(1) The People of the Philippine Islands vs.

Venancio Concepcion
G.R. No. L-19190; November 29, 1922

FACTS:

Between April 10 and May 7, 1919, Venancio Concepcion, then President and member
of Board of Directors of the Philippine National Bank (PNB), authorized an extension of credit
in favor of “Puno y Concepcion, S. en C” in the amount of PHP 300,000. “Puno y
Concepcion, S. en C” was a co-partnership where the wife of Concepcion was a member and
owns half of its capital. Concepcion was charged with a violation of Section 35 of Act No. 2747
and was later found guilty. Section 35 of Act No. 2747 states that the National Bank shall not,
directly or indirectly, grant loans to any of the members of the board of the directors of the bank
nor to agents of the branch banks. The counsel of Concepcion appealed the case, and argued that
the granting of credit of PHP 300,000 is not a loan within the meaning of Section 35.

ISSUE:

Whether or not the granting of a credit of PHP 300,000 to the co-partnership is

considered a "loan" within the meaning of section 35 of Act No. 2747

RULING:

ent, express or implied, to repay the sum loaned, with or without interest. The concession of a "credit" necessarily involves the granting of "loa
2. REPUBLIC v. PHILIPPINE NATIONAL BANK
GR No. L-16106, December 30, 1960
FACTS:
The Republic of the Philippines filed on September 25, 1957 before the Court of First
Instance of Manila a complaint for escheat of certain unclaimed bank deposits balances under the
 provisions of Act No. 3936 against several banks, among them the First National City Bank of
 New York (First National).
It is alleged that pursuant to Section 2 of the said Act, First National forwarded to the
Treasurer of the Philippines a statement under oath of their respective managing officials all the
credits and deposits held by them in favor of persons known to be dead or who have not made
further deposits or withdrawals during the period of 10 years or more.
After the hearing, the court a quo rendered judgment holding that cashier's or manager's
checks and demand drafts as those which First National wants excluded from the complaint
come within the purview of Act No. 3936, but not the telegraphic transfer payment orders which
are of different category. Consequently, the complaint was dismissed with regard to the latter.
However, after a motion for reconsideration was filed by First National, the court a quo changed
its view and held that even said demand drafts do not come within the purview of said Act and
so amended its decision accordingly. The Republic of the Philippines has appealed.

ISSUES: (1) Whether or not demand drafts come within the meaning of the term "credits"
or "deposits" employed in the law.
(2) Whether or not telegraphic orders come within the meaning of the term "credits" or
"deposits" employed in the law.

RULING:

(1)  No. A demand draft is a bill of exchange payable on demand. Considered as a bill of
exchange, a draft is said to be an open letter of request from and an order by one person on
another to pay a sum of money therein mentioned to a third person, on demand or at a future
time therein specified. The law requires that drafts or bills of exchange need to be presented
either for acceptance or for payment within a reasonable time after their issuance or after their
last negotiation thereof as the case may be. Failure to make such presentment will discharge the
drawer from liability or to the extent of the loss caused by the delay. Since it is admitted that the
demand drafts herein involved have not been presented either for acceptance or for payment,
First National never had any chance of accepting or rejecting them and thus they never became a
debtor of the payee concerned. As such, the aforesaid drafts cannot be considered as credits
subject to escheat within the meaning of the law.

(2) Yes. A telegraphic payment order is for the establishment of a telegraphic or cable
transfer the agreement to remit creates a contractual obligation and has been termed a purchase
and sale transaction. The purchaser of a telegraphic transfer upon making payment completes
the transaction insofar as he is concerned, though insofar as the remitting bank is concerned the
contract is executory until the credit is established. Hence, telegraphic transfers should be
escheated in favor of the Republic of the Philippines.
 3. SAURA IMPORT & EXPORT CO., INC. vs. DEVELOPMENT BANK OF THE
PHILIPPINES
G.R. No. L-24968 April 27, 1972

Facts:
Saura Import and Export Co. (Saura) applied for an industrial loan of ₱ 500,000 with
RFC to be used in the construction of a factory for the manufacture of jute sacks. RFC initially
approved the loan which was to be secured by promissory notes and a deed of mortgage. When
Saura requested for modification of the terms, RFC passed a Resolution calling for the
reexamination of the proposed project.
After the reexamination of the proposed project, RFC resolved to reduce the loan from
P500,00 to P300,000 to which Saura appealed. Eventually, RFC agreed to loan ₱ 500,000 to
Saura on the condition that the Department of Agriculture and Natural Resources would certify
that there are enough raw materials in the immediate vicinity. However, Saura later informed
RFC that the Department certified a shortage of local raw materials and asked RFC for the
release of part of the loan to be used for importing raw materials. The RFC refused to release the
requested amounts
 Negotiations between the two had been going on for the implementation of the
agreement but then the same reached an impasse. Saura did not pursue the matter further.
Instead, it requested RFC to cancel the mortgage, and RFC also agreed to it.
Saura executed another contract of mortgage with Prudential Bank to secure a trust
receipt. When Saura eventually defaulted with its obligation, it was sued by Prudential.
 Nine years after RFC cancelled the mortgage, Saura filed an action for damages due to
 breach of contract against the former. CFI Manila ruled in favor of Saura. Hence, this appeal by
RFC (now DBP).

Issue: Whether or not there was a perfected contract consensual contract in the said case.

Held:
Yes. The Supreme Court held the view that there was indeed a perfected consensual
contract, as recognized in Article 1934 of the Civil Code, which provides: “Art. 1934. An
accepted promise to deliver something, by way of commodatum or simple loan is binding upon
the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of
the object of the contract.”
There was undoubtedly offer and acceptance in this case: the application of Saura for a
loan of P500,000.00 was approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls short of resolving the basic claim
that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover
damages.
Hence, when Saura was obviously no longer in a position to comply with the condition
set forth by RFC, it opted to request that the mortgage be cancelled and this was also agreed
upon by RFC. The action thus taken by both parties was in the nature of mutual desistance or,
what Manresa calls, “mutuo disenso”. Mutual desistance is a mode of extinguishing obligations.
It is derived from the principle that since mutual agreement can create a contract, mutual
disagreement by parties can cause its extinguishment.
 4. BPI Investment Co. v. CA
G.R. 133632, February 15,
2002

FACTS:

Frank Roa obtained a loan from Ayala Investment and Development Co. (AIDC),
 predecessor of BPI Investment Co. (BPIIC) for the construction of a house on his lot. To secure
the loan, Roa mortgaged the said property to AIDC. Roa subsequently sold the house and lot to
ALS and Antonio who assumed the former’s indebtedness with AIDC. AIDC, not willing to
extend the old interest, granted ALS and Antonio a new loan to be applied to Roa’s loan balance
and to be secured by the same property. The twothen executed a mortgage deed containing the
new stipulations. Later, BPIIC released to ALS and Antonio what was left of their loan after full
 payment of Roa’s indebtedness.

Thereafter, BPIIC instituted foreclosure proceedings against ALS and Antonio on the
ground that they failed to pay the monthly amortization from the date of the execution of the
mortgage. BPIIC claimed that a contract of loan is a consensual contract and is perfected at the
time the contract of mortgage is executed.

On the other hand, ALS and Antonio contended that they were not in arrears in their
 payment.They maintained that they should not be made to pay amortization before the actual
release of the full amount of the loan. They likewise asserted based on Article 1934 of the Civil
Code that a simple loan is perfected upon delivery of the object of the contract, hence, a real
contract. Their loan contract was perfected only when the full loan was released to them.

ISSUE:
Whether or not a contract of loan isa consensual contract.

HELD:

 No. The Court held that a contract of loan is not a consensual contract but a real contract.
It is perfected only upon the delivery of the object of the contract. Here, the loan contract
 between BPIIC and ALS and Antonio was perfected only on the date of the full release of the
loan.
The court likewise ruled that a contract of loan involves a reciprocal obligation, wherein
the obligation or promise of each party is the consideration for that of the other. The promise of
BPIIC to extend and deliver the loan is upon the consideration that ALS and Antonio shall pay
the monthly amortization commencing one month after the supposed release of the loan.

It is basic principle in reciprocal obligations that neither party incurs in delay, if the
other does not comply or is not ready to comply in a proper manner of what is incumbent upon
him. Only when a party has performed his part of the contract can he demand that the other
party also fulfils his own obligation and if the latter fails, default sets in. Here, the BPIIC could
only demand for the payment of the monthly amortization only after when it complied with its
obligation.
(5) Raoul Bonnevie and Honesto Bonnevie vs. Court of Appeals and The Philippine Bank of
Commerce / G.R. No. L-49101; October 24, 1983

FACTS:

On December 6, 1966, spouses Jose and Josefa Lozano mortgaged their lot to Philippine
Bank of Commerce (PBCom) to secure the payment of PHP 75, 000 loan. At the time of the
execution of the mortgage, the amount of PHP 75, 000 was not yet received by them. Later, they
executed a Deed of Sale with Mortgage in favor of Honesto Bonnevie for the amount of PHP
100, 000. Of this amount, the PHP 25, 000 is payable to Lozano spouses, and the PHP 75, 000 is
 payable to PBCom. In 1968, Honesto assigned all his rights under the Deed of Sale with
Mortgage to his brother, Raoul Bonnevie. Both the sale and the assignment were not registered
and made without the consent of PBCom. On June 1968 PBCom applied for the foreclosure of
the mortgage. An auction sale was conducted where PBCom, as the highest bidder, acquired the
 property.
In 1971 Honesto filed a complaint against PBCom seeking the annulment of the Deed of the
Mortgage as well as the extrajudicial foreclosure. In his complaint he alleged that the mortgage
is invalid because it was executed by one who was not the owner of the mortgaged property and
that at the time its execution, the PHP 75, 000 loan was not yet received by the Lozano spouses,
hence there was yet no principal obligation to secure. In addition, they contend that the
extrajudicial sale is invalid because they were not notified of such. PBCom, in its Answer,
averred that the sale to Honesto was made without its consent and that they had no knowledge of
the sale until after the foreclosure.

ISSUE/S:
1. Whether or not the Deed of Mortgage is valid
2. Whether or not the extrajudicial foreclosure is valid

RULING:

1. YES. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed
was executed for and on condition of the loan granted to the Lozano spouses. The fact that
the spouses did not collect from PBCom the consideration of the mortgage on the date it was
executed is immaterial. A contract of loan being a consensual contract, the herein contract of
loan was perfected at the same time the contract of mortgage was executed. Thus, there was a
 principal obligation to secure existing at the time of execution of mortgage. In addition,
Honesto voluntarily assumed the mortgage when they entered into the Deed of Sale with
Assumption of Mortgage. They are, therefore, estopped from impugning its validity whether
on the original loan or renewals thereof.
2. YES. Since PBCom was not a party to the Deed of Sale with Mortgage and the sale and the
assignment were not registered, it can validly claim that it was not aware of the same. Hence,
it may not be obliged to notify Honesto and Raoul. In addition, Honesto is not entitled to
notice since he had transferred all his rights and interests over the property and PBCom was
not informed of the same, while Raoul is not entitled to notice for the same reason. Most
importantly, Act No. 3135 does not require personal notice to the mortgagor.
 6. Central Bank of the Philippines vs CA
GR L-45710, October 3, 1985
FACTS:

On April 28, 1965, Island Savings Bank, approved the loan application for ₱80,000.00 of
Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate
mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan. The loan called for a
lump sum of ₱80,000, repayable in semi-annual installments for 3 years, with 12% annual
interest. On May 22, 1965, a mere ₱17,000 partial release of the loan was made by Island
Savings and Sulpicio and his wife signed a promissory note for P17,000 at 12% annual interest
 payable w/in 3 yrs. An advance interest was deducted from the partial release but the said
interest was also refunded to Tolentino after being informed that there was no fund yet for the
release of the ₱63,000 balance.

On August 13, 1965, the Monetary Board of Central Bank, after finding out that Island
Savings Bank was suffering from liquidity problems, issued Board Resolution No. 1049. The
said resolution prohibited Island Savings from making new loans and investments. And after the
said bank failed to restore its solvency, the Central Bank prohibited Island Savings Bank from
doing business in the Philippines. Island Savings Bank, in view of the non-payment by Mr.
Tolentino in the amount of ₱17,000, filed an application for foreclosure of the real estate
mortgage. Mr. Tolentino, on the other hand, filed a petition for specific performance or
rescission and damages with preliminary injunction, claiming that since Island Savings failed to
deliver the remaining balance of ₱63,000, he is now entitled to specific performance or to
rescission of the real estate mortgage.

ISSUE: Whether or not Tolentino can demand for specific performance.

RULING:

 No. The loan agreement implied reciprocal obligations. In reciprocal obligations, the
obligation or promise of each other is the consideration for that of the other, and when one party
is willing and ready to perform, the other party who is not ready nor willing, incurs in delay.
When Mr. Tolentino executed the real estate mortgage, he signified his willingness to pay. The
 prohibition on the bank to make new loans is irrelevant since it did not prohibit the bank from
releasing the balance of loans from previous contracts. The mere fact of insolvency by the
debtor is never an excuse for the non-fulfillment of obligation and is taken as a breach of
contract.

When Island Savings Bank and Mr. Sulpicio M. Tolentino undertook reciprocal
obligations by entering an ₱80,000 loan agreement, with Mr. Tolentino executing a real estate
mortgage and Island Savings was only able to release ₱17,000, the said bank was held in default
for the remaining balance of ₱63,000. Since Island Savings Bank was in default, Mr. Tolentino
may choose bet specific performance or rescission with damages in either case. But considering
that Island Savings is now prohibited by the Central Bank Board Resolution from doing
 business, specific performance cannot be granted. Thus, rescission for the ₱63,000 balance is the
rightful remedy.
 7. CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE VS.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ
G.R. No. 80294-95 September 21, 1988

Facts:
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed an
application for registration of title over Lots 1, 2, 3, and 4, said Lots being the sites of the
Catholic Church building, convents, high school building, school gymnasium, school
dormitories, social hall, stonewalls, etc. The Heirs of Juan Valdez and the Heirs of Egmidio
Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting
ownership and title thereto since their predecessors’ house was borrowed by petitioner Vicar
after the church and the convent were destroyed. After trial on the merits, the land
registration court
 promulgated its Decision confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.
The Heirs of Juan Valdez appealed the decision of the land registration court to the then
Court of Appeals. The Court of Appeals reversed the decision. Thereupon, the VICAR filed
with the Supreme Court a petition for review on certiorari of the decision of the Court of
Appeals dismissing his application for registration of Lots 2 and 3.

Issue: Whether or not the failure to return the subject matter of commodatum constitutes an
adverse possession.

Held:
 No. The bailees’ failure to return the subject matter of commodatum to the bailor did not
mean adverse possession on the part of the borrower. The bailee held in trust the property
subject matter of commodatum. Catholic Vicar was in possession as borrower in commodatum
up to 1951, when it repudiated the trust by declaring the properties in its name for taxation
purposes. When he applied for registration of Lots 2 and 3 in 1962, it had been in possession in
concept of owner only for eleven years. Ordinary acquisitive prescription requires possession
for ten years,
 but always with just title. Extraordinary acquisitive prescription requires 30 years. The Court
found that Catholic Vicar did not meet the requirement of 30 years possession for acquisitive
 prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for
ordinary acquisitive prescription because of the absence of just title.
The heirs of Valdez and Octaviano were able to prove that their predecessors' house was
 borrowed by petitioner Vicar after the church and the convent were destroyed. They never asked
for the return of the house, but when they allowed its free use, they became bailors
in commodatum and the petitioner Vicar the bailee. The bailees' failure to return the subject
matter of commodatum to the bailor did not mean adverse possession on the part of the
 borrower. The bailee held in trust the property subject matter of commodatum. The adverse
claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action
of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary
acquisitive
 prescription because of the absence of just title.
 8. Tolentino and Manio v. Gonzales
G.R. 26085, August 12, 1927

FACTS:

Severino Tolentino and Potenciana Manio purchased a parcel of land from Luzon Rice
Mills, Inc., situated in the municipality of Tarlac with a promise to pay in three installments.
The first two installments were paid but realizing that they would be unable to pay the balance
on due date, Tolentino and Manio applied from the defendant Benito Gonzales a loan to satisfy
their indebtedness on the condition that they would execute a pacto de retro sale on the property
in favor of Gonzales. As stated in the said contract of pacto de retro, the vendor became the
“tenant” of the purchaser and during the period of right to repurchase, the former was
required a monthly rental fee of P375 and default thereof for two consecutive months will
terminate the lease and forfeit the right to repurchase.

Assailing that the amount of rental price paid during the period of the existence of the
right to repurchase, or the sum of P375 per month, based upon the real value of the property,
amounts to a usurious rate of interest, Tolentino and Manio charged Gonzales in violation of the
Usury Law.

ISSUE:

Whether or not the rental price rendered the contract usurious when the amount paid as
rent, computed upon the purchase price, amounts to a higher rate of interest upon said amount
than that allowed by law.

HELD:

 No. The Court held that a contract for the lease of property is not a "loan." Thus, under
the Usury Law the defense of usury cannot be based thereon.

The Usury Law in this jurisdiction prohibits a certain rate of interest on "loans." A
contract of "loan" is a very different contract from that of "rent." A "loan," as that term is used
in the statute, signifies the giving of a sum of money, goods or credit to another, with a promise
to repay, but not a promise to return the same thing. In a con-tract of "rent' the owner of
the
 property does not lose his ownership. He simply loses his control over the property rented
during the period of the contract. In a contract of rent the relation between the contractors is that
of landlord and tenant. In a contract of loan of money, goods, chattels or credits, the
relation
 between the parties is that of obligor and obligee.
 (9) Consolidated Bank And Trust Corporation vs. Court of Appeals, Continental Cement Corporation, Gregory Lim and spouse
G.R. No. 114286; April 19, 2001

FACTS:

On July 13, 1982, Continental Cement Corporation (Continental Cement) and its
President, Gregory Lim, obtained from Consolidated Bank and Trust Corporation (CBTC)
Letter of Credit in the amount of P1,068,150.00 which was used to purchase fuel oil from
Petrophil Corporation. On the same date, Continental Cement paid a marginal deposit of
P320,445.00 to CBTC. In relation to the same transaction, a trust receipt for the amount of
P1,001,520.93 was executed by Continental Cement.

CBTC filed a complaint for sum of money claiming that Continental Cement and Lim
failed to turn over the goods covered by the trust receipt or the proceeds. In its answer,
Continental Cement argued that the transaction was a simple loan and not a trust receipt
transaction.

ISSUE:

Whether or not the transaction involved is a simple loan

RULING:

YES. In Colinares v. Court of Appeals, it was found that inasmuch as the debtor received
the goods subject of the trust receipt before the trust receipt itself was entered into, the
transaction was a simple loan and not a trust receipt agreement. Prior to the date of execution of
the trust receipt, ownership over the goods was already transferred to the debtor. This situation
is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the
goods
 belong in ownership to the bank and are only released to the importer in trust after the loan is
granted. In this case, the delivery to Continental Cement of the goods subject to the trust receipt
occurred long before the trust receipt itself was executed.

Furthermore, Continental Cement is not an importer, which acquired the bunker fuel oil
for re-sale; it needed the oil for its own operations. More importantly, at no time did title over
the oil pass to CBTC, but directly to Continental Cement to which the oil was directly delivered
long
 before the trust receipt was executed. Continental Cement was required to sign the trust receipt
simply to facilitate collection by CBTC of the loan it had extended to the former.
 10. Casa Filipina Development Corp. v. Deputy Executive Secretary
GR No. 96494, October 16, 1995
FACTS:

Jose Valenzuela Jr. filed a complaint against Casa Filipina Development

Corporation(CFDC) before the Office of Appeals, Adjudication and Legal Affairs (OAALA) of
the Human Housing and Land Use Regulatory Board for failure to execute and deliver the deed
of sale and transfer certificate of title, alleging: that he entered into a contract to sell with CFDC
for purchase of a lot for a price of P68,400 with P16,416 as down payment, the remaining
 balance to be paid in 12 equal monthly installments with 24% interest per annum starting
September 3, 1984; that CFDC refused to execute necessary deed of absolute sale and deliver
the transfer certificate of title even after full payment; that he had offered to pay for/reimburse
CFDC the expenses for the transfer of the title but the latter refused. According to CFDC,
Valenzuela’s action is premature because of his failure to comply with the other conditional
requirements of their contract such as payment of transfer expenses; and had the latter paid said
fees, it would have been very much willing to effect the transfer of the title. The OAALA
ordered CFDC to execute said deed to bill Valenzuela the total amount due for registration and
transfer expenses, and to deliver the transfer certificate of title after said payment. In event
CFDC is unable to deliver, Valenzuela is to receive full refund of his total payments plus 24%
interest per annum from the date of the filing of the complaint until fully paid. HLURB
dismissed the appeal. An appeal and a motion for reconsideration were filed to the Office of the
President and were both denied. The main contention of the CFDC is that the amount of 24%
interest imposed by the OAALA in case of refund is high and without basis: firstly, HLURB
Resolution No. R-421, series of 1988, strictly enjoins the maximum interest to be awarded in
case of refund to 12%; secondly, although condition no. 1 of their contract to sell provides for
said rate of interest, it merely applies to interest on installment, not to refunds; thirdly, since the
contract between them is not a forbearance of money or loan, the doctrine laid down in the case
of Reformina v. Tomol, Jr. applies, that is, except where the action involves forbearance of
money or loan, interest which courts may award is only up to 12%.

ISSUE: Whether or not the legal rate of interest shall be applied

RULING:

 No. The Court adopted the disposition of the Office of the Solicitor General on the
correct rate of interest stating that Reformina v. Tomol deals exclusively with cases where
damages in the form of interest is due but no specific rate has been previously set by the parties.
In such cases, the legal interest of 12% per annum must be applied. In the present case, however,
the interest rate of 24% per annum was mutually agreed upon by Casa Filipina and Valenzuela
in their contract to sell — t his was the interest rate imposed on Valenzuela for the payment of
the installments on the contract price and there is no reason why this same interest rate should
not be equally applied to CFDC which is guilty of violating the reciprocal obligation. Thus, it is
evident that if a particular rate of interest has been expressly stipulated by the parties, that
interest, not the legal rate of interest, shall be applied.
 11. PHILIPPINE NATIONAL BANK, vs. THE HON. COURT OF APPEALS and AMBROSIO PADILLA.
G.R. No. 88880. April 30, 1991

Facts:
Ambrosio Padilla (“Padilla”, for brevity) was granted a credit line amounting to 321.8
million by the Philippine National Bank (“PNB”, for brevity). Padilla executed in favor of PNB
a credit agreement, two promissory notes amounting to P900,000 each and a real estate
mortgage contract all of which contained stipulations allowing the bank to unilaterally increase
the interest rates within the limits prescribed by law.
Later, PNB told Padilla of the credit line expiration to which Padilla submitted a new
request for extension for two more years and submitted that the increase of interest rate from18%
 be fixed at 21% of 24% but the PNB denied his request stating that the company policy now
requires that the interest rates on loans with more than one-year maturity is at 32% to which
Padilla replied he’d pay the loan within a year and reiterated the previously mentioned interest
rate. However, in succeeding letters the PNB increased his interest rates until it reached to 48%.
Padilla then filed a complaint in the Regional Trial Court of Manila (“RTC”) praying
that the unilateral increase of interest rate to 48% be considered not binding to him, the same
was dismissed by the trial court rendering that the increases in interest rates were properly
made. Padilla then appealed to the Court of appeals which reversed the RTC decision.

Issue: Whether or not PNB may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased.

Held:
 No. PNB cannot unilaterally change or increase interest rates. The imposition was
excessive and Padilla never agreed in writing to be bound by the increased interest rates.
Central Bank Circular No. 905 series of 1982 removed the Usury Law ceiling on interest rates
 but it did not authorize any bank, even PNB, to unilaterally and successively increase interest
rates in violation Presidential Decree No. 116 which limits changes in interest rate once every
twelve months. Besides, Art. 1956 requires that for interest to be due it must be in writing.
Padilla never agreed in writing. Hence, he is not bound to pay higher interest rate than that
stipulated by him that is 24%.
 12. Eastern Shipping Lines vs. CA
G.R. No. 97412, July 12 1994

FACTS:

An action was filed against Eastern Shipping Lines (shipping company), Metro Port
Service, Inc. (arrastre operator) and Allied Brokerage Corporation (broker-forwarder) for
damages sustained by a shipment of one of the fiber drums of riboflavin while in their custody,
 by Mercantile Insurance Company, Inc. (insurer-subrogee) who paid the consignee the value of
such losses/damages. The Court of Appeals affirmed in toto the judgement of the lower court
that the defendants shall pay damages, with the present legal interest of 12%  per annum from
the date of filing of complaint until fully paid.
Upon appeal, Eastern Shipping Lines assailed that 6% per annum  should be applied as
 prescribed under Art. 2209 of the Civil Code from the date of the finality of decision until paid.

ISSUES:
a. Whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision appealed from is
rendered; and
 b. Whether the applicable rate of interest, referred to above, is twelve percent (12%) or
six percent (6%).

HELD:

The Court held that the legal interest to be paid is SIX PERCENT (6%) on the amount
due computed from the decisionof the court a quo (lower court)  . A TWELVE PERCENT (12%)
interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this
decision until the payment thereof.

The court provided that 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, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. 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 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 (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.

Also, when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, 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.
 (13) Dario Nacar vs. Gallery Frames and/or Felipe Bordey, Jr.
G.R. No. 189871; August 13, 2013

FACTS:

nce Nacar was awarded PHP 158,919.92 as backwages and separation pay. Gallery Frames sought relief before the Supreme Court (SC). The SC
missal on January 24, 1997 up to the finality of the SC resolution on May 27, 2002 with interest. LA granted the motion and a recomputation wa
riate interests. LA granted the motion but ruled that the amount is to be computed only up to the date of LA decision in 1998, since it was the o

ISSUE:

Whether or not the legal interest is to be computed from the date of the finality of LA decision

RULING:

NO. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, the Court
held that when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether or not it is a loan or forbearance of money, 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. Recently, however, the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), issued Circular No. 799, where the legal interest is
changed to six
 percent (6%), effective July 1, 2013. Thus, the twelve percent (12%) per annum legal interest
shall apply only until June 30, 2013 and with regard to those judgments that have become final
and executory prior to July 1, 2013, said judgments shall not be disturbed and shall continue to
 be implemented applying the rate of interest fixed therein.

The LA decision consists of two parts: (1) finding of illegality of the dismissal and the
awards of separation pay in lieu of reinstatement, backwages, attorney’s fees, and legal
interests, and (2) computation of the awards made. The first part cannot now be disputed
because it has
 been confirmed with finality. The second part, being merely a computation of what the first part
of the decision established and declared, can, by its nature, be re-computed. Hence, as to the
computation of the awards, the finality is deemed to be on the time of finality of SC resolution.
Therefore, legal interest to be awarded should be 12 % per annum from May 27, 2002 (SC
resolution finality) to June 30, 2013 and 6 % per annum from July 1, 2013 until their full
satisfaction.
 14. First Metro Investment v. Este Del Sol Mountain
Reserve GR No. 141811, November 15, 2001

FACTS:
On January 31, 1978, First Metro Investment Corp. (FMIC) granted Este Del Sol a loan
to finance the construction and development of the Este del Sol Mountain Reserve, a
sports/resort complex project located at Montalban, Rizal. Under the terms of the Loan
Agreement, the interest on the loan was pegged at 16% per annum. In case of default, the
acceleration clause provided that the amount due was made subject to a 20% one-time penalty
on the amount due and such amount shall bear interest at the highest rate permitted by law from
the date of default until full payment plus liquidated damages at 2% per month compounded
quarterly on the unpaid balance and accrued interests together with all the penalties, fees,
expenses or charges until the unpaid balance is fully paid, plus attorney’s fees equivalent to 25%
of the sum sought to be recovered. Este Del Sol, on the same date, executed a Real Estate
Mortgage as security for payment and in addition, an Underwriting Agreement whereby FMIC
shall underwrite on a best-efforts basis the public offering of 120,000 common shares of Este
Del Sol’s capital stock. Since Este Del Sol defaulted in 1978, FMIC caused the extrajudicial
foreclosure on June 23, 1980 of the real estate mortgage in which FMIC was the highest bidder.
Failing to secure the payment of the alleged deficiency balance from Daez, Salientes, De Vega
and Asuncion, who are sureties of the subject loan, FMIC instituted the instant collection suit
against Este Del Sol to collect the alleged deficiency balance.
In their Answer, Este Del Sol sought the dismissal of the case as they claimed that the
Underwriting and Consultancy Agreements executed simultaneously with the Loan Agreement
were in reality subterfuges resorted to by FMIC to camouflage the usurious interest being
charged by FMIC. The trial court ruled in favor of FMIC. The CA reversed the decision and
ordered FMIC to reimburse to Este Del Sol P971,000 representing the difference between what
is due to FMIC and what is due to Este Del Sol.

ISSUE: Whether or not the interest imposed by FMIC is valid.

RULING:
No. The Court ruled that the fees provided for in the Underwriting and
Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest
charged by the FMIC on the loan of Este Del Sol. The Underwriting and Consultancy
Agreements which were executed and delivered contemporaneously with the Loan Agreement
were exacted as essential conditions for the grant of the loan. An apparently lawful loan is
usurious when it is intended that additional compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by the borrower for the lenders services
which are of little value or which are not in fact to be rendered, such as in the instant case.
Article 1957 of the Civil Code states that “Contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury shall be void”. The Usury law provides
that the entire obligation does not become void because of an agreement for usurious interest;
the unpaid principal debt still stands and remains valid but the stipulation as to the usurious
interest is void. The nullity of the stipulation on the usurious interest does not affect the lender’s
right to receive back the principal amount of the loan.
15. LEONIDES DIO VS. LINA JARDINES
G.R. No. 145871 January 31, 2006

Facts:
Leonides C. Dio (petitioner) filed a Petition for Consolidation of Ownership. She alleged
that she and Lina Jardines (respondent) executed in Dio’s favor a Deed of Sale with Pacto de
 Retro over a parcel of land with improvements for P165,000.00; it was stipulated in the deed
that the period for redemption would expire in six months. When such period expired, Jardines
was not able to repurchase the land.
Jardines on the other hand, countered that Deed of Sale with Pacto de Retro did not
embody the real intention of the parties; the transaction actually entered into by the parties was
one of simple loan and the Deed of Sale with Pacto de Retro was executed just as a security for
the loan; the amount borrowed by respondent during the first week of January 1987 was
only P50,000.00 with monthly interest of 9% to be paid within a period of six months.
RTC ruled that the contract was a deed of sale with  Pacto de Retro, while CA ruled
otherwise, hence this petition.

Issue: The issues in this case are:

1. Whether or not the contract was a deed of sale with pacto de retro
2. Whether or not the interest was usurious.

Held:
(1) The court ruled in favor of Leonides Dio and affirmed the decision of CA, with a
modification that the legal interest shall be 12%.
Article 1602 of the Civil Code enumerates the instances when a purported pacto de
retro sale may be considered an equitable mortgage, to wit: 1. When the price of a sale with
right to repurchase is unusually inadequate; 2. When the vendor remains in possession as lessee
or otherwise; 3. When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed; 4. When the purchaser
retains for himself a part of the purchase price; 5. When the vendor binds himself to pay the
taxes on the thing sold; and 6. In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the payment of a debt or the
 performance of any other obligation.
In the instant case, the presence of the circumstances provided for under paragraphs (2)
and (5) of Article 1602 of the Civil Code, and the fact that petitioner herself demands payment
of interests on the purported purchase price of the subject property, clearly show that the
intention of the parties was merely for the property to stand as security for a loan.  The
transaction
 between herein parties was then correctly construed by the CA as an equitable mortgage.

(2) On the issue of the interest, SC ruled that the interest was indeed usurious, hence the
stipulated interest was void, and was given legal interest rate of 12% per annum
 16. The United States vs. Jose M. Igpuara
G.R. No. L-7593, March 27, 1913

FACTS:

Jose Igpuara, as the agent, voluntarily accepted sales commission in the amount of P2,
498 in favor of the principal, Juana Montilla. This balance remained in the possession of the
Jose Igpuara who drew up an instrument payable on demand to Veraguth. Thereafter, Veraguth
demanded for him through a notarial instrument for the restitution, in which he did not restore.

The defendant herein is charged with the crime of estafa, for having swindled Juana
Montilla and Eugenio Veraguth out of P2, 498 Philippine currency, which he had taken on
deposit from the former to be at the latter's disposal.

Igpuara contended against the existence of a deposit and argued that his possession of the
amount is that of a loan.

ISSUE:

Whether or not the agreement executed between Igpuara as an agent of Montilla and
Veraguth was contract of deposit.

HELD:

Yes. The Court held that the balance of a commission account remaining in possession
of the agent at the principal's disposal acquires at once the character of a deposit which the
former must return or restore to the latter at any time it is demanded, nor can he lawfully dispose
of it without incurring criminal responsibility for appropriating or diverting to his own use
another's
 property.

It is also erroneous to assert that sum of mone y set forth in said certificate is, according
to it, in Igpuara’s possession as a loan. In a loan the lender transmits to the  borrower the use of
the thing lent, while in a deposit the use of the thing is not transmitted, but merely possession
for its custody or safe-keeping. It. could only become his as a loan, if so expressly agreed by its
owner, who would then be obligated not to demand it until the expiration of the legal or
stipulated
 period for a loan.

He undoubtedly commits the crime of estafa who, having in his possession a certain
amount of another's money on deposit at its owner's disposal, appropriates or diverts it to his
own use, with manifest damage to its owner, for he has not restored it and has so acted willfully
and wrongfully in abuse of the confidence reposed in him.
 (17) CA Agro-Industrial Development Corp. vs Court of Appeals And Security Bank
And Trust Company
G.R. No. 90027; March 3, 1993

FACTS:

On July 3, 1979, CA Agro-Industrial Development Corp., thru its President Sergio

Aguirre, and spouses Ramon and Paula Pugao entered into an agreement where CA Agro-
Industrial purchased from the spouses two parcels of land for P350,625. Of this amount,
P75,725 was paid as downpayment while the balance was covered by three postdated checks. It
was agreed that the title to the lots will be transferred to CA Agro-Industrial upon full
payment of
 purchase price, and that the copies of certificates of title will be deposited in a safety deposited
 box of any bank. It was also agreed that the title could be withdrawn only upon full payment of
 purchase price. They rented a safety deposit box of Security Bank and Trust Company (SBTC).
For this purpose, they signed a contract of lease with SBTC where it was agreed that SBTC is
not a depositary of the contents of the safe and it has neither possession nor control of it.

Thereafter, Margarita Ramos offered to buy from CA Agro-Industrial the two lots.
Ramos demanded the execution of a deed of sale which necessarily entailed the production of
the certificates of title. Aguirre and spouses Pugao then proceeded to SBTC to open the safety
box and get the certificates of title, however the safety box yielded no such certificates. Ramos
withdrew her offer to buy the lots. As a result, CA-Agro Industrial filed a complaint for
damages against SBTC because it failed to realize the expected profit. It also averred that the
contract for rent of safety deposit box is actually a contract of deposit.

ISSUE/S:

1. Whether or not the contract for rent of safety deposit box is a contract of deposit
2. Whether or not the relationship between SBTC and the spouses Pugao and CA-Agro
Industrial is one of bailor and bailee

RULING:

1. YES. The contract in this case is a special kind of deposit. It cannot be characterized as an
ordinary contract of lease because the full and absolute possession and control of the safety
deposit box was not given to the joint renters. Under the General Banking act, when banks
rent safety deposit boxes for the safeguarding of documents, funds and valuable objects, they
shall perform such service as depositaries. The depositary’s responsibility in safekeeping
the objects deposited is governed by the Civil Code. Accordingly, the depositary would be
liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. Hence, any stipulation exempting the depositary
from any liability arising from fraud, negligence or delay would be void. In this case, the
provision exempting SBTC from any liability in connection with the object deposited is void.
2. YES. The relation between a bank renting out safety-deposit boxes and its customer with
respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and
mutual benefit.
 18. SIA v. CA
G.R. No. 102970 May 13, 1993

FACTS:

Luzan Sia rented the Safety Deposit Box No. 54 of Security Bank at its Binondo Branch
located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his
collection of stamps.

During the floods that took place in 1985 and 1986, floodwater entered into Security
Bank’s premises, seeped into the safety deposit box leased by Sia and caused, according to him,
damage to his stamps collection. The Security Bank rejected Sia's claim for compensation for
his damaged stamps collection claiming that based on Par. 9 and 13 of the Rules and
Regulations Governing the Lease of Safe Deposit Boxes, the liability Security Bank by reason
of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any
person other than the Renter, his authorized agent or legal representative. Security Bank further
claimed that the contract executed is a contract of lease and not a deposit. Thus Sia instituted an
action for damages against Security Bank.

ISSUES:

1.) Whether or not the contract between Sia and Security Bank in renting a safety deposit
 box is covered by the laws on lease.
2.) Whether or not Security Bank is exempted from paying damages caused by the flood.

RULING:

(1) No. The Court explicitly rejected the contention that a contract for the use of a safety
deposit box is a contract of lease and declared it a special kind of deposit. The prevailing rule in
American jurisprudence stating that the relation between a bank renting out safe deposit boxes
and its customer with respect to the contents of the box is that of a bailor and bailee, the
bailment for hire and mutual benefit, has been adopted. Sec. 72 of the General Banking Act
states that
 banking institutions other than building and loan associations may perform the following
services: receive in custody funds, documents, and valuable objects, and rent safety deposit
 boxes for the safeguarding of such receipts. The provisions of the Lease Agreement denying the
 bank’s liability in connection with the contents of the safety deposit box is contrary to the said
law and is therefore void.

(2) No. Security Bank's negligence aggravated  the injury or damage to the stamp
collection. Security Bank was aware of the floods of 1985 and 1986; it also knew that the
floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it
should have lost no time in notifying Sia in order that the box could have been opened to
retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it
failed to exercise the reasonable care and prudence expected of a good father of a family,
thereby
 becoming a party to the aggravation of the injury or loss.
19. GUINGONA Jr. vs. CITY FISCAL OF MANILA
GR No. L-60033 April 4, 1984

Facts:
From March 1979 to March 1981, Clement David (David) made several investments such
as time deposits and savings account deposits with the National Savings and Loan Association
(NSLA). On 21 March 1981, the bank was placed under receivership by the Central Bank.
Because of that, David demand claims therewith for his investments and those of his sister to
 NSLA. Teofisto Guingona, Jr. (Guingona) and Antonio L. Martin (Martin) then issued a joint
 promissory note, absorbing the obligations of the bank, as they were then the President and
Executive Vice-President of the said bank respectively.
On July 17, 1981, Guingona and Martin divided the indebtedness. However, David filed
a complaint for Estafa and violation of Central Bank Circular No. 364 and related regulations
regarding foreign exchange transactions before the Office of the City Fiscal of Manila for
misappropriating the balance of the investments, and that after demands, Guingona Jr. paid only
P200,000.00, thereby reducing the amounts misappropriated to P959,078.14 and US$75,000.00.

Issue:
Whether or not the contract entered between David and NSLA is a contract of deposit?

Held:
 No, a bank time or savings deposit constitutes a simple loan, not a contract of deposit.
 Non-payment of the said bank deposit does not constitute estafa. It must be pointed out that
when David invested his money on time and savings deposits with the aforesaid bank, the
contract that was perfected was a contract of simple loan or mutuum and not a contract of
deposit. Hence, the relationship between David and the Nation Savings and Loan Association
(NSLA) is that of creditor and debtor; consequently, the ownership of the amount deposited was
transmitted to the Bank upon the perfection of the contract and it can make use of the amount
deposited for its banking operations, such as to pay interests on deposits and to pay withdrawals.
While the Bank has the obligation to return the amount deposited, it has, however, no obligation
to return or deliver the same money that was deposited, and, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation punishable under Article
315, par. 1(b) of the Revised Penal Code, but it will only give rise to civil liability over which
the Office of the City Fiscal of Manila have no jurisdiction.
20. PNB vs. Macapanga Producers Inc.
GR No. L-8349, May 23, 1956

FACTS:

Luzon Sugar Company leased a sugar mill to Macapanga Producers at a minimum

annual royalty which shall be a lien on the sugar produced by the latter and shall be paid before
sale or removal of sugar from warehouse. Macapanga, as principal, and Plaridel Surety &
Insurance, as surety, executed and delivered to Luzon Sugar Company a performance bond for
the full compliance by the former of all terms and conditions of the lease. Luzon Sugar
Company then assigned to PNB the payment due from Macapanga in the said amount,
representing royalty for the lease of the sugar mill. When demanded for payment, Macapanga
refused to pay. Thereafter, PNB made demand on Plaridel Surety, as it bound itself solidarily
with Macapanga., in which it also refused.

Plaridel Surety alleged that it is a guarantor and as such, responsible only if Macapanga
has no property or assets to pay its obligation as lessee. It also argued that it was not a party to
the assignment, and same made without its consent, Plaridel Surety is, therefore discharged from
its obligation.

ISSUES:

1. Whether or not Plaridel Surety & Insurance’s liability under the surety bond is
that of a guarantor.

2. Whether or not the assignment of credit exempted Plaridel Surety from

its obligation under the surety bond.

HELD:

(1) No. The Court ruled that Plaridel Surety is not a guarantor but a surety. ART. 2047
 provides that if a person binds himself solidarily with the principal debtor, the provisions of
section 4, Charter 3, Title I of this Book (Civil Code) shall be observed. In such case the
contract is called a suretyship.

(2) No. The Court held that the assignment of credit did not release Plaridel Surety from
its obligation under surety bond. An assignment without knowledge or consent of the surety is
not a material alteration of the contract, sufficient to discharge the surety. on in the deed of
assignment, or any change therein that makes the obligation of surety more onerous than that
stated in the performance bond.
  (21) Manila Surety and Fidelity, Inc. vs Batu Construction and Company, et al.
G.R. No. L- 9353; May 21, 1957

FACTS:

Batu Construction and Company, Inc. (Batu Construction), requested Manila Surety and
Fidelity (Manila Surety), to execute a surety bond for Php, 8,812 in favor of the Philippine
Government to secure the completion of Bacarra Bridge Project. It was agreed that Batu
Construction will indemnify Manila Surety for any loss or expenses that the latter may sustain
as a consequence of becoming surety. It was also agreed that the indemnity will be paid as soon
as Manila Surety has become liable for payment of any amount, whether or not it has already
paid such amount. Thereafter, the Director of Public Works annulled the construction contract
with Batu Construction due to the unsatisfactory progress of the work, and notified Manila
Surety that it will be liable for any amount incurred by the Government for the completion of
the bridge. Hence, Manila Surety filed a complaint against Batu Construction, praying that the
properties of the latter be attached and levied.

ISSUE/S:

1. Whether or not the provisions of Articles 2071 in the Civil Code may be availed by a
surety.
2. Whether or not the Manila Surety has a cause of action.

RULING:

1. YES. A guarantor is the insurer of the solvency of the debtor; a surety is an insurer of the
debt. A guarantor binds himself to pay if the principal is unable to pay; a surety undertakes to
 pay if the principal does not pay. The reason which could be invoked for the non-availability
to a surety of the provisions of the last paragraph of Article 2071 would be the fact that a
guaranty, like a commodatum, is gratuitous. Then again a guaranty could also be for a price
or consideration as provided for in Article 2048. So, even if there should be a consideration
or
 price paid to a guarantor for him to insure the performance of an obligation by the principal
debtor, the provisions of Article 2071 would still be available to the guarantor. In suretyship
the surety becomes liable to the creditor without the benefit of the principal debtor's
exclusion of his properties, for he (the surety) maybe sued independently. So, he is an insurer
of the debt and as such he has assumed or undertaken a responsibility or obligation greater or
more onerous than that of guarantor. Such being the case, Art. 2071 is applicable to a surety.
2. YES. Manila Surety’s cause of action comes under paragraph 1 of Article 2071 of the Civil
Code. Under par. 1, the guarantor/surety, even before having paid, may proceed against the
 principal debtor to obtain release from the guaranty/suretyship, or to demand a security that
shall protect him from any proceedings by the creditor of from the insolvency of the debtor,
when he (guarantor/surety) is sued for payment. It does not provide that the guarantor/surety
 by sued by the creditor for the payment of the debt. It simply provides that the guarantor or
surety be sued for the payment of an amount for which the surety bond was put up to secure
the fulfillment of the principal obligation.
 22. Palmares v Court of Appeals
GR. No. 126490. March 31,
1998

FACTS:

M.B Lending Corp. extended a loan to the spouses Osmena and Azarraga together with
Estrella Palmares. Azarraga was able to pay a partial payment. However, there is no payment
made for the remaining balance. M.B. Lending Corp. filed a complaint against Palmares to the
exclusion of the principal debtors. In her counter affidavit, Palmares alleged that she offered to
settle the obligation with M.B. Lending after the loan matured. However, the said company told
her not to worry because they will collect it from the debtors. She further alleged that the
interest of 6% per month compounded at the same rate per month as well as the penalty of 3%
per month are usurious and unconscionable; and that while she agrees to be liable on the note
but only upon default of the principal debtor, M.B. Lending acted in bad faith in suing her alone
without including the Azarragas when they were the only ones who benefited from the proceeds
of the loan.

The trial court dismissed the case and held that Palmares is only secondary liable on the
instrument. The Court of Appeals reversed the judgment of the trial court declaring that
Palmares is solidary liable with the principal debtor since she signed as a co-maker.

ISSUE: Whether or not the person who signed a contract as a co-maker and binds herself to be
 jointly and severally liable with the principal debtor shall be deemed as a surety.

RULING:

Yes. A person who signs a contact as a co-maker and binds himself to be solidarily
liable with the principal debtor and the latter defaults in the payment of the loan is deemed as a
surety. Article 2047 of the Civil Code provides that by a contract of guaranty, a person called
guarantor
 binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter fails
to do so. If a person binds himself solidarily with the principal debtor, the contract is called a
suretyship. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are
clear and leave no doubt upon the intention of the parties, the literal meaning of its stipulation
shall control. Here, it is provided in the second paragraph of the contract that she is to be jointly
and severally or solidarily liable with the principal maker of the note. Having entered into the
contract with full knowledge of its terms and conditions, Palmares is estopped to assert that she
did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of
the undertaking. The rule that ignorance of the contents of an instrument does not ordinarily
affect the liability of one who signs it also applies to contracts of suretyship. And the mistake of
a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of
liability. Hence, the terms of the contract are clear, explicit and unequivocal that Palmares’
liability is that of a surety.
 23. JEANETTE D. MOLINO v. SECURITY DINERS INTERNATIONAL
CORPORATION
G.R. No. 136780 August 16, 2001

Facts:

Danilo A. Alto (Danilo) applied for a Regular Card with Security Diners International
Corporation (SDIC) and he got his sister-in-law Jeanette Molino-Alto (Jeanette) as his surety.
Jeanette signed the Surety Undertaking which states that she binds herself jointly and severally
with Danilo to pay SDIC all obligations and charges incurred by him in connection with the use
of the card. Danilo’s request to upgrade his Regular Card to a Diamond Edition, with the signed
approval of Jeanette, was later granted.
SDIC filed an action to collect said indebtedness against Danilo and Jeanette after
Danilo defaulted in the payment of his obligation. Jeanette was sued in her capacity as surety of
Danilo. Jeanette claimed that a pronouncement should first be made declaring the principal
debtor liable
 before she herself can be proceeded against. The RTC dismissed the complaint and concluded
that Jeannette was completely relieved of liability under Danilo's credit card stating further that
Jeanette’s signature certifying to her approval of Danilo's request to have his card upgraded
should be read simply as a statement of and objection to his request for upgrading, and not as an
assumption of liability for the debts that Danilo may later owe through the said card.
The Court of Appeals reversed the ruling of the lower court and declared that the Surety
Undertaking signed by Jeannette when Danilo first applied for a Regular Diners Club Card
clearly applied to the unpaid purchases of Danilo under the Diamond card, it being understood
that the undertaking is a continuing one which subsists until all obligations and charges under
the subject credit card are paid and satisfied. The appellate court held the surety liable to the
extent of the credit cardholder's indebtedness, under the clear terms of the Guarantor's
Undertaking that the surety signed with the credit card company.

Issue: Whether or not Jeannette (surety) incur the same liability of the Danilo’s (principal
debtor) liability.

Held:

The Supreme Court held yes. The Surety Undertaking expressly provides that Jeannette's
liability is solidary. A 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, and their liabilities are
interwoven as to be inseparable. Although the contract of a surety is in essence secondary
only to a valid
 principal obligation, her liability to the creditor is direct, primary and absolute; she becomes
liable for the debt and duty of another although he possesses no direct or personal interest over
the obligations nor does he receive any benefit therefrom.
24. Paramount Insurance Corp. vs. CA and Dagupan Electric Corp.
GR No. 110086, July 19, 1999

FACTS:

McAdore Finance and Investment, Inc. (McADORE) and Dagupan Electric Corporation
(DECORP) entered into a contract whereby DECORP shall provide electric power to
McADORE's Hotel. During the term of the contract, DECORP noticed discrepancies between
the actual monthly billings and the estimated monthly billings of McADORE. DECORP issued
a corrected bill but McADORE refused to pay thus, DECORP disconnected power supply to the
hotel.

McADORE commenced a suit against DECORP for damages with prayer for a writ of
 preliminary injunction. McADORE posted injunction bonds from several sureties, one of which
was Paramount Insurance Corp.. Accordingly, a writ of preliminary injunction was issued
wherein DECORP was ordered to continue supplying electric power to the hotel and restrained
from further disconnecting it.

The RTC rendered judgment in favor of DECORP and held that the bonding companies
are jointly and severally liable with McADORE. The CA affirmed the decision of the RTC but
Paramount contends that it is liable to pay actual damages only.

ISSUE:

Whether or not Paramount’s liability under the injunction bond is limited only to actual
damages.

HELD:

 No. The Court held that Paramount is not only liable to pay actual damages but is
answerable to all damages. By the contract of suretyship, it is not for the obligee to see to it that
the principal pays the debt or fulfills the contract, but for the surety to see to it that the principal
 pay or perform. The purpose of the injunction bond is to protect the defendant against loss or
damage by reason of the injunction in case the court finally decides that the plaintiff was not
entitled to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are obligated
to account to the defendant in the injunction suit for all damages, or costs and reasonable
counsel's fees, incurred or sustained by the latter in case it is determined that the injunction was
wrongfully issued.

When Paramount issued the bond in favor of its principal, it undertook to assume all the
damages that may be suffered after finding that the principal is not entitled to the relief being
sought.
  (25) Empire Insurance vs. National Labor Relations Commission and Monera Andal
G.R. No. 133876; December 29, 1999

FACTS:

Monera Andal applied to G & M Phils Inc., (G & M) a recruitment agency, for an
overseas employment. She was hired as a domestic helper in Riyadh, Kingdom of Saudi for a
term of two years. However, she was repatriated before the term expired. As a result, she filed a
case for illegal dismissal and sought monetary claims against G & M and Empire Insurance
Company, in its capacity as the surety of G & M. Empire Insurance, in its defense, theorized
that there was no cause of action against them for the reason that the liability of G & M, has not
been established and that their liability, if any, for the mone y claims sued upon was merely
subsidiary.

ISSUE:

Whether or not Empire Insurance is solidarily liable with G & M Phils. for the monetary claims

RULING:

YES. Suretyship is a contractual relation resulting from an agreement whereby one person,
the surety, engages to be answerable for the debt, default or miscarriage of another, known as the
 principal debtor. Where the surety bound itself solidarily with the principal debtor, the former is
so dependent on the principal debtor such 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, and
their liabilities are interwoven as to be inseparable. The surety’s liability is solidary but the
nature of its undertaking is such that unless and until the principal debtor is held liable it does
not incur liability.

When Empire Insurance, entered into a suretyship agreement with G & M, it bound itself to
answer for the debt or default of the latter. Empire Insurance, as a surety, is solidarily liable with
G & M. In addition, since the POEA and NLRC found G & M liable to Monera Andal, the
liability of Empire Insurance Company likewise proceeds from such a finding. Therefore,
Empire Insurance, as a surety, is liable to Andal for her monetary claims against G & M Phils.,
and is immediately bound to satisfy the same.
26. PEOPLE v. MANIEGO
G.R. No. L-30910, February 27, 1987

FACTS:

Maniego together with Lt. Ubay and Pamintuan were charged with the crime of
Malversation. The Information alleged that Lt. Ubay, an officer of the AFP, was designated as
Disbursing Officer and conspired with Pamintuan and Maniego, in unlawfully accepting from
them several checks drawn against PNB and BPI. In the check, Pamintuan was the drawer and
Maniego was the indorser of the total amount of P66,434.50, cashing said checks and using for
this purpose the public funds entrusted to and placed under the custody and control of Lt. Ubay,
knowing fully well that the said checks are worthless and are not covered by funds in the
aforementioned banks. For which reason, the same were dishonored and rejected by the said
 banks when presented for encashment, to the damage and prejudice of the Republic of the
Philippines, in the amount of P66,434.50.
The Court of First Instance convicted Lt. Ubay and acquitted Maniego for lack of
evidence against her while Pamintuan fled to the United States. However, both Lt. Ubay and
Maniego were ordered to solidarily pay the government. Maniego appealed contending that the
Lower Court erred in declaring her jointly and severally liable with Lt. Ubay claiming that she
was just an indorser of several checks drawn by Pamintuan.
Because Maniego's brief raised only questions of law, her appeal was later brought to the
Supreme Court.

ISSUE: Whether or not Maniego is liable on account of the dishonor of the checks indorsed by
her.

RULING:

Yes. Under the Negotiable Instruments Law, the holder or last indorsee of a negotiable
instrument has the right to "enforce payment of the instrument for the full amount thereof
against all parties liable thereon." Among the "parties liable thereon" is an indorser of the
instrument i.e., "a person placing his signature upon an instrument otherwise than as maker,
drawer, or acceptor unless he clearly indicates by appropriate words his intention to be bound in
some other capacity.” Such an indorser "who indors es without qualification," inter alia "engages
that on due
 presentment, the instrument shall be accepted or paid, or both, as the case may be, according to
its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken,
he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it."
Maniego may be deemed an "accommodation party" in the light of the facts, i.e., a
person who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. As such, she is
under the law liable on the instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew her to be only an accommodation party, although she has the
right, after paying the holder, to obtain reimbursement from the party accommodated since the
relation
 between them is in effect that of principal and surety, the accommodation party being the surety.
 27. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORP.
(PHILGUARANTEE) VS. V.P. EUSEBIO CONSTRUCTION, INC. (VPECI), ET AL.
GR140047 434 SCRA 202 [13 July 2004]

Facts:
Philippine Export and Foreign Loan Guarantee Corporation (PHILGUARANTEE), sued
for reimbursement of money it paid to Al Ahli Bank of Kuwait pursuant to a guarantee it issued
for V.P. Eusebio Construction, Inc. (VPECI). VPECI, through its accreditation and registration
with the Philippine Overseas Construction Board (POCB), undertook a joint project, for the
construction of Phase II of the Institute of the Physical Therapy-Medical Center, in Baghdad,
Iraq (hereinafter referred to as “project”). In order for it to do so, however, it had to submit a
 performance and advanced payment bond as required by the State Organization of Buildings
(SOB), Ministry of Housing and Construction of the Iraqi government. To comply with these
requirements, VPECI applied for the issuance of a guarantee with PHILGUARANTEE, a
government financial institution empowered to issue guarantees for qualified Filipino
contractors to secure the performance of approved service contracts abroad.
On 6 November 1987, PHILGUARANTEE informed VPECI that it would remit
US$876,564 to Al Ahli Bank, and reiterated the joint and solidary obligation of the VPECI to
reimburse the PHILGUARANTEE for the advances made on its counter-guarantee.
PHILGUARANTEE then made payments to Al Ahli Bank. When VPECI failed to pay,
PHILGUARANTEE sued for reimbursement.

Issue: Whether or not there exists a contract of suretyship between PHILGUARANTEE and
VPECI that establishes joint and solidary obligation between them as well as the right for
reimbursement.

Held:
 No, there exists not a contract of suretyship but one of guaranty.
Unconditional and irrevocable guaranties do not make PHILGUARANTEE a surety. As a
guaranty, it is still characterized by its subsidiary and conditional quality because it does not
take effect until the fulfillment of the condition, namely, that the principal obligor should fail in
his obligation at the time and in the form he bound himself. In other words, an unconditional
guarantee is still subject to the condition that the principal debtor should default in his obligation
first before resort to the guarantor could be had. A conditional guaranty, as opposed to an
unconditional guaranty, is one which depends upon some extraneous event, beyond the mere
default of the principal, and generally upon notice of the principal's default and reasonable
diligence in exhausting proper remedies against the principal.
It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of
default by VPECI that PHILGUARANTEE shall pay, the obligation assumed by
PHILGUARANTEE was simply that of an unconditional guaranty, not conditional guaranty.
But as earlier ruled the fact that PHILGUARANTEE’s guaranty is unconditional does not make
it a surety. Besides, surety is never presumed. A party should not be considered a surety where
the contract itself stipulates that he is acting only as a guarantor. It is only when the guarantor
binds himself solidarily with the principal debtor that the contract becomes one of suretyship.
28. International Finance Corporation vs. Imperial Textile Mills, Inc.
G.R. No. 160324, November 15, 2005

FACTS:

International Finance Corporation (IFC) granted a loan to Philippine Polyamide

Industrial Corporation (PPIC). To secure the loan agreement, A ‘Guarantee Agreement’ was
executed by Grandtex Manufacturing Corporation (Grandtex) and Imperial Textile Mills, Inc.
(ITM) in favor of IFC to guarantee PPIC’s obligations under the loan agreement. Under the
agreement, the
 parties agreed “ jointly and severally, irrevocably, absolutely and unconditionally guarantee, as
 primary obligors and not as sureties merely, the punctual payment of all obligations as set forth
in the Loan Agreement”. However, despite written demand, PPIC failed to pay the balance of
the loan and its interests.

Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the
outstanding balance. ITM asserted that, by the terms of the Guarantee Agreement, it was merely
a Guarantor and not a surety. Since PPIC’s inability to comply with its obligation was not
sufficiently established, ITM could not immediately be made to assume the liability.

ISSUE:

Whether or not under the Guarantee Agreement, ITM and Grandtex are sureties and
therefore, jointly and severally liable with PPIC for the payment of the loan.

HELD:

Yes. The court held that ITM and Grandtex are sureties and therefore, jointly and
severally liable with PPIC, for the payment of the loan. The Court does not find any ambiguity
in the provisions of the Guarantee Agreement. When qualified by the term “jointly and
severally,” the use of the word “guarantor” to refer to a “surety” does not violate the law. As
Article 2047
 provides, a suretyship is created when a guarantor binds itself solidarily with the principal
obligor. Likewise, the phrase in the Agreement “as primary obligor and not merely as
surety”— stresses that ITM is being placed on the same level as PPIC. Those words emphasize
the nature of their liability, which the law characterizes as a suretyship.

The use of the word “guarantee” does not ipso facto make the contract one of guaranty.
The very terms of a contract govern the obligations of the parties or the extent of the obligor’s
liability. Thus, this Court has ruled in favor of suretyship, even though contracts were
denominated as a “Guarantor’s Undertaking” or a “Continuing Guaranty.” Contracts have the
force of law between the parties, who are free to stipulate any matter not contrary to law, morals,
good customs, public order or public policy. The creditor in this case was able to show
convincingly that, although denominated as a “Guarantee Agreement,” the Contract was actually
a surety. Notwithstanding the use of the words “guarantee” and “guarantor,” the subject
Contract was indeed a surety, because its terms were clear and left no doubt as to the
intention of the
 parties.
  (29) Spouses Eduardo B. Evangelista and Epifania C. Evangelista vs. Mercator Finance Corporation, et al. / G.R. No 148864; A

he proceeds of the loan as all of it went to Embassy Farms, making the mortgage void because it was without consideration as to them. Lastly, t

In its Answer, Mercator Finance contend that since both the spouses signed the
 promissory notes and the Continuing Suretyship Agreement with Embassy Farms, they are solidarily liable with the latter.

ISSUE:

Whether or not the real estate mortgage is valid

RULING:

YES. Spouses Evangelista claim that they have no intention to personally bind
themselves or their property when they signed the promissory note and the Continuing
Suretyship Agreement. However, under Negotiable Instruments Law, when an instrument is
signed by two or more persons, they are deemed to be solidarily liable thereon. Here, since they
signed the instrument with Embassy Farms, they are solidarily liable on the promissory note.
Assuming arguendo that they signed the instrument as officers, it cannot erase the fact that they
subsequently executed a continuing suretyship agreement. A surety is one who is solidarily
liable with the principal. Spouses Evangelista cannot claim that they did not personally receive
any consideration for the contract for well-entrenched is the rule that the consideration
necessary to support a suretyship need not pass directly to the surety, a consideration moving to
the principal alone being sufficient. A surety is bound by the same consideration that makes the
contract effective between the principal parties thereto.

Thus, the real estate mortgage is valid notwithstanding the fact that the spouses did not
receive proceeds of the loan.
 30. Jacinto Uy Dino vs CA
GR 89775, November 26,
1992

FACTS:

In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru Uy Tiam applied and
obtained credit from Metropolitan Bank and Trust Company (Metrobank) for P700,000.
 Norberto Uy and Jacinto Dino executed separate Continuing Suretyships in favor of Metrobank.
Uy agreed to pay Metrobank any indebtedness of UTEFS up to the aggregate sum of
P300,000.00 while Diño agreed to be bound up to the aggregate sum of P800,000.00. Having
 paid the obligation under the above letter of credit, UTEFS obtained in 1979 another credit
accommodation from Metrobank for P815,600 to cover the UTEFS’ purchase of 8000 bags
Planters Urea and 4000 Bags Planters 21-0-0. Applied without the participation of Norbeto and
Jacinto as they did not sign the document, they were also not asked to execute any suretyship to
guarantee payment. No notification from Metrobank or UTEFS was given to Uy and Dino.

The letter of credit was negotiated. Metrobank paid Planters Products 815,600 covered
by a bill of exchange. UTEFS delivered to Metrobank the goods from Planters Products
amounting to 815,600. The former agreed to deliver to Metrobank the entrusted goods in the
event of non- sale or, if sold, the proceeds of the sale. UTEFS did not follow the trust receipt.
Metrobank sent letters to the principal obligor and sureties demanding payment of the amount
due. Dino denied liability and requested Metrobank to send copies of documents showing his
liability and the latter responded that his liability is the Continuing Suretyship. Dino claimed
that he cannot be held liable because it was done without his participation and that his
guarantee has been paid already. A complaint for collection of sum of money was instituted by
Metrobank.

ISSUE: Whether or not Uy and Dino may be held liable as sureties under the Continuing Surety
signed in 1977 for a second loan contracted by UTEFS in 1979.

RULING:

Yes. The surety agreement in this case is continuing in nature. Art. 2053 of the Civil
Code provides that “a guaranty may also be given as a security for future debts, the amount of
which is not yet known.” A continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked. When the credit was obtained from the bank for
obtaining the goods from Planters Products, the continuing suretyship is still in force. Paragraph
VI of the contract states that the continuing suretyship shall remain in full force and effect until
written notice shall have been received by the Bank that it has been revoked by the Surety, but
any such notice shall not release the Surety from any liability as to any loans or obligations held
 by the Bank at the time of the receipt of such notice. Since UTEFS failed to fulfill the obligatory
stipulations in the trust receipt, Jacinto and Norberto as insurers of its obligation, are liable.
 31. RIZAL COMMERCIAL BANKING CORPORATION VS.
HON. JOSE P. ARRO, JUDGE OF THE COURT OF FIRST INSTANCE OF DAVAO,
AND RESIDORO CHUA
G.R. No. L-49401 July 30, 1982

Facts:
On October 19, 1976, a comprehensive surety agreement was jointly executed by
Residoro Chua and Enrique Go, Sr., President and General Manager, respectively of Davao
Agricultural Industries Corporation (Daicor) to cover the existing as well as future obligations
which Daicor may incur with the Daicor bank, subject only to the proviso that their liability
shall not exceed at any one time the aggregate principal sum of P100,000.00
On April 29, 1977 a promissory note in the amount of P100,000.00 was issued in favor of
Daicor payable on June 13, 1977. 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, RCBC filed a complaint for a sum of money against Daicor, Enrique Go, Sr.
and Residoro Chua. A motion to dismiss was filed by respondent Residoro Chua on the ground
that the complaint states no cause of action as against him. It was alleged in the motion that he
cannot be held liable under the promissory note because it was only Enrique Go, Sr. who signed
the same in behalf of Daicor and in his own personal capacity.
In an opposition, Daicor alleged that by virtue of the execution of the comprehensive
surety agreement, Residoro Chua is liable because said agreement covers not merely the
 promissory note subject of the complaint, but is continuing; and it encompasses every other
indebtedness the Borrower may, from time to time incur with Daicor bank.

Issue: Whether or not Residoro Chua is liable to pay the obligation evidence by the promissory
note dated April 29,1977 which he did not sign.

Held:
Yes. Residoro Chua is Liable.
The surety agreement which was earlier signed by Enrique Go, Sr. and Residoro Chua, is
an accessory obligation, 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 Daicor 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 Daicor, as is legally allowable under the Civil Code. Thus — 
Article 2053. —   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. A conditional obligation may also be secured.
 32. BA Finance Corp vs. CA
G.R. No. 94566. July 3,
1992

FACTS:

Renato Gaytano, doing business under the name Gebbs International, applied for and
was granted a loan with respondent Traders Royal Bank in the amount of P60,000.00. As
security for the payment of said loan, the Gaytano spouses executed a deed of suretyship
whereby they agreed to pay jointly and severally to respondent bank the amount of the loan
including interests,
 penalty and other bank charges.

In a letter addressed to Traders Royal Bank, Philip Wong as credit administrator of BA

Finance Corporation for and in behalf of the latter, undertook to guarantee the loan of the
Gaytano spouses. When the spouses refused to pay the unpaid balance, Royal Traders Bank
filed a complaint for sum of money against the Gaytano and BA Finance.

The spouses did not present any evidence for their defense. BA Finance on the other
hand, contended that the letter guaranty executed by its credit administrator, Philip Wong, was
ultra vires and therefore unenforceable since even if he was authorized to approve loans up to
P350,000, Wong lacks authority to bind the corporation as guarantee.

ISSUE:

Whether or not the letter of guaranty executed by Philip Wong is unenforceable, thus
releasing BA Finance as a guarantor.

HELD:

Yes. The court held that the letter of guaranty is unenforceable since Philip Wong lacks
authority to bind the corporation, and thus, BA Finance was released from liability as a
guarantor. Although Wong was authorized in a memorandum to approve loans even up to P350,
000.00 without any security requirement, which is far above the amount subject of the guaranty
in the amount of P60, 000.00, nothing in the said memorandum expressly vests on the credit
administrator power to issue guarantees. The court cannot agree with Royal Traders Bank’s
contention that the phrase “contingent commitment” set forth in the memorandum authorizing
Philip Wong’s authority, means guarantees.

It has been held that a power of attorney or authority of an agent should not be inferred
from the use of vague or general words. Guaranty is not presumed, it must be expressed and
cannot be extended beyond its specified limits.
 (33) Willex Plastic Industries Corporation vs. Hon. Court Of Appeals and International
Corporate Bank
G.R. No. 103066; April 25, 1996

FACTS:
In 1978, Inter-Resin Industrial Corporation (Inter-Resin) opened a letter of credit with
Manila Banking Corporation (Manila Banking). To secure payment of the credit
accommodation, Inter-Resin and the Investment and Underwriting Corporation of the
Philippines (IUCP) executed two Continuing Surety Agreements on December 1, 1978. Under
the agreements, Inter-Resin and IUCP bound themselves solidarily to pay Manila Banking
obligations of every kind, on which Inter-Resin may be indebted or hereafter become indebted
to Manila Banking. IUCP, in assuming liability, required Inter-Resin to execute a chattel
mortgage and a Continuing Guaranty. Hence, a Continuing Guaranty in favor of IUCP was
executed
 between Inter-Resin and Willex Plastic Industries Corporation (Willex) on April 2, 1979. Under
the Continuing Guaranty, Willex and Inter-Resin solidarily guaranteed the payment to IUCP of
amounts paid by the latter to Manila Banking.
On January 7, 1981, IUCP paid to Manila Banking the sum of PHP 4,334,280.61
representing Inter-Resin’s outstanding obligation. On February 23 and 24, 1981, Atrium Capital
Corporation (Atrium) succeeded IUCP and later demanded from Inter-Resin and Willex
reimbursement from what it had paid to Manila Banking. As neither one of them paid, Atrium
filed a case against Inter-Resin and Willex. Interbank eventually succeeded Atrium, and was
substituted as the plaintiff in the action. Inter-Resin claimed in its An swer that it had already
paid its obligation to Atrium/Interbank. Willex denied liability alleging payment by Inter-Resin
and that it is only a guarantor, invoking benefit of excussion. Willex also claimed that the
Continuing Guaranty does not cover obligations incurred by Inter-Resin prior to its execution.
ISSUE/S:
1. Whether or not Willex is entitled to benefit of excussion
2. Whether or not the Continuing Guaranty covers obligations of Inter-Resin prior to its
execution
HELD:
1. NO. Under Art. 2059, excussion shall not take place if the guarantor has expressly renounced
it or if he has bound himself solidarily with the debtor. Under the Continuing Guaranty,
Willex bound itself solidarily with Inter-Resin, and has expressly renounced the benefit of
excussion by stipulating that IUCP may directly proceed against it without first proceeding
against Inter-Resin. Thus, Willex may not avail the benefit of excussion.
2. YES. Generally, a contract of guaranty is not retrospective and no liability attaches for
defaults occurring before it is entered into unless an intent to be so liable is indicated. In this
case, the parties to the Continuing Guaranty clearly provided that the guaranty would cover
sums obtained and/or to be obtained by Inter-Resin Industrial from Interbank. Hence, it is
clear from the intention of the parties that the Continuing Guaranty applies retroactively.
 34. Tupaz IV vs. Court of Appeals
GR No. 145578, November 18,
2005

FACTS:

Jose C. Tupaz IV (Jose) and Petronila C. Tupaz (Petronila), officers of El Oro

Corporation, applied with Bank of the Philippine Islands (BPI) for two commercial letters of
credit in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated and
Maresco Corporation. BPI granted the said application. Simultaneous with the issuance of the
letters of credit, Jose and Petronila signed trust receipts in favor of the BPI. On 30 September
1981, Jose signed, in his personal capacity, a trust receipt corresponding to Letter of Credit
issued to Tanchaoco Incorporated. On 9 October 1981, Jose and Petronila signed, in their
capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit
issued to Manresco. The suppliers delivered to El Oro Corporation the raw materials and BPI
 paid the same. Jose and Petronila however, did not comply with their undertaking under the trust
receipts. BPI made several demands for payments but El Oro Corporation made partial
payments only and when the BPI made a final demand, El Oro Corporation replied that it could
not fully
 pay its debt because the Armed Forces of the Philippines had delayed paying for the survival
 bolos. BPI charged Jose and Petronila with estafa.

ISSUE: Whether or not Jose is liable as guarantor of El Oro Corporation debt under the trust
receipt dated 30 September 1981.

RULING:

Yes. Jose is liable as guarantor despite the stipulation on trust receipt that “we jointly
and severally agree”. There had been more than one signatory to the trust receipt, and the
solidary liability would exist between the guarantors. However, the BPI suit against Jose stands
despite the Court’s finding that the latter is liable as guarantor only. First, excussion is not a pre-
requisite to secure judgment against a guarantor. The guarantor can still demand deferment of
the execution of the judgment against him until after the assets of the principal debtor shall
have
 been exhausted. Second, the benefit of excussion may be waived. Under the trust receipt dated
30 September 1981, Jose waived excussion when he agreed that his liability in guaranty shall be
direct and immediate, without any need whatsoever on the part of the BPI to take any steps or
exhaust any legal remedies. The clear import of this stipulation is that Jose Tupaz waived the
 benefit of excussion under his guarantee.
35. MERCANTILE INSURANCE CO., INC. vs. FELIPE YSMAEL, JR., & CO., INC.,
G.R. No. L-43862, January 13, 1989

Facts:

Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an
overdraft line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National
Bank. The latter was willing to grant credit accommodation of P2,000,000.00 applied for
 provided that the applicant shall have filed a bond in the sum of P140,000.00 to guarantee the
 payment of the said amount.

There are two surety bonds executed by Felipe Ysmael and Mercantile Insurance Co.,
Inc. wherein, in both bonds, it is the condition that if the principal Felipe Ysmael, Jr. & Co., Inc.
shall perform and fulfill its undertakings with the Philippine National Bank, then these surety
 bonds shall be null and void.

An indemnity agreement was executed between Felipe Ysmael and Mercantile Insurance
Co., Inc. as security and in consideration of the execution of the surety bonds.

Issue: Whether Mercantile Insurance Co., Inc. can exhaust all the property of the debtors
 pursuant to Article 2071 of the Civil Code.

Held:

The principal debtors, Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr., are
simultaneously the same persons who executed the Indemnity Agreement. Thus, the position
occupied by them is that of a principal debtor and indemnitor at the same time, and their liability
 being joint and several with the Mercantile Insurance Co., Inc., the Philippine National Bank
may proceed against either for fulfillment of the obligation as covered by the surety bonds.
There is, therefore, no principle of guaranty involved and, therefore, the provision of Article
2071 of the Civil Code does not apply. Otherwise stated, there is no more need for the plaintiff-
appellee to exhaust all the properties of the principal debtor before it may proceed against
defendants- appellants.
 36 - Security Bank and Trust Company, Inc. vs. Cuenca
G.R. No. 138544, October 3, 2000

FACTS:

Security Bank and Trust Company, Inc. (SBTC) granted Sta. Ines Melale Corporation
(SIMC) a credit line for the additional capitalization requirements of its logging activities. As a
security for payments of amounts drawn from the credit line, Cuenca, then President and
Chairman of the Board, executed an Indemnity Agreement in favor of SBTC whereby he
solidarily bound himself with SIMC. However, SIMC encountered difficulty in making the
amortization payments and without notice or prior consent from Cuenca, SBTC agreed to
completely restructure the former’s indebtedness. To formalize the restructuring, they executed
a Loan Agreement with stipulation that the new loan shall be applied to liquidate the
outstanding
 principal, past due interest and penalty portion of the indebtedness.

Thereafter, SIMC defaulted in the payment of the restructured obligation and despite
demands from the bank, both SIMC and Cuenca individually and collectively refused to pay.
Cuenca contended that his obligation under the Indemnity Agreement was extinguished when
the
 bank and SIMC modified the nature and scope of the original accommodation without his
consent.

ISSUE:

Whether or not the execution of the Loan Agreement releases Cuenca from his liability
under the Indemnity Agreement.

HELD:

Yes. The Court held that Cuenca’s liability was extinguished. An extension granted to
the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The
Loan Agreement expressly stipulated that its purpose was to liquidate, not to renew or extend,
the outstanding indebtedness. Moreover, Cuenca did not sign or consent to the Loan Agreement,
which had allegedly extended the original credit facility. Hence, his obligation as a surety
should
 be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states
that an extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty. The theory behind Article 2079 is that an extension of time given to
the principal debtor by the creditor without the surety’s consent would deprive the surety of his
right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the
 principal debtor upon the maturity date. The surety is said to be entitled to protect himself
against the contingency of the principal debtor or the indemnitors becoming insolvent during the
extended period.

As the Court held in National Bank v. Veraguth, it is fundamental in the law of

suretyship that any agreement between the creditor and the principal debtor which essentially
varies the terms of the principal contract, without the consent of the surety, will release the
surety from liability. An essential alteration in the terms of a Loan Agreement without the
consent of the surety chased extinguishes the latter’s obligation. At the outset, we should
emphasize that an essential alteration in the terms of the Loan Agreement without the consent of
the surety extinguishes the latter’s obligation.
 (37) General Insurance and Surety Corporation vs Judge Honorato Masakayan, Leandro
Castelo and Josefa Castelo
G.R. No. L-28764; November 29, 1973

FACTS:

Leandro and Josefa Castelo bought a lot from J.M. Tuazon under a Contract to Sell.
Before the complete payment of the purchase price, Castelo spouses were given possession of
the lot and built a house thereon. Castelo spouses also mortgaged the land in favor of Philippine
Bank of Commerce for the loan of PHP 4, 000. For the payment of the said loan, General
Insurance and Surety Corporation (General Insurance) signed as accommodation co-maker.
However, the mortgage contract was not approved by Gregorio Araneta Inc. (GAI), agent of
J.M. Tuazon, because the purchase price for the lot was not yet paid. Hence, Castelo spouses
executed Deed of Sale with Repurchase in lieu of the real estate mortgage whereby they sold to
General Insurance all their rights and interests over the lot. General Insurance paid the
balance of the
 purchase price of the lot to GAI and thereby succeeded in obtaining a Deed of Sale and title on
the property in its favor. Upon acquiring ownership over the lot, General Insurance filed a
complaint for unlawful detainer against the Castelo spouses. General Insurance averred that the
contract is a sale with right of repurchase and not a mortgage, thus it had validly consolidated its
ownership over the lot as vendee a retro.

ISSUE:

Whether or not the contract is a real estate mortgage

RULING:

NO. Under Article 2086 of the Civil Code, the requisites essential to a mortgage are: (1)
that it be constituted to secure the fulfillment of a principal obligation, (2) that the mortgagor be
the absolute owner of the thing mortgaged, and (3) that the persons constituting the mortgage
have the free disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose. In this case, the second requisite was not met. In a contract to sell,
the ownership over the property passes to the buyer only upon full payment of the purchase
price. Here, the purchase price was not yet fully paid when the Castelo spouses executed a
mortgage. Thus, they are not yet the absolute owners of the property at the time of the execution
of the real estate mortgage.
38. PNB v. CA
GR L-34404, June 25, 1980

FACTS:

The lot in question is a conjugal property owned by Inigo Bitanga and Rosa Ver. A year
after a Cadastral Court issued a decree of registration in favor of the said spouses in 1937, Inigo
died and Rosa Ver mortgaged the entire property in favor of Philippine National Bank (PNB).
The mortgage document was registered in the Register of Deeds of Ilocos Norte, but was not
annotated in the original certificate of title when it was issued.

At the same time, Rosa Ver had an obligation to Manila Trading Company, to which she
defaulted. Thus, Manila Trading levied upon Rosa Ver’s share in the lot in 1939 and was
afterwards sold at a public auction in which the said company was the highest bidder. On
 November 1940, Manila Trading sold its rights over the lot in question to Santiago Sambrano,
who secured the annotation of the said sale on the title. Because Rosa Ver failed to settle her
obligation with PNB, the latter sold at a public auction the whole lot and PNB was the highest
 bidder. PNB consolidated its title on November 1950 but there was no annotation on owner’s
duplicate certificate of title as Rosa Ver failed to surrender the same. On May 1954, PNB sold
the property to Ferdilazardo Reyes.

With the aforementioned events, a case was filed by the heirs of Inigo Bitanga, et al
against the PNB. The trial court rendered a decision in favor of the heirs of Inigo, et al. On
appeal, CA affirmed judgment of the trial court.

ISSUE: Whether or not the mortgage constituted by the wife Rosa Ver in favor of PNB
covers the entire property.

RULING:

 No. The Court held that PNB had acquired from Rosa Ver by virtue of the mortgage only
one half of the entire property, for this was all she had in her power to convey, the other half
 being, the lawful share of the heirs of Inigo Bitanga, et. al., as inheritance from their father.

Under Article 2085, New Civil Code, one of the essential requisites to the contract of
 pledge and mortgage is that the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged. And under Article 493, New Civil Code, each co-owner shall have the full
ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore
alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when
 personal rights are involved. But the effect of the alienation or the mortgage, with respect to the
co-owners, shall be limited to the portion which may be allotted to him in the division upon the
termination of the co-ownership. Wherefore, judgment of CA is affirmed.
39. MILA SALES LLANTO, et al. vs.
ERNESTO ALZONA, DOMINADOR ALZONA, ESTELA SALES PELONGCO, and the
REGISTER OF DEEDS OF CALAMBA, LAGUNA
G.R. No. 150730 January 31, 2005

Facts:
Maria Sales was the registered owner of a parcel of land in Laguna which she acquired
under a free patent. Until they died, she and her husband (Bernardo) lived on the said land in the
house which they constructed. Maria died in August 1986.
In January 1990, a real estate mortgage contract (REM) was purportedly executed by
Maria in favor of Dominador Alzona. Estela Pelongco (one of the daughters of Maria and
Bernardo) signed as witness. Ernesta Alzona (brother of Dominador) admitted that his name
does not appear in the REM although he was a co-mortgagee. The mortgage was foreclosed and
was sold in a mortgage sale to Ernesto. In January 1992, he executed a Consolidation of
Ownership over the property and a Transfer Certificate of Title was issued in his name.
Mila Llanto (another daughter of Maria and Bernardo) and the rest of her brothers and
sisters caused the inscription of an adverse claim on the title to the property. They filed for a
complaint for Annulment of Mortgage and Auction Sale with Reconveyance of Title. However,
the RTC and CA both ruled in favor of Alzona.

Issue: Whether or not the principle of “innocent purchasers for value is applicable in the present
case?

Held:
YES. In fine, we hold that respondents Ernesto and Dominador Alzona are mortgagees in
good faith and, as such, they are entitled to the protection of the law. The principle of "innocent
 purchasers for value" is applicable to the present case. One of the essential requisites of
mortgage under Article 2085 is that the mortgagor should be the absolute owner of property to
be mortgaged, otherwise the mortgage is null and void. An exception to this is the doctrine of
mortgagee in good faith -  to be considered as mortgagees in good faith, jurisprudence require
that they should take the necessary precaution expected of a prudent man to ascertain the status
and condition of properties offered as collateral and to verify the persons they transact
businesses with. This is based in the rule that all persons dealing with property covered by a
Torrens title, as
 buyers or mortgagees, are not required to go beyond what appears on the face of the title.
In the case, the RTC gave credence to Ernesto’s testimony that he conducted a credit
investigation before he approved the loan sought and the property mortgaged. A perusal
testimony proved that he exercised the necessary precautions to ascertain the status of the
 property to be mortgaged. Llanto never disputed Ernesto’s claim that he met the petitioners at
the house built on the parcel of land. It was Estela and the persons who represented themselves
as Bernardo and Maria who perpetrated the fraud. Ernesto cannot be faulted if he was led
into
 believing that the old man and woman he met in November 1989 and January 1990 are 2
different persons.
 40. Cavite Development Bank vs. Lim
GR No. 131679, February 1, 2000

FACTS:

Rodolfo Guansing obtained a loan from Cavite Development Bank (CDB) and as
security, he mortgage a parcel of land. As he defaulted in payment of his loan, CDB foreclosed
the mortgage. The mortgage property was sold to CDB as the highest bidder. Private respondent
Lolita Chan Lim thereafter purchased the property from CDB. However, Lim discovered that
the subject property was fraudulently acquired by Rodolfo from his father Perfecto Guansing,
who is the rightful owner. Aggrieved by what she considered a serious misrepresentation of
CDB and FEBTC on their ability to sell and transfer the ownership of the property, Lim filed for
specific
 performance and damages.

CBD on the other hand claimed that he acquired valid title over the property through the
subsequent foreclosure sale and as a mortgagee bank, based on the doctrine of “mortgagee in
 good faith” , it is not required to make a detailed investigation of the history of the title of the
 property given as security before accepting a mortgage.

ISSUE:
(1) Whether or not CBD acquired valid title over the property mortgaged through
the foreclosure sale.
(2) Whether or not CBD was a “mortgagee in good faith”.

HELD:

(1) No. The court ruled that CDB since did not have a valid title to the said property. A
foreclosure sale, though essentially a “forced sale”, is still a sale in accordance with Art.  1458 of
the Civil Code. Being a sale, the rule that the seller must be the owner of the thing sold also
applies in a foreclosure sale. Under Art. 2085 of the Civil Code, in providing for the essential
requisites of the contract of mortgage and pledge, requires that the mortgagor or pledger be the
absolute owner of the thing pledged or mortgaged, in anticipation of a possible foreclosure sale
should the mortgagor default in the payment of the loan.CDB never acquired a valid title to the
 property because the foreclosure sale, even though the property has been awarded to CDB as
highest bidder, is void since the mortgagor was not the owner of the property foreclosed.

(2) No. While a bank is not expected to conduct an exhaustive investigation on the
history of the mortgagor’s title, it cannot be excused from the duty of exercising the due
diligence required of banking institutions, for banks are expected to exercise more care and
 prudence than private individuals in their dealings, even those involving registered lands, for
their business is affected with public interest. Here, CDB did not exercised due diligence in
ascertaining the validity of Rodolfo Guansing title since they were aware that the property was
 being occupied by persons other than Rodolfo.
 (41) Ysidra Cojuangco, et. al. v. Manuel Ernesto Gonzales
G.R. Nos. L-4505 & L-5228; September 15, 1953

FACTS:

The land involved in this case originally belonged to Manuel Gonzales. Gonzales
mortgaged his land to Philippine National Bank (PNB). Then he sold the same land to Jose
Cojuangco Sr., father of the plaintiffs Ysidra Cojuangco, Juan Cojuangco, Jose Cojuangco,
Eduardo Cojuangco, and Ramon Cojuangco. The sale was with a right to repurchase for two
years. At the time of the sale, Gonzales and Cojuangco Sr. entered into a contract of lease.
When, Gonzales failed to pay the real estate taxes his land was forfeited to the government.
Heirs of Cojuangco Sr., the plaintiffs, notified Gonzales to redeem the land otherwise they
would consolidate ownership thereof. Since Gonzales failed to redeem, the Cojuangcos
consolidated their ownership and title to the property was issued in their favor.

Gonzales and the Cojuangcos entered into a new contract of lease where Gonzales was
the lessee. It was stipulated that if Gonzales pay the rent agreed upon, he may be allowed to
repurchase the property for PHP 60,000. Upon expiration of the lease, Gonzales did not redeem
the property within the time agreed upon. They again entered into another contract of lease and
Gonzales was again given the privilege to repurchase the property. Still, he failed to redeem the
 property although he was allowed to continue in possession of the land. Eventually, the
Cojuangcos demanded the possession of the land from Gonzales. Gonzales refused to leave the
 premises of the land contending that the Cojuangcos are not the owners and further demanded
the resale of the property to him.

ISSUE:

Whether or not Gonzales may redeem the property

RULING:

NO. Gonzales invoked the principle “once a mortgage, always a mortgage”. Under this
 principle, if the instrument is in its essence a mortgage, the parties can not by any stipulations,
however express and positive, render it anything but a mortgage or deprive it of the essential
attributes belonging to a mortgage in equity. However, the principle invoked by Gonzales only
 prohibits the parties from making stipulations that would tend to destroy the contract of its
essence as a mortgage and deprive of the debtor the equitable right of redemption. It does not
 prohibit those contracts subsequently entered into and the modification of the original contract
 by subsequent agreements such as the parties may see fit to adopt. In this case the original
contract was a mere equitable mortgage. Nevertheless, it is not always a mortgage because there
was a novation of the contract when the Cojuangcos secured title to the property and Gonzales
acquiesced in such issuance of title. If the Cojuangcos became the owners, then Gonzales may
not redeem the property since he is reduced to a mere lessee.
 42. Vda. DE JAYME v. CA,
GR No. 128669, October 4, 2002

FACTS:

The spouses Graciano and Mamerta Jayme are the registered owners of Lot 2700,
situated in Mandaue City, Cebu. In 1973, they entered into a Contract of Lease with George
 Neri, president of Airland Motors Corporation, covering one-half of Lot 2700. The lease was for
twenty (20) years. In October 1977, Asiancars obtained a loan of P6,000,000 from the
Metropolitan Bank and Trust Company (MBTC). The entire Lot 2700 was offered as one of
several properties given as collateral for the loan. As mortgagors, the spouses signed a Deed of
Real Estate Mortgage dated November 21, 1977 in favor of MBTC. It stated that the deed was
to secure the payment of a loan obtained by Asiancars from the bank.

Upon default in payment, Asiancars conveyed ownership of the building on the leased
 premises to MBTC, by way of dacion en pago. There still remained a balance of P2,942,449.66,
which Asiancars failed to pay. Eventually, MBTC extrajudicially foreclosed the mortgage. A
 public auction was held and MBTC was the highest bidder. A certificate of sale was issued and
was registered with the Register of Deeds.

When Graciano died, his heirs filed a complaint claiming that Neri and Asiancars did not
tell them that the indebtedness secured by the mortgage was for P6,000,000 and that the security
was the whole of Lot 2700. They alleged that because the spouses are illiterate, and had given
their full trust and confidence to George Neri, the spouses were deceived into signing the Deed
of Real Estate Mortgage. Their intention as well as consent was only to be bound as guarantors.
ISSUES: (1) Whether or not the Real Estate Mortgage entered by the Spouses is valid.
(2) Whether or not the MBTC can foreclose the entire property mortgaged by the Spouses.

RULING:

(1) Yes. The Deed of Real Estate Mortgage entered into by the Jayme spouses partake of
a Third Party Mortgage under Art. 2085 (3) of the Civil Code which states that “the following
requisites are essential to the contracts of pledge and mortgage: xxx (3) That the persons
constituting the pledge or mortgage have the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose. Third persons who are not parties to the
 principal obligation may secure the latter by pledging or mortgaging their own property.”

(2) Yes. When the property of a third person which has been expressly mortgaged to
guarantee an obligation to which the said person is a stranger, said property is directly and
jointly liable for the fulfillment thereof, in the same manner as the mortgaged property of the
debtor himself. In the case at bar, when Asiancars failed to pay its obligations with MBTC, the
property given as security became subject to foreclosure. As stated in Art. 2089, a pledge or
mortgage is indivisible, and when several things are given to secure the same debt in its entirety,
all of them are liable for the debt and the creditor does not have to divide his action by
distributing the debt among the various things pledged or mortgaged. Even when only a part of
the debt remains unpaid, all the things are liable for such balance.
 43. SPOUSES ENRIQUE M. BELO and FLORENCIA G. BELO vs.
PHILIPPINE NATIONAL BANK and SPOUSES MARCOS and ARSENIA ESLABON
G.R. No. 134330 March 1, 2001

Facts:
A certain Eduarda Belo owns an agricultural land which she leased in favor of Spouses
Marcos and Arsenia Eslabon (Eslabons for brevity). Later, she executed a Special Power of
Attorney (SPA for brevity) allowing the Eslabons to mortgage the property in their favor
relative to their loan application to the Philippine National Bank (PNB for brevity). The
Eslabons then obtained a loan and secured it through a real estate mortgage with Eduarda Belo’s
agricultural land and four more residential houses the Eslabons own.
When the loan was not paid, the mortgage was foreclosed and PNB executed a public
sale and where they were declared the highest bidder. They then informed Eduarda Belo of the
registration of the Sheriff Sale and that she has one year to redeem the property. Later, Eduarda
Belo sold the right to redeem the property to the Spouses Enrique Belo and Florencia Belo (Sps.
Belo for brevity) under Deed of Absolute Sale of proprietary and redemption rights.
The Sps. Belo then tendered payment for redemption price pf P484,482.96 which
includes PNB’s bid price plus interest and expenses. However, PNB rejected the payment on the
ground that the redemption price should be the total claim of the bank on the date of the auction
sale.

Issue: Whether or not the Spouses Belo are required to pay, as redemption price, the entire claim
of PNB.

meanwhile, PNB has no claim against accommodation mortgagor Eduarda Belo. The accommodation mortgage is only an accessory contract.

portion of the credit, the debtor will have the right to extinguishment of mortgage as the portion of the debt for which thing is especially answ
e entire loan itself. Hence, it is only just that they be allowed to redeem their mortgaged property by paying only the winning bid price thereof
 44. Caltex (Philippines), Inc. vs. CA
G.R. No. 9775, August 10, 1992

FACTS:

On various dates, Security Bank and Trust Company (SBTC), through its Sucat Branch
issued 280 certificates of time deposit (CTDs) in favor of Angel de la Cruz who later lost them.
Upon advice, Angel dela Cruz executed and delivered an Affidavit of Loss and as a result,
replacement CTDs were issued. Subsequently, Angel de la Cruz obtained a loan from SBTC and
executed a notarized Deed of Assignment of Time Deposit surrendering to the latter full control
of the indicated time deposits and authorizing said bank to pre-terminate, set-off and apply the
said time deposits to the payment of whatever amounts may be due on the loan upon its
maturity.

Thereafter, Caltex (Phils.) Inc., went to the SBTC’s Sucat branch and presented for
verification the CTDs previously declared lost by Angel dela Cruz alleging that the same were
delivered by the latter as security for purchases made with Caltex Philippines, Inc.’ Later on,
Caltex informed SBTC of its possession of the CTDs and decision to pre-terminate the same.

SBTC rejected Caltex’s demand and claim for payment of the value of the CTDs and
argued that said certificates of deposit are non-negotiable and that Caltex (Philippines), Inc. did
not become a holder of the said certificates.

ISSUE:

Whether or not Caltex (Philippines) became a holder of the CTDs when the same were
delivered as security for purchases on account.

HELD:

 No. The Court held that the delivery of Angela de la Cruz of the CTD’s were only as
security for the purchases, thus, constitute Caltex only as a holder for value by reason of his lien.

As such holder of collateral security, he would be a pledgee but the requirements

therefore and the effects thereof, not being provided for by the Negotiable Instruments Law,
shall
 be governed by the Civil Code provisions on pledge of incorporeal rights, which provide:
“Incorporeal rights, evidenced by negotiable instruments, may also be pledged. The instrument
 proving the right pledged shall be delivered to the creditor, and if negotiable, must be
indorsed” (Art. 2095) and that “A pledge shall not take effe  ct against third persons if a
description of the thing pledged and the date of the pledge do not appear in a public
instrument.” (Art. 2096).

Consequently, the mere delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon SBTC. The requirement under Article 2096 aforementioned
is not a mere rule of adjective law prescribing the mode whereby proof may be made of the date
of a pledge contract, but a rule of substantive law prescribing a condition without which the
execution of a pledge contract cannot affect third persons adversely.
 (45) Diosdado Yuliongsiu vs. Philippine National Bank 
GR No. L-19227; February 17, 1968

FACTS:

Diosdado Yuliongsiu was the owner of 2 vessels, namely: The M/S Surigao and the M/S
Don Dino, and operated the FS-203, which was purchased by him from the Philippine Shipping
Commission (PSC), by installment or on account. He obtained a loan of P50,000 from
Philippine
 National Bank (PNB). To guarantee its payment, Yuliongsiu pledged the M/S Surigao, M/S Don
Dino and its equity in the FS203 to the PNB, as evidenced by a pledge contract executed on the
same day and duly registered with the office of the Collector of Customs. Yuliongsiu effected
 partial payment of the loan in the sum of P20,000. The remaining balance was renewed by the
execution of 2 promissory notes. PNB filed charges against Yuliongsiu for estafa because the 7
checks totalling of P184,000 that they had deposited with the bank had no funds. Yuliongsiu was
found guilty. PNB took possession of 3 pledged vessels and after the first note fell due and was
not paid, PNB executed a document of sale transferring the 2 pledged vessels and Yuliongsiu’s
equity in FS-203 to PNB for P30,042.72. Meanwhile, PSC rescinded the sale to Yuliongsiu of
the FS-203 for failure of the latter to pay the remaining installments. As a result, PNB was
compelled to surrender the FS-203 to PSC. The other 2 boats were sold by PNB to third persons.

ISSUE/S:
1.Whether or not PNB’s taking of physical possession of the vessels was justified by the pledge
contract
2.Whether or not constructive delivery is sufficient in a contract of pledge

RULING:

1. YES. The bank was entitled to the actual possession of the vessels. Yuliongsiu’s continued
operation of the vessels after the pledge contract was entered into, places his possession
“subject to the order of the pledge”. The pledgee can temporarily entrust the physical
 possession of the chattels pledged to the pledgor without invalidating the pledge. In this case,
Yuliongsiu was regarded as holding the pledge property merely as trustee for PNB.

2. YES. Constructive delivery is sufficient. Yuliongsiu would want the court to rule that
constructive delivery is insufficient to make pledge effective. He invoked Betita v. Ganzon,
where the Court ruled that there has to be actual delivery of the chattels pledged. However, in
Banco Espanol-Filipino v. Peterson it was held that delivery to the pledgee of the keys to the
warehouse was sufficient. Hence, it can be concluded that the type of delivery will depend
upon the nature and the peculiar circumstances of each case. Since PNB was, pursuant to the
terms of the pledge contract, in full control of the vessels thru Yuliongsiu, it could take actual
 possession at any time during the life of the pledge to make more effective its security. Its
taking of vessels therefore was not unlawful.
 46. Philippine National Bank v. Manila Investment
GR L-27132, April 29, 1971

FACTS:
In Civil Case No. 33074 entitled "Philippine National Bank (PNB) vs. Manila
Investment & Construction, Inc. (Manila Investment)", the Court of First Instance of Manila
rendered a decision ordering Manila Investment, jointly and severally, to pay PNB certain costs
and fees. In case of non-payment due to PNB, the decision also provided for the sale at public
auction of the
 personal properties covered by the chattel mortgage executed by Manila Investment in favor of
PNB.

After said decision had become executory, instead of having the mortgaged personal
 properties sold at public auction, the parties agreed to have them sold, and were in fact sold, at a
 private sale. The net proceeds obtained therefrom amounting to ₱256,941.70 were applied to the
 partial satisfaction of the payment due to PNB.

On August 11, 1964, the Philippine National Bank filed in the same Court of First
Instance of Manila an action to revive said case wherein the Court rendered judgment ordering
Manila Investment to pay the remaining amount (₱382,338.47) due to PNB, with interest at the
legal rate from August 12, 1964 until fully paid.

Manila Investment appealed to secure a reversal of the above decision claiming that the
 private sale of the mortgaged personal properties was null and void, and therefore PNB is not
entitled to a deficiency judgment.

ISSUE: Whether or not the private sale of the mortgaged properties was null and void.

RULING:

 No. The private sale is valid. Article 2087 of the New Civil Code provides that “when the
 principal obligation becomes due, the things which the mortgage consists may be alienated for
the payment to the creditor”. The contracting parties may stipulate that in case of violation of the
conditions of the mortgage contract, the creditor may sell, at private sale and without previous
advertisement or notice, the whole or part of the good mortgaged for the purpose of applying the
 proceeds thereof on the payment of the debt. In the case at bar, both parties mutually made an
agreement. Although said personal properties were the subject of a sale at public auction covered
 by the chattel mortgage executed in favor of PNB, the private sale by agreement between the
 parties is still valid. The proceeds of the sale of the mortgaged personal properties of the Manila
Investment constitute only a satisfaction up to the extent of the monetary award made by the
court and rendering PNB entitled to collect the balance.
 47. MARCELO R. SORIANO , vs. SPOUSES RICARDO and ROSALINA GALIT
G.R. No. 156295. September 23, 2003

Facts:
Respondent Ricardo Galit contracted a loan from petitioner Marcelo Soriano, in the total
sum of P480,000.00, secured by a real estate mortgage over a parcel of land. After Galit failed to
 pay his obligation, Soriano filed a complaint for sum of money against him..
On April 23, 1999, Soriano caused the registration of the Certificate of Sale on Execution of
Real Property with the Registry of Deeds. The said Certificate of Sale registered with the
Register of Deeds includes at the dorsal portion thereof the following entry, not found in the
Certificate of Sale on file with Deputy Sheriff Renato E. Robles
Ten months from the time the Certificate of Sale on Execution was registered with the Registry
of Deeds, Soriano moved for the issuance of a writ of possession. He averred that the one-year
 period of redemption had elapsed without Galit having redeemed the properties sold at public
auction; thus, the sale of said properties had already become final. He also argued that after the
lapse of the redemption period, the titles to the properties should be considered, for all legal
intents and purposes, in his name and favor. The write of possession was subsequently issued.

Issue: Whether or not the certificate of sale is invalid because of the discrepancy in the dorsal
 portion of the entry in the Register of Deeds and in the Certificate of Sale.

Held:
The certificate of sale is invalid. It must be pointed out in this regard that the issuance of
a Certificate of Sale is an end result of judicial foreclosure where statutory requirements are
strictly adhered to; where even the slightest deviations therefrom will invalidate the proceeding
and the sale. Among these requirements is an explicit enumeration and correct description of
what properties are to be sold stated in the notice. The stringence in the observance of these
requirements is such that an incorrect title number together with a correct technical description
of the property to be sold and vice versa is deemed a substantial and fatal error which results in
the invalidation of the sale.
ART. 415. Of the Civil Code provided a list of immovable properties and enumerates
land and buildings separately. This can only mean that a building is, by itself, considered
immovable. Thus, it has been held: “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 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 this case, considering that what was sold by virtue of the writ of execution issued by
the trial court was merely the storehouse and bodega constructed on the parcel of land which by
themselves are real properties of respondents spouses, the same should be regarded as separate
and distinct from the conveyance of the lot on which they stand.
SC ruled that the writ of possession be declared invalid.
48. People’s Bank and Trust Co. and ATLANTIC vs. Dahican Lumber Co.
G.R. No. L-17500, May 16, 1967

FACTS:

Dahican Lumber Company (DALCO) executed a deed of mortgage covering five parcels
of land together with buildings and other improvements existing thereon and all the personal
 properties located in its business in favor of People's Bank & Trust Company (PBTC). On the
same date, DALCO executed a second mortgage on the same properties in favor Atlantic Gulf
and Pacific Co. of Manila (ATLANTIC). Both deeds contained a provision extending the
mortgage lien to properties to be subsequently acquired, also referred to as “after -acquired
 properties”

After the execution of the mortgages, DALCOpurchased various machineries,

equipment, spare parts and supplies in addition to, or in replacement of some of those already
owned and used by it on the said date. It was found out that that these properties were
purchased from CONNELL and DAMCO. Thereafter, DALCO and these suppliers agreed to
rescind the alleged sales.

Upon knowledge, PBTC and ATLANTIC demanded the said agreements rescinding the
sales be cancelled on the ground that said “after- acquired properties” were covered by the
mortgage lien and ordered DALCO to restrain removing the said properties. DALCO argued
that the mortgages were null and void as regards “the after -acquired properties” because they
were not registered in accordance with the Chattel Mortgage Law.

ISSUE:

Whether or not the mortgages were null and void as regards “after -acquired properties
 because they were not registered with Chattel Mortgage Law.

HELD:

 No. The Court held that that mortgages were valid as regard the “after- acquired
 properties”. Where the machinery and fixtures installed by a lumber company in its concession
had become immobilized and were included in the registered real mortgage as "after acquired
 properties", it was not necessary to register them a second time as chattel mortgages in order to
affect third persons. The fact that the lumber company is not the owner of the land is not
important since the parties to the mortgage had characterized the said "after acquired properties"
as real property. The mortgagor is estopped to contend that the said properties had not become
immobilized.

It is not disputed in the case at bar that the "after acquired properties" were purchased by
DALCO in connection with, and for use in the development of its lumber concession and that
they were purchased in addition to, or in replacement of those already existing in the premises
on the execution of the mortgages. 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 time as chattel mortgages in order to
 bind the "after acquired properties" and affect third parties.
(49) Sps. Godofredo and Dominica Flancia, vs. Court of Appeals and William Ong Genato.
G.R. No 145578; April 26, 2005

FACTS:
Spouses Godofredo and Dominica Flancia alleged that they purchased from Oakland
Development Resources Corporation (Oakland) a parcel of land. By virtue of the contract to
sell, Oakland authorized the spouses to transfer all their personal belongings to their house at
the
 purchased lot. In 1992, they received a copy of the execution foreclosing the mortgage issued by
the RTC. They contend that the mortgage is void because the mortgagor (Oakland) was not the
absolute owner of the land, and as a consequence, the execution foreclosing the mortgage is also
void.
On the other hand, William Ong Genato averred that Oakland mortgaged to him parcels
of land as security and guaranty for the payment of a loan amounting to PHP 2,000,000. The
said real estate mortgage was annotated at the back of the TCT. For nonpayment of the loan,
Genato filed an action for foreclosure of real estate mortgage against Oakland. Genato also
contend that the Contract to Sell between the spouses and Oakland was not annotated thus he is
not affected
 by such sale and his rights is superior over the spouses’

ISSUE/S:
1. Whether or not the mortgage is valid
2. Whether or not the registered mortgage is superior to the contract to sell

RULING:
1. YES. Under Article 2085 of the Civil Code, the essential requisites of a contract of mortgage
are: (a) that it be constituted to secure the fulfillment of a principal obligation; (b) that the
mortgagor be the absolute owner of the thing mortgaged; and (c) that the persons constituting
the mortgage have the free disposal of their property or that they be legally authorized for the
 purpose. In this case, all the requisites are present. Oakland is still considered as the absolute
owner of the property for the contract it entered into between the Flancia spouses is a
Contract to Sell. In a contract to sell, ownership is passed upon full payment of the purchase
price. Here, Oakland retained ownership over the property because the purchase price was
not yet full paid. All that was granted to the spouses by the "occupancy permit" was the
right to
 possess it. Oakland as the owner of the land has the right to dispose the same and was entitled
to mortgage it to Genato. Hence, the mortgage was valid.
2. YES. Generally, an unrecorded sale is preferred over a registered mortgage for if the original
owner had parted with his ownership then he no longer had the ownership and free disposal
of that thing as to be able to mortgage it again (State Investment House v. CA). However, in
this case, Oakland retained absolute ownership over the property under the contract to sell
and therefore had every right to mortgage it. Thus, Genato’s registered mortgage was
superior to the spouses’ contract to sell, subject to any liabilities Oakland may have incurred
in favor of the spouses by irresponsibly mortgaging the property to Genato despite its
commitments under the contract to sell.
50. DBP v. CA
GR 110053, May 28, 1992

FACTS:
An unregistered land in Camarines Sur, was later on sold to Pacifico Chica, who
mortgaged the land to Development Bank of the Philippines (DBP) to secure a loan. However,
he defaulted in its payment, hence an extrajudicial foreclosure was caused. DBP acquired the
 property as the highest bidder in the auction, and which certificate of sale was entered in the
Book of Unregistered Property. In 1980, spouses Mangubat offered to buy the property. On July
1981, the deed of absolute sale, which is now being assailed herein, was executed by DBP.
Thereafter, spouses Mangubat applied for an industrial tree planting loan with DBP in which the
latter required the former to submit a certification from the Bureau of Forest Development that
the land is alienable and disposable. BFD issued a certificate attesting that the said property was
classified as timberland, hence not subject to disposition. The loan application was nevertheless
approved by DBP despite the aforesaid certification on the understanding that DBP would work
for the release of the land by former Ministry of Natural Resources. To secure payment of the
loan, the spouses executed a real estate mortgage over the land which was registered in the
Registry of Deeds. The loan was then released to the said spouses on a staggered basis. When
the spouses asked for the release of the remaining amount of the loan, their request was not
acted upon by DBP because the release of the land from the then Ministry of Natural Resources
had not been obtained. The spouses filed a complaint against DBP in the trial court seeking the
annulment of the subject deed of absolute sale since the object thereof was verified to be
timberland, therefore, inalienable part of the public domain. They alleged that DBP acted
fraudulently and in bad faith by misrepresenting itself as the absolute owner of the land and in
incorporating the waiver of warranty against eviction in the deed of sale. Trial court annulled the
deed of absolute sale and ordered DBP to return the purchase price plus interest. The CA
modified the disposition of the court but affirmed the same in all its other aspects.

ISSUE: Whether or not spouses Mangubat are obligated to return the loan received by them as
result of the annulment of the deed of absolute sale

RULING:

Yes. In legal context, the contract of loan between the parties is entirely different and
from the deed of sale they entered into. The annulment of the sale will not have an effect on the
existence and demandability of the loan. The fact that the annulment of the sale will also result
in the invalidity of the mortgage does not have an effect on the validity and efficacy of the
principal obligation, for even an obligation that is unsupported by any security of the debtor
may also be enforced by means of an ordinary action. In this case, what is lost is only the right
to foreclose the mortgage as a special remedy for satisfying or settling the indebtedness which is
the principal obligation. In case of nullity, the mortgage deed remains as evidence or proof of a
personal obligation of the debtor, and the amount due to the creditor may be enforced in an
ordinary
 personal action. The mortgage contract executed in this case will readily show that it embodies
not only the mortgage but the complete terms and conditions of the loan agreement as well.
51. CEBU INTERNATIONAL FINANCE CORP. vs. CA
GR No. 107554 February 13, 1997

Facts:
On 4 March 1987, Jacinto Dy executed a Special Power of Attorney in favor of Ang Tay,
authorizing the latter to sell the cargo vessel owned by Dy and christened LCT "Asiatic." On 28
April 1987, through a Deed of Absolute Sale, Ang Tay sold the subject vessel to private
respondent Robert Ong (Ong) for P900,000.00. Ong paid the purchase price by issuing three (3)
checks in the following amounts: P150,000.00, P600,000.00 and P150,000.00. However, since
the payment was not made in cash, it was specifically stipulated in the deed of sale that the
"LCT Asiatic shall not be registered or transferred to Robert Ong until complete payment."
Thereafter, Ong obtained possession of the subject vessel so he could begin deriving economic
benefits therefrom. He, likewise, obtained copies of the unnotarized deed of sale allegedly to be
shown to the banks to enable him to acquire a loan to replenish his (Ong's) capital.
On 29 October 1987, Ong acquired a loan from Cebu International Finance
Corporation (CIFC) in the amount of P496,008.00 to be paid in installments as evidenced by a
 promissory note of even date and as security for the loan, Ong executed a chattel mortgage over
the subject vessel, which mortgage was registered with the Philippine Coast Guard and
annotated on the Certificate of Ownership. However, Ong defaulted in the payment of the
monthly installments.
Then on 11 May 1988, CIFC sent him a letter demanding delivery of the mortgaged
vessel for foreclosure or in the alternative to pay the balance of P437,802.00 pursuant to the
deed of chattel mortgage.

Issue: Whether or not CIFC is a mortgagee in good faith whose lien over the mortgaged vessel
should be respected
Held:

A mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to
the property given as security and in the absence of any sign that might arouse suspicion, has no
obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful
owner of or does not have a valid title to the mortgaged property, the mortgagee or transferee in
good faith is nonetheless entitled to protection. Although this rule generally pertains to real
 property, particularly registered land, it may also be applied by analogy to personal property, in
this case specifically, since shipowners are, likewise, required by law to register their vessels
with the Philippine Coast Guard.
Ang Tay's contentions are unmeritorious. As previously discussed, paragraph 3 of the
chattel mortgage contract was erroneously but unintentionally filled up. The failure of CIFC to
exercise due care in filling up the necessary provisions in the chattel mortgage contract does not,
however, amount to bad faith. It was a mere oversight and not a deliberate and malicious act.
 52. Republic of the Philippines vs. Lim
G.R. No. 161656. June 29, 2005

FACTS:

Republic of the Philippines (Republic) instituted a special civil action for expropriation,
of two lots for the purpose of establishing a military reservation for the Philippine Army. After
depositing an amount to Philippine National Bank, the Republic took possession of the lots and
was ordered by the court to pay additional amount for just compensation. Thereafter, for failure
of the Republic to pay, successors-in-interest of Denzon and Eulalia, owner of the two lots, filed
an action for the recovery of possession with damages. In the interim, Lots 932 and 939 were
issued in the name of Francisca Valdehueza and Josefina Panerio, successors-in-interest of
Denzon and Eulalia. Annotated thereon was the phrase “subject to the priority of the National
Airports Corporation to acquire parcels of land upon previous payment of market value.”
Thereafter, Valdehueza and Panerio mortgaged Lot 932 to Vicente Lim as security for their
loans. For failure to pay despite demand, Lim foreclosed the said mortgage and later a TCT was
issued under his name. He then filed a complaint for quieting of title in which RTC rendered
Lim the absolute and exclusive owner of Lot 932.

The Republic, through Office of the Solicitor General, alleged its preferential right over
Lot 932. It also argued that Lim acted in bad faith in entering into a contract of mortgage
despite clear annotations in the TCT.

ISSUE:

Whether or not Vicente Lim is not the rightful owner when he entered into the contract of
mortgage despite clear annotations of preferential right of the Republic, thus acting in bad faith.

HELD:

 No. The Court held that Vicente Lim is the rightful owner of the lot and that he did not
act in bad faith when he entered into the contract of mortgage. Assuming that he had indeed
knowledge of the annotation, still nothing would have prevented him from entering into a
mortgage contract involving Lot 932 while the expropriation proceeding was pending. Any
 person who deals with a property subject of an expropriation does so at his own risk, taking into
account the ultimate possibility of losing the property in favor of the government.

Here, the annotation merely served as a caveat that the Republic had a preferential right
to acquire Lot 932 upon its payment of a reasonable market value. It did not proscribe
Valdehueza and Panerio from exercising their rights of ownership including their right to
mortgage or even to dispose of their property. In Republic vs. Salem Investment Corporation,
the Court recognized the owner’s absolute right over his property pending completion of the
expropriation proceeding, thus: It is only upon the completion of these two stages that
expropriation is said to have been completed. Moreover, it is only upon payment of just
compensation that title over the property passes to the government. Therefore, until the action
for expropriation has been completed and terminated, ownership over the property being
expropriated remains with the registered owner. Consequently, the latter can exercise all rights
 pertaining to an owner, including the right to dispose of his property subject to the power of the
State ultimately to acquire it through expropriation.
  (53) Philippine Bank of Communications vs. Court of Appeals and Spouses Alejandro and
Amparo Casafranca / G.R. No. 118552; February 5, 1996

FACTS:

Spouses Alejandro and Amparo Casafranca sold their lot to Carlo Po. Po, after securing
a title in his name, mortgaged the lot to Philippine Bank of Communications (PBCom) to secure
a loan of PHP 330, 000. He also executed promissory notes in favor of PBCom. For the
time
 being, a civil action ensued between the spouses and Po and the former obtained a favorable
 judgment. An execution sale was held to satisfy Po’s obligation where the spouses acquired the
same lot. Meanwhile, PBCom applied for extrajudicial foreclosure of the mortgage. An auction
sale was held and PBCom, as the highest bidder, acquired the lot and a Certificate of Sale was
issued in its favor.

By virtue of the execution sale, Amparo Casafranca stepped into the shoes of Po. She
offered to redeem the property by tendering a check in the amount of PHP 500,000. PBCom did
not accept the check as it insisted that redemption should be at the price it paid in the auction
sale. Because of this, the spouses filed against PBCom for the nullification of the foreclosure
and auction sale. The trial court set aside the foreclosure and auction sale. Subsequently,
PBCom advised the spouses to pay the amount representing Po’s principal account. Spouses
Casafranca refused to pay because they did not agree with the Statement of Account. Under the
Statement of Account, the penalties in the promissory notes executed by Po were included in the
computation. PBCom again applied for extrajudicial foreclosure of the mortgage and the
property was sold.

ISSUE:

Whether or not the penalty in the promissory notes incurred by Po can be recovered by PBCom
on the foreclosure of the mortgage

HELD:

NO. PBCom insists that the penalties in the promissory notes are also secured by the
mortgage contract. Thus, they can be recovered on the foreclosure of the mortgage. However,
the mortgage contract does not at all mention the penalties stipulated in the promissory notes.
PBCom invoked the ruling in Mojica v. CA, where it was held that the amounts named in
consideration in the mortgage contract do not limit the amount for which the mortgage may
stand as security if the intent is to secure future and other indebtedness. However, this pertains
to mortgages securing future advancements. The obligation in this case was not a series of
indeterminate sums incurred over a period of time, but two specific amounts procured in a single
instance. Thus, what applies here is the general rule that “an action to foreclose a mortgage must
 be limited to the amount mentioned in the mortgage.” Here, the entire mortgage contract yields
no mention of penalty charges. It can be concluded that the spouses did not intend to include the
 penalties on the promissory notes in the secured amount. The mortgage contract provides that it
secures notes and other evidences of indebtedness. Under the rule of ejusdem generis, a penalty
charge does not belong to the species of obligations enumerates in the mortgage, hence, the said
contract cannot be understood to secure the penalty. Thus, PBCom cannot recover the penalties
on the foreclosure of the mortgage.
54. UNION BANK VS CA
GR. No. 164910, September 30, 2005

FACTS:

DRossa Incorporated (DRI) agreed to mortgage its parcels of land in favor of Union
Bank of the Philippines (Union Bank) as security for the credit facility of Josephine Marine
Trading Corporation (JMTC). JMTC availed P3 million from the credit line.

Subsequently, Union Bank increased the credit facility of JMTC to P27 million, from
which JMTC availed P18,318,170.18. Upon JMTC’s failure to pay its obligation, Union Bank
instituted foreclosure proceedings on DRI’s properties. DRI’s properties were auctioned
wherein Union Bank was declared the highest bidder for P15,300,000.00.

DRI filed a supplemental complaint seeking to declare the public sale as null on the
grounds that its liability is only P3 million. The trial Court ruled in favor of Union Bank. On
appeal, the Court of Appeals ruled that DRI’s liability should only be for P8.61 million and the
 public sale was void due to non republication of the day of sale when they change the date of
such sale.

ISSUE:
1.) Whether or not the liability of DRI is limited only to P8.61 million.
2.) Whether or not the foreclosure sale of DRI’s mortgaged properties are null and
void for lack of republication of the notice of sale.

RULING:

(1) No. The Real Estate Mortgage contract contains a “dragnet clause” that clearly shows
the parties’ intent to constitute DRI’s real estate properties as continuing securities, liable for the
current as well as the future obligations of JMTC. Where the intent of the contracting parties
manifests that the mortgage property shall also answer for future loans or advancements, the
same is valid and binding between the parties. Thus, its liability is not limited to P8.61 million
only.

(2) No. DRI’s allegation of lack of republication is without factual or legal basis. Other
than its bare allegations, DRI did not present proof that there was no republication of the notice
of sale. On the other hand, Union Bank presented a Certificate of Posting executed by Sheriff
and the Affidavit of Publication attesting to the publication of the notice on August 29,
September 5 and 12, 1996. The original issues of Pilipino Newsline where the notice was
republished were also attached in the records. Verily, in the face of such overwhelming
evidence, there is no reason why the regularity and validity of the mortgage foreclosure should
not be upheld as the trial court did.
 55. GSIS v. CA and CONRADO O. COLARINA
G.R. No. 128118 February 15, 2002

, GSIS foreclosed the mortgage constituted on the lots and was highest bidder at the foreclosure sale. Conrado O. Colarina (Colarina) purchase

favor of the DAR pursuant to E.O. No. 47 and the Register of Deeds issued Transfer Certificate of Titles in the name of the Republic of the Phili

stant case for determination and payment of just compensation.

Issue: Whether or not Colarina has right to sell the lands of AAA and can demand for
determination and payment of just compensation.

h he never exercised within the redemption period, resulting in the consolidation of ownership in petitioner. At any rate, it is settled that the on
n. But whatever right Colarina acquired from AAA loses legal significance in the present case in view of his failure to redeem the foreclosed pr
losed properties was consolidated in the name of GSIS. Colarina may have the right to offer for sale what he expects to be his, but he certainly
56. Spouses Agbada vs. Inter-Urban Developers, Inc.
G.R. No. 144029, September 19, 2002

FACTS:

Spouses Agbada loaned from respondent Inter-Urban Developers, Inc. through its
President, Simeon Ong Tiam. As a security for the said loan, the parties executed a Deed of Real
Estate Mortgage over a parcel of land owned by the Spouses. The loan is payable within six (6)
months at three percent (3%) interest per month. The Spouses failed to pay the loan despite
several out-of-court demands. This led to filing of a complaint for foreclosure of real estate
mortgage which resulted in the Summary Judgment. The mortgaged real estate was sold at
public auction to respondent as highest bidder.

The Spouses moved for reconsideration of the confirmation order insisting the
inadequacy of the purchase price, but this was denied. For the first time since Summary
Judgment had been rendered against the Spouses, they filed a Motion to Cancel Certificate of
Sale for being Signed by an Unauthorized Officer and to recall Summary Judgment for Lack of
Jurisdiction, which was denied. The petition sought the annulment of the Summary
Judgment  for alleged violation of their right to due process arising from the absence of a full-
blown trial on a genuine issue of fact that the loan and mortgage would mature only on the fifth
year following its execution on 21 February 1991.

ISSUE:

Whether or not the petition for annulment of the Summary Judgment filed by the Spouses
is the proper remedy to seek reversal judgment for foreclosure of real estate mortgage.

HELD:

 No. The Court held that the proper remedy to seek reversal of judgment in an action for
foreclosure of real estate mortgage is not a petition for annulment of judgment but an appeal
from the judgment itself or from the order confirming the sale of the foreclosed real estate.
Since the Spouses failed to avail of appeal without sufficient justification, they cannot
conveniently resort to the action for annulment for otherwise they would benefit from their own
inaction and negligence.

Since the civil action before the trial court was for foreclosure of real estate mortgage,
the material issues were the existence of the debt and its demandability. The Spouses admitted
the existence of the debt in favor of respondent Inter-Urban Developers, Inc. as well as the
authenticity and due execution of the deed of real estate mortgage. The mortgage deed, which
the spouses duly signed and acknowledged before a notary public, pegged the loans maturity
date at six (6) months from 21 February 1991 at 3% interest per month. In effect, by the
admission of the due execution of the loan and mortgage deed, the Spouses confessed that they
voluntarily signed it, and by the admission of the genuineness of the document, they also
acknowledged that at the time it was signed it was in the words and figures exactly as set out in
the pleading of respondent Inter-Urban Developers, Inc.
 (57) Eduardo Lucena and Natividad Parales vs. Court of Appeals, et. al.
G.R. No. L-77468; August 25, 1999

FACTS:

Eduardo Lucena and Natividad Parales own a parcel of land located in Oriental
Mindoro. Lucena obtained a loan from Rural Bank of Naujan (Bank) in the amount of PHP
3,000 secured
 by a real mortgage executed on the said land. After the maturity of the loan, Lucena and Parales
 paid PHP 2,000 leaving a balance of PHP 1,000. The Bank demanded the payment of the balance
 but their demand went unheeded. Hence, the land was extrajudicially foreclosed and sold at
 public auction where the Bank, as the highest bidder, acquired the property. Prior to the auction
sale, three notices were posted in three conspicuous places in the municipality where the land is
located. However, no notices were posted in the barrio where the property is located, nor were
any published in a newspaper of general circulation. The ownership to the property was
consolidated and it was subsequently registered in the Registry of Deeds. Thereafter, the Bank
sold the land to Marianito Baja and Patricia Araja and the sale was registered. Lucena and
Parales filed a complaint for reconveyance to recover the land from Baja and Arija.

ISSUE:

Whether or not the foreclosure sale is valid

HELD:

NO. Failure to comply with statutory requirements as to publication of notice of auction

sale invalidates the sale. Under Sec. 5 of R.A. 5939, foreclosure of mortgages covering loans
granted by rural banks shall be exempt from the publication in newspapers if the total amount of
the loan including interests due and unpaid, does not exceed three thousand pesos (PHP 3,000).
It was also stated that notices of foreclosure posted in at least three conspicuous public places in
the municipality and barrio where the land mortgages is situated is sufficient publication. In this
case, the Bank was not exempt from publication in newspapers because the total amount of the
loan including interests due and unpaid was PHP 3,006.90. And even assuming that the Bank is
exempt from publication in newspapers, still it failed to post notice in the barrio where the land
is located. Even slight deviations from statutory requirements as to publication and notice are
not allowed. In light of the Bank’s failure to comply with the statutory requirements of notice
and
 publication, the foreclosure and public auction sale are void.
 58. Development Bank of the Philippines v Aguirre
GR. No. 144877. September 7, 2001

FACTS:

In 1980, Development Bank of the Philippines (DBP) granted a loan to Veronica

Aguirre. Aguirre executed a mortgage of a lot and two promissory notes as a security to the
loan. As she defaulted, DBP took steps to foreclose the mortgage. Aguirre offered to restructure
her loan, but DBP did not respond to the offer. The notice for the foreclosure sale, to be held on
September 25, 1985, was published in a newspaper of general circulation. However, the
foreclosure sale scheduled did not take place on the said date but on January 7, 1986 in which
DBP was the highest bidder. The certificate of sale was registered in the Office of the Registrar.
Aguirre failed to redeem the property.

DBP consolidated its title and advertised the sale of the foreclosed lot through a public
auction scheduled on December 6, 1988. On the day of the bidding, Aguirre filed a complaint
against DBP in trial court. The trial court held that DBP had complied with the publication
requirement in foreclosure and vacated the writ of preliminary injunction and dismissed
Aguirre’s complaint and counterclaim of DBP regarding the restructuring and the notification of
the foreclosure sale. Both parties appealed to the Court of the Appeals where it reversed the
decision of the trial court as insofar as the appeal of Aguirre was concerned and invalidated the
foreclosure sale on the ground that DBP failure to present proof of posting of the notice
rendered the foreclosure proceedings invalid.

ISSUE: Whether or not the foreclosure proceeding by DBP is valid.

RULING:

 No. The foreclosure is invalid. Under Act No. 3135, if the value of the property subject
of the foreclosure is more than P400.00, the notice of sale must be posted and published. The
failure to post a notice is not per se a ground for invalidating the sale provided that the notice
thereof is duly published in a newspaper of general circulation. However, although the notice of
foreclosure sale was duly published, the sale did not take place as scheduled on September 25,
1985. Instead, it was held more than two months after the published date of the sale or on
January 7, 1986. This renders the sale void. Hence, there was no valid foreclosure sale. Veronica
Aguirre was ordered to pay DBP the remaining outstanding balance of her loan with interest as
stipulated in the contract of loan, as of January 7, 1986, subject to the right to foreclose the
mortgage upon failure of Aguirre to settle her obligation.
 59. PHILIPPINE NATIONAL BANK  vs. SPOUSES FRANCISCO and MERCED RABAT
G.R. No. 134406 November15, 2000

Facts:
Spouses Francisco and Merced Rabat (hereafter RABATs) had several availments of the
loan accommodation on various dates with Philippine National Bank (PNB) that reached the
aggregate unpaid amount of Php3,517,380, as evidenced by the several promissory notes, all of
which were due on 14 March 1983. These include: 1. a medium-term loan; 2. a “Credit
Agreement” secured by a Real Estate Mortgage over twelve (12) parcels of land subject to
interest plus the appropriate service charge and penalty charge on any amount remaining unpaid
or not renewed when due; and 3. 2nd Real Estate Mortgage over nine (9) parcels of land as
additional security for their medium-term loan. These parcels of land were situated in Mati,
Davao Oriental. The RABATs failed to pay their outstanding balance on due date.
PNB gave the RABATs until 30 August 1986 to settle their account. The PNB sent the
letter to 197 Wilson Street, San Juan, Metro Manila. For failure of the RABATs to pay their
obligation, the PNB filed a petition for the extrajudicial foreclosure of the real estate mortgage
executed by the RABATs. After due notice and publication, the mortgaged parcels of land were
sold at a public auction held on 20 February 1987 and 14 April 1987. The PNB was the lone and
highest bidder.
As the proceeds of the public auction were not enough to satisfy the entire obligation of
the RABATs, the PNB sent anew demand letters. Upon failure of the RABATs to comply with
the demand to settle their remaining outstanding obligation PNB eventually filed on 5 May 1992
a complaint for a sum of money before the Regional Trial Court of Manila.
The RABATs admitted their loan availments from PNB and their default in the payment
thereof. However, they assailed the validity of the auction sales for want of notice to them
before and after the foreclosure sales.

Issue: Whether or not the foreclosure proceedings are valid on grounds of lack of personal notice
to mortgagor and non-compliance with publication and notice-posting requirement

Held:
Yes, the foreclosure proceedings are valid. In extrajudicial foreclosure sales, personal
notice to the mortgagor is not necessary. Section 3 of Act No. 3135 reads: “Section 3. Notice
 shall be given by posting 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 if such property is worth more
than
 four hundred pesos, such notice shall be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or city.”
The contract of mortgage between Rabat and PNB did not specifically require that
 personal service of notice of foreclosure sale be given to them. San Pedro Times, which
 published the notice of foreclosure sale, is a newspaper of general circulation as certified by the
Sheriff and as shown in the affidavit of its publisher. Hence, the foreclosure proceedings are
valid, as personal notice to mortgagor is not required and that the publication and notice-posting
requirements are duly complied with.
 60. Fortune Motors (Phils.), Inc. vs. Metropolitan Bank and Trust Company
GR No. 115068, November 28, 1996

FACTS:

Fortune Motors (Phils.) Inc. obtained a loan from the Metropolitan Bank and Trust
Company (MBTC). To secure the obligation, petitioner mortgaged certain real estate in favor of
MBTC. Petitioner failed to pay the loan upon maturity and MTBC initiated extrajudicial
foreclosure proceedings and in effect, foreclosed the real estate mortgage. Fortune Motors filed
for the annulment of the extrajudicial foreclosure contending that the newspaper where the
notice of extrajudicial foreclosure was published does not qualify as a newspaper of general
circulation; Fortune Motors did not personally receive the notices of extrajudicial foreclosure;
and the Sheriff failed to post the notices of sale in conspicuous places required by law.

MBTC presented an affidavit executed by the executive editor of its publisher who was a
witness for the petitioner: a) that the Daily Record, the newspaper where it was publishe,
contains news; b) that it has subscribers from Metro Manila and from all over the Philippines; c)
that it is published once a week or four times a month; and d) that he had been connected with
the said paper since 1958, an indication that the said newspaper had been in existence even
 before that year.

ISSUE:

Whether or not the publication of the notice of extrajudicial foreclosure was valid.

HELD:

Yes. To be a newspaper of general circulation, it is enough that "it is published for the
dissemination of local news and general information; that it has a bona fide subscription list of
 paying subscribers; that it is published at regular intervals." The newspaper need not have the
largest circulation so long as it is of general circulation. In the case at bench, there was sufficient
compliance with the requirements of the law regarding publication of the notice in a newspaper
of general circulation.

Further, settled is the rule that personal notice to the mortgagor in extrajudicial
foreclosure proceedings is not necessary. Section 3 of Act No. 3135 governing extrajudicial
foreclosure of real estate mortgages, as amended by Act No. 4118, requires only the posting of
the notice of sale in three public places and the publication of that notice in a newspaper of
general circulation. It is pristine clear from the above provision that the lack of personal notice
to the mortgagor, herein petitioner, is not a ground to set aside the foreclosure sale.

Lastly, Section 3 of Act No. 3135 merely requires that the notice of the sale be posted
for not less than twenty days in at least three public places of the municipality or city where
the
 property is situated. The Sheriff posted the notices of sale to wit: the Sheriff's Office, the
Assessor's Office and the Register of Deeds and these are certainly the public places
contemplated by law, as these are places where people interested in purchasing real estate
congregate.
 (61) Benguet Management Corporation v. Court of Appeals, et. al.
G.R. No. 153571; September 18, 2003

FACTS:

Benguet Management Corporation (BMC) and Keppel Bank Philippines, Inc. (KBPI),
entered into a Loan Agreement and Mortgage Trust Indenture (MTI). Under the MTI, BMC, in
consideration of PHP 190,000,000.00, mortgaged several parcels of land located in Iba,
Zambales and San Pablo City in favor of KBPI. After BMC failed to pay the loan, KBPI filed an
application for extrajudicial foreclosure of mortgage in Iba, Zambales and San Pablo City. KBPI
also paid the foreclosure fees covering the properties situated in Zambales and Laguna.

BMC filed a Request Not to Give Due Course to the application of KPBI stating that it is
insufficient in form and substance and that there is no need to proceed with the foreclosure of the
 properties because it is willing to execute a dacion en pago in place of the properties. BMC also
claimed that the MTI cannot be foreclosed because it was not registered with the Register of
Deeds. Still, KBPI’s application for extrajudicial foreclosure was granted. An auction sale
was held where KBPI was the highest bidder.

ISSUES:

Whether or not the mortgagor (BMC) is guilty of forum shopping by filing of separate actions
with injunction to restrain the extrajudicial foreclosure proceedings

RULING:

NO. In the case at bar, BMC is not guilty of forum shopping precisely because the
remedy available to mortgagors under the law, if the mortgaged properties are located in
different municipalities or provinces, was the filing of separate injunction suits. It is mandated
to file only one case for a single cause of action, e.g. , breach of mortgage contract; yet, it
cannot enforce any injunctive writ issued by the court to protect its properties situated
outside the
 jurisdiction of said court. Since injunction is enforceable only within the territorial limits of the
trial court, the mortgagor (BMC) is left without remedy as to the properties located outside the
 jurisdiction of the issuing court, unless an application for injunction is made with another court
which has jurisdiction over the latter properties.

Besides, BMC was honest enough to inform the Zambales court in the certification of its
complaint that it has a pending request not to give due course to the foreclosure proceedings
with the San Pablo court, in the same manner that its petition for certiorari with the Court of
Appeals notified the appellate court of the pendency of its complaint with the Zambales court. It
would therefore be unfair to dismiss the cases filed by BMC on the ground of forum shopping
where under the circumstances the law gives it no other remedy.
 62. Tarnate v. CA
G.R. No. 100635, February 13, 1995

FACTS:

In order to secure various loans obtained from Rural Bank, Inc., the spouses Ramon and
Erlinda Tarnate, along with two other persons, executed real estate mortgages over different
 parcels of land, each covered by a Transfer Certificate of Title. When the loans were not repaid
at maturity, the mortgaged parcels of land were extrajudicially foreclosed by Rural Bank, Inc. in
accordance with Act No. 3135. At the auction, Rural Bank, Inc. gave the highest bids. The
corresponding certificates of sale were issued in favor of Rural Bank, Inc. on 07 October 1981.
On 03 May 1982, the bank commenced an action to recover the remaining deficiency on
the total indebtedness. It averred that the proceeds of the foreclosure sale of the parcels of land,
which secured the four loans, left a balance of P52,678.9, P99,989.38, P54,103.16, and
P71,072.63.
In their answer, spouses Tarnate questioned the validity of the extrajudicial foreclosure
of the mortgaged parcels of land i.e., that the properties have been sold at an extremely low
price; and that there is irregularity in the foreclosure sale for lack of notice and publication.
Further, spouses Tarnate maintained that the complaint had been filed prematurely since the
redemption
 period at the time had yet to expire.
Under all the causes of action, the court a quo rendered summary judgment in favor of
Rural Bank, Inc. ordering spouses Tarnate to jointly and solidarily pay Rural Bank, Inc., the
amount of the deficit with interest thereon at the legal rate per annum until fully paid plus
attorney's fees and the cost of suit.
The Court of Appeals affirmed the decision of the court a quo.

ISSUES: (1) Whether or not the selling of the parcels of land at an extremely low price
invalidates the extrajudicial foreclosure.
(2) Whether or not there is irregularity in the foreclosure sale of Rural Bank, Inc. for lack
of notice and publication to spouses Tarnate.

RULING:

(1)  No. The Court ruled that the contention that the properties have been sold at an
extremely low price, if correct, would have, in fact, favored an easy redemption of the
properties. That remedy could have well been availed of but the Spouses Tarnate did not.

(2)  No. The charge of irregularity in the foreclosure sale for lack of notice and
 publication cannot be seriously considered. The records of the case immediately belie such a
claim showing sufficient compliance with the required notice and publication.
 63. Development Bank of the Philippines v. Leonor R. Vda. De Moll G.R. No. L-25802 January 31, 1972

spectively, in favor of one Sebastian Moll, Sr. who, to secure the payment of said loans, Moll mortgaged in favor of the Bank fourteen (14) parc
he same to themselves, albeit binding themselves, jointly and severally, to assume payment of the indebtedness of the deceased with the DBP
thereafter.
so the complaint alleges, the sums of P173,117.55, on outstanding balances or deficiencies under the two types of loans obtained by the Molls

Issue: Whether or not DBP can ask for the deficiency the loan after applying the proceeds of
foreclosure sale even within the redemption period.

Held:
YES. DBP can ask for the deficiency of the loan after applying the proceeds even within
the redemption period. Article 2131 of the new Civil Code, on the contrary, expressly provides
that "The form, extent and consequences of a mortgage, both as to its constitution, modification
and extinguishment, and as to other matters not included in this Chapter, shall be governed by
the provisions of the Mortgage Law and of the Land Registration Law."
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.
It is apparent from the provisions and decisions above-quoted that once the auction sale
of the mortgaged property is effected and the resulting deficiency in the mortgage debt is
ascertained, the mortgagee-creditor is then and there entitled to secure a deficiency judgment
which may immediately be executed, whether or not the mortgagor is still entitled to redeem the
 property sold. We hold then that the Molls' right to redeem their auctioned properties could not
 be a bar to the present action of DBP to recover the deficiencies which it claims to have resulted
after applying the proceeds of the foreclosure sales here involved in payment of Molls’
mortgage debt.
 64. Cesar Sulit vs. Court of Appeals and Iluminada Cayco
G.R. No. 119247, February 17, 1997

FACTS:

Iluminada Cayco executed a Real Estate Mortgage (REM) over a lot located in Caloocan
City in favor of Cesar Sulit, to secure a loan of P4 Million. Upon failure of Sulit to pay said loan
within the stipulated period, Cayco resorted to extrajudicial foreclosure of the mortgage as
authorized in the contract. Hence, in a public auction conducted by Notary Public Felizardo M.
Mercado, the lot was sold to the mortgagee, Cayco, who submitted a winning bid of P7 Million.
As stated in the Certificate of Sale executed by the notary public mortgaged property was sold at
 public auction to satisfy the mortgage indebtedness of P4 Million. Cayco petitioned the
Regional Trial Court of Kalookan City for the issuance of a writ of possession in his favor.

Sulit, on the other hand, filed a Motion to have the auction sale of the mortgaged property
cancelled questioning the sufficiency of the amount of bond and at the same time prayed that he
 be directed to pay the sum of P3 Million which represents the balance of his winning bid of P7
Million less the mortgage indebtedness of P4 Million.

ISSUE:

Whether or not the mortgagee or purchaser in an extrajudicial foreclosure sale is entitled

to the issuance of a writ of possession over the mortgaged property despite his failure to pay the
surplus proceeds of the sale to the mortgagor or the person entitled thereto.

HELD:

Yes. The Court held that the governing law explicitly authorizes the purchaser in a
foreclosure sale to apply for a writ of possession during the redemption period by filing an ex
 parte motion under oath for that purpose in the corresponding registration or cadastral
 proceeding in the case of property with Torrens title. Upon the filing of such motion and the
approval of the corresponding bond, the law also in express terms directs the court to issue the
order for a writ of possession.

The rule is, however, not without exception. Under Section 35, Rule 39 of the Rules of
Court, which is made applicable to the extrajudicial foreclosure of real estate mortgages by
Section 6 of Act 3135, the possession of the mortgaged property may be awarded to a purchaser
in the extrajudicial foreclosure “unless a third party is actually holding the property adversely to
the judgment debtor.”

When there is the right to redeem, inadequacy of price becomes immaterial since the
 judgment debtor may reacquire the property or sell his right to redeem, and thus recover the loss
he claims to have suffered by reason of the price obtained at the auction sale.

If the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this
fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of
action to recover such surplus.
(65) Bank of America NT and SA vs. American Realty Corporation and Court of Appeals
G.R. No. 121879; August 14, 1998

FACTS:
Bank of America NT and SA (BANTSA) and Bank of America International Limited
(BAIL) granted loans to three foreign corporations. Due to the default in the payment of the loan
amortizations, BANTSA and the foreign corporate borrowers signed and entered into
restructuring agreements and as additional security for the restructured loans, ARC as third party
mortgagor executed two real estate mortgages over its parcels of land located in Bulacan,
Philippines. The foreign corporate borrowers defaulted in the payment of the loans, prompting
BANTSA to file civil actions before foreign courts for the collection of the principal loan.
Thereafter, it filed a petition in Bulacan RTC to extrajudicially foreclose the real estate
mortgages, which were granted.
ARC filed an action for damages against BANTSA, for the latter’s act of foreclosing
extrajudicially the real estate mortgages despite the pendency of civil suits before foreign courts
for the collection of the principal loan. BANTSA contend that a waiver of the remedy of
foreclosure requires the concurrence of two requisites: an ordinary civil action for collection
should be filed and subsequently a final judgment is correspondingly rendered therein. Thus,
they claim that there was no waiver made since there was no judgment in the collection suit yet.

ISSUE:

Whether or not BANTSA’s act of filing a collection suit constituted a waiver of the remedy of 
foreclosure.

HELD:

YES. As a rule, in the absence of express statutory provisions, a mortgage creditor may
institute against the mortgage debtor either a personal action for the debt or a real action to
foreclose the mortgage. In other words, he may pursue either of the two remedies, but not both.
A rule that would authorize the plaintiff to bring a personal action against the debtor and
simultaneously or successively another action against the mortgaged property would result in
multiplicity of suits and vexation to the defendant. It also violates the prohibition on splitting of
cause of action for there is only one cause of action: nonpayment of the debt.

The remedies available to the mortgagee are deemed alternative and not cumulative. An
election of one remedy operates as a waiver of the other. For this purpose, a remedy is deemed
chosen upon the filing of the suit for collection or upon the filing of the complaint in an action
for foreclosure of mortgage. As to extrajudicial foreclosure, such remedy is deemed elected by
the mortgage creditor upon filing of the petition with the Office of the Sheriff of the province
where the sale is to be made. The mere act of filing of an ordinary action for collection operates
as a waiver of the remedy of foreclosure. No final judgment in the collection suit is required for
the rule on waiver to apply.
66. Aclon v. CA
GR 106880 and 120190, August 20, 2002

FACTS:

On December 15, 1964, Aclon secured a loan from Philippine National Bank (PNB) for
P5000 payable within 1 year. As a security for the loan, Aclon mortgaged 2 parcels of land.
When the loan became due, it was extended after Aclon paid a partial payment. Despite the
extension and repeated demands from PNB, Aclon failed to pay the loan in full amount. Thus,
PNB instituted extra-judicial foreclosure proceedings. After notice and publication, the Deputy
Provincial Sheriff conducted the sale at public auction the mortgaged properties at Oras
Municipal Building. The subject properties were awarded to PNB, being the sole and highest
 bidder.
The period of redemption lapsed without Aclon redeeming the properties. PNB sold one
of the parcels of land to Spouses Opimo. However, Aclon remained in possession of the
property and refused to vacate the same when Spouses Opimo attempted to take possession.
Instead, Aclon filed a complaint against PNB and the Opimo spouses claiming that the
foreclosure and sale are null and void for lack of compliance with the mandatory requirements
of the law (Act 3135) on posting, publication of the notice of sale and the place of auction sale.
The trial court ruled in favor of Opimo spouses. The CA affirmed trial court’s decision.

ISSUE: Whether or not the sale of the property by PNB to Sps. Opimo is null and void for not
complying with Act 3135.

RULING:

 NO. There was compliance by PNB with the provisions of Act 3135 with respect to the
 posting and publication of the notice of sale at public auction and that the Opimo spouses are
 buyers in good faith. An attempt to redeem from an execution sale has been construed as a
waiver of defects or irregularities therein, precluding him from relying upon them for the
 purpose of challenging its validity. When Aclon sought to redeem his property from PNB, he
never made any reservation with respect to his right to question the validity of the auction sale
and to seek alternative relief before the courts. In other words, there was no indication
whatsoever that he does not recognize the validity of the sale. If Aclon indeed felt that the
assailed foreclosure proceedings were attended with any irregularity he should have filed the
appropriate action with the court.
Furthermore, it was only more than five years after the said properties were foreclosed
and almost four years after the same were sold to the Opimo spouses that Aclon filed for
redeeming the subject properties proving his own fault and negligence. Thus, with Aclon’s
implied admission of the validity of the extrajudicial foreclosure proceedings, he is likewise
estopped from questioning the venue of the public auction.
 67. DEVELOPMENT BANK OF THE PHILIPPINES, Petitioners, vs. SPOUSES
WILFREDO GATAL and AZUCENA GATAL
G.R. No. 138567, March 04, 2005

mmercial lot at No. 3 J.A. Clarin Street, Tagbilaran City, covered by Transfer Certificate of Title No. T-22697 of the Registry of Deeds, same city.

own

o and Azucena Gatals’ bid. Upon learning of Torrefranca’s offer, the spouses wrote DBP requesting that they will match his bid. But DBP rejecte

Issue: Whether the purchaser has rights after the lapse of the redemption period.

Held:
The Court ruled that once a mortgaged estate is extrajudicially sold, and is not redeemed
within the reglementary period, no separate and independent action is necessary to obtain
 possession of the property. The purchaser at the public auction has only to file a petition for
issuance of a writ of possession pursuant to Section 33 of Rule 39 of the Rules of Court. It
 provides that upon the expiration of the right of redemption, the purchaser or redemptioner shall
 be substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the
 property as of the time of the levy. The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a third party is actually holding the
property adversely to the judgment obligor. To give effect to the right of possession, the
purchaser must invoke the aid of the court and ask for a writ or possession without need of
bringing a separate independent suit for this purpose.
68. Ibasco vs. Caguioa
Gr. No. L-62619, August 19, 1986

FACTS:

Manuel Ibasco and Edita Tampingco are the lessees of a residential house which they
had leased from the spouses Anastacio Garcia and Asuncion Garcia. Ibasco and Tampingco
were religiously paying their monthly rentals to the GARCIAS, and were unaware of the fact
that the GARCIAS had mortgaged the property with respondent Banco Filipino Savings and
Mortgage Bank, that because of non-payment by the GARCIAS, the mortgage had been
foreclosed, and that the redemption period had already expired. Thereafter, Ibasco and
Tampingco were served with a copy of the writ of possession, the issuance of which had been
ordered by the court authorities and which orderedthem to vacate the premises. Ibasco and
Tampingco raised that writ of possession may be granted only in a land registration case, not in
an extrajudicial foreclosure of a mortgage.

ISSUES:

Whether or not writ of possession may be grantedinan extrajudicial foreclosure of

mortgaged property.

HELD:

Yes. The Court ruled that the mortgagee, who has foreclosed upon the mortgaged real
 property of a delinquent debtor and has purchased the same at the foreclosure sale, can be
granted a writ of possession over the property despite the fact that the premises are in the
 possession of a lessee thereof and whose lease has not as yet been terminated, unless the lease
had been previously registered in the Registry of Property or unless despite non-registration, the
mortgagee had prior knowledge of the existence and duration of the lease (actual knowledge
 being equivalent to registration).

As to the contention that the writ of possession can be obtained only in a land
registration case, suffice it to say that in Section 7 of Act 3135, the writ of possession will be
issued only in the land registration or cadastral proceedings of the property involved. This is
precisely what has
 been done in the instant case. Section 7, provides that in any sale made under the provisions of
this Act, the purchaser may petition the Court of First Instance of the province or place where
the
 property or any part thereof is situated, to give him possession thereof during the redemption
 period, furnishing bond in an amount equivalent to the use of the property for a period of twelve
months, to indemnify the debtor in case it be shown that the sale was made without complying
with the requirements of this Act. Such petition shall be made oath and filed in form of an ex-
 parte motion in the registration or cadastral proceedings if the property is registered.

In view of what has already been stated,he court also pointed out that conformably with
the provisions of Art. 1648 of the Civil Code, the petitioners herein could have continued in their
 possession as lessees if the lease had been registered   in the Registry of Property, or if the
existence and duration of the lease had been known to the private respondents. Art. 1648 of the
Civil Code provides that, “Every lease of real estate may be recorded in the Registry of 
 Property. Unless a lease is recorded, it shall not be binding upon third persons.
 (69) Bukidnon Doctors’ Hospital vs. Metropolitan Bank & Trust Co.
G.R. No. 161882; July 8, 2005

FACTS:

Bukidnon Doctors’ Hospital (Hospital) obtained a loan of PHP 25 million from

Metropolitan Bank & Trust Co. (MBTC) to be used for the construction of its hospital. To
secure this loan, the Hospital mortgaged six parcels of land registered in the name of Dr. Rene
Sison and Rory P. Roque, its President and Administrator, respectively. Upon the default of the
Hospital to pay the loan, the mortgage was extrajudicially foreclosed and the lots were sold in
 public auction to MBTC. The Hospital failed to redeem the properties within the period of
redemption hence MBTC consolidated its ownership over the properties and was issued new
certificates of title.

Thereafter, the Hospital and MBTC entered into a lease agreement where the Hospital
was the lessee. After almost two years after the execution of the lease contract, MBTC asked the
Hospital to vacate the leased premises. The Hospital refused, invoking the subsisting lease
agreement. MBTC then filed an Ex Parte Motion for a Writ of Possession which the granted by
the RTC.

ISSUES:

Whether or not writ of possession is the proper remedy of MBTC

RULING:

NO. The proper remedy would be to file a case for ejectment or unlawful detainer. In
extrajudicial foreclosure proceedings, a writ of possession may be issued after the expiration of
the redemption period without the mortgagor exercising the right of redemption, or even during
the redemption period provided a bond is posted to indemnify the debtor in case foreclosure is
shown to be invalid. However, the law on extrajudicial foreclosure does not apply in this case
since the title has already been passed to the MBTC. The new contractual relation between the
Hospital and MBTC presupposed that the Hospital recognized that the possession of the
 properties had been legally placed in the hands of MBTC. Since MBTC is already in material
 possession, the issuance of writ of possession is improper. Where a lease agreement, whether
express or implied, is subsequently entered into by the mortgagor and the mortgagee after the
expiration of the redemption period and the consolidation of title in the name of the latter, a case
for ejectment or unlawful detainer, not a motion for a writ of possession, is the proper remedy in
order to evict from the questioned premises a mortgagor-turned-lessee. The rationale for this
rule is that a new relationship between the parties has been created. What applies is no longer
the law on extrajudicial foreclosure, but the law on lease.
 70. Primetown Property Group Inc. v. HON. Lyndon D. Juntilla
GR No. 157801, June 8, 2005

FACTS:

Teresa C. Aguilar entered into a contract to sell with Primetown Property Group, Inc.
(PPGI) covering a condominium unit and paid the unit in installment. After almost two years,
the construction of the building had barely even started. She demanded in writing the rescission
of her contract to sell with PPGI and the refund of what she had paid. When PPGI refused, she
filed a complaint against PPGI for the rescission of the contract to sell and damages with
HLURB. HLURB rendered a decision in favor of Aguilar. Sheriff Raagas of the RTC of Makati
City levied several properties of PPGI, one of which was a condominium unit in Makati City.
Before the scheduled auction sale, OPallick served a third party claim stating that the
condominium unit was the subject of a contract to sell executed by PPGI in favor of Poblete and
Villanueva. Aguilar was declared the highest bidder for the condominium unit for
P1,200,000.00. The Sheriff executed a certificate of sale over the property in her favor.
Following the failure of PPGI to redeem the property, the Sheriff executed a final deed of sale in
favor of Aguilar. Aguilar filed a motion with the HLURB for the issuance of a writ of
possession and the latter granted the same. HLURB directing the PPGI, its officers,
incorporators, stockholders and/or assignees/transferees to peacefully vacate the subject
condominium.

ISSUE:
Whether or not Aguilar is entitled to the possession of condominium unit

RULING:
Yes, Aguilar is entitled to the possession of condominium unit. The buyer in a
foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed
during the period of one year after the registration of the sale. The issuance of the writ of
 possession had become ministerial duty on the part of HLURB since the Aguilar had
sufficiently shown her proof of title over the subject condominium. Being the registered owner
of the condominium unit, she is entitled to its possession.
There is no need for a hearing for the issuance of writ of possession because it is not a
litigated motion, and the court may act thereon without prejudice to the rights of PPGI as the
adverse party. The prejudice caused to PPGI as the adverse party from the HLURB order
directing it and its officers and employees to vacate the condominium unit would not have been
greater than that caused by the issuance of the writ of execution itself. The writ of possession
was but an implementation of the writ of execution.
The procedure in a motion for the issuance of a writ of possession is ex parte  and
summary in nature. It is a proceeding brought for the benefit of one party only and without
notice
 by the court to any person adverse of interest. It is a proceeding wherein relief is granted
without an opportunity for the person against whom the relief is sought to be heard. The
issuance of a writ of possession is not a judgment on the merits. Thus, the HLURB may grant
the motion even in the absence of the judgment obligor, PPGI.
 71. HILARIO RAMIREZ and VALENTINA BONIFACIO, vs.
HONORABLE COURT OF APPEALS, FRANCISCA MEDINA, et al.
G.R. No. L-38185 September 24, 1986

nce that they acquired the land in question by purchase from Gregorio Pascual but the corresponding contract of sale was lost and no copy or r
succession, they averred that, Ramirez obtained the land because the then owner Gregorio Pascual obtained a loan from Ramirez, and secured

ut that the heirs of Pascual could not redeem the property within a period of five years and that Ramirez would take

e land by way of antichresis.

sion that the Ramirez have been in actual possession of the disputed land since 1938, it was made to show and
. The Medina never admitted that they have not possessed the land at all. On the contrary, they alleged that they and their predecessors-in-in
were placed in possession of the land pursuant to a contract of antichresis.
ors. This finding and its factual bases were affirmed by the Court of Appeals. Hence, antichretic creditors cannot acquire ownership of the land
 72 - Tsai vs. Court of Appeals
G.R. No. 120098, October 2, 2001

FACTS:

Ever Textile Mills, Inc. (EVERTEX) obtained a loan from petitioner Philippine Bank of
Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a
deed of Real and Chattel Mortgage over the lot where its factory stands, and the chattels located
therein as enumerated in a schedule attached to the mortgage contract. Later, PBCom granted a
second loan to EVERTEX. The loan was secured by a Chattel Mortgage over personal
properties similar to those enumerated in the list of the first mortgage deed. After the date of the
execution of the second mortgage mentioned above, EVERTEX purchased various machines
and equipment. Upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings where PBCom emerged as the highest bidder.
PBCom consolidated its ownership over the lot and all the properties in it. PBCom then sold to
Tsai various properties including the contested machineries.

EVERTEX assailed that PBCom misappropriated the properties which were not included
in the Real and Chattel Mortgages nor in the second contract which is a Chattel Mortgage.
EVERTEX claimed that no rights having been transmitted to PBCom,therefore Tsai acquired no
rights over such assets sold to her. PBCom contended that the nature of the disputed
machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by
EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the
New Civil Code, and therefore covered by the Real and Chattel Mortgage initially executed.

ISSUE:

Whether or not PBCom is correct totreat the properties as immovable under Art. 415 of
the New Civil Code and therefore including them in the foreclosure sale.

HELD:

 No. The Court held that the properties in question were not treated as immovable
 properties, therefore not covered by the mortgages executed and should not be subjected to the
foreclosure sale. While it is true that the controverted properties appear to be immobile, a
perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a
contrary indication. In the case at bar, both the trial and the appellate courts reached the same
finding that the true intention of PBCom and the owner, EVERTEX, is to treat machinery and
equipment as chattels. Assuming arguendo that the properties in question are immovable by
nature, nothing detracts the parties from treating it as chattels to secure an obligation under the
principle of estoppel. An immovable may be considered a personal property if there is a
stipulation as when it is used as security in the payment of an obligation where a chattel
mortgage is executed over it, as in the case at bar.The Court heldthat the auction sale of the
subject properties to PBCom is void, no valid title passed in its favor.

Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of
nemo dat quod non habet, one cannot give what one does not have.
(73) Acme Shoe, Rubber & Plastic Corporation and Chua Pac vs. Court of Appeals, et al.
G.R. No. 103576; August 22, 1996

FACTS:

On June 27, 1978, Chua Pac, President and General Manager of Acme Shoe, Rubber &
Plastic Corporation, executed, for and in behalf of the company, a chattel mortgage in favor of
Producers Bank of the Philippines. The mortgage was a security for Acme Shoe’s corporate loan
of PHP 3,000,000.00. A provision in the chattel mortgage agreement states that in the event
Acme Shoe executes a subsequent promissory note or notes, either as a renewal of the former
note, as an extension thereof, or as a new load, or is given any other kind of accommodations,
the chattel mortgage shall also stand as security for the payment of the said promissory note or
notes and/or accommodations without the necessity of executing a new contract.

The loan of PHP 3,000,000 was paid by Acme Shoe. Subsequently, it again loaned from
Producers Bank the amount of PHP 2,700,000.00 which was also paid on its due date. In 1984,
the Producers Bank yet again extended to Acme Shoe a loan of PHP 1,000,000.00. Due to
financial restraints, the loan was not settled at maturity. Producers Bank thereupon applied for an
extra judicial foreclosure of the chattel mortgage, prompting Acme Shoe to file an action for
injunction and a prayer for writ of preliminary injunction to the RTC but was denied.

ISSUE:

Whether or not a clause in the chattel mortgage that extends its coverage to after-incurred
obligations is valid

RULING:

NO. A chattel mortage can only cover obligations existing at the time the mortgage is
constituted. In the chattel mortgage here involved, the only obligation specified in the chattel
mortgage contract was the PHP 3,000,000 loan which was already paid. By virtue of Section 3
of Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel
mortgage void or terminated. In Belgian Catholic v. Magallanes Press, the Court said that a
mortgage that contains a stipulation in regard to future advances in the credit will take effect
only from the date the same are made and not from the date of the mortgage. The significance of
the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased to
exist coincidentally with the full payment of the P3,000,000.00 loan, there no longer was any
chattel mortgage that could cover the new loans that were concluded thereafter.
 74. THE STANDARD OIL v. JARAMILLO
G.R. No. L-20329, March 16, 1923

FACTS:

On November 27, 1922, Gervasia de la Rosa, lessee of a parcel of land situated in the
City of Manila and owner of the house of strong materials built thereon, executed a contract of
chattel mortgage, purporting to convey to The Standard Oil Company of New York by way of
mortgage both the leasehold interest in said lot and the building which stands thereon. After said
document had been duly acknowledged and delivered, Standard Oil presented the document to
Joaquin Jaramillo, as register of deeds of the City of Manila, to have the same recorded in the
 book of record of chattel mortgages. Upon examination of the instrument, Jaramillo was of the
opinion that it was not a chattel mortgage, for the reason that the interest therein mortgaged did
not appear to be personal property, within the meaning of the Chattel Mortgage Law, and
registration was refused on this ground only.

ISSUE: Whether or not the duty of the Register of Deeds to register chattel mortgage is a
ministerial act.

RULING:

Yes. The Court held that the duties of a register of deeds with respect to the registration
of chattel mortgage are of a purely ministerial character; and no provision of law can be cited
which confers upon him any judicial or quasi-judicial power to determine the nature of any
document of which registration is sought as a chattel mortgage.

In an administrative ruling promulgated on September 8, 1914 by the Honorable James

A. Ostrand, in his capacity as the Judge of 4th branch of CFI Manila, he opined that a register of
deeds has no authority to pass upon the capacity of the parties to a chattel mortgage which is
 presented to him for record. If the mortgaged property is real instead of personal the chattel
mortgage would no doubt be held ineffective as against third parties, but this is a question to be
determined by the courts of justice and not by the register of deeds.

Wherefore, the demurrer is overruled; and unless within the period of five days from the
date of the notification hereof, Jaramillo shall interpose a sufficient answer to the petition, the
writ of mandamus will be issued, as prayed, but without costs.
75. PAMECA WOOD TREATMENT PLANT, INC. vs. CA
GR No. 106435 July 14, 1999

Facts:
On April 17, 1980, petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA)
obtained a loan of US$267,881.67, or the equivalent of P2,000,000.00 from Development Bank
of the Philippines (DBP). By virtue of this loan, PAMECA, through its President, Herminio C.
Teves (Teves) , executed a promissory note for the said amount, promising to pay the loan by
installment and as security for the said loan, a chattel mortgage was also executed over
PAMECA’s properties in Dumaguete City.
On January 18, 1984, and upon PAMECA’s failure to pay, DBP extrajudicially
foreclosed the chattel mortgage, and, as sole bidder in the public auction, purchased the
foreclosed properties for a sum of P322,350.00.
On June 29, 1984, DBP filed a complaint for the collection of the balance of
P4,366,332.46 with Regional Trial Court of Makati City against PAMECA and Teves herein, as
solidary debtors with PAMECA under the promissory note.

Issue: Whether or not an action can be instituted for deficiency of a debt after foreclosure of the
chattel mortgage.

Held:
It is clear from the above provision that the effects of foreclosure under the Chattel
Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, in pledge, the
sale of the thing pledged extinguishes the entire principal obligation, such that the pledgor may
no longer recover proceeds of the sale in excess of the amount of the principal obligation,
Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor to the balance of the
 proceeds, upon satisfaction of the principal obligation and costs.
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess
of the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the
deficiency in case of a reduction in the price at public auction.
 76. Manolo P. Cerna vs. CA and Conrad C. Leviste
G.R. No. 48359. March 30, 1993

FACTS:

Celerino Delgado (Delgado) and Conrad Leviste (Leviste) entered into a loan agreement
which was evidenced by a promissory note. Subsequently, Delgado executed a chattel mortgage
over Willy’s jeep owned by him. Acting as the attorney-in-fact of Manolo P. Cerna, he also
mortgaged a Taunus' car owned by Cerna by virtue of a Special Power of Attorney executed by
the latter authorizing Delgado to mortgage the same. The period lapsed without Delgado paying
the loan which prompted Leviste to file a collection suit against him and Cerna as solidary
debtors. Cerna pleaded that he did not sign as joint obligor in the promissory note, hence,
Delgado has no course of action against him since Leviste already opted to collect on the note,
he could no longer foreclose the mortgage.

ISSUE:

Whether or not the execution of the chattel mortgage on Cerna’s car made him solidarily
liable with the debt of Delgado.

HELD:

 No. The Court held that Cerna was not a co-debtor. It was only Delgado who signed the
 promissory note and accordingly, he was the only one bound by the contract of loan. The law is
clear that contracts take effect only between the parties. There is also 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. A chattel mortgage may be "an accessory contract" to a contract of loan, but that fact
alone does not make a third-party mortgagor solidarily bound with the principal debtor in
fulfilling the principal obligation that is, to pay the loan. The signatory to the principal
contract —l l oan — r emains to be primarily bound. It is only upon the default of the latter that
the creditor may have recourse on the mortgagors by foreclosing the mortgaged properties in
lieu of an action for the recovery of the amount of the loan. And the liability of the third-party
mortgagors extends only to the property mortgaged. Should there be any deficiency, the creditor
has recourse on the principal debtor.
A Special Power of Attorney authorizing another to mortgage one's property as security
of latter's obligation does not in itself makes the person executing the same a co-mortgagor
thereof. This alone does not make Cerna a co-mortgagor especially so since only Delgado
signed the chattel mortgage as mortgagor. The Special Power of Attorney did not make Cerna a
mortgagor. All it did was to authorize Delgado to mortgage certain properties belonging to
Cerna. And this is in compliance with the requirement in Article 2085 of the Civil Code which
states that the persons constituting the pledge or mortgage have the free disposal of their
 property, and in the absence thereof, that they be legally authorized for the purpose.
In effect, Cerna lent his car to Delgado so that the latter may mortgage the same to
secure his debt. Thus, from the contract itself, it was clear that only Delgado was the mortgagor
regardless of the fact that he used properties belonging to a third person to secure his debt.
 (77) Bicol Savings & Loan Association vs. Jaime Guinhawa, et al.
G.R. No. L-62415; August 20, 1990

FACTS:

Victorio Depositario together with Jaime Guinhawa, acting as solidary co-maker, took a
loan from Bicol Savings and Loan Association (BISLA) in the sum of PHP 10,622.00, payable
in installments. To secure the payment of the loan, Depositario executed a chattel mortgage on
his Yamaha Motorcycle. Due to non-payment of the loan, the motorcycle mortgaged was
eventually foreclosed. After the sale, BISLA demanded the payment of the deficiency in the
amount of PHP 5,158.06. BISLA filed a complaint for recovery of sum of money constituting
the deficiency. Guinhawa contend that even if he bound himself solidarily with Depositario
under the
 promissory note, he is still not a party to the chattel mortgage contract thus he cannot be made
liable for the deficiency.

ISSUE:

Whether or not BISLA has the right to recover the deficiency against Guinhawa

RULING:

YES. If in an extrajudicial foreclosure of a chattel mortage a deficiency exists, an

independent civil action may be instituted for the recovery of said deficiency. If the mortgagee
has foreclosed the mortgage judicially, he may ask for the execution of the judgement against
any other property of the mortgagor for the payment of the balance. To deny to the mortgagee
the right to maintain an action to recover the deficiency after foreclosure of the chattel mortgage
would be to overlook the fact that the chattel mortgage is only given as a security and not as
 payment for the debt in case of failure of payment (Bank of the Philippine Islands vs. Olutanga
Lumber Co.)

Under Article 1216 of the Civil Code, the creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against the others, so long
as the debt has not been fully collected. And therefore, where a person binds himself solidarily
with the debtor to pay the latter's debt, he may be proceeded against by the creditor. Guinhawa,
as solidary co-maker, is also a surety (Art. 2047) and that under the law, the bringing of an
action against the principal debtor to enforce the payment of the obligation is not inconsistent
with, and does not preclude, the bringing of another action to compel the surety to fulfill his
obligation under the agreement.
 78. UY v. ZAMORA
GR No. L-19482, March 31, 1965

FACTS:
A complaint is filed in the Municipal Court of Manila by Zosimo D. Uy against Jose R.
Zamora for the recovery of a sum of money.

It appears that, at the instance of Uy, the Municipal Court ordered the attachment of a
motor vehicle belonging to Zamora. The writ of attachment was levied on the vehicle on August
11, 1960. Subsequently, the Municipal Court rendered judgment for Uy and ordered Zamora to
 pay the sum of P1,740, plus interest at the rate of 12 per cent per annum, attorney's fees in the
amount of P435 and the costs of the suit.

While the case was thus pending appeal, the Allied Finance, Inc. sought and was allowed
to intervene. According to the intervenor, the motor vehicle, which was attached by the sheriff,
had previously been mortgaged to it by Zamora to secure the payment of a loan of P3,060. Since
the motor vehicle had already been sold on order of the Court for P2,500 to prevent
depreciation, Zamora agreed to have Uy's credit paid out of the proceeds of the sale.

The court found Zamora to be liable to Uy in the amount of P2,500, and to Allied
Finance in the amount of P2,451.93, plus interest at 12 per cent per annum and attorney's fees
for P200. But since there was not enough money with which to pay both claims, the question
was: Which of the two credits is preferred?

Uy claims preference on the basis of a lien arising from the attachment of the motor
vehicle on August 11, 1960. On the other hand, Allied Finance bases its claim to preference on
a Deed of Chattel Mortgage covering the same motor vehicle.
ISSUE: Whether or not the credit of Allied Finance shall be preferred.
RULING:

Considering the fact that Allied Finance, Inc. registered its mortgage only on August 24,
1960, or subsequent to the date of the writ of attachment obtained by Uy on August 11, 1960,
the credit of Allied Finance cannot prevail over that of the credit of Uy.

The lower court upheld Allied Finance’s credit on the ground that, being embodied in a
 public instrument of an earlier date (June 20, 1960), it should take precedence over Uy’s lien by
attachment (August 11, 1960), pursuant to Article 2244 of the Civil Code. This is untenable for
the reason that, as already stated, the credit of Allied Finance cannot be considered as preferred
until the same has been recorded in the Motor Vehicles Office. Thus, in Borlough vs. Fortune
Enterprises, Inc., 53 O.G. 4070, it was held that a mortgage of motor vehicles, in order to affect
third persons, should not only be registered in the Chattel Mortgage Registry, but the same
should also be Recorded in the Motor Vehicles Office (now the Land Transportation
Commission), as required in Section 5(e) of the then Revised Motor Vehicles Law.
 79. SAMPAGUITA PICTURES VS. JALWINDOR MANUFACTURERS
G.R. No. L-43059 October 11, 1979

Facts:
Sampaguita Pictures Inc. (Sampaguita), owner of the Sampaguita Pictures Building, leased the roof deck of the building and
 by lessee have been considered as part of the consideration of the monthly rental and said improvements belong to the le
 premises shall be at the expense of the lessee and such improvements belong to the lessor, without any obligation to reim
Capitol "300" purchased on credit from Jalwindor Manufacturers, Inc. (Jalwindor) glass and wooden jalousies which were d
 jalousies purchased on credit from Jalwindor, prompting the latter to sue for collection of sum of money, but was later o
 payment for rent and utilities owing Sampaguita prompting the latter to ask the court to eject the former from the leased

Issue: Whether or not the sheriff’s sale of the glass and wooden jalousies installed in the
Sampaguita Pictures Building is valid.

Held: No, the sheriff’s sale is not valid. Sampaguita (lessor), by virtue of its contract of lease
with Capitol (lessee) which stipulates that the permanent improvements made by Capitol on the
leased premises of the Sampaguita Pictures Building shall belong to Sampaguita, has a better
right to such improvements than Jalwindor (manufacturer) who sold the same on credit to
Capitol and has not been paid, where said improvements were delivered and installed in the
leased premises of the Sampaguita Pictures Building, because ownership thereof was transferred
to Capitol upon delivery and to Sampaguita, upon installation. Payment of the purchase price is
not essential to the transfer of ownership as long as the thing sold has been delivered.
 80. J.L. Bernardo Construction vs. CA and Mayor Jose L. Salonga
G.R. No. 105827 January 31, 2000

FACTS:

JL Bernardo Construction entered into a contract with Mayor Jose Salonga of Municipal
government of San Antonio, Nueva Ecija for the construction of San Antonio Public Market.
The former claimed that the municipality agreed to assume the expenses for the demolition,
clearing and site filling of the construction site and provide cash equity.

After failure to pay the reimbursement for such expenses, JL Bernardo Construction
filed a complaint for breach of contract and specific performance thereof., with prayer for
preliminary attachment and enforcement of contractor's lien against the Municipality of San
Antonio specifically granted under Article 2242 of the Civil code which provides that that the
claims of contractors engaged in the construction, reconstruction or repair of buildings or other
works shall
 be preferred with respect to the specific building or other immovable property constructed.

RTC granted the complaint with the authority to hold on to the possession of the public
market in question and to open and operate the same based on fair and reasonable guidelines
and other mechanics of operation. The Court of Appeals subsequently nullified the lower court’s
decision on the ground that Articles 2242 of the Civil Code finds application only in the context
of insolvency proceedings, as expressly stated in Article 2243.

ISSUE:

Whether or not JL Bernardo Construction is correct in enforcing the creditor’s lien in

accordance with Article 2242 of the Civil Code.

HELD:

 No. The Court held that Article 2242 only finds application when there is a concurrence
of credits, i.e. when the same specific property of the debtor is subjected to the claims of several
creditors and the value of such property of the debtor is insufficient to pay in full all the
creditors. In such a situation, the question of preference will arise, that is, there will be a need to
determine which of the creditors will be paid ahead of the others. Fundamental tenets of due
 process will dictate that this statutory lien should then only be enforced in the context of some
kind of a proceeding where the claims of all the preferred creditors may be bindingly
adjudicated, such as insolvency proceedings

The action filed by petitioners in the trial court does not partake of the nature of an
insolvency proceeding. It is basically for specific performance and damages. Thus, even if it is
finally adjudicated that petitioners herein actually stand in the position of unpaid contractors and
are entitled to invoke the contractor’s lien granted under Article 2242, such lien cannot be
enforced in the present action for there is no way of determining whether or not there exist other
 preferred creditors with claims over the San Antonio Public Market. The records do not contain
any allegation that petitioners are the only creditors with respect to such property. The fact that
no third party claims have been filed in the trial court will not bar other creditors from
subsequently bringing actions and claiming that they also have preferred liens against the
 property involved.
 (81) Rubberworld (Phils.), Inc. vs. National Labor Relations Commission, et. al.
G.R. No. 126773; April 14, 1999

FACTS:
Rubberworld Inc. filed with the Securities and Exchange Commission (SEC) a petition
for suspension of payments praying it be declared in a state of suspension of payments and that
the SEC accordingly issue an order restraining its creditors from enforcing their claims against
them. They also prayed that a management committee be created. The SEC granted their
 petition.
Marilyn Arellano, and several others, who claim to be employees of Rubberworld, filed
against the latter complaints for illegal dismissal, unfair labor practice, damages and payment of
separation pay, retirement benefits, 13th month pay and service incentive pay. Rubberworld
moved to suspend the proceedings in the above labor cases on the strength of the SEC Order
granting their petition. The Labor Arbiter denied the motion of Rubberworld stating that the
injunction given by the SEC applied only to the enforcement of established rights and did not
include the suspension of proceedings involving claims against petitioner which is yet to be
determined.

ISSUES:
1. Whether or not there is preference in favor of workers in rehabilitation proceedings

RULING:
NO. The law is clear: upon the creation of a management committee or the appointment
of a rehabilitation receiver, all claims for actions "shall be suspended accordingly." No
exception in favor of labor claims is mentioned in the law. Since the law makes no distinction or
exemptions, neither should the Court. Ubi lex non distinguit nec nos distinguere debemos.
Allowing labor cases to proceed clearly defeats the purpose of the automatic stays and severally
encumbers the management committee's and resources. The said committee would need to
defend against these suits, to the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again. The rule otherwise would open the
floodgates to other similarly situated claimants and forestall if not defeat the rescue efforts.
The preferential right of workers and employees under Article 110 of the Labor Code
may be invoked only upon the institution of insolvency or judicial liquidation proceeding. The
 purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on
life and thereby allow creditors to be paid their claims from its earnings. In insolvency
 proceedings, on the other hand, the company stops operating, and the claims of creditors are
satisfied from the assets of the insolvent corporation. The present case involves the
rehabilitation, not the liquidation, of Rubberworld. Hence, the preference of credit granted to
workers or employees under Article 110 of the Labor Code is not applicable.
 82. Carried Lumber v. ACCFA
GR L-21836, April 22, 1975

FACTS:
Sta. Barbara Farmer’s Cooperative Marketing Association, Inc. (FACOMA) purchased
on credit from Carried Lumber Company lumber and materials which will be used for the
construction of the warehouse of FACOMA. Carried Lumber extended credit to the FACOMA
after having been informed by Agricultural Credit and Cooperative Financing Administration
(ACCFA) in a telegram that a loan of P27,200 had been approved for the construction of the
FACOMA's warehouse. FACOMA defaulted in their payment and thus, Carried Lumber
secured a writ of execution to enforce the judgment. The sheriff levied upon the FACOMA’s
lease rights, warehouse and ricemill building and issued a notice scheduling the sale of
the attached
 properties. On January 25, 1961, ACCFA filed a third-party claim with the sheriff claiming that
the properties levied upon had already been sold to the ACCFA on  November 5, 1960. Thus it
contended that the same could not again be sold at public auction. Carried Lumber Company
notified the sheriff and FACOMA that pursuant to article 2242(4) of the Civil Code, it had a
 preferential lien over the warehouse  of the FACOMA for having furnished the lumber and
materials used in its construction and the cost of which had not been fully paid for. Upon
application with the Court of First Instance, ACCFA was placed in possession of the mortgaged
 properties by virtue of a writ of possession. Carried Lumber sued ACCFA to assert its
 preferential lien over the disputed warehouse and ricemill building and in order to obtain
 possession. The trial court ruled that Carried Lumber’s lien is superior to the ACCFA's
mortgage lien because the Carried Lumber’s lien is sanctioned by par. 4 of Art. 2242 of the
Civil Code, whereas the ACCFA's mortgage lien is covered by par. 5 of the same article.

ISSUE: Whether or not Carried Lumber has preferential lien over the property of
FACOMA.

RULING:
 No. Carried Lumber and ACCFA have concurrent liens on the warehouse in proportion
of their credits. The trial court erred in holding that the lumber company's lien over the
warehouse is superior to the ACCFA's mortgage lien. It was mistaken in assuming that the
enumeration of ten claims, mortgages and liens in article 2242 creates an order of preference. It
is not correct to say that the materialman's (mechanic's) lien or refectionary credit of the lumber
company, being listed as No. 4 in article 2242, is superior to the ACCFA's mortgage credit
which is listed as No. 5. The enumeration in article 2242 is not an order of preference. That
article lists the credits which may concur with respect to specific real properties and which
would be satisfied pro rata according to article 2249.
Since ACCFA has been in possession of the warehouse since January 27, 1961, the trial
court should ascertain whether the warehouse has yielded any income during the time that
ACCFA has been in possession. The rental value of the warehouse should be determined.
ACCFA is entitled to deduct from the earnings of the warehouse or its rental value the taxes and
necessary and useful expenses which it had incurred for the said warehouse. By reason of its
lien, the Carried Lumber Company has a pro rata share in the net earnings or rental value of the
warehouse.
 83. ADVENT CAPITAL AND FINANCE CORPORATION vs.
NICASIO I. ALCANTARA and EDITHA I. ALCANTARA
G.R. No. 183050, January 25, 2012

ehabilitation receiver. Upon audit of Advent Capital’s books, Atty. Concepcion found that

cash dividends that Belson held under the Alcantaras’ Trust Account 95-013. Atty. Concepcion claimed that the dividends, as trust fees, formed
take custody and control of Advent Capital’s assets, such as the sum of money that Belson held on behalf of Advent Capital’s Trust Departmen

Issue: Whether or not the cash dividends held by Belson and claimed by both the Alcantaras and
Advent Capital constitute corporate assets of the latter that the rehabilitation court may, upon
motion, require to be conveyed to the rehabilitation receiver for his disposition.

Held:
 No. Ultimately, the issue is what court has jurisdiction to hear and adjudicate the
conflicting claims of the parties over the dividends that Belson held in trust for their owners.
Certainly, not the rehabilitation court which has not been given the power to resolve ownership
disputes between Advent Capital and third parties. Neither Belson nor the Alcantaras are its
debtors or creditors with interest in the rehabilitation.
Advent Capital must file a separate action for collection to recover the trust fees that it
allegedly earned and, with the trial court’s authorization if warranted, put the money in escrow
for payment to whoever it rightly belongs. Having failed to collect the trust fees at the end of
each calendar quarter as stated in the contract, all it had against the Alcantaras was a claim for
 payment which is a proper subject for an ordinary action for collection. It cannot enforce its
money claim by simply filing a motion in the rehabilitation case for delivery of money
belonging to the Alcantaras but in the possession of a third party.
 84. North Bulacan Corp. v. Philippine Bank of Communications
GR No. 183140, August 2, 2010

FACTS:

 North Bulacan Co. (NBC) is engaged in the business of developing low and medium-
cost housing projects. Its parent company, Centro Ville Inc. (CVI) entered into a joint venture
agreement to develop a property into low and medium-cost housing projects. Phil. Bank of
Communications (PBCom) offered to finance the whole project and immediately provide NBC
loan facility on the condition that the PAG-IBIG directly paid PBCom for the houses upon its
completion, whether or not these had been sold. Relying on PBCom’s commitment, NBC
accepted the offer, assigning its rights and interests over all payments that may be due it from
PAG-IBIG. Thereafter, PBCom discontinued its financial support to NBC because Bangko
Sentral ng Pilipinas (BSP) had issued a cease-and-desist order against the bank. When it became
apparent that PBCom had no intention of complying with its commitment, NBC sought help
from other banks  which expressed their intention to finance the project by taking out NBC’s loan
from PBCom. But the latter refused the offer, insisting on the supposed BSP cease-and-desist
order. NBC’s construction eventually stopped for lack of funds.On December 28, 2006, NBC
filed a petition for corporate rehabilitation with Mandaluyong RTC and the first hearing was
conducted on February 15, 2007. It was on January 24, 2008 that an order was issued by the
RTC judge giving due course to NBC’s rehabilitation.

PBCom challenged the RTC’s order arguing that the petition should be dismissed since
the RTC was unable to approve a rehabilitation plan after 180 days from the date of the initial
hearing, as provided by Interim Rules of Procedure on Corporate Rehabilitation.

ISSUE:

Whether or not the petition for corporate rehabilitation filed by NBC should be
dismissed.

HELD:

Yes. The Court held that the action for rehabilitation filed by NBC should be dismissed
largely because of NBC’s numerous prohibited pleadings, nearly a year had passed since the
 petition’s initial hearing, and still the RTC had not approved a rehabilitation plan for the
company.Under the Rehabilitation Rules, if upon the lapse of 180 days from the date of the
initial hearing there is still no approved rehabilitation plan, the RTC must dismiss the petition.
Here, however, the RTC proceeded beyond the 180-day period even in the absence of a motion
to extend the same and despite the lack of strong and compelling evidence which showed that
 NBC’s continued opera  tion was still economically feasible.

The Court enacted the Interim Rules of Procedure on Corporate Rehabilitation to provide
a remedy for summary and non-adversarial rehabilitation proceedings of distressed but viable
corporations. The intent is consistent with the commercial nature of rehabilitation which seeks
to expedite its resolution for the benefit of all the parties involved and the economy in general.
These rules are to be construed liberally to obtain for the parties a just, expeditious, and
inexpensive disposition of the case. The parties may not, however, invoke such liberality if it
will result in the utter disregard of the rules or cause delay in the administration of justice.