureJes),' executed' another' surety' agreement' in'
favor' of' PBCom' on' July' 28,' 1980,' whereby' they' jointly' and'
severally' guaranteed' the' prompt' payment' on' due' of'
overdrabs,' promissory' notes,' discounts,' drabs,' lecers' of'
credit,' bills' of' exchange,' trust' receipts' and' all' other'
obligaJons' of' any' kind' and' nature' for' which' MICO' may' be'
held' accountable' by' PBCom.' It' was' provided,' however,' that'
their' liability' shall' not' at' any' one' Jme' exceed' the' sum' of'
Seven' Million' Five' Hundred' Thousand' Pesos' ' including'
interest,'costs,'charges,'expenses'and'acorney’s'fees'incurred'
by'MICO'in'connecJon'therewith.'
Upon'maturity'of'all'credit'availments'obtained'by'MICO'from'
PBCom,'the'lacer'made'a'demand'for'payment.'For'failure'of'
peJJoner' MICO' to' pay' the' obligaJons' incurred' despite'
repeated'demands,'private'respondent'PBCom'extrajudicially'
foreclosed' MICO’s' real' estate' mortgage' and' sold' the' said'
mortgaged' properJes' in' a' public' aucJon' sale' held' on'
November' 23,' 1982' and' PBCom' won' and' applied' the'
proceeds' of' the' purchase' price' at' public' aucJon' of' Three'
Million'Pesos'to'the'expenses'of'the'foreclosure,'interest'and'
charges' and' part' of' the' principal' of' the' loans,' leaving' an'
unpaid' balance' of' Five' Million' Four' Hundred' Forty1One'
Thousand'Six'Hundred'Sixty1Three'Pesos'and'Ninety'Centavos'
exclusive'of'penalty'and'interest'charges.''
Aside' from' the' unpaid' balance,' MICO' likewise' had' another'
standing' obligaJon' and' PBCom' then' demanded' the'
seclement' of' the' aforesaid' obligaJons' from' herein'
peJJoners1sureJes' who,' however,' refused' to' acknowledge'
their'obligaJons'to'PBCom'under'the'surety'agreements.''
Hence,' PBCom' filed' a' complaint' with' prayer' for' writ' of'
preliminary'acachment,'alleging'that'MICO'was'no'longer'in'
operaJon'and'had'no'properJes'to'answer'for'its'obligaJons.'
PBCom' further' alleged' that' peJJoner' Charles' Lee' has'
disposed' or' concealed' his' properJes' with' intent' to' defraud'
his'creditors.'Except'for'MICO'and'Charles'Lee,'the'sheriff'of'
the' RTC' failed' to' serve' the' summons' on' herein' peJJoners1
sureJes'since'they'were'all'reportedly'abroad'at'the'Jme.'An'
alias'summons'was'later'issued'but'the'sheriff'was'not'able'to'
serve' the' same' to' peJJoners' Alfonso' Co' and' Chua' Siok' Suy'
who' was' already' sickly' at' the' Jme' and' reportedly' in' Taiwan'
where'he'later'died.'
PeJJoners'contend'that'there'was'no'proof'that'the'proceeds'
of'the'loans'or'the'goods'under'the'trust'receipts'were'ever'
delivered' to' and' received' by' MICO.' But' the' record' shows'
otherwise.'PeJJoners1sureJes'further'contend'that'assuming'
that' there' was' delivery' by' PBCom' of' the' proceeds' of' the'
loans' and' the' goods,' the' contracts' were' executed' by' an'
unauthorized' person,' more' specifically' Chua' Siok' Suy' who'
acted' fraudulently' and' in' collusion' with' PBCom' to' defraud'
MICO.'
ISSUE:'Whether'or'not'the'individual'peJJoners,'as'sureJes,'
may' be' held' liable' under' the' two' (2)' Surety' Agreements'
executed'on'March'26,'1979'and'July'28,'1980.'
RULING:'Yes.'
''
The' court' ruled' that' it' is' proven' that' MICO' received' the'
proceeds' of' the' loan' and' that' PBCom' has' the' right' to' to'
believe'that''Chua'Siok'Suy''based'on'the'CerJficate'issued'by'
the'Sectretary'of'MICO.'
The' court' ruled' that' as' regards' peJJoners1sureJes'
contenJon' that' they' obtained' no' consideraJon' whatsoever'
on' the' surety' agreements,' the' court' pointed' that' the'
consideraJon'for'the'sureJes'is'the'very'consideraJon'for'the'
principal'obligor,'MICO,'in'the'contracts'of'loan.''
In'the'case'of'Willex'PlasJc'Industries'CorporaJon'vs.'Court'of'
Appeals,'we'ruled'that'the'consideraJon'necessary'to'support'
a' surety' obligaJon' need' not' pass' directly' to' the' surety,' a'
consideraJon' moving' to' the' principal' alone' being' sufficient.'
For'a'guarantor'or'surety'is'bound'by'the'same'consideraJon'
that' makes' the' contract' effecJve' between' the' parJes'
thereto.'''
It' is' not' necessary' that' a' guarantor' or' surety' should' receive'
any'part'or'benefit,'if'such'there'be,'accruing'to'his'principal.'
DE'GUZMAN'v'SANTOS'
FACTS:'
• Jerry' O.' Toole,' Antonio' Abad' and' Anastacio' Santos'
formed'a'general'mercanJle'partnership'–'Philippine'
American' ConstrucJon' Company' with' a' capital' of'
P14k.'
• P10k' of' which' were' taken' by' way' of' loan' from'
Paulino' Candelaria.' The' partnership' and' the' co1
partners' undertook' and' bound' themselves' to' pay'
jointly'and'severally'the'indebtedness.'
• Upon'default,'Paulino'filed'civil'case'against'Phil1Am'
ConstrucJon' Company' and' co1partners' for' the'
recovery'of'loan'
• TC' –' ordered' all' Defendants' to' pay' jointly' and'
severally;'CA'affirmed'
• Upon'filing'of'complaint,'Paulino'obtained'a'writ'of'
acachment'against'Defendants.'The'Sheriff'acached'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''33'
 properJes'of'3'partners.'Partnership'offered'to'post'
a'bond'of'P10k.'
• Phil1Am' ConstrucJon' Company' as' principal' then'
represented' by' the' partner' Antonio' Abad,' SanJago'
Lucero'and'Meliton'Carlos'as'guarantors'executed'a'
bond' of' P10k' in' favour' of' Paulino' for' the' libing' of'
the'acachment.'
• Aber'issuance'of'writ'of'execuJon,'Sheriff'found'no'
property' of' the' judgment' debtors.' Paulino' moved'
for' the' issuance' of' writ' of' execuJon' against' the'
guarantors'of'Defendants.'
• Guarantor1PlainJff' and' co1guarantor' Meliton' Carlos'
later'paid'the'creditor'and'were'able'to'recover'from'
Antonio' Abad' a' sum' of' P3800,' which' they' divided'
equally.'
• It'appeared'that'the'payment'made'by'the'plainJff'
to' Paulino' was' reduced' to' the' sum' of' P3665.'
PlainJff' now' demands' from' Anastacio' Santos' the'
return'of'the'aforesaid'sum'but'Anastacio'refused.'
ISSUE:' Whether' or' not' Defendant' is' bound' to' pay' PlainJff'
what'he'had'advanced'to'Paulino?'
HELD:'YES'
• ArJcle' 1838' provides' that' any' guarantor' who' pays'
for' the' debtor' shall' be' indemnified' by' the' lacer'
even' should' the' guaranty' have' been' undertaken'
without'the'knowledge'of'the'debtor.'
• that' the' plainJff' municipality' violated' the' provisions' of'
IN' THIS' CASE:' The' guarantor' was' the' deceased'
SanJago'Lucero,'now'represented'by'the'plainJff'in'
her' capacity' as' judicial' administratrix,' and' the'
debtor' is' the' defendant1appellant.' Applying' the'
provision' cited,' it' is' obvious' that' the' Defendant' is'
legally'bound'to'pay'what'the'PlainJff'had'advanced'
to'the'creditor'upon'the'judgment,'notwithstanding'
the' fact' that' the' bond' had' been' given' without' his'
knowledge.'
• that'the'privilege'should'be,'awarded'to'Graciano'Napa'who,'
Any'person'who'makes'a'payment'for'the'account'of'
another'may'recover'from'the'debtor'the'amount'of'
the'payment,'unless'it'was'made'against'the'express'
will' of' the' lacer.' In' the' lacer' case,' he' can' only'
recover'from'the'debtor'in'so'far'as'the'payment'has'
been'beneficial'to'the'lacer.'
• It' is' evident' that' Defendant' is' bound' to' pay' to' the'
plainJff'what'the'lacer'had'advanced'to'the'creditor'
upon' the' judgment,' and' this' is' more' so' because' it'
appears' that' although' Lucero' executed' the' bond'
without' his' knowledge,' nevertheless' he' did' not'
object'thereto'or'repudiate'the'same'at'any'Jme.'
MUNICIPALITY'OF'GASAN'v'MARASIGAN'
FACTS:'
The'plainJff1appellee'municipality,'on'December'9,'1930,'put'
up'at'aucJon'the'privilege'of'gathering'whitefish'spawn'in'its'
jurisdicJonal'waters'for'the'period'of'one'year'from'January'
1,' 1931.' Two' bidders,' Graciano' Napa' and' Miguel' Marasigan,'
appeared' at' the' aucJon.' Graciano' Napa' proposed' to' accept'
the' privilege' by' paying' P5,000' therefor,' Miguel' Marasigan'
proposed'to'do'likewise,'but'by'paying'only'P4,200.'
The' council' of' the' plainJff1appellee' municipality,' in' its'
resoluJon'No.'161'(Exhibit'1)'of'December'11,'1930'rejected'
Graciano' Napa's' bid' and' accepted' that' of' the' appellant'
Miguel'Marasigan.'
To'secure'his'compliance'with'the'terms'of'the'contract'which'
was' immediately' formalized' by' him' and' the' plainJff,' and'
pursuant'to'the'provisions'of'secJon'8'of'resoluJon'No.'128,'
series' of' 1925,' of' the' council' of' said' plainJff,' Miguel'
Marasigan'filed'the'bond,'Exhibit'B,'subscribed'on'December'
15,' 1930,' by' the' defendants1appellants' Angel' R.' Sevilla' and'
Gonzalo'L.'Luna,'who'bound'themselves'in'said'document'to'
pay' to' the' plainJff' the' sum' of' P8,400,' if' Miguel' Marasigan'
failed'to'deposit'one1fourth'of'P4,200'quarterly'in'advance'in'
the'municipal'treasury'of'Gasan.'
Graciano' Napa' forwarded' a' protest' (Exhibit' 4)' to' the'
provincial' board,' which' protest' was' later' indorsed' by' said'
provincial'board'to'the'Chief'of'the'ExecuJve'Bureau,'alleging'
secJon'2323'of'the'AdministraJve'Code'in'rejecJng'his'bid.'
The' provincial' board,' passing' upon' Graciano' Napa's' protest'
and' acJng' under' the' authority' which,' in' its' opinion,' was'
granted'to'it'by'secJon'2233'of'the'AdministraJve'Code,'held'
that'resoluJon'No.'161,'series'of'1930,'by'virtue'of'which'the'
municipal'council'of'Gasan'rejected'Graciano'Napa's'bid'and'
accepted'that'of'Miguel'Marasigan,'notwithstanding'the'fact'
that'the'lacer'offered'to'pay'less,'was'invalid,'and'suggested'
in' its' opinion,' appeared' to' be' the' highest' bidder' in'
accordance'with'the'provisions'of'secJons'2323'and'2319'of'
the' AdministraJve' Code' (Exhibit' 9).' The' ExecuJve' Bureau,'
concurring' with' the' provincial' board's' points' of' view,'
declared,'in'turn,'that'the'concession'made'to'Marasigan'was'
illegal'in'view'of'the'fact'that'Graciano'Napa'was'the'highest'
bidder'(Exhibit'13).'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''34'
The' plainJff' municipality' decided' to' award' the' privilege' of'
gathering'whitefish'spawn'within'its'waters'to'Graciano'Napa,'
giving' him' a' period' of' seven' days,' from' January' 8,' 1931'
(Exhibit'191A),'to'deposit'the'sum'of'P500.'
Graciano' Napa' not' only' failed' to' make' the' deposit' required'
by' the' plainJff' but' he' formally' declared,' through' his' duly'
authorized' representaJve,' that' he' yielded' the' privilege'
granted' him' to' Miguel' Marasigan' or' to' any' other' person'
selected'by'the'municipal'authoriJes.'
One' day' later' plainJff1appellee' municipality' sent' the' lecer'
Exhibit' 21' to' Miguel' Marasigan' informing' him' that' the'
contract' between' them' becomes' effecJve' on' January' 14,'
1931.'
Prior' to' this,' plainJff' informed' Marasigan' that' the' contract'
granJng' Marasigan' the' privilege' is' suspended' &' considered'
ineffecJve'while'the'protest'is'pending.'
PlainJff'filed'an'acJon'to'recover'from'Marasigan,'Sevilla'and'
Luana' the' sum' of' P' 3,780' as' part' of' license' fees' which' they'
failed'to'pay.'
ISSUE:'w/n'respondents'are'liable'
HELD:'
No.'The'contract'was'not'only'considered'not'consummated'
but'cancelled.'
It'ceased'to'be'valid'when'it'was'cancelled'
Neither'the'appellant'nor'his'sureJes'were'bound'to'comply'
with' the' terms' of' their' respecJve' contracts' of' fishing'
privilege'and'suretyship.'''
This' is' so' parJcularly' with' respect' to' the' sureJes,' because'
suretyship'cannot'exist'without'a'valid'obligaJon.'
Guaranty'is'not'presumed.'
The' eliminaJon' of' the' obligaJon' for' which' said' sureJes'
desired' to' answer' with' their' bond' also' rendered' the' bond'
also'eliminated.'
SMITH'BELL'v'PNB'
FACTS'
• On'April'1918,'Fred'M.'Harden'applied'to'Smith,'to'buy'8'
Anderson'expellers'end'drive,'latest'model,'for'the'price'
of'P80,000,'to'be'paid'on'delivery.'This'would'be'used'for'
the'extracJon'of'coconut'oil.''
• It'was'understood'that'these'expellers'would'be'
manufactured'in'the'US'and'delivery'would'be'in'the'
month'of'February'or'March'of'the'ensuing'year.''
• In'order'to'assure'the'prompt'payment'of'the'price'upon'
delivery,'an'arrangement'was'made'between'Harden'and'
the'Philippine'NaJonal'Bank'(PNB)'whereby'the'lacer'
bound'itself'to'Smith,'Bell'&'Co.'for'the'payment'of'the'
contract'price,'but'provided'that'the'expellers'would'
delivered'to'them'and'must'be'new'and'in'first'class'
working'order.''
• Shortly'aber'the'contract'was'made,'Harden'appeared'in'
the'office'of'Smith,'Bell'&'Co.'and'requested'them'to'
change'the'order'for'the'expellers'from'"end1drive"'to'
"side1drive;"'and'in'obedience'to'this'instrucJon,'the'
house'cabled'to'its'agent'in'New'York'to'change'the'
order'accordingly,'which'was'done.''
• On'July'1919,'Smith,'Bell'&'Co.'informed'both'Harden'
and'PNB'that'the'expellers'had'arrived.''
• Shortly'thereaber'Harden,'having'examined'the'
machinery'in'the'PlainJff's'bodega,'advised'the'Bank'
that'the'expellers'were'not'as'ordered.''
• Consequently,'the'Bank'naturally'refused'to'accept'and'
pay'for'the'machinery,'and'the'PlainJff'disposed'of'them'
to'the'best'advantage'in'the'Manila'market'at'a'price'
which'was'below'the'price'at'which'Harden'had'agreed'
to'take'them.'
• The'ground'upon'which'the'defense'is'chiefly'rested'is'
that'the'expellers'tendered'by'the'PlainJff'were'"side1
drive"'instead'of'"end1drive"'expellers,'and'in'support'of'
this'contenJon'Harden'was'produced'by'the'Defendant'
as'a'witness,'and'he'denied'that'the'order'for'expellers'
had'been'changed'upon'his'instrucJons.''
Issue:'
Whether'or'not'PNB'is'subsidiary'liable?'
Rulings:'
• NO.'The'SC'ruled'that'PNB’s'liability'is'primary'in'nature.'
• The'contract'by'which'the'Bank'obligated'itself'is'both'in'
form'and'effect'an'independent'undertaking'on'the'part'
of'the'Bank'directly'to'the'PlainJff;'and'inasmuch'as'the'
PlainJff'had'compiled,'or'offered'to'comply,'with'the'
terms'of'said'contract,'the'Bank'is'bound'by'its'promise'
to'pay'the'purchase'price.''
• Its'obligaJon'to'the'PlainJff'is'direct'and'independent.'
The'debt'must'be'considered'a'liquidated'debt,'in'the'
sense'intended'in'arJcle'1825'of'the'Civil'Code;'and'the'
acJon'is'now'maintainable'by'the'PlainJff'directly'
against'the'Bank'without'regard'to'the'posiJon'of'
Harden.''
• The'Bank'is'to'be'considered'strictly'in'the'light'of'an'
independent'promisor,'a'consequence'would'be'that'
Harden'had'no'authority'to'change'the'order'from'end1
drive'to'side1drive'expellers;'in'other'words,'that'the'
Bank'should'be'held'to'be'obligated'according'to'the'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''35'
 terms'of'the'order'as'it'stood'when'the'Bank'entered'
into'the'undertaking'which'is'the'subject'of'the'suit.''
WISE'&'CO.'v'KELLY'
FACTS:' Kelly' bought' goods' and' merchandise' on' credit' from'
Wise' and' Co.,' with' the' agreement' that' Kelly' will' apply' the'
proceeds'of'its'sale'to'the'discharge'of'his'indebtedness.'Lim,'
as'surety'for'Kelly,'guaranteed'unto'Wise'&'Co.'the'payment'
of' a' sum' of' money' which' Kelly' owes' to' Wise' for' goods' and'
merchandise' received' and' purchased' by' Kelly,' to' be' sold' in'
his'establishment,'upon'the'condiJon'that'Kelly'will'pay'over'
to' Wise' at' the' end' of' each' month' all' sums' which' he' may'
receive'from'the'sale'of'said'goods'and'merchandise,'and'that'
in'the'contrary'event,'the'surety'undertakes'to'pay'Wise'such'
sums'as'Kelly'may'fail'to'turn'in.'''
As' alleged' by' Wise,' Kelly' has' not' paid' any' money' and' thus'
filed' a' collecJon' case' against' Kelly' and' Lim.' Lim' interposed'
the'defense'that'the'obligaJon'was'condiJonal'as'to'him,'and'
that' the' fact' consJtuJng' the' condiJon' had' not' occurred.'
Lower' court' dismissed' the' case' against' Lim' on' the' ground'
that'wise'has'not'proven'that'Kelly'had'failed'to'turn'over'any'
money'and'established'the'conclusion'that'Lim'had'incurred'
no'liability.'
ISSUE:'WON'Lim'should'be'held'liable.'
HELD:' NO.' Lim' is' not' liable' for' the' difference' between' the'
amount' realized' from' the' sale' of' the' merchandise' and' the'
purchase'price'of'the'same.'Lim'as'surety'did'not'undertake'
to' pay' the' principal' amount' due.' His' agreement' was' limited'
to' respond' for' the' performance' by' Kelly' of' one' of' the'
accessory' pacts,' namely,' the' undertaking' to' deliver' to' Wise'
the' total' proceeds' of' the' sales' of' the' merchandise' for' the'
invoice' value' of' which' the' promissory' note' was' given.' Wise'
has'not'proved'that'it'has'NOT'in'fact'received'all'the'money'
derived' from' the' sale' of' the' merchandise' menJoned' in' the'
note,' it' follows' that' there' is' no' evidence' of' the' existence' of'
the' condiJon' to' which' the' obligaJon' assumed' by' Lim' was'
subordinated.'In'obligaJons'subject'to'a'suspensive'condiJon'
the' acquisiJons' of' the' right' on' the' part' of' the' creditor'
depends' upon' the' occurrence' of' the' event' consJtuJng' the'
condiJons.'
RCBC'v'ARRO'
FACTS:'
➢ Residoro'Chua'and'Enrique'Go,'Sr.'executed'a'
comprehensive'surety'agreements''to'guaranty'
among'others,'any'exisJng'indebtedness'of'Davao'
Agricultural'Industries'CorporaJon'provided'that'the'
liability'shall'not'exceed'at'any'one'Jme'the'
aggregate'principal'sum'of'P100,000.00.''
➢ A'promissory'note''in'the'amount'of'P100,000.00'
was'issued'in'favor'of'peJJoner.'Said'note'was'
signed'by'Enrique'Go,'Sr.'in'his'personal'capacity'and'
in'behalf'of'Daicor.'The'promissory'note'was'not'
fully'paid'despite'repeated'demands;'hence'
peJJoner'filed'a'complaint'for'a'sum'of'money'
against'Daicor,'Enrique'Go,'Sr.'and'Residoro'Chua'
➢ PeJJoner'alleged'that'by'virtue'of'the'execuJon'of'
the'comprehensive'surety'agreement,'private'
respondent'is'liable'because'said'agreement'covers'
not'merely'the'promissory'note'subject'of'the'
complaint,'but'is'conJnuing;'and'it'encompasses'
every'other'indebtedness'the'Borrower'may,'from'
Jme'to'Jme'incur'with'peJJoner'bank.''
➢ The'sole'issue'resolved'by'respondent'court'was'the'
interpretaJon'of'the'comprehensive'surety'
agreement,'parJcularly'in'reference'to'the'
indebtedness'evidenced'by'the'promissory'note'
involved'in'the'instant'case,'said'comprehensive'
surety'agreement'having'been'signed'by'Enrique'Go,'
Sr.'and'private'respondent,'binding'themselves'as'
solidary'debtors'of'said'corporaJon'not'only'to'
exisJng'obligaJons'but'to'future'ones.''
➢ Respondent'court'said'that'corollary'to'that'
agreement'must'be'another'instrument'evidencing'
the'obligaJon'in'a'form'of'a'promissory'note'or'any'
other'evidence'of'indebtedness'without'which'the'
said'agreement'serves'no'purpose;'that'since'the'
promissory'notes,'which'is'primarily'the'basis'of'the'
cause'of'acJon'of'peJJoner,'is'not'signed'by'private'
respondent,'the'lacer'can'not'be'liable'thereon.'
ISSUE:' whether' private' respondent' is' liable' to' pay' the'
obligaJon'evidence'by'the'promissory'note?'
HELD:'
➢ YES,'The'comprehensive'surety'agreement'was'
jointly'executed'by'Residoro'Chua'and'Enrique'Go,'
Sr.,'President'and'General'Manager,'respecJvely'of'
Daicor,'1976'to'cover'exisJng'as'well'as'future'
obligaJons'which'Daicor'may'incur'with'the'
peJJoner'bank,'subject'only'to'the'proviso'that'
their'liability'shall'not'exceed'at'any'one'Jme'the'
aggregate'principal'sum'of'P100,000.00'
➢ The'agreement'was'executed'obviously'to'induce'
peJJoner'to'grant'any'applicaJon'for'a'loan'Daicor'
may'desire'to'obtain'from'peJJoner'bank.'The'
guaranty'is'a'conJnuing'one'which'shall'remain'in'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''36'
 full'force'and'effect'unJl'the'bank'is'noJfied'of'its'
terminaJon.'
➢ The'surety'agreement'which'was'earlier'signed'by'
Enrique'Go,'Sr.'and'private'respondent,'is'an'
accessory'obligaJon,'it'being'dependent'upon'a'
principal'one'which,'in'this'case'is'the'loan'obtained'
by'Daicor'as'evidenced'by'a'promissory'note.''
➢ What'obviously'induced'peJJoner'bank'to'grant'the'
loan'was'the'surety'agreement'whereby'Go'and'
Chua'bound'themselves'solidarily'to'guaranty'the'
punctual'payment'of'the'loan'at'maturity.'By'terms'
that'are'unequivocal,'it'can'be'clearly'seen'that'the'
surety'agreement'was'executed'to'guarantee'future'
debts'which'Daicor'may'incur'with'peJJoner,'as'is'
legally'allowable'under'the'Civil'Code'
WILLEX'PLASTICS'v'CA'
FACTS:'
- Inter' Resin' opened' a' Lecer' of' Credit' with' Manila'
Banking' Corp.' with' security' of' “ConJnuing' Surety'
Agreement' signed' by' Inter' Resin' and' Investment'
and' UnderwriJng' Corp' (IUCP)' wherein' they' bound'
themselves'solidarily'for'the.'
- Later'Inter'Resin'together'with'Willex'(P)'executed'a'
conJnuing' guaranty' in' favor' of' IUCP,' staJng' that'
Inter' Resin' and' P' are' solidarily' liable.' Due' to' this,'
IUCP'paid'Manila'Bank'P4M'(Lecer'of'Credit)'
- IUCP' then' demanded' payment' of' the' amount,'
however,' Inter' Resin' and' P' failed' to' do' so.' Hence,'
this'case'
- P' contends' that' it' should' not' be' liable' since' P' is'
merely'a'guarantor'
ISSUE:' WoN' P' ma' be' held' jointly' and' severally' liable' with'
Inter'Resin'for'the'amount'paid'by'Interbank'to'Manila'Bank'
SC:'YES'
- The' amount' had' been' paid' by' InterBank' to' Manila'
bank'
- The'intenJon'of'the'parJes'is'to'secure'the'payment'
of'the'obligaJon.'
o C A' h e l d 1 t o' s e c u re' t h e' g u a ra n t e e'
undertaken' by' Interbank' of' the' credit'
accommodaJon' granted' to' Inter' Resin' by'
Manila'Bank,'Interbank'required'P'to'sign'a'
ConJnuing'Guaranty'
DOCTRINE:'Although'a'contract'of'suretyship'is'ordinarily'not'
be' construed' retrospecJve,' in' the' end' the' intenJon' of' the'
parJes'as'revealed'by'the'evidence'is'controlling'
TRADERS'INSURANCE'v'DY'
FACTS:''
1)'For'several'years'DesJlleria'Lim'Tuaco'&'Co.,'Inc.'had'one'
Dy'Eng'Giok'as'its'provincial'sales'agent'who'has'the'duty'of'
turning'over'the'proceeds'of'his'sales'to'the'disJllery'
company.'In'1951,'Dy’s'outstanding'running'account'was'in'
the'sum'of'P12,898.61.'Thereaber,'a'surety'bond'was'
executed'by'Dy'as'principal'and'Traders'Insurance'as'solidary'
guarantor,'whereby'they'bound'themselves,'jointly'and'
severally,''
“WHEREAS,'the'contract'requires'the'above'
bounden'principal'to'give'a'good'and'sufficient'bond'
in'the'above'stated'sum'to'secure'the'full'and'
faithful'fulfillment'on'its'part'of'said'contract;'
namely,'to'guarantee'the'full'payment'of'the'
Principal's'obligaJon'not'to'exceed'the'above'stated'
sum.”'
2)'On'the'same'date,'by'Eng'Giok,'as'principal,'with'Pedro'
Lopez'Dee'and'Pedro'Dy1Liacco,'as'counterboundsmen,'
subscribed'an'indemnity'agreement'in'favor'of'appellant'
Surety'Company,'where,'in'consideraJon'of'its'surety'bond,'
the'three'agreed'to'be'obligated'to'the'surety'company.'
Thereaber,'Dy'contracted'obligaJons'in'favor'of'the'DesJlleria'
in'the'amount'of'P41,449.93;'and'Dy'made'remicances'of'the'
same'amount'
3)''The'disJllary,'however,'applied'said'remicances'first'to'Dy'
Eng'Giok's'outstanding'balance'prior'to'August'4,'1951,'
before'the'suretyship'agreement'was'executed,''in'the'sum'of'
P12,898.61;'and'the'balance'of'P28,965.88'to'Dy's'obligaJons'
between'August'4,'1951'and'August'3,'1952.''
4)'Then'demanded'payment'of'the'remainder'from'Dy,'and'
later,'from'the'appellant'Surety'Company.'The'lacer'paid'
P10,000.00'(the'maximum'of'its'bond)'on'July'17,'1953,'
apparently,'without'quesJoning'the'demand;'and'then'
sought'reimbursement'from'Dy'Eng'Giok'and'his'counter'
guarantors,'who'however'failed'to'pay.'Because'of'this'the'
company'brought'an'acJon'to'enforce'collecJon.'
5)'The'CFI'absolved'the'counter1guarantors'on'the'theory'that'
in'so'far'as'they'are'concerned,'the'payments'made'by'Dy'
from'August'4,'1951'to'August'3,'1952,'should'have'been'
applied'to'his'obligaJons'during'that'period,'which'were'the'
ones'covered'by'the'surety'bond'and'the'counter1guaranty;'
and'since'these'obligaJons'only'amounted'to'P41,449.93,'the'
payments'exceeding'the'obligaJons,'the'CFI'concluded'that'
the'Surety'Company'incurred'no'liability'and'the'
counterbondsmen'in'turn'had'nothing'to'answer'for.''
HELD:''
A)'The'CFI'is'correct.'There'are'two'reasons'why'the'
remicances'by'Dy'Eng'Giok'in'the'sum'of'P41,864.49'should'
be'applied'to'the'obligaJon'of'P41,449.93'contracted'by'him'
during'the'period'covered'by'the'suretyship'agreement:'
a..'In'the'absence'of'express'sJpulaJon,'a'guaranty'
or'suretyship'operates'prospecJvely'and'not'
retroacJvely;'that'is'to'say,'it'secures'only'the'debts'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''37'
 contracted'aber'the'guaranty'takes'effect''because'a'
guaranty'is'not'presumed,'but'must'be'express,'and'
can'not'extend'to'more'than'what'is'sJpulated.'
b..'Since'the'obligaJons'of'Dy'between'August'4,'
1951'to'August'4,'1952,'were'guaranteed,'while'his'
indebtedness'prior'to'that'period'was'not'secured,'
then'in'the'absence'of'express'applicaJon'by'the'
debtor,'any'parJal'payments'made'by'him'should'be'
imputed'or'applied'to'the'debts'that'were'
guaranteed,'since'they'are'regarded'as'the'more'
onerous'debts'from'the'standpoint'of'the'debtor.'
B)'In'essence'therefore'debts'covered'by'a'guaranty'are'
deemed'more'onerous'to'the'debtor'than'the'simple'
obligaJons'because,'in'their'case,'the'debtor'may'be'
subjected'to'acJon'not'only'by'the'creditor,'but'also'by'the'
guarantor,'and'this'even'before'the'guaranteed'debt'is'paid'
by'the'guarantor;'hence,'the'payment'of'the'guaranteed'debt'
liberates'the'debtor'from'liability'to'the'creditor'as'well'as'to'
the'guarantor,'while'payment'of'the'unsecured'obligaJon'
only'discharges'him'from'possible'acJon'by'only'one'party,'
the'unsecured'creditor.'
C)'Thus,'payment'voluntarily'made'by'appellant'was'improper'
since'it'was'not'liable'under'its'bond;'consequently,'it'can'not'
demand'reimbursement'from'the'counterbondsmen'but'only'
from'Dy.'
D)'UlJmately,'the'applicaJon'by'a'creditor'depends'upon'the'
debtor'acquiescence'thereto.'In'the'present'case,'as'already'
noted,'there'is'no'evidence'that'the'receipts'for'payment'
expressed'any'imputaJon,'or'that'the'debtor'agreed'to'the'
same.'Judgment'is'affirmed.''
SOCONY'v'CHO'SIONG'
FACTS:' Cho' Siong' entered' into' contract' of' agency' for'
distribuJon' of' petroleum' products,' assumed' liability' of'
former'agent'Tong'Kuan.'His'agency'bond'was'secured'by'Ong'
Guan'Can.'Defaulted'in'the'amount'of'P64.00'
DOCTRINE:' Under'the'terms'of'the'bond'signed'by'the'
surety,'he'did'not'answer'for'the'principal'obligor'save'for'the'
Lacer’s'acts'by'virtue'of'the'contract'of'agency.'He'cannot'be'
held'liable'for'the'debt'of'a'former'agent,'which'the'principal'
obligor'assumed'by'virtue'of'another'contract,'of'which'said'
surety'was'not'even'aware.'A'contract'of'suretyship'is'to'be'
strictly' interpreted' and' is' not' to' be' extended' beyond' its'
terms.'
GARON'v'PROJECT'MOVERS'
Facts:'
• Project'Movers'Realty'and'Devt'Corp'(PMRDC)'obtained'
a' loan' from' Garon.' The' loan' was' covered' by' a'
Promissory' note' to' mature' on' December' 19.' The'
sJpulated'interest'rate'was'36%'per'annum.'
• To'secure'the'payment'of'the'loan,'PMRDC'undertook'to'
assign' to' Garon' its' leasehold' rights' over' a' space' at' the'
Monumento'Plaza'Commercial'Complex.'
• The'parJes'sJpulated'that'failure'to'pay'the'note'or'any'
porJon'thereof,'or'any'interest'thereon,'shall'consJtute'
as' default' and' the' enJre' obligaJon' shall' become' due'
and'demandable'without'need'of'demand.'
• PMRDC' obtained' another' loan' from' Garon' at' 17%' per'
annum' to' mature' on' December' 31.' It' is' covered' by'
another' promissory' note' and' secure' a' leasehold' rights'
over'another'space'in'Monumento'Plaza.'
• To'secure'its'obligaJons'to'assign'the'leasehold'rights'to'
Garon,'PMRDC'procured'a'surety'bond'from'Stronghold'
Insurance,' which' the' liability' of' the' surety' will' not'
exceed'the'sum'of'P12M'and'will'expire'on'Nov'7.'
• When' PMRDC' defaulted' in' the' payment' of' its'
obligaJons,' Garon' sent' a' demand' lecer' dated' Nov' 3'
requiring' PMRDC' to' execute' and' deliver' a' unilateral'
Deed' of' Assignment' of' its' leasehold' rights' over' the'
commercial'spaces.'
• Garon'also'sent'a'demand'lecer'to'the'surety'on'Nov'6.'
• For' failure' to' comply' with' the' demand,' Garon' filed' a'
complaint' for' collecJon' of' the' principal' obligaJon'
against'PMRDC'and'the'surety.'
• The'surety'contends'that'the'complaint'stated'no'cause'
of' acJon' and' was' prematurely' filed.' At' the' Jme' Garon'
sent'the'demand'lecer,'the'obligaJon'guaranteed'by'the'
bond'had'not'yet'matured.''
• On' the' part' of' PMRDC,' it' denied' that' it' executed' the'
promissory' noted' and' alleged' instead' that' they' were'
mere' roll1overs.' It' also' alleged' that' it' already' complied'
with'its'undertaking'under'the'promissory'notes'when'it'
put' up' a' surety' bond.' And' that' when' Garon' chose' to'
demand'from'the'surety,'she'effecJvely'waived'the'right'
to'claim'for'it.'
Issue:' Whether'or'not'the'surety'is'liable'to'Garon'under'its'
surety'bond.'
Held:'
Yes,' the' surety' is' liable' in' general.' The' principal' obligaJon'
guaranteed'by'the'surety'bond'is'the'assignment'of'leasehold'
rights' of' PMRDC' to' Garon' over' the' subject' spaces.' Garon'
made' a' formal' demand' but' PMRDC' defaulted.' As' such,'
PMRDC’s' liability' arose.' Consequently,' the' surety’s' liability'
likewise'arose.'
Suretyship' arises' upon' the' solidary' binding' of' a' person' with'
the'principal'debtor,'for'the'purpose'of'fulfilling'an'obligaJon.'
A'surety'is'considered'in'law'as'being'the'same'party'as'the'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''38'
debtor' in' relaJon' to' whatever' is' adjudged' as' touching' the'
obligaJon' of' the' lacer' and' their' liabiliJes' are' interwoven' as'
to'be'inseparable.'Although'a'surety'contract'is'secondary'to'
the' principal' obligaJon,' the' liability' of' the' surety' is' direct,'
primary'and'absolute'or'equivalent'to'that'of'a'regular'party'
to'the'undertaking.'
Note:''
Surety' in' this' case' was' not' held' liable' since' its' undertaking'
under' the' surety' bond' was' merely' to' guarantee' the'
assignment'of'PMRDC’s'leasehold'rights'and'not'the'payment'
of' the' enJre' obligaJon' and' Garon' is' seeking' to' enforce' her'
right' to' collect' the' principal' debt' rather' than' enforce' the'
security.''
REPUBLIC'v'PAL1FOX'LUMBER'
Facts:'' Pal1Fox'Lumber'Co.,'Inc.'was'indebted'to'the'Bureau'
of' Internal' Revenue' for' forest' charges' and' surcharges'
amounJng' to' P11,851.56,' and' that' the' Far' Eastern' Surety' &'
Insurance' Co.,' Inc.' was' jointly' and' severally' liable' with' the'
lumber'company'for'the'payment'of'said'forest'charges'up'to'
P5,000.00.' Republic' moved' for' reconsideraJon,' poinJng' out'
that'the'surety'company's'correct'liability'under'the'appealed'
decision' was' P5,000.00' plus' legal' interest' from' the' filing' of'
the' complaint.' In' other' words,' the' Republic' would' want' the'
surety'company'to'pay'the'legal'interest'adjudged'by'the'trial'
court'before'the'case'may'finally'be'considered'dismissed.'Far'
Eastern's' denial' of' liability' for' such' interest' is' based' on' the'
sJpulaJon' in' the' bond' that' it' was' bound' to' the' plainJff' "in'
the'sum'of'P5,000.00."'
Issue:'W/N'Far'Eastern'should'also'pay'interest?'
Ruling:'Yes.'ArJcle'2055,'paragraph'2,'of'the'Civil'Code'of'the'
Philippines'is'clearly'applicable.''
If' it' (the' guaranty)' be' simple' or' indefinite,' it' shall' comprise'
not' only' the' principal' obligaJon' but' also' all' its' accessories,'
including'judicial'costs.''
COMMONWEALTH'v'CA'
This' case' is' about' SIGS' and' ELBA' borrowing' money' from''
RCBC'worth'P4m.'Commonwealth'being'the'surety.'SIGS'and'
ELBA' defaulted' so' RCBC' went' aber' Commonwealth.'
Commonwealth' insists' on' not' paying.' Lower' Court' ruled' in'
favor' of' RCBC' and' ordered' Commonwealth' to' pay' the'
principal' debt' plus' interest.' Commonwealth' refused.'
Commonwealth' appealed' to' CA' and' quesJons' the' ruling' of'
the'lower'court'awarding'interest.'(focus'on'interest)'
Issue:'WoN'Commonwealth'whould'pay'principal'and'interest'
Ruling:' Obviously,' Commonwealth' is' obliged' to' pay' the'
principal' being' the' surety.' Regarding' the' interest,' generally'
no.' However' because' Commonwealth' refused' to' pay' the'
principal'when'the'lower'court'ordered'it'to'do'so,'it'is'now'
bound'to'pay'the'interest.'
NAMARCO'v'MARQUEZ'
FACTS:' ' ProperJes,' rights,' obligaJons,' and' contracts' of' the'
Philippine' Relief' and' Trade' RehabilitaJon' AdministraJon'
(PRATRA)' had' been' transferred' to' the' Price' StabilizaJon'
CorporaJon' (PRISCO)' and' subsequently' all' rights' and'
contracts'of'the'PRISCO'involving'real'estate,'fixed'assets'and'
stock' in' trade' had' been' assumed' by' herein' plainJff,' the'
NAMARCO.''
Marquez' secured' from' the' PRATRA' one' tractor' and' one' rice'
thresher,' with' a' total' value' of' P20,000.00' for' which' the' said'
defendant' paid' thereon' the' sum' of' P8,000.00' as' down'
payment,'thereby'leaving'a'balance'of'P12,000.00.' 'Marquez'
executed' a' promissory' note' in' the' amount' of' P12,000.00'
payable' in' installments' commencing' from' June' 24,' 1951' to'
June' 25,' 1952,' with' interest' thereon' at' the' rate' of' 7%' per'
annum'from'June'24,'1950'unJl'finally'paid.''
To' guarantee' full' compliance' with' the' aforemenJoned'
obligaJon,' defendant' Marquez,' as' principal,' and' defendant'
Plaridel' Surety' &' Insurance' Company,' as' surety,' executed'
Guaranty' Bond' P.' S.' &' I.' No.' 4220' in' favor' of' the' PRATRA,'
wherein'they'bound'themselves,'jointly'and'severally,'to'pay'
the'said'amount'of'P12,000.00'(Exhibit'C).'
In'this'guaranty'bond,'the'surety'expressly'waives'its'right'to'
demand'payment'and'noJce'of'non1payment'and'agrees'that'
the' liabiliJes' of' this' guaranty' shall' be' direct' and' immediate'
and' not' conJngent' upon' the' exhausJon' by' the' PRATRA' of'
whatever'remedies'it'may'have'against'the'principal,'and'that'
the'same'shall'be'valid'and'conJnuous'unJl'the'obligaJon'so'
guaranteed'is'paid'in'full.'
Aber' making' parJal' payment,' Marquez' defaulted' in' the'
payment' of' the' other' installments.' PlainJff' demanded' from'
defendants' Marquez' and' Plaridel' Surety' &' Insurance'
Company,'payment'of'their'outstanding'obligaJon.'The'claim,'
therefore,'of'defendant'Plaridel'Surety'&'Insurance'Company'
that'they'never'received'a'demand'for'payment'from'plainJff'
must' necessarily' fail,' considering' that' it' is' clearly' shown' in'
registry' return' receipts' that' the' same' had' been' received' by'
the'addressee.''
ISSUES:' Whether' the' surety's' liability' can' exceed' the' sum' of'
P12,000.00.'
RULING:'Yes'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''39'
While'the'guarantee'was'for'the'original'amount'of'the'debt'
of'Gabino'Marquez,'the'amount'of'the'judgment'by'the'trial'
court'in'no'way'violates'the'rights'of'the'surety.'The'judgment'
on'the'principal'was'only'for'P10,000.00,'while'the'remaining'
P9,990.91'represent'the'moratory'interest'due'on'account'of'
the' failure' to' pay' the' principal' obligaJon' from' and' aber' the'
same' had' fallen' due,' and' default' had' taken' place.' Appellant'
surety' was' fully' aware' that' the' obligaJon' earned' interest,'
since'the'note'was'annexed'to'its'contract,'Exhibit'"C".'
The'contract'of'guaranty'executed'by'the'appellant'Company'
nowhere'excludes'this'interest,'and'ArJcle'2055,'paragraph'2,'
of'the'Civil'Code'of'the'Philippines'is'clearly'applicable.'
''''''''''''If'it'(the'guaranty)'be'simple'or'indefinite,'it'
shall' comprise' not' only' the' principal' obligaJon' but'
also' all' its' accessories,' including' judicial' costs,'
provided' with' respect' to' the' lacer,' that' the'
guarantor'shall'only'be'liable'for'those'costs'incurred'
aber'he'has'been'judicially'required'to'pay.'
Compensated'sureJes'are'not'enJtled'to'have'their'contracts'
interrupted'stricJssimi'juris'in'their'favor'
VIZCONDE'v'IAC'
FACTS:'
• Perlas' called' Vizconde' and' asked' her' to' sell' an' 8'
carat'diamond'ring'on'a'commission'for'P85k'
• Vizconde' later' returned' the' ring.' Aberwards,'
Vizconde' called' on' Perlas' and' claimed' that' there'
was'a'“sure'buyer”'for'the'ring,'Pilar'Pagulayan'
• Pagulayan' gave' a' post1dated' check;' Perlas' and'
Vizconde'signed'a'receipt'(Exh.'A)'
• The'check'was'dishonoured.'Aber'9'days,'Pagulayan'
paid' Perlas' P5k' against' the' value' of' the' ring' and'
gave' 3' CerJficates' of' Title' to' guarantee' delivery' of'
the'balance'of'such'value'(Exh'D)'
• Perlas' filed' a' complaint' against' Pagulayan' and'
Vizconde'for'estafa.'
• TC'and'CA'–'Vizconde'and'Pagulayan'had'assumed'a'
joint' agency' in' favour' of' Perlas' for' the' sale' of' the'
lacer’s' ring,' which' rendered' them' criminally' liable,'
upon' failure' to' return' the' ring' or' deliver' its' agreed'
value,' under' Art' 315,' par' 1(b)' of' the' Revised' Penal'
Code'
• SOL'GEN'–'disagreed;'Vizconde'can’t'be'convicted'of'
estafa'based'on'the'Exhibits'presented'
ISSUE:' Whether' Vizconde' was' considered' as' agent' of' Perlas'
or'mere'guarantor'of'obligaJon'of'Pagulayan?'
HELD:'Mere'guarantor'
• Nothing'in'the'language'of'the'receipt,'Exh'A,'or'in'
the' proven' circumstances' acending' its' execuJon'
can' logically' be' considered' as' evidencing' the'
creaJon' of' an' agency' between' Perlas,' as' principal,'
and' Vizconde' as' agent,' for' the' sale' of' the' former’s'
ring.'
• If' any' agency' was' established,' it' was' one' between'
Perlas' and' Pagulayan' only,' this' being' the' logical'
conclusion' from' the' use' of' the' singular' “I”' in' said'
clause,'in'conjuncJon'with'the'fact'that'the'part'of'
the' receipt' in' which' the' clause' appears' bears' only'
the'signature'of'Pagulayan.'
• To' warrant' anything' more' than' a' mere' conjecture'
that'the'receipt'also'consJtuted'Vizconde'the'agent'
of' Perlas' for' the' same' purpose' of' selling' the' ring,'
the'cited'clause'should'at'least'have'used'the'plural'
“we,”' or' the' text' of' the' receipt' containing' that'
clause'should'also'have'carried'Vizconde’s'signature.'
• The' joint' and' several' undertaking' assumed' by'
Vizconde'in'a'separate'wriJng'below'the'main'body'
of' the' receipt,' Exhibit' “A,”' merely' guaranteed' the'
civil' obligaJon' Pagulayan' to' pay' Perlas' the' value' of'
the' ring' in' the' event' of' her' (Pagulayan’s)' failure' to'
return'said'arJcle.'
• What' is' clear' from' Exh' A' is' that' the' ring' was'
entrusted' to' Pagulayan' to' be' sold' on' commission;'
there' is' no' menJon' therein' that' it' was'
simultaneously' delivered' to' and' received' by'
Vizconde' for' the' same' purpose' or,' therefore,' that'
Vizconde'was'consJtuted,'or'agreed'to'act'as,'agent'
jointly'with'Pagulayan'for'the'sale'of'the'ring.'
• What' Vizconde' solely' undertook' was' to' guarantee'
the' obligaJon' of' Pagulayan' to' return' the' ring' or'
deliver'its'value;' 'and'that'guarantee'created'only'a'
civil' obligaJon,' without' more,' upon' default' of' the'
principal.'
• Upon'the'evidence,'Vizconde'was'a'mere'guarantor,'
a'solidary'one'to'be'sure,'of'the'obligaJon'assumed'
by'Pagulayan'to'complainant'Perlas'for'the'return'of'
the'lacer’s'ring'or'the'delivery'of'its'value.'Whatever'
liability'was'incurred'by'Pagulayan'for'defaulJng'on'
such'obligaJon'–'and'this'is'not'inquired'into'–'that'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''40'
 of' Vizconde' consequent' upon' such' default' was'
merely'civil,'not'criminal.'
ESTATE'OF'HEMADY'v'LUZON'SURETY'
FACTS:'
The' Luzon' Surety' Co.' had' filed' a' claim' against' the' Estate'
based'on'twenty'different'indemnity'agreements,'or'counter'
bonds,' each' subscribed' by' a' disJnct' principal' and' by' the'
deceased'K.'H.'Hemady,'a'surety'solidary'guarantor)'in'all'of'
them,' in' consideraJon' of' the' Luzon' Surety' Co.’s' of' having'
guaranteed,' the' various' principals' in' favor' of' different'
creditors.'
The' Luzon' Surety' Co.,' prayed' for' allowance,' as' a' conJngent'
claim,' of' the' value' of' the' twenty' bonds' it' had' executed' in'
consideraJon' of' the' counterbonds,' and' further' asked' for'
judgment'for'the'unpaid'premiums'and'documentary'stamps'
affixed'to'the'bonds,'with'12'per'cent'interest'thereon.'
The' lower' court,' by' order' of' September' 23,' 1953,' dismissed'
the'claims'of'Luzon'Surety'Co.,'on'the'ground'that'“whatever'
losses'may'occur'aber'Hemady’s'death,'are'not'chargeable'to'
his' estate,' because' upon' his' death' he' ceased' to' be'
guarantor.”'
The'reasoning'of'the'court'below'ran'as'follows:'
'“The'administratrix'further'contends'that'upon'the'death'of'
Hemady,'his'liability'as'a'guarantor'terminated,'and'therefore,'
in' the' absence' of' a' showing' that' a' loss' or' damage' was'
suffered,' the' claim' cannot' be' considered' conJngent.' This'
Court'believes'that'there'is'merit'in'this'contenJon'and'finds'
support' in' ArJcle' 2046' of' the' new' Civil' Code.' It' should' be'
noted'that'a'new'requirement'has'been'added'for'a'person'to'
qualify' as' a' guarantor,' that' is:' integrity.' As' correctly' pointed'
out' by' the' Administratrix,' integrity' is' something' purely'
personal'and'is'not'transmissible.'Upon'the'death'of'Hemady,'
his' integrity' was' not' transmiced' to' his' estate' or' successors.'
Whatever'loss'therefore,'may'occur'aber'Hemady’s'death,'are'
not' chargeable' to' his' estate' because' upon' his' death' he'
ceased'to'be'a'guarantor.'
Another'clear'and'strong'indicaJon'that'the'surety'company'
has' exclusively' relied' on' the' personality,' character,' honesty'
and'integrity'of'the'now'deceased'K.'H.'Hemady,'was'the'fact'
that'in'the'printed'form'of'the'indemnity'agreement'there'is'
a'paragraph'enJtled'‘Security'by'way'of'first'mortgage,'which'
was' expressly' waived' and' renounced' by' the' security'
company.'The'security'company'has'not'demanded'from'K.'H.'
Hemady'to'comply'with'this'requirement'of'giving'security'by'
way' of' first' mortgage.' In' the' supporJng' papers' of' the' claim'
presented' by' Luzon' Surety' Company,' no' real' property' was'
menJoned'in'the'list'of'properJes'mortgaged'which'appears'
at' the' back' of' the' indemnity' agreement.”' (Rec.' App.,' pp.'
4071408).'
' ISSUE:' W/N' the' liability' of' the' guarantor' was' terminated'
upon'his'death'
HELD:'NO.'
Under'the'present'Civil'Code'(ArJcle'1311),'as'well'as'under'
the'Civil'Code'of'1889'(ArJcle'1257),'the'rule'is'that'—'
“Contracts' take' effect' only' as' between' the' parJes,' their'
assigns' and' heirs,' except' in' the' case' where' the' rights' and'
obligaJons'arising'from'the'contract'are'not'transmissible'by'
their'nature,'or'by'sJpulaJon'or'by'provision'of'law.”'
Under' our' law,' therefore,' the' general' rule' is' that' a' party’s'
contractual' rights' and' obligaJons' are' transmissible' to' the'
successors.''
Of' the' three' excepJons' fixed' by' ArJcle' 1311,' the' nature' of'
the'obligaJon'of'the'surety'or'guarantor'does'not'warrant'the'
conclusion' that' his' peculiar' individual' qualiJes' are'
contemplated' as' a' principal' inducement' for' the' contract.'
What' did' the' creditor' Luzon' Surety' Co.' expect' of' K.' H.'
Hemady' when' it' accepted' the' lacer' as' surety' in' the'
counterbonds?' Nothing' but' the' reimbursement' of' the'
moneys'that'the'Luzon'Surety'Co.'might'have'to'disburse'on'
account' of' the' obligaJons' of' the' principal' debtors.' This'
reimbursement' is' a' payment' of' a' sum' of' money,' resulJng'
from'an'obligaJon'to'give;''and'to'the'Luzon'Surety'Co.,'it'was'
indifferent' that' the' reimbursement' should' be' made' by'
Hemady'himself'or'by'some'one'else'in'his'behalf,'so'long'as'
the'money'was'paid'to'it.'
The'second'excepJon'of'ArJcle'1311,'p.'1,'is'intransmissibility'
by' sJpulaJon' of' the' parJes.' Being' excepJonal' and' contrary'
to'the'general'rule,'this'intransmissibility'should'not'be'easily'
implied,' but' must' be' expressly' established,' or' at' the' very'
least,' clearly' inferable' from' the' provisions' of' the' contract'
itself,' and' the' text' of' the' agreements' sued' upon' nowhere'
indicate'that'they'are'non1transferable.'
Because' under' the' law' (ArJcle' 1311),' a' person' who' enters'
into'a'contract'is'deemed'to'have'contracted'for'himself'and'
his' heirs' and' assigns,' it' is' unnecessary' for' him' to' expressly'
sJpulate' to' that' effect;' hence,' his' failure' to' do' so' is' no' sign'
that' he' intended' his' bargain' to' terminate' upon' his' death.'
Similarly,'that'the'Luzon'Surety'Co.,'did'not'require'bondsman'
Hemady' to' execute' a' mortgage' indicates' nothing' more' than'
the'company’s'faith'and'confidence'in'the'financial'stability'of'
the'surety,'but'not'that'his'obligaJon'was'strictly'personal.'
The' third' excepJon' to' the' transmissibility' of' obligaJons'
under'ArJcle'1311'exists'when'they'are'“not'transmissible'by'
operaJon' of' law”.' The' provision' makes' reference' to' those'
cases' where' the' law' expresses' that' the' rights' or' obligaJons'
are' exJnguished' by' death,' as' is' the' case' in' legal' support'
(ArJcle'300),'parental'authority'(ArJcle'327),'usufruct'(ArJcle'
603),'contracts'for'a'piece'of'work'(ArJcle'1726),'partnership'
(ArJcle' 1830' and' agency' (ArJcle' 1919).' By' contract,' the'
arJcles'of'the'Civil'Code'that'regulate'guaranty'or'suretyship'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''41'
(ArJcles'2047'to'2084)'contain'no'provision'that'the'guaranty'
is'exJnguished'upon'the'death'of'the'guarantor'or'the'surety.'
WISE'&'CO.'v'TANGLAO'
FACTS'
• that'all'the'legal'remedies'against'the'debtor'have'not'
In'the'CFI'of'Manila,'Wise'&'Co'filed'a'civil'case'against'
Cornelio'C.'David'for'the'recovery'of'a'certain'sum'of'
money.'
• David'was'an'agent'of'Wise'&'Co.'and'the'amount'
claimed'from'him'was'the'result'of'a'liquidaJon'of'
accounts'showing'that'he'was'indebted'in'said'amount.'
• 'In'said'case'Wise'&'Co.'asked'and'obtained'a'preliminary'
acachment'of'David's'property.''
• To'avoid'the'execuJon'of'said'acachment,'David'
succeeded'in'having'the'defendant'Acorney'Tanglao'sign'
a'power'of'acorney''in'his'favor,'with'a'clause'
(considered'a'special'POA'to'David)'“'To'sign'as'guarantor'
for'himself'in'his'indebtedness'to'Wise'&'Company'of'
Manila,'and'to'mortgage'the'Acorney’s'lot”'
• Subsequently,'David'made'a'compromise'with'the'
peJJoner'by'paying'P340'leaving'an'unpaid'balance'of'
P296'and'pledged'the'lot'owned'by'the'Acy'as'a'
guaranty'for'the'balance.''
• Wise'&'Co.'now'insJtutes'this'case'against'Tanglao'for'
the'recovery'of'said'unpaid'amount.'
• There'is'no'doubt'that'under'POA,'Tanglao'empowered'
David,'in'his'name,'to'enter'into'a'contract'of'suretyship'
and'a'contract'of'mortgage'of'the'property'described'in'
the'document,'with'Wise'&'Co.''
• ISSUE:' WHETHER' THE' MORTGAGE' IN' QUESTION' COULD' BE'
However,'David'used'said'power'of'acorney'only'to'
mortgage'the'property'and'did'not'enter'into'contract'of'
suretyship.''
ISSUE'
Whether'or'not'Acy.'Tanglao'is'liable?'
RULING'
• NO.''
• obligaJon.''
The'SC'ruled'that'there'is'nothing'stated'in'the'
Compromise'Agreement'to'the'effect'that'Tanglao'
became'David's'surety'for'the'payment'of'the'sum'in'
quesJon.'Neither'is'this'inferable'from'any'of'the'clauses'
thereof,'and'even'if'this'inference'might'be'made,'it'
would'be'insufficient'to'create'an'obligaJon'of'suretyship'
which,'under'the'law,'must'be'express'and'cannot'be'
presumed.'
• The'only'obligaJon'which'the'Compromise'Agreement,'
in'connecJon'with'POA,'has'created'on'the'part'of'
Tanglao,'is'that'resulJng'from'the'mortgage'of'a'property'
belonging'to'him'to'secure'the'payment'of'said'P640.'
However,'a'foreclosure'suit'is'not'insJtuted'in'this'case'
against'Tanglao,'but'a'purely'personal'acJon'for'the'
recovery'of'the'amount'sJll'owed'by'David.'
• At'any'rate,'even'granJng'that'Defendant'Tanglao'may'
be'considered'as'a'surety'under'the'cited'Compromise'
the'acJon'does'not'yet'lie'against'him'on'the'ground'
previously'been'exhausted'(art.'1830'of'the'Civil'Code,'
and'decision'of'the'Supreme'Court'of'Spain'of'March'2,'
1891).''
• The'PlainJff'has'in'its'favor'a'judgment'against'debtor'
David'for'the'payment'of'debt.'It'does'not'appear'that'
the'execuJon'of'this'judgment'has'been'asked'for'and'
the'Compromise,'on'the'other'hand,'shows'that'David'
has'two'pieces'of'property'the'value'of'which'is'in'excess'
of'the'balance'of'the'debt'the'payment'of'which'is'
sought'of'Tanglao'in'his'alleged'capacity'as'surety.'
SOUTHERN'MOTORS'v'BARBOSA'
FACTS:' Defendant' Barbosa' executed' a' real' estate' mortgage'
for' the' only' purpose' of' guaranteeing' –' as' surety' and/or'
guarantor'–'the'payment'of'the'debt'of'one'Alfredo'Brillantes'
in' favor' of' Southern' Motors,' Inc.' due' to' the' failure' of'
Brillantes' to' secle' his' obligaJon;' plainJff' filed' an' acJon'
against' defendant' to' foreclose' the' real' estate' mortgage.'
Defendant' filed' an' answer' alleging' that' the' plainJff' has' no'
right'of'acJon'against'him'because'the'plainJff'did'not'intent'
to' exhaust' all' recourses' to' collect' from' the' true' debtor'
(Brillantes),'notwithstanding'the'fact'that'the'lacer'is'solvent'
and'has'many'properJes'within'the'Province'of'Iloilo.''
FORECLOSED' ALTHOUGH' PLAINTIFF' HAD' NOT' EXHAUSTED,'
AND' DID' NOT' INTEND' TO' EXHAUST,' THE' PROPERTIES' OF' HIS'
PRINCIPAL'DEBTOR.'
HELD:'NO.'The'right'of'guarantors,'under'Art.'2058'of'the'Civil'
Code,'to'demand'exhausJon'of'the'property'of'the'principal'
debtor,'exists'only'when'a'pledge'or'a'mortgage'has'not'been'
given' as' special' security' for' the' payment' of' the' principal'
Although' an' ordinary' personal' guarantor' –' not' a' mortgagor'
or'pledgor'–'may'demand'exhausJon'of'the'properJes'of'the'
principal' debtor,' the' creditor' may,' prior' thereto,' secure'
judgment' against' said' guarantor,' who' shall' be' enJtled,'
however,' to' a' deferment' of' the' execuJon' of' said' judgment'
against' him' unJl' aber' the' properJes' of' the' principal' debtor'
shall'have'been'exhausted'to'saJsfy'the'obligaJon'involved'in'
the'case.'
SAAVEDRA'v'PRICE'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''42'
FACTS:'
➢ This'is'a'proceeding'insJtuted'by'the'peJJoner'to'
annul'the'order'of'May'8,'1939,'entered'by'the'
Court'of'First'Instance'of'Leyte,'which'provided'for'
the'sale'at'public'aucJon'of'the'real'property'
described'in'Transfer'CerJficate'of'Title'No.'395'
issued'in'favor'of'the'peJJoner,'so'that'the'
proceeds'thereof'may'be'applied'to'the'payment'of'
the'credit'of'the'respondent'W.S.'Price'in'the'sum'of'
P15,000'
➢ In'civil'case'No.'3707'of'the'Court'of'First'Instance'of'
Leyte,'W.S.'Price,'plainJff'vs.'Ceferino'Ibañez'et'al.,'
defendants,'said'court'rendered'judgment'ordering'
the'defendants'to'pay'the'plainJff'within'ninety'
days'the'sum'of'P15,000,'with'the'legal'interest'
thereon'from'January'16,'1934,'and'in'case'of'
default'on'their'part,'that'the'real'property'subject'
macer'of'the'mortgage'be'sold'at'public'aucJon'so'
that'the'proceeds'thereof'may'be'applied'to'the'
payment'of'the'sum'in'quesJon'and'the'interest'
thereon.'
➢ Aber'the'period'of'ninety'days'has'elapsed'and'
Rafael'MarJnez'and'Ceferino'Ibañez'failed'to'pay'
the'sum'in'quesJon'with'the'interest'thereon,'the'
respondent'Price'filed'a'moJon'praying'that'the'real'
property'mortgaged'be'sold'at'public'aucJon'for'the'
payment'of'his'mortgage'credit'and'its'interest.'
➢ This'was'denied.'
➢ The'peJJoner'now'claims'that'the'respondent'
Judge'acted'with'abuse'of'his'discreJon'in'not'
transferring'the'hearing'of'the'moJon'for'the'sale'of'
the'mortgaged'realty'and'that'he'exceeded'his'
jurisdicJon'in'ordering'the'sale'of'said'property.'
ISSUE:'Whether'or'not'the'order'of'sale'of'such'property'was'
proper?'
HELD:'
➢ It'is'contended'that'since'the'peJJoner'is'not'the'
debtor'and'as'she,'on'the'other'hand'is'the'owner'of'
the'mortgaged'realty,'she'merely'acted'as'surety'to'
Rafael'MarJnez,'the'principal'debtor,'and'as'such'
she'enJtled'to'the'benefit'of'the'exhausJon'of'the'
property'of'the'principal'debtor,'in'accordance'with'
the'provision'of'arJcle'1830'of'the'Civil'Code.'
➢ We'are'of'the'opinion'that'this'last'contenJon'is'
likewise'unfounded'and'untenable.''
o In'the'first'place,'this'alleged'defense'should'
have'been'interposed'before'the'judgment'was'
rendered'in'this'case'and'it'is'too'late'to'raise'it'
for'the'first'Jme'as'a'ground'for'opposing'the'
moJon'to'sell'the'real'property'in'quesJon.'
o In'the'second'place,'the'contenJon'that'the'
mortgaged'real'property'belonging'to'the'
peJJoner'cannot'be'sold'to'pay'the'debt'for'the'
reason'that'she'is'a'mere'surety'of'Rafael'
MarJnez,'finds'no'support'in'the'law.'
➢ It'is'true'that'the'peJJoner'is'a'surety'with'regard'to'
Rafael'MarJnez'and'as'such'surety'she'is'enJtled'to'
resort'to'the'acJons'and'remedies'against'him'
which'the'law'affords'her,'but'we'should'not'lose'
sight'of'the'fact'that'she'was'sued'not'as'a'surety'
but'as'a'mortgage'debtor'for'being'the'owner'of'the'
mortgaged'property'
ARROYO'v'JUNGSAY'
FACTS:'
- Arroyo' (P)' is' an' appointed' guardian' of' an' imbecile,'
while'Jungsay'et'al'(D)'are'the'previous'guardian'and'
bondsmen'who'absconded.'
- D,'the'former'guardian'of'the'ward,'absconded'with'
the'funds'of'his'ward.'
- LC' ordered' D' to' pay' P,' which' the' bondsmen'
appealed.' D' also' pointed' out' properJes' of' the'
previous' guardian' which' are' now' being' adversely'
claimed'by'3rd'parJes'
ISSUE:'WoN'the'bondsmen'are'liable'
SC:'YES'
- For' the' surety' to' be' not' liable,' he' must' be' able' to'
point'out'property'of'the'principal'debtor'which'are'
realizable'and'is'situated'within'the'Philippines'–'to'
insure' the' fulfillment' of' the' obligaJon' and' furnish'
the' creditor' with' the' means' of' obtaining' its'
fulfillment'without'delay'
- The' property' pointed' out' by' the' sureJes' is' not'
sufficient'to'pay'the'indebtedness;'it'is'not'salable;'it'
is'encumbered'to'3rd'parJes'
BITANGA'v'PYRAMID'
FACTS:''
1)'On''March'26'1997,'Pyramid''entered'into'an'agreement'
with'Macrogen'Realty,'of'which'Bitanga'is'the'President,'to'
construct'for'the'lacer'a'building,'located'in'Sucat,'
Parañaque.'Pyramid'then'commenced'civil,'structural,'and'
architectural'works'on'the'construcJon'project.'However,'
Macrogen'Realty'failed'to'secle'respondent’s'progress'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''43'
billings.'Bitanga,'assured'Pyramid''that'the'outstanding'
account'of'Macrogen'Realty'would'be'paid.Thus,'Pyramid''
conJnued'the'construcJon'project.''
2)'In'August'1998,'Pyramid''suspended'work'on'the'
construcJon'project'since'the'condiJons'that'it'imposed'for'
the'conJnuaJon'thereof,'including'payment'of'unsecled'
accounts,'had'not'been'complied'with'by'Macrogen'Realty'
and'eventually,'on'1'September'1999,'respondent'insJtuted'
with'the'ConstrucJon'Industry'ArbitraJon'Commission'(CIAC)'
a'case'for'arbitraJon'against'Macrogen'Realty'seeking'
payment'by'the'lacer'of'its'unpaid'billings'and'project'costs.'
Macrogen,'chose'to'amicably'secle'the'arbitraJon'case'and'
both'parJes'entered'into'a'Compromise'Agreement,'with'
Bitanga'acJng'as'signatory'for'and'in'behalf'of'Macrogen'
Realty.''
3)'Under'the'Agreement,'Macrogen'Realty'agreed'to'pay'
Pyramid'the'total'amount'in'six'equal'monthly'installments,'
that'if'it'would'default'in'the'payment'of'two'successive'
monthly'installments,'immediate'execuJon'could'issue'
against'it'for'the'unpaid'balance,'without'need'of'judgment'
from'any'court'or'tribunal.'Bitanga'guaranteed'the'obligaJons'
of'Macrogen'Realty'under'the'Compromise'Agreement'by'
execuJng'a'Contract'of'Guaranty'in'favor'of'respondent,'by'
virtue'of'which'he'irrevocably'and'uncondiJonally'guaranteed'
the'full'and'complete'payment'of'the'principal'amount'of'
liability'of'Macrogen'Realty.''
4)'However,'despite'this,'Macrogen'Realty'failed'and'refused'
to'pay'all'the'monthly'installments'agreed'upon'in'the'
Compromise'Agreement.'Thus,'on'7'September'2000,'
respondent'moved'for'the'issuance'of'a'writ'of'execuJon'
against'Macrogen'Realty,'which'was'granted.''
5)'The'sheriff'however'filed'a'return'staJng'that'he'was'
unable'to'locate'any'property'of'Macrogen'Realty,'except'its'
bank'deposit'of'P20,242.33,'with'the'Planters'Bank,'Buendia'
Branch.'Respondent'then'made,'on'January'3,'2001,'a'wricen'
demand'on'peJJoner,'as'guarantor'of'Macrogen'Realty,'to'
pay'the'P6,000,000.00,'or'to'have'properJes'of'the'Macrogen'
Realty'sufficient'to'cover'the'obligaJon'guaranteed.'Said'
demands'met'no'reply.'
6)'As'to'Marilyn’s'(bitanga’s'wife)'liability,'Pyramid''contended'
that'Macrogen'Realty'was'owned'and'controlled'by'bitanga'
and'Marilyn'and/or'by'corporaJons'owned'and'controlled'by'
them.'On'the'theory'that'since'the'compleJon'of'the'
construcJon'project'would'have'redounded'to'the'benefit'of'
both'peJJoner'and'Marilyn'and/or'their'corporaJons;'and'
considering,'Marilyn’s'interest'in'a'corporaJon'which'controls'
Macrogen'Realty,'Marilyn'cannot'be'unaware'of'the'
obligaJons'incurred'by'Macrogen'Realty'and/or'peJJoner'in'
the'course'of'the'business'operaJons'of'the'said'corporaJon.''
7)'Pyramid''filed'suit'that'a'judgment'be'rendered'ordering'
peJJoner'and'Marilyn'to'comply'with'their'obligaJon'under'
the'Contract'of'Guaranty'by'paying'respondent'the'amount'of'
P6,000,000.000.'
8)''Marilyn'contended'that,'since'she'did'not'co1sign'the'
Contract'of'Guaranty'with'her'husband;'nor'was'she'a'party'
to'the'Compromise'Agreement'between'respondent'and'
Macrogen'Realty.'She'had'no'part'at'all'in'the'execuJon'of'
the'said'contracts.'This'was'denied''
ISSUES:''
'(1)'whether'the'defendants'were'liable'under'the'contract'of'
guarantee'dated'April'17,'2000'entered'into'between'
Benjamin'Bitanga'and'the'plainJff;'
(2)'whether'defendant'wife'Marilyn'Bitanga'is'liable'in'this'
acJon;''
HELD:''
A)'Under'a'contract'of'guarantee,'the'guarantor'binds'himself'
to'the'creditor'to'fulfill'the'obligaJon'of'the'principal'debtor'
in'case'the'lacer'should'fail'to'do'so.'The'guarantor'who'pays'
for'a'debtor,'in'turn,'must'be'indemnified'by'the'lacer.'
However,'the'guarantor'cannot'be'compelled'to'pay'the'
creditor'unless'the'lacer'has'exhausted'all'the'property'of'the'
debtor'and'resorted'to'all'the'legal'remedies'against'the'
debtor.'This'is'what'is'otherwise'known'as'the'benefit'of'
excussion.''
ArJcle'2060'of'the'Civil'Code'reads:''
In'order'that'the'guarantor'may'make'use'of'the'
benefit'of'excussion,'he'must'set'it'up'against'the'
creditor'upon'the'lacer’s'demand'for'payment'from'
him,'and'point'out'to'the'creditor'available'property'
of'the'debtor'within'Philippine'territory,'sufficient'to'
cover'the'amount'of'the'debt.''
B)'Said'provision'imposes'a'condiJon'for'the'invocaJon'of'the'
defense'of'excussion.'ArJcle'2060'of'the'Civil'Code'clearly'
requires'that'in'order'for'the'guarantor'to'make'use'of'the'
benefit'of'excussion,'he'must'set'it'up'against'the'creditor'
upon'the'lacer’s'demand'for'payment'and'point'out'to'the'
creditor'available'property'of'the'debtor'within'the'
Philippines'sufficient'to'cover'the'amount'of'the'debt.''
C)'In'this'case,'despite'having'been'served'a'demand'lecer'at'
his'office,'peJJoner'sJll'failed'to'point'out'to'the'respondent'
properJes'of'Macrogen'Realty'sufficient'to'cover'its'debt.'
Such'failure'on'peJJoner’s'part'forecloses'his'right'to'set'up'
the'defense'of'excussion.''
D)'ArJcle'2059(5)'of'the'Civil'Code'thus'finds'applicaJon'and'
precludes'peJJoner'from'interposing'the'defense'of'
excussion.'We'quote:'
'(5)'If'it'may'be'presumed'that'an'execuJon'on'the'
property'of'the'principal'debtor'would'not'result'in'
the'saJsfacJon'of'the'obligaJon.''
E)'PeJJon'is'DENIED.'
ONG'v'PCIB'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''44'
FACTS:' Cho' Siong' entered' into' contract' of' agency' for'
distribuJon' of' petroleum' products,' assumed' liability' of'
former'agent'Tong'Kuan.'His'agency'bond'was'secured'by'Ong'
Guan'Can.'Defaulted'in'the'amount'of'P64.00'
DOCTRINE:' Under'the'terms'of'the'bond'signed'by'the'
surety,'he'did'not'answer'for'the'principal'obligor'save'for'the'
Lacer’s'acts'by'virtue'of'the'contract'of'agency.'He'cannot'be'
held'liable'for'the'debt'of'a'former'agent,'which'the'principal'
obligor'assumed'by'virtue'of'another'contract,'of'which'said'
surety'was'not'even'aware.'A'contract'of'suretyship'is'to'be'
strictly' interpreted' and' is' not' to' be' extended' beyond' its'
terms.'
MIRA'HERMANOS'v'MANILA'TOBACCONISTS'
Facts:'
• By' virtue' of' a' wricen' contract,' Mira' Hermanos' (MH)'
agreed' to' deliver' to' Manila' Tobacconists' (MT)'
merchandise' for' sale' on' consignment' under' certain'
specified'terms'and'MT'agreed'to'pay'MH'on'or'before'
the' 20th' day' of' each' month' the' invoice' value' of' all' the'
merchandise'sold'during'the'preceding'month.'
• MH'required'MT'a'bond'of'3,000'which'was'executed'by'
Provident'Insurance'(PI).'
• The'volume'of'the'business'of'MT'increased'so'that'the'
merchandise' received' by' way' of' consignment' from' MH'
exceeded'3,000'in'value.'
• MH' required' MT' to' post' an' addiJonal' bond' of' 2,000'
which' MT' complied,' execuJng' a' bond' with' same'
condiJons'with'the'Manila'Compania'de'Seguros'(MCS)'
for'the'excess'of'3,000'up'to'5,000.''
• Aber' liquidaJon' of' the' transacJon,' a' balance' was' due'
from' MT' to' MH' for' the' amount' of' 2,200' which' MT' is'
unable'to'pay.'
• PI,'as'surety,'only'paid'1,300,'alleging'that'the'remaining'
40%'should'be'paid'by'the'other'surety,'MCS.'
Issue:'' Whether' or' not' MCS' should' be' held' liable' for' the'
remaining'40%'of'the'balance'due?'
Held:'
No,'the'bond'of'3,000'filed'by'PI'responded'for'the'obligaJon'
of' MT' up' to' the' some' of' 3,000,' inasmuch' as' the' bond' of'
2,000' filed' by' MCS' responded' for' the' obligaJon' of' MT' only'
insofar'as'it'might'exceed'3,000'and'up'to'5,000.'
The' provision' in' the' NCC' with' regard' to' several' sureJes' of'
only'one'debtor'for'the'same'debt'does'not'apply'in'this'case.'
Although' the' two' bonds' on' their' face' appear' to' guarantee'
the' same' debt' coextensively' up' to' 2,000' –' that' of' PI' alone'
extending'beyond'that'sum'up'to'3,000'–'it'was'pleaded'and'
conclusively' proven' that' in' reality' said' bonds,' or' the' two'
sureJes,' do' not' guarantee' the' same' debt' because' PI'
guarantees'only'the'first'3,000'while'MCS'only'the'excess'up'
to'5,000.'
CACHO'v'VALLES'
Facts:' On' October' 29,' 1920,' the' NaJonal' SporJng' Club,' of'
Manila,'obligated'itself'by'a'promissory'note'payable'at'four'
months'to'pay'to'Jose'Ma.'Cacho.'Below'the'signature'of'said'
NaJonal'SporJng'Club,'as'signed'by'the'proper'officers'of'the'
Club,' the' following' personal' guaranty' was' wricen:' "We'
guarantee'this'obligaJon."'(Sgd.)'J.'A.'Valles,'J.'L.'Mateu,'G.'J.'
HeffJng,' Ed.' Chesley,' Baldomero' Roxas.' This' note' was' not'
paid'at'maturity.'An'acJon'was'insJtuted'thereon'against'the'
NaJonal'SporJng'Club'and'the'guarantors.'Baldomero'Roxas'
interposed'a'defence'claiming'the'right'of'division'as'among'
the' co1sureJes,' and' asking' that' in' case' he' should' be' found'
liable'that'he'should'be'held'responsible'only'for'his'aliquot'
part'of'the'debt.''
Issue:'W/N'in'case'of'the'insolvency'of'one'or'more'of'several'
simple' sureJes,' those' who' remain' solvent' can' be' made' to'
pay'the'enJre'debt?'
Ruling:'None'of'the'sureJes,'so'far'as'this'record'shows,'has'
been'declared'bankrupt.'The'benefit'of'division'therefore'has'
not' been' lost,' and' the' rule' declaring' each' surety' liable' only'
for' his' aliquot' part' of' the' guaranteed' debt,' must' hold.' The'
obligaJon' of' the' surety' cannot' be' extended' beyond' its'
specified' limits.' A' co1surety' is' enJtled' to' the' benefit' of'
division' from' the' very' moment' that' he' contracts' the'
obligaJon,'except'where'there'is'sJpulaJon'to'the'contrary.''
TUASON'v'MACHUCA'
F:' Universal' Trading' Company' was' going' to' withdraw' goods'
from' the' Bureau' of' Customs' to' be' delivered' to' BPI.' To'
withdraw,'they'gave'a'bond'executed'by'Manila'Compania'de'
Seguros.'That'bond'was'secured'solidarily'by'Tuason'Co.'and'
Machuca' of' Universal' Trading.' It' was' to' be' paid' whether' or'
not' Manila' Compania' already' paid' CIR.' Manila' Compania'
demanded' payment' from' Tuason.' Manila' Compania' filed' a'
case'against'tuason.'Tuason'later'payed'but'incurred'liJgaJon'
expenses.' Tuason' now' demands' payment' from' Machuca.'
Tuason' filed' a' case' for' collecJon' of' money' from' Machuca.'
The'lower'court'ruled'that'Machuca'should'pay'the'debt'and'
the'expenses'incurred'by'Tuason'in'the'case'for'collecJon'of'
money.'
Issue:' Won' Machuca' should' pay' the' expenses' incurred' by'
Tuason'in'its'case'vs.'Manila'Compania'
Ruling:' NO!' it' was' not' Machuca’s' fault' why' tuason' incurred'
expenses'in'the'liJgaJon'of'Manila'Compania'and'Tuason.'If'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''45'
tuason' paid' Manila' compania,' no' liJgaJon' expenses' will' be'
paid.'
AUTOCORP'v'INTRA'STRATA'
FACTS:' Autocorp' Group,' represented' by' its' President,'
peJJoner'Peter'Y.'Rodriguez,'secured'two'ordinary're1export'
bond' from' private' respondent' Intra' Strata' Assurance'
CorporaJon' (ISAC)' in' favor' of' public' respondent' Bureau' of'
Customs' (BOC)' to' guarantee' the' re1export' of' one' unit' of'
Hyundai'Excel'41door'1.5'LS'and'Hyundai'Sonata'2.4'GLS,'and/
or'to'pay'the'taxes'and'duJes'thereon.'
PeJJoners' executed' and' signed' two' Indemnity' Agreements'
with'idenJcal'sJpulaJons'in'favor'of'ISAC,'agreeing'to'act'as'
surety' of' the' subject' bonds.' PeJJoner' Rodriguez' signed' the'
Indemnity' Agreements' both' as' President' of' the' Autocorp'
Group'and'in'his'personal'capacity.'
In' sum,' ISAC' issued' the' subject' bonds' to' guarantee'
compliance' by' peJJoners' with' their' undertaking' with' the'
BOC' to' re1export' the' imported' vehicles' within' the' given'
period'and'pay'the'taxes'and/or'duJes'due'thereon.'In'turn,'
peJJoners' agreed,' as' surety,' to' indemnify' ISAC' for' the'
liability'the'lacer'may'incur'on'the'said'bonds.'
PeJJoner' Autocorp' Group' failed' to' re1export' the' items'
guaranteed' by' the' bonds' and/or' liquidate' the' entries' or'
cancel'the'bonds,'and'pay'the'taxes'and'duJes'pertaining'to'
the' said' items' despite' repeated' demands' made' by' the' BOC,'
as'well'as'by'ISAC.'By'reason'thereof,'the'BOC'considered'the'
two'bonds,'with'a'total'face'value'of'P1,034,649.00,'forfeited.
 the'guaranty'within'a'specified'period,'and'this'period'has'


Failing' to' secure' from' peJJoners' the' payment' of' the' face'
value'of'the'two'bonds,'despite'several'demands'sent'to'each'
of'them'as'surety'under'the'Indemnity'Agreements,'ISAC'filed'
with' the' RTC' on' 24' October' 1995' an' acJon' against'
peJJoners.'
PeJJoners'contend'that'their'obligaJon'to'ISAC'is'not'yet'due'
and'demandable.'They'cannot'be'made'liable'by'ISAC'in'the'
absence' of' an' actual' forfeiture' of' the' subject' bonds' by' the'
BOC' and/or' an' explicit' pronouncement' by' the' same' bureau'
that'ISAC'is'already'liable'on'the'said'bonds.'
ISSUES:' Whether' actual' forfeiture' of' the' subject' bonds' is'
necessary' for' the' peJJoners' to' be' liable' to' ISAC' under' the'
Indemnity'Agreements?'
RULING:' The' liability' of' the' guarantor' already' triggers' the'
liability'of'the'debtor.'
Autocrop’s'liability'
Actual' forfeiture' of' the' subject' bonds' is' not' necessary' for'
peJJoners' to' be' liable' thereon' to' ISAC' as' surety' under' the'
Indemnity'Agreements.'
PeJJoners'' obligaJon' to' indemnify' ISAC' became' due' and'
demandable' the' moment' the' bonds' issued' by' ISAC' became'
answerable' for' peJJoners'' non1compliance' with' its'
undertaking' with' the' BOC.' Stated' differently,' peJJoners'
became'liable'to'indemnify'ISAC'at'the'same'Jme'the'bonds'
issued'by'ISAC'were'placed'at'the'risk'of'forfeiture'by'the'BOC'
for'non1compliance'by'peJJoners'with'its'undertaking.'
It' is' worthy' to' note' that' peJJoners' did' not' impugn' the'
validity' of' the' sJpulaJon' in' the' Indemnity' Agreements'
allowing'ISAC'to'proceed'against'peJJoners'the'moment'the'
subject' bonds' become' due' and' demandable,' even' prior' to'
actual'forfeiture'or'payment'thereof.'Even'if'they'did'so,'the'
Court' would' be' constrained' to' uphold' the' validity' of' such' a'
sJpulaJon' for' it' is' but' a' slightly' expanded' contractual'
expression' of' ArJcle' 2071' of' the' Civil' Code' which' provides,'
inter' alia,' that' the' guarantor' may' proceed' against' the'
principal' debtor' the' moment' the' debt' becomes' due' and'
demandable.'
Art.'2071.'The'guarantor,'even'before'having'paid,'may'
proceed'against'the'principal'debtor:

(1)'When'he'is'sued'for'the'payment;



(2)'In'case'of'insolvency'of'the'principal'debtor;



(3)'When'the'debtor'has'bound'himself'to'relieve'him'from'
expired;



(4)'When'the'debt'has'become'demandable,'by'reason'of'the'
expiraJon'of'the'period'for'payment;'



(5)'Aber'the'lapse'of'ten'years,'when'the'principal'obligaJon'
has'no'fixed'period'for'its'maturity,'unless'it'be'of'such'nature'
that'it'cannot'be'exJnguished'except'within'a'period'longer'
than'ten'years;



(6)'If'there'are'reasonable'grounds'to'fear'that'the'principal'
debtor'intends'to'abscond;

(7)'If'the'principal'debtor'is'in'imminent'danger'of'becoming'
insolvent.



In'all'these'cases,'the'acJon'of'the'guarantor'is'to'obtain'
release'from'the'guaranty,'or'to'demand'a'security'that'shall'
protect'him'from'any'proceedings'by'the'creditor'and'from'
the'danger'of'insolvency'of'the'debtor.'
Rodriguez’s'liability'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''46'
PeJJoner'Rodriguez'posits'that'he'is'merely'a'guarantor,'and'
that' his' liability' arises' only' when' the' person' with' whom' he'
guarantees' the' credit,' Autocorp' Group' in' this' case,' fails' to'
pay' the' obligaJon.' PeJJoner' Rodriguez' invokes' ArJcle' 2079'
of'the'Civil'Code'on'ExJnguishment'of'Guaranty,'which'states:'
Art.'2079.'An'extension'granted'to'the'debtor'by'the'creditor'
without' the' consent' of' the' guarantor' exJnguishes' the'
guaranty.' The' mere' failure' on' the' part' of' the' creditor' to'
demand'payment'aber'the'debt'has'become'due'does'not'of'
itself'consJtute'any'extension'of'Jme'referred'to'herein.'
• Both' parJes' appealed.' Defendants' were' claiming'
that'they'are'only'liable'for'P1k'each'only'according'
to' the' terms' of' the' contract.' PlainJff' was' claiming'
that'he'is'enJtled'to'maximum'sum'of'P5k'for'which'
each'one'had'bound'himself'in'the'contract.''
ISSUE:' Whether' or' not' Vizmanos' is' enJtled' to' P20k,' a'
reimbursement'of'P5k'each'from'the'Defendants?'

The' use' of' the' term' guarantee' in' a' contract' does' not' ipso'
facto'mean'that'the'contract'is'one'of'guaranty.'It'thus'ruled'
that'both'peJJoners'assumed'liability'as'a'regular'party'and' HELD:'NO'
obligated'themselves'as'original'promissors,'i.e.,'sureJes.'
• The' bond' of' a' debtor' to' protect' his' surety' is' not' a'
sub' bond' nor' a' second' bond' with' respect' to' the'
The'provisions'of'the'Civil'Code'on'Guarantee,'other'than'the'
original' creditor.' It' is' nothing' but' a' subsJtuJon' of'
benefit' of' excussion,' are' applicable' and' available' to' the'
the' obligaJon' of' the' debtor' with' respect' to' his'
surety.[22]' The' Court' finds' no' reason' why' the' provisions' of'
surety,' and' is' necessarily' governed' by' the' legal'
ArJcle'2079'would'not'apply'to'a'surety.

provisions' which' regulate' the' right' of' acJon' of' the'


surety'against'the'party'for'whom'he'gave'the'bond,'
This,' however,' would' not' cause' a' reversal' of' the' Decision' of'
that'is,'an'acJon'of'subrogaJon'which'lies'with'the'
the' Court' of' Appeals.' The' Court' of' Appeals' was' correct' that'
surety' to' compel' the' debtor' to' comply' with' the'
even' granJng' arguendo' that' there' was' a' modificaJon' as' to'
obligaJon'to'reimburse.''
the' effecJvity' of' the' bonds,' peJJoners' would' sJll' not' be'
absolved' from' liability' since' they' had' authorized' ISAC' to'
• This'acJon'arising'out'of'subrogaJon'is'the'remedy'
consent' to' the' granJng' of' any' extension,' modificaJon,'
for' securing' reimbursement' of' the' amount' that'
alteraJon'and/or'renewal'of'the'subject'bonds'
another'has'paid,'and'cannot'exceed,'except'there'is'
an' express' agreement' to' the' contrary,' the' amount'
actually'paid'by'the'surety'in'place'of'the'debtor.''
SAENZ'v'YAP'CHUAN'
FACTS:'
• IN' THIS' CASE:' The' following' terms' of' an' obligaJon'
cannot' be' considered' as' an' express' agreement' to'
• Engracio' Palanca' –' a' judicial' administrator' gave'
the' contrary:' “' x' x' ' x' bind' themselves' as' such'
bond' to' guarantee' his' administraJon' of' the' estate'
conjointly' to' reimburse' or' pay' whatever' amounts'
of'Margarita'Jose'
the'lacer'(the'surety)'may'have'to'pay'or'shall'have'
• paid' by' reason' of' the' judicial' bond,”' inasmuch' as'
The' bond' was' executed' by' Engracio,' PlainJff' Saenz'
this' manner' of' expressing' the' intenJon' of' the'
and'two'others'in'favour'of'the'government'for'the'
obligated' parJes' does' not' consJtute' a' true'
sum'of'P60k'
disjuncJve'proposiJon,'but'is'merely'explanatory'of'
• On'the'same'date,'Engracio'and'5'others'executed'a' the'obligaJon'as'if'contracted'by'the'debtor'himself,'
bond' in' favour' of' Saenz;' Yap' Chuan' P20k' and' the' the'only'natural'and'logical'interpretaJon.'
other'4'P5k'each'
• To' ask' an' indemnity' of' P20k,' when' the' loss' to' be'
• TC' ordered' Saenz,' as' surety' in' solidum' of' the' ex1 indemnified'is'only'P8k'is'contrary'to'law.'
administrator'Engracio'to'pay'the'estate'the'sum'of'
• Vizmanos' only' enJtled' to' an' acJon' against' 4'
P41k'
Defendants' for' recovery' of' maximum' P5k.' He'
• Saenz'paid'to'the'administrator'of'the'estate'P8k;'He' cannot'collect'more'than'the'sum'which'he'himself'
filed'sut'against'5'sureJes'who'executed'the'bond' was'actually'compelled'to'pay.'

• TC' acquiced' Defendant' from' the' P20k' claim' and'

ordered'the'other'4'to'pay'P2k'each.'
MANILA'SURETY'v'BATU'CONSTRUCTION'

SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''47'
FACTS:' applicable' and' available' to' a' surety.' The' reference' in' arJcle'
2047'to,'the'provisions'of'SecJon'4,'Chapter'3,'Title'1,'Book'
On'July'8,'1950,'the'defendant'Batu'ConstrucJon'&'Company,'
IV' of' the' new' Civil' Code,' on' solidary' or' several' obligaJons,'
as'principal,'and'the'plainJff'Manila'Surety'&'Fidelity'Co.'Inc.,'
does'not'mean'that'suretyship'which'is'a'solidary'obligaJon'is'
as'surety,'executed'a'surety'bond'for'the'sum'of'P8,812.00'to'
withdrawn'from'the'applicable'provisions'governing'guaranty.'
insure' faithful' performance' of' the' former's' obligaJon' as'
contractor'for'the'construcJon'of'the'Bacarra'Bridge,'Project' The'plainJff's'cause'of'acJon'does'not'fall'under'paragraph'2'
PR172' (No.' 3)' Ilocos' Norte' Province.' On' the' same' date,' July' of' arJcle' 2071' of' the' new' Civil' Code,' because' there' is' no'
8,1950,' the' Batu' ConstrucJon' &' Company' and' the' proof'of'the'defendants''insolvency.'The'fact'that'the'contract'
defendants' Carlos' N.' Baquiran' and' Gonzales' P.' Amboy' was'annulled'because'of'lack'of'progress'in'the'construcJon'
executed' an' indemnity' agreement' to' protect' the' Manila' of' the' bridge' is' no' proof' of' such' insolvency.' It' does' not' fall'
Surety' &' Fidelity' Co.' Inc..,' against' damage,' loss' or' expenses' under' paragraph' 3,' because' the' defendants' have' not' bound'
which' it' may' sustain' as' a' consequence' of' the' surety' bond' themselves'to'relieve'the'plainJff'from'the'guaranty'within'a'
executed'by'it'jointly'with'Batu'ConstrucJon'&'Company.' specified' period' which' already' has' expired,' because' the'
surety'bond'does'not'fix'any'period'of'Jme'and'the'indemnity'
On'or'about'May'30,'1951,'the'plainJff'received'a'noJce'from'
agreement' sJpulates' one' year' extendible' or' renewable' unJl'
the'Director'of'Public'Works'(Exhibit'B)'annulling'its'contract'
the' bond' be' completely' cancelled' by' the' person' or' enJty' in'
with' the' Government' for' the' construcJon' of' the' Bacarra'
whose' behalf' the' bond' was' executed' or' by' a' Court' of'
Bridge' because' of' its' failure' to' make' saJsfactory' progress' in'
competent'jurisdicJon.'It'does'not'come'under'paragraph'4,'
the' execuJon' of' the' works,' with' the' warning' that' ,any'
because' the' debt' has' not' become' demandable' by' reason' of'
amount'spent'by'the'Government'in'the'conJnuaJon'of'the'
the' expiraJon' of' the' period' for' payment.' It' does' not' come'
work,'in'excess'of'the'contract'price,'will'be'charged'against'
under'paragraph'5'because'of'the'lapse'of'10'years,'when'the'
the'surety'bond'furnished'by'the'plainJff.'It'also'appears'that'
principal'obligaJon'has'no'period'for'its'maturity,'etc.,'for'10'
a' complaint' by' the' laborers' in' said' project' of' the' Batu'
years'have'not'yet'elapsed.'It'does'not'fall'under'paragraph'6,'
ConstrucJon' &' Company' was' filed' against' it' and' the' Manila'
because'there'is'no'proof'that'"there'are'reasonable'grounds'
Surety' and' Fidelity' Co.,' Inc.,' for' unpaid' wages' amounJng' to'
to'fear'that'the'principal'debtor'intends'to'abscond."'It'does'
P5,960.10.'
not' come' under' paragraph' 7,' because' the' defendants,' as'
Trial' Court' dismissed' the' case' holding' that' provisions' of' principal' debtors,' are' not' in' imminent' danger' of' becoming'
arJcle' 2071' of' the' new' Civil' Code' may' be' availed' of' by' a' insolvent,'there'being'no'proof'to'that'effect.'
guarantor'only'and'not'by'a'surety'the'complaint,'with'costs'
But'the'plainJff's'cause'of'acJon'comes'under'paragraph'1'of'
against'the'plainJff.'
arJcle'2071'of'the'new'Civil'Code,'because'the'acJon'brought'
ISSUE:' The' main' quesJon' to' determine' is' whether' the' last' by' Ricardo' Fernandez' and' 105' persons' in' the' JusJce' of' the'
paragraph' of' arJcle' 2071' of' the' new' Civil' Code' taken' from' Peace' Court' of' Laoag,' province' of' Ilocos' Norte,' for' the'
arJcle' 1843' of' the' old' Civil' Code' may' be' availed' of' by' a' collecJon' of' unpaid' wages' amounJng' to' P5,960.10,' is' in'
surety.' connecJon' with' the' construcJon' of' the' Bacarra' Bridge,'
HELD:'' Project' PR172' (3),' undertaken' by' the' Batu' ConstrucJon' &'
Company,' and' one' of' the' defendants' therein' is' the' herein'
A' guarantor' is' the' insurer' of' the' solvency' of' the' debtor;' a'
plainJff,' the' Manila' Surety' and' Fidelity' Co.,' Inc.,' and'
surety'is'an'insurer'of'the'debt.'A'guarantor'binds'himself'to'
paragraph' 1' of' arJcle' 2071' of' the' new' Civil' Code' provides'
pay' if' the' principal' is' unable' to' pay;' a' surety' undertakes' to'
that' the' guarantor,' even' before' having' paid,' may' proceed'
pay'if'the'principal'does'not'pay.1'The'reason'which'could'be'
against' the' principal' debtor' "to' obtain' release' from' the'
invoked'for'the'non1availability'to'a'surety'of'the'provisions'of'
guaranty,'or'to'demand'a'security'that'shall'protect'him'from'
the'last'paragraph'of'arJcle'2071'of'the'new'Civil'Code'would'
any' proceedings' by' the' creditor' or' from' the' danger' of'
be'the'fact'that'guaranty'like'commodatum2'is'gratuitous.'But'
insolvency'of'the'debtor,'when'he'(the'guarantor)'is'sued'for'
guaranty' could' also' be' for' a' price' or' consideraJon' as'
payment.' It' does' not' provide' that' the' guarantor' be' sued' by'
provided' for' in' arJcle' 2048.' So,' even' if' there' should' be' a'
the' creditor' for' the' payment' of' the' debt.' It' simply' provides'
consideraJon' or' price' paid' to' a' guarantor' for' him' to' insure'
that' the' guarantor' of' surety' be' sued' for' the' payment' of' an'
the'performance'of'an'obligaJon'by'the'principal'debtor,'the'
amount'for'which'the'surety'bond'was'put'up'to'secure'the'
provisions' of' arJcle' 2071' would' sJll' be' available' to' the'
fulfillment' of' the' obligaJon' undertaken' by' the' principal'
guarantor.' In' suretyship' the' surety' becomes' liable' to' the'
debtor.' So,' the' suit' filed' by' Ricardo' Fernandez' and' 105'
creditor' without' the' benefit' of' the' principal' debtor's'
persons'in'the'JusJce'of'the'Peace'Court'of'Laoag,'province'of'
exclusion' of' his' properJes,' for' he' (the' surety)' maybe' sued'
Ilocos' Norte,' for' the' collecJon' of' unpaid' wages' earned' in'
independently.'So,'he'is'an'insurer'of'the'debt'and'as'such'he'
connecJon' with' the' work' done' by' them' in' the' construcJon'
has' assumed' or' undertaken' a' responsibility' or' obligaJon'
of' the' Bacarra' Bridge,' Project' PR172(3),' is' a' suit' for' the'
greater' or' more' onerous' than' that' of' guarantor.' Such' being'
payment'of'an'amount'for'which'the'surety'bond'was'put'up'
the' case,' the' provisions' of' arJcle' 2071,' under' guaranty,' are'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''48'
or'posted'to'secure'the'faithful'performance'of'the'obligaJon'
undertaken'by'the'principal'debtors'(the'defendants)'in'favor'
of'the'creditor,'the'Government'of'the'Philippines.'
The'order'appealed'from'dismissing'the'complaint'is'reversed'
and'set'aside.'
GEN.'INDEMNITY'v'ALVAREZ'
FACTS:'
• On'February'1954,'Appellee'General''Indemnity'Co.,'Inc.,'
filed'a'complaint'in'the'CFI'Manila'against'Appellant'
Estanislao'Alvarez'for'the'recovery'of'the'sum'of'P2,000'
represenJng'the'amount'of'a'loan'allegedly'taken'by'the'
Appellant'from'the'PNB,'which'the'Appellee'guaranteed'
with'an'indemnity'bond,'and'for'which'Appellant,'as'
counter1guaranty,'executed'in'PlainJff's'favor'a'mortgage'
on'his'share'of'land'in'a'parcel'of'land'.''
• which,' upon' arrival,' were' transferred' to' Customs' Bonded'
The'complaint'further'alleged'that'the'Appellant'failed'to'
pay'said'loan,'together'with'interest,'to'PNB''as'a'result'
of'which'the'bank'deducted'the'amount'thereof'
PlainJff's'deposit.''
• Thereaber,'Appellant'averred'that'the'loan'in'quesJon'
was'secured'by'him'only'in'accommodaJon'of'one'Hao'
Lam,'and'that'PlainJff'agreed'not'to'take'any'steps'
against'Appellant'and'the'mortgage'executed'by'him'in'
PlainJff's'favor'unJl'the'lacer'had'failed'to'obtain'
payment'from'said'Hao'Lam.'
• Eight'months'later,'PlainJff'filed'a'moJon'for'summary'
judgment'saying'that'Appellang'presented'no'real'and'
meritorious'defense'and'that'it'was'enJtled'to'a'
summary'judgment'in'its'favor,'based'on'the'affidavit'of'
its'comptroller'Pedro'R.'Mendiola''essenJally'saying'that:'
o That'he'has'personal'knowledge'of'the'indebtedness'
of'the'Defendant.'
o Notwithstanding'said'several'demands'by'PlainJff,'
Defendant'has'failed'and'refused'and'sJll'fails'and'
refuses'to'pay'the'same.''
• The'lower'courts'ruled'in'favour'of'PlainJff.'Thus'this'
peJJon.'
Issue:'
Whether'or'not'Defendant'Alvarez'is'liable?'
Ruling:'
• NO.'The'SC'ruled'that'there'exists'a'controversy'in'the'
complaint'and'answer'as'to'whether'or'not'Appellee'had'
actually'paid'Appellant's'obligaJon'to'the'Philippine'
NaJonal'Bank,'a'macer'which'should'be'decided'in'the'
affirmaJve'before'Appellant,'as'surety,'can'claim'
reimbursement'from'Appellant,'the'principal'debtor.'
• However,'Appellee'is'correct'in'saying'that'said'defense'
is'immaterial'to'its'right'to'recovery,'since'the'mortgage'
deed'executed'by'Appellant'in'its'favor'(the'genuineness'
and'due'execuJon'of'which'Appellant'admiced'in'his'
answer)'shows'Appellant'to'be'the'actual'and'only'
debtor,'and'Appellant'is'precluded'from'varying'this'
representaJon'by'parol'evidence.'
• In'ruling'for'the'Appellant,'the'SC'opined'that'the'last'
paragraph'of'Art.'2071'of'the'New'Civil'Code,''provides'
that'the'only'acJon'the'guarantor'can'file'against'the'
debtor'"to'obtain'release'from'the'guaranty,'or'to'
demand'a'security'that'shall'protect'him'from'any'
proceeding'by'the'creditor'and'from'the'danger'of'
insolvency'of'the'debtor."''
• An'acJon'by'the'guarantor'against'the'principal'debtor'
for'payment,'before'the'former'has'paid'the'creditor,'is'
premature.'
INTRA'STRATA'v'REPUBLIC'
FACTS:'Grand'TexJle'imported'materials'from'other'countries'
Warehouse.' Grand' TexJle' was' obliged' to' pay' customs'
charges.' To' secure' payment' of' these' obligaJons,' peJJoners'
issued' general' warehousing' bonds' in' favor' of' the' Bureau' of'
Customs' (BOC).' Without' payment' of' any' of' the' obligaJons'
due,' Grand' TexJle' withdrew' the' imported' goods' from'
storage.' BOC' demanded' payment' from' Grand' TexJle' as'
importer'and'from'the'peJJoners'as'sureJes.'All'three'failed'
to' pay.' The' government' filed' a' collecJon' suit' against' the'
parJes.'
Lower' Court' ruled' against' peJJoners,' CA' affirmed.'
PeJJoners' allege' that:' (1)' they' were' released' from' their'
obligaJons' under' their' bonds' when' Grand' TexJle' withdrew'
the' imported' goods' without' payment' of' taxes,' duJes,' and'
other' charges;' and' (2)' that' their' non1involvement' in' the'
acJve'handling'of'the'warehoused'items'from'the'Jme'they'
were' stored' up' to' their' withdrawals' substanJally' increased'
the'risks'they'assumed'under'the'bonds'they'issued,'thereby'
releasing'them'from'liabiliJes'under'these'bonds.'
ISSUE:' Whether' the' withdrawal' of' the' stored' goods,' wares,'
and' merchandise' –' without' noJce' to' them' as' sureJes' –'
released' them' from' any' liability' for' the' duJes,' taxes,' and'
charges'they'commiced'to'pay'under'the'bonds'they'issued?'
HELD:' NO.' By' its' very' nature' under' the' terms' of' the' laws'
regulaJng' suretyship,' the' liability' of' the' surety' is' joint' and'
several'but'limited'to'the'amount'of'the'bond,'and'its'terms'
are' determined' strictly' by' the' terms' of' the' contract' of'
suretyship' in' relaJon' to' the' principal' contract' between' the'
obligor'and'the'obligee.'The'definiJon'and'characterisJcs'of'a'
suretyship'bring'into'focus'the'fact'that'a'surety'agreement'is'
an'accessory'contract'that'introduces'a'third'party'element'in'
the'fulfillment'of'the'principal'obligaJon'that'an'obligor'owes'
an' obligee.' ' In' short,' there' are' effecJvely' two' (2)' contracts'
involved' when' a' surety' agreement' comes' into' play' –' a'
principal' contract' and' an' accessory' contract' of' suretyship.''
Under' the' accessory' contract,' the' surety' becomes' directly,'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''49'
primarily,'and'equally'bound'with'the'principal'as'the'original'
promissor' although' he' possesses' no' direct' or' personal'
interest'over'the'lacer’s'obligaJons'and'does'not'receive'any'
benefit'therefrom.'
Considered' in' relaJon' with' the' underlying' laws' that' are'
deemed' read' into' these' bonds,' it' is' at' once' clear' that' the'
bonds' shall' subsist' –' that' is,' “shall' remain' in' full' force' and'
effect”' –' unless' the' imported' arJcles' are' “regularly' and'
lawfully'withdrawn.'.'.on'payment'of'the'legal'customs'duJes,'
internal'revenue'taxes,'and'other'charges'to'which'they'shall'
be' subject….”' ' Fully' fleshed' out,' the' obligaJon' to' pay' the'
duJes,' taxes,' and' other' charges' primarily' rested' on' the'
principal' Grand' TexJle;' it' was' allowed' to' warehouse' the'
imported' arJcles' without' need' for' prior' payment' of' the'
amounts' due,' condiJoned' on' the' filing' of' a' bond' that' shall'
remain'in'full'force'and'effect'unJl'the'payment'of'the'duJes,'
taxes,' and' charges' due.' ' Under' these' terms,' the' fact' that' a'
withdrawal' has' been' made' and' its' circumstances' are' not'
material' to' the' sureJes’' liability,' except' to' signal' both' the'
principal’s'default'and'the'elevaJon'to'a'due'and'demandable'
status' of' the' sureJes’' solidary' obligaJon' to' pay.' Under' the'
bonds’'plain'terms,'this'solidary'obligaJon'subsists'for'as'long'
as'the'amounts'due'on'the'importaJons'have'not'been'paid.''
Thus,'it'is'completely'erroneous'for'the'peJJoners'to'say'that'
they' were' released' from' their' obligaJons' under' their' bond'
when' Grand' TexJle' withdrew' the' imported' goods' without'
payment' of' taxes,' duJes,' and' charges.' ' From' a'
commonsensical' perspecJve,' it' may' well' be' asked:' why' else'
would' the' law' require' a' surety' when' such' surety' would' be'
bound' only' if' the' withdrawal' would' be' regular' due' to' the'
payment'of'the'required'duJes,'taxes,'and'other'charges?'
'We'note'in'this'regard'the'rule'that'a'surety'is'released'from'
its' obligaJon' when' there' is' a' material' alteraJon' of' the'
contract'in'connecJon'with'which'the'bond'is'given,'such'as'a'
change' which' imposes' a' new' obligaJon' on' the' promising'
party,'or'which'takes'away'some'obligaJon'already'imposed,'
or'one'which'changes'the'legal'effect'of'the'original'contract'
and'not'merely'its'form.''A'surety,'however,'is'not'released'by'
a' change' in' the' contract' which' does' not' have' the' effect' of'
making'its'obligaJon'more'onerous.'
We'find'under'the'facts'of'this'case'no'significant'or'material'
alteraJon' in' the' principal' contract' between' the' government'
and' the' importer,' nor' in' the' obligaJon' that' the' peJJoners'
assumed' as' sureJes.' Specifically,' the' peJJoners' never'
assumed,'nor'were'any'addiJonal'obligaJon'imposed,'due'to'
any' modificaJon' of' the' terms' of' importaJon' and' the'
obligaJons' thereunder.' ' The' obligaJon,' and' one' that' never'
varied,' is' –' on' the' part' of' the' importer,' to' pay' the' customs'
duJes,'taxes,'and'charges'due'on'the'importaJon,'and'on'the'
part'of'the'sureJes,'to'be'solidarily'bound'to'the'payment'of'
the' amounts' due' on' the' imported' goods' upon' their'
withdrawal' or' upon' expiraJon' of' the' given' terms.' ' The'
peJJoners’'lack'of'consent'to'the'withdrawal'of'the'goods,'if'
this' is' their' complaint,' is' a' macer' between' them' and' the'
principal' Grand' TexJle;' it' is' a' macer' outside' the' concern' of'
government' whose' interest' as' creditor1obligee' in' the'
importaJon' transacJon' is' the' payment' by' the' importer1
obligor' of' the' duJes,' taxes,' and' charges' due' before' the'
importaJon' process' is' concluded.' ' With' respect' to' the'
sureJes' who' are' there' as' third' parJes' to' ensure' that' the'
amounts'due'are'paid,'the'creditor1obligee's'acJve'concern'is'
to' enforce' the' sureJes’' solidary' obligaJon' that' has' become'
due'and'demandable.''
With'regard'to'the'issue'on'the'noJce,'the'surety'does'not,'
by' reason' of' the' surety' agreement,' earn' the' right' to'
intervene'in'the'principal'creditor1debtor'relaJonship;'its'role'
becomes'alive'only'upon'the'debtor’s'default,'at'which'Jme'it'
can' be' directly' held' liable' by' the' creditor' for' payment' as' a'
solidary'obligor.' 'A'surety'contract'is'made'principally'for'the'
benefit' of' the' creditor1obligee' and' this' is' ensured' by' the'
solidary' nature' of' the' sureJes’' undertaking.' Under' these'
terms,'the'surety'is'not'enJtled'as'a'rule'to'a'separate'noJce'
of'default,'nor'to'the'benefit'of'excussion,'and'may'be'sued'
separately'or'together'with'the'principal'debtor.'Significantly,'
nowhere' in' the' peJJoners’' bonds' does' it' state' that' prior'
noJce'is'required'to'fix'the'sureJes’'liabiliJes.''Without''such'
' express' ' requirement,' ' the' creditor’s' right' to' enforce'
payment'cannot'be'denied'as'the'peJJoners'became''bound''
as' 'soon' 'as' 'Grand' 'TexJle,' 'the' 'principal'debtor,'defaulted.''
Thus,' the' filing' of' the' collecJon' suit' was' sufficient' noJce' to'
the'sureJes'of'their'principal’s'default.'
RADIO'CORP.'OF'THE'PHILS.'v'ROA'
FACTS:'
➢ The'defendant'Jesus'R.'Roa'became'indebted'to'the'
Philippine'Theatrical'Enterprises,'Inc.,'in'the'sum'of'
P28,400'payable'in'seventy1one'equal'monthly'
installments'at'the'rate'of'P400'a'month'
commencing'thirty'days'aber'December'11,'1931,'
with'five'days'grace'monthly'unJl'complete'payment'
of'said'sum.'On'that'same'date'the'Philippine'
Theatrical'Enterprises,'Inc.,'assigned'all'its'right'and'
interest'in'that'contract'to'the'Radio'CorporaJon'of'
the'Philippines.'
➢ In'the'said'contract'there'was'an'acceleraJng'clause'
that'in'case'the'vendee1mortgagor'fails'to'make'any'
of'the'payments'as'hereinbefore'provided,'the'
whole'amount'remaining'unpaid'under'this'
mortgage'shall'immediately'become'due'and'
payable'and'this'mortgage'on'the'property'herein'
menJoned'as'well'as'the'Luzon'Surety'Bond'may'be'
foreclosed'by'the'vendor1mortgagee'
➢ Roa'failed'to'pay'the'monthly'installment'and'the'
whole'amount'fell'due.'
➢ The'defendant'asked'for'an'extension'which'was'
granted.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''50'
 ➢ Aber'the'extension'given,'the'surety'now'argued'
that'they'already'release'from'their'obligaJon.''
ISSUE:'
➢ Whether'or'not'the'extension'granted'in'the'above'
copied'lecer'by'the'plainJff,'without'the'consent'of'
the'guarantors,'the'herein'appellants,'exJnguishes'
the'lacer's'liability'not'only'as'to'the'installments'
due'at'that'Jme,'as'held'by'the'trial'court,'but'also'
as'to'the'whole'amount'of'their'obligaJon?'
HELD:'
➢ NO,'The'rule'that'an'extension'of'Jme'granted'to'
the'debtor'by'the'creditor,'without'the'consent'of'
the'sureJes,'exJnguishes'the'lacer's'liability'is'
common'both'to'Spanish'jurisprudence'and'the'
common'law;'and'it'is'well'secled'in'English'and'
American'jurisprudence'that'where'a'surety'is'liable'
for'different'payments,'such'as'installments'of'rent,'
or'upon'a'series'of'promissory'notes,'an'extension'of'
Jme'as'to'one'or'more'will'not'affect'the'liability'of'
the'surety'for'the'others'
VILLA'v'GARCIA'BOSQUE'
FACTS:'
A' sale' of' property' was' made' by' the' acorney' in' fact' for' a'
stated'consideraJon,'part'of'which'was'paid'in'cash'and'the'
balance' made' payable' in' deferred' instalments.' The' acorney'
in'fact'then'executed'a'subsJtuted'power'of'acorney'in'favor'
of' a' third' person' to' enable' the' lacer' to' collect' the' deferred'
instalments.'
SC:'
- Extension' of' Jme' by' Creditor' to' Principal' Debtor;'
Effect'on'liability'of'sureJes'
- Where' the' purchase' price' of' property' is' payable' in'
various' installments,' an' extension' of' Jme' granted'
by' the' creditor' to' the' debtor' with' respect' to' one'
instalment' will' discharge' the' sureJes,' whether'
simple' or' solidary,' from' ALL' liability' as' to' such'
instalment'bit'it'DOES'NOT'AFFECT'their'liability'for'
other' instalments' unconnected' with' the' extension'
of'Jme.'
HOSPICIO'DE'SAN'JOSE'v'FIDELITY'
SECURITY'BANK'v'CUENCA'
DOCTRINE:' An' extension' granted' to' the' debtor' by' the'
creditor' without' the' consent' of' the' guarantor' exJnguishes'
the'guaranty.'The'1989'Loan'Agreement'expressly'sJpulated'
that' its' purpose' was' to' “liquidate,”' not' to' renew' or' extend,'
the'outstanding'indebtedness.'Moreover,'respondent'did'not'
sign' or' consent' to' the' 1989' Loan' Agreeement,' which' had'
alledgedly' extended' the' original' P8' million' credit' facility.'
Hence,' his' obligaJon' as' a' surety' should' be' deemed'
exJnguished,' pursuant' to' ArJcle' 2079' of' the' Civil' Code,'
which' specifically' states' that' “[a]n' extension' granted' to' the'
debtor' by' the' creditor' without' the' consent' of' the' guarantor'
exJnguishes'the'guaranty.'
' An' essenJal' alteraJon' in' the' terms' of' a' Loan'
Agreement' without' the' consent' of' the' surety' exJnguishes'
the'lacer’s'obligaJon.'The'submission'that'only'the'borrower,'
not'the'surety,'is'enJtled'to'be'noJfied'of'any'modificaJon'in'
the'original'loan'accommodaJon'is'untenable1such'theory'is'
contrary' to' the' to' the' principle' that' a' surety' cannot' assume'
an' obligaJon' more' onerous' than' that' of' the' principal.' That'
the' Indemnity' Agreement' is' a' conJnuing' surety' does' not'
authorize' the' lender' to' extend' the' scope' of' the' principal'
obligaJon' inordinately;' A' conJnuing' guaranty' is' one' which'
covers' all' transacJon,' including' those' arising' in' the' future,'
which' are' within' the' descripJon' or' contemplaJon' of' the'
contract' of' guaranty,' unJl' the' expiraJon' or' terminaJon'
thereof.'
PNB'v'MANILA'SURETY'
Facts:'
• PNB'had'opened'a'lecer'of'credit'and'advanced'thereon'
$120K' to' Edgingtom' Oil' Refinery' for' 8,000' tons' of' hot'
asphalt.' Of' this' amount,' 2,000' tons' were' released' and'
delivered'to'Adams'&'Taguba'Corp'(ATACO)'under'a'trust'
receipt' guaranteed' by' Manila' Surety' &' Fidelity' Co.'
(MSFC)'up'to'the'amount'of'75K.'
• To' pay' for' the' asphalt,' ATACo' consJtuted' PNB' its'
assignee'and'acy1in1fact'to'receive'and'collect'from'the'
Bureau'of'Public'Works'(BPW)'the'amount'aforesaid'out'
of'funds'payable'to'the'assignor'under'a'purchase'order.'
• ATACO' delivered' to' BPW' and' the' lacer' accepted' the'
asphalt'to'the'total'value'of'400K.'
• Aber' this,' PNB' regularly' collected' for' 8' months.'
Thereaber,' it' ceased' to' collect' unJl' aber' 4' years,' its'
invesJgators' found' that' more' money' were' payable' to'
ATACO' from' BPW,' because' the' lacer' allowed' other'
creditors'to'collect'funds'due'to'ATACO'under'the'same'
purchase'order.'
• PNB'demanded'from'ATACO'and'MSFC'for'payment'but'
both'refused.'
• PNB' filed' a' complaint' against' ATACO' and' MSFC' to'
recover'the'balance'with'interests'and'costs.'
• PNB'contends'that'the'power'of'acorney'obtained'from'
ATACO'was'merely'an'addiJonal'security'in'its'favor'and'
that'it'was'the'duty'of'the'surety'not'that'of'the'creditor'
to' see' to' it' that' the' obligor' fulfills' his' obligaJons' and'
that' the' creditor' owed' the' surety' no' duty' of' acJve'
diligence'to'collect'any'sum'from'the'principal'debtor.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''51'
Issue:' Whether' or' not' MFSC' should' be' held' liable' for' the' mortgages' it.' This' essenJal' requisite' for' the' contract' of'
unpaid'balance?' pledge' between' Perello' and' the' defendant' being' absent' as'
the'former'was'not'the'owner'of'the'jewelry'given'in'pledge.''
Held:'No,'MFSC'is'not'liable.''
UNION'MOTOR'CORP.'v'CA'
PNB' is' not' negligent' in' failing' to' collect' from' the' principal'
This' case' is' about' the' spouses' respondents' who' bought' a'
debtor' but' is' negligent' for' its' failure' in' collecJng' the' sums'
jeepney' worth' 30k.' to' finance' the' purchase,' the' spouses'
due'to'the'debtor'from'the'Bureau'of'Public'Works,'contrary'
entered' into' a' chacel' mortgage' with' Union' Motors' wherein'
to'its'duty'as'holder'of'an'exclusive'and'irrevocable'power'of'
the' security' will' be' the' jeepney.' Union' motors' then'
acorney'to'make'such'collecJons,'since'an'agent'is'required'
transferred' the' mortgage' to' a' financing' company.' Receipts'
to' act' with' care' of' a' good' father' of' the' family' and' becomes'
and'other'documents'of'ownership'were'issued'however,'the'
liable' for' damages' which' the' principal' may' suffer' through'
jeep'is'sJll'not'in'the'possession'of'the'spouses.'The'spouses'
non1performance.'
tried' to' have' possession' of' the' jeep' but' failed.' Frustrated,'
they' did' not' conJnue' the' payment.' LC' ruled' in' favor' of' the'
Even' if' the' assignment' with' power' of' acorney' from' the'
spouses' saying' that' they' are' not' liable' because' there' is' sJll'
principal'debtor'were'considered'as'mere'addiJonal'security,'
no' delivery.' Finance' Co.' claimed' there' was' construcJve'
sJll' by' allowing' the' assigned' funds' to' be' exhausted' without'
delivery'because'how'can'the'spouses'mortgage'the'property'
noJfying' the' surety,' PNB' deprived' the' former' of' any'
if'they'do'not'own'the'it.'
possibility' of' recoursing' against' that' security.' ArJcle' 2080' of'
the'Civil'Code'provides'that'guarantors'even'though'they'are'
Issue:'WoN'there'was'delivery'
solidary,' are' released' from' their' obligaJon' whenever' some'
act' of' the' creditor' they' cannot' be' subrogated' to' the' rights,'
Ruling:''Non!'Chacel'mortgage'do'not'prove'delivery.'
mortgages'and'preferences'of'the'lacer.''''

PROVISIONS'COMMON'TO'PLEDGE'AND'MORTGAGE' DBP'v'PRUDENTIAL'

ARENAS'v'RAYMUNDO' CAVITE'DEVELOPMENT'v'SPOUSES'LIM'
FACTS:'
Facts:'Estanislaua'Arenas'and'Julian'La'O,'brought'suit'against'
• Rodolfo'Guansing'obtained'a'loan'in'the'amount'of'
Fausto'O.'Raymundo'(pawnshop'owner).'The'plainJffs'alleged'
P90k'from'Cavite'Devt'Bank'(CDB)'and'mortgaged'a'
that' the' said' jewelry,' during' the' last' part' of' April' or' the'
parcel'of'land'covered'by'TCT'in'his'name'to'secure'
beginning'of'May,'1908,'was'delivered'to'Elena'de'Vega'to'sell'
the'loan.'
on' commission,' and' that' the' lacer,' in' turn,' delivered' it' to'
ConcepJon' Perello,' likewise' to' sell' on' commission,' but' that'
• When' Guansing' defaulted' in' the' payment' of' his'
Perello,' instead' of' fulfilling' her' trust,' pledged' the' jewelry' in'
loan,'CDB'foreclosed'the'mortgage'and'consolidated'
the' defendant's' pawnshop.' The' said' jewelry' was' then' under'
the'Jtle'to'the'property'in'its'name'
the'control'and'in'the'possession'of'the'defendant,'as'a'result'
of' the' pledge' by' Perello,' and' that' the' former' refused' to'
• R' Lim' offered' to' purchase' the' property' from' CDB'
deliver'it'to'the'plainJffs.'
and' paid' P30k' as' opJon' money.' She' later' on'
discovered' that' the' subject' property' was' originally'
Issue:' W/N' the' ' pawnshop' should' return' the' jewelry' to' the'
registered'in'the'name'of'Perfecto'Guansing,'father'
plainJffs?'
of'Rodolfo'Guansing.'
Ruling:' Yes.' In' the' present' suit,' it' was' not' proven' that'
Estanislaua' Arenas' authorized' Perello' to' pawn' the' jewelry' • R' filed' an' acJon' for' specific' performance' and'
given' to' her' by' Arenas' to' sell' on' commission.' ConcepJon' damages'against'CDB'for'serious'misrepresentaJon'
Perello'was'not'the'legiJmate'owner'of'the'jewelry'which'she'
pledged' to' the' defendant' Raymundo,' for' a' certain' sum' that' • CDB' denied' that' a' contract' of' sale' was' ever'
she'received'from'the'lacer'as'a'loan,'the'contract'of'pledge' perfected' between' them' and' R.' R’s' lecer' offer'
entered' the' jewelry' so' pawned' cannot' serve' as' security' for' clearly' states' that' the' sum' of' P30k' was' given' as'
the' payment' of' the' sum' loaned,' nor' can' the' lacer' be' opJon' money' NOT' earnest' money;' therefore' only'
collected'out'of'the'value'of'the'said'jewelry.'The'Civil'Code' an'opJon'contract'
prescribes' as' one' of' the' essenJal' requisites' of' the' contracts'
of' pledge' and' of' mortgage,' that' the' thing' pledged' or'
mortgaged' must' belong' to' the' person' who' pledges' or'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''52'
ISSUE:' WON' there' was' a' valid' foreclosure' of' the' mortgage'
and'subsequently'a'contract'of'sale?'
HELD:'NO'
• ISSUE:'W/N'the'mortgage'executed'by'Augorio'Calalo'in'favor'
NEMO'DAT'QUOD'NON'HABET'
• The' sale' by' CDB' to' Lim' of' the' property' mortgaged'
by'Rodolfo'Guansing'is'deemed'a'nullity'for'CDB'did'
not'have'a'valid'Jtle'to'the'said'property.''
• ' CDB' never' acquired' a' valid' Jtle' to' the' property'
because'the'foreclosure'sale,'by'virtue'of'which,'the'
property' had' been' awarded' to' CDB' as' highest'
bidder,'is'likewise'void'since'the'mortgagor'was'not'
the'owner'of'the'property'foreclosed.'
DE'LEON'v'CALALO'
FACTS:'
This' case' was' brought' below' by' respondent' Eduardo' Calalo'
for' the' annulment' of' the' mortgage' executed' by' his' brother,'
Augorio' Calalo,' in' favor' of' peJJoner' Roberto' de' Leon'
covering' a' piece' of' land' and' the' improvements' thereon,'
consisJng' of' a' residenJal' house' and' a' commercial' building'
located' at' 45/4th' Street,' East' Tapinac,' Olongapo' City.'
Respondent' Eduardo' alleged' that' he' was' the' owner' of' the'
property' mortgaged,' having' bought' it' for' P306,000.00' from'
the' spouses' Federico' and' Marieca' Malit' on' September' 13,'
1984.' He' claimed' that,' as' he' was' then' a' member' of' the'
merchant' marines' and' stayed' abroad,' the' Deed' of' Absolute'
Sale' covering' the' land' was' made' in' favor' of' his' brother,'
Augorio' Calalo;' that' on' April' 8,' 1985,' Augorio' executed' a'
Deed' of' DonaJon' in' favor' of' the' minor' Julsunthie' Calalo,'
herein' respondent’s' son,' who,' from' the' Jme' the' property'
was' purchased' unJl' the' filing' of' the' complaint,' had' been'
receiving' the' fruits' of' the' property;' that' on' September' 14,'
1988,' Augorio' mortgaged' the' said' property' to' peJJoner'
Roberto' de' Leon' without' his' [respondent’s]' knowledge' and'
consent;'that'the'mortgage'was'amended'on'September'30,'
1988;' that' Augorio' did' not' have' any' right' to' mortgage' the'
property'because'he'was'not'the'owner'thereof;'and'that'he'
(respondent' Eduardo)' learned' only' in' June' 1992' that' the'
property' was' the' subject' of' an' extrajudicial' foreclosure.'
Named' defendants' in' the' acJon' were' peJJoner' Roberto' de'
Leon,' Augorio' Calalo' and' Benjamin' Gonzales,' the' sheriff'
conducJng'the'foreclosure'proceeding.'
In' due' Jme,' peJJoner' De' Leon' filed' an' answer' in' which' he'
claimed' to' be' a' mortgagee' in' good' faith,' having' previously'
ascertained' the' ownership' of' Augorio' who' occupied' and'
possessed' the' land' in' quesJon' and' in' whose' name' the' land'
was' registered' in' the' Register' of' Deeds' and' in' various' other'
documents.' He' pointed' out' that' even' the' deed' of' sale'
acached'to'respondent’s'complaint'showed'that'the'land'was'
in' Augorio’s' name,' clearly' proving' that' the' lacer' owned' the'
property.'PeJJoner'De'Leon'averred'that'the'mortgage'in'his'
favor' was' registered' with' the' Register' of' Deeds' and' that' it'
had'been'amended'four'Jmes.'
of'peJJoner'De'Leon'is'valid.'
HELD:'
There' is' no' dispute' that' the' land' subject' of' the' mortgage' is'
Jtled'in'the'name'of'Augorio'Calalo.'Nor'is'there'any'quesJon'
that' peJJoner' De' Leon' did' not' know' of' the' claim' of'
ownership' of' respondent' Eduardo' Calalo' unJl' aber' the'
present' acJon' was' insJtuted.' As' the' trial' court' found,'
peJJoner' De' Leon' examined' the' relevant' documents'
pertaining'to'the'land,'consisJng'of'the'transfer'cerJficate'of'
Jtle,' the' tax' declaraJons' in' the' City' Assessor’s' Office' and'
informaJon' on' the' records' in' the' barangay,' and' found' that'
the'land'was'registered'in'the'name'of'Augorio'Calalo.'Upon'
due' inspecJon' of' the' property,' he' also' found' it' to' be'
occupied' by' Augorio' Calalo.' PeJJoner' had' no' reason' to'
believe' that' the' land' did' not' belong' to' Augorio.' Persons'
dealing'with'property'covered'by'a'torrens'cerJficate'of'Jtle,'
as'buyers'or'mortgagees,'are'not'required'to'go'beyond'what'
appears' on' the' face' of' the' Jtle.' The' public' interest' in'
upholding' the' indefeasibility' of' torrens' Jtles,' as' evidence' of'
the' lawful' ownership' of' the' land' or' of' any' encumbrance'
thereon,' protects' buyers' or' mortgagees' who,' in' good' faith,'
rely'upon'what'appears'on'the'face'of'the'cerJficate'of'Jtle.
4'PeJJoner'De'Leon'is'a'mortgagee'in'good'faith.'
Whether'the'money'used'in'acquiring'the'property'from'the'
original' owners' came' from' respondent' Eduardo' Calalo' and'
the'Jtle'to'the'property'was'placed'in'the'name'of'his'brother'
Augurio'Calalo'only'because'respondent'thought'he'was'not'
qualified' to' acquire' lands' in' the' Philippines' because' he' had'
become' an' American' ciJzen,' and' that' the' land' was'
subsequently' donated' to' respondent' Eduardo’s' son,'
Julsunthie,' are' macers' not' known' to' peJJoner.' Hence,'
whether' Augorio' Calalo' commiced' a' breach' of' trust' and'
whether'the'property'was'validly'donated'to'peJJoner’s'son'
Julsunthie'are'quesJons'which'must'be'resolved'in'a'separate'
proceeding.''
CEBU'INTERNATIONAL'v'CA'
ERENA'v'QUERRA1KAUFFMAN'
FACTS:'Respondent'is'the'owner'of'a'lot'with'house,'with'the'
TCT'kept'in'a'safety'deposit'box.'She'leb'the'key'of'the'box'to'
her' husband' as' she' was' leaving' for' the' US.' Later' on,' the'
daughter'of'respondent'as'well'as'her'husband'leb'for'the'US,'
and'the'key'was'entrusted'to'the'sister'of'her'husband,'Mira'
Bernal.'Aber'a'few'months,'respondent'asked'her'sister'to'get'
the' TCT' in' the' safety' deposit' box' to' be' able' to' sell' the'
property.' When' the' safe' was' broken,' the' items' inside' were'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''53'
missing,'including'the'Jtle'to'the'lot'and'tax'declaraJons,'as'
well'as'jewelry.''
Respondent' discovered' from' Bernal' that' she' and' Jennifer'
Ramirez,'Victor’s'daughter'took'the'Jtle'and'mortgaged'it'to'
peJJoner.' There' was' a' woman' who' pretended' to' be' the'
owner'of'the'lot,'showing'the'TCT'in'her'name'as'“Vida'Dana'
Querrer' and' idenJficaJon' card.' PeJJoner' verified' with' the'
Office' of' the' Register' of' Deeds' that' the' property' was' in' the'
name'of'Vida'Dana'Querrer'and'that'it'was'free'of'any'lien'or'
encumbrance.' Subsequently,' peJJoner' was' convinced' to'
enter'into'a'Real'Estate'Mortgage'Contract'which'was'later'on'
notarized' and' filed' with' the' Office' of' the' Register' of' Deeds'
and'annotated'on'the'TCT.'
Respondent' filed' a' complaint' against' peJJoner,' Bernal' and'
Ramirez'for'NullificaJon'of'Deed'of'Real'Estate'Mortgage.''
The'RTC'ruled'in'favor'of'peJJoner'and'declared'the'Deed'of'
Real' Estate' Mortgage' valid.' The' CA' rendered' judgment' in'
favor' of' defendant' on' the' ground' that' in' a' Real' Estate'
Mortgage' contract,' it' is' essenJal' that' the' mortgagor' be' the'
absolute' owner' of' the' property' to' be' mortgaged;' otherwise'
the'mortgage'is'void.'
ISSUE:' WON' THE' REAL' ESTATE' MORTGAGE' CONTRACT' IS'
VALID?'
HELD:' NO.' One' of' the' essenJal' requisites' of' a' mortgage'
contract'is'that'the'mortgagor'must'be'the'absolute'owner'of'
the' thing' mortgaged.' A' mortgage' is,' thus,' invalid' if' the'
mortgagor' is' not' the' property' owner.' In' this' case,' the' trial'
court' and' the' CA' are' one' in' finding' that' based' on' the'
evidence'on'record'the'owner'of'the'property'is'respondent'
who' was' not' the' one' who' mortgaged' the' same' to' the'
peJJoner.'
PeJJoner' cannot' be' considered' an' innocent' purchaser' for'
value,'relying'on'the'Torrents'Jtle.'While'a'Torrens'Jtle'serves'
as'evidence'of'an'indefeasible'Jtle'to'the'property'in'favor'of'
the' person' whose' name' appears' therein,' when' the'
instrument' presented' for' registraJon' is' forged,' even' if'
accompanied'by'the'owner’s'duplicate'cerJficate'of'Jtle,'the'
registered'owner'does'not'thereby'lose'his'Jtle,'and'neither'
does'the'assignee'of'the'mortgagee,'for'that'macer,'acquire'
any'right'or'Jtle'to'the'property.'In'such'a'case,'the'transferee'
or'the'mortgagee,'based'on'a'forged'instrument,'is'not'even'a'
purchaser'or'a'mortgagee'for'value'protected'by'law.'
PeJJoner'cannot'also'invoke'the'doctrine'of'a'mortgagee'on'
good'faith.'Said'doctrine'speaks'of'a'situaJon'where,'despite'
the' fact' that' the' mortgagor' is' not' the' owner' of' the'
mortgaged'property,'his'Jtle'being'fraudulent,'the'mortgage'
contract' or' any' foreclosure' sale' arising' therefrom' are' given'
effect'by'reason'of'public'policy.'The'doctrine'of'mortgagee'in'
good' faith' presupposes' that' the' mortgagor,' who' is' not' the'
righÖul' owner' of' the' property,' has' already' succeeded' in'
obtaining' a' Torrens' Jtle' over' the' property' in' his' name' and'
that,'aber'obtaining'the'said'Jtle,'he'succeeds'in'mortgaging'
the' property' to' another' who' relies' on' what' appears' on' the'
said'Jtle1'it'does'not'apply'to'a'situaJon'where'the'Jtle'is'sJll'
in' the' name' of' the' righÖul' owner' and' the' mortgagor' is' a'
different'person'pretending'to'be'the'owner.'
PNB'v'AGUDELO'
Vda.'DE'JAYME'v'CA'
FACTS:'
- Spouses' Jayme' (P)' are' the' registered' owners' of' a'
parcel'of'land.'They'entered'into'a'contract'of'lease'
with' Asian' Cars' (R)' covering' half' of' the' lot' for' 20'
years'
- The' contract' allows' R' to' mortgage' the' property' as'
long'as'the'proceeds'will'be'for'the'construcJon'of'a'
building'on'the'land.'
- R' mortgaged' the' property' for' P6M' to' MetroBank,'
covering' the' whole' lot,' and' in' which' P' signed' the'
documents.'R'also'executed'an'undertaking'wherein'
the' officers' of' R' are' liable' personally' to' the'
mortgage'
- R'defaulted'and'MetroBank'foreclosed'the'property.''
- P'filed'for'annulment'of'mortgage'as'it'was'acquired'
through'fraud'
- RTC'and'CA'declared'the'mortgage'and'undertaking'
valid'
ISSUE:' WON' Mortgage' allowing' R' to' mortgage' the' property'
was'valid'
SC:'YES''
- It' has' long' been' secled' that' it' is' valid' so' long' as'
valid'consent'was'given.'In'consenJng'thereto'even'
granJng' that' peJJoner' may' not' be' assuming'
personal' liability' for' the' debt,' her' property' shall'
nevertheless' secure' and' respond' for' the'
performance'of'the'principal'obligaJon'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''54'
 - The' law' recognizes' instances' when' persons' not'
directly' parJes' to' a' loan' agreement' may' give' as'
security' their' own' properJes' for' the' principal'
transacJon.''
- In' this' case,' the' spouses' should' not' be' allowed' to'
disclaim'the'validity'of'a'transacJon'they'voluntarily'
and' knowingly' entered' into' for' the' simple' reason'
that'such'transacJon'turned'out'prejudicial'to'them'
later'on.'
- Records'show'that'P'voluntarily'agreed'to'use'their'
property'as'collateral'for'R’s'loan,'hence,'no'fraud'
- The'undertaking'made'by'R'and'its'officers'are'valid,'
hence' they' are' liable' to' reimburse' P' for' the'
damages'they'suffered'by'reason'of'the'mortgage'
SPOUSES'BELO'v'PNB'
FACTS:''
1)' Eduarda' Belo' owned' an' agricultural' land' with' an' area' of'
661,288'square'meters'in'Panitan,'Capiz,' 'which'she'leased'a'
porJon' to' respondents' spouses' Eslabon,' for' a' period' of' 7'
years'at'the'rate'of'P7,000.00'per'year.'
2)' Respondents' spouses' Eslabon' obtained' a' loan' from' PNB'
secured'by'a'real'estate'mortgage'on'their'own'4'residenJal'
houses' located' in' Roxas' City,' as' well' as' on' the' agricultural'
land' owned' by' Eduarda' Belo.' The' assent' of' Eduarda' Belo' to'
the' mortgage' was' acquired' through' a' special' power' of'
acorney' which' was' executed' in' favor' of' respondent' Marcos'
Eslabon'on'June'15,'1982.'
3)'The'spouses'Eslabon'failed'to'pay'their'loan'obligaJon,'and'
so' extrajudicial' foreclosure' proceedings' against' the'
mortgaged' properJes' were' insJtuted' by' PNB' and' was' the'
highest'bidder'of'the'foreclosed'properJes'at'P447,632.00.'
4)' Meanwhile,' Eduarda' Belo' sold' her' right' of' redempJon' to'
peJJoners'spouses'Enrique'and'Florencia'Belo'under'a'deed'
of'absolute'sale'of'proprietary'and'redempJon'rights.'Before'
the'expiraJon'of'the'redempJon'period,'peJJoners'spouses'
Belo'tendered'payment'for'the'redempJon'of'the'agricultural'
land' which' includes' the' bid' price' of' respondent' PNB,' plus'
interest'and'expenses.'
5)' However,' PNB' rejected' the' tender' of' payment' of'
peJJoners' spouses' Belo' contending' that' the' redempJon'
price'should'be'the'total'claim'of'the'bank'on'the'date'of'the'
aucJon' sale' and' custody' of' property' plus' charges' accrued'
and' interests' amounJng' to' P2,779,978.72' to' which' the'
spouses'disagreed'and'refused'to'pay'the'said'total'claim'of'
respondent'PNB.'Thereaber'the\'spouses'Belo'filed'in'the'RTC'
an' acJon' for' declaraJon' of' nullity' of' mortgage,' with' an'
alternaJve' cause' of' acJon,' in' the' event' that' the'
accommodaJon' mortgage' be' held' to' be' valid,' to' compel'
respondent'PNB'to'accept'the'redempJon'price'tendered'by'
peJJoners' spouses' Belo' which' is' based' on' the' winning' bid'
price'of'respondent'PNB'in'the'extrajudicial'foreclosure.'The'
RTC'ruled'in'favour'of'the'spouses'belo.'
6)'On'appeal,'the'CA'ruled'that'the'peJJoners'spouses'Belo'
should'pay'the'enJre'amount'due'to'PNB'under'the'mortgage'
deed' at' the' Jme' of' the' foreclosure' sale' plus' interest,' costs'
and'expenses.'
ISSUE:' whether' or' not' the' SPA' the' real' estate' mortgage'
contract,' the' foreclosure' proceedings' and' the' subsequent'
aucJon'sale'involving'Eduarda'Belo's'property'are'valid.'And'
assuming' they' are' valid,' whether' or' not' the' peJJoners' are'
required' to' pay,' as' redempJon' price,' the' enJre' claim' of'
respondent' PNB' in' the' amount' of' P2,779,978.72' as' of' the'
date'of'the'public'aucJon'sale'on'June'10,'1991.'
HELD:''
A)' The' validity' of' the' SPA' and' the' mortgage' contract' cannot'
anymore'be'assailed'due'to'peJJoners'Belo'failure'to'appeal'
the'same'aber'the'trial'court'rendered'its'decision'affirming'
their'validity.''
B)' Also,' the' SPA' executed' by' Eduarda' Belo' in' favor' of' the'
respondents' spouses' Eslabon' and' the' Real' Estate' Mortgage'
executed'by'the'respondents'spouses'in'favor'of'respondent'
PNB'are'valid.'It'is'sJpulated'in'paragraph'three'(3)'of'the'SPA'
that' Eduarda' Belo' appointed' the' Eslabon' spouses' "to' make,'
sign,' execute' and' deliver' any' contract' of' mortgage' or' any'
other' documents' of' whatever' nature' or' kind' .' .' .' which' may'
be' necessary' or' proper' in' connecJon' with' the' loan' herein'
menJoned,' or' with' any' loan' which' my' acorney1in1fact' may'
contract'personally'in'his'own'name”'
C)' ThisSPA' was' not' meant' to' make' her' a' co1obligor' to' the'
principal'contract'of'loan'between'respondent'PNB,'as'lender,'
and' the' spouses' Eslabon,' as' borrowers.' Eduarda' Belo'
consented' to' be' an' accommodaJon' mortgagor' in' the' sense'
that' she' signed' the' SPA' to' authorize' respondents' spouses'
Eslabons'to'execute'a'mortgage'on'her'land.''
D)' ' An' accommodaJon' mortgage' isn’t' void' simply' because'
the' accommodaJon' mortgagor' did' not' benefit' from' the'
same.'The'validity'of'an'accommodaJon'mortgage'is'allowed'
under'ArJcle'2085'of'the'New'Civil'Code'which'provides'that'
"(t)hird' persons' who' are' not' parJes' to' the' principal'
obligaJon' may' secure' the' lacer' by' pledging' or' mortgaging'
their'own'property."''
E)' An' accommodaJon' mortgagor,' ordinarily,' is' not' himself' a'
recipient'of'the'loan.'
F)' There' is' no' doubt' that' Eduarda' Belo,' assignor' of' the'
peJJoners,' is' an' accommodaJon' mortgagor.' SecJon' 25' of'
P.D.'No.'694'provides'that'"the'mortgagor'shall'have'the'right'
to' redeem' the' property' by' paying' all' claims' of' the' Bank'
against' him".' From' said' provision' can' be' deduced' that' the'
mortgagor'referred'to'by'that'law'is'one'from'whom'the'bank'
has' a' claim' in' the' form' of' outstanding' or' unpaid' loan;' he' is'
also'called'a'borrower'or'debtor1mortgagor.''
G)' PNB' has' no' claim' against' accommodaJon' mortgagor'
Eduarda' Belo' inasmuch' as' she' only' mortgaged' her' property'
to' accommodate' the' Eslabon' spouses' who' are' the' loan'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''55'
borrowers'of'the'PNB.'The'principal'contract'is'the'contract'of'
loan' between' the' Eslabon' spouses,' as' borrowers/debtors,'
and' the' PNB' as' lender.' The' accommodaJon' real' estate'
mortgage' which' secures' the' loan' is' only' an' accessory'
contract.'Thus,'the'term'"mortgagor"'in'SecJon'25'of'P.D.'No.'
694' pertains' only' to' a' debtor1mortgagor' and' not' to' an'
accommodaJon'mortgagor.'
H)' Moreover,' the' mortgage' contract' provides' that' ".' .' .' the'
mortgagee'may'immediately'foreclose'this'mortgage'judicially'
in' accordance' with' the' Rules' of' Court' or' extrajudicially' in'
accordance' with' Act' No.' 3135,' as' amended' and' PresidenJal'
Decree' No.' 385' “' Thus,' since' the' mortgage' contract' in' this'
case' is' in' the' nature' of' a' contract' of' adhesion' as' it' was'
prepared' solely' by' respondent,' it' has' to' be' interpreted' in'
favor'of'peJJoners.''
J)'While'the'peJJoners,'as'assignees'of'Eduarda'Belo,'are'not'
required' to' pay' the' enJre' claim' of' respondent' PNB' against'
the' principal' debtors,' they' can' only' exercise' their' right' of'
redempJon' with' respect' to' the' parcel' of' land' belonging' to'
Eduarda' Belo,' the' accommodaJon' mortgagor.' Thus,' they'
have'to'pay'the'bid'price'less'the'corresponding'loan'value'of'
the'foreclosed'4'residenJal'lots'of'the'spouses'Eslabon.''Thus,'
peJJoners' are' allowed' to' redeem' only' the' property'
registered' in' the' name' of' Eduarda' Belo,' by' paying' only' the'
bid'price'less'the'corresponding'loan'value'of'the'foreclosed'
(4)'residenJal'lots'of'the'respondents'spouses'Eslabon.'
BUSTAMANTE'v'ROSEL'
ALCANTARA'v'ALINEA'
Facts:'
• Alinea'and'Belarmino'loaned'P480'from'Alcantara.'
• According' to' the' loan' agreement,' if' the' period' has'
expired'without'payment'of'the'loan,'the'house'and'lot'
of' Alinea' and' Belarmino' will' be' considered' sold' to'
Alcantara.'
• Alinea'and'Belarmino'failed'to'pay.'
• They'refused'to'deliver'the'property'to'Alcantara.'
• Alcantara'filed'an'acJon'against'them.'
• The' defendants' contend' that' the' amount' claimed' by'
Alcantara' included' the' interest' and' that' the' principal'
borrowed'was'only'200'and'that'the'interest'was'280.'
• They' also' alleged' as' their' special' defense' that' they'
offered' to' pay' Alcantara' the' sum' of' 480' but' the' lacer'
had'refused'to'accept'the'same.'
Issue:''
1) WON'there'was'a'valid'mortgage?'
2) WON' the' defendants' should' deliver' the' property' to'
Alcantara?'
Held:''
1) No.'The'property,'the'sale'of'which'was'agreed'to'by'the'
debtors' does' not' appear' mortgaged' in' favor' of' the'
creditor'because'in'order'to'consJtute'a'valid'mortgage'
it' is' indispensable' that' the' instrument' be' registered' in'
the'Register'of'Property'and'the'document'contract'does'
not' consJtute' a' mortgage' nor' it' could' possibly' be' a'
mortgage,' for' the' reason' that' the' said' document' is' not'
vested' with' the' character' and' condiJons' of' a' public'
instrument.'
The'contract'is'not'a'pledge'since'the'said'property'is'not'
personal' property' and' the' debtor' conJnued' in'
possession'thereof'and'was'never'been'occupied'by'the'
creditor.'
It'is'also'not'an'anJchresis'by'reason'that'as'the'creditor'
has' never' been' in' possession' of' the' property' nor' has'
enjoyed'the'said'property'nor'for'one'moment'received'
its'rents.'
2) Yes.'The'will'of'the'parJes'are'controlling,'In'this'case,'a'
contract'of'loan'and'a'promise'of'sale'of'a'house'and'lot,'
the' price' of' which' should' be' the' amount' loaned,' if'
within'a'fixed'period'of'Jme'such'amount'should'not'be'
paid' by' the' debtor1vendor' of' the' property' to' the'
creditor1vendee' of' same.' The' fact' that' the' parJes' have'
agreed' at' the' same' Jme,' in' such' a' manner' that' the'
fulfillment' of' the' promise' of' sale' would' depend' upon'
the'nonpayment'or'return'of'the'amount'loaned,'has'not'
produced'any'change'in'the'nature'and'legal'condiJons'
of' either' contract,' or' any' essenJal' defect' which' would'
tend'to'nullify'the'same.'
MAHONEY'v'TUASON'
Facts:' P.' Blanc,' the' owner' of' the' jewels,' entered' into' a'
contract'of'pledge,'delivering'to'the'creditor'Mariano'Tuason'
several' jewels' and' other' merchandise' for' the' purpose' of'
securing'the'fulfillment'of'the'obligaJon'which'he'(Blanc)'had'
contracted' in' favor' of' the' lacer' who' had' guaranteed' the'
payment' of' a' considerable' amount' of' money' which' Blanc'
owed' to' the' Chartered' Bank.' ' Creditor' Tuason' paid' to' the'
Chartered'Bank'the'sum'of'sixteen'thousand'pesos'(P16,000)'
which'the'debtor'Blanc'owed'and'failed'to'pay,'and'that'the'
lacer'did'not'reimburse'Tuason'the'amount'paid'to'the'bank'
together'with'interests'thereon.'
Issue:'W/N'Tuason'can'appropriate'the'things'given'by'way'of'
pledge?'
Ruling:' No.' ' Tuason' is' enJtled' to' retain' and' appropriate' to'
himself' the' merchandise' received' in' pledge' is' null' and'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''56'
indefensible,' because' he' can' only' recover' his' credit,'
according'to'law,'from'the'proceeds'of'the'sale'of'the'same.'
Art.'2088.'
LANUZA'v'DE'LEON'
Spouses' lanuza' executed' a' deed' of' sale' with' a' right' to'
repurchase'to'Reyes.'Upon'expiraJon'of'term'to'repurchase,'
the'Jme'was'extended'without'the'wife'of'lanuza'signing'the'
document.'A'sJpulaJon'to'the'effect'that'the'ownership'will'
only'be'passed'to'the'vendee'if'the'vendor'fails'to'repurchase'
the' property' was' included.' The' spouses' then' mortgage' the'
property' to' respondent' to' secure' a' debt.' The' debt' was'
unpaid'and'respondent'filed'a'case'to'foreclose'the'mortgage'
which' was' granted.' Reyes' filed' a' case' for' consolidaJon,'
claiming' she' has' the' right' to' the' property.' Reyes' claims' the'
ownership' in' the' property' automaJcally' passes' immediately'
to' him' aber' the' sale' and' not' aber' the' end' of' the' period' to'
repurchase.''
Issue:'won'reyes'contenJon'valid'
Ruling:' yes.' a' sJpulaJon' in' a' purported' pacto' de' retro' sale'
that' the' ownership' over' the' property' sold' would'
automaJcally'pass'to'the'vendee'in'case'no'redempJon'was'
effected'within'the'sJpulated'period'is'contrary'to'the'nature'
of' a' true' pacto' de' retro' sale,' under' which' the' vendee'
acquires' ownership' of' the' thing' sold' immediately' upon' the'
execuJon' of' the' sale,' subject' only' to' the' vendors' rights' of'
redempJon.' The' said' sJpulaJon' is' a' pactum' commissorium'
which' enables' the' mortgagee' to' acquire' ownership' of' the'
mortgaged'property'without'need'of'forclosure.'It'is'void.'Its'
inserJon' in' the' contract' is' an' avowal' of' the' intenJon' to'
mortgage'rather'than'to'sell'the'property.'
DAYRIT'v'CA'
FACTS:'' Dayrit,'Sumbillo'and'Angeles'entered'into'a'contract'
with'Mobil'Oil'Phil,'enJtled'LOAN'&'MORTGAGE'AGREEMENT.'
Defendants' violated' the' LOAN' &' MORTGAGE' AGREEMENT'
because' they' only' paid' one' installment.' They' also' failed' to'
buy'the'quanJJes'required'in'the'Sales'Agreement.'
The'plainJff'made'a'demand,'Dayrit'answered'acknowledging'
his'liability.'Trial'Court'ruled'in'favor'of'plainJff'and'also'ruled'
that' each' of' the' three' defendants' shall' pay' 1/3' of' the' cost.'
No' appeal' had' been' taken' so' the' decision' became' final' and'
executor.'
Mobil'filed'for'the'execuJon'of'the'judgment.'Dayrit'opposed'
alleging' that' they' had' an' agreement' with' Mobil,' that' he'
would' not' appeal' anymore' but' Mobil' would' release' the'
mortgage'upon'payment'of'his'1/3'share.'
Mobil' claimed' that' the' agreement' was' that' it' would' only'
release' the' mortgage' if' the' whole' principal' mortgaged' debt'
plus'the'whole'accrued'interest'were'fully'paid.'
ISSUE:' 'Whether'or'not'the'CFI'erred'in'ordering'the'sale'at'
public'aucJon'of'the'mortgaged'properJes'to'answer'for'the'
enJre'principal'obligaJon'of'Dayrit,'Sumbillo'and'Angeles.'
RULING:''
While'it'is'true'that'the'obligaJon'is'merely'joint'and'each'of'
the' defendant' is' obliged' to' pay' his' 1/3' share' of' the' joint'
obligaJon,' the' undisputed' fact' remains' that' the' intent' and'
purpose' of' the' LOAN' &' MORTGAGE' AGREEMENT' was' to'
secure'the'enJre'loan.'
The' court' ruled' that' a' mortgage' directly' and' immediately'
subjects' the' property' upon' which' it' is' imposed,' the' same'
being' indivisible' even' though' the' debt' may' be' divided,' and'
such' indivisibility' likewise' unaffected' by' the' fact' that' the'
debtors'are'not'solidarily'liable.'
YU'v'PCIB'
FACTS:'
• P' mortgaged' their' Jtle,' interest,' and' parJcipaJon'
over'several'parcels'of'land'located'in'Dagupan'City'
and'Quezon'City'in'favour'of'PCIB'(R)'as'security'for'
the'payment'of'a'loan'in'the'amount'of'P9mill'
• P' failed' to' pay' the' loan;' R' filed' a' PeJJon' for'
Extrajudicial'Foreclosure'of'Real'Estate'Mortgage'on'
the' Dagupan' City' properJes.' A' CerJficate' of' Sale'
was'issued'in'favour'of'R.' 'Subsequently,'R' 'filed'an'
Ex1Parte' PeJJon' for' Writ' of' Possession' before' RTC'
Dagupan'
• P' filed' a' MoJon' to' Dismiss.' They' argued' that' the'
CerJficate' of' Sale' is' void' because' the' real' estate'
mortgage'is'indivisible,'the'mortgaged'properJes'in'
Dagupan'City'and'Quezon'City'cannot'be'separately'
foreclosed.'
• R' –' the' filing' of' two' separate' foreclosure'
proceedings'did'not'violate'ArJcle'2089'of'the'Civil'
Code' on' the' indivisibility' of' a' real' estate' mortgage'
since' SecJon' 2' of' Act' No.' 3135' expressly' provides'
that' extra1judicial' foreclosure' may' only' be' made' in'
the' province' or' municipality' where' the' property' is'
situated.'R'further'submits'that'the'filing'of'separate'
applicaJons' for' extra1judicial' foreclosure' of'
mortgage' involving' several' properJes' in' different'
locaJons' is' allowed' by' A.M.' No.' 9911010510,' the'
Procedure' on' Extra1Judicial' Foreclosure' of'
Mortgage,'as'further'amended'on'August'7,'2001.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''57'
 • TC'denied'MoJon'
ISSUE:' WON' a' real' estate' mortgage' over' several' properJes'
located' in' different' localiJes' can' be' separately' foreclosed' in'
different'places?'
HELD:'YES'
• What'the'law'proscribes'is'the'foreclosure'of'only'a'
porJon' of' the' property' or' a' number' of' the' several'
properJes' mortgaged' corresponding' to' the' unpaid'
porJon' of' the' debt' where,' before' foreclosure'
proceedings,' parJal' payment' was' made' by' the'
debtor'on'his'total'outstanding'loan'or'obligaJon.''
• This' also' means' that' the' debtor' cannot' ask' for' the'
release'of'any'porJon'of'the'mortgaged'property'or'
of'one'or'some'of'the'several'lots'mortgaged'unless'
and'unJl'the'loan'thus'secured'has'been'fully'paid,'
notwithstanding'the'fact'that'there'has'been'parJal'
fulfillment' of' the' obligaJon.' Hence,' it' is' provided'
that' the' debtor' who' has' paid' a' part' of' the' debt'
cannot' ask' for' the' proporJonate' exJnguishment' of'
the'mortgage'as'long'as'the'debt'is'not'completely'
saJsfied.' In' essence,' indivisibility' means' that' the'
mortgage' obligaJon' cannot' be' divided' among' the'
different' lots,' that' is,' each' and' every' parcel' under'
mortgage'answers'for'the'totality'of'the'debt'
• A.M.'No.'9911010510,the'Procedure'on'Extra1Judicial'
Foreclosure' of' Mortgage,' lays' down' the' guidelines'
for' extra1judicial' foreclosure' proceedings' on'
mortgaged'properJes'located'in'different'provinces.'
It' provides' that' the' venue' of' the' extra1judicial'
foreclosure' proceedings' is' the' place' where' each' of'
the'mortgaged'property'is'located.'Relevant'porJon'
provides:'
Where'the'applicaJon'concerns'the'extrajudicial'
foreclosure' of' mortgages' of' real' estates' and/or'
chacels' in' different' locaJons' covering' one'
indebtedness,' only' one' filing' fee' corresponding'
to' such' indebtedness' shall' be' collected.' The'
collecJng' Clerk' of' Court' shall,' apart' from' the'
official' receipt' of' the' fees,' issue' a' cerJficate' of'
payment'indicaJng'the'amount'of'indebtedness,'
the'filing'fees'collected,'the'mortgages'sought'to'
be' foreclosed,' the' real' estates' and/or' chacels'
mortgaged'and'their'respecJve'locaJons,'which'
cerJficate'shall'serve'the'purpose'of'having'the'
applicaJon'docketed'with'the'Clerks'of'Court'of'
the' places' where' the' other' properJes' are'
located' and' of' allowing' the' extrajudicial'
foreclosures' to' proceed' thereat.' (Emphasis'
supplied)'
• The' indivisibility' of' the' real' estate' mortgage' is' not'
violated' by' conducJng' two' separate' foreclosure'
proceedings' on' mortgaged' properJes' located' in'
different'provinces'as'long'as'each'parcel'of'land'is'
answerable'for'the'enJre'debt'
METROBANK'v'SLGT'
FACTS:'
On'October'25,'1995,'Dylanco'and'SLGT'each'entered'into'a'
contract'to'sell'with'ASB'for'the'purchase'of'a'unit'(Unit'1106'
for'Dylanco'and'Unit'1211'for'SLGT)'at'BSA'Towers'then'being'
developed' by' the' lacer.' As' sJpulated,' ASB' will' deliver' the'
units'thus'sold'upon'compleJon'of'the'construcJon'or'before'
December' 1999.' Relying' on' this' and' other' undertakings,'
Dylanco'and'SLGT'each'paid'in'full'the'contract'price'of'their'
respecJve' units.' The' promised' compleJon' date' came' and'
went,' but' ASB' failed' to' deliver,' as' the' Project' remained'
unfinished'at'that'Jme.'To'make'macers'worse,'they'learned'
that'the'lots'on'which'the'BSA'Towers'were'to'be'erected'had'
been' mortgaged6' to' Metrobank,' as' the' lead' bank,' and'
UCPB7'without'the'prior'wricen'approval'of'the'Housing'and'
Land'Use'Regulatory'Board'(HLURB).'
Alarmed'by'this'foregoing'turn'of'events,'Dylanco,'on'August'
10,' 2004,' filed' with' the' HLURB' a' complaint' for' delivery' of'
property' and' Jtle' and' for' the' declaraJon' of' nullity' of'
mortgage.'A'similar'complaint'filed'by'SLGT'followed'three'(3)'
days' later.' At' this' Jme,' it' appears' that' the' ASB' Group' of'
Companies,' which' included' ASB,' had' already' filed' with' the'
SecuriJes' and' Exchange' Commission' a' peJJon' for'
rehabilitaJon' and' a' rehabilitaJon' receiver' had' in' fact' been'
appointed.'
What'happened'next'are'laid'out'in'the'OP'decision'adverted'
to'above,'thus:'
In'response'to'the'above'complaints,'ASB'alleged'…'
that' it' encountered' liquidity' problems' someJme' in'
…' 2000' aber' its' creditors' [UCPB' and' Metrobank]'
simultaneously'demanded'payments'of'their'loans…;'
that' on' May' 4,' 2000,' the' …' Commission' (SEC)'
granted' its' peJJon' for' rehabilitaJon;' that' it'
negoJated'with'UCPB'and'Metrobank'…'but'nothing'
came'out'posiJve'from'their'negoJaJon'….'
On' the' other' hand,' Metrobank' claims' that'
complainants' [Dylanco' and' SLGT]' have' no'
personality' to' ask' for' the' nullificaJon' of' the'
mortgage' because' they' are' not' parJes' to' the'
mortgage'transacJon'…;'that'the'complaints'must'be'
dismissed' because' of' the' ongoing' rehabilitaJon' of'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''58'
 ASB;' xxx' that' its' claim' against' ASB,' including' the'
mortgage' to' the' [Project]' have' already' been'
transferred'to'Asia'Recovery'CorporaJon;'xxx.'
UCPB,'for'its'part,'denies'its'liability'to'SLGT'[for'lack'
of' privity' of' contract]' …' [and]' quesJoned' the'
personality' of' SLGT' to' challenge' the' validity' of' the'
mortgage'reasoning'that'the'lacer'is'not'party'to'the'
mortgage' contract' …' [and]' maintains' that' the'
mortgage' transacJon' was' done' in' good' faith….'
Finally,'it'prays'for'the'suspension'of'the'proceedings'
because'of'the'on1going'rehabilitaJon'of'ASB.'
In' resolving' the' complaint' in' favor' of' Dylanco' and'
SLGT,' the' Housing' Arbiter' ruled' that' the' mortgage'
consJtuted' over' the' lots' is' invalid' for' lack' of'
mortgage'clearance'from'the'HLURB.''
ISSUE:'W/N'The'declaraJon'of'nullity'of'the'enJre'mortgage'
consJtuted' on' the' project' land' site' and' the' improvements'
was'valid.'and'
HELD:'
Both' peJJoners' do' not' dispute' execuJng' the' mortgage' in'
quesJon' without' the' HLURB’s' prior' wricen' approval' and'
noJce' to' both' individual' respondents.' SecJon' 18' of'
PresidenJal' Decree' No.' (PD)' 957' –' The' Subdivision' and'
Condominium'Buyers’'ProtecJve'Decree'–'provides:'
SEC.'18.'Mortgages.'1'No'mortgage'of'any'unit'or'lot'
shall' be' made' by' the' owner' or' developer' without'
prior'wricen'approval'of'the'[HLURB].'Such'approval'
shall' not' be' granted' unless' it' is' shown' that' the'
proceeds'of'the'mortgage'loan'shall'be'used'for'the'
development' of' the' condominium' or' subdivision'
project'….'The'loan'value'of'each'lot'or'unit'covered'
by'the'mortgage'shall'be'determined'and'the'buyer'
thereof,'if'any,'shall'be'noJfied'before'the'release'of'
the' loan.' The' buyer' may,' at' his' opJon,' pay' his'
installment' for' the' lot' or' unit' directly' to' the'
mortgagee' who' shall' apply' the' payments' to' the'
corresponding' mortgage' indebtedness' secured' by'
the'parJcular'lot'or'unit'being'paid'for'….'(Emphasis'
and'word'in'bracket'added)'
There'can'thus'be'no'quibbling'that'the'project'lot/s'and'the'
improvements' introduced' or' be' introduced' thereon' were'
mortgaged' in' clear' violaJon' of' the' aforequoted' provision' of'
PD' 957.' And' to' be' sure,' Dylanco' and' SLGT,' as' Project' unit'
buyers,'were'not'noJfied'of'the'mortgage'before'the'release'
of'the'loan'proceeds'by'peJJoner'banks.'
As' it' were,' PD' 957' aims' to' protect' innocent' subdivision' lot'
and' condominium' unit' buyers' against' fraudulent' real' estate'
pracJces.' Its' preambulatory' clauses' say' so' and' the' Court'
need' not' belabor' the' macer' presently.' SecJon' 18,' supra,' of'
the'decree'directly'addresses'the'problem'of'fraud'and'other'
manipulaJve' pracJces' perpetrated' against' buyers' when' the'
lot' or' unit' they' have' contracted' to' acquire,' and' which' they'
religiously'paid'for,'is'mortgaged'without'their'knowledge,'let'
alone'their'consent.'The'avowed'purpose'of'PD'957'compels,'
as' the' OP' correctly' stated,' the' reading' of' SecJon' 18' as'
prohibitory' and' acts' commiced' contrary' to' it' are' void.' Any'
less' stringent' construal' would' only' accord' unscrupulous'
developers'and'their'financiers'unbridled'discreJon'to'follow'
or'not'to'follow'PD'957'and'thus'defeat'the'very'loby'purpose'
of' that' decree.' It' thus' stands' to' reason' that' a' mortgage'
contract'executed'in'breach'of'SecJon'18'of'the'decree'is'null'
and'void.'
The' next' quesJon' to' be' addressed' turns' on' whether' or' not'
the'nullity'extends'to'the'enJre'mortgage'contract.'
The'poser'should'be'resolved,'as'the'CA'and'OP'did'resolve'it,'
in' the' affirmaJve.' This' disposiJon' stems' from' the' basic'
postulate' that' a' mortgage' contract' is,' by' nature,' indivisible.'
Consequent' to' this' feature,' a' debtor' cannot' ask' for' the'
release'of'any'porJon'of'the'mortgaged'property'or'of'one'or'
some' of' the' several' properJes' mortgaged' unless' and' unJl'
the' loan' thus' secured' has' been' fully' paid,' notwithstanding'
the' fact' that' there' has' been' parJal' fulfillment' of' the'
obligaJon.'Hence,'it'is'provided'that'the'debtor'who'has'paid'
a' part' of' the' debt' cannot' ask' for' the' proporJonate'
exJnguishments' of' the' mortgage' as' long' as' the' debt' is' not'
completely'saJsfied.'
The' situaJon' obtaining' in' the' case' at' bench' is' within' the'
purview'of'the'aforesaid'rule'on'the'indivisibility'of'mortgage.'
It'may'be'that'SecJon'18'of'PD'957'allows'parJal'redempJon'
of'the'mortgage'in'the'sense'that'the'buyer'is'enJtled'to'pay'
his'installment'for'the'lot'or'unit'directly'to'the'mortgagee'so'
as'to'enable'him'1'the'said'buyer'1'to'obtain'Jtle'over'the'lot'
or' unit' aber' full' payment' thereof.' Such' accommodaJon'
statutorily'given'to'a'unit/lot'buyer'does'not,'however,'render'
the'mortgage'contract'also'divisible.'Generally,'the'divisibility'
of' the' principal' obligaJon' is' not' affected' by' the' indivisibility'
of' the' mortgage.' The' real' estate' mortgage' voluntarily'
consJtuted'by'the'debtor'(ASB)'on'the'lots'or'units'is'one'and'
indivisible.' In' this' case,' the' mortgage' contract' executed'
between' ASB' and' the' peJJoner' banks' is' considered'
indivisible,' that' is,' it' cannot' be' divided' among' the' different'
buildings' or' units' of' the' Project.' Necessarily,' parJal'
exJnguishment' of' the' mortgage' cannot' be' allowed.' In' the'
same' token,' the' annulment' of' the' mortgage' is' an' all' or'
nothing'proposiJon.'It'cannot'be'divided'into'valid'or'invalid'
parts.'The'mortgage'is'either'valid'in'its'enJrety'or'not'valid'
at' all.' In' the' present' case,' there' is' doubtless' only' one'
mortgage' to' speak' of.' Ergo,' a' declaraJon' of' nullity' for'
violaJon' of' SecJon' 18' of' PD' 957' should' result' to' the'
mortgage'being'nullified'wholly.'
It' will' not' avail' the' peJJoners' any' to' feign' ignorance' of' PD'
957'requiring'prior'wricen'approval'of'the'HLURB,'they'being'
charged' with' knowledge' of' such' requirement' since' granJng'
loans'secured'by'a'real'estate'mortgage'is'an'ordinary'part'of'
their'business.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''59'
 CENTRAL'BANK'v'CA'
PLEDGE'
YULIONGSIU'v'PNB'
FACTS:'Yulongsiu'owned'2'vessels'and'equity'in'FS1203,'which'
were' purchased' by' him' from' the' Philippine' Shipping'
Commission,' by' installment.' PlainJff' obtained' a' loan' from'
defendant'and'to'guarantee'payment,'plainJff'pledged'the'2'
vessels' and' the' equity' on' FS1203,' as' evidenced' by' a' pledge'
contract.'PlainJff'made'a'parJal'payment'and'the'remaining'
balance'was'renewed'by'the'execuJon'of'2'promissory'notes'
in'the'bank’s'favor.'These'two'notes'were'never'paid'at'all'by'
plainJff'on'their'respecJve'due'dates.'
Defendant'bank'filed'a'criminal'case'against'plainJff'charging'
the' lacer' with' estafa' through' falsificaJon' of' commercial'
documents,'and'the'trial'court'convicted'the'plainJff'and'was'
sentenced' to' indemnify' the' defendant.' The' corresponding'
writ' of' execuJon' issued' to' implement' the' order' for'
indemnificaJon' was' returned' unsaJsfied' as' plainJff' was'
totally'insolvent.'
Meanwhile,' together' with' the' insJtuJon' of' the' criminal'
acJon,' defendant' took' physical' possession' of' the' 2' vessels'
and'transferred'the'equity'on'FS1203'to'the'defendant.'Later'
on,'the'2'vessels'were'sold'by'defendant'to'third'parJes.'
PlainJff' commenced' an' acJon' for' recovery' on' the' pledged'
items,'and'alleges,'among'others,'that'the'contract'executed'
was' a' chacel' mortgage' so' the' creditor' defendant' could' not'
take'possession'of'the'chacel'object'thereof'unJl'aber'there'
has'been'default.'
ISSUE:' Whether' the' contract' entered' into' between' plainJff'
and' defendant' is' a' chacel' mortgage' or' a' valid' contract' of'
pledge?'
HELD:' It’s' a' contract' of' pledge.' The' contract' itself' provides'
that'it'is'a'contract'of'pledge'and'the'judicial'admission'that'it'
is' a' pledge' contract' cannot' be' offset' without' showing' of'
palpable'mistake.'
The' pledgee' defendant' ' was' therefore' enJtled' to' the' actual'
possession'of'the'vessels.'The'plainJff’s'conJnued'operaJon'
of' the' vessels' aber' the' pledge' contract' was' entered' into'
places'his'possession'subject'to'the'order'of'the'pledge.'The'
pledge'can'temporarily'entrust'the'physical'possession'of'the'
chacels' pledged' to' the' pledgor' without' invalidaJng' the'
pledge.' In' this' case,' the' pledgor' is' regarded' as' holding' the'
pledge'merely'as'a'trustee'for'the'pledge.'
As' to' the' validity' of' the' pledge' contract' with' regard' to'
delivery,' plainJff' alleges' that' construcJve' delivery' is'
insufficient' to' make' pledge' effecJve.' The' Court' ruled' that'
type' of' delivery' will' depend' on' the' nature' and' peculiar'
circumstances' of' each' case.' Since' the' defendant' bank' was,'
pursuant'to'the'pledge'contract,'in'full'control'of'the'vessels'
through' plainJff,' the' former' could' take' actual' possession' at'
any'Jme'during'the'life'of'the'pledge'to'make'more'effecJve'
its'security.'
FBDC'v'YLLAS'LENDING'
FACTS:'
➢ FBDC'executed'a'lease'contract'in'favor'of'Tirreno,'
Inc.'(Tirreno)'over'a'unit'at'the'Entertainment'Center'
1'Phase'1'of'the'Bonifacio'Global'City'in'Taguig,'
Metro'Manila'
➢ Two'provisions'in'the'lease'contract'are'perJnent'to'
the'present'case:'SecJon'20,'which'is'about'the'
consequences'in'case'of'default'of'the'lessee,'and'
SecJon'22,'which'is'about'the'lien'on'the'properJes'
of'the'lease.'
➢ Tirreno'began'to'default'in'its'lease'payments'in'
1999.'By'July'2000,'Tirreno'was'already'in'arrears'by'
P5,027,337.91.'FBDC'and'Tirreno'entered'into'a'
seclement'agreement'on'8'August'2000.'Despite'the'
execuJon'of'the'seclement'agreement,'FBDC'found'
need'to'send'Tirreno'a'wricen'noJce'of'terminaJon'
dated'19'September'2000'due'to'Tirreno's'alleged'
failure'to'secle'its'outstanding'obligaJons'
➢ FBDC'entered'and'occupied'the'leased'premises.'
FBDC'also'appropriated'the'equipment'and'
properJes'leb'by'Tirreno'pursuant'to'SecJon'22'of'
their'Contract'of'Lease'as'parJal'payment'for'
Tirreno's'outstanding'obligaJons.''
➢ Yllas'Lending'CorporaJon'and'Jose'S.'Lauraya,'in'his'
official'capacity'as'President,'(respondents)'caused'
the'sheriff'of'Branch'59'of'the'trial'court'to'serve'an'
alias'writ'of'seizure'against'FBDC.'On'the'same'day,'
FBDC'served'on'the'sheriff'an'affidavit'of'Jtle'and'
third'party'claim'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''60'
 ➢ Despite'FBDC's'service'upon'him'of'an'affidavit'of'
Jtle'and'third'party'claim,'the'sheriff'proceeded'
with'the'seizure'of'certain'items'from'FBDC's'
premises'
➢ The'sheriff'delivered'the'seized'properJes'to'
respondents.'FBDC'quesJoned'the'propriety'of'the'
seizure'and'delivery'of'the'properJes'to'
respondents'without'an'indemnity'bond'before'the'
trial'court.'FBDC'argued'that'when'respondents'and'
Tirreno'entered'into'the'chacel'mortgage'
agreement'on'9'November'2000,'Tirreno'no'longer'
owned'the'mortgaged'properJes'as'FBDC'already'
enforced'its'lien'on'29'September'2000.''
ISSUE:'Whether'or'not'the'dismissal'of'FBDC's'third'party'
claim'upon'the'trial'court's'erroneous'interpretaJon'that'
FBDC'has'no'right'of'ownership'over'the'subject'properJes'
because'SecJon'22'of'the'contract'of'lease'is'void'for'being'a'
pledge'and'a'pactum'commissorium?'
HELD:'
➢ No,'This'sJpulaJon'is'in'the'nature'of'a'resolutory'
condiJon,'for'upon'the'exercise'by'the'[lessor]'of'his'
right'to'take'possession'of'the'leased'property,'the'
contract'is'deemed'terminated.'This'kind'of'
contractual'sJpulaJon'is'not'illegal,'there'being'
nothing'in'the'law'proscribing'such'kind'of'
agreement.'
➢ Judicial'permission'to'cancel'the'agreement'was'not,'
therefore'necessary'because'of'the'express'
sJpulaJon'in'the'contract'of'[lease]'that'the'[lessor],'
in'case'of'failure'of'the'[lessee]'to'comply'with'the'
terms'and'condiJons'thereof,'can'take1over'the'
possession'of'the'leased'premises,'thereby'
cancelling'the'contract'of'sub1lease.'Resort'to'
judicial'acJon'is'necessary'only'in'the'absence'of'a'
special'provision'granJng'the'power'of'cancellaJon.'
➢ We'allow'FBDC's'forfeiture'of'Tirreno's'properJes'in'
the'leased'premises.'By'agreement'between'FBDC'
and'Tirreno,'the'properJes'are'answerable'for'any'
unpaid'rent'or'charges'at'any'terminaJon'of'the'
lease.'Such'agreement'is'not'contrary'to'law,'morals,'
good'customs,'or'public'policy.'Forfeiture'of'the'
properJes'is'the'only'security'that'FBDC'may'apply'
in'case'of'Tirreno's'default'in'its'obligaJons'
PNB'v'ATENDIDO'
(Re'Incorporeal'Rights)'
FACTS:'
Laureano'Atendido'(LA)'obtained'from'PNB'(P)'a'loan'payable'
in'120'days'with'interest.'To'guarantee'its'payment'LA'pledge'
to'the'bank'2,000'cavans'of'palay'which'were'deposited'in'a'
warehouse' and' to' that' effect' endorsed' in' favor' of' the' bank'
the' corresponding' WH' receipt.' Before' the' maturity' of' the'
loan,'the'cavans'of'rice'dissappeared'from'the'WH.'LA'failed'
to' pay' the' loan' upon' matrity' and' so' the' present' acJon' was'
insJtuted.'LA'set'up'the'defense'that'the'quedan'covering'the'
palay' which' was' given' as' security' having' been' endorsed' in'
blank'in'favor'of'the'bank'and'the'palay'having'been'lost'or'
disappeared,'he'thereby'became'relieved'of'liability.'
ISSUE:'WoN'LA'is'relieved'from'liability'
SC:'NO!'
The' surrender' of' the' warehouse' receipt' fiven' as' security,'
endorsed'in'blank'was'NOT'that'of'a'final'transfer'or'that'WH'
receipt' but' merely' as' a' guaranty' to' the' fulfillment' of' the'
obligaJon'of'P3k.'This'being'so,'the'ownership'remains'with'
the' pledgor' subject' only' to' foreclosure' in' case' of'
nonfulfillment'of'obligaJon.'The'pledgor,'conJnuing'to'be'the'
owner' of' the' goods' pledged' during' the' pendency' of' the'
obligaJon'in'case'of'the'loss'of'the'property,'the'loss'is'borne'
by'him.'
OCEJO'PEREZ'v'INTERNATIONAL'BANK'
FACTS:''
1)'On'March'7,'1914,'Chua'Teng'Chong,'executed'to'the'
InternaJonal'Banking'CorporaJon'a'promissory'note,'payable'
one'month'aber'date,'for'the'sum'of'P20,000'which'note'was'
also'acached'to'another'private'document,'signed'by'Chua,'
which'stated'that'he'had'deposited'with'the'bank,'as'security'
for'the'said'note,'5,000'piculs'of'sugar,'which'were'said'
stored'in'a'warehouse'in'Binondo,'Manila.''
2)'The'bank'made'no'effort'to'exercise'any'acJve'ownership'
over'said'merchandise'unJl'the'April'16,'when'it'discovered'
that'the'amount'of'sugar'stored'in'the'said'warehouse'was'
much'less'than'what'was'menJoned'in'the'contract.'The'
agreement'between'the'bank'and'Chua'Teng'Chong'with'
respect'to'the'alleged'pledge'of'the'sugar'was'never'recorded'
in'a'public'instrument.''
3)'On''March'24,'1914,'the'plainJff'partnership'Ocejo,'Perez'
and'Co.,'entered'into'contract'with'Chua'for'the'sale'to'him'of'
sugar'where'the'delivery'should'be'made'in'April.'The'
delivery'was'completed'April'16,'1914,'and'the'sugar'was'
stored'in'the'buyer's'warehouse'situated'at'Muelle'de'la'
Industria.'On'this'same'date,'the'bank'sent'an'employee'to'
inspect'the'sugar'described'in'the'pledge'agreement,'which'
should'have'been'stored'in'the'Calle'Toneleros'warehouse.'It'
was'discovered'that'the'amount'of'sugar'in'that'warehouse'
did'not'exceed'1,800'piculs,'it'was'supposed'to'have'5,000'
piculs'of'sugar.'Eventually,'the'employee'was'informed'that'
the'rest'of'the'sugar'covered'by'the'pledge'agreement'was'
stored'in'the'warehouse'at'No.'119,'Muelle'de'la'Industria.'
The'bank's'representaJve'immediately'went'to'this'
warehouse,'found'3,200'piculs'of'sugar,'of'which'he'took'
immediate'possession,'closing'the'warehouse'with'the'bank's'
padlocks.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''61'
4)'On'April'17,'1914,'partnership'Ocejo'presented,'for'
collecJon,'its'account'for'the'purchase'price'of'the'sugar,'but'
chua'refused'to'make'payment,'and'up'to'the'present'Jme'
the'sellers'have'been'unable'to'collect'the'purchase'price'of'
the'merchandise'in'quesJon.''
5)'The'partnership'Ocejo'made'a'demand'on'the'bank'for'the'
delivery'of'the'sugar,'to'which'demand'the'bank'refused'to'
accede.'A'suit'was'filed'by'Ocejo'alleging'that'said'defendant'
was'unlawfully'holding'the'seized'sugar,'the'property'of'the'
plainJff'firm'Ocejo,'which'the'bank'had'received'from'Chua'
Teng'Chong,'and'prayed'for'the'judgment'for'the'possession'
of'said'sugar.'''
6)'Subsequently,'by'agreement'of'the'parJes,'the'sugar'was'
sold'and'the'proceeds'of'the'deposited'in'the'bank.'
Aberwards,'a'complaint'in'intervenJon'was'filed'by'Chua'
Seco,'the'assignee'of'the'insolvency'of'Chua'Teng'Chong,'
asserJng'a'preferenJal'right'to'the'sugar,'or'to'the'proceeds'
of'its'sale'contending'that'the'sugar'is'the'property'of'the'
insolvent'estate'represented'by'him.'The'lower'court'
rendered'judgment'in'favor'of'the'Oceja''
ISSUES:'
(a)'Did'Jtle'to'the'sugar'pass'to'the'buyer'upon'its'delivery'to'
him'(chua'seco)?''
(b)'Assuming'to'pay'that'the'Jtle'passed'to'the'buyer,'did'his'
failure'to'pay'the'purchase'price'authorize'the'seller'to'
rescind'the'sale?''
'(c)'Can'the'pledge'of'the'sugar'to'the'bank'be'sustained'upon'
the'evidence'as'to'the'circumstances'under'which'it'obtained'
physical'possession'thereof?'
HELD:'
A)'The'SC'agreed'with'Chua’s'contenJon'that'he'was'enJtled'
to'demand'payment'of'the'sugar'at'any'Jme'aber'the'
delivery.'No'term'having'been'sJpulated'within'which'the'
payment'should'be'made,'payment'was'demandable'at'the'
Jme'and'place'of'the'delivery'of'the'thing'sold.'The'seller'did'
not'avail'himself'of'his'right'to'demand'payment'as'soon'as'
the'right'to'such'payment'arose,'but'as'no'term'for'payment'
was'sJpulated,'he'was'enJtled,'to'require'payment'to'be'
made'at'any'Jme'aber'delivery,'and'it'was'the'duty'of'the'
buyer'to'pay'the'price'immediately'upon'demand.'In'essence,'
the'delivery'had'the'effect'of'transmirng'the'Jtle'of'the'
sugar'to'the'buyer.''
B)'Failure'on'the'part'of'the'buyer'to'pay'the'price'on'
demand:'ArJcle'1506'of'the'Civil'Code'provides'that'the'
contract'of'sale'may'be'rescinded'for'the'same'causes'as'all'
other'obligaJons,'in'addiJon'to'the'special'causes'
enumerated'in'the'preceding'arJcles.'It'is'also'observed'that'
the'arJcle'does'not'disJnguish'the'consummated'sale'from'
the'merely'perfected'sale.'In'the'contract'of'the'sale'the'
obligaJon'to'pay'the'price'is'correlaJve'to'the'obligaJon'to'
deliver'the'thing'sold.'Nonperformance'by'one'of'the'parJes'
authorizes'the'other'to'exercise'the'right,'conferred'upon'him'
by'the'law,'to'elect'to'demand'the'performance'of'the'
obligaJon'or'its'rescission.''
C)'The'sugar'here'in'quesJon'could'not'be'possibly'have'been'
the'subject'macer'of'the'contract'of'pledge'which'the'parJes'
undertook'to'create'by'the'private'document,'inasmuch'as'it'
was'not'at'the'Jme'the'property'of'the'bank,'and'this'
consJtutes'an'indispensable'requisite'for'the'creaJon'of'a'
pledge.''
D)'It'is'not'shown'that'an'effort'was'made'to'pledge'the'
sugar,'the'subject'macer'of'this'case.'Though'it'happened'
that'the'day'the'sugar'was'delivered,'the'Chua'gave'the'
bank's'representaJve'the'keys'of'the'warehouse'on'the'
Muelle'de'la'Industria'in'which'the'sugar'was'stored,'it'was'
not'because'of'an'agreement'concerning'the'pledge'of'the'
sugar.'From'the'facts,'no'acempt'was'made'to'enter'into'any'
agreement'for'the'pledge'of'the'sugar'here'in'quesJon.'The'
bank'took'possession'of'that'sugar'under'the'erroneous'
belief,'based'upon'the'false'statement'of'Chua'Teng'Chong,'
that'it'was'a'part'of'the'lot'menJoned'in'the'private'
document.'Even'assuming'that'an'acempt'was'made'to'
pledge'the'sugar'and'that'delivery'was'made'in'accordance'
with'the'agreement,'the'pledge'so'established'would'be'void'
as'against'third'persons'since'it'is'provided'ArJcle'1865'of'the'
Civil'Code'that'a'pledge'is'without'effect'as'against'third'
persons'"if'the'certainty'of'the'date'does'not'appear'by'public'
instrument."''
E)'As'to'assignee'Chua'Seco:'He'filed'a'complaint'in'
intervenJon'in'this'suit,'in'which'he'contends'that'by'reason'
of'its'sale'and'delivery'by'plainJff'to'the'insolvent,'Jtle'to'the'
sugar'passed'to'the'lacer'and'that'the'pledge'set'up'by'the'
bank'is'void'as'to'third'persons.'The'Jtle'to'the'sugar'having'
been'commenced'against'him'before'the'declaraJon'of'
insolvency,'the'assignee,'Chua'Seco,'has'a'becer'right'to'its'
possession'or'to'the'product'of'its'sale'during'the'pendency'
of'this'acJon.'The'decision'of'the'court'below'is'therefore'
reversed,'and'it'is'decided'that'the'assignee'of'the'
bankruptcy'of'Chua'Teng'Chong'is'enJtled'to'the'product'of'
the'sale'of'the'sugar'here'in'quesJon,'to'wit,'P10,826.76,'
together'with'the'interest'accruing'thereon,'reserving'
proceedings.'So'ordered.'
CRUZ'v'LEE'
SARMIENTO'v'JAVELLANA'
Facts:'
• Spouses'Villasenor'obtained'a'loan'from'Javellana'to'be'
paid' within' one' year' with' an' interest' of' 25%' p.a.'
evidenced'by'to'documents.'
• They'pledged'4,000'worth'of'jewels.'
• Upon'maturity,'the'Spouses'requested'for'an'extension.'
• Aber' 7' years,' Villasenor' offered' to' pay' the' loan' and'
redeem'the'jewels.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''62'
• Javellana'refused'on'the'ground'that'redempJon'period'
has'already'expired'and'he'has'already'bought'the'jewels'
from'the'wife'of'Villasenor.'
• Villasenor'brought'an'acJon'against'Javellana'to'compel'
the'return'of'the'jewels'pledged.'
Issues:''
1) WON'Villasenor'can'sJll'redeem'the'jewels?'
2) WON'the'right'to'redeem'has'already'expired?'
Held:'
1) Yes.'As'the'jewels'in'quesJon'were'in'the'possession'of'
the'defendant'to'secure'the'payment'of'a'loan'of'1,500'
with' interest' thereon' and' for' having' subsequently'
extended'the'term'of'the'loan'indefinitely,'and'so'long'as'
the'value'of'the'jewels'pledged'was'sufficient'to'secure'
the'payment'of'the'capital'and'the'accrued'interest,'the'
defendant'is'bound'to'return'the'jewels'or'their'value'to'
the'plainJffs,'and'the'plainJffs'have'the'right'to'demand'
the'same'upon'the'payment'by'them'of'the'sum'of'1,500'
plus'interest.''
2) An'acJon'for'recovery'of'the'goods'which'were'pledged'
to' secure' the' payment' of' a' loan' evidenced' by' a'
document'is'an'acJon'on'a'wricen'contract'which'has'a'
prescripJve' period' of' 10' years' from' the' date' on' which'
the' debtor' may' have' paid' the' debt' and' demanded' the'
return'of'the'goods'pledged.'
In' this' case,' the' expiraJon' of' the' contract' was' in' 1912'
and'the'acJon'to'recover'was'filed'in'1920,'therefore,'the'
acJon'has'not'yet'prescribed.'
PARAY'v'RODRIGUEZ'
Facts:' Respondents' were' the' owners,' in' their' respecJve'
personal'capaciJes,'of'shares'of'stock'in'a'corporaJon'known'
as'the'Quirino1Leonor1Rodriguez'Realty'Inc.1'SomeJme'during'
the' years' 1979' to' 1980,' respondents' secured' by' way' of'
pledge' of' some' of' their' shares' of' stock' to' peJJoners'
Bonifacio' and' FausJna' Paray' ("Parays")' the' payment' of'
certain' loan' obligaJons.' When' the' Parays' acempted' to'
foreclose' the' pledges' on' account' of' respondents’' failure' to'
pay' their' loans,' respondents' filed' complaints' with' the'
Regional' Trial' Court' (RTC)' of' Cebu' City' and' ,' sought' the'
declaraJon'of'nullity'of'the'pledge'agreements.'However'the'
RTC,' in' its' decision3' dated' 14' October' 1988,' dismissed' the'
complaint'and'gave'"due'course'to'the'foreclosure'and'sale'at'
public' aucJon' of' the' various' pledges.' Respondents' then'
received' NoJces' of' Sale' which' indicated' that' the' pledged'
shares'were'to'be'sold'at'public'aucJon.'However,'before'the'
scheduled' date' of' aucJon,' all' of' respondents' caused' the'
consignaJon'with'the'RTC'Clerk'of'Court'of'various'amounts.'
It' was' claimed' that' respondents' had' acempted' to' tender'
these' payments' to' the' Parays,' but' had' been' rebuffed.'
Notwithstanding' the' consignaJons,' the' public' aucJon' took'
place'as'scheduled,'with'peJJoner'Vidal'Espeleta'successfully'
bidding.' Respondents' instead' filed' on' 13' November' 1991' a'
complaint'seeking'the'declaraJon'of'nullity'of'the'concluded'
public' aucJon.' PeJJoners' now' argue' that' the' essenJal'
procedural'requisites'for'the'aucJon'sale'had'been'saJsfied.'
Issue:' W/N' the' the' essenJal' procedural' requisites' for' the'
aucJon'sale'had'been'saJsfied?'
Ruling:'Yes.'Under'the'Civil'Code,'the'foreclosure'of'a'pledge'
occurs' extrajudicially,' without' intervenJon' by' the' courts.' All'
the'creditor'needs'to'do,'if'the'credit'has'not'been'saJsfied'in'
due'Jme,'is'to'proceed'before'a'Notary'Public'to'the'sale'of'
the'thing'pledged.'
MANILA'SURETY'v'VELAYO'
F:' Manila' Surety' &' Fidelity' Co.,' upon' request' of' Rodolfo'
Velayo,'executed'a'bond'for'P2,800.00'for'the'dissoluJon'of'a'
writ'of'acachment'obtained'by'one'Jovita'Granados'in'a'suit'
against'Rodolfo'Velayo'in'the'Court'of'First'Instance'of'Manila.'
Velayo' undertook' to' pay' the' surety' company' an' annual'
premium'of'P112.00'and'provided'collateral'jewelry''with'the'
authority'to'sell'in'case'Manila'Surety'will'be'obliged'to'pay.'
Judgment' having' been' rendered' in' favor' of' Jovita' Granados'
and' against' Rodolfo' Velayo,' and' execuJon' having' been'
returned' unsaJsfied,' the' surety' company' was' forced' to' pay'
P2,800.00' that' it' later' sought' to' recoup' from' Velayo;' and'
upon' the' lacer's' failure' to' do' so,' the' surety' caused' the'
pledged'jewelry'to'be'sold,'realizing'therefrom'a'net'product'
of' P235.00' only' The' surety' files' a' claim' against' Velayo'
because'the'security'Is'insufficient.'Velayo'claims'the'sale'of'
the' jewelry' even' if' insufficient' exJnguishes' the' principal'
obligaJon.'
Issue:'Won'Velayo’s'contenJon'is'correct'
Ruling:'Yes!'The'sale'of'the'thing'pledged'shall'exJnguish'the'
principal' obligaJon,' whther' or' not' the' proceeds' of' the' sale'
are' equal' to' the' amount' of' the' principal' obligaJon,' interest'
and'expenses'in'a'proper'case.'
REAL'MORTGAGE'
VIOLA'v'EPCIB'
FACTS:'Via'a'contract'denominated'as'“CREDIT'LINE'AND'REAL'
ESTATE'MORTGAGE'AGREEMENT'FOR'PROPERTY'LINE”'(Credit'
Line' Agreement)' executed' on' March' 31,' 1997,' Leo1Mers'
Commercial,' Inc.,' as' the' Client,' and' ' its' officers' spouses'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''63'
Leopoldo' and' Mercedita' Viola' (peJJoners)' obtained' a' loan'
through' a' credit' line' facility' in' the' maximum' amount' of'
P4,700,000.00' from' the' Philippine' Commercial' InternaJonal'
Bank'(PCI'Bank),'which'was'later'merged'with'Equitable'Bank'
and'became'known'as'Equitable'PCI'Bank,'Inc.'
To'secure'the'payment'of'the'loan,'peJJoners'executed'also'
on' March' 31,' 1997' a' “Real' Estate' Mortgage”' in' favor' of'
PCIBank'over'their'two'parcels'of'land.'
PeJJoners' availed' of' the' full' amount' of' the' loan.'
Subsequently,' ' ' ' 'they'made'parJal'payments'and'made'no'
further' payments' and' despite' demand,' they' failed' to' pay'
their'outstanding'obligaJon.''
Respondent' thus' extrajudicially' foreclosed' the' mortgage'
before'the'Office'of'the'Clerk'of'Court'&'Ex1Officio'Provincial'
Sheriff'of'the'Regional'Trial'Court'(RTC)'of'Marikina'City.''The'
mortgaged' properJes' were' sold' on' April' 10,' 2003' for'
P4,284,000.00'at'public'aucJon'to'respondent,'aber''which'a'
CerJficate'of'Sale'dated'April'21,'2003'was'issued.'
More' than' five' months' later' or' on' October' 8,' 2003,'
peJJoners' filed' a' complaint' for' annulment' of' foreclosure'
sale.'They'claim'that:'
a) they'had'made'substanJal'payments'
b) 'the'foreclosure'proceedings'and'aucJon'sale'were'
not'only'irregularly'and'prematurely'held'but'were'
null' and' void' because' the' mortgage' debt' is' only'
P2,224,073.31' on' the' principal' obligaJon' and'
P1,455,137.36' on' the' interest,' or' a' total' of' only'
P3,679,210.67' as' of' April' 15,' 2003,' but' the'
mortgaged' properJes' were' sold' to' saJsfy' an'
inflated' and' erroneous' principal' obligaJon' of'
P4,783,254.69,' plus' 3%' penalty' fee' per' month' or'
33%' per' year' and' 15%' interest' per' year,' which'
amounted' to' P14,024,623.22' as' of' September' 30,'
2002;”''
c) that'“the'parJes'never'agreed'and'sJpulated'in'the'
real'estate'mortgage'contract”'that'the'15%'interest'
per'annum'on'the'principal'loan'and'the'3%'penalty'
fee'per'month'on'the'outstanding'amount'would'be'
covered'or'secured'by'the'mortgage;''
ISSUE:' ' whether' the' mortgage' contract' also' secured' the'
penalty' fee' per' month' on' the' outstanding' amount' as'
sJpulated'in'the'Credit'Line'Agreement.''
RULING:' A' mortgage' must' “sufficiently' describe' the' debt'
sought'to'be'secured,'which'descripJon'must'not'be'such'as'
to' mislead' or' deceive,' and' an' obligaJon' is' not' secured' by' a'
mortgage' unless' it' comes' fairly' within' the' terms' of' the'
mortgage.'
In' the' case' at' bar,' the' parJes' executed' two' separate'
documents' on' March' 31,' 1997' –' the' Credit' Line' Agreement'
granJng' the' Client' a' loan' through' a' credit' facility' in' the'
maximum' amount' of' P4,700,000.00,' and' the' Real' Estate'
Mortgage' contract' securing' the' payment' thereof.'
Undisputedly,' both' contracts' were' prepared' by' respondent'
and'wricen'in'fine'print,'single'space.'
The' provision' of' the' mortgage' contract' does' not' specifically'
menJon'that,'aside'from'the'principal'loan'obligaJon,'it'also'
secures'the'payment'of'“a'penalty'fee'of'three'percent'(3%)'
per'month'of'the'outstanding'amount'to'be'computed'from'
the'day'deficiency'is'incurred'up'to'the'date'of'full'payment'
thereon,”'which'penalty'was'expressly'sJpulates'in'the'Credit'
Line'Agreement.'
Since' an' acJon' to' foreclose' “must' be' limited' to' the' amount'
menJoned' in' the' mortgage”' and' the' penalty' fee' of' 3%' per'
month'of'the'outstanding'obligaJon'is'not'menJoned'in'the'
mortgage,' it' must' be' excluded' from' the' computaJon' of' the'
amount'secured'by'the'mortgage.'
Penalty' fee”' is' enJrely' different' from' “bank' charges.”' ' The'
phrase' “bank' charges”' is' normally' understood' to' refer' to'
compensaJon' for' services.' ' ' A' “penalty' fee”' is' likened' to' a'
compensaJon' for' damages' in' case' of' breach' of' the'
obligaJon.' ' Being' penal' in' nature,' such' fee' must' be' specific'
and'fixed'by'the'contracJng'parJes,'unlike'in'the'present'case'
which' slaps' a' 3%' penalty' fee' per' month' of' the' outstanding'
amount'of'the'obligaJon.'
DILAG'v'HEIRS'OF'RESSURECCION'
FACTS:'
• BEFORE'1936:'Laureano'Marquez'(LM)'was'indebted'
to'Fortunato''Resurreccion'(FR)'in'the'sum'of'P5k'as'
the' balance' of' purchase' price' of' a' parcel' of' land'
which'LM'bought'and'received'from'FR.'
• FR'was'in'turn'indebted'to'Luzon'Surety'Company'in'
the' same' amt,' secured' by' a' mortgage' on' 3' parcels'
of'land'–'one'of'which'was'bought'by'LM'from'him'
• AS' EARLY' AS' 193:' ' LM' had' agreed' to' pay' FR’s'
indebtedness' to' Luzon' Surety' Company' by' way' of'
saJsfacJon' of' his' own' indebtedness' to' FR' in' the'
same'amt'
• LM' failed' to' pay' indebtedness' of' FR' to' the' Luzon'
Surety' Company,' and' the' lacer' foreclosed' judicially'
the'mortgage'executed'in'its'favour'by'FR'
• Since' LM' did' not' fulfil' his' promise,' FR' commenced'
an' acJon' against' LM' to' recover' the' value' of' lost'
properJes'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''64'
 • LM' –' sale' at' public' aucJon' of' 5' parcels' of' land'
menJoned'in'FR’s'complaint'is'invalid'because'they'
are'not'specifically'described'in'the'mortgage'deed.'
LM'acquired'those'parcels'of'land'subsequent'to'the'
execuJon'of'mortgage'deed.''
• In' the' fibh' clause' of' said' document' Laureano'
Marquez'sJpulated'that'inasmuch'as'the'five'parcels'
of' land' described' in' the' fourth' clause' were' not'
sufficient' to' cover' all' his' obligaJons' in' favor' of'
Fortunato' Resurreccion,' he' also' consJtuted' a'
mortgage'in'favor'of'the'lacer'and'his'assignees'on'
any'other'property'he'then'might'have'and'on'those'
he'might'acquire'in'the'future.'
ISSUE:'WON'such'a'sJpulaJon'consJtute'a'valid'mortgage'on'
the'5'other'parcels'of'land'which'LM'subsequently'acquired?'
HELD:'NO'
• LM' could' not' legally' mortgage' any' property' he' did'
not'yet'own.'In'order'that'a'mortgage'may'be'validly'
consJtuted' the' instrument' by' which' it' is' created'
must'be'recorded'in'the'Registry'of'Deeds'and'so'far'
as'the'addiJonal'parcels'of'land'are'concerned,'the'
registraJon'of'Deed'of'Mortgage'did'not'affect'and'
could'not'have'affected'them'because'they'were'not'
specifically'described'therein.'
PBCOM'v'MACADAEG'
FACTS:'
On'September'30,'1950,'respondents'Pedro'B.'BauJsta,'
DaJva'Corrales'BauJsta,'Inocencio'C.'Campos,'and'the'Flash'
Taxi'Company'jointly'and'severally'applied'for'and'obtained'a'
credit'accommodaJon'from'the'peJJoner'bank'in'the'sum'of'
P100,000.00,'and'as'a'security'therefor'executed'in'favor'of'
the'bank,'in'one'single'document,'a'real'estate'mortgage'over'
four'parcels'of'land,'and'a'chacel'mortgage'on'some'movie'
equipment'and'thirty'taxicabs.'Respondents'having'failed'to'
pay'the'total'amount'of'P128,902.42'due'on'the'credit'
accommodaJon'referred'to,'the'peJJoner'bank'procured'the'
extrajudicial'foreclosure'of'the'real'estate'mortgage'in'
accordance'with'Act'No.'3135,'as'amended,'and'at'the'
foreclosure'sale'on'January'9,'1956,'the'bank'acquired'the'
properJes'mortgaged'as'the'highest'bidder'for'the'sum'of'
P68,365.60.'
Claiming'a'balance'of'P62,'749.72'sJll'due,'the'peJJoner'
bank,'instead'of'foreclosing'respondents''chacel'mortgage,'
filed'against'them'on'may'22,'1956,'Civil'Case'No.'29752'for'
the'collecJon'of'said'balance.'The'lower'court,'on'June'30,'
1956,'rendered'judgment'ordering'defendants'to'pay'the'
plainJff'bank,'jointly'and'severally,'the'sum'of'P62,'749.72,'
with'interest'thereon'at'the'rate'of'7%'per'annum'from'May'
22,'1956'unJl'the'said'amount'is'fully'paid.'
On'September'18,1956,'the'court'issued'an'order'to'execute'
said'judgment;'it'does'not'appear,'though,'that'plainJff'
sought'the'enforcement'of'the'writ'of'execuJon.''
On'April'24,'1957,'the'court'issued'another'order'for'the'
execuJon'of'the'judgement,'pursuant'to'which'the'sheriff'of'
Manila'published'a'"NoJce'of'Sale,"'serng'for'sale'at'public'
aucJon'on'May'13,'1957'the'rights,'interest'or'parJcipaJon'
of'respondents'on'the'cerJficate'of'public'convenience'
registered'in'the'name'of'the'Flash'Taxi'Co.'in'cases'Nos.'
32578'of'the'Public'Service'Commission.''
On'May'13,'1957,'the'sheriff'sold'the'rights,'interests,'or'
parJcipaJon'of'respondents'in'the'cerJficate'of'public'
convenience'in'quesJon'to'the'plainJff'bank'as'the'highest'
bidder'for'the'amount'of'P60,371.25,'and'two'days'later,'on'
May'15,'the'sheriff'issued'to'plainJff'the'corresponding'
cerJficate'of'sale.''
Respondents'Pedro'B.'BauJsta,'et'al.,'filed'in'the'court'below'
a'"PeJJon'To'Set'Aside'Order'dated'June'8,'1957,'Confirming'
Sheriffs'Sale'of'may'15,'1957'and'to'Declare'its'Nullity,"'
claiming,'as'grounds'for'the'peJJons,'that'they'had'other'
properJes'which'they'had'pointed'out'to'the'plainJff'bank'
with'which'the'judgement'could'be'saJsfied'that'the'law'
grants'to'the'judgement'debtor'the'right'to'direct'which'of'
his'properJes'should'be'sold'in'execuJon'of'a'judgement;'
that'the'sale'of'the'cerJficate'of'public'convenience'in'
quesJon'would'mean'irreparable'damage'to'them'and'would'
prove'of'work'about'forth'drivers'employed'in'their'taxicab'
business;'and'that'defendants'had'no'objecJon'to'bearing'
the'expenses'of'the'sale'sought'to'be'revoked'and'of'any'
subsequent'execuJon'sales'in'saJsfacJon'of'the'judgement.'
PlainJff'bank'opposed'the'peJJon,'contending'that'there'
was'no'showing'that'the'sheriff's'sale'in'quesJon'was'
irregular'or'not'in'accordance'with'law;'that'the'subject'of'
the'execuJon'sale'being'personal'property,'and'a'cerJficate'
of'sale'having'already'been'delivered'to'it'by'the'sheriff,'the'
court'could'no'longer'set'aside'said'sale''
ISSUE:'W/N'the'sheriff’s'sale'was'irregular'and'therefore'null'
and'void.'
HELD:''
The'alleged'nullity'is'claimed'to'arise'from'the'fact'that'the'
real'estate'and'chacel'mortgage'executed'by'respondents'to'
secure'their'credit'accommodaJon'with'the'peJJoner'bank'
was'indivisible,'and'that'consequently,'the'bank'had'no'legal'
right'to'extra'judicially'foreclose'only'the'real'estate'mortgage'
and'leave'out'the'chacel'mortgage,'and'then'sue'
respondents'for'a'supposed'deficiency'judgement;'and'for'
this'reason,'respondents'assert'that'the'judgement'in'the'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''65'
bank's'favor'for'such'deficiency'in'Civil'Case'No.'29752'is'a'
nullity.''
The'argument'is'fallacious'because'the'mere'embodiment'of'
the'real'estate'mortgage'and'the'chacel'mortgage'in'one'
document'does'not'fuse'both'securiJes'into'an'indivisible'
whole.'Both'remain'disJnct'agreements,'differing'not'only'in'
the'subject1macer'of'the'contract'but'in'the'but'in'the'
governing'legal'provisions.'PeJJoner'bank,'therefore,'had'
every'right'to'foreclose'the'real'estate'mortgage'and'waive'
the'chacel'mortgage,'and'maintain'instead'a'personal'acJon'
for'the'recovery'of'the'unpaid'balance'of'its'credit'(De'la'
Rama'vs.'Sajo,'45'Phil.,'703;'Salomon'vs.'Dantees,'63'Phil.,'
522;'Brancharch'Motor'Co.'vs.'Rangal,'et'al.,'68'Phil.,'287,'
290).'This'peJJoner'did'by'filing'civil'Case'No.'29752'for'the'
collecJon'of'the'unpaid'balance'of'respondents''
indebtedness;'and'the'validity'and'correctness'of'the'acJon'
was'admiced'by'respondents'themselves'when'they'
confessed'judgement'thereto.'The'court'in'fact'decision'
pursuant'to'such'confession'of'judgement,'and'the'decision'
has'long'since'been'final'and'executory.'
PRUDENTIAL'BANK'v'PANIS'
HOME'BANKERS'v'CA'
Facts:'
• Private' respondents' entered' into' a' Contract' to' Sell'
Agreement' with' TransAmerican' through' Engr.'
Garcia' over' porJons' of' land' with' one' unit' three1
storey'townhouse'to'be'built'on'each'porJon.'
• Engr.'Garcia'obtained'a'loan'from'peJJoner'and'as'
security' executed' a' mortgage' over' the' property'
subject' to' the' Contract' to' Sell' with' the' private'
respondents.' PeJJoner' registered' its' mortgage' on'
these'Jtles'without'any'other'encumbrance'or'lien'
annotated'therein.'
• When' the' loan' was' due,' Engr.' Garcia' failed' to' pay'
hence' peJJoner' insJtuted' an' extrajudicial'
foreclosure'on'the'subject'lots.'
• Private' respondents' prayed' for' the' annulment' of'
the'mortgage'in'favor'of'peJJoner.'
• PeJJoner' filed' its' Answer' contending' that' private'
respondents'have'no'cause'of'acJon'against'it;'that'
at'the'Jme'of'the'loan'applicaJon'and'execuJon'of'
the' promissory' note' and' real' estate' mortgage' by'
Garcia,' there' were' no' known' individual' buyers' of'
the' subject' land' nor' annotaJon' of' any' contracts,'
liens'or'encumbrances'of'third'persons'on'the'Jtles'
of' the' subject' lots;' that' the' loan' was' granted' and'
released' without' noJfying' HLURB' as' it' was' not'
necessary.'
• CA'ruled'in'favor'of'private'respondents'saying'that'
despite' the' contracts' to' sell,' Garcia/TransAmerican'
did'not'apprise'peJJoner'of'the'existence'of'these'
contracts' nor' did' peJJoner' exhaust' any' effort' to'
inquire' into' their' existence' since' peJJoner' merely'
relied'on'the'purported'clean'reconsJtuted'Jtles'in'
the' name' of' Garcia;' that' the' mortgage' of' the'
subject' lots' without' the' consent' of' the' buyers' and'
the'authorizaJon'of'the'HLURB'is'a'clear'violaJon'of'
P.D.'No.'957;'that'the'mortgage'contract'is'void'and'
unenforceable'against'private'respondents.'
ISSUES:'
1. WON'HLURB'has'jurisdicJon'over'the'case?'
2. WON'the'mortgage'is'valid?'
3. WON' peJJoner' is' a' mortgagee' in' good' faith' and'
since' the' Jtles' on' their' face' were' free' from' any'
claims,' liens' and' encumbrances' at' the' Jme' of' the'
mortgage,' it' is' not' obliged' under' the' law' to' go'
beyond'the'cerJficates'of'Jtle'registered'under'the'
Torrens'system'and'had'every'reason'to'rely'on'the'
correctness'and'validity'of'those'Jtles.?'
HELD:'
1. HLURB' has' jurisdicJon.' The' Court' ruled' in' a' prior'
case'that'“the'jurisdicJon'of'the'HLURB'to'regulate'
the' real' estate' trade' is' broad' enough' to' include'
j u r i s d i c J o n' o ve r' co m p l a i nt s' fo r' s p e c i fi c'
performance' of' the' sale,' or' annulment' of' the'
mortgage,'of'a'condominium'unit,'with'damages.”'
2. THE' MORTGAGE' IS' VOID.' Under' SecJon' 18' of' P.D.'
No.'957,'it'is'provided'that'no'mortgage'on'any'unit'
or' lot' shall' be' made' by' the' owner' or' developer'
without' prior' wricen' approval' of' the' HLURB' Such'
approval'shall'not'be'granted'unless'it'is'shown'that'
the'proceeds'of'the'mortgage'loan'shall'be'used'for'
the' development' of' the' condominium' or'
subdivision' project' and' effecJve' measures' have'
been' provided' to' ensure' such' uJlizaJon.' Without'
the' prior' wricen' approval' of' the' HLURB,' the' lacer'
has'the'jurisdicJon'to'annul'the'mortgage'for'being'
void.'
3. PeJJoner' is' NOT' A' MORTGAGEE' IN' GOOD' FAITH.'
PeJJoner' knew' that' the' loan' it' was' extending' to'
Garcia/TransAmerican' was' for' the' purpose' of' the'
development' of' the' eight1unit' townhouses.''
PeJJoner’s' insistence' that' prior' to' the' approval' of'
the' loan,' it' undertook' a' thorough' check' on' the'
property' and' found' the' Jtles' free' from' liens' and'
encumbrances'would'not'suffice.''It'was'incumbent'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''66'
 upon'peJJoner'to'inquire'into'the'status'of'the'lots'
which' includes' verificaJon' on' whether' Garcia' had'
secured'the'authority'from'the'HLURB'to'mortgage'
the' subject' lots.' ' PeJJoner' failed' to' do' so.' ' We'
likewise' find' peJJoner' negligent' in' failing' to' even'
ascertain'from'Garcia'if'there'are'buyers'of'the'lots'
who' turned' out' to' be' private' respondents.''
PeJJoner’s'want'of'knowledge'due'to'its'negligence'
takes'the'place'of'registraJon'1'thus'it'is'presumed'
to'know'the'rights'of'respondents'over'the'lot'1'and'
the'conversion'of'its'status'as'mortgagee'to'buyer1
owner' will' not' lessen' the' importance' of' such'
knowledge.'
SAMANILLA'v'CAJUCOM'
MOBIL'PHILIPPINES'v'DIOCARES'
FACTS:'
The' parJes' Mobil' and' Diocares' entered' an' agreement'
wherein' on' cash' basis,' Mobil' will' deliver' minimum' of' 50k'
liters'of'petroleum'a'month.'To'secure'this,'diocares'executed'
a' Real' Mortgage.' Diocares' failed' to' pay' the' balance' of' their'
indebtedness' and' Mobil' filed' an' acJon' for' the' collecJon' of'
the'balance'of'the'purchase'amount'or'that'the'Real'Property'
mortgaged' by' Diocares' be' sold' to' a' public' aucJon' and' the'
proceeds'be'applied'to'the'payment'of'the'obligaJon.''LC'did'
not' grant' foreclosure' on' the' ground' that' the' mortgage' was'
not'validly'executed'(not'registered).'
ISSUE:' WON' failure' to' register' the' Real' Mortgage' would'
render'it'invalid'
SC:'NO!'
- If'the'instrument'is'not'recorded,'the'mortgage'is'
nevertheless'binding'between'the'parJes.'Its'
conclusion,'however,'is'that'what'was'thus'created'
was'merely'a'“personal'obligaJon'but'did'not'
establish'a'real'estate'mortgage.”'
- The'mere'fact'that'there'is'as'yet'no'compliance'
with'the'requirement'that'it'be'recorded'cannot'be'
a'bar'to'foreclosure'
MCCULLOUGH'v'VELOSO'
FACTS:'''
1)'On'March'23,'1920,'the'plainJff'McCullough'&'Co.,'sold'to'
Mariano'Veloso'the'"McCullough'Building,"'and'the'land'
thereon,'for'the'price'of'P700,000.'Veloso'paid'P50,000'cash'
on'account'at'the'execuJon'of'the'contract,'leaving'a'balance'
of'P650,000'to'be'paid.'
2)'Veloso'assumed'also'the'obligaJon'to'insure'the'property'
for'not'less'than'P500,000,'as'well'as'to'pay'all'legal'taxes'that'
might'be'imposed'upon'the'property,'and'in'the'event'of'his'
failure'to'do'so,'the'plainJff'should'pay'said'taxes'at'the'
expense'of'Veloso,'with'the'right'to'recover'of'him'the'
amounts'thus'paid,'with'interest'at'7'per'cent'per'year.'To'
secure'the'payment'of'these'amounts,'Veloso'mortgaged'the'
property'purchased'
3)'It'was,'also,'sJpulated'that'in'case'of'failure'on'the'part'of'
Veloso'to'comply'with'any'of'the'sJpulaJons'contained'in'the'
mortgage'deed,'all'the'installments'with'the'interest'thereon'
shall'become'due,'and'the'creditor'shall'then'have'the'right'
to'bring'the'proper'acJon'for'the'collecJon'of'the'unpaid'
part'of'the'debt.''
4)'On'August'21,'1920,'Mariano'Veloso,'in'turn,'sold'the'
property,'with'the'improvements'thereon'for'P100,00'to'
Joaquin'Serna,'who'agreed'to'respect'the'mortgage'of'the'
property'in'favor'of'the'plainJff'and'to'assume'Mariano'
Veloso's'obligaJon'to'pay'the'plainJff'the'balance'due'of'the'
price'of'the'estate'on'the'respecJve'dates'when'payments'
should'be'made'according'to'the'contract'between'Mariano'
Veloso'and'the'plainJff.'
5)'Veloso'paid'P50,000'on'account'of'the'P650,000,'and'Serna'
made'several'payments'up'to'the'total'sum'of'P250,000.'
Subsequently,'however,'neither'Veloso,'nor'Serna,'made'any'
payment'upon'the'last'installments,'by'virtue'of'which'delay,'
the'whole'obligaJon'became'due,'and'Veloso'lost'the'right'to'
the'installments'sJpulated'in'his'contract'with'the'plainJff.'
6)'Upon'a'liquidaJon'of'the'debt'of'Mariano'Veloso'in'favor'
of'the'plainJff,'including'the'interest'due,'with'the'result'that'
Veloso'owed'exactly'P510,047.34.'Thus,'the'plainJff'brings'
this'acJon'to'recover'of'the'defendant'the'sum'due'of'
P510,047.34.'The'defendant'contends'however'that'having'
sold'the'property'to'Serna,'and'the'lacer'having'assumed'the'
obligaJon'to'pay'the'plainJff'the'unpaid'balance'of'the'price'
secured'by'the'mortgage'upon'the'property,'he'no'more'
obligaJon'and'it'is'upon'Serna'to'pay'the'plainJff.''
HELD:'''
A)'The'mortgage'is'merely'an'encumbrance'upon'the'
property'and'does'not'exJnguish'the'Jtle'of'the'debtor,'who'
does'not,'therefore,'lose'his'principal'acribute'as'owner,'that'
is,'the'right'to'dispose.'the'fact'that'the'plainJff'recognized'
the'efficaciousness'of'that'sale'cannot'prejudice'him,'which'
sale'the'defendant'had'the'right'to'make'and'the'plainJff'
cannot'oppose'and'which,'at'all'events,'could'not'affect'the'
mortgage,'since'it'follows'the'property'whoever'the'
possessor'may'be.''
B)'The'Mortgage'Law'in'force'at'the'promulgaJon'of'the'Civil'
Code'and'referred'to'in'the'lacer,'provided,'among'other'
things,'that'the'debtor'should'not'pay'the'debt'upon'its'
maturity'aber'a'judicial'or'notarial'demand'for'payment'has'
been'made'by'the'creditor'upon'him.'Accordingly,'the'
obligaJon'of'the'new'possessor'to'pay'the'debt'originated'
only'from'the'right'of'the'creditor'to'demand'payment'of'
him,'it'being'necessary'that'a'demand'for'payment'should'
have'previously'been'made'upon'the'debtor'and'the'lacer'
should'have'failed'to'pay.''
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C)'The'Civil'Code'imposes'the'obligaJon'of'the'debtor'to'pay'
the'debt'stand'although'the'property'mortgaged'to'secure'
the'payment'of'said'debt'may'have'been'transferred'to'a'
third'person.''
SANTIAGO'v'DIONISIO'
DOCTRINE:' All'persons'having'or'claiming'an'interest'in'
the' mortgaged' premises' subordinate' in' right' to' that' of' the'
holder' of' the' mortgage' should' be' made' defendants' in' the'
acJon' for' the' foreclosure' of' the' mortgage.' Intervening' as' a''
subordinate'lienholder'in'a'foreclosure'case'merely'to'oppose'
the' confirmaJon' ' of' the' sale' upon' learning' that' such' a' sale'
had'been'made,'is'no'the'same'as'being'a'party'to'the'suit'to'
the' extent' of' being' bound' by' the' judgement' ' in' the'
foreclosure'suit.''
' The' effect' of' the' failure' to' implead' a' subordinate'
lienholder' or' subsequent' purchaser' or' both' is' to' render' the'
foreclosure' ineffecJve' as' against' them,' with' the' result' that'
there' remains' in' their' favor' the' unforeclosed' equity' of'
redempJon.'
PADERES'v'CA'
Facts:'
• Manila' InternaJonal' ConstrucJon' CorporaJon' (MICC)'
mortgaged' 21' properJes' in' favor' of' Banco' Filipino' (BF)'
for'a'loan'of'P1.8M.'The'mortgaged'was'registered'with'
the'Registry'of'Deeds.'
• 2' of' the' lots' were' later' sold' to' Spouses' Paderes' and'
Spouses'Bergardo.'
• MICC'failed'to'pay'the'loan.'
• Without' any' redempJon' having' been' made' within' the'
reglementary' period,' Banco' Filipino' foreclosed' the'
properJes'extra'judicially.'
• BF'won'as'the'highest'bidder'in'the'aucJon'sale.'
• Paderes' and' Bergardo' filed' a' peJJon' staJng' that' their'
right' is' superior' than' BF' since' they' are' buyers' in' good'
faith'and'are'sJll'enJtled'to'redeem.'
Issue:' WON' Paderes' and' Bergardo' has' sJll' rights' over' the'
properJes?'
Held:'
No.'Sale'or'transfer'cannot'affect'or'release'the'mortgage.'A'
purchaser' is' necessarily' bound' to' acknowledge' and' respect'
the' encumbrance' to' which' is' subjected' the' purchased' thing'
and'which'is'at'the'disposal'of'the'creditor'in'order'that'he,'
under'the'terms'of'the'contract,'may'recover'the'amount'of'
his'credit'therefrom.'
For'a'recorded'real'estate'mortgage'is'a'right'in'rem,'a'lien'on'
the' property' whoever' its' owner' may' be' because' the'
personality' of' the' owner' is' disregarded.' The' mortgage'
subsists' notwithstanding' changes' of' ownership.' The' last'
transferee' is' just' as' much' of' a' debtor' as' the' first' one.' A'
mortgage'lien'is'inseparable'from'the'property'mortgaged.'All'
subsequent' purchasers' thereof' must' respect' the' mortgage,'
whether'the'transfer'to'them'be'with'or'without'the'consent'
of'the'mortgagee.'For'the'mortgage'unJl'discharged,'follows'
the'property.'''
With' regard' to' the' redempJon' period,' it' is' secled' 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'aber'the'registraJon'of'the'sale.'As'such,'
he'is'enJtled'to'the'possession'of'the'said'property'and'can'
demand'it'any'Jme'following'the'consolidaJon'of'ownership'
in'his'name'and'the'issuance'to'him'of'a'new'TCT.'If'the'buyer'
demands'the'possession'of'the'property'before'the'expiraJon'
period,'he'has'to'post'a'bond.'No'bond'is'required'aber'the'
redempJon'period'if'the'property'is'not'redeemed.'
VELASCO'v'CA'
Facts: November 10, 1965, Alta Farms secured
from the GSIS a Three Million Two Hundred Fifty
Five Thousand Pesos (P3,255,000.00) loan and an
additional loan of Five Million Sixty-Two Thousand
Pesos (P5,062,000.00) on October 5, 1967, to
finance a piggery project. Alta Farms defaulted in
the payment because of this that Alta Farms
executed a Deed of Sale With Assumption of
Mortgage with Asian Engineering Corporation on
July 10, 1969 but without the previous consent or
approval of the GSIS and in direct violation of the
provisions of the mortgage contracts. Even without
the approval of the Deed of Sale With Assumption
of Mortgage by the GSIS, Asian Engineering
Corporation executed an Exclusive Sales Agency,
Management and Administration Contract in favor
of Laigo Realty Corporation, with the intention of
converting the piggery farm into a subdivision.
After developing the area, on December 4, 1969,
Laigo entered into a contract with Amable
Lumanlan, one of the petitioners, to construct for
the home buyers, 20 houses on the subdivision.
Petitioner Lumanlan allegedly constructed 20
houses for the home buyers and for which he claims
a balance of P309,187.76 from the home buyers and
Laigo. Out of his claim, petitioner Lumanlan admits
that Mrs. Rhody Laigo paid him in several checks
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''68'
totalling P124,855.00 but which checks were all
dishonoured. On December 29, 1969, Laigo entered
into a contract with petitioner Pepito Velasco to
construct houses for the home buyers who agreed
with Velasco on the prices and the downpayment.
Petitioner Velasco constructed houses for various
home buyers, who individually agreed with Velasco,
as to the prices and the downpayment to be paid by
the individual home buyers.When neither Laigo nor
the individual home buyers paid for the home
constructed, Velasco wrote the GSIS to intercede for
the unpaid accounts of the home buyers.
Issue: W/N GSIS is liable to the petitioners for the
cost of the materials and labor furnished by them in
construction of the 63 houses now owned by the
GSIS?
Ruling: Yes. GSIS should pay the petitioners. GSIS
assumed ownership of the houses built by
petitioners and was benefited by the same. Art.
2127, the mortgage extends to the natural
accessions, to the improvements, growing fruits,
rents.
AFABLE'v'BELANDO'
Afable' brought' a' suit' against' Belando' for' an' unpaid'
promissory'note.'Judgment'was'rendered'in'favor'of'him'and'
because'Belando'has'no'money,'the'rents'in'her'property'was'
given'to'Afable.'It'turns'out,'before'Afable'filed'a'case'for'the'
collecJon'of'money,'another'creditor'of'Belando,'La'Urbana,'
already'had'a'lien'on'the'property'because'Belando'borrowed'
money'from'La'Urbana'and'as'a'security,'Belando'mortgaged'
the' property' being' rented' to' La' Urbana.' La' Urbana' filed' a'
peJJon' to' intervene' in' the' case' of' Afable' v' Belando' and'
claims' that' since' the' property' was' mortgaged' to' them,' they'
also'own'the'rents'and'the'rents'cannot'be'given'to'Afable.'
Issue:'Won'the'contenJon'of'La'Urbana'is'valid'
Ruling:' Yes.' The' mortgage' extends' to' the' rents' not' yet'
received' when' the' obligaJon' becomes' due.' In' this' case,'
because'the'property'was'mortgaged'to'La'Urbana,'they'also'
own'the'rents'of'the'mortgaged'property.'
Bank'of'America'v'American'Realty'
F:'PeJJoner'Bank'of'America'NT'&'SA'(BANTSA)'is'an'
internaJonal'banking'and'financing'insJtuJon'Bank'of'
America'InternaJonal'Limited'(BAIL),'on'the'other'hand,'is'a'
limited'liability'company'organized'and'exisJng'under'the'
laws'of'England.'
BANTSA'and'BAIL'on'several'occasions'granted'three'major'
mulJ1million'United'States'(US)'Dollar'loans'to'the'following'
corporate'borrowers'and'which'are'foreign'affiliates'of'private'
respondent.'3'
Due'to'the'default'in'the'payment'of'the'loan'amorJzaJons,'
BANTSA'and'the'corporate'borrowers'signed'and'entered'into'
restructuring'agreements.'As'addiJonal'security'for'the'
restructured'loans,'private'respondent'ARC'(American'Realty)'
as'third'party'mortgagor'executed'two'real'estate'mortgages,''
over'its'parcels'of'land'including'improvements'thereon,'
located'at'Bulacan.''
Eventually,'the'corporate'borrowers'defaulted'in'the'payment'
of'the'restructured'loans'prompJng'peJJoner'BANTSA'to'file'
civil'acJons'before'foreign'courts'for'the'collecJon.'This'
includes'the'property'of'American'Realty.'PeJJoners'already'
filed'collecJon'cases'in'foreign'courts.'It'also'filed'an'
extrajudicial'foreclosure'on'the'property'in'Bulacan'in'which'
American'Realty'quesJon'because'the'peJJoners'cannot'file'
a'case'for'collecJon'and'a'case'for'extrajudicial'foreclosure'at'
the'same'Jme.'
Issue:'Won'the'contenJon'of'respondents'are'valid'
Ruling:' yes!' The' mortgagee' cannot' have' both' remedies.' He'
has' only' one' cause' of' acJon,' i.e.,' non1payment' of' the'
mortgage'debt;'hence,'he'cannot'split'up'his'cause'of'acJon'
by' filing' a' compliant' for' payment' of' the' and' another'
complaint'for'foreclosure.'
PEOPLE’S'BANK'v'DAHICAN'LUMBER'
FACTS:' On' September' 8,' 1948,' AtlanJc' Gulf' &' Pacific'
Company' of' Manila,' a' West' Virginia' corporaJon' licensed' to'
do' business' in' the' Philippines—' hereinaber' referred' to' as'
ATLANTIC' —' sold' and' assigned' all' its' rights' in' the' Dahican'
Lumber' concession' to' Dahican' Lumber' Company' —'
hereinaber' referred' to' as' DALCO.' Thereaber,' to' develop' the'
concession,' DALCO' obtained' various' loans' from' the' People's'
Bank'&'Trust'Company.'
As' security' for' the' payment' of' the' abovemenJoned' loans,'
DALCO'executed'in'favor'of'the'BANK'—'the'lacer'acJng'for'
itself' and' as' trustee' for' the' Export1Import' Bank' of'
Washington'D.C.'—'a'deed'of'mortgage'covering'five'parcels'
of' land' together' with' all' the' buildings' and' other'
improvements' exisJng' thereon' and' all' the' personal'
properJes'of'the'mortgagor'located'in'its'place'of'business.'
On'the'same'date,'DALCO'executed'a'second'mortgage'on'the'
same' properJes' in' favor' of' ATLANTIC' to' secure' payment' of'
the' unpaid' balance' of' the' sale' price' of' the' lumber'
concession.'
Both' deeds' contained' the' following' provision' extending' the'
mortgage' lien' to' properJes' to' be' subsequently' acquired' —'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''69'
referred'to'hereaber'as'"aber'acquired'properJes"'—'by'the'
mortgagor:'
All'property'of'every'nature'and'descripJon'taken'in'
exchange' or' replacement,' and' all' buildings,'
machinery,' fixtures,' tools' equipment' and' other'
property' which' the' Mortgagor' may' hereaber'
acquire,'construct,'install,'acach,'or'use'in,'to,'upon,'
or' in' connecJon' with' the' premises,' shall'
immediately' be' and' become' subject' to' the' lien' of'
this'mortgage'in'the'same'manner'and'to'the'same'
extent'as'if'now'included'therein,'and'the'Mortgagor'
shall' from' Jme' to' Jme' during' the' existence' of' this'
mortgage' furnish' the' Mortgagee' with' an' accurate'
inventory' of' such' subsJtuted' and' subsequently'
acquired'property.'
Both'mortgages'were'registered'in'the'Office'of'the'Register'
of'Deeds.'In'addiJon'thereto'DALCO'and'DAMCO'pledged'to'
the'BANK'7,296'shares'of'stock'of'DALCO'and'9,286'shares'of'
DAMCO'to'secure'the'same'obligaJons.'
Upon' DALCO's' and' DAMCO's' failure' to' pay' the' fibh'
promissory'note'upon'its'maturity,'the'BANK'paid'the'same'to'
the' Export1Import' Bank' of' Washington' D.C.,' and' the' lacer'
assigned' to' the' former' its' credit' and' the' first' mortgage'
securing'it.'Subsequently,'the'BANK'gave'DALCO'and'DAMCO'
up'to'April'1,'1953'to'pay'the'overdue'promissory'note.'
Aber'July'13,'1950'—'the'date'of'execuJon'of'the'mortgages'
menJoned' above' —' DALCO' purchased' various' machineries,'
equipment,' spare' parts' and' supplies' in' addiJon' to,' or' in'
replacement'of'some'of'those'already'owned'and'used'by'it'
on' the' date' aforesaid.' Pursuant' to' the' provision' of' the'
mortgage'deeds'quoted'theretofore'regarding'"aber'acquired'
properJes,"' the' BANK' requested' DALCO' to' submit' complete'
lists'of'said'properJes'but'the'lacer'failed'to'do'so.'
The' alleged' sales' of' equipment,' spare' parts' and' supplies' by'
CONNELL' and' DAMCO' to' It,' was' subsequently' rescinded' by'
the'parJes.'
The'BANK,'in'its'own'behalf'and'that'of'ATLANTIC,'demanded'
that'said'agreements'be'cancelled'but'CONNELL'and'DAMCO'
refused' to' do' so.' As' a' result,' ATLANTIC' and' the' BANK'
commenced'foreclosure'proceedings.'
Main'contenJons'of'plainJffs'as'appellants'are'the'following:'
that'the'"aber'acquired'properJes"'were'subject'to'the'deeds'
of'mortgage'menJoned'heretofore;'that'said'properJes'were'
acquired' from' suppliers' other' than' DAMCO' and' CONNELL;'
that' even' granJng' that' DAMCO' and' CONNELL' were' the' real'
suppliers,' the' rescission' of' the' sales' to' DALCO' could' not'
prejudice'the'mortgage'lien'in'favor'of'plainJffs.'
The' defendants1appellants' contend' that' the' mortgages'
aforesaid' were' null' and' void' as' regards' the' "aber' acquired'
properJes"' of' DALCO' because' they' were' not' registered' in'
accordance'with'the'Chacel'Mortgage'Law.'
ISSUES:''
1. are' the' so1called' "aber' acquired' properJes"'
covered' by' and' subject' to' the' deeds' of' mortgage'
subject'of'foreclosure?'
2. assuming' that' they' are' subject' thereto,' are' the'
mortgages' valid' and' binding' on' the' properJes'
aforesaid' inspite' of' the' fact' that' they' were' not'
registered' in' accordance' with' the' provisions' of' the'
Chacel'Mortgage'Law?'
RULING:'
1. it' is' crystal' clear' that' all' property' of' every' nature'
and' descripJon' taken' in' exchange' or' replacement,'
as'well'as'all'buildings,'machineries,'fixtures,'tools,'
equipments,'and'other'property'that'the'mortgagor'
may' acquire,' construct,' install,' acach;' or' use' in,' to'
upon,'or'in'connecJon'with'the'premises'—'that'is,'
its'lumber'concession'—'"shall'immediately'be'and'
become' subject' to' the' lien"' of' both' mortgages' in'
the' same' manner' and' to' the' same' extent' as' if'
already' included' therein' at' the' Jme' of' their'
execuJon.''
Such'sJpulaJon'is'neither'unlawful'nor'immoral,'its'
obvious' purpose' being' to' maintain,' to' the' extent'
allowed' by' circumstances,' the' original' value' of' the'
properJes' given' as' security.' Indeed,' if' such'
properJes'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. the' chacels' were' placed' in' the' real' properJes'
mortgaged' to' plainJffs,' they' came' within' the'
operaJon'of'Art.'415,'paragraph'5'and'Art.'2127'of'
the'New'Civil'Code.'It'is'not'disputed'in'the'case'at'
bar' that' the' "aber' acquired' properJes"' were'
purchased'by'DALCO'in'connecJon'with,'and'for'use'
in' the' development' of' its' lumber' concession' and'
that' they' were' purchased' in' addiJon' to,' or' in'
replacement' of' those' already' exisJng' in' the'
premises' on' July' 13,' 1950.' In' Law,' therefore,' they'
must' be' deemed' to' have' been' immobilized,' with'
the' result' that' the' real' estate' mortgages' involved'
herein'—'which'were'registered'as'such'—'did'not'
have' to' be' registered' a' second' Jme' as' chacel'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''70'
 mortgages' in' order' to' bind' the' "aber' acquired'
properJes"'.'
PHIL'SUGAR'ESTATE'v'CAMPS'
FACTS:'
• Defendant' executed' and' delivered' to' PlainJff' a'
mortgage'on'certain'real'estate,'which'is'parJcularly'
described' therein,' including' “the' building' erected'
thereon,”' in' order' to' guarantee' the' payment' of'
certain' sum' of' money;' Another' mortgage' upon' the'
same' property' to' secure' the' payment' of' an'
addiJonal'sum'of'money'
• PlainJff'commenced'an'acJon'to'recover'said'sums'
and' to' foreclose' said' mortgages' when' neither' of'
said'sums'of'money'secured'by'said'mortgages'was'
fully'paid'and'saJsfied'
• Def' –' denied;' alleged' that' the' sum' of' P3k' included'
in'said'mortgages'for'the'payment'of'expenses'was'
excessive'
• TC' ' Judge' Ostrand' –' ordered' foreclosure' of' said'
mortgages'
• While' Sheriff' tried' to' sell' the' property' included' in'
said' mortgages,' Def' interposed' an' objecJon' that' a'
certain' cinematograph' which' had' been' constructed'
upon' the' property' mortgaged' was' not' included'
therein' and' that' it' should' not,' therefore,' be' sold'
under'said'execuJon.'
• Despite' objecJon,' Sheriff' sold' the' property'
mortgaged' “together' with' the' buildings' erected'
thereon”'
• Def' objected' to' the' confirmaJon' of' said' sale;' said'
cinematograph' in' quesJon' was' created' by' simply'
reforming'a'building'located'on'the'land'at'the'Jme'
said' mortgage' was' executed' and' delivered;' that' it'
was'not'a'new'structure'on'said'land;'that'it'was'the'
result' of' changing' and' altering' a' building' already'
upon' the' land,' for' the' purpose' of' making' it' into' a'
cinematograph'
• 'TC'Judge'Harvey'confirmed'said'sale'
ISSUE:'WON'the'sale'under'execuJon'by'the'sheriff'of'certain'
real' property' including' the' buildings' thereon' should' be'
confirmed?'
HELD:'YES'
• QuesJons'presented'by'Camps'have'been'discussed'
by' this' court' and' decided' against' his' contenJon' in'
the'case'of'Bischoff'v.'Pomar'and'Compania'General'
de'Tabacos.'
• In'that'case,'this'court'discussed'the'very'arJcles'of'
the' Mortgage' Law' upon' which' Camps' now' seeks'
relief.'In'that'case'the'Court'said:'
So' that' even' though' no' menJon' had' been'
made'of'said'machinery'and'tramway'in'the'
mortgage' instrument,' the' mortgage' of' the'
property' whereon' they' are' located' in'
understood' by' law' to' extend' to' them' and'
they' must' be' considered' as' included'
therein,' as' well' as' all' other' improvements,'
unless' there' was' an' express' sJpulaJon'
between' the' parJes' that' they' should' be'
excluded.'
• IN'THIS'CASE:'the'buildings'erected'thereon"'were'
expressly'included'in'the'mortgage.'Nothing'in'the'
form'of'buildings'was'exclude.'The'buildings,'
therefore,'were'manifestly'included'in'the'
mortgage.'
TADY1Y'v'PNB'
PRUDENTIAL'BANK'v'ALVIAR'
LOPEZ'v'ALVAREZ'
FACTS:' Appellee' Evaristo' holds' a' lien' over' the' estate' of' one'
Vicente'Lopez'as'the'lacer'executed'a'mortgage'deed'in'favor'
of'Evaristo.'On'April'5,'1904,'Evaristo'assigned'his'lien'on'the'
estate'to'appellant'Manuel'Lopez'through'a'public'instrument'
but' the' same' was' not' registered' in' the' Registry' of' Deeds.'
Appellee'Grindrod'is'a'creditor'of'Evaristo,'to'whom'the'lacer'
promised' to' pay' his' obligaJon' through' the' sugar' yielded' by'
the'hacienda,'said'agreement'was'entered'into'July'7,'1900.''
But'the'hacienda'was'not'able'to'increase'the'sugar'it'yielded'
and' defendant' On' August' 5,' 1904,' Grindrod' who' feared' of'
not' gerng' paid' obtained' a' preliminary' acachment' over' all'
the' property' of' Evaristo' including' the' lien' that' was' assigned'
to'appellant.'The'same'was'registered'on'August'12,'1904.'A'
dispute'arised'over'the'righÖul'owner'of'the'lien,'defendant’s'
main'contenJon'is'that'since'the'assignment'made'to'Lopez'
was'not'registered'it'is'not'binding'and'has'no'effect.'
ISSUE:' WON' THE' ASSIGNMENT' OF' A' MORTGAGE' CREDIT'
NEED'TO'BE'REGISTERED'FOR'IT'TO'BE'VALID'AND'EFFECTIVE?'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''71'
HELD:'NO.'Although'the'Civil'Code'provides'that'“'A'mortgage' - A'complaint'for'QuieJng'of'Title,'Annulment'of'Title'
credit'may'be'alienated'or'assigned'to'a'third'person,'wholly' and'Damages'with'preliminary'injuncJon'was'filed'
or'parJally,'with'the'formaliJes'required'by'law”,'the'fact'that' by'the'spouses'Litonjua'and'PWHAS'against'R''
such'assignment'was'not'registered'in'the'property'register'is'
no' obstacle' to' the' transfer' of' the' dominion' or' ownership' of' - LC'ruled'in'favor'of'R'and'affirmed'by'CA''
said' credit' in' the' sum' therein' stated' in' favor' of' Lopez.' In' as'
much'as'the'assignment'or'alienaJon'of'a'credit,'made'by'the'
owner' thereof' in' favor' of' another,' is' prior' to' the' act' of' its'
registraJon,' and' enJrely' independent' of' such' formality' to' ISSUE:'WON'paragraphs'8'and'9'of'the'Real'Estate'Mortgage'
such' an' extent' that,' if' any' quesJon' should' arise' over' the' are'valid'and'enforceable;'
contract' between' the' assignor' and' the' assignee,' it' would'
have'to'be'decided'according'to'common'law'without'need'of'
previous' registraJon' of' the' Jtle,' which' shows' that' a' credit'
SC:'NO!'
secured'by'a'mortgage'may'be'assigned'or'alienated,'and'is'a'
perfectly'valid'contract'even'if'it'were'not'registered.'
- Art.'2130'–'sJpulaJon'forbidding'alienaJon'of'
mortgaged'property'is'VOID'
Also,' the' registraJon' of' the' assignment' or' alienaJon' of' a'
credit' secured' by' mortgage,' required,' among' others,' of' the'
- A'real'mortgage'is'merely'an'encumbrance;'it'does'
Mortgage' Law,' is' only' necessary' in' order' that' it' may' be'
not'exJnguish'the'Jtle'of'the'debtor,'whose'right'to'
effectual'as'against'third'parJes.'
dispose'—'a'principal'acribute'of'ownership'—'is'
not'thereby'lost.'Thus,'a'mortgagor'had'every'right'
to'sell'his'mortgaged'property,'which'right'the'
BPI'v'CONCEPCION'
mortgagee'cannot'oppose.'
LITONJUA'v'L&R'CORPORATION'
- Although'the'provision'does'not'absolutely'prohibit'
''
the'mortgagor'from'selling'his'mortgaged'property;'
but'what'it'does'not'outrightly'prohibit,'it'
FACTS:'
nevertheless'achieves.''
- Spouses'Litonjua'(P)'obtained'a'loan'from'L'&'R'
CorporaJon'(R)'–'Aug'6,'1974'(P200k)'and'Mar'27,' - For'all'intents'and'purposes,'the'sJpulaJon'
pracJcally'gives'the'mortgagee'the'sole'prerogaJve'
1978'(P200k)'–'which'are'secured'by'a'mortgage'on'
to'prevent'any'sale'of'the'mortgaged'property'to'a'
2'parcels'of'land'owned'by'P'
third'party.''
- However,'P'sold'to'Phil'White'House'Auto'Supply'
(PWHAS)'the'subject'parcels'of'land,'without'prior' - The'mortgagee'can'simply'withhold'its'consent'and'
thereby,'prevent'the'mortgagor'from'selling'the'
wricen'consent'of'R,'pursuant'to'the'Mortgage'
property.'This'creates'an'unconscionable'advantage'
agreement'that'they'have.'
for'the'mortgagee'and'amounts'to'a'virtual'
- Upon'default'of'P,'R'iniJated'an'extrajudicial'sale' prohibiJon'on'the'owner'to'sell'his'mortgaged'
and'won'the'bidding.' property.'In'other'words,'sJpulaJons'like'those'
covered'by'paragraph'8'(requiring'P'to'acquire'prior'
- P'later'on'filed'for'redempJon'of'the'property'but'R' consent'of'R'before'alienaJng'the'property)'of'the'
refused'to'do'accept'the'payment'contending'that'P' subject'Deed'of'Real'Estate'Mortgage'circumvent'
violated'the'contract' the'law,'specifically,'ArJcle'2130'of'the'New'Civil'
Code.'
- R'informed'the'Sheriff'and'Register'of'Deeds,'
staJng:'(1)'that'the'sale'of'the'mortgaged'properJes' - Being'contrary'to'law,'paragraph'8'of'the'subject'
to'PWHAS'was'without'its'consent,'in'contravenJon' Deed'of'Real'Estate'Mortgage'is'not'binding'upon'
of'their'Deed'of'Real'Estate'Mortgage;'and'(2)'that'it' the'parJes.''
was'not'the'spouses'Litonjua,'but'PWHAS,'who'was'
seeking'to'redeem'the'foreclosed'properJes,''

- Register'of'Deeds'issued'TCT'in'favor'of'R' UNION'BANK'v'CA'
FACTS:'

SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''72'
1)'A'real'estate'mortgage'was'executed'on'December'1991'by'
spouses'Dario'(hereaber'mortgagors)'in'favor'of'UNIONBANK'
to'secure'a'P3'million'loan'which'covered'a'Quezon'City'
property'in'Leopoldo'Dario's'name'and'was'annotated'on'the'
Jtle.'For'non1payment'of'the'principal'obligaJon,'
UNIONBANK'extrajudicially'foreclosed'the'property'
mortgaged'on'August'1993'and'sold'the'same'at'public'
aucJon,'with'itself'posJng'the'highest'bid.'
2)'One'week'before'the'one1year'redempJon'period'expired,'
private'respondents'filed'a'complaint'with'the'RTC'against'the'
mortgagors,'UNIONBANK'and'the'Register'of'Deeds'
annulment'of'sale'and'real'estate'mortgage'reconveyance'
and'prayer'for'restraining'noJce'of'lis'pendens'was'annotated'
on'the'Jtle.'
3)'On'October'1994,'the'RTC'issued'a'TRO'enjoining'the'
redempJon'of'property'within'the'statutory'period'and'its'
consolidaJon'under'UNIONBANK's'name.''
4)'Without'noJfying'private'respondents,'UNIONBANK'
consolidated'its'Jtle'over'the'foreclosed'property'on'October'
1994,'UNIONBANK's'name'was'issued'in'the'new'TCT.'
5)'Private'respondents'filed'an'amended'complaint,'alleging'
that'they,'not'the'mortgagors,'are'the'true'owners'of'the'
property'mortgaged'and'insisJng'on'the'invalidity'of'both'the'
mortgage'and'its'subsequent'extrajudicial'foreclosure.'They'
claimed'that'the'original'Jtle,'was'entrusted'to'a'certain'Acy.'
Reynaldo'Singson'preparatory'to'its'administraJve'
reconsJtuJon'aber'a'fire'guced'the'Quezon'City'Hall'
building.'Mortgagor'Leopoldo,'private'respondent'Fermina's'
son,'obtained'the'property'from'Acy.'Singson,'had'the'Jtle'
reconsJtuted'under'his'name'without'private'respondents''
knowledge,'executed'an'ante1dated'deed'of'sale'in'his'favor'
and'mortgaged'the'property'to'UNIONBANK.'
6)'On'December'1994,'the'RTC'admiced'the'aforemenJoned'
amended'complaint.'UNIONBANK'filed'its'answer'ad'
cautelam'asserJng'its'status'as'an'innocent'mortgagee'for'
value'whose'right'or'lien'upon'the'property'mortgaged'must'
be'respected'even'if,'the'mortgagor'obtained'his'Jtle'through'
fraud.'It'also'averred'that'the'acJon'had'become'"moot'and'
academic'by'the'consolidaJon'of'the'foreclosed'property'on'
24'October'1994"'in'its'name.'
7)'On'appeal,'the'CA'nullified'the'consolidaJon'of'ownership,'
which'was'the'prior'judgment'in'the'RTC,'ordered'the'
Register'of'Deeds'to'cancel'the'cerJficate'of'Jtle'in'
UNIONBANK's'name'and'to'reinstate'TCT'of'respondents.'
ISSUE:'Whether'UNIONBANK'is'a'mortgagee'in'good'faith'and'
for'value'with'a'right'to'consolidate'ownership'over'the'
foreclosed'property'with'the'redempJon'period'having'
expired'and'there'having'been'no'redempJoners.''
HELD:''
A)'The'SC'disagrees'with'the'CA’s'judgment'that'consolidaJon'
deprived'private'respondents'of'their'property'without'due'
process.'Because'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'aber'the'registraJon'
of'the'sale.'In'effect,'consolidaJon'took'place'as'a'macer'of'
right'since'there'was'no'redempJon'of'the'foreclosed'
property'and'the'TRO'expired'upon'dismissal'of'the'
complaint.''
C)'UNIONBANK'need'not'have'informed'private'respondent'
that'it'was'consolidaint'its'Jtle'over'the'property,'upon'the'
expiraJon'of'the'redempJon'period,'without'the'judgment'
debtor'having'made'use'of'his'right'of'redempJon,'the'
ownership'of'the'property'sold'becomes'consolidated'in'the'
purchaser.'Upon'failure'to'redeem'foreclosed'realty,'
consolidaJon'of'Jtle'becomes'a'macer'of'right'on'the'part'of'
the'aucJon'buyer,'and'the'issuance'of'a'cerJficate'of'Jtle'in'
favor'of'the'purchaser'becomes'ministerial'upon'the'Register'
of'Deeds.'
C)'At'any'rate,'the'consolidaJon'of'ownership'over'the'
mortgaged'property'in'favor'of'UNIONBANK'and'the'issuance'
of'a'new'Jtle'in'its'name'during'the'pendency'of'an'acJon'for'
annulment'and'reconveyance'will'not'cause'injury'to'private'
respondents'because'as'purchaser'at'a'public'aucJon,'
UNIONBANK'is'only'subsJtuted'to'and'acquires'the'right,'
Jtle,'interest'and'claim'of'the'judgment'debtors'or'
mortgagors'to'the'property'at'the'Jme'of'levy.'With'the'main'
acJon'for'reconveyance'pending'before'the'RTC,'the'noJce'of'
lis'pendens,''sufficiently'protects'private'respondents'interest'
over'the'property.'Thus'the'Decision'of'the'Court'of'Appeals'
is'REVERSED'and'SET'ASIDE.'The'order'of'the'trial'court'dated'
7'August'1999,'declaring'UNIONBANK's'prayer'for'writ'of'
preliminary'injuncJon'moot'and'academic,'is'hereby'
REINSTATED.'Let'this'case'be'remanded'to'the'Regional'Trial'
Court'for'trial'on'the'merits.'
DBP'v'LICUANAN'
DOCTRINE:' All'persons'having'or'claiming'an'interest'in'
the' mortgaged' premises' subordinate' in' right' to' that' of' the'
holder' of' the' mortgage' should' be' made' defendants' in' the'
acJon' for' the' foreclosure' of' the' mortgage.' Intervening' as' a''
subordinate'lienholder'in'a'foreclosure'case'merely'to'oppose'
the' confirmaJon' ' of' the' sale' upon' learning' that' such' a' sale'
had'been'made,'is'no'the'same'as'being'a'party'to'the'suit'to'
the' extent' of' being' bound' by' the' judgement' ' in' the'
foreclosure'suit.''
' The' effect' of' the' failure' to' implead' a' subordinate'
lienholder' or' subsequent' purchaser' or' both' is' to' render' the'
foreclosure' ineffecJve' as' against' them,' with' the' result' that'
there' remains' in' their' favor' the' unforeclosed' equity' of'
redempJon.'
DBP'v'GO'
Facts:'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''73'
• In'1982,'Go'obtained'a'loan'from'DBP'evidenced'by'two'
promissory' notes,' one' for' 194K' payable' quarterly' for' 5'
years'and'the'other'300K'payable'quarterly'for'7'years.'
• He'mortgaged'his'real'and'personal'property.'
• A' contract' provision' states' that' DBP' can' unilaterally'
increase' the' interest' rate' and' requires' Go' to' insure' the'
mortgaged'properJes.'
• DBP'increased'its'interest'rate'to'35%'then'lowered'it'to'
29%.'
• Go'failed'to'pay'the'loan.''
• In'1986,'DBP'extrajudicially'foreclosed'the'property'and'
was' declared' the' winner' as' the' highest' bidder' in' the'
aucJon'sale.'
• Go'filed'an'acJon'to'annul'the'aucJon'sale.''
• Both' RTC' and' CA' declared' that' the' extrajudicial'
foreclosure'was'void'because'loan'has'not'yet'mature'at'
the' Jme' of' the' foreclosure' sale' (the' foreclosure' was'
done' less' than' 5' years' from' the' execuJon' of' the'
contract).'
Issue:'' WON' the' extrajudicial' foreclosure' should' be'
declared'null'and'void?'
Held:'
Yes.' The' mortgage' contract' states' that' peJJoner' may' resort'
to'either'judicial'or'extrajudicial'foreclosure'in'case'of'default.'
PeJJoner' opted' for' extrajudicial' foreclosure.' However,' both'
the' trial' court' and' the' CA' declared' that' the' extrajudicial'
foreclosure' void' for' being' premature.' For' all' intents' and'
purposes,' there' has' been' no' foreclosure.' Therefore,' this'
Court' or' any' court' cannot' issue' a' writ' of' execuJon' to'
judicially'foreclose'the'property.''
FIESTAN'v'CA'
Facts: Dionisio Fiestan and Juanita Arconada
owners of a parcel of land (Lot No. 2B) situated in
Ilocos Sur covered by TCT T-13218 which they
mortgaged to the Development Bank of the
Philippines (DBP) as security for their P22,400.00
loan. Lot No. 2-B was acquired by the DBP as the
highest bidder at a public auction sale on August 6,
1979 after it was extrajudicially foreclosed by the
DBP in accordance with Act No. 3135, as amended
by Act No. 4118, for failure of petitioners to pay
their mortgage indebtedness. On April 13,1982, the
DBP sold the lot to Francisco Peria in a Deed of
Absolute Sale. Francisco Peria mortgaged said lot to
the PNB Vigan Branch as security for his loan of
P115,000.00 as required by the bank to increase his
original loan from P49,000.00 to P66,000.00 until it
finally reached the approved amount of
P115,000.00. Since petitioners were still in
possession of Lot No. 2-B, the Provincial Sheriff
ordered them to vacate the premises.
Issue: W/N there was a valid extrajudicial
foreclosure sale?
Ruling: Yes. The formalities of a levy, as an
essential requisite of a valid execution sale under
Section 15 of Rule 39 and a valid attachment lien
under Rule 57 of the Rules of Court, are not basic
requirements before an extrajudicially foreclosed
property can be sold at public auction. The case at
bar, as the facts disclose, involves an extrajudicial
foreclosure sale. Act No. 3135, as amended by Act
No. 4118 otherwise known as "An Act to Regulate
the Sale of Property under Special Powers Inserted
in or Annexed to Real Estate Mortgages" applies in
cases of extrajudicial foreclosure sale.
BANK'OF'AMERICA'v'AMERICAN'REALTY'
CHIENG'v'SPOUSE'SANTOS'
FIRST'MARBELLA'v'GATMAYTAN'
FACTS:'
• R' is' the' registered' owner' of' Fontavilla' No.' 501'
(condo' unit),' Marbella' I' Condominium,' Roxas' Blvd'
under'CCT'No.'1972'
• P'filed'a'PeJJon'for'Extradudicial'foreclosure'of'the'
condominium' unit' of' R' and' alleged' that' P' is' a' duly'
organized' associaJon' of' the' tenants' and'
homeowners'of'Marbella'I'Condominium;'that'R'is'a'
member' thereof' but' has' unpaid' associaJon' dues'
amounJng' to' P3.2mill;' that' R' refused' to' to' pay' his'
dues'despite'demand'
• P'1'that'it'is'expressly'provided'under'SecJon'20'of'
Republic'Act'(R.A.)'No.'4726'that'it'has'the'right'to'
cause' the' extrajudicial' foreclosure' of' its' annotated'
lien' on' the' condominium' unit.' Its' peJJon' then' is'
cognizable' by' the' RTC' under' AdministraJve' Macer'
No.'99110105'
• R'–'objected'to'P's'right'to'file'the'peJJon'for'extra1
judicial'foreclosure,'poinJng'out'that'the'lacer'does'
not' hold' a' real' estate' mortgage' on' the'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''74'
 condominium'unit'or'a'special'power'of'acorney'to'
cause'the'extra1judicial'foreclosure'sale'of'said'unit.'
1 there' is' even' a' pending' liJgaJon' regarding' the'
validity' of' peJJoner's' consJtuJon' as' a'
homeowners' associaJon' and' its' authority' to'
assess' associaJon' dues,' annotate' unpaid'
assessments'on'condominium'Jtles'and'enforce'
the'same'through'extrajudicial'foreclosure'sale'
• Clerk'of'Court,'as'Ex1Officio'Sheriff,'recommended'to'
RTC'Exec.'Judge':'
Under' the' facts' given,' no' mortgage' exists' between'
the' peJJoner' and' respondent.' Evidently,' it' is' not'
one' of' those' contemplated' under' Act' 3135' as'
amended' by' Act' 4118.' The' allegaJon' simply' does'
not' show' a' mortgagor1mortgagee' relaJonship' since'
respondent' liability' arises' from' his' failure' to' pay'
dues,'assessments'and'charges'due'to'the'peJJoner.'
As' clearly' stated,' the' authority' of' the' ExecuJve'
Judge' under' AdministraJve' Macer' No.' 9911010510,'
as' amended' dated' March' 1,' 2001,' covers' extra1
judicial' foreclosure' of' real' estate' mortgages' under'
R.A.'No.'3135'and'chacel'mortgages'under'P.D.'No.'
1508.' There' is' nothing' in' the' above' menJoned'
Circular'which'authorizes'the'ExecuJve'Judge'and/or'
the' Ex1Officio' Sheriff' to' extra' judicially' foreclose'
properJes'covered'by'obligaJons'other'than'the'said'
mortgages.'Hence,'the'subject'peJJon'is'not'proper'
for' extra1judicial' foreclosure' under' the' supervision'
of' the' ExecuJve' Judge.' Dismissal' of' the' subject'
peJJon'is'recommended'
• extrajudicial' foreclosure' sale' of' the' condominium'
TC' –' denied' request' for' extrajudicial' foreclosure' of'
the'subject'condo'unit'and'dismissed'the'peJJon;'It'
not'within'the'authority'of'Exec.'Judge'to'supervise'
and' approve' the' extrajudicial' foreclosures' of'
mortgage'
ISSUE:' WON' P' has' a' right' to' file' a' peJJon' for' extrajudicial'
foreclosure?'
HELD:'NO'
• In' order' to' avail' itself' of' a' writ' of' mandamus,'
peJJoner' must' establish' that' it' has' a' clear' right' to'
the' extrajudicial' foreclosure' sale' of' the'
condominium' unit' of' respondent.' Under' Circular'
No.' 712002,' implemenJng' Supreme' Court'
AdministraJve' Macer' No.' 9911010510,' it' is'
mandatory' that' a' peJJon' for' extrajudicial'
foreclosure' be' supported' by' evidence' that'
peJJoner' holds' a' special' power' or' authority' to'
foreclose'
• Without' proof' of' peJJoner's' special' authority' to'
foreclose,' the' Clerk' of' Court' as' Ex1Oficio' Sheriff' is'
precluded' from' acJng' on' the' applicaJon' for'
extrajudicial'foreclosure'
• IN'THIS'CASE:'the'only'basis'of'peJJoner'for'causing'
the' extrajudicial' foreclosure' of' the' condominium'
unit' of' respondent' is' a' noJce' of' assessment'
annotated' on' CCT' No.' 1972' in' accordance' with'
SecJon' 20' of' R.A.' No.' 4726.' However,' neither'
annotaJon'nor'law'vests'it'with'sufficient'authority'
to'foreclose'on'the'property'
• The' noJce' of' assessment' contains' no' provision' for'
the' extrajudicial' foreclosure' of' the' condominium'
unit.' All' that' it' states' is' that' the' assessment' of'
peJJoner'against'respondent'for'unpaid'associaJon'
dues' consJtutes' a' "first' lien' against' [the]'
condominium'unit'
• SecJon' 20' of' RA' 4726' does' not' grant' P' special'
authority' to' foreclose.' It' merely' prescribes' the'
procedure' by' which' peJJoner's' claim' may' be'
treated' as' a' superior' lien' 1' i.e.,' through' the'
annotaJon'thereof'on'the'Jtle'of'the'condominium'
unit.''
• While' the' law' also' grants' peJJoner' the' opJon' to'
enforce' said' lien' through' either' the' judicial' or'
unit,' SecJon' 20' does' not' by' itself,' ipso' facto,'
authorize'judicial'as'extra1judicial'foreclosure'of'the'
condominium' unit.' PeJJoner' may' avail' itself' of'
either' opJon' only' in' the' manner' provided' for' by'
the'governing'law'and'rules.'As'already'pointed'out,'
A.M.' No.' No.' 9911010510,' as' implemented' under'
Circular'No.'712002,'requires'that'peJJoner'furnish'
evidence' of' its' special' authority' to' cause' the'
extrajudicial'foreclosure'of'the'condominium'unit.'
LANGKAAN'REALTY'v'UCPB'
BOHANAN'v'CA''
METROBANK'v'WONG'
FACTS:' Mindanao' Grains,' Inc.' applied' for' a' credit'
accommodaJon' with' peJJoner.' As' security' for' such' credit'
accommodaJon,' respondent' Wong' executed' a' real' estate'
mortgage' in' favor' of' peJJoner.' Due' to' MGI’s' failure' to' pay'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''75'
the'obligaJon,'peJJoner'filed'an'applicaJon'for'extrajudicial'
foreclosure'which'was'published'in'Pagadian'Times'once,'for'
three'consecuJve'weeks'serng'the'date'for'the'aucJon'sale.'
No' noJce' was' posted' in' the' municipality' or' city' where' the'
mortgaged'property'was'situated.'The'aucJon'sale'proceeded'
and' peJJoner' was' adjudged' as' the' sole' and' highest' bidder.'
Aber' the' expiraJon' of' the' one' year' redempJon' period,'
ownership' was' consolidated' and' TCT' correspondingly' issued'
in'the'name'of'peJJoner.'
Respondent'unaware'of'the'foregoing'developments,'applied'
for' a' credit' accommodaJon' with' another' bank,' only' to' find'
out' that' his' property' was' already' foreclosed' by' peJJoner.'
Respondent' filed' a' case' assailing' the' validity' of' the'
extrajudicial'foreclosure'on'the'ground'that'peJJoner'did'not'
comply'with'the'procedural'requirements'of'law.'
PeJJoner'on'the'other'hand'jusJfies'his'claim'by'ciJng'Olizon'
v.' CA,' (1)' that' its' failure' to' comply' with' the' posJng'
requirement' did' not' necessarily' result' in' the' nullificaJon' of'
the' foreclosure' sale' since' it' complied' with' the' publicaJon'
requirement;' and' (2)' that' personal' noJce' of' the' foreclosure'
proceedings'to'respondent'is'not'a'condiJon'sine'qua'non'for'
its'validity.'
ISSUE:' 1.' WON' PERSONAL' NOTICE' TO' RESPONDENT' IS' A'
CONDITION' SINE' QUA' NON' TO' THE' VALIDITY' OF' THE'
FORECLOSURE'PROCEEDINGS?'
'2.'WON'PETITIONER’S'NON1COMPLIANCE'WITH'THE'
POSTING' REQUIREMENT' IS' FATAL' TO' THE' VALIDITY' OF' THE'
FORECLOSURE'PROCEEDINGS?'
HELD:'
1. SecJon' 3' of' Act' no.' 3135' only' requires:' (1)' the'
posJng'of'noJces'of'sale'in'three'public'places,'and'
(2)' the' publicaJon' of' the' same' in' a' newspaper' of'
general'circulaJon.'Personal'noJce'to'the'mortgagor'
is' not' necessary.' Nevertheless,' the' parJes' are' not'
precluded'from'exacJng'addiJonal'requirements.'In'
the'case'at'bar,'it'was'sJpulated'that'noJce'should'
be' served' to' the' mortgagor.' When' peJJoner' failed'
to'send'the'noJce'of'foreclosure'sale'to'respondent,'
he' commiced' a' contractual' breach' sufficient' to'
render'the'foreclosure'sale'null'and'void.'
2. The' general' rule' is' that' non1compliance' with' the'
posJng' requirement' is' fatal' to' the' validity' of' the'
foreclosure' proceedings.' The' Olizon' case' was' an'
excepJon' due' to' the' unusual' nature' of' the'
acendant' facts' and' peculiarity' of' the' confluent'
circumstances' which' are' not' present' in' the' instant'
case.'While'the'law'recognizes'the'right'of'the'bank'
to' foreclose' a' mortgage' upon' the' mortgagor’s'
failure'to'pay'his'obligaJon,'it'is'important'that'such'
right' be' exercised' according' to' its' clear' mandate.'
Each' and' every' requirement' of' the' law' must' be'
complied'with'
PNB'v'CA'
PNB'v'NEPOMUCENO'PRODUCTIONS,'INC.'
FACTS:'
PNB' granted' respondents' (R)' a' credit' line' to' finance' the'
filming' of' the' movie' “Pacific' ConnecJon”.' The' loan' was'
secured' by' mortgages' on' R’s' real' and' personal' properJes'
(Malugay' property,' Forbes' Park' Property' and' moJon' picture'
equipments).' However,' R' defaulted' in' their' obligaJon.' PNB'
sought' foreclosure' of' the' mortgaged' properJes' where' pNB'
was' the' highest' bidder.' R' filed' for' annulment' of' foreclosure'
sale' since' it' is' null' and' void' for' lack' of' publicaJon' of' the'
noJce'of'sale.'LC'annulled'foreclosure.'
ISSUE:' WoN' the' foreclosure' sale' was' valid' despite' lack' of'
publicaJon'
SC:'NO!'
- Act'3135,'governing'EJF'of'mortgages'on'real'
property'is'specific'with'regard'to'the'posJng'and'
publicaJon'requirements'of'the'noJce'of'sale,'
which'requires:'
o PosJng'of'noJces'of'sale'in'3'public'places'
o PublicaJon'of'the'same'in'a'newspaper'of'
general'circulaJon.'
o FAILURE'TO'PUBLISH'the'noJce'of'sale'
consJtutes'a'jurisdicJonal'defect,'which'
INVALIDATES'the'sale.'
- RE:'WAIVER'OF'PUBLICATION'REQUIREMENTS'
o PNB'and'R'have'absolutely'NO'RIGHT'to'
waive'the'posJng'and'publicaJon'
requirements'of'the'law.'
o The'principal'object'of'a'noJce'of'sale'in'a'
foreclosure'of'mortgage'is'not'so'much'to'
noJfy'the'mortgagor'as'to'inform'the'
public'generally'of'the'nature'and'
condiJon'of'the'property'to'be'sold,'and'of'
the'Jme,'place'and'terms'of'the'sale'
- NoJce'is'given'to'secure'bidders'and'prevent'a'
sacrifice'of'the'property'
- Statutory'requirement'of'PublicaJon'is'mandatory'
not'for'the'mortgagor’s'benefit,'but'for'the'public'or'
3rd'persons.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''76'
 PNB'v'SPOUSES'CABATINGAN'
FACTS:''
1)' Respondent' spouses' CabaJngan' obtained' two' loans,'
secured' by' a' real' estate' mortgage,' in' the' total' amount' of'
P421,200'from'peJJoner'PNB.'They'were'unable'to'fully'pay'
their' obligaJon' despite' having' been' granted' more' than'
enough'Jme'to'do'so.'
2)' Thus,' PNB' extrajudicially' foreclosed' on' the' mortgage.'
Thereaber,'a'noJce'of'extrajudicial'sale'was'issued.'Pursuant'
to' this,' the' properJes' were' sold' at' public' aucJon' on'
November'5,'1991.'PNB''was'the'highest'bidder.'
3)'On'March'16,'1993,'respondent'spouses'filed'in'
the'RTC'a'complaint'for'annulment'of'extrajudicial'
foreclosure' of' real' estate' mortgage' and' the'
November'5,'1991'aucJon'sale.''
4)' PeJJoners' claimed' that' the' provisions' of' ACT' no.' 3135'
must'be'observed'strictly.'Thus,'because'the'public'aucJon'of'
the' foreclosed' properJes' was' held' for' only' 20' minutes'
(instead' of' seven' hours' as' required' by' law),' the' consequent'
sale'was'void.'Thus,'the'RTC'issued'an'order'annulling'the'sale'
at'public'aucJon.''
ISSUE:''Whether'a'sale'at'public'aucJon,'to'be'valid,'must'be'
conducted' the' whole' day' from' 9:00' a.m.' unJl' 4:00' p.m.' of'
the'scheduled'aucJon'day.''
HELD:'' '
A)'SecJon'4'of'Act'3135'provides'that'the'sale'must'
take' place' between' the' hours' of' nine' in' the'
morning'and'four'in'the'abernoon.'
B)'A'creditor'may'foreclose'on'a'real'estate'mortgage'only'if'
the' debtor' fails' to' pay' the' principal' obligaJon' when' it' falls'
due.''But'the'foreclosure'of'a'mortgage'does'not'exJnguish'a'
debtor’s' obligaJon' to' his' creditor.' The' proceeds' of' a' sale' at'
public'aucJon'may'not'be'sufficient'to'exJnguish'the'liability'
of' the' former' to' the' lacer.' For' this' reason,' SecJon' 4' of' Act'
3135' should' be' construed' in' such' a' way' that' affords' the'
creditor' greater' opportunity' to' saJsfy' his' claim' without'
unduly'rewarding'the'debtor'for'not'paying'his'just'debt.''''
C)'The'word'“between”'ordinarily'means'“in'the'Jme'interval'
that' separates.”' Thus,' “between' the' hours' of' nine' in' the'
morning' and' four' in' the' abernoon”' merely' provides' a' Jme'
frame' within' which' an' aucJon' sale' may' be' conducted.'
Therefore,'a'sale'at'public'aucJon'held'within'the'intervening'
period'provided'by'law'is'valid,'without'regard'to'the'duraJon'
or' length' of' Jme' it' took' the' aucJoneer' to' conduct' the'
proceedings.' Since' it' was' conducted' within' the' Jme' frame'
provided'by'law,'the'sale'was'valid.'''
MONZON'v'RELOVA'
DOCTRINE:' Any' person' having' a' lien' on' the' property'
subsequent'to'the'mortgage'or'deed'of'trust'under'which'the'
property'is'sold,'may'redeem'the'same'at'any'Jme'within'the'
term'of'one'year'from'and'aber'the'date'of'sale.'
' Even' if,' for' the' sake' of' argument,' Rule' 68' is' to' be'
applied' to' extrajudicial' foreclosure' of' mortgages,' such' right'
can' only' be' given' to' second' mortgagees' who' are' made'
parJes' to' the' (judicial)' foreclosure.' While' a' second'
mortgagee'is'a'proper'and'in'a'sense'even'a'necessary'party'
to'a'proceeding'to'foreclose'a'first'mortgage'on'real'property,'
he'is'not'an'indispensable'party,'because'a'valid'decree'may'
be'made,'as'between'the'mortgagor'and'the'first'mortgagee,'
without' regard' to' the' second' mortgagee;' but' the'
consequence' of' a' failure' to' make' the' second' mortgagee' a'
party' to' the' proceeding' is' that' the' lien' of' the' second'
mortgagee'on'the'equity'of'redempJon'is'not'affected'by'the'
decree'of'foreclosure.'
SAGUAN'v'PBCOM'
Facts:'
• Saguan'obtained'a'loan'of'3M'from'PBC'and'mortgaged'
his'5'lands.'
• Saguan'defaulted.'
• PBC' extrajudicially' foreclosed' the' property' and' won' as'
the'highest'bidder'in'the'aucJon'sale.'
• Because' Saguan' failed' to' redeem,' the' properJes' were'
consolidated' in' the' name' of' PBC' which' later' on' filed' a'
writ'of'possession.'
• Saguan'filed'an'opposiJon'since'PBC'failed'to'return'the'
excess'amount'of'the'extrajudicial'foreclosure'sale.'
• PBC' points' to' Saguan’s' remaining' unsecured' obligaJons'
with'the'former'to'which'the'excess'or'surplus'proceeds'
were'applied.'
Issue:''
1) WON'the'writ'of'possession'should'be'issued?'
2) WON'PBC'may'unilaterally'apply'the'excess'proceeds'to'
peJJoner’s'remaining'unsecured'obligaJons?'
Held:'
1) Yes.' A' writ' of' possession' is' an' order' enforcing' a'
judgment' to' allow' a' person’s' recovery' of' possession' of'
real'or'personal'property.'This'writ'may'be'issued'either'
1)'within'the'one1year'redempJon'period,'upon'filing'of'
the' bond,' 2)' aber' the' lapse' of' the' redempJon' period,'
without'the'need'of'a'bond.''
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''77'
 In'this'case,'the'issuance'of'RTC'of'a'writ'of'possession'in'
favor' of' PBC' is' proper' since' the' redempJon' period' has'
already'expired.'The'duty'of'the'trial'court'to'grant'a'writ'
of' possession' in' such' instances' is' ministerial,' and' the'
court' may' not' exercise' discreJon' or' judgment.' Even' if'
the'excess'proceeds'were'not'returned'to'the'peJJoner,'
the'writ'is'sJll'valid.''
A' party' may' file' a' peJJon' to' set' aside' the' foreclosure'
sale' to' cancel' the' writ' of' possession' in' the' same'
proceeding' where' the' writ' was' requested.' However,' in'
this'case,'peJJoners'do'not'challenge'the'validity'of'the'
foreclosure'only'the'contenJon'that'the'excess'proceeds'
were'not'returned'to'them.'
2) No.'The'foreclosure'of'peJJoner’s'properJes'was'meant'
to' answer' only' the' obligaJon' secured' by' the' mortgage.'
Even' if' the' peJJoners' have' remaining' obligaJons' with'
the'respondent,'these'obligaJons'were'not'collateralized'
by'the'foreclosed'mortgage.'
The'peJJoners’'remedy'lies'in'a'separate'civil'acJon'for'
collecJon' of' a' sum' of' money' and' not' an' acJon' to' set'
aside'the'foreclosure'sale.'
SUICO'v'CA'
QUIRINO'GONZALES'v'CA'
Facts:'PeJJoners'applied'for'credit'accommodaJons'with'
respondent'bank,'which'the'bank'approved'granJng'a'credit'
line'of'Php900,000.00.'PeJJoner’s'obligaJons'were'secured'
by'a'real'estate'mortgage'on'four'parcels'of'land.'Also,'
peJJoners'had'made'certain'advances'in'separate'
transacJons'from'the'bank'in'connecJon'with'QGLC’s'
exportaJon'of'logs'and'executed'a'promissory'note'in'1964.
 PIANO'v'CAYANONG'
Due'to'peJJoner’s'long'default'in'the'payment'of'their'
obligaJons'under'the'credit'line,'the'bank'foreclosed'the'
mortgage'and'sold'the'properJes'covered'to'the'highest'
bidder'in'the'aucJon.'Respondent'bank,'alleging'non1
payment'of'the'balance'of'QGLC’s'obligaJon'aber'the'
proceedings'of'the'foreclosure'sale'were'applied'and'non1
payment'of'promissory'notes'despite'repeated'demands,'
filed'a'complaint'for'sum'of'money'against'peJJoners.
 public'aucJon'on'Jan.'30,'1952(should'be'1953)'per'order'of'
PeJJoners,'on'the'other'hand,'asserted'that'the'complaint'
states'no'cause'of'acJon'and'assuming'that'it'does,'the'same'
is'barred'by'prescripJon'or'void'for'want'of'consideraJon.
 The' cerJficate' of' sheriff's' sale' contained' the' provision' that'


Issue:'Whether'or'not'the'cause'of'acJon'is'barred'by'
prescripJon.
 applicable'to'the'case."'On'March'11,'1953,'the'plainJffs'filed'
Held:'An'acJon'upon'a'wricen'contract,'an'obligaJon'created'
by'law,'and'a'judgment'must'be'brought'within'10'years'from'
the'Jme'the'right'of'acJon'accrues.

The'finding'of'the'trial'court'that'more'than'ten'years'had'
elapsed'since'the'right'to'bring'an'acJon'on'the'Bank’s'first'to'
sixth'causes'had'arisen'is'not'disputed.'The'Bank'contends,'
however,'that'the'noJces'of'foreclosure'sale'in'the'
foreclosure'proceedings'of'1965'are'tantamount'to'formal'
demands'upon'peJJoners'for'the'payment'of'their'past'due'
loan'obligaJons'with'the'Bank;'hence,'said'noJces'of'
foreclosure'sale'interrupted'the'running'of'the'prescripJve'
period.

The'Bank’s'contenJon'has'no'merit.'PrescripJon'of'acJons'is'
interrupted'when'they'are'filed'before'the'court,'when'there'
is'a'wricen'extrajudicial'demand'by'the'creditors,'and'when'
there'is'any'wricen'acknowledgment'of'the'debt'by'the'
debtor.

The'law'specifically'requires'a'wricen'extrajudicial'demand'by'
the'creditor'which'is'absent'in'the'case'at'bar.'The'contenJon'
that'the'noJces'of'foreclosure'are'tantamount'to'a'wricen'
extrajudicial'demand'cannot'be'appreciated,'the'contents'of'
said'noJces'not'having'been'brought'to'light.

But'even'assuming'that'the'noJces'interrupted'the'running'of'
the'prescripJve'period,'the'argument'would'sJll'not'lie'for'
the'following'reasons:

The'Bank'seeks'the'recovery'of'the'deficient'amount'of'the'
obligaJon'aber'the'foreclosure'of'the'mortgage.'Such'suit'is'
in'the'nature'of'a'mortgage'acJon'because'its'purpose'is'to'
enforce'the'mortgage'contract.'A'mortgage'acJon'prescribes'
aber'ten'years'from'the'Jme'the'right'of'acJon'accrued.

The'law'gives'the'mortgagee'the'right'to'claim'for'the'
deficiency'resulJng'from'the'price'obtained'in'the'sale'of'the'
property'at'public'aucJon'and'the'outstanding'obligaJon'
proceedings.'In'the'present'case,'the'Bank,'as'mortgagee,'had'
the'right'to'claim'payment'of'the'deficiency'aber'it'had'
foreclosed'the'mortgage'in'1965.'as'it'filed'the'complaint'only'
on'January'27,'1977,'more'than'ten'years'had'already'
elapsed,'hence,'the'acJon'had'then'prescribed.'
FACTS:' On' March' 17,' 1952,' the' plainJffs' commenced' an'
acJon'to'foreclose'a'mortgage'executed'by'the'defendant'in'
favor' of' the' plainJffs' upon' a' parcel' of' land.' The' parJes1
liJgant'submiced'a'compromise'agreement.'
The' defendant' failed' to' pay' the' obligaJon' within' the' period'
set' by' the' Court;' so' the' property' in' quesJon' was' sold' at'
the' court,' by' the' deputy' sheriff' of' Maasin,' Leyte,' to' the'
plainJffs,'they'being'the'only'bidders'for'P2,475.'
the' said' property' is' subject' "to' redempJon' within' one' year'
from' the' date' hereof' in' the' manner' provided' by' the' law'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''78'
a' moJon' for' the' confirmaJon' of' the' sale' executed' by' the'
sheriff,'which'was'unopposed'by'the'defendant.'The'sale'was'
confirmed'by'the'Court'on'March'21,'1953.'
Thereaber,'the'plainJffs'filed'a'peJJon'for'writ'of'possession;'
by'virtue'of'such'peJJon'the'court'adjudicated'possession'to'
the'plainJffs'on'Aug.'15,'1953.'On'Aug.'20,'1953,'the'deputy'
clerk'issued'the'writ'of'possesion'prayed'for'by'the'plainJffs.'
On'Jan.'26,'1954,'the'defendant'deposited'with'the'court'the'
sum' of' P2,783.93,' P2,772' of' which' was' in' the' concept' of'
redempJon' deposit' to' be' delivered' to' Generosa' Cayanong'
and'her'husband.'
The' oppositor' Francisco' Pilapil,' on' Feb.' 11,' 1954,' filed' an'
opposiJon' to' the' defendants'' moJon' of' Jan.' 26,' 1954,'
claiming' that' the' property,' subject' of' foreclosure,' having'
been' sold' at' a' judicial' foreclosure' sale,' was' not' subject' to'
redempJon'aber'the'judicial'sale'was'confirmed,'Jtle'thereto'
having' been' fully' vested' and' consolidated' in' favor' of'
Cayanong' and' Bellones,' their' assignees' and' successors1in1
interest.'
ISSUE:' Whether' the' property' subject' of' foreclosure,' having'
been' sold' at' a' judicial' foreclosure' sale' is' subject' to'
redempJon'aber'the'judicial'sale'was'confirmed.'
RULING:'
In' a' foreclosure' of' mortgage' under' Rule' 70' of' the' Rules' of'
Court,' there' is' no' right' of' redempJon' aber' the' sale' is'
confirmed,'although'there'is'an'equity'of'redempJon'in'favor'
of' the' mortgagor' or' junior' encumbrancer,' consisJng' in' the'
right' to' redeem' the' mortgaged' property' within' the' 901day'
period,'or'even'thereaber,'but'before'the'confirmaJon'of'the'
sale.'
It' is' only' in' cases' of' foreclosures' of' mortgages' in' favor' of'
banking' and' credit' insJtuJons' (Sec.' 76,' General' Banking' Act'
[Rep.' Act' 337]),' to' the' Philippine' NaJonal' Bank' (Acts' Nos.'
2747,'and'2938),'and'in'extrajudicial'foreclosures'(Act'3135'as'
amended'by'Act'4118),'where,'by'express'provision,'the'law'
allows'redempJon.'In'all'other'foreclosure'cases,'there'is'no'
legal'redempJon.''
The' sheriff,' therefore,' has' no' authority' to' grant' or' insert' a'
period'of'redempJon'in'the'cerJficate'of'sale,'when'the'same'
is' conducted' pursuant' to' Rule' 70' and,' wanJng' in' said'
authority,' any' inserJon' therein' has' no' validity' and' effect.'
Once'the'judicial'sale'is'confirmed'by'the'court,'the'rights'are'
vested'in'the'purchaser'(Sec.'3,'Rule'70).'
LANDRITO'v'CA'
FACTS:'
• P' obtained' a' loan' of' P350k' from' R' and' secured'
payment' by' execuJng' a' deed' of' real' estate'
mortgage' of' their' parcel' of' land' at' MunJnlupa;''
obtained'again'another'loan'P'1mill'and'was'granted'
by'R'with'an'amendment'of'real'estate'mortgage'
• P' defaulted' and' refused' to' comply' with' their'
obligaJon'despite'repeated'demands'
• R'filed'a'peJJon'for'the'extrajudicial'foreclosure'of'
the' mortgage.' Mortgaged' property' was' sold' in' a'
public'aucJon'with'R'as'highest'bidder.'R'registered'
sheriff’s'cerJficate'of'sale.'
• P'filed'a'complaint'for'annulment'of'the'extrajudicial'
foreclosure' and' aucJon' sale' and' alleged' that' said'
foreclosure' and' aucJon' sale' were' null' and' void' for'
failure' to' comply' with' requirements' of' noJce' and'
publicaJon;' the' mortgaged' property' was' illegally'
foreclosed;'applicaJon'for'consolidaJon'of'Jtle'was'
premature' because' the' R’s' Husband' granted' them'
an'extension'of'the'period'of'redempJon'
• TC' –' granted' R’s' MoJon' to' Dismiss;' acJon' already'
barred'by'laches.'CA'affirmed'
ISSUE:' WON' the' extrajudicial' foreclosure' and' public' aucJon'
sale'of'the'subject'parcel'of'land'are'valid'and'lawful?'
HELD:'YES'
• Records' indubitably' show' that' at' the' Jme' of' the'
foreclosure'sale'on'11'August'1993,'peJJoners'were'
already' in' default' in' their' loan' obligaJon' to'
respondent'Carmencita'San'Diego.'
• A'final'noJce'of'demand'for'payment'had'been'sent'
to' them,' despite' which' they' sJll' failed' to' pay.''
Hence,'respondent'Carmencita'San'Diego’s'resort'to'
extrajudicial' foreclosure,' provided' no' less' in' the'
parJes’'“Amendment'of'Real'Estate'Mortgage”.'
• The' rule' has' been,' and' sJll' is,' that' in' real' estate'
mortgage,' when' the' principal' obligaJon' is' not' paid'
when'due,'the'mortgagee'has'the'right'to'foreclose'
on' the' mortgage' and' to' have' the' mortgaged'
property' seized' and' sold' with' the' view' of' applying'
the' proceeds' thereof' to' the' payment' of' the'
obligaJon'
• IN' THIS' CASE:' The' validity' of' the' extrajudicial'
foreclosure' on' 11' August' 1993' was' virtually'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''79'
 confirmed' by' the' trial' court' when' it' dismissed'
peJJoners’'complaint,'and'rightly'so,'what'with'the'
fact' that' peJJoners' failed' to' exercise' their' right' of'
redempJon' within' the' 11year' period' therefor'
counted' from' the' registraJon' of' the' sheriff’s'
cerJficate'of'sale.'
• It'appears'from'the'evidence'on'record'that'despite'
due' noJce' and' publicaJon' of' the' same' in' a'
newspaper' of' general,' P' did' not' bother' to' acend'
the'foreclosure'sale'nor'raise'any'quesJon'regarding'
the'propriety'of'the'sale.'''
• It'was'only'on'November'9,'1994,'or'more'than'one'
year'from'the'registraJon'of'the'Sheriff’s'CerJficate'
of'Sale,'that'P'filed'the'instant'complaint.''Clearly,'P'
had'slept'on'their'rights'and'are'therefore'guilty'of'
laches,'which'is'defined'as'the'failure'or'neglect'for'
an' unreasonable' or' explained' length' of' Jme' to' do'
that' which,' by' exercising' due' diligence,' could' or'
should'have'been'done'earlier,'failure'of'which'gives'
rise' to' the' presumpJon' that' the' person' possessed'
of' the' right' or' privilege' has' abandoned' or' has'
declined'to'assert'the'same.'
• In'Lazo'v.'Republic'Surety'&'Insurance'Co.,'Inc.,'this'
Court' has' made' it' clear' that' it' is' only' where,' by'
voluntary' agreement' of' the' parJes,' consisJng' of'
extensions' of' the' redempJon' period,' followed' by'
commitment' by' the' debtor' to' pay' the' redempJon'
price' at' a' fixed' date,' will' the' concept' of' legal'
redempJon' be' converted' into' one' of' convenJonal'
redempJon.'
• IN'THIS'CASE:'There'is'no'showing'whatsoever'that'
peJJoners'agreed'to'pay'the'redempJon'price'on'or'
before' 11' November' 1994,' as' allegedly' set' by' Mrs.'
San' Diego’s' husband.' ' On' the' contrary,' their' act' of'
filing' their' complaint' on' 09' November' 1994' to'
declare' the' nullity' of' the' foreclosure' sale' is'
indicaJve' of' their' refusal' to' pay' the' redempJon'
price'on'the'alleged'deadline'set'by'the'husband.''At'
the' very' least,' if' they' so' believed' that' their' loan'
obligaJon' was' only' for' P1,000,000.00,' peJJoners'
should'have'made'an'offer'to'redeem'within'one'(1)'
year'from'the'registraJon'of'the'sheriff’s'cerJficate'
of'sale,'together'with'a'tender'of'the'same'amount.''
This,'they'never'did.'
METROBANK'v'TAN'
IBAAN'RURAL'BANK'v'CA'
RAMIREZ'v'CA'
FACTS:' One' Ronnie' Garcia' executed' a' first' mortgage' over' a'
parcel'of'land'in'favor'of'PNB'as'a'security'for'a'loan'granted'
by'PNB.'The'deed'was'registered'with'the'Register'of'Deeds'
and'annotated'in'the'Jtle'of'the'mortgaged'property.'During'
the' subsistence' of' the' first' mortgage,' Ronnie' executed' a'
second' mortgage' over' the' same' property' in' favor' of' private'
respondent' Marmeto' which' was' also' recorded' on' the' Jtle.'
For'failure'to'pay'his'loan,'PNB'extra1judicially'foreclosed'the'
mortgage' and' a' CerJficate' of' Sale' was' issued' in' its' favor' on'
Nov.' 8,' 1977.' The' second' mortgage' was' also' extra1judicially'
foreclosed' and' a' CerJficate' of' Sale' was' issued' in' favor' of'
Marmeto'on'June'27,'1978.'
On' February' 1980,' Ronnie' executed' a' “Waiver' and'
RenunciaJon' of' Rights”' with' respect' to' his' right' of'
redempJon'with'respect'to'the'first'mortgage'in'favor'of'his'
father.' The' lacer' assigned' his' right' to' peJJoner' Nimfa'
Ramirez,'who'in'turn'paid'the'total'redempJon'price'to'PNB'
which' accepted' it.' Meanwhile,' Ronnie' having' not' exercised'
his'right'of'redempJon'over'the'second'mortgage,'Marmeto'
filed' in' court' for' the' ConsolidaJon' of' Ownership' over' the'
mortgaged' property' to' which' peJJoner' Ramirez' filed' an'
adverse'claim.'
ISSUE:''
1. Whether' Ramirez' had' acquired' any' right' by' virtue'
of' her' having' redeemed' the' property' in' quesJon'
beyond'the'one1year'redempJon'period?'
2. What' will' be' the' effect' of' the' redempJon' by'
Ramirez'on'private'respondent'Marmeto?'
HELD:'
1. Yes,' by' accepJng' the' redempJon' price' aber' the'
statutory'period'for'redempJon'had'expired,'PNB'is'
considered' to' have' waived' the' one' (1)' year' period'
within' which' Ramirez' could' redeem' the' property.'
There' is' nothing' in' the' law' which' prevents' such' a'
waiver.'Allowing'a'redempJon'aber'the'lapse'of'the'
statutory'period,'when'the'buyer'at'the'foreclosure'
does' not' object' but' even' consents' to' the'
redempJon,'will'uphold'the'policy'of'the'law.'Thus,'
there' is' no' doubt' that' the' redempJon' made' by'
peJJoner'Ramirez'is'valid.'
2. The' rule' is' well' secled' that' a' second' mortgagee'
merely'takes'what'is'called'an'equity'of'redempJon'
and'thus'a'second'mortgagee'has'to'wait'unJl'aber'
the' debtor's' obligaJon' to' the' first' mortgagee' has'
been'fully'secled.'The'rights'of'a'second'mortgagee'
are' strictly' subordinate' to' the' superior' lien' of' the'
first' mortgagee.' In' the' case' at' bar,' the' proper'
foreclosure'of'the'first'mortgage'gave,'not'only'the'
first'mortgagor,'but'also'subsequent'lien'holders'like'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''80'
 Marmeto,' the' right' to' redeem' the' property' within'
the' statutory' period.' Marmeto' failed' to' make' the'
redempJon' but' instead' it' was' the' peJJoner' who'
made'such'redempJon.'
TOLENTINO'v'CA'
SPOUSES'OLIVEROS'v'PRESIDING'JUDGE'
FACTS:'
The' mortgagors' (P)' obtained' 2' loans' for' the' construcJon' of'
the'Cabuyao'Commercial'Complex'for'P58M'as'evidenced'by'
promissory' notes' from' Metrobank' (R).' To' secure' the' loans,'
Spouses'Oliveros'and'Nevalga'executed'a'Deed'of'Real'Estate'
Mortgage' in' favor' of' Metrobank' over' the' 3' parcels' of' land'
together' with' all' the' buildings' and' improvements' exisJng'
thereon.' Due' to' the' failure' of' mortgagors' to' pay' their' loan,'
Metrobank' insJtuted' an' EJF' over' the' Real' Estate' Mortgage.'
Metrobank' won' the' bid.' Mortgagors' failed' to' redeem' the'
property' hence,' Metrobank' consolidated' its' Jtle' to' the'
subject' property.' Metrobank' demanded' P' to' turn' over' the'
actual' possession' of' the' property' but' the' mortgagors' failed'
and' refused' to' do' so.' Metrobank' filed' a' writ' of' possession'
which'the'PeJJoner'Spouses'opposed'claiming'thata'pending'
case' was' in' another' court' for' nullificaJon' of' foreclosure'
proceedings.'
ISSUE:' WoN' a' writ' of' possession' is' proper' when' there' is' a'
pending'case'to'nullify'the'foreclosure'sale'
SC:'YES!'
- Metrobank'purchased'the'properJes'at'a'public'
aucJon'following'the'EJF'of'the'subject'properJes.'
CerJficate'of'sale'over'the'properJes'were'issued'in'
favor'of'Metrobank'and'registered'with'RD.'P'as'
mortgagors'failed'to'redeem'the'properJes'within'
the'1'year'period'of'redempJon'hence'Metrobank'
consolidated'its'ownership'over'the'subject'
properJes.'
- Metrobank'having'consolidated'its'Jtle'to'the'
mortgaged'properJes'is'even'more'enJtled'now'to'
possession'thereof'and'makes'more'unmistakable'
its'right'to'file'an'ex'parte'moJon'for'the'issuance'
of'a'writ'of'possession.'
- The'issuance'of'the'writ'of'possession'becomes'a'
mere'ministerial'duty'on'the'part'of'the'judge,'
regardless'of'WoN'there'is'a'pending'acJon'for'
nullificaJon'of'the'sale'at'public'aucJon'or'
foreclosure'itself'
CHINA'BANK'v'ORDINARIO'
FACTS:''
1)''PeJJoner'ChinaBank'granted'3'loans'to'TransAmerican'
owned'by'spouses'Garcia,'secured'by'real'estate'mortgages'
consJtuted'by'Jesus'Garcia'45'parcels'of'land'The'contracts'of'
mortgage'were'all'registered'in'the'same'Registry.'
Subsequently'for'failure'of'TransAmerican'to'pay'its'loans,'
Chinabank'foreclosed'extrajudicially'the'three'real'estate'
mortgages'which'were'then'sold'at'public'aucJon'for'
P38,004,205.01'to'the'same'bank.'The'CerJficate'of'Sale'was'
then'registered'in'the'Registry'of'Deeds'of'Quezon'City.'
2)'Thereaber'Chinabank''filed'with'the'RTC'a''peJJon'for'
issuance'of'a'writ'of'possession,'which'was'granted,'thus''
placing'Chinabank'in'possession'of'the'45'parcels'of'land.'
Then,'spouses'Ordinario,'filed'a'moJon'for'reconsideraJon'
praying'that'the'parcel'of'land'be'excluded'from'the'above'
order'alleging,'that'they'purchased'the'land'covered'on'which'
was'constructed'their'townhouse'and'that'the'mortgage'
foreclosure'cannot'prevail'over'their'superior'right'as'
legiJmate'buyers'of'the'area.'
3)'To'this,'Chinabank'filed'its'opposiJon'to'respondents’'
moJon'for'reconsideraJon.'The'trial'court'denied'Sps'
Ordinario’s'moJon'for'reconsideraJon.'On'appeal,'this'was'
overturned'by'the'CA.'
HELD:''
A)'Under'SecJon'7'of'Act'No.'3135,'the'purchaser'in'a'
foreclosure'sale'is'enJtled'to'possession'of'the'property.''
Thus'the'writ'prayed'for'by'peJJoner'granJng'it'possession'
has'to'be'issued'as'a'macer'of'course,'being'a'ministerial'
duty'of'the'trial'court'to'grant'such'writ'of'possession.'No'
discreJon'is'leb'for'the'trial'court.''
B)'Under'the'Rules'of'Court'a'third1party'claimant'or'a'
stranger'to'the'foreclosure'suit,'like'respondents'herein,'can'
opt'to'file'a'remedy'known'as'terceria'against'the'sheriff'or'
officer'effecJng'the'writ'by'serving'on'him'an'affidavit'of'his'
Jtle'and'a'copy'thereof'upon'the'judgment'creditor.'By'the'
terceria,'the'officer'shall'not'be'bound'to'keep'the'property'
and'could'be'answerable'for'damages.'A'third1party'claimant'
may'also'resort'to'an'independent'"separate'acJon,"'the'
object'of'which'is'the'recovery'of'ownership'or'possession'of'
the'property'seized'by'the'sheriff,'as'well'as'damages'arising'
from'wrongful'seizure'and'detenJon'of'the'property'despite'
the'third1party'claim.'If'a'"separate'acJon"'is'the'recourse,'
the'third1party'claimant'must'insJtute'in'a'forum'of'
competent'jurisdicJon'an'acJon,'disJnct'and'separate'from'
the'acJon'in'which'the'judgment'is'being'enforced,'even'
before'or'without'need'of'filing'a'claim'in'the'court'that'
issued'the'writ.'Both'remedies'are'cumulaJve'and'may'be'
availed'of'independently'of'or'separately'from'the'other.'
Availment'of'the'terceria'is'not'a'condiJon'sine'qua'non'to'
the'insJtuJon'of'a'"separate'acJon."'
C)'In'essence,'the'Court'of'Appeals'commiced'palpable'error'
when'it'granted'Spouses'Ordinario’s'moJon'for'
reconsideraJon'and'set'aside'the'orders'dated'April'10,'1991'
and'September'21,'1992'of'the'RTC.'Thus,'the'appealed'
Decision'and'ResoluJon'of'the'Court'of'Appeals'are'
REVERSED'and'SET'ASIDE.'The'orders'of'the'RTC,'Branch'90,'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''81'
Quezon'City,'direcJng'the'issuance'of'a'writ'of'possession'in'
favor'of'peJJoner'bank'are'AFFIRMED.'
ANTICHRESIS'
DELA'VEGA'v'BALLILOS'
BARRETTO'v'BARRETTO'
Facts:'
• Aber'the'death'of'Juan'Antonio'Barreco,'Sr.,'his'son'Juan'
Antonio'Grandpre,'in'his'own'behalf'and'as'the'executor'
of' his' father,' mortgaged,' the' culJvated' half' of' said'
hacienda'in'favor'of'Antonio'Vicente'Barreco'as'security'
for' the' amount' of' P11,000' which' the' lacer' loaned' to'
him.''
• By'verbal'agreement,'Antonio'will'collect'his'credit'from'
the'products'of'the'property.''
• His' three' children' and' heirs' Antonio' Ma' Barreco,'
Ricardo'Esteban'Barreco,'and'Guadalupe'Barreco'came'
to'succeed'aber'the'death'of'Antonio.''
• Guadalupe' made' a' donaJon' inter' vivos' in' favor' of' the'
plainJff'Alberto'Barreco'of'the'undivided'one1third'part'
of'the'hypothecary'credit'and'of'the'rights'belonging'to'
her' deceased' father' Antonio' Vicente' Barreco,' assigning'
to'the'donee'all'the'rights'and'acJons'which'she'might'
have'in'the'foreclosure'proceedings'exhibited'at'the'trial'
of' the' present' acJon,' on' the' condiJon' that' as' soon' as'
the' donee' Alberto' Barreco' could' collect' the' said' one1
third'part'of'the'credit'or'should'obtain'the'assignment'
of'the'property'of'the'debtor,'he'would'divide'what'was'
donated,'into'nine'equal'parts'among'the'donee'himself'
and'six'living'brothers'and'the'heirs'of'their'two'brothers'
now'dead,'each'receiving'one1ninth'part.'
• Alberto'Barreco,'complying'with'the'condiJon'imposed'
in' said' document' of' the' donaJon' paid' to' each' of' his'
brothers' and' nephews,' and' in' exchange' for' the' sums'
received' as' such' price' his' co1donees' assigned' and'
conveyed' to' him' one1eight' part' of' the' third' of' the' said'
hacienda'and'whatever'rights'and'interests'the'grantors'
might'have'by'virtue'of'the'said'donaJon'in'favor'of'the'
plainJff'Barreco.''
• It' is' to' be' noted' that' the' plainJff' bought' one1eight'
undivided' part' of' the' third' of' the' whole' hacienda' of'
Balintagac' and' paid' to' every' claimant' the' price' of' the'
eight'part'sold'to'him.'The'third'part'of'the'ownership'of'
the' hacienda' was' transferred' to' the' plainJff' by' the'
donor'Guadalupe'Barreco.'
• Antonio' and' Ricardo,' as' grantors,' sold' and' conveyed' all'
their' rights' and' acJons' included' and' derived' from' the'
said' hypothecary' credit' for' the' price' of' P14,000' which'
would'be'paid'by'the'grantee'and'vendee'by'installments'
and'in'the'manner'prescribed'in'the'said'deed,'assigning'
to'him,'besides,'all'the'rights'which'the'said'brothers'had'
over'the'two1third'parts'of'the'said'hacienda.'
Issue:'WON'there'was'a'transfer'of'ownership'to'Alberto?'
Held:''
No.' the' plainJff' did' not' obtain' by' assignment,' sale,' or'
transfer,'as'expressed'in'said'deeds,'the'ownership'of'the'said'
hacienda'of'Balintagac,'but'only'the'hypothecary'credit'which'
the' heirs' of' the' deceased' creditor' Antonio' Vicente' Barreco'
had'inherited'from'the'lacer,'aber'the'plainJff'had'obtained'
from' his' other' brothers' the' conveyance' of' their' respecJve'
rights'to'the'donaJon.'
The' rights' acquired' by' the' creditor' were' transmiced' by'
hereditary' Jtle' through' operaJon' of' law' to' the' heirs' of' the'
same'Antonio'M.a,'Ricardo'Esteban,'and'Guadalupe,'Barreco'
y'Rocha'and'these'in'turn'assigned,'sold'and'transferred'the'
credit'with'all'their'rights'as'hypothecary'creditors,'as'well'as'
the' right' to' the' usufruct' of' all' the' hacienda' of' Balintagac' to'
the'plainJff'Alberto'Barreco.'
When'in'the'record'of'an'acJon'it'is'fully'established'that'the'
parJes'indebted'in'a'certain'amount,'which'is'secured'with'a'
mortgage' over' ½' of' their' hacienda,' having' delivered' to' the'
creditor'not'only'the'mortgaged'half'but'the'whole'hacienda,'
not'in'the'nature'of'an'assignment'of'property'in'payment'of'
a'debt,'sJll'unpaid,'but'with'the'object'that'the'creditor'may'
collect'by'means'of'usufruct'his'credit'and'the'interest'agreed'
upon,' the' verbal' contract' which' is' inferred' from' such' facts'
and' presumed' to' have' been' entered' into' between' the'
parJes,' although' not' set' in' any' document,' deserves' in' law'
the'name'of'anJchresis'as'defined'in'ArJcle'1881'of'the'Civil'
Code.'
By' the' anJchresis' a' creditor' acquires' a' right' to'
receive' the' fruits' of' real' property' of' his' debtor,'
with'the'obligaJon'to'apply'them'to'the'payment'
of' the' interest,' if' due,' and' aberwards' to' the'
principal'of'his'credit.'
The'creditor'in'anJchresis'cannot'by'mere'possession'of'the'
real' property' which' he' received' by' virtue' of' an' anJchresis'
acquire'ownership'over'the'same'for'failure'of'the'debtor'to'
pay'the'debt'within'the'sJpulated'Jme,'any'agreement'to'the'
contrary' being' void;' and' the' debtor' on' his' part' cannot'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''82'
recover'the'enjoyment'and'use'of'the'real'property'given'in'
anJchresis'to'the'creditor,'without'having'previously'paid'the'
lacer' all' his' debt' and' interests' thereon,' the' creditor' being'
enJtled'to'ask'the'courts'that'the'said'real'property'be'sold'
to'saJsfy'his'credit.'
With' regard' to' prescripJon,' the' creditor' in' anJchresis' can'
never' by' prescripJon' acquire' the' ownership' of' the' real'
property' received' in' anJchresis,' as' he' entered' into' the'
possession'of'the'same'not'as'an'owner'but'as'a'creditor'with'
right' only' to' collect' his' credit' from' the' fruits' of' said' real'
property.'
The' exJnguishment' of' the' right' as' creditor' and' the'
terminaJon' of' his' use' and' possession' of' the' real' property'
given'in'anJchresis'depend'upon'the'full'payment'of'the'debt'
and'its'interests,'aber'the'liquidaJon'of'the'amounts'entered'
on'the'account'of'the'debtors'and'received'by'the'creditor.'
LEGAZPI'&'SALCEDO'v'CELESTIAL'
ANGELES'v'SEC.'OF'JUSTICE'
PANDO'v'GIMENEZ'
FACTS:' This' acJon' was' insJtuted' for' the' purpose' of'
foreclosing' a' mortgage' executed' by' defendant' Antonio'
Gimenez.' Massy' Teague' was' also' impleaded' for' having'
purchased'at'public'aucJon'one'of'the'mortgaged'properJes.'
In' order' to' secure' the' payment' of' P8,000' which' the'
defendant' Gimenez' owed' the' plainJff,' he' mortgaged' the'
house'at'No.'655'Santa'Mesa,'Manila,'and'the'leasehold'right'
on'the'lot'upon'which'it'stands'(Exhibit'A).'This'was'payable'
on' October' 27,' 1925,' but,' in' spite' of' nonpayment,' the'
creditor,' who' is' the' plainJff' herein,' did' not' foreclose' the'
mortgage.''
The' defendant' was' leaving' the' City' of' Manila' in' order' to'
acend'to'his'business'in'the'Province'of'Cagayan,'and'at'the'
special' instance' and' request' of' the' herein' plainJff,' said'
defendant'gave'to'the'plainJff'the'full'control,'and'complete'
and'absolute'administraJon'of'the'building'and'the'parcel'of'
land' on' which' said' building' was' erected,' situated' in' Santa'
Mesa,'District'of'Santa'Mesa,'mortgaged'to'the'plainJffIt'and'
it' was' agreed' between' them' that' the' plainJff' would' collect'
the' rents' of' said' house,' in' order' to' apply' them' to' the'
payment'of'interest'on'the'amount'of'the'indebtedness.''
For' default' in' the' payment' of' taxes' for' the' years' 1925' and'
1926,' the' house' was' on' November' 23,' 1926' sold' at' public'
aucJon,' and,' for' failure' to' exercise' the' right' of' legal'
redempJon,' the' City' of' Manila,' the' acachment' creditor' and'
vendor'of'the'property,'executed'a'final'deed'of'sale'in'favor'
of'the'purchaser,'the'other'defendant'Massy'Teague.''
Furthermore,'for'default'in'the'payment'of'the'rents'due'on'
the' lot' of' said' house' for' the' years' 1925' to' 1928,' the' Santa'
Mesa' estate,' the' lessor' of' said' land,' cancelled' the' lease' on'
July'13,'1928,'pursuant'to'the'terms'of'the'contract.''
The' appellant' Gimenez' contends' that' the' plainJff' was'
responsible' for' the' delinquency' in' the' payment' of' both' the'
tax' on' the' house' and' the' rent' of' the' lot,' which' caused' him'
the'loss'of'the'said'house'and'the'leasehold'right'on'the'lot,'
because' the' plainJff' was' at' that' Jme' in' charge' of' the'
administraJon' of' the' premises' with' the' obligaJon' to' acend'
to'the'payment'of'the'tax'and'the'rents.''
The'plainJff'denied'that'he'had'such'obligaJon,'alleging'that'
his'duJes'were'confined'to'the'collecJon'of'the'rents'of'the'
house'in'order'to'apply'them'to'the'payment'of'the'interest'
on'the'mortgage.'
Such' was' in' fact' the' original' agreement;' but' the' appellant'
asserts'that'it'was'modified'by'the'lecer.'
ISSUE:'Whether'or'not'the'the'administraJon'of'the'property'
in' quesJon' assumed' by' the' plainJff' toward' the' end' of'
October,'1925'is'anJchreJc'in'character.'
RULING:'
Taking' into' account' the' language' of' the' lecer' Exhibit' 1' and'
the' appellant's' unimpeached' tesJmony,' we' are' constrained'
to' hold' that' it' has' been' proved' by' a' preponderance' of'
evidence,' that' even' though' at' first' the' plainJff' had' only'
undertaken' to' collect' the' rents' of' the' house,' later' on,'
towards'the'end'of'October,'1925,'he'assumed'the'obligaJon'
to'pay'both'the'tax'on'the'house,'and'the'rent'of'the'lot.''
As' to' the' consideraJon' contained' in' the' judgment' appealed'
from'to'the'effect'that,'in'view'of'the'reducJon'of'the'rent'of'
the'house'in'May,'1926,'the'plainJff'would'not'have'accepted'
the' administraJon' under' the' condiJons' alleged' by' the'
defendant1appellant,'it'must'be'remembered'that'the'plainJff'
took' over' such' complete' administraJon' months' before' such'
reducJon'of'rents,'and'it'does'not'appear'that'the'reducJon'
was'foreseen.''
From' all' these' circumstances' it' follows' that' the'
administraJon' of' the' property' in' quesJon' assumed' by' the'
plainJff' toward' the' end' of' October,' 1925' is' anJchreJc' in'
character,' and' therefore' jusJce' and' equity' demand' that'
applicaJon' be' here' made' of' the' Civil' Code' provisions'
touching'the'obligaJons'of'the'anJchreJc'creditor,'to'wit:''
The'creditor'is'obliged'to'pay'the'taxes'and'charges'
which' burden' the' estate,' in' the' absence' of' an'
agreement'to'the'contrary.''
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''83'
 He' shall' also' be' obliged' to' pay' any' expenses'
necessary'for'its'preservaJon'and'repair.''
Any'sums'he'may'expend'for'such'purposes'shall'be'
chargeable'against'the'fruits.'(Art.'1882,'Civil'Code.)'
These'obligaJons'arise'from'the'very'nature'of'the'covenant,'
and' are' correlated' with' the' plainJff's' acquired' right' to' take'
charge'of'the'property'and'collect'the'fruits'for'himself.''
PERALTA'v'QUIMPO'
51'OG'No.'3'p.'1383,'Sept'1954'
NO'COPY'AVAILABLE'
VILLANUEVA'v'IPONDO'
CHATTEL'MORTGAGE'
ALEMAN'v'CATERA'
ALLIED'BANK'v'SALAS'
FACTS:' PeJJoner1bank' (through' peJJoner’s' predecessor)'
granted'Gencor'MarkeJng,'Inc.'a'Jme'loan'and'was'secured'
by' a' Deed' of' Chacel' Mortgage' over' certain' prinJng'
machineries'and'equipments;'said'deed'was'recorded'in'the'
Chacel' Mortgage' Registry' in' Feb.' 7,' 1974.' Gencor' failed' to'
pay' prompJng' peJJoner' to' extra' judicially' foreclose' the'
mortgage' and' requested' the' Sheriff' of' Quezon' City' to' effect'
the'said'foreclosure.'Upon'issuance'of'the'NoJce'of'Sheriff’s'
sale,'private'respondent'filed'a'moJon'in'court'to'enjoin'the'
public' aucJon' alleging' that' the' properJes' have' been'
previously'levied'and'acached'by'the'Sheriff'of'Rizal.''
Metrobank'is'a'creditor'of'Gencor’s'president'and'claims'the'
properJes' as' the' exclusive' property' of' the' president' doing'
business'under'the'firm'name'of'Gencor'PrinJng'and'as'such'
may'not'be'foreclosed'and'sold'at'aucJon.'During'the'trial'it'
was' admiced' by' peJJoner' that' the' properJes' belonged' to'
the'president'and'not'to'Gencor.'
ISSUE:' WHO' between' the' two' claimants' has' a' becer' right'
over'the'property.'
HELD:'PeJJoner'has'the'becer'right.'Even'though'peJJoner'
admiced' that' it' was' the' president' and' not' gencor' who'
owned' the' properJes,' the' Court' nevertheless' finds' that' the'
chacel' mortgage' over' the' prinJng' machineries' and'
equipment'was'raJfied'and'approved'by'Clarencio'Yujuico.'As'
earlier' stated' and' as' pointed' out' by' peJJoner,' it' was'
Clarencio'Yujuico'as'president'of'Gencor'MarkeJng,'Inc.,'who'
signed'the'promissory'note'evidencing'the'Jme'loan'granted'
by'peJJoner's'predecessor'General'Bank'and'Trust'Company'
in'favor'of'Gencor'MarkeJng,'Inc.''
Finding' the' chacel' mortgage' to' be' valid,' the' Court' takes'
special' note' of' the' fact' that' said' chacel' mortgage' was'
registered'and'duly'recorded'in'the'Chacel'Mortgage'Registry'
of' Quezon' City' on' February' 7,' 1974,' prior' to' April' 22,' 1977,'
the'date'the'writ'of'acachment'of'the'properJes'in'quesJon'
was'issued.'This'is'a'significant'factor'in'determining'who'of'
two' contending' claimants' should' be' given' preference' over'
the'same'properJes'in'quesJon.''
The' registraJon' of' the' chacel' mortgage' more' than' three'
years' prior' to' the' writ' of' acachment' issued' by' respondent'
judge' is' an' effecJve' and' binding' noJce' to' other' creditors' of'
its' existence' and' creates' a' real' right' or' a' lien,' which' being'
recorded,' follows' the' chacel' wherever' it' goes.' 7' The' chacel'
mortgage' lien' acaches' to' the' property' wherever' it' may' be.'
Thus,' private' respondent' as' acaching' creditor' acquired' the'
properJes'in'quesJon'subject'to'peJJoner's'mortgage'lien'as'
it'existed'thereon'at'the'Jme'of'the'acachment.''
In'this'regard,'it'must'be'stressed'that'the'right'of'those'who'
so'acquire'said'properJes'should'not'and'cannot'be'superior'
to'that'of'the'creditor'who'has'in'his'favor'an'instrument'of'
mortgage'executed'with'the'formaliJes'of'law,'in'good'faith,'
and'without'the'least'indicaJon'of'fraud.'8''
Applying'the'foregoing'principle'to'the'case'at'bar,'the'Court'
finds' the' lien' of' peJJoner's' chacel' mortgage' over' the'
mortgaged' properJes' in' quesJon' superior' to' the' levy' on'
acachment' made' on' the' same' by' private' respondent' as'
creditor'of'chacel'mortgagor'Clarencio'Yujuico.'What'may'be'
acached' by' private' respondent' as' creditor' of' said' chacel'
mortgagor' is' only' the' equity' or' right' of' redempJon' of' the'
mortgagor.'
MAKATI'LEASING'v'WEAREVER'TEXTILES'
TSAI'v'CA'
FACTS:'
- Ever' TexJle' (R)' obtained' a' P3M' loan' from' PBCOM'
(P),' with' Real' Property' and' Chacel' Mortgage' over'
the' lot,' where' its' factory' stands' and' the' chacels'
located' therein' as' enumerated' in' its' acached'
schedule'
- A' 2nd' loan' was' obtained' secured' by' a' Chacel'
Mortgage' over' personal' properJes' listed' in' its'
acached'list,'which'is'similar'to'the'acached'list'to'
the'1st'mortgage.'
- On' the' same' date' of' the' 2nd' loan,' R' purchased'
various'machines'and'equipments'
- Later,'R'filed'insolvency'proceedings'
- P' commenced' an' extrajudicial' foreclosure' (EJF),'
wherein' P' won' the' bid' and' the' properJes' were'
leased' and' later' sold' to' Tsai.' P' sold' the' factory,'
properJes'and'the'contested'machineries'of'R.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''84'
 - R' filed' for' annulment' of' sale' contending' that' the'
machineries' bought' by' R' which' are' not' included' in'
the'list'should'be'excluded'from'the'sale'to'TSAI'
- P' contended' that' the' machineries,' which' are'
connected' to' the' land,' are' part' of' the' real' estate'
stated'in'the'Mortgage.'
- RTC'and'CA'ruled'in'favor'of'R.'
ISSUE:'WoN'the'contested'machineries'(property'bought'by'R'
on' the' same' day' that' the' 2nd' loan' was' executed)' should' be'
inlcluded'in'the'aucJon'sale'and'sale'to'TSAI'
SC:'NO!'
- Based'on'the'pieces'of'evidence,'the'true'intenJon'
of' P' and' R' is' to' treat' machinery' and' equipment' as'
chacels.'
- The'controverted'machineries'are'not'covered'by'or'
included'in'either'of'the'2'mortgages'
- The'machineries'were'not'included'in'the'NoJce'of'
Sale''
- An' immovable' may' be' considered' a' personal'
property'if'there'is'a'sJpulaJon'as'when'it'is'used'as'
security' in' the' payment' of' an' obligaJon' where' a'
chacel' mortgage' is' executed' over' it,' as' in' the' case'
at'bar.'
DOCTRINE:'a'chacel'mortgage'shall'be'deemed'to'cover'only'
the' property' described' therein' and' not' like' or' subsJtuted'
property'thereaber'acquired'by'the'mortgagor'and'placed'in'
the'same'depository'as'the'property'originally'mortgaged.'
ACME'SHOE'v'CA'
FACTS:''
1)'PeJJoner'Chua'Pac,'the'president'and'general'manager'of'
co1peJJoner'Acme'Shoe,'executed'on'June'1978,'for'and'in'
behalf'of'the'company,'a'chacel'mortgage'in'favor'of'private'
respondent'Producers'Bank'of'the'Philippines'as'security'for'
peJJoner's'corporate'loan'of'P3,000,000.00.'It'was'stated'
that:''
“In'case'the'MORTGAGOR'executes'subsequent'promissory'
note'or'notes'either'as'a'renewal'of'the'former'note,'as'an'
extension'thereof,'or'as'a'new'loan,'or'is'given'any'other'kind'
of'accommodaJons'such'as'overdrabs,'lecers'of'credit,'
acceptances'and'bills'of'exchange,'releases'of'import'
shipments'on'Trust'Receipts,'etc.,'this'mortgage'shall'also'
stand'as'security'for'the'payment'of'the'said'promissory'note'
or'notes'and/or'accommodaJons'without'the'necessity'of'
execuJng'a'new'contract'and'this'mortgage'shall'have'the'
same'force'and'effect'as'if'the'said'promissory'note'or'notes'
and/or'accommodaJons'were'exisJng'on'the'date'thereof.'
This'mortgage'shall'also'stand'as'security'for'said'obligaJons'
and'any'and'all'other'obligaJons'of'the'MORTGAGOR'to'the'
MORTGAGEE'of'whatever'kind'and'nature,'whether'such'
obligaJons'have'been'contracted'before,'during'or'aber'the'
consJtuJon'of'this'mortgage”'
2)'On'10'and'11'January'1984,'the'bank'yet'again'extended'to'
peJJoner'corporaJon'a'loan'of'P1,000,000.00'covered'by'
four'promissory'notes'for'P250,000.00'each.'Due'to'financial'
constraints,'the'loan'was'not'secled'at'maturity.''The'bank'
then'applied'for'an'extra'judicial'foreclosure'of'the'chacel'
mortgage,'with'the'Sheriff'of'prompJng'Acme'to'file'an'
injuncJon,'which'was'dismissed.'The'court'also'ordered'the'
foreclosure'of'the'chacel'mortgage.'It'held'peJJoner'
corporaJon'bound'by'the'sJpulaJons.'
ISSUE:'Whether'it'is'valid'and'effecJve'to'have'a'clause'in'a'
chacel'mortgage'that'purports'to'likewise'extend'its'coverage'
to'obligaJons'yet'to'be'contracted'or'incurred.'
HELD:''
A)'Contracts'of'security'are'either'personal'or'real.'In'
contracts'of'personal'security,'such'as'a'guaranty'or'a'
suretyship,'the'faithful'performance'of'the'obligaJon'by'the'
principal'debt'or'is'secured'by'the'personal'commitment'of'
another.''
B)'In'contracts'of'real'security,'such'as'a'pledge,'a'mortgage'
or'an'anJchresis,'that'fulfillment'is'secured'by'an'
encumbrance'of'property'—'in'pledge,'the'placing'of'movable'
property'in'the'possession'of'the'creditor;'in'chacel'
mortgage,'by'the'execuJon'of'the'corresponding'deed'
substanJally'in'the'form'prescribed'by'law;'in'real'estate'
mortgage,'by'the'execuJon'of'a'public'instrument'
encumbering'the'real'property'covered'thereby;'and'in'
anJchresis,'by'a'wricen'instrument'granJng'to'the'creditor'
the'right'to'receive'the'fruits'of'an'immovable'property'with'
the'obligaJon'to'apply'such'fruits'to'the'payment'of'interest,'
if'owing,'and'thereaber'to'the'principal'of'his'credit'—'upon'
the'essenJal'condiJon'that'if'the'obligaJon'becomes'due'and'
the'debtor'defaults,'then'the'property'encumbered'can'be'
alienated'for'the'payment'of'the'obligaJon,'but'that'should'
the'obligaJon'be'duly'paid,'then'the'contract'is'automaJcally'
exJnguished'proceeding'from'the'accessory'character'8'of'the'
agreement.''
C)'While'a'pledge,'real'estate'mortgage,'or'anJchresis'may'
secure'aber1incurred'obligaJons'so'long'as'these'future'debts'
are'accurately'described,'a'chacel'mortgage,'can'only'cover'
obligaJons'exisJng'at'the'Jme'the'mortgage'is'consJtuted.''
D)'Although'a'promise'expressed'in'a'chacel'mortgage'to'
include'debts'that'are'yet'to'be'contracted'can'be'a'binding'
commitment'that'can'be'compelled'upon,'the'security'itself,'
however,'does'not'come'into'existence'or'arise'unJl'aber'a'
chacel'mortgage'agreement'covering'the'newly'contracted'
debt'is'executed'either'by'concluding'a'fresh'chacel'
mortgage'or'by'amending'the'old'contract.'Refusal'on'the'
part'of'the'borrower'to'execute'the'agreement'so'as'to'cover'
the'aber1incurred'obligaJon'can'consJtute'an'act'of'default'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''85'
on'the'part'of'the'borrower'of'the'financing'agreement' • The' trial' court' rendered' judgment' in' favor' of' MFS' and'
whereon'the'promise'is'wricen'but'the'remedy'of'foreclosure' asked' Coralina' to' pay' the' unpaid' balance' and' foreclose'
can'only'cover'the'debts'extant'at'the'Jme'of'consJtuJon' the'chacel'mortgage.'
and'during'the'life'of'the'chacel'mortgage'sought'to'be' • Colarina' appealed' to' the' Regional' Trial' Court' which'
foreclosed.' affirmed'in'toto'the'decision'of'the'MTCC.'
• CA' reversed' the' decision' of' MTCC' and' RTC' staJng' that'
E)'A'chacel'mortgage,'as'hereinbefore'so'inJmated,'must'
MTC'and'the'RTC'erred'in'ordering'the'defendant'to'pay'
comply'substanJally'with'the'form'prescribed'by'the'Chacel'
the'unpaid'balance'of'the'purchase'price'of'the'subject'
Mortgage'Law'itself.'One'of'the'requisites,'under'SecJon'5'
vehicle'irrespecJve'of'the'fact'that'the'instant'complaint'
thereof,'is'an'affidavit'of'good'faith.'The'fact,'.that'the'statute'
was'for'the'foreclosure'of'its'chacel'mortgage.''
has'provided'that'the'parJes'to'the'contract'must'execute'an'
oath'that'“the'mortgage'is'made'for'the'purpose'of'securing'
Issue:''
the'obligaJon'specified'in'the'condiJons'thereof,'and'for'no'
other'purpose,'and'that'the'same'is'a'just'and'valid'
1) WON' MFS' can' avail' of' the' two' remedies,' payment' of'
obligaJon,'and'one'not'entered'into'for'the'purpose'of'fraud”'
unpaid'balance'and'foreclosure'of'chacel'mortgage?'
means'that'the'debt'referred'to'in'the'law'is'a'current,'not'an'
2) WON'there'was'actual'foreclosure?'
obligaJon'that'is'yet'merely'contemplated.''
F)'In'the'chacel'mortgage'here'involved,'the'only'obligaJon'
specified'in'the'chacel'mortgage'contract'was'the' Held:'
P3,000,000.00'loan'which'peJJoner'corporaJon'later'fully'
paid.'By'virtue'of'SecJon'3'of'the'Chacel'Mortgage'Law,'the' 1) No.'ArJcle'1484,'paragraph'3,'provides'that'if'the'vendor'
payment'of'the'obligaJon'automaJcally'rendered'the'chacel' has' availed' himself' of' the' right' to' foreclose' the' chacel'
mortgage'void'or'terminated.'In'other'words,'“A'mortgage' mortgage,' he' shall' have' no' further' acJon' against' the'
that'contains'a'sJpulaJon'in'regard'to'future'advances'in'the' purchaser'to'recover'any'unpaid'balance'of'the'purchase'
credit'will'take'effect'only'from'the'date'the'same'are'made' price.' Any' agreement' to' the' contrary' shall' be' void.' In'
and'not'from'the'date'of'the'mortgage.”' other' words,' in' all' proceedings' for' the' foreclosure' of'
chacel'mortgages'executed'on'chacels'which'have'been'
sold'on'the'installment'plan,'the'mortgagee'is'limited'to'
CERNA'v'CA'
the'property'included'in'the'mortgage.'
MAGNA'FINANCIAL'v'COLARINA'
PeJJoner' resolutely' declared' that' it' has' opted' for' the'
remedy'provided'under'ArJcle'1484(3)'of'the'Civil'Code,'
Facts:'
that'is,'to'foreclose'the'chacel'mortgage.'The'peJJoner’s'
• Elias' Colarina' bought' on' installment' from' Magna' prayer' contains' two' remedies,' payment' of' unpaid'
Financial'Services'(MFS)'one'Suzuki'MulJcab.' balance' and' foreclosure' of' chacel' mortgage.' Such' a'
• Aber' making' a' down' payment,' Colarina' executed' a' scheme' is' not' only' irregular' but' is' a' flagrant'
promissory'note'for'the'balance'of'P229,284.00'payable' circumvenJon' of' the' prohibiJon' of' the' law.' By' praying'
in' 36' equal' monthly' installments.' To' secure' payment,' for' the' foreclosure' of' the' chacel,' Magna' Financial'
Colarina' executed' an' integrated' promissory' note' and' Services' Group,' Inc.' renounced' whatever' claim' it' may'
deed'of'chacel'mortgage'over'the'motor'vehicle.' have'under'the'promissory'note.'
• Colarina' failed' to' pay' the' monthly' amorJzaJon'
2) No.'In'the'case'at'bar,'there'is'no'dispute'that'the'subject'
accumulaJng'an'unpaid'balance'of'P131,607.00.''
• vehicle' is' already' in' the' possession' of' the' peJJoner,'
Despite' repeated' demands,' he' failed' to' make' the'
Magna' Financial' Services' Group,' Inc.' However,' actual'
necessary'payment.''
• foreclosure' has' not' been' pursued,' commenced' or'
MFS' filed' a' Complaint' for' Foreclosure' of' Chacel'
concluded' by' it.' Where' the' mortgagee' elects' a' remedy'
Mortgage'with'Replevin.'
• of'foreclosure,'the'law'requires'the'actual'foreclosure'of'
Upon' the' filing' of' a' Replevin' Bond,' a' Writ' of' Replevin'
the' mortgaged' chacel.' It' is' the' actual' sale' of' the'
was'issued.'Summons,'together'with'a'copy'of'the'Writ'
mortgaged' chacel' that' would' bar' the' creditor' (who'
of' Replevin,' was' served' on' Colarina' who' voluntarily'
chooses' to' foreclose)' from' recovering' any' unpaid'
surrendered' physical' possession' of' the' vehicle' to' the'
Sheriff.' balance.' And' it' is' deemed' that' there' has' been'
• foreclosure'of'the'mortgage'when'all'the'proceedings'of'
The' motor' vehicle' was' turned' over' by' the' sheriff' to'
the' foreclosure,' including' the' sale' of' the' property' at'
Magna'Financial'Services'Group,'Inc.'
public'aucJon,'have'been'accomplished.'

SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''86'
 Be' that' as' it' may,' although' no' actual' foreclosure' as'
contemplated'under'the'law'has'taken'place'in'this'case,'
since' the' vehicle' is' already' in' the' possession' of' Magna'
Financial'Services'Group,'Inc.'and'it'has'persistently'and'
consistently' avowed' that' it' elects' the' remedy' of'
foreclosure,'the'Court'of'Appeals,'thus,'ruled'correctly'in'
direcJng' the' foreclosure' of' the' said' vehicle' without'
more.'
BA'FINANCE'v'CA'
BICOL'SAVINGS'v'GUINHAWA'
F:'Victorio'Depositario'together'with'private'respondent'
Jaime'Guinhawa,'acJng'as'solidary'co1maker,'took'a'loan'
from'peJJoner'Bicol'Savings'and'Loan'AssociaJon'(BISLA)''
payable'every'19th'day'of'each'month.'To'secure'the'
payment'of'the'foregoing'loan'obligaJon,'the'principal'
borrower'Victorio'Depositario'put'up'as'security'a'chacel'
mortgage'which'was'a'Yamaha'Motorcycle.'Said'motorcycle'
was'eventually'foreclosed'by'reason'of'the'failure'of'
Depositario'and'private'respondent'Guinhawa'to'pay'the'
loan.'There'was'a'deficiency'in'the'amount'of'P5,158.06'
where'BISLA'made'a'demand'to'pay'the'same.'PeJJoner'
BISLA'(plainJff'therein)'filed'a'complaint'for'the'recovery'of'a'
sum'of'money'consJtuJng'the'deficiency'aber'foreclosure'of'
the'chacel'mortgage'put'up'by'the'principal'borrower'
Depositario'against'the'lacer'and'his'solidary'co1maker'
Guinhawa'(herein'private'respondent)'as'defendants.'
Eventually,'a'sJpulaJon'of'facts'was'entered'into'between'
BISLA'and'Guinhawa.'They'agreed'to'drop'Depositario,'as'"his'
whereabouts'being'unknown'now'and'he'could'not'be'served'
with'summons".'The'creditor'claims'that'he'can'maintain'an'
acJon'for'deficiency'and'claim'P5k'balance.'
Issue:'WoN'creditor'can'claim'remaining'balance'
Ruling:' Yes!' The' creditor' may' maintain' an' acJon' for'
deficiency'although'the'chacel'mortgage'law'Is'silent'on'this'
point.'The'reason'is'tat'a'chacel'mortgage'is'only'given'as'a'
security'and'not'as'payment'for'the'debt'in'case'of'failure'of'
payment'
PAMECA'WOOD'v'CA'
FACTS:' On' April' 17,' 1980,' peJJoner' PAMECA' Wood'
Treatment' Plant,' Inc.' (PAMECA)' obtained' a' loan' of' US
$267,881.67,' or' the' equivalent' of' P2,000,000.00' from'
respondent' Bank.' By' virtue' of' this' loan,' peJJoner' PAMECA,'
through'its'President,'peJJoner'Herminio'C.'Teves,'executed'
a'promissory'note'for'the'said'amount,'promising'to'pay'the'
loan'by'installment.'
''
As' security' for' the' said' loan,' a' chacel' mortgage' was' also'
executed' over' PAMECA's' properJes' in' Dumaguete' City,'
consisJng' of' inventories,' furniture' and' equipment,' to' cover'
the'whole'value'of'the'loan.'
On'January'18,'1984,'and'upon'peJJoner'PAMECA's'failure'to'
pay,' respondent' bank' extrajudicially' foreclosed' the' chacel'
mortgage,' and,' as' sole' bidder' in' the' public' aucJon,'
purchased' the' foreclosed' properJes' for' a' sum' of' P322,'
350.00.'
'On'June'29,'1984,'respondent'bank'filed'a'complaint'for'the'
collecJon'of'the'balance.'
PeJJoners' submit' that' ArJcles' 1484' and' 2115' of' the' Civil'
Code'be'applied'in'analogy'to'the'instant'case'to'preclude'the'
recovery'of'a'deficiency'claim.'
ISSUES:'Whether'the'foreclosure'of'the'chacel'mortgage'valid'
RULING:'
The'court'did'not'find'anything'irregular'or'fraudulent'in'the'
circumstance'that'respondent'bank'was'the'sole'bidder'in'the'
sale,' as' all' the' legal' procedures' for' the' conduct' of' a'
foreclosure'sale'have'been'complied'with,'thus'giving'rise'to'
the' presumpJon' of' regularity' in' the' performance' of' public'
duJes.'
The' effects' of' foreclosure' under' the' Chacel' Mortgage' Law'
run' inconsistent' with' those' of' pledge' under' ArJcle' 2115.'
Whereas,'in'pledge,'the'sale'of'the'thing'pledged'exJnguishes'
the'enJre'principal'obligaJon,'such'that'the'pledgor'may'no'
longer'recover'proceeds'of'the'sale'in'excess'of'the'amount'of'
the' principal' obligaJon,' SecJon' 14' of' the' Chacel' Mortgage'
Law' expressly' enJtles' the' mortgagor' to' the' balance' of' the'
proceeds,' upon' saJsfacJon' of' the' principal' obligaJon' and'
costs.'
Since' the' Chacel' Mortgage' Law' bars' the' creditor1mortgagee'
from' retaining' the' excess' of' the' sale' proceeds' there' is' a'
corollary' obligaJon' on' the' part' of' the' debtor1mortgagee' to'
pay'the'deficiency'in'case'of'a'reducJon'in'the'price'at'public'
aucJon.''
As' correctly' pointed' out' by' the' trial' court,' the' said' arJcle'
applies'clearly'and'solely'to'the'sale'of'personal'property'the'
price' of' which' is' payable' in' installments.' Although' ArJcle'
1484,'paragraph'(3)'expressly'bars'any'further'acJon'against'
the' purchaser' to' recover' an' unpaid' balance' of' the' price,'
where' the' vendor' opts' to' foreclose' the' chacel' mortgage' on'
the'thing'sold,'should'the'vendee's'failure'to'pay'cover'two'or'
more'installments,'this'provision'is'specifically'applicable'to'a'
sale'on'installments.'
SUPERLINES'v'ICC'
FACTS:'
• Superlines' decided' to' acquire' five' (5)' new' buses'
from'the'Diamond'Motors'CorporaJon'for'the'price'
of' P10k.' However,' Superlines' lacked' financial'
resources' for' the' purpose' so' by' virtue' of' a' board'
resoluJon,' it' authorized' its' President' and' Gen' Mgr'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''87'
 Lavides' to' look' for' a' loan' for' the' purchase' of' said'
buses.'
HELD:'YES'
• Lavides' negoJated' with' ICC' Leasing.' ICC' agreed' to'
finance' the' purchase' of' the' new' buses' via' a' loan'
and'proposed'a'31yr'term'for'the'payment.'The'new'
buses' to' be' purchased' were' to' be' used' by'
Superlines'as'security'for'the'loan.'
• Diamond'Motors'sold'to'Superlines'5'new'buses'and'
was'registered'under'the'name'of'Superlines.''
• Superlines' executed' 2' docus' –' Deed' of' Chacel'
Mortgage' over' said' buses' a' security' for' the'
purchase'price'of'buses'in'P13mill'loaned'by'ICC'to'
Superlines;'a'ConJnuing'Guaranty'to'pay'jointly'and'
severally'in'favour'of'ICC'the'amount'of'P13mill'
• Aber' paying' only' 7' monthly' amorJzaJons,'
Superlines'defaulted'in'the'payment'of'its'obligaJon'
to'ICC.'
• ICC'filed'a'complaint'for'collecJon'of'sum'of'money'
with'a'prayer'for'a'writ'of'replevin'
• TC'dismissed;'ICC'and'Superlines'forged'a'consumer'
loan' agreement' and' not' an' amorJzed' commercial'
loan.''
• CA'reversed;''
1 ICC' and' Superlines' entered' into' an' amorJzed'
commercial' loan' agreement' with' ICC' as'
creditor1mortgagee' and' Superlines' as' debtor1
mortgagor,' and' ordered' Superlines' and' Lavides'
to'pay'jointly'and'severally'the'sum'of'P5mill'as'
deficiency'
1 It'was'Diamond'Motors'CorporaJon'and'not'ICC'
which' sold' the' subject' buses' to' Superlines.' It'
held' that' no' evidence' had' been' presented' by'
Superlines' to' show' that' ICC' bought' the' said'
buses'from'Diamond'Motors'CorporaJon'under'
a' special' arrangement' and' that' ICC' sold' the'
buses' to' Superlines.' The' appellate' court' also'
ruled' that' ArJcle' 1484(3)' is' applicable' only'
where' there' is' vendor1vendee' relaJonship'
between' the' parJes' and' since' ICC' did' not' sell'
the'buses'to'Superlines,'the'lacer'cannot'invoke'
said'law.'
ISSUE:' WON' there' was' an' amorJzed' commercial' loan'
agreement?'
• DIAMOND'is'the'seller'of'the'five'units'of'buses'and'
not'the'plainJff'
• No' convincing' evidence,' except' the' self1serving'
tesJmony' of' defendant' Manolet' Lavides,' was'
presented' to' prove' that' there' was' an' internal'
arrangement' between' the' plainJff,' as' financing'
agent,' and' Diamond,' as' seller' of' the' buses.' In' fact,'
defendant' Lavides' admiced' under' oath' that'
DIAMOND' and' plainJff' did' not' enter' into'
transacJon'over'the'sale'of'the'buses'
• The' evidence' shows' that' the' transacJon' between'
the' parJes' was' an' "amorJzed' commercial' loan"' to'
be'paid'in'installments'
• P' 'failed'to'adduce'a'preponderance'of'evidence'to'
prove' that' R' and' Diamond' Motors' CorporaJon'
entered' into' a' special' arrangement' relaJve' to' the'
issuance'of'cerJficates'of'registraJon'over'the'buses'
under'the'name'of'peJJoner'Superlines.''
• P' ' were' also' unable' to' prove' that' respondent'
purchased' from' Diamond' Motors' CorporaJon' the'
new' buses.' In' contrast,' the' vehicle' invoices' of'
Diamond'Motors'CorporaJon' irrefragably'show'that'
it' sold' the' said' buses' to' peJJoner' Superlines.' The'
net' proceeds' of' the' loan' were' remiced' by'
respondent' to' peJJoner' Superlines' and' the' lacer'
remiced' the' same' to' Diamond' Motors' CorporaJon'
in' payment' of' the' purchase' price' of' the' buses.' In'
fine,' respondent' and' Diamond' Motors' CorporaJon'
had' no' direct' business' transacJons' relaJve' to' the'
purchase' of' the' buses' and' the' payment' of' the'
purchase'price'thereof.'
• The' evidence' on' record' shows' that' under' the'
Promissory' Note,' Chacel' Mortgage' and' ConJnuing'
Guaranty,'respondent'was'the'creditor1mortgagee'of'
peJJoner'Superlines'and'not'the'vendor'of'the'new'
buses.' Hence,' peJJoners' cannot' find' refuge' in'
ArJcle'1484(3)'of'the'New'Civil'Code.'
• What' should' apply' was' the' Chacel' Mortgage'
executed' by' peJJoner' Superlines' and' R' in' relaJon'
to'the'Chacel'Mortgage'Law.''
• This'Court'had'consistently'ruled'that'if'in'an'extra1
judicial' foreclosure' of' a' chacel' mortgage' a'
deficiency'exists,'an'independent'civil'acJon'may'be'
insJtuted'for'the'recovery'of'said'deficiency.'To'deny'
the' mortgagee' the' right' to' maintain' an' acJon' to'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''88'
 recover' the' deficiency' aber' foreclosure' of' the'
chacel'mortgage'would'be'to'overlook'the'fact'that'
the' chacel' mortgage' is' only' given' as' security' and'
not' as' payment' for' the' debt' in' case' of' failure' of'
payment.' Both' the' Chacel' Mortgage' Law' and' Act'
3135' governing' extra1judicial' foreclosure' of' real'
estate' mortgage,' do' not' contain' any' provision,'
expressly' or' impliedly,' precluding' the' mortgagee'
from' recovering' deficiency' of' the' principal'
obligaJon.'
ESGUERRA'v'CA'
BPI'CREDIT'v'CA'
SERVICEWIDE'v'CA'
FACTS:''
• Respondents' executed' a' promissory' note' and' a'
chacel' mortgage' over' a' vehicle' they' bought' from'
the'mortgagee'itself,'C.'R.'Tecson'Enterprises,'for'the'
payment'in'installments'of'the'vehicle.'C.'R.'Tecson'
Enterprises,' on' the' same' date,' assigned' in' favor' of'
Filinvest' Credit' CorporaJon.' The' respondents' were'
aware'that'the'new'mortagee'is'Filinvest.''
• Respondent' spouses' by' way' of' Deed' of' Sale' with'
AssumpJon' of' Mortgage' transferred' and' delivered'
the'vehicle'to'Conrado'Tecson.'
• Subsequently,' Filinvest' assigned' all' its' rights' as'
mortgagee'to'peJJoner.''
• Respondents' failed' to' pay' the' installments' and'
despite' demands' from' peJJoner1mortgagee' to' pay'
or'to'return'the'vehicle.'
• PeJJoner' filed' a' complaint' for' Replevin' but' the'
respondents'alleged'in'their'Answer'that'they'can'no'
longer' be' held' liable' as' they' had' already' conveyed'
the'car'to'Conrado'Tecson.'
ISSUE:''
1. WON' the' assignment' of' credit' by' the' creditor1
mortgagee' quires' the' noJce' and' consent' of' the'
debtor1'mortgagor?'
2. WON' the' assignment' of' credit' by' the' debtor1'
mortgagor' requires' the' noJce' and' consent' of' the'
creditor1mortgagee?'
HELD:'
1. Only' noJce' to' the' debtor1mortgagor' of' the'
assignment' of' credit' is' required.' His' consent' is' not'
required.''
2. In'contrast,'consent'of'the'creditor1mortgagee'to'the'
alienaJon'of'the'mortgaged'property'is'necessary'in'
order'to'bind'said'creditor.'Since'the'assignee'of'the'
credit'steps'into'the'shoes'of'the'creditor1mortgagee'
to'whom'the'chacel'was'mortgaged,'it'follows'that'
the'assignee's'consent'is'necessary'in'order'to'bind'
him'of'the'alienaJon'of'the'mortgaged'thing'by'the'
debtor1mortgagor.'This'is'tantamount'to'a'novaJon.'
As' the' new' assignee,' peJJoner's' consent' is'
necessary' before' respondent' spouses'' alienaJon' of'
the' vehicle' can' be' considered' as' binding' against'
third'persons.'PeJJoner'is'considered'a'third'person'
with' respect' to' the' sale' with' mortgage' between'
respondent' spouses' and' third' party' defendant'
Conrado'Tecson.'
CONCURRENCE'AND'PREFERENCE'OF'CREDITS'
DE'BARRETTO'v'VILLANUEVA'
SAMPAGUITA'PICTURES'v'JALWINDOR'
FACTS:'
- Sampaguita' (P)' is' the' owner' of' a' building' which' its'
roofdeck' was' leased' to' Capitol' 300' (Capitol),'
wherein'it'was'agreed'that'whatever'improvements'
introduced'therein'by'Capitol'will'later'be'owned'by'
P.'
- Capitol'purchased'on'credit'from'Jalwindor'(R)'glass'
and' wooden' jalousies' which' were' DELIVERED' and'
INSTALLED'in'the'leased'premises'by'R,'replacing'the'
exisJng'windows'of'P.'
- Capitol' failed' to' pay' and' R' filed' an' acJon' for'
collecJon'of'sum'of'money'against'Capitol.'
- R'made'a'levy'on'the'glass'and'wooden'jalousies'in'
quesJon,' which' P' intervened' in' the' case' alleging'
that'it'cannot'be'levied'upon'since'it'is'already'the'
owner'of'the'subject'jalousies.'
ISSUE:'WoN'R'may'levy'the'jalousies'
SC:'NO!'
- When' the' glass' and' wooden' jalousies' were'
delivered' and' installed' in' the' leased' premises,' P'
became' the' owner' thereof,' due' to' the' contract'
between' P' and' Capitol' in' which' it' stated' that' all'
permanent' improvements' made' by' lessee' shall'
belong'to'the'lessor'and'that'said'improvements'hav'
been'considered'as'part'of'the'monthly'rentals.'
- The' fact' that' Capitol' failed' to' pay' R' the' purchase'
price' of' the' items' levied' upon' did' not' prevent' the'
transfer'of'ownership'to'Capitol'and'then'to'P.'
UY'v'ZAMORA'
FACTS:'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''89'
1)'At'the'instance'of'plainJff'Uy,'the'MTC''ordered'the'
acachment'of'a'vehicle'belonging'to'Zamora.'The'writ'was'
levied'on'the'vehicle'on'August'11,'1960.'Subsequently,'the'
Municipal'Court'rendered'judgment'for'the'plainJff'Uy'and'
ordered'defendant'Zamora'to'pay'the'sum'of'P1,740.'Zamora'
appealed'to'the'CFI.'
2)'While'the'case'was'pending'appeal,'the'Allied'Finance,'Inc.'
intervene.'According'to'it,'the'vehicle,'which'was'acached'by'
the'Sheriff,'had'previously'been'mortgaged'to'it'by'Zamora'to'
secure'the'payment'of'a'loan'and'that'at'the'Jme'of'the'filing'
of'the'complaint'in'intervenJon,'a'balance'of'P2,451.93'
remained'in'its'favor.'Allied,'prayed'that'Zamora'be'ordered'
to'pay'P2,451.93'as'principal.'
3)'On'January'12,'1961,'Uy'and'Zamora,'submiced'to'the'
court'a'compromise'agreement'wherein'Zamora'admiced'
being'indebted'to'Uy.'Since'the'motor'vehicle'had'already'
been'sold'on'order'of'the'Court'for'P2,500'to'prevent'
depreciaJon,'defendant'Zamora'agreed'to'have'plainJff'Uy's'
credit'paid'out'of'the'proceeds'of'the'sale.'
4)'The'court'found'defendant'Zamora'to'be'liable'to'plainJff'
Uy'in'the'amount'of'P2,500,'and'to'the'intervenor'in'the'
amount'of'P2,451.93,'plus'interest.'Uy'claims'preference'on'
the'basis'of'a'lien'arising'from'the'acachment'of'the'vehicle'
on'August'11,'1960.'On'the'other'hand,'allied'bases'its'claim'
to'preference'on'a'Deed'of'Chacel'Mortgage'covering'the'
same'motor'vehicle.'
ISSUE:'Which'of'the'two'credits'is'preferred?'
HELD:''
A)'Considering'the'fact'that'Allied'Finance,'Inc.'registered'its'
mortgage'only'on'August'24,'1960,'or'subsequent'to'the'date'
of'the'writ'of'acachment'obtained'by'plainJff'Uy'on'August'
11,'1960,'the'credit'of'the'intervenor'cannot'prevail'over'that'
of'the'plainJff.'
B)'The'SC'disagreed'with'the'lower'court’s'decision'upheld'
Allied’s'credit'on'the'ground'that,'being'embodied'in'a'public'
instrument'of'an'earlier'date'(June'20,'1960),'it'should'take'
precedence'over'plainJff's'lien'by'acachment'(August'11,'
1960),'pursuant'to'ArJcle'2244'of'the'Civil'Code,'for'the'
reason'that,'as'already'stated,'the'credit'of'the'Allied'cannot'
be'considered'as'preferred'unJl'the'same'has'been'recorded'
in'the'Motor'Vehicles'Office.''
C)'A'mortgage'of'motor'vehicles,'in'order'to'affect'third'
persons,'should'not'only'be'registered'in'the'Chacel'
Mortgage'Registry,'but'the'same'should'also'be'recorded'in'
the'Motor'Vehicles'Office'The'decision'of'the'lower'court'is'
reversed,'without'pronouncement'as'to'costs.'
CORDOVA'v'REYES'
CENTRAL'BANK'v'MORFE'
Facts:'
• The' Monetary' Board' found' the' Fidelity' Savings' Bank' to'
be' insolvent.' The' Board' directed' the' Superintendent' of'
Banks' to' take' charge' of' its' assets,' forbade' it' to' do'
business' and' instructed' the' Central' Bank' Legal' Counsel'
to'take'legal'acJons.'
• Prior'to'the'insJtuJon'of'the'liquidaJon'proceeding'but'
aber' the' declaraJon' of' insolvency,' the' spouses' Elizes'
filed' a' complaint' in' the' CFI' against' the' Fidelity' Savings'
Bank' for' the' recovery' of' the' balance' of' their' Jme'
deposits.'
• In' the' judgment' rendered' in' that' case,' the' Fidelity'
Savings' Bank' was' ordered' to' pay' the' Elizes' spouses' the'
sum'plus'accumulated'interest.'
• In'another'case,'the'spouses'Padilla'secured'a'judgment'
against' the' Fidelity' Savings' Bank' for' the' sums' as' the'
balance'of'their'Jme'deposits,'plus'interests,'moral'and'
exemplary'damages'and''acorney's'fees.''
• The' lower' court' (having' cognizance' of' the' liquidaJon'
proceeding),' upon' moJons' of' the' Elizes' and' Padilla'
spouses' and' over' the' opposiJon' of' the' Central' Bank,'
directed' the' lacer' as' liquidator,' to' pay' their' Jme'
deposits' as' preferred' judgments,' evidenced' by' final'
judgments,'within'the'meaning'of'arJcle'2244(14)(b)'of'
the'Civil'Code.''
• Central' Bank' contends' that' the' final' judgments' secured'
by' the' Elizes' and' Padilla' spouses' do' not' enjoy' any'
preference' because' (a)' they' were' rendered' aber' the'
Fidelity' Savings' Bank' was' declared' insolvent' and' (b)'
under' the' charter' of' the' Central' Bank' and' the' General'
Banking' Law,' no' final' judgment' can' be' validly' obtained'
against'an'insolvent'bank.'
Issue:'' Whether'a'final'judgment'for'the'payment'of'a'Jme'
deposit'in'a'savings'bank'which'judgment'was'obtained'aber'
the'bank'was'declared'insolvent,'is'a'preferred'claim'against'
the'bank?''
Held:''
No.' It' should' be' noted' that' fixed,' savings,' and' current'
deposits' of' money' in' banks' and' similar' insJtuJons' are' not'
true'deposits.'They'are'considered'simple'loans'and,'as'such,'
are'not'preferred'credits.''
The' aforequoted' secJon' 29' of' the' Central' Bank's' charter'
explicitly'provides'that'when'a'bank'is'found'to'be'insolvent,'
the' Monetary' Board' shall' forbid' it' to' do' business' and' shall'
take'charge'of'its'assets.'Evidently,'one'purpose'in'prohibiJng'
the' insolvent' bank' from' doing' business' is' to' prevent' some'
depositors' from' having' an' undue' or' fraudulent' preference'
over'other'creditors'and'depositors.'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''90'
We' are' of' the' opinion' that' such' judgments' cannot' be'
considered' preferred' and' that' arJcle' 2244(14)(b)' does' not'
apply' to' judgments' for' the' payment' of' the' deposits' in' an'
insolvent' savings' bank' which' were' obtained' aber' the'
declaraJon'of'insolvency.'
In' the' Rohr' case,' the' general' principle' of' equity' that' the'
assets' of' an' insolvent' are' to' be' distributed' ratably' among'
general'creditors'applies'with'full'force'to'the'distribuJon'of'
the'assets'of'a'bank.'A'general'depositor'of'a'bank'is'merely'a'
general' creditor,' and,' as' such,' is' not' enJtled' to' any'
preference'or'priority'over'other'general'creditors.'
will' not' bar' other' creditors' in' the' event' they' show' up' and'
present' their' claims' against' psb,' claiming' they' have' also'
preferred' claims' against' the' property.' Consequently,' the'
transfer'cerJficate'of'Jtle'issued'to'psb'which'is'supposed'to'
be' indefeasible' would' remain' constantly' unstable' and'
quesJonable.' Such' could' not' have' been' the' intenJon' of'
arJcle'2243'of'the'civil'code'although'it'considers'claims'and'
credits'under'arJcle'2242'as'statutory'liens.'Neither'does'the'
de'barreto'caes'sancJon'such'instability.'

The'assets'of'a'bank'in'process'of'liquidaJon'are'held'in'trust'
for' the' equal' benefit' of' all' creditors,' and' one' cannot' be'
permiced'to'obtain'an'advantage'or'preference'over'another'
by'an'acachment,'execuJon'or'otherwise.''

Considering' that' the' deposits' in' quesJon,' in' their' incepJon,'

were' not' preferred' credits,' it' does' not' seem' logical' and' just'
that'they'should'be'raised'to'the'category'of'preferred'credits'
simply' because' the' depositors,' taking' advantage' of' the' long'
interval' between' the' declaraJon' of' insolvency' and' the' filing'
of' the' peJJon' for' judicial' assistance' and' supervision,' were'
able' to' secure' judgments' for' the' payment' of' their' Jme'
deposits.'

MANABAT'v'LAGUNA'FED'

PHIL'SAVINGS'BANK'v'LANTIN'

F:' c' built' a' duplex' apartment' house' on' a' registered' lot' of'
spouses' x' and' y,' using' his' own' money,' P25k' to' finish' the'
construcJon.' Meanwhile,' x' and' y' obtained' from' psb' a' loan'
secured'by'a'mortgage'to'complete'construcJon.'At'the'Jme'
of'the'registraJon'of'the'mortgage,'the'transfer'cerJficate'of'
Jtle' over' the' property' was' free' from' all' liens' and'
encumbrances.' PSB' foreclosed' the' mortgage,' and' being' the'
highest' bidder' a' new' cerJficate' of' Jtle' was' subsequently'
issued'in'its'favor'

C'filed'an'acJon'against'the'spouses'to'collect'the'unpaid'cost'
of' construcJon.' As' x' and' y' did' not' have' any' properJes' to'
saJsfy'the'judgment'rendered'in'his'favor,'c'demanded'from'
psb'a'pro'rata'share'in'the'value'of'the'duplex'apartment'in'
accordance'with'arJcle'2242.'

Issue:'is'c'enJtled'to'claim'pro'rata'share'in'the'value'of'the'
property'in'quesJon.'

Ruling:'no.'the'acJon'filed'by'c'to'collect'the'unpaid'cost'of'
the'construcJon'of'the'duplex'apartment'is'far'from'being'a'
general'liquidaJon'of'the'estate'of'x'and'y.'

Although' the' lower' court' found' that' there' were' no' known'
creditors' other' than' c' and' psb,' this' cannot' be' conclusive.' It'
SECTRANS'2010/'ATTY.'AGUINALDO''''''''''''''''91'