CREDIT RE:
I. LOAN
1. HERRERA VS PETROPHIL CORPORATION
Doctrine: The difference between a discount and a
loan or forbearance is that the former does not have
to be repaid. The loan or forbearance is subject to
repayment and is therefore governed by the laws on
usury.
No usury exists in a lease agreement. In the absence of
a loan or forbearance of money, usury cannot exist.
The Elements of Usury:
(1) A loan, express or implied;
(2) An understanding between the parties that the
money lent shall or may be returned;
(3) that for such loan a greater rate of interest that
is allowed by law shall be paid, or agreed to be
paid, as the case may be; and
(4) A corrupt intent to take more than the legal rate
for the use of money loaned.
2. PANTALEON VS AMERICAN EXPRESS
INTERNATIONAL INC.
Doctrine: Generally, the relationship between a credit
card provider and its card holders is that of creditor-
debtor, with the card company as the creditor extending
loans and credit to the card holder, who as debtor is
obliged to repay the creditor. This relationship already
takes exception to the general rule that as between a
bank and its depositors, the bank is deemed as the
debtor while the depositor is considered as the creditor.
*After MR
A credit card is defined as any card, plate, coupon book,
or other credit device existing for the purpose of
obtaining money, goods, property, labor or services or
anything of value on credit.
Every credit card transaction involves three contracts,
namely: (a) the sales contract between the credit card
holder and the merchant or the business establishment
which accepted the credit card; (b) the loan agreement
between the credit card issuer and the credit card
holder; and lastly, (c) the promise to pay between the
credit card issuer and the merchant or business
establishment.
RE:
A person who knowingly and voluntarily exposes himself
to danger cannot claim damages for the resulting injury.
3. REPUBLIC OF THE PHILIPPINES VS BAGTAS
Doctrine: A contract of commodatum is essentially
gratuitous. A breeding fee can be considered as a
compensation rendering the contract to lose its
gratuitous character and become a contract of lease.
Article 1942 of the Civil Code provides that a bailee in a
contract of commodatum — . . . is liable for loss of the
things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal
of its value, unless there is a stipulation exempting the
bailee from responsibility in case of a fortuitous event.
4. CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE VS COURT OF APPEALS
Doctrine: The failure to return the subject matter of
commodatum to the bailor does not mean adverse
possession on the part of the bailee. A bailee only holds
in trust the property which is the subject matter of
commodatum.
5. MARGARITA QUINTOS VS BECK
Doctrine: A contract whereby one grants the use of a
furniture to another with the former reserving his
ownership over the same, is one of commodatum.
6. COLITO T. PAJUYO VS COURT OF APPEALS
Doctrine: There is no commodatum if the bailee is not
required to pay rent for his use of the house but is
obligated to maintain the property in good condition.
The imposition of such condition makes a contract
different from a commodatum.
In a contract of commodatum, one of the parties
delivers to another something not consumable so that
the latter may use the same for a certain time and
return it. Another feature of commodatum is that the
use of the thing belonging to another is for a certain
period. Thus, the bailor cannot demand the return of
the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which
the commodatum is constituted. If the bailor should
have urgent need of the thing, he may demand its
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return for temporary use. If the use of the thing is
merely tolerated by the bailor, he can demand the
return of the thing at will, in which case the contractual
relation is called a PRECARIUM (a kind of
commodatum.)
7. ADVOCATES FOR TRUTH IN LENDING, INC. VS
BANGKO SENTRAL MONETARY BOARD
Doctrine: The power of the CB to effectively suspend the
Usury Law pursuant to P.D. No. 1684 has long been
recognized and upheld in many cases. CB Circular No.
905 did not repeal nor in anyway amend the Usury Law
but simply suspended the latter’s effectivity.
CB Circular No. 905 merely upheld the parties’ freedom
of contract to agree freely on the rate of interest. It
cited Article 1306 of the New Civil Code, under which
the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
Stipulations authorizing iniquitous or unconscionable
interests have been invariably struck down for being
contrary to morals, if not against the law. Indeed, under
Article 1409 of the Civil Code, these contracts are
deemed inexistent and void ab initio, and therefore
cannot be ratified, nor may the right to set up their
illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious
interest does not affect the lender’s right to recover the
principal of a loan, nor affect the other terms thereof.
Thus, in a usurious loan with mortgage, the right to
foreclose the mortgage subsists, and this right can be
exercised by the creditor upon failure by the debtor to
pay the debt due. The debt due is considered as without
the stipulated excessive interest, and a legal interest of
12% per annum will be added in place of the excessive
interest formerly imposed.
8. COMMONWEALTH INSURANCE CORPORATION VS
CA
Doctrine: When a surety fails to pay upon demand by
the creditor, it becomes liable to pay legal interest over
and above its principal obligation under the surety
agreement. An entity’s liability as a surety is different
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from its liability under the law. The increased liability is
not because of the contract but because of the default
and the necessity of judicial collection.
9. CALDERON VS PEOPLE
Doctrine: In the absence of a stipulation as to interest,
the loan due will now earn interest at the legal rate of
12% per annum as laid down in the case of Eastern
Shipping Lines, Inc. VS Court of Appeals (July 12, 1994).
10. EASTERN SHIPPING LINES INC. VS CA
Doctrine: When the judgment of the court awarding a
sum of money becomes final and executory, the rate of
legal interest, whether the case is due to breach of
obligation or loan shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or
extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
With regard particularly 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:
1. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest
on the amount of damages awarded may be
imposed at the discretion of the court at the rate
of 6% per annum. No interest, shall be adjudged
on unliquidated claims or damages except when
or until the demand can be established with
reasonable certainty.
2. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when
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such certainty cannot be so reasonably
established at the time the demand is made, the
interest shall begin to run only from the date the
judgment of the court is made.
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 until its satisfaction,
this interim period being deemed to be by then
an equivalent to a forbearance of credit.
11. MEDEL VS CA
Doctrine: With the Usury Law being legally inexistent by
virtue of CB Circular 905, interest can now be charged as
lender and borrower may agree upon. The 5.5% interest
rate per month in this case although not usurious, is
iniquitous or unconscionable, and, hence, contrary to
morals, if not against the law. The stipulation is void.
12. PASCUAL VS RAMOS
Doctrine: With the suspension of the Usury Law and the
removal of interest ceiling, the parties are free to
stipulate the interest to be imposed on loans absent any
evidence of fraud, undue influence, or any vice of
consent, the interest agreed upon is binding upon them.
This Court is not in a position to impose upon parties
contractual stipulations different from what they have
agreed upon. An agreed 7% interest rate per month is
valid. The Supreme Court is not in a position to impose
upon parties contractual stipulations different from
what they have agreed upon.
13. BARRERA VS LORENZO
Doctrine: The agreed interest rate must be stipulated in
writing to be imposed. If the loan remains unpaid
despite the lapse of the period agreed upon, 12% per
annum shall be imposed as the interest rate beyond the
agreed period, being the legal interest.
14. FIRST FIL-SIN LENDING CORPORATION VS PADILLO
Doctrine: When the loan obligation clearly and
unambiguously provides that interest rates shall be
imposed on a per annum basis, such is controlling.
Absent any proof of vice of consent, the promissory
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notes and disclosure statements remain the best
evidence to ascertain the real intent of the parties.
15. HERMOJINA ESTORES VS SPOUSES ARTURO
Doctrine: The unlawful withholding of money by a
vendor which rightfully belongs to a vendee amounts to
an involuntary loan which can be considered as a
forbearance of money. A vendor is liable for interests
notwithstanding the absence of the stipulation to pay
the same if he does not comply with her obligation and
was already in default when a demand was made upon
him.
Interest may be imposed even in the absence of a
stipulation in the contract. Article 2210 of the Civil Code
expressly provides that “[i]nterest may, in the discretion
of the court, be allowed upon damages awarded for the
breach of contract”. In this case, Estores failed to
comply with her obligation despite demand.
Forbearance of money, goods or credits should
therefore refer to arrangements other than loan
agreements, where a person acquiesces to the
temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain
conditions. When an obligation arises out of a loan or
forbearance of money, goods, or credit, the applicable
interest rate shall be 12% per annum.
16. MACALINAO VS BPI
Doctrine: Stipulated interest rates of 3% per month and
higher are excessive, iniquitous, unconscionable and
exorbitant. Such stipulations are void for being contrary
to morals, if not against the law.
17. NACAR VS GALLERY FRAMES
Doctrine: With respect to the award of interest in the
form of actual or compensatory damages, the old case
of Eastern Shipping Lines VS CA (July 12, 1994) is already
modified by the promulgation of the Bangko Sentral ng
Pilipinas Monetary Board Resolution No. 796 which
lowered the legal rate of interest from 12% to 6%.
The award of backwages shall be computed from the
date of illegal dismissal until the date of the decision of
the Labor Arbiter but if the employer appeals, then the
end date shall be extended until the day when the
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appellate court’s decision shall become final. Hence, as
a consequence, the liability of the employer, if he loses
on appeal, will increase – this is just but a risk that the
employer cannot avoid when it continued to seek
recourses against the Labor Arbiter’s decision. This is
also in accordance with Article 279 of the Labor Code.
18. ECE REALTY AND DEVELOPMENT INC. VS HAYDYN
HERNANDEZ
Doctrine: By virtue of CB Circular 799, the rate of
interest to be imposed from finality of judgments which
is deemed a forbearance of credit, is now back at 6%,
the rate provided for in Article 2209 of the Civil Code.
19. PNB VS THE CA
Doctrine: Despite the suspension of the Usury Law,
banks are not authorized to unilaterally and successively
increase interest rates. The increased interest rates
unilaterally imposed by a bank is in violation of the
principle of mutuality of contracts under Art. 1308 of the
Civil Code.
20. SPOUSES MARIANO VS CA
Doctrine: A contract containing a condition which
makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties is
void. The unilateral increase of increase rate made by a
bank violates the principle of mutuality of contracts
under Art. 1308 of the Civil Code.
21. SPOUSES IGNACIO F. JUICO VS CHINA BANKING
CORPORATION
Doctrine: There is nothing inherently wrong with
escalation clauses. There is no escalation if the interest
rates to be imposed would vary as determined by
prevailing market rates. Nevertheless, such is void if it
grants to the bank the power to impose an increased
rate of interest without the written notice and consent
of the debtor.
II. DEPOSIT
22. OVERSEAS BANK OF MANILA VS CA
Doctrine: While it is true that under Article 1956 of the
Civil Code no interest shall be due unless it has been
expressly stipulated in writing, this applies only to
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interest for the use of money. It does not comprehend
interest paid as damages.
23. BPI VS THE IAC
Doctrine: When the subsequent acts of the parties show
that their intent was really for the bank to safely keep
the dollars and to return it to the depositor at a later
time, the contract entered into by them is one of
deposit.
24. TEOFISTO GUINGONA, JR. VS THE CITY FISCAL OF
MANILA
Doctrine: Bank deposits are in the nature of irregular
deposits. They are really loans because they earn
interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to
be covered by the law on loans.
25. BPI and GRACE ROMERO VS CA
Doctrine: The elements of legal compensation are all
present in the case at bar. Bank deposits, being in the
nature of a loan, the obligors bound principally are at
the same time creditors of each other. BPI stands as a
debtor of Reyes, a depositor. At the same time, BPI is
the creditor of Reyes with respect to the dishonored U.S.
Treasury Warrant which the latter illegally transferred
to his joint account. The debts involved consist of a sum
of money. They are due, liquidated, and demandable.
26. CITIBANK, N.A. (Formerly First National City Bank)
VS MODESTA R. SABENIANO
Doctrine: Although all the Philippine branches of
Citibank should be treated as one unit with its head
office, the Court was not persuaded that these
Philippine branches are likewise a single unit with the
Geneva branch. It would be stretching the principle way
beyond its intended purpose.
Therefore, the off-setting or compensation of
Sabeniano’s loans with Citibank-Manila using her dollar
accounts with Citibank-Geneva cannot be effected. The
parties cannot be considered principal creditor of the
other. As for the dollar accounts, Sabeniano was the
creditor and Citibank-Geneva was the debtor; and as for
the outstanding loans, Citibank, particularly Citibank-
Manila, was the creditor and respondent was the
debtor. Since legal compensation was not possible,
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Citibank could only use respondent’s dollar accounts
with Citibank-Geneva to liquidate her loans if she had
expressly authorized it to do so by contract.
III. GUARANTY
27. FINMAN GENERAL ASSURANCE CORPORATION VS
ABDULGANI SALIK
Doctrine: Where the surety bound itself solidarily with
the principal obligor, the former is so dependent on the
principal debtor that the surety is considered in law as
being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the
latter.
28. COMMONWEALTH INSURANCE CORPORATION VS
CA
Doctrine: When a surety fails to pay upon demand by
the creditor, it becomes liable to pay legal interest over
and above its principal obligation under the surety
agreement. An entity’s liability as a surety is different
from its liability under the law. The increased liability is
not because of the contract but because of the default
and the necessity of judicial collection.
29. THE MANILA INSURANCE COMPANY INC. VS
ROBERTO
Doctrine: A surety's liability is joint and several, limited
to the amount of the bond, and determined strictly by
the terms of contract of suretyship in relation to the
principal contract between the obligor and the obligee.
It bears stressing, however, that although the contract
of suretyship is secondary to the principal contract, the
surety's liability to the obligee is nevertheless direct,
primary, and absolute.
30. RCBC VS ARRO
Doctrine: A guaranty may also be given as security for
future debts, the amount of which is not yet known;
there can be no claim against the guarantor until the
debt is liquidated.
31. JACINTO UY DIÑO VS HON. COURT OF APPEALS
Doctrine: Under the Civil Code, a guaranty may be given
to secure even future debts, the amount of which may
not known at the time the guaranty is executed. This is
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the basis for contracts denominated as continuing
guaranty or suretyship.
32. TRADERS VS DY ENG GIOK
Doctrine: In the absence of express stipulation, a
guaranty or suretyship operates prospectively and not
retroactively; that is to say, it secures only the debts
contracted after the guaranty takes effect. A guaranty is
not presumed, but must be express, and cannot extend
to more than what is stipulated.
32.5. ESTATE OF K. H. HEMADY VS LUZON SURETY CO.,
INC. (Discussed only)
Doctrine: The solidary guarantor’s liability is not
extinguished by his death, and that in such event, the
Luzon Surety Co., had the right to file against the estate
a contingent claim for reimbursement.
33. BAYLON VS CA
Doctrine: The liability of the guarantor is only
subsidiary. All the properties of the principal debtor
must first be exhausted before his own is levied upon.
Thus, the creditor may hold the guarantor liable only
after judgment has been obtained against the principal
debtor and the latter is unable to pay.
34. SPECIAL STEEL PRODUCTS INC. VS VILLAREAL
Doctrine: A guaranty is distinguished from a surety in
that a guarantor is the insurer of the solvency of the
debtor and thus binds himself to pay if the principal is
unable to pay, while a surety is the insurer of the debt,
and he obligates himself to pay if the principal does not
pay.
35. PNB VS VERAGUTH
Doctrine: A material alteration of the principal contract,
effected without the knowledge and consent of the
surety, completely discharges the surety from all
liability. The Civil Code provides: "Guaranty shall not be
presumed; it must be express and cannot be extended
beyond its specified limits."
36. SPOUSES TOH VS SOLIDBANK
Doctrine: Extensions of due dates granted to the debtor
by the creditor without the consent of the guarantor
extinguishes the guaranty.
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37. BARON VS DAVID
Doctrine: Under art. 1768 of the Civil Code when the
depository has permission to make use of the thing
deposited, the contract loses the character of mere
deposit and becomes a loan or a commodatum; and of
course by appropriating the thing, the bailee becomes
responsible for its value.
38. YHT REALTY CORPORATION VS CA
Doctrine: Under the law, the hotel-keeper cannot free
himself from responsibility by posting notices to the
effect that he is not liable for the articles brought by the
guest. Any stipulation between the hotel-keeper and the
guest whereby the responsibility of the former as set
forth in Articles 1998 to 2001 is suppressed or
diminished shall be void. (Art. 2003, NCC).
The hotel business like the common carrier’s business is
imbued with public interest. Catering to the public,
hotel-keepers are bound to provide not only lodging for
hotel guests and security to their persons and
belongings. The twin duty constitutes 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
stipulation in so-called “undertakings” that ordinarily
appear in prepared forms imposed by hotel-keepers on
guests for their signature.
39. ALLIED BANKING CORPORATION VS YUJUICO
Doctrine: Extensions of due dates granted to the debtor
by the creditor without the consent of the guarantor
extinguishes the guaranty.
IV. PLEDGE, MORTGAGE, ANTICHRESIS – COMMON
PROVISIONS
40. DBP VS CA
Doctrine: It is an essential requisite for the validity of a
mortgage that the mortgagor be the absolute owner of
the property mortgaged. A property remains to be
owned by the government while the same is still a
subject of a free patent application.
41. DURAN VS IAC
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Doctrine: Although a mortgagor was not the absolute
owner of the mortgaged property at the time the
mortgage was constituted, such mortgage is valid
insofar as an innocent purchaser for value is concerned.
Where innocent third persons relying on the
correctness of the certificate of title issued, acquire
rights over the property, the court cannot disregard
such for that would impair public confidence in the
certificate of title. Every person dealing with registered
land may rely on the certificate of title.
There is no need to go behind the certificate to
determine the condition of the property. A mortgagee
has the right to rely on what appears in the certificate
of title and, in the absence of anything to excite
suspicion, he is under no obligation to look beyond the
certificate and investigate the title of the mortgagor
appearing on the face of said certificate.
42. DIZON VS SUNTAY
Doctrine: When a person engaged in a business where
ordinary prudence is needed to ascertain whether an
individual who is offering a thing through pledge is
entitled to do so does not exercise the diligence to
ascertain such, he should be the last to complain if
thereafter the right of the true owner of such thing
should be recognized.
43. LLANTO VS ALZONA
Doctrine: If the mortgagor is not the owner of the
mortgaged property, the mortgage contract and any
foreclosure sale arising therefrom are given effect
insofar as the mortgagee in good faith is concerned.
44. EREÑA VS KAUFFMAN
Doctrine: In a real estate mortgage contract, it is
essential that the mortgagor be the absolute owner of
the property to be mortgaged; otherwise, the mortgage
is void.
The innocent purchaser for value protected by law is
one who purchases a titled land by virtue of a deed
executed by the registered owner himself, not by a
forged deed, as the law expressly states.
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In a forged mortgage, as in this case, the doctrine of
"mortgagee in good faith" cannot be applied and will
not benefit a mortgagee no matter how large is his or
her reservoir of good faith and diligence. Such mortgage
is void and cannot prejudice the registered owner
whose signature to the deed is falsified. When the
instrument presented is forged, even if accompanied by
the owner’s duplicate certificate of title, the registered
owner does not lose his title, and neither does the
assignee in the forged deed acquire any right or title to
the property. An innocent purchaser for value is one
who purchases a titled land by virtue of a deed executed
by the registered owner himself, not a forged deed.
45. RAMOS VS OBISPO
Doctrine: The validity of an accommodation mortgage is
allowed under Article 2085 of the Civil Code which
provides that "third persons who are not parties to the
principal obligation may secure the latter by pledging or
mortgaging their own property." An accommodation
mortgagor, ordinarily, is not himself a recipient of the
loan, otherwise that would be contrary to his
designation as such.
46. SPOUSES UY TONG & KHO PO GIOK VS CA
Doctrine: The intervention of a trial court to exact
fulfillment of the obligation is by its very nature,
anathema to pactum commissorium.
47. A. FRANCISCO REALTY AND DEVELOPMENT
CORPORATION VS CA
Doctrine: There are two elements of pactum
commissorium, to wit: (1) that there should be a pledge
or mortgage wherein a property is pledged or
mortgaged by way of security for the payment of the
principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the event
of non-payment of the principal obligation within the
stipulated period.
48. THELMA P. OLEA VS COURT OF APPEALS
Doctrine: The rule is settled that where in a contract of
sale with pacto de retro the vendor remains in physical
possession of the land sold as lessee or otherwise, the
contract should be considered an equitable mortgage. A
stipulation in the contract providing that complete and
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absolute title shall be vested on the vendee should the
vendors fail to redeem the property on the specified
date is void for being pactum commissorium which
enables the mortgagee to acquire ownership of the
mortgaged property without need of foreclosure.
49. FORT BONIFACIO DEVELOPMENT CORPORATION
VS YLLAS LENDING CORPORATION
Doctrine: A lease contract may be terminated without
judicial intervention. Resort to judicial action is
necessary only in the absence of a special provision
granting the power of cancellation. A lease contract
may contain a forfeiture clause provided it is not
contrary to law, morals, good customs, or public policy.
50. PHILNICO INDUSTRIAL CORPORATION VS
PRIVATIZATION AND MANAGEMENT OFFICE
Doctrine: There are two elements of pactum
commissorium, to wit: (1) that there should be a pledge
or mortgage wherein a property is pledged or
mortgaged by way of security for the payment of the
principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the event
of non-payment of the principal obligation within the
stipulated period.
V. PLEDGE
51. CALTEX PHILIPPINES VS CA
Doctrine: When an instrument is merely delivered as a
security and not as payment, the holder can only be
considered as a holder for value to the extent of lien and
as a holder for value of such security, the same shall be
considered as a pledge. Negotiable instruments
containing incorporeal rights may be pledged but such
pledge shall not affect third persons if there is no proof
as to the date of the pledge.
VI. EXTINGUISHMENT OF PLEDGE
52. MANILA SURETY VS VELAYO
Doctrine: By electing to sell the articles pledged, instead
of suing on the principal obligation, a creditor waives
any other remedy, and must abide by the results of the
sale. No deficiency is recoverable.
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VII. REAL ESTATE MORTGAGE
53. LEONARDO VS CA
Doctrine: There is a a pacto de retro sale when there is
a categorical admission of the exercise of the right to
repurchase a property and tendering for that purpose
the repurchase payment for the said property.
54. STAR TWO INC. VS PAPER CITY CORPORATION
Doctrine: Art. 2127. The mortgage extends to the
Natural accessions, to the Improvements, Growing
fruits, and the Rents or income not yet received when
the obligation becomes due, and to the amount of the
Indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations,
amplifications and limitations established by law,
whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.
55. BRIONES-VASQUEZ VS CA
Doctrine: In an equitable mortgage, consolidation of
ownership is not the remedy for failure of the mortgagor
to pay the obligation, but the foreclosure of the
property. If the mortgagee does not exercise his right to
foreclosure, the ownership retains with the mortgagor.
56. PRUDENTIAL BANK VS PANIS
Doctrine: A building separate and distinct from the land
on which it has been constructed is an immovable
property, and may be mortgaged.
Ratio: Under Article 415 of the Civil Code, the inclusion
of "building" separate and distinct from the land can
only mean that a building is by itself an immovable
property. Thus, while it is true that a mortgage of land
necessarily includes, in the absence of stipulation of the
improvements thereon, buildings, still a building by
itself may be mortgaged apart from the land on which it
has been built. Such a mortgage would be still a real
estate mortgage for the building would still be
considered immovable property even if dealt with
separately and apart from the land. In the same
manner, the SC has also established that possessory
rights over said properties before title is vested on the
grantee, may be validly transferred or conveyed as in a
deed of mortgage.
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57. MOBIL OIL VS DIOCARES
Doctrine: The fact that the document is not recorded
will not make the mortgage not binding between the
parties.
Under Article 2125, even if the instrument was not
recorded, "the mortgage is nevertheless binding
between the parties." The law cannot be any clearer.
Effect must be given to it as written. The mortgage
subsists; the parties are bound. As between them, the
mere fact that there is as yet no compliance with the
requirement that it be recorded cannot be a bar to
foreclosure. The failure of the instrument to be
recorded does not result in the mortgage being any less
"binding between the parties."
58. PNB VS RBL ENTERPRISES
Doctrine: A real estate mortgage is a real right
following the property, such that in subsequent
transfers by the mortgagor, the transferee must respect
the mortgage. A registered mortgage lien is considered
inseparable from the property inasmuch as it is a right in
rem. The mortgage creates a real right or a lien which,
after being recorded, follows the chattel wherever it
goes.
59. PNB VS MARAÑON
Doctrine: In case of non-payment of a secured debt,
foreclosure proceedings shall cover not only the
hypothecated property but all its accessions and
accessories as well.
Rent being an accessory penalty, follows the principal.
In fact, when the principal property is mortgaged, the
mortgage shall include all natural or civil fruits and
improvements found thereon when the secured
obligation becomes due.
Article 2127 is predicated on the presumption that the
ownership of accessions and accessories also belongs to
the mortgagor as the owner of the principal. After all, it
is an indispensable requisite of a valid real estate
mortgage that the mortgagor be the absolute owner of
the encumbered property.
60. GARCIA VS VILLAR
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Doctrine: Under Art. 2130 of the Civil Code, a stipulation
forbidding the owner from alienating an immovable
mortgaged shall be void.
61. BOHANAN VS CA
Doctrine: A certificate of posting is not required for the
validity of a foreclosure sale. All that is required is that
notice be given by posting notices of the sale for not less
than twenty days in at least three public places of the
municipality or city where the property is situated, and
publication once a week for at least three consecutive
weeks in a newspaper of general circulation in the
municipality or city.
62. CAUBANG VS CRISOLOGO
Doctrine: Statutory requirements of posting and
publication are mandated and imbued with public
policy considerations. Failure to advertise a mortgage
foreclosure sale in compliance with the statutory
requirements constitutes a jurisdictional defect, and any
substantial error in a notice of sale will render the notice
insufficient and will consequently vitiate the sale.
Ratio: The principal object of a notice of sale in a
foreclosure of mortgage is not so much to notify the
mortgagor but to inform the public generally of the
nature and condition of the property to be sold, and of
the time, place, and terms of the sale. Notices are given
to secure bidders and prevent a sacrifice of the
property.
63. BALUYUT VS POBLETE
Doctrine: The publication of the notice of sale in a
newspaper of general circulation alone is more than
sufficient compliance with the notice-posting
requirement of the law.
The governing law, insofar as the extrajudicial
foreclosure proceedings are concerned, is Act No. 3135,
as amended by Act No. 4118. Nowhere in the
provisions of Act No. 3135, as amended, is it required
that the sheriff must execute an affidavit to prove that
he published notices of foreclosure in accordance with
the requirements of law. In the absence of contrary
evidence, the presumption prevails that the sheriff
performed his official duty of posting the notices of sale.
RE:
CREDIT RE:
64. PRUDENTIAL BANK VS MARTINEZ
Doctrine: Under the Mortgage Law, which is still in
force, the mortgagee has the right to claim for the
deficiency resulting from the price obtained in the sale
of the real property at public auction and the
outstanding obligation at the time of the foreclosure
proceedings.
Ratio: There is no provision under Act No. 3135 which
expressly or impliedly prohibits such recovery. The
mortgage is but a security and not a satisfaction of
indebtedness. Let it be noted that if the legislature
intended to foreclose the right of a creditor to sue for
any deficiency resulting from the foreclosure of the
security given to guarantee the obligation, it would have
expressly provided so. It is then clear that in the absence
of a similar provision in Act No. 3135, as amended, it
cannot be concluded that the creditor loses his right
given him under the Mortgage Law and recognized in
the Rules of Court, to take action for the recovery of any
unpaid balance on the principal obligation, simply
because he has chosen to foreclose his mortgage extra-
judicially pursuant to a special power of attorney given
him by the mortgagor in the mortgage contract.
The fact that the mortgaged property is sold at an
amount less than its actual market value should not
militate against the right to such recovery. A
mortgagor stands to gain with a reduced price because
he possesses the right of redemption. When there is the
right to redeem, inadequacy of price should not be
material, because the judgment debtor may reacquire
the property or also sell his right to redeem and thus
recover the loss he claims to have suffered by the
reason of the price obtained at the auction sale.
65. BPI VS AVENIDO
Doctrine: It is settled that if the proceeds of the sale are
insufficient to cover the debt in an extrajudicial
foreclosure of mortgage, the mortgagee is entitled to
claim the deficiency from the debtor.
If the legislature had intended to deny the creditor the
right to sue for any deficiency resulting from the
foreclosure of a security given to guarantee an
obligation, the law would expressly so provide. Absent
such a provision in Act No. 3135, as amended, the
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creditor is not precluded from taking action to recover
any unpaid balance on the principal obligation simply
because he chose to extrajudicially foreclose the real
estate mortgage.
66. YAP VS DY
Doctrine: A debtor who has paid a part of the debt
cannot ask for the proportionate extinguishment of the
mortgage as long as the debt is not completely satisfied.
However, this rule does not apply where the aggregate
number of the lots which comprise the collaterals for the
mortgage had already been foreclosed and sold at
public auction.
Ratio: Under Article 2089, it is apparent that what the
law proscribes is the foreclosure of only a portion of the
property or a number of the several properties
mortgaged corresponding to the unpaid portion of the
debt where before foreclosure proceedings partial
payment was made by the debtor on his total
outstanding loan or obligation. This also means that the
debtor cannot ask for the release of any portion of the
mortgaged property or of one or some of the several
lots mortgaged unless and until the loan thus, secured
has been fully paid, notwithstanding the fact that there
has been a partial fulfillment of the obligation.
In summary, a debtor who has paid a part of the debt
cannot ask for the proportionate extinguishment of the
mortgage as long as the debt is not completely satisfied.
In Re: Doctrine of Indivisibility
The aforesaid doctrine, which is actually intended for
the protection of the mortgagee, specifically refers to
the release of the mortgage which secures the
satisfaction of the indebtedness and naturally
presupposes that the mortgage is existing. Once the
mortgage is extinguished by a complete foreclosure
thereof, said doctrine of indivisibility ceases to apply
since, with the full payment of the debt, there is
nothing more to secure. Nothing in the law prohibits
the piecemeal redemption of properties sold at one
foreclosure proceeding.
THE REQUISITES FOR A VALID REDEMPTION ARE:
RE:
CREDIT RE:
(1) Made within twelve (12) months from the time
of the registration of the sale in the Office of the
Register of Deeds;
(2) Payment of the purchase price of the property
involved, plus 1% interest per month thereon in
addition, up to the time of redemption, together
with the amount of any assessments or taxes
which the purchaser may have paid thereon after
the purchase, also with 1% interest on such last
named amount; and
(3) Written notice of the redemption must be served
on the officer who made the sale and a duplicate
filed with the Register of Deeds of the province.
67. GATUSLAO VS YANSON
Doctrine: Until the foreclosure sale of the property in
question is annulled by a court of competent
jurisdiction, the issuance of a writ of possession remains
the ministerial duty of the trial court.
68. YULIENCO VS CA
Doctrine: Well established is the rule that after the
consolidation of title in the buyer’s name, for failure of
the mortgagor to redeem, the writ of possession
becomes a matter of right. Its issuance to a purchaser in
an extrajudicial foreclosure is merely a ministerial
function. As such, the court granting the writ cannot be
charged with having acted without jurisdiction or with
grave abuse of discretion.
69. GREEN ASIA VS PCI LEASING
Doctrine: Any question regarding the validity of the
mortgage or its foreclosure cannot be a legal ground for
refusing the issuance of a writ of possession. Indeed,
regardless of whether or not there is a pending suit for
annulment of the mortgage or the foreclosure itself, the
purchaser is entitled to a writ of possession.
70. SANTIAGO VS RURAL BANK OF TALAVERA
Doctrine: The law does not require that a petition for a
writ of possession may be granted only after
documentary and testimonial evidence shall have been
offered to and admitted by the court. As long as the
verified petition states the facts sufficient to entitle the
petitioner to the relief requested, the court shall issue
the writ prayed for.
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71. MAKATI LEASING VS WEAREVER TEXTILE
Doctrine: A machinery which is movable in its nature
and becomes immobilized only by destination or
purpose, may be considered as personal property for
purposes of executing a chattel mortgage thereon as
long as the parties to the contract so agree and no
innocent third party will be prejudiced thereby. This is
really because on who has so agreed is estopped from
denying the existence of the chattel mortgage.
72. ASSOCIATED INSURANCE VS IYA
Doctrine: A building such as a house is considered as
real property and cannot be divested of its character as
realty by the fact that the land on which it was built
belongs to another. Since personal properties can only
be the subject of a chattel mortgage, a chattel
mortgage over a building is null and void.
Act 3952(OCC) holds that personal properties could only
be the subject of chattel mortgage. Buildings cannot be
considered as personal property and therefore the
execution of the chattel mortgage covering the same is
a nullity. Even if the mortgage was properly registered,
it produces no effect as far as the building is concerned.
A mortgage creditor who purchases real properties at
an extrajudicial foreclosure sale thereof by virtue of a
chattel mortgage constituted in his favor, which
mortgage has been declared null and void with respect
to said real properties, acquires no right thereto by
virtue of said sale.
73. ACME SHOE VS CA
Doctrine: A chattel mortgage cannot cover after-
incurred obligations since Section 5 of the Chattel
Mortgage Law requires an affidavit of good faith stating
that the mortgage is made for the purpose of securing
the obligation specified in the conditions thereof, and
for no other purpose. This makes it obvious that the
debt referred to in the law is current, not an obligation
that is yet merely contemplated.
Although a promise expressed in a chattel 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 until after a chattel mortgage agreement
RE:
CREDIT RE:
covering the newly contracted debt is executed either
by concluding a fresh chattel mortgage or by amending
the old contract conformably with the form prescribed
by the Chattel Mortgage Law.
Refusal on the part of the borrower to execute the
agreement so as to cover the after-incurred obligation
can constitute an act of default on the part of the
borrower of the financing agreement whereon the
promise is written but, of course, the remedy of
foreclosure can only cover the debts existing at the time
of constitution and during the life of the chattel
mortgage sought to be foreclosed.
74. NORTHERN MOTOERS VS COQUIA
Doctrine: After a chattel mortgage is executed, there
remains in the mortgagor a mere right of redemption.
To levy upon the mortgagor's incorporeal right or equity
of redemption, it is not necessary for a sheriff to take
physical possession of the mortgaged properties.
75. FILINVEST CREDIT VS CA
Doctrine: The award of damages is proper as when a
mortgagee acted in bad faith for failure to follow Rule
60 of the Rules of Court which provides that only the
sheriff or proper officers of the court can seize the
property subject of the writ by having the mortgagee’s
employees represent themselves as special sheriffs of a
court.
If a mortgagee cannot obtain possession of a
mortgaged property for its sale on foreclosure, it must
bring a civil action either to recover such possession as a
preliminary step to the sale or to obtain judicial
foreclosure.
Replevin is the appropriate action to recover possession
preliminary to the extrajudicial foreclosure of a chattel
mortgage.
76. CERNA VS CA
Doctrine: There is no legal provision nor jurisprudence in
our jurisdiction which makes a third person who secures
the fulfillment of another's obligation by mortgaging his
own property to be solidarily bound with the principal
obligor.
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A mortgagee who files a suit for collection abandons the
remedy of foreclosure of the chattel mortgage
constituted over the personal property as security for
the debt or value of the promissory note which he seeks
to recover in the said collection suit.
A person holding a mortgage against the estate of a
deceased person may abandon such security and
prosecute his claim before the committee, and share in
the distribution of the general assets of the estate. It
provides also that he may, at his own election, foreclose
the mortgage and realize upon his security. But the law
does not provide that he may have both remedies. If
he elects one he must abandon the other. If he fails in
one he fails utterly.
77. INDUSTRIAL FINANCE VS RAMIREZ
Doctrine: Under Art. 1484 of the Civil Code, it is only
when there has been a foreclosure that the mortgagor is
not liable for any deficiency.
The rule is that in installment sales, if the action
instituted is for specific performance and the mortgaged
property is subsequently attached and sold, the sale
thereof does not amount to a foreclosure of the
mortgage. Hence, the seller-creditor is entitled to a
deficiency judgment.
78. PCI LEASING VS TROJAN METAL INDUSTRIES
Doctrine: Financial leasing contemplates the extension
of credit to assist a buyer in acquiring movable property
which he can use and eventually own. If the movable
property already belonged to the borrower-lessee, the
transaction between the parties was a loan with
mortgage in the guise of a lease.
In a true financial leasing, a finance company purchases
on behalf of a cash-strapped lessee the equipment the
latter wants to buy but, due to financial limitations, is
incapable of doing so. The finance company then leases
the equipment to the lessee in exchange for the latter’s
periodic payment of a fixed amount of rental.
79. DE BARRETO VS VILLANUEVA
Doctrine: Under the Civil Code, only taxes enjoy
absolute preference. All the remaining thirteen classes
of preferred creditors enjoy no priority among
RE:
CREDIT RE:
themselves but must be paid pro rata – in proportion to
the amount of their respective credits. However, in order
to make this fully effective, the preferred creditors must
necessarily be convened and the import of their claims
ascertained. Application of the law demands that there
must first be some proceedings where the claims of all
the preferred creditors may be bindingly adjudicated,
such as insolvency, settlement of the decedent’s estate
or other similar liquidation proceedings.
80. DBP VS NLRC
Doctrine: A distinction should be made between a
preference of credit or a lien. A preference applies only
to claims which do not attach to specific properties. A
lien creates a charge on a particular property. The right
of first preference as regards unpaid wages recognized
by Article 110 does not constitute a lien on the property
of the insolvent debtor in favor of workers. It is but a
preference of credit in their favor, a preference in
application.
The right to preference given to workers under Article
110 of the Labor Code cannot exist in any effective way
prior to the time of its presentation in distribution
proceedings. It will find application when, in
proceedings such as insolvency, such unpaid wages shall
be paid in full before the "claims of the Government
and other creditors" may be paid.
81. DBP VS NLRC
Doctrine: Art. 110 of the Labor Code does not purport to
create a lien in favor of workers or employees for the
unpaid wages either upon all of the properties or upon
any particular property owned by the employer. Claims
for unpaid wages do not fall under the category of
specially preferred claims under Art. 2241(6) and
2242(3) of the Civil Code. Therefore, they would come
within the ambit of ordinary preferred credits under Art.
2244.
82. REPUBLIC VS PERALTA
Doctrine: Article 110 of the Labor Code, in determining
the reach of its terms, cannot be viewed in isolation.
Rather, Article 110 must be read in relation to the
provisions of the Civil Code concerning the classification,
concurrence and preference of credits, which provisions
find particular application in insolvency proceedings
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where the claims of all creditors, preferred or non-
preferred, may be adjudicated in a binding manner.
Those provisions may be seen to classify credits
against a particular insolvent into three general
categories, namely:
(a) Special preferred credits listed in Articles 2241
and 2242,
(b) Ordinary preferred credits listed in Article 2244;
and
(c) Common credits under Article 2245.
Turning first to special preferred credits under Articles
2241 and 2242, it should be noted at once that these
credits constitute liens or encumbrances on the specific
movable or immovable property to which they relate.
Article 2243 makes clear that these credits "shall be
considered as mortgages or pledges of real or personal
property, or liens within the purview of legal provisions
governing insolvency."
Articles 2241 and 2242 jointly with Articles 2246 to
2249 establish a two-tier order of preference. The first
tier includes only taxes, duties and fees due on specific
movable or immovable property. All other special
preferred credits stand on the same second tier to be
satisfied, pari passu and pro rata, out of any residual
value of the specific property to which such other credits
relate.
Credits which are specially preferred because they
constitute liens (tax or non-tax) in turn, take precedence
over ordinary preferred credits so far as concerns the
property to which the liens have attached.
If the value of the specific property involved is greater
than the sum total of the tax liens and other specially
preferred credits, the residual value will form part of
the "free property" of the insolvent — i.e., property not
impressed with liens by operation of Articles 2241 and
2242. If the value of the specific movable or
immovable is less than the aggregate of the tax liens
and other specially preferred credits, the unsatisfied
balance of the tax liens and other such credits are to the
treated as ordinary credits under Article 2244 and to be
paid in the order of preference there set up.
RE:
CREDIT RE:
In contrast with Articles 2241 and 2242, Article 2244
creates no liens on determinate property which follow
such property. What Article 2244 creates are simply
rights in favor of certain creditors to have the cash and
other assets of the insolvent applied in a certain
sequence or order of priority.
Only in respect of the insolvent's "free property" is an
order of priority established by Article 2244. In this
sequence, certain taxes and assessments also figure but
these do not have the same kind of overriding
preference that Articles 2241 No. 1 and 2242 No. 1
create for taxes which constituted liens on the
taxpayer's property. Under Article 2244,
(a) Taxes and assessments due to the national
government, excluding those which result in tax
liens under Articles 2241 No. 1 and 2242 No. 1 but
including the balance thereof not satisfied out of
the movable or immovable property to which such
liens attached, are ninth in priority;
(b) Taxes and assessments due any province,
excluding those impressed as tax liens under
Articles 2241 No. 1 and 2242 No. 1, but including
the balance thereof not satisfied out of the
movable or immovable property to which such
liens attached, are tenth in priority; and
(c) Taxes and assessments due any city or
municipality, excluding those impressed as tax
liens under Articles 2241 No. I and 2242 No. 2 but
including the balance thereof not satisfied out of
the movable or immovable property to which such
liens attached, are eleventh in priority.
It is within the framework of the foregoing rules of the
Civil Code that the question of the relative priority of
the claims of the Bureau of Customs and the Bureau of
Internal Revenue, on the one hand, and of the claims of
the Unions for separation pay of their members, on the
other hand, is to be resolved. A related vital issue is
what impact Article 110 of the labor Code has had on
those provisions of the Civil Code.
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