Sectrans Digest (Atty. Lerma)

Security Transactions (Atty.
Lerma): Case Digests

Beron, Calinisan, Fernandez, del Socorro, Delgado,
Legaspi, Lopez, Mendiola, Rivas, Sarenas 2C 2005
1) PEOPLE V CONCEPCION ART. 1933 (CALINISAN)

Facts:
A) Venanio Concepcion was the president of PNB between April 10 May 7, 1919.
B) He authorized an extension of CREDIT in favor of Puno y CONCEPCION, S. en C.
C) He has an indirect interest in that partnership, via his wife.
Issue:
W/N Concepcion is liable to PNB
Held:
A) Sec 35 of Art 2747 (against the PNB, not on Concepcion): The National Bank shall not,
directly or indirectly, grant loans to any of the members of the BOD of the bank nor to agents of
the branch banks.
B) Violated Sec 49 of Art 2747: Any person who shall violate any of the provisions of this act
shall be punished by a fine not to exceed 5 years, or by both such fine and imprisonment.
C) What Concepcion extended was a CREDIT not a LOAN.
D) credit: his ability to borrow money by virtue of the confidence or trust reposed by a lender
that he will pay what he may promise
E) loan: the delivery by one party and the receipt by the pther party of a given sum of money,
upon an agreement, express or implied, to repay the sum loaned, with or without interest.
F) The notes signed by the partnership were not discount paper but were mere evidence of
indebtedness. (See p 130, par 1)
G) It was an indirect loan
H) No loss has been suffered by the bank since the loan was paid.
I) Concepcion liable for the violation of Sec 49.
2) DE LOS SANTOS v JARRA ART. 1933 (FERNANDEZ)
Facts:
-Petitioner lent 10 carabaos to Jimenea to be used in the animal-powered mill, owned by
borrower, without recompense whatsoever with the sole condition that the animals will be
returned after the work on the mill is done.
-The work was finished but borrower failed to return the carabaos.
-Jimenea died and defendant was appointed as administratrix of formers estate.
-Petitioner now claims against defendant but the latter claims that only 3 carabaos were actually
lent and these were subsequently purchased.
Issue:
Does petitioner have a cause of action against defendant as administratrix of borrowers estate?
Held:
Yes. There was no sufficient evidence presented that there was a purchase of the 3 carabaos.
Moreover, witnesses attested that 10 carabaos were indeed lent to Jimenea. The carabaos were
not the property of the deceased nor his ascendants/descendants. It is the duty of the
administratrix of the estate to return them to petitioneras the transaction between them is a
commodatum. And since defendant failed to return the carabaos upon demand, she is obligated
to indemnify the owner for damages or losses incurred. (note that four carabaos died of
rinderpest)
Security Transactions (Atty. Lerma): Case Digests

3) SAURA IMPORT & EXPORT CO., INC. (SAURA) VS. DEVELOPMENT BANK OF
THE PHILS. (DBP) ART. 1934 (LOPEZ)
Facts:
- Saura applies for a loan (worth 500,000) from Rehabilitation Finance Corp. (RFC), now
DBP. This was approved on the condition that Saura present a certification from the
Department of Agriculture and Natural Resources that raw materials (Kenaf) are available in
the immediate vicinity of the to-be-constructed building and that there is prospect of
increased production.
- Saura failed to provide the certifications so RFC did not release the amount. Plus, the
mortgage which was attached to the loan was cancelled by Saura.
- Saura files case for damages alleging failure of RFC to comply with its obligation to release
the proceeds of the loan.
- Lower court rules in favor of Saura saying that there was a perfected contract and that RFC
was guilty of breach thereof.
Issue:
- W/n there was a perfected contract.
- W/n RFC was supposed to release the proceeds of the loan.
Held:
- There was a perfected consensual contract. The application for a loan of Saura was approved
by a resolution of RFC.
- The actions of both parties indicate that there was mutual desistance. Saura asked that the
mortgage be cancelled and failed to deliver the required certifications. On the other hand,
RFC did not object to the cancellation of the mortgage and also did not release the proceeds
of the loan. Thus, there was no more contract between the two.
4) REPUBLIC VS. BAGTAS ART. 1935 & 1942 (MENDIOLA)
Facts:
Bagtas borrowed from the Republic of the Philippines (RP), through the Bureau of
Animal Industry (BAI), 3 bulls for 1 year for purposes of breeding. This was subject to a
breeding fee of 10% of the book value of the bulls.
Bagtas asked for an extension. He was granted a year extension for only 1 bull. He even
proposed to buy the bull at a discounted price. But the director of the BAI said that the book
value of the bull cannot be reduced. However, Bagtas failed to pay the value of the bulls or to
return the one he loaned.
RP filed a complaint for recovery. The trial court decided in favor of RP. Bagtas claims that 2
out of the 3 bulls have been returned with the exception of one that was killed by gunshot
wounds during a Huk raid. Bagtas claims that since the bull died due to a force majeure, she is
not liable as the contract is a commodatum.
Issue: Is Bagtas liable?
Held:

The contract is not a commodatum because compensation was paid for the loan of the
bulls. The compensation made the contract cease to be that of a commodatum. (A contract of
commodatum is gratuitous and should not require compensation.) Since she was in custody of
the bulls when they died, Bagtas is liable.
Even if it were a commodatum, she will still be liable despite the fortuitous event. The
reasons being: 1. she kept the thing longer than the agreed period, and 2. the thing was delivered
with an appraisal of its value.
5) ALEJANDRA MINA ET AL VS. RUPERTA PASCUAL ART. 1947 (SARENAS)
Facts:
Francisco and Andres Fontanilla were brothers. Francisco acquired a lot in Laoag, Ilocos
Norte on 1874.
Andres erected a warehouse on a part of the lot with the consent of his brother.
They both died later on. Plaintiffs are heirs of Francisco, defendants are heirs of Andres.
Plaintiffs and defendants are co-owners of the building (50/50) and plaintiffs are owners
of the whole lot, including the lot that the building is on.
1904: Pascual, in behalf of her minor children, asked the trial court if she could sell 6/7 of
(representing her kids share) of the building together with its lot. This was opposed by
Mina. But the court still gave it a go signal and later on it was sold to a Cu Joco.
Issue:
W/N the sale is valid
Held:
The sale of a thing effected by one who is not its owner is null and void. The defendants
never were the owners of the lot sold. The defendants agree that the plaintiffs have the
ownership, and they themselves only the use, of the said lot.
It is impossible to hold that the plaintiffs must abide by the sale based on the fact that
they did not give their consent, and only the contracting parties who have given it are
obliged to comply.
It is an essential feature of a commodatum that the use of a thing belonging to another
shall be for a definite period. But Francisco never fixed a period of time during which
Andres could have use of the lot
The contention of the petitioners that Cu Joco should pay rent would destroy the theory
of commodatum because commodatum is essentially gratuitous
Article 361 of the Civil Code states that the owner of the land on which a building is
erected in good faith has a right to appropriate such edifice to himself after payment of
indemnity or to oblige the builder to pay him the value of the land. This is the right that
the plaintiffs are entitled.
5) MINA V PASCUAL ART. 1947 (CALINISAN)
Facts:
A) Francisco and Andres Fontanilla were brothers
B) Francisco owns a lot in Laoag. Andres built a warehouse on it.
C) Mina is Franciscos heir. Pascual is Andres heir.

D) Mina and Pascual, are virtually the owners of the warehouse.

E) Pascual sold 6/7 of of the wareghouse, including the lot on which it stands, to Cu Joco
Issue:
W/N the sale of the lot by Pascual, on which the warehouse stands, is void.
Held:
A) Pascual held the lot in commodatum
B) It was admitted by Pascual that it was Mina who owns the lot, and Pascual merely uses it
C) He who has only the use of the thing cannot validly sell the thing itself
D) The owner of the land on which a building is erected in good faith has a right to
appropriate such edifice to himself, after payment of the indemnity prescribed in articles
453 and 454, or to oblige the builder to pay him the value of the land.
E) Sale of land is annulled
6) QUINTOS VS. BECK ART. 1947 (LOPEZ)
Facts:
- Beck was a tenant of Quintos and as such occupied the latters house. There was a novation
of the lease contract which allowed Beck to use the furniture of Quintos subject to the
condition that the furniture should be returned at Quintos demand.
- Quintos sold the house and Beck was required to vacate the premises. Quintos asks for the
return of the furniture. Beck said that he was going to return the furniture but was going to
retain 3 gas heaters and 4 electric lamps. Quintos does not accept the return because of the
missing furniture.
- Beck deposits the furniture to the sheriff of Manila.
- CFI ordered that Beck should return all the furniture including the gas heaters and the electric
lamps in the possession of the sheriff of Manila but it was Quintos who was ordered to pay
the fees which the sheriff might charge for keeping the furniture.
Issue:
- Who should pay the sheriffs fees?
Held:
- The contract entered into by both parties with regard to the furniture is that of commodatum.
Thus, Beck was required to return all the furniture to Quintos and by retaining the gas heaters
and electric lams, Beck breached the contract. It is just & equitable that Beck should be the
one to pay the expenses charged by the sheriff of Manila.
7) REPUBLIC V GRIJALDO ART. 1953 (FERNANDEZ)
Facts:
-Grijaldo obtained a loan from the Bank of Taiwan. This loan was secured by a chattel mortgage
on the standing crops of his land.
-Later on, the assets of the Bank of Taiwan in the Philippines were transferred to the Philippine
government by a transfer agreement pursuant to the Trading with the Enemy Act and Philippine
Property Act.
-An extra-judicial demand was made but Grijaldo failed to pay.
-Subsequently, the crops on his land were destroyed through enemy action.

Issue:
Does Republic pf the Philippines have a cause of action against borrower?
Was the obligation of borrower extinguished by virtue of the destruction of the crops?
Held:
Yes. Though plaintiff was not an original party in loan contract, the successive transfers of the
rights over the loans , made plaintiff successor of the rights titles, and interests in said loans.
No. The obligation of borrower is not to deliver a determinate thing, but a generic thingthe
amount of money representing the total sum of the 5 loans with interest. The account could still
be paid from other sources aside from the mortgaged crops so obligation is not extinguished.
*As to the question of prescription, though the action of plaintiff was made 16 years after the
loan became due, it was shown that several moratorium laws suspended the running of the
prescriptive period. Subtracting these suspensions, the prescriptive period ran for 8 years and 16
days only. Well within the 10 year prescriptive period for said type of contract.
8) MARTINEZ VS. RAMOS ART. 1953 (LOPEZ)
Facts:
- Antonino Ramos signed an obligation (loan) in favor of Pedro Martinez.
- Being the judicial administrator of his fathers (Julian Ramos) estate, he alleges that the loan
should be paid by the deceaseds estate. This was not approved by the committee of
appraisal of the estate.
- A suit was instituted in the CFI, which ordered Antonino to pay the loan.
Issue:
- W/n Antonino should be liable for the loan.
Held:
- Yes, he should be liable, one who receives as a loan money or other fungible thing, acquires
ownership thereof and is bound to return to his creditor an equal amount of the same kind
and quality.
- The contract consists in that Antonino will be the one to return the money of Pedro Martinez.
(use of I in the obligation signed by Antonino)
8) MARTINEZ VS. RAMOS ART. 1953 (MENDIOLA)
Facts:
Antonino Ramos signed an obligation declaring that he has received a P1,900 loan from
Martinez upon order of his father. It was stated that it was to be paid within 3 years. When Julian
Ramos died (Antoninos father), Martinez filed suit for the fulfillment of the obligation against
Antonino as administratrix. The committee decided that this matter was not against the estate but
against the heirs who recognized the obligation when is was presented.
Issue: Is Antonino liable to pay the obligation?
Held:
The contract consists in that Antonino and nobody else will return the P1,900. One who
receives a loan of money or fungible thing becomes the possessor thereof and is bound to return
an equal amount of the same quality and kind.

9) TAN VS. VALDEHUEZ Art. 1956 Beron

Facts:
Petitioner Tan seeks for the (a) declaration of ownership and recovery of possession of
parcel of land in first cause of action and (b) consolidation of ownership of 2 portions of another
parcel of land in the second cause of action, purportedly sold to petitioner in 2 separate deeds of
pacto de retro.
As to the 2nd cause of action, a defendant has executed 2 deeds of pacto de retro sale in
favor of plaintiff with total amount of P1,500. The land remained in the possession of
defendants and land taxes were paid by the defendants.
The trial court in deciding on the second cause of action, ordered that the P1,500 be paid
plus a 6% interest.
Issue: Whether the imposition of 6% interest is with legal basis
Held: Imposition of 6% interest is without legal basis. No interest shall be due unless it has
been expressly stipulated in writing. Aside from that, the plaintiff never prayed for
interest; her thesis was a consolidation of ownership which was properly rejected, the
contracts being equitable mortgages.
10 ) JARDENIL VS. SOLAS Art. 1956 Calinisan
Facts:
A) Solas entered into a mortgage with Jardenil, in connection with a loan from Nov 1932 to
March 1934.
B) Solas was unable to pay his obligation.
C) Jardenil extended to another year from the date of maturity within which to make
payment, without making any mention of any interest which the mortgagor should pay
during the additional period.
D) Still, Solas was unable to pay.
E) The original mortgage show that there was an agreement to pay interest only up to the
date of maturity (first day of maturity), May 31, 1934.
Issue:
W/N Solas is bound to pay the stipulated interest only up to the date of maturity as fixed in the
promissory note, or up to the date payment is effected?
Held:
A) Pay interest only until the date of maturity.
B) Interest shall be due only when it has been expressly stipulated.
C) There is nothing in the mortgage deed to show that the terms employed by the parties
thereto are at war with their evident intent.
D) The true intention of the parties was that no interest should be paid during the period of
grace.
E) There was no mutual mistake.

11) SONCUYA VS. AZARRAGA Art. 1956 Fernandez

Facts:
In the proceedings for the Testate Estate of Juan Azarraga, defendants Azarragas became
indebted to Atty Leodegario Azarraga( for P3000) who represented them in said case.
Defendants and Atty agreed that until the fees of the latter have been fully paid, certain
lands in Capiz are specially mortgaged to the latter and he may hold said lands under no
obligation to pay rent. The same agreement also provides that if defendants will not be able
to complete payment after 5 years, then the lands will be adjudicated to Atty. If paid,
however, Atty will have a right to continue possession over the land for 3 years from the
date of last payment.
After some time, Atty sold his credit against the defendants to Soncuya.
When Soncuya became the creditor of the Azarragas, he allowed an extension over the five
year-period where the credit should be paid but with the express condition that the interest
rate would be at 12% per year. This was further extended (twice), with the last extension
requiring that defendants pay P12,000 instead of the supposed P7,000.
Joaquin Azarraga, one of the defendants, sold his share in the inheritance to Soncuya
consisting of a tract of land. Such sale has a redemption period of 5 years. The period of
redemption, however, was extended twice with the second extension providing for the
payment of P12,000. (note that the payment here and the credit above were merged)
Meanwhile, defendants entered into a contract with Hijos de I. de la Rama for the purpose
of obtaining credit which was secured by a deed of mortgage. This credit was intended to
be used for the business of Panay Municipal Cadastre.
Several writs of injunction were issued enjoining defendants and Panay to obtain loans
from Hijos.
Soncuya alleges that he has been deprived of the property and claims for damages.
Issue:
What was the nature of the contract entered into by Azarragas and Atty? (to determine if
Soncuya has a right to damages out of alleged deprivation of property)
Held:
Initially, it can be considered as an antichresis or pacto comisorio--not a pacto de retro or
assignment in payment of a debt, as the parties did not indicate such intention--, but after a
certain period (which can be considered as a resolutory period) it was converted to a simple loan
by the very circumstance that Soncuya chose to collect, and thereafter the obligors agreed to pay
him 12% annual interest. It is only in contracts of loan, with or without guaranty, that interest
may be demanded. Hence, Soncuya has no right to the various sums he seeks in his complaint.
As Soncuya never became the owner of the lands in question, he can neither claim payment of
the value of the same nor ask to be indemnified for the deprivation of their possession. He was
also negligent in not asking that the lands in question be annotated in the certificate of title (when
Azarragas obtained them) as charged with his credit against defendants.
Nevertheless, Soncuya has the right to recover the amount that Azarragas are indebted to Atty by
virtue of the assignment and sale.

*On the same grounds, Joaquin Azarragas personal obligation to Soncuya was also considered
as a simple loan. Joaquin is to pay such indebtedness to Soncuya as well.
12) ROYAL SHIRT VS. CO BON TIC Art. 1956 del Socorro
Facts: Judgment was rendered in favor of the plaintiff and against the defendant ordering
the latter to pay to the plaintiff P1,422 for the unpaid balance of the sales price of 350 pairs of
shoes, with interest at 12% per annum from the date of filing the complaint until final payment,
plus 25% of the same sum for attorney's fees as stipulated, besides costs. This rate of interest and
the 25% for attorney's fees appears in Exhibit "B" (the sales invoice) in printed form as terms or
conditions. In Exhibit "A" (the order slip) the conditions of sale also printed provide for 20%
only as attorney's fees and no rate of interest in case of litigation. Defendant did not sign Exhibit
A or B. Defendant appeals the decision of the lower court.
Issue: What is the interest rate to be paid by defendant?
Held: The defendant should only pay 6% interest on the amount due him from the date of
the filing of the complaint, with costs, and nothing for attorney's fees.
Had the defendant signed Exhibit "A", he would have been bound by it and would be
liable to 20% of any amount due from him, but because of the absence of stipulation as to the
rate of interest he would be paying only the legal rate of 6% per annum. There is no explanation
of this difference in conditions of sale about rate of interest and attorney's fees found in the order
slip (Exhibit "A") and the invoice (Exhibit "B"), both of the plaintiff. Anyway, neither did the
defendant sign Exhibit "B". If we hold defendant bound by Exhibit "B" at all, it is because of his
tacit acceptance of the total value of 350 pairs of shoes and by his notation against if of his
partial payments. It would not be fair for him to be bound also by the printed terms of the
conditions of sale. Moreover, under said printed form the clause in pencil: "as agreed with Mr.
Chebat.," such clause in handwriting may be considered as having overruled what was printed as
to the rate of interest and the attorney's fees. The defendant should only pay 6% interest on the
amount due him from the date of the filing of the complaint, with costs, and nothing for
attorney's fees. It is also interesting to note that this was the same ruling of the Municipal Court
on this point.
13) ARWOOD INDUSTRIES VS. D.M. CONSUNJI Art. 1956 Delgado
Facts: Petitioner and respondent, as owner and contractor respectively, entered into a Civil,
Structural and Architectural Works agreement for the construction of petitioners
Westwood Condominium in Greenhills, San Juan. The contract price for the
condominium aggregated P20,800,000.00. Despite the completion of the project, P900T
remained unpaid. Because of failure of petitioner to pay amidst repeated demands,
respondent went before the court. RTC granted the petitioners prayer for the payment of
the principal amount plus 2% interest from November 1990 up to the time of payment.
Court of Appeals affirmed the lower courts decision on the basis of the stipulation on the
agreement that its one of the options of the contractor should the petitioner delay in
payment, the other being to suspend the works.
Issue: Propriety of the 2a% Interest.

Petitioner: Provision in the agreement applies to monthly progress billing and the amount
P900T is not such thus not subject to interest.
Held: Unmeritorious. There was a delay on the part of the petitioner that resulted to damage
incurred by the respondent. Appropriate measure of damages in this case is the payment
of interest at the rate agreed.
-
Evidently, the respondent chose the option on the interest rather than the suspension
of work, which does not avail since the building is already finished. The Agreement
stands as the law between the parties thus the Court cannot ignore the existence of
such provision providing for a penalty for every months delay.
As to the argument on monthly progress billing, the Court held that it refers to that
portion of the contract price still to be paid as work progresses, after downpayment is
made. The interest stipulation is not without basis. Even if the petitioner has another
interpretation of it, the tenor of the agreement is drafted for the benefit of the
contractor.
Even in the absence of the stipulation still the petitioner would be liable since:
Art.2209 of the Civil Code provides that If the obligation consists in the payment of
a sum of money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of the interest agreed upon,
and in the absence of stipulation, the legal interest which is 6% per annum.
14) OVERSEAS BANK VS. CORDERO Art. 1956 Legaspi

Facts: - Cordero opened a 1 year time deposit account with Overseas Bank (OBM) with interest
at 6%
- Due to its distressed financial condition, OBM failed to pay Cordero when the time
deposit matured
- Cordero instituted an action to enforce payment
According to OBM:
- Finding of the Monetary Board of its state of insolvency (resolution), it was restricted
by the latter from issuing managers and cashiers checks
- section 85 RA337, forbids OBM from making any payment out of its funds after it has
been declared insolvent
- supervening events have rendered the issues moot because the successor of OBM
(Combank) paid Cordero the amount of the time deposit, however this did not include the
payment of interest and attorneys fees
CFI: holding OBM liable to Cordero in the amount of 80T + 6% interest
CA: affirmed

Issue: w/n Cordero is entitled to interest on his time deposit during the period that petitioner
was closed and attorneys fee
Ruling: - No, Cordero is not entitled to pay interest and attorneys fees
- OBMs refusal to pay was not willful and dishonest but due to the restrictions
imposed by the Central Bank
- Banks are not liable to pay any interest on deposits during the time it was prohibited
from transacting business by the Central Bank due to insolvency
- No attorney fees due to a depositor where banks refusal was due to a Central Bank
order stopping bank from transacting business
15) RAMOS VS. CENTRAL BANK Art. 1956 Lopez
Facts:
- Motion for reconsideration of the ruling of the SC.
- Commercial Bank of the Phils. (COMBANK), through its predecessor, Overseas Bank of
Manila (OBM), obtained several loans and advances from the Central Bank.
- The SC ruled that the Combank is not liable for interest during the period of its closure,
applying the doctrine in OBM vs Tapia, where it was held that OBM was absolved from
paying interest to its depositors during the time of its closure because the bank did not
have abny source of income from which to pay the interest.
Issue:
- W/n Combank is liable to pay interest to CB during its closure.
Held:
- No, it is not, the Tapia ruling is still applicable. No proof was adduced that Tapia ruling
should not apply.
Aquino, dissent:
- The court has no jurisdiction.
Melencio-Herrera, dissent:
- Central Bank should be an exception to the Tapia ruling. Tapia only applies to deposits
while this case is for loans and advances.
- Loans were contracted prior to insolvency of the OBM. Payment thereof is agreed upon
by the parties as a condition in rehabilitation plan of the CB fro OBM.
Plana, dissent:
- OBM was still collecting interest on loans granted to its clients despite its closure. (the
closure was just as to normal banking operations, it did not prohibit collection of
receivables, including interests due)
- No jurisdiction because initial case was to ascertain the legality of CBs closure of OBM.
It did not involve any question as to the liability of the OBM to pay interest.
16) LIRAG TEXTILE MILLS VS. SSS Art. 1956 Mendiola
Facts: SSS and Lirag Textile entered into a Purchase Agreement wherein SSS will buy from
Lirag Textile preferred shares of stock worth 1M; subject to the repurchase by Lirag
Textile. According to paragraph 5 or the Purchase Agreement, in case Lirag Textiles

fails to redeem, the entire amount shall be due and Lirag Textiles shall be liable for 12%
of the outstanding amount as liquidated damages. As a means of securing the repurchase,
Lirag (the owner) acted as a surety.
However, Lirag Textiles failed to repurchase the stocks and failed to pay
dividends due to SSS. SSS filed an action for specific performance. Lirag contends that
no liability has arisen because of the financial condition of the corporation (it failed to
realize any profit or earned surplus). The lower court ruled in favor of SSS and ordered
Lirag to pay 1M and 220K representing 8% of the dividends on the preferred stocks.
Lirag assails this decision.
Issue: Was the agreement a debt instrument?
Held: The purchase agreement was a debt instrument. The agreement was a repurchase which
does not depend upon the financial ability of Lirag. The obligation of redemption was
absolute.
The rights in favor of SSS suggest an indication that on the part of SSS, it intends
to extend a loan to Lirag. It was a purchase agreement that served as collaterals to the
loan. Moreover, the agreement provided for a 12% interest. These all taken together
clearly show that the intent of the parties was to be bound as debtor-creditor and not as
corporation-stockholder
17) ANGEL JOSE WAREHOUSING CO., INC. VS. CHELDA ENTERPRISES Art.
1957 Rivas
Facts:
- Angel filed a collection case against Chelda for 20,880 with legal interest from filing of
the complaint plus attorneys fee.
- Chelda: Because of usurious interest deducted from the amount loaned, 2% and 2.5% per
month, loan is invalid
- RTC: CHelda must pay Angel the principal less the interest deducted
Issue:
- W/N a loan with usurious interest is valid and creditor can still demand principal amount
Held:
- Valid Principal! A contract of loan with usurious interest is valid as to the loan but
invalid as to the usurious interest.
- Article 1273 the renunciation of the principal debt shall extinguish the accessory
obligation, but the waiver of the latter shall leave the former in force
- Article 1420 in case of divisible contract, if the illegal terms can be separated from the
legal ones, the latter may be enforced.
- Attorneys fees are not recoverable in the absence of stipulation.
18) CU UNJIENG E HIJOS V MABALACAT SUGAR CO. Article 1959 Sarenas
Facts:
Sounds familiar? Yes it is, the prequel to the property case

Cu Unjieng wanted to recover from Mabalacat an indebtedness worth P163k with interest
and foreclosure a mortgage plus attorneys fees and P1206 for insurance paid by plaintiff
upon the mortgaged property
There was a judgment rendered by CFI of Pampanga. From the judgment, respondent
appealed (kung in Spanish rin yung decision, magrereklamo rin ako)
First error according to respondent was that petitioner is wrong to accelerate the
mortgage because petitioner gave an extension. Eh ogags naman pala tong respondent eh,
binigyan na nga sila ng extension, hindi pa rin nagbayad. So failure of the debtor to
comply with the terms of the extension justified the creditor in treating it as of no effect.
Second error (eto yung important for this section): in the contract, it says that interest
shall be calculated at the rate of 12% per annum. In the same clause but in a different
paragraph states that interest to be computed upon the still unpaid capital of the loan shall
be paid monthly at the end of each month. In other words, compounded yung interest
(interest upon interest)
Issue:
W/N the interest could be calculated the way that petitioner calculated it
Held:
Interest was usurious (1930 pa kasi to), being in excess of 12% which is allowed to be
charged when a debt is secured by a mortgage upon real property
Although respondents already made 1 payment, where interest is improperly charged at
an usurious rate, the mere voluntary payment of it to the creditor by the debtor is not
binding
Interest cannot be allowed in the absence of stipulation, or in default thereof, except when
the debt is judicially claimed. And when it is judicially claimed, the interest upon the
interest can only be computed at the rate of 6% per annum.
Kyles thoughts: So how is this related to our topic of Section 1959? Art 2212 states that
interest due shall earn legal interest from the time it is judicially demanded. Art 1959
states that w/o prejudice to 2212, interest due and unpaid shall not earn interest. It states
further that however by stipulation, the contracting parties may by stipulation capitalize
the interest due and unpaid, which as added principal shall earn new interest. In my point
of view, if we apply 1959 to the case at hand, the petitioner may have been justified in
computing the interest as they did. Art 1959 is a new provision in the New Civil Code
and was not yet operational on the year 1930 (New Civil Code 1977)
19) VELEZ VS. BALZARRA Art. 1960 Beron
Facts: Plaintiff prayed for the return of certain parcels of land, which she alleged has been sold
by defendants to plaintiffs deceased husband Ramon Neri San Jose, with a right to
repurchase. The property remained in the possession of defendants. Plaintiff is the
person to whom the land was adjudicated in the distribution of the estate of the deceased.
Defendants on the other hand, claim that the real agreement was a loan secured by
mortgage over the land.
RTC found that the total amount loaned is less than what was actually paid. A
portion of which was paid to Neri. P432.63 of said payment was received by plaintiff.

Issue: Whether the payments were intended to be applied to the principal, as contended by
defendants or were considered as either rent or interests upon the theory of plaintiff
Held: The contract was on of loan with the land as security.
The payments could not have been intended as rents because in accordance with a clause
in the contract, Neri took possession of the lands and collected fruits thereof.
They are not interests as well. No interest is due unless it is expressly stipulated. Lender
took possession and reaped the fruits of the property it would then be absurd to further
require interest. If the payment be deemed as interest, it will be usurious. Such cannot be
presumed.
One who pays interest there being no stipulation, cannot have them applied to principal
nor recover the same. This principle shall not apply in this case. The payments made
were not either by way of interests not of rents but as payments for the principal. The
applicable provision is Art1895 which provides for the principle of solutio indebiti.
20) PACITA REFORMINA ET AL V HON. TOMOL, SHELL AND MICHAEL INC.
Usury Calinisan
Facts:
A) A fire raged the boat FB Pacita III, together with its accessories, fishing fear and
equipment. (RC Note: The details of why there was a need for Shell and Michael Inc to
pay was not clear in this case. I believe they were insurers of the vessel.)
B) Shell and Michael Inc were ordered by the courts to pay Reformina in the amount of
P370T as of June 4, 1972, with legal interest from the filing of the complaint until paid
and to pay attorneys fees of P5T with costs against defendants and third party plaintiffs.
C) Petitioners (the Reforminas) claim that the "legal interest" should be at the rate of twelve
(12%) percent per annum, invoking in support of their aforesaid submission, Central
Bank of the Philippines Circular No. 416.
D) Private respondents (Shell and Michael) insist that said legal interest should be at the rate
of six (6%) percent per annum only, pursuant to and by authority of Article 2209 of the
New Civil Code in relation to Articles 2210 and 2211 thereof
Issue:
What kind of judgment is referred to under Act No. 2655 (Usury Law)? 6% or 12% for legal
interest in this case?
Held:
A) The judgments spoken of and referred to are Judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which
has nothing to do with, nor involving loans or forbearance of any money, goods or credits
does not fall within the coverage of the said law for it is not within the ambit of the
authority granted to the Central Bank.
B) Coming to the case at bar, the decision herein sought to be executed is one rendered in an
Action for Damages for injury to persons and loss of property and does not involve any
loan, much less forbearances of any money, goods or credits.

C) 6% legal interest is to be paid here. As correctly argued by the private respondents, the
law applicable to the said case is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
D) The above provision remains untouched despite the grant of authority to the Central Bank
by Act No. 2655, as amended. To make Central Bank Circular No. 416 applicable to any
case other than those specifically provided for by the Usury Law will make the same of
doubtful constitutionality since the Monetary Board will be exercising legislative
functions which was beyond the intendment of P.D. No. 116.
21) PHILIPPINE RABBIT v CRUZ Usury Fernandez
Facts:
A judgment of the CFI required Philippine Rabbit to pay actual and compensatory
damages with legal interest against a certain Manabat. (P72,500)
Deputy sheriff of Angeles City, in executing the judgment sought the garnishment of
P155,150 from Philippines Rabbits account. This amount was actually the sum of 72,500
plus 12% annual interest.
Philippine Rabbit contests that the chargeable interest is only 6% and not 12%
Issue:
What is the proper interest rate chargeable to Philippine Rabbits obligation?
Held:
6% interest. Though CB Circular 416 provides that the legal interest rate in the absence of an
express stipulation in a contract is 12%, such is only applicable on loans or forbearances of any
money, goods or credits. In this caseinvolving an Action for Damages for personal injurythe
applicable law is Art 2209 of the Civil Code which provides that in an obligation to pay money,
the legal interest (in the absence of any stipulation to the contrary) is 6%.
22) FIRST METRO INVESTMENT CORP. VS. ESTE DEL SOL MOUNTAIN RESERVE
INC. Usury Lloyd
Facts:
- In Jan. 31, 1978, Este del Sol loaned PHP 7M from petitioner FMIC to finance the construction
and devt of the a sports/resort complex.
- Terms of the Loan Agreement:
- proceeds of the loan were to be released on staggered basis
- 16% per annum interest on the loan based on the diminishing balance
- loan payable in 36 months
- in case of default, an acceleration clause provided that the amount due was subject to a
20% one-time penalty on the amt. due and such amount shall bear interest at the highest rate
permitted by law, plus liquidated damages of 2% per month

- attorneys fees equivalent to 25% of the sum to be recovered

- as a security, Este del Sol executed a real estate mortgage over the 2 parcels of land used as the
site of its devt project, and an individual Continuing Suretyship agreements w/ the other corespondents
- Este del Sol also executed, as provided for by the Loan Agreement, and Underwriting
Agreement
- a Consultancy Agreement was also executed whereby Este del Sol engaged the services of
FMIC
- the Loan, Underwriting, and Consultancy Agreements were executed on the same day
- because of respondents default, FMIC extrajudicially foreclosed the real estate mortgage, and
obtained the property as the highest bidder for PHP 9M.
- 3M was deducted for the publication fee of the Sheriffs notice of sale
- 4T for the foreclosure proceedings
- 3M for the attorneys fees
- remaining balance of 5M was applied to interest and penalty charges and partly against
the principal
- balance left on the principal amt. of loan was 6.8M
- petitioner FMIC instituted a collection suit against Este del Sol and co-respondents for the
remaining deficiency balance of 6.8M, plus 21% per annum from the date of filing complaint
until fully paid, and 25% as attorneys fees
pet. FMIC contends that CB Cir. 905 w/c took effect on Jan. 1 1983 and removed the ceiling on
interest rates for secured and unsecured loans, regardless of maturity, should be applied
retroactively to the loan contract in this case, w/c was executed in 1978 while the Usury Law was
still in effect
Issues:
1. Whether or not CB Circ. 905 retroacts.
2. Whether or not the fees provided for in the Underwriting and Consultancy Agreements
were mere subterfuges to camouflage the excessively usurious interest charged by FMIC on the
loan,
3. Whether or not the stipulated penalties, liquidated damages, and attys fees were
excessive and unconscionable
Held:
1. NO. CB Circular did not repeal or amend the Usury Law but simply suspended its effectivity.
The illegality of usury is created by law. Only a law can repeal a law. CB Circulars are not laws.
2. the SC noted several circumstances showing that the Underwriting and Consultancy
Agreements were simply cloaks or devices to collect excessively usurious interest
- the Underwriting and Consultancy Agreement w/c were executed and delivered
contemporaneously w/ the Loan Agreement were exacted by FMIC as essential conditions for
the grant of loan
- an apparently lawful loan is usurious when it is intended that additional compensation for the
loan be disguised by an unrelated contract providing for payment by the borrower for the
lenders services w/c are of little value; under Art. 1957 of the NCC, such stipulation intended to
circumvent usury laws are void

- the nullity of the stipulation on the usurious interest does not affect the lenders right to receive
back the principal amount of the loan
3. the SC agrees w/ the CA that stipulated penalties, liquidated damages, and attys fees were
excessive and unconscionable; and declared, in lieu thereof, that the stipulated one-time penalty
of 20% on the amount and 10% of the amount due as attorneys fees would be reasonable
23) DAVID VS. CA Compound Interest Delgado
Facts:
This case concerns the execution of RTC decision of RTC of Manila in favor of the petitioner
against private respondent Afable. The presiding judge issued a writ of attachment ordering
Afable to pay David the amount of P66,500 plus interest and attorneys fees. The respondent
judges issues writ of execution by virtue of which the sheriff conducted a public auction. The
sheriff informed David that the judgment amounts to P270T based on simple interest
computation. David insists that it is P3M because the amount ought to be based on compounded
interest. Although the auctioned properties were sold, sheriff didnt issue certificate of Sale
because the bid of David P3M was not fully paid with a deficiency of P2M. David filed motion
that Certificate of Sale be issued in his favor. RTC denied. Ca affirmed.
Issue: W/N the respondent court erred in ruling that Art.2212 of the Civil Code applies only
where parties to an obligation stipulated or agreed to pay compounded interest.
Held:
Negative. (Art. 2212. Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point.)
Petitioner insists that in computing the interest due of the P66,500.00, interest should be
computed at 6% on the principal sum of P66,500.00 pursuant to Article 2209 and then "interest
on the legal interest" should also be computed in accordance with the language of Article 2212
of the Civil Code. In his view, said article meant "compound interest".
However, this Court has already interpreted Article 2212, and defined standards for its
application in Philippine American Accident Insurance vs. Flores. As therein held, Article 2212
contemplates the presence of stipulated or conventional interest which has accrued when demand
was judicially made. In cases where no interest had been stipulated by the parties, as in the case
of Philippine American Accident Insurance, no accrued conventional interest could further earn
interest upon judicial demand.
In the said case, we further held that when the judgment sought to be executed ordered the
payment of simple "legal interest" only and said nothing about payment of compound interest,
but the respondent judge orders payment of compound interest, then, he goes beyond the
confines of a judgment which had become final.

Note that in the case now before us, the Court of Appeals made the finding that ". . . no interest
was stipulated by the parties. In the promissory note denominated as "Compromise Agreement"
signed by the private respondent which was duly accepted by petitioner no interest was
mentioned. In his complaint, petitioner merely prayed that defendant be ordered to pay plaintiff
the sum of P66,500.00 with interest thereon at the legal rate from the date of the filing of the
complaint until fully paid. Clearly here the Philippine American Accident Insurance ruling
applies.
24) INVESTORS FINANCE CORP. VS. AUTOWORLD SALES CORP. Usury
Legaspi
Facts:
-
In august 1980 (Usury Law in effect), Antonio Que (Autoworld) applied for a direct
loan with FNCB which was denied by the latte since it was not engaged in direct
lending.
- Later on Araullo (FNCB vice pres.) informed Que that it could extend funds to
Autoworld by purchasing any or its outstanding receivables at a discount.
- The parties executed an Installment Paper Purchase (IPP) transaction
- On Feb 19, 1981, the parties signed 3 contracts:
1. A contract to sell where Barretto (affiliate corporation of Autoworld) sold a parcel
of land to Autoworld
2. Deed of Assignment where Barretto sold all it rights title and interest over the
Contract to Sell in favor of FNCB subject to the condition that FNCB has a right
of recourse against Barretto in the event that Autoworld fails to pay
3. Real estate mortgage where Barretto mortgaged the property subject of the
Contract to Sell to FNCB
- Autoworld obtained another loan from FNCB with and interest rate of 28% per
annum, as security it mortgaged a parcel of land (the court thereafter ruled that this
transaction was valid because the ceiling of the interest rates were lifted when this
was perfected)
- Autoworld requested FNCB to provide a computation of the remaining balances. It
disagreed with FNCBs computation but paid it.
- Thereafter, Autoworld requested for a refund of around 3M from the 10M that it paid
to FNCB contentions
Autoworld: IPP transaction made for a usurious loan
FNCB: The IPP transaction was legitimate and done within their authority
CA: it was a usurious loan and Autoworld has a right to reimbursement of the EXCESS
interest payments amounting to 2.5M
Issue:
1. w/n the 3 contracts all dated Feb 9, 1981 were executed to implement a legitimate IPP
transaction or merely to conceal a usurious loan
2. w/n CA erred in granting the right to reimbursement only of the excess interest
payments

Ruling:
1. Parol evidence is admissible to show that a written document though legal in form
was in fact a device to cover usury. Circumstances show that the transaction was
intended to conceal a usurious loan
- all 3 contracts were drafted by FNCBs lawyers on the same day
- petitioner was the one who procured the services of Asian Appraisal Company to
determine the fair market value of the land
- in a letter, petitioner instructed Barretto that the whole purchase price of the
receivable was to be flowed back to Autoworld. It also gave instructions on how
Barretto should apply the proceeds
- in another letter FNCB itself designated the transaction as a loan and used the term
loan proceeds
- Anonas senior vice pres of FNCB admitted that it only employed discounting of
receivables due to the ceiling rates imposed by the Usury law
2. In usurious loan, the creditor can always recover the principal debt. The debtor can
recover the WHOLE interest paid since the stipulation on the interest is considered
void.
25) EASTERN SHIPPING LINES, INC. VS. COURT OF APPEALS Usury Lopez
Facts:
- Mercantile Insurance Company is subrogated to the rights of the consignee because the
former paid the latter as insurer of certain drums of riboflavin shipped to the Philippines.
- These drums were damaged under the control of Easter Shipping Lines, as carrier and
Metro Port Service, Inc., as arrastre operator. Thus, the two were held to be solidarily
liable upon the complaint of Mercantile Insurance Company.
- This was affirmed by the Court of Appeals which ordered that Eastern and Metro Port
should also pay Mercantile 12% interest from the date of filing of the complaint.
- Eastern contend that interest should be computed from the date of the decision of the trial
court and only at 6% because the claim is not for a loan or forbearance of money.
Issue:
- W/n Eastern is liable for the interest payment ordered by CA.
Held:
- Eastern and Metro Port are indeed liable to Mercantile for the damages caused the drums
of Riboflavin. They have the duty to observe the requisite diligence from the time the
articles are surrendered to them until delivery to the consignee.
- After mentioning several cases already decided (na nagpahaba sa case!), SC came up
with a comprehensive summary of the existing rules to be applied in the computation of
interest. Thus:
I.
All obligations are liable for damages (Art. 1170)
II.
Interest
a. Breach of Obligation which consists of loan or forbearance of money
interest stipulated or at 12% per annum kung walang stipulated, of the

principal to be computed from date of demand. This interest will

earn legal interest from the time of judicial demand (Art. 2212).
b. Breach of obligation in other cases 6% per annum of damages to
be computed from date of demand (if amount of damages is certain as
of that time) or from date of judgment of court (if amount is not certain
at time of demand).
c. When judgment of court becomes final 12% per annum of the total
amount awarded by the judgment computed as of the time judgment
becomes final up to date of payment.
In this case, interest falls under II, b & c. it is 6% on the amount due from the decision of
the RTC (Feb. 3, 1988) up to finality of judgment and 12% on the amount of the
judgment from the date this decision becomes final until date of payment.
26) EASTERN ASSURANCE AND SURETY VS. CA Usury Mendiola

Facts: Vicente Tan insured his building from fire with Eastern for 250K. His building burned
dpwn. Eastern refused to give indemnity. Tan filed a complaint for breach of contract
against Eastern/ RTC ruled in favor of Tan and ordered Eastern to pay Tan 250K plus
legal interest from the date of filing of the complaint. CA affirmed. The CA decision
became final and executory.
Eastern paid Tan 250K plus an interest of 6% from the date of filing of the
complaint. However, Tan refused to accept the payment on the grounds that the legal
interest is 12%. CA ruled that the rate shall be 6% from the date of complaint to the
finality of judgment and 12% from the finality of decision until the satisfaction of the
money judgment.
Issue: What is the applicable legal interest?
Does the ruling in Eastern Shipping Lines apply to the present case notwithstanding the
fact that the decision of Eastern Shipping was made one year after decision of trial court
in present case?
Held: The Eastern Shipping Lines did not lay down new rules. It only stated a comprehensive
summary of existing rules on the computation of legal interests. Nakpil vs. CA was
already operative at the time. Therefore, there was no retroactive application of the rules
in Eastern Shipping.
However, the cut-off date effectively shortens the period of the application of the
12% interest from finality of judgment up to the cut-off date (September 30, 1994) and
not until full payment. (Tan never questioned this resolution of setting a cut-off period.)
27) RCBC VS. ALFA RTW MANUFACTURING CORP. Usury Rivas
Facts:
- RCBC granted the 18M loan application of Alfa
- Alfa, in turn, had executed 4 Trust Receipts stipulating that it had received in trust for
RCBC the goods and merchandise described therein

A Comprehensive Surety Agreement was also made which states that Alfa and the
signatory officers agree to guarantee solidarily the punctual payment at maturity to
RCBC.
Alfa defaulted and RCBC filed a collection suit against Alfa
RTC: Alfa must pay RCBC 19M
CA: reduced amount in the RTCs decision from 19M to 3M
Issue:
- W/N CA can deviate from the provisions of the contract between the parties
Held:
- Contract must be enforced. Alfa must pay 19M.
- CA failed to regard the stipulation in the contract on interest rates, service charge and
penalties in case of breach.
- Stipulation in the contract: bear interest at the rate of 16% per annum plus service
charge of 2% per annum from the date of execution of this Trust Receipt until paid
attorneys fees and other fees and cost of collection, which shall in no case be less than
10% of the value of the property and the amount involved in the suit.
- Total unpaid amount must be computed in this manner:
o (principal + interest + service charge + penalty + interest on the interest)
computed shall earn interest of 12% per annum until satisfied
o Interest = principal x 16% per annum x no. of years from date of execution until
finality of judgment
o Service Charge = principal x 2% per annum x no. of years from date of execution
until finality of judgment
o Penalty = principal x 6% per annum x no. of years from date of execution until
finality of judgment
o Interest on interest = interest computed as of the filing of the complaint (March
12, 1982) x 12% x no. of years until finality of judgment
- TRUST RECEIPT a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except thru
utilization, as collateral, of the merchandise imported or purchased.
28) MACHETTI VS. HOSPICIO DE SAN JOSE Art. 2047 Sarenas
Facts:
Romulo Machetti undertook to construct a building for Hospicio de San Jose, for the
price of P64k
One of the conditions of the agreement was that contractor should obtain the guarantee
of the Fidelity & Surety Co. to the amount of P12800.
Machetti was paid the contract price for work done except for the sum of P4978.08. Later
on, it was found that the building was not done according to the agreed upon
specifications. Because of this, Hospicio refused to pay the balance.

Issue:
Held:
Machetti filed a complaint. Hospicio filed a counterclaim for non-compliance of the

agreed terms.
Machetti was later on declared insolvent. So Hospicio brought case against Fidelity as the
guarantor for Machetti. Fidelity was ordered to pay Hospicio P12800
W/N Fidelity is liable to Hospicio
No, it is not liable to pay Hospicio due to the insolvency of Machetti.
Guarantor implies an undertaking of guaranty, as distinguished from suretyship
A surety undertakes to pay if the principal does not pay. The guarantor only binds himself
to pay if the principal cannot pay.
Fidelity cannot be compelled to pay until it is shown that Machetti is unable to pay. The
declaration that he is insolvent is not indicative that he cannot pay. It can only be
conclusive after the final liquidation of his estate.
29) LIRAG TEXTILE VS. SSS Art. 2047 Beron

Facts:
Lirag Textile and Basilio Lirag entered into a purchase agreement under which SSS agreed to
purchase from Lirag preferred shares of stock worth P1M. The Purhase Agreement provides for
the repurchase by Lirag and payement of 8% dividends to SSS.
Basilio Lirag signed as president and surety. Defendant corportaion failed to redeem the stocks
and has not paid dividends. Hence, this compalint.
Issue:
W/n the purhcase agreement is actually a debt instrument...
If it is such, what is the corresponding liability of Basilio?
Held:
The SC ruled in favor of SSS. The terms and conditions of the agreemene show the intention of
the parties to repuchase the shares which does not depend upon the financial ability of petitoner
corporation. This absolute obligation on the part of petitioner is made amnifes by the fact that a
surety was required to see to it that obligation is fulfilled.
Thus, it follows that Basilio cannot deny liability of petitioner. As surety, Basilio Lirag is bound
inmmediatedly to pay respondent SSS the amount then outstanding.
Basilio, therefore must pay immediately without qualification.
30) SEVERINO VS. SEVERINO Art. 2048 Calinisan
Facts:
A) Melecio Severino died and left considerable property.
B) Litigation ensued between 2 groups:
1) Felicitas (widow) and Fabiola (recognized natural daughter)
2) other heirs (presumably, Guillermo is included in this group)

C) A compromise was effected: Guillermo (Melencio's son) to take over the property pertaining
to the estate, but agreeing to pay P100T to Felicitas and Fabiola. Echaus affixed his name as
guarantor.
1) P40T down
2) P20 in the next 3 years
D) Money was never paid.
E) Echaus refuses to pay: asserts that he received nothing for affixing his signature as
guarantor, and therefore the contract was lacking in consideration as to him
Issue:
W/N Echaus is liable as guarantor.
Held:
A) The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration.
Even as to Guillermo. The promise of Echaus is therefore binding.
B) It is never necessary that a guarantor or surety should receive any part of the benefit, if such
there be, accruing to the principal.
31) WILLEX VS. CA Art. 2048 Fernandez
Facts:
Inter-Resin Industrial Corp (Inter-Resin) opened a Letter of Credit with Manila Banking
(Manilabank). This was secured by a Continuing Surety Agreement executed by
Investment and Underwriting Corp of the Phil (IUCP). IUCP bound itself to pay
obligations of every kind to Manilabank.
Then Inter-Resin and Willex Plastic Industries (Willex), together, executed a Continuing
Guaranty in favor if IUCP.
IUCP paid Inter-Resins outstanding obligations to Manilabank.
Atrium, successor of IUCP demanded from Inter-Resin and Willex for the amount paid to
Manilabank. No one paid. Case filed.
Inter-Resin paid Interbank, successor of Atrium representing proceeds of fire insurance
policy.
Willex claims it cannot be liable since it is only a guarantor of the principal and is only
secondarily liable to that of the principal.
Trial court ordered Inter-Resin and Willex to pay. CA affirmed.
Issue:
Can Willex be made jointly and severally liable with Inter-Resin for the amount paid by
Interbank to Manilabank?
Held:
Yes. On the issue of Willexs limited liability to sums obtained by Inter-Resin from Interbank
only---- the Continuing Guaranty was clearly executed to secure payment to Interbank of
amounts paid by IUCP. Besides, there was no another transaction involved than that.
On the argument that since Willex is not a party to the Continuing Surety Agreement or to the
loan agreement, any obligation it may have from the Continuing Guaranty is legally inexistent--- the consideration to support a surety obligation need not pass directly to the surety, a
consideration moving to the principal alone is sufficient. A guarantor or a surety is bound by the

same consideration that makes the contract effective between the principal parties. It is never
necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing
to his principal.
On the argument that the guaranty cannot be applied retroactively so as to cover the surety
agreements----the intention of the parties prove that any sum obtained by Inter-Resin from
Interbank is necessarily covered.
32) DE GUZMAN VS. SANTOS Art. 2050 Del Socorro
Facts:
- Toole, Abad, and Santos formed a partnership named Philippine-American Construction Co.
- they loaned 10T from Candelaria
- because of failure to pay loan, Candelaria sought payment from the partnership
- CFI issued a writ of attachment against the individual properties of the partners
- to discharge the attachment of the properties, the partnership as principal, and Lucero
(substituted now by petitioner Florentina de Guzman as judicial administratix of Lucero) and
Carlos as guarantors executed a bond in favor of Candelaria for the lifting of the attachment of
the partners properties
- because the partners did not have any property, the writ of execution was moved against the
guarantors
- guarantors Lucero and Carlos paid
- de Guzman, as administratix of Lucero, sought reimbursement from the one of the partners,
herein respondent Santos
- Santos denies liability as he neither applied for nor intervened in the bond in any capacity
Issue: W/N Santos is bound to pay to de Guzman for what the latter had advanced to Candelaria
upon the bond w/c the deceased Lucero had executed.
Held: YES.
- although Santos neither intervened nor signed the bond which was filed to discharge the
attachment of the properties of the judgment debtors, it is clear that the bond was filed to release
the attached properties
- by guaranty one person binds himself to pay or perform for a third person in case the latter
should fail to do so; and any guarantor who pays for the debtor shall be indemnified by the latter
even should the guaranty have been undertaken without the knowledge of the debtor
- applying the provisions on guaranty, Santos is legally bound to pay what the plaintiff
had advanced to the creditor upon the judgment, notwithstanding the fact that the bond had been
given without his knowledge
- any person who makes a payment for the account of another may recover from the debtor the
amount of the payment, unless it was made against the express will of the latter; n the latter case
he can only recover from the debtor in so far as the payment has been beneficial to the latter.
- Santos is bound to pay to the plaintiff what the latter had advanced to the creditor upon
the judgment
- this is the more so because it appears that although Lucero executed the bond without
his knowledge, nevertheless he did not object thereto or repudiate the same at any time
- Santos could not have not known the existence of the bond because:

a. his properties were attached and the attachment could not have been levied without his
knowledge
b. the said properties were returned to him and in receiving them he was necessarily
apprized of the fact that a bond had been filed to discharge the attachment
- only a lighter note, de Guzman may claim reimbursement only from Santos as she is
SOLIDARILY liable w/ the other partners in the guaranty
33) MUNICIPALITY OF GASAN VS. MARASIGAN Art. 2052 Delgado
Facts:
This is an action brought by the municipality of Gasan, Marinduque against Miguel
Marasigan, Angel Sevilla and Gonzalo Luna. On December 9, 1930, the municipality put up at
auction the privilege of gathering whitefish spawn in its jurisdictional water for the year 1931.
There were two bidders; Napa (bidded P5,000) and Marasigan (bidded P4,200). It was awarded
to Marasigan with the condition that it is to be paid P1,050 per quarter. To secure his obligation,
he filed a bond subscribed on December 15, 1930, by the defendant-appellants Angel Sevilla and
Gonzalo Luna, who bound themselves in said documents to pay the plaintiff the sum of P8,400 if
Marasigan failed to deposit of P4,200 quarterly in advance to the treasury of Gasan, in short
they became sureties. Before the contracts were signed (suretyship and the main obligation),
Napa filed protest with the provincial board claiming that he was the duly entitled awardee
because he is the highest bidder. The board granted the petition affirmed by the executive
bureau. The municipality of Gasan issued a resolution awarding it to Napa but the latter would
later yield his right to Marasigan. Later, Marasigan would be assessed of the deficient fees but
claims that the contract was cancelled the moment the municipal president asked him to desist
from the fishing exploit.
Issue:
W?N the lower erred in not absolving the defendants Angel R. Sevilla and Gonzalo L. Luna,
sureties of the defendant Miguel Marasigan, notwithstanding the fact that municipal resolution,
by virtue of which said defendant subscribed the bond Exhibit B of the complaint, had been
declared null and void by the provincial board and by the Executive Bureau.
Held.
Yes. Municipal president notified appellant Marasigan that his contract should, in the meantime,
be considered ineffectual and that he should do nothing to put it in execution because the case
was still undecided by the provincial board and by the Executive Bureau. It is clear that it may be
logically inferred from these facts that the contract regarding fishing privilege entered into
between the plaintiff and appellant Marasigan on December 11, not only was not consummated
but was cancelled. Consequently, it now appears useless and futile to discuss whether or not
resolution No. 161 is valid and legal. In either case, it is a fact that, said contract ceased to have
life or force to bind each of the contracting parties. It ceased to be valid from the time it was
cancelled and this being so, neither the appellant Marasigan nor his sureties or the appellants
were bound to comply with the terms of their respective contracts of fishing privilege and
suretyship. This is so, particularly with respect to the sureties-appellants, because suretyship
cannot exist without a valid obligation (art. 1824 of the Civil Code). The obligation whose
compliance by the appellant Marasigan was guaranteed by the sureties-appellants, which should
begin on January 1, 1931, not on the 14th of said month and year, and end on December 31st

next. They intervened in no other subsequent contract which the plaintiff and Miguel Marasigan
might have entered into on or after January 14, 1931. Guaranty is not, presumed; it must be
expressed and cannot be extended beyond its specified limits (art. 1827 of the Civil Code).
Therefore, after eliminating the obligation for which said sureties-appellants desired to answer
with their bond, the bond necessarily ceased and it ceases to have effects.
34) SMITH BELL VS. PNB Art. 2053 Legaspi
Facts
Fred Harden ordered 8 expellers (for the extraction of coconut oil) from Smith, Bell & Co
(importers).
In April 1918 they signed a contract stipulating: that Smith & Bell sold to Harden 8 Anderson
expellers, end drive, latest model for the price of 80T, to be paid on delivery
The shipment would be on February or March 1919
To assure prompt payment, PNB bound itself to pay the "new Andersen expellers...in the first
class working order"
Thereafter, Harden requested that the expellers be changed from end-drive to side-drive, this
was concurred with by Schmidt (sales manager of Smith & Bell) and Cowper (person who
accompanied Harden)
July 1919, the expellers arrived but Harden advised PNB that the expellers were not as ordered
PNB refused payment, Smith & Bell had to sell the expellers in the market at a cheaper price
Issue
w/n plaintiff has a right to recover
Ruling
The bank is bound by its promise to pay the purchase price. Its obligation to the plaintiff is
considered direct and independent.
Act of Harden in changing the orders could not affect PNB's obligation since it bound itself to
the purchase of "new Andersen expellers". The change was made in furtherance of such
specification.
The debt for the price of goods to be delivered is considred liquidated in this case.
35) WISE & CO. VS. KELLY Art. 2053 Lopez
Facts:
- Wise & Co. (Wise) is claiming from Kelly, as principal, and Lim, as surety, the amount
of Php13,479 for goods and merchandise purchased by Kelly.
- The indebtedness was in a note which reads:
Be it known that we guarantee unto the firm of Wise and Co. (Ltd.) the payment
of the sum of thirteen thousand seven hundred and forty-nine pesos and nine
centavos (P13,749.09) which James Kelly, a merchant, owes to the said firm of
Wise and Co. (Ltd.), for goods and merchandise received and purchased by Mr.
Kelly, to be sold in his establishment, upon the condition that Mr. Kelly will pay
over to the firm of Wise & Co. (Ltd.) at the end of each month all sums which

he may receive from the sale of said goods and merchandise, and that in the
contrary event we, the sureties, undertake to pay the firm of Wise and Co. (Ltd.)
such sums as Mr. James Kelly may fail to turn in as above stated.
- CFI found Kelly liable for the sum of money but absolved Lim from any liability.
Issue:
- W/n Lim is liable as the surety of Kellys indebtedness.
Held:
- SC affirms ruling of CFI. Lim is not liable. His obligation as surety only arises once
Kelly fails to fulfill the condition in the note for the latter to pay at the end of each month
all sums which he may collect from the sale of such goods and merchandise. There was
no proof adduced by Wise that it did not in fact receive all the money derived by Kelly
from the sale of the merchandise.
- (my opinion) I think Wise is claiming from Lim yung kulang dun sa binayad ni Kelly
from the sale of the merchandise. This is why there is a paragraph saying that even if
Kelly sold the merchandise at a price less than the cost of the goods, Lim would still not
be liable. The paragraph says that since there is no stipulation that price should always
be greater than the cost, it follows that even if Kelly were to pay in the total amount
derived from the sales, part of the debt might still remain unpaid. And Lim wont be
liable for such as long as Kelly fulfills the condition of giving the whole amount of the
sales to Wise.
36) RIZAL COMMERCIAL BANKING CORP. VS. ARRO Art. 2053 Mendiola
Facts: Chua and Go executed a comprehensive surety agreement to guaranty any existing
indebtedness of Davao Agricultural Industries Corp. (Daicor), provided that the liability
shall not exceed 100K.
A promissory note was given to RCBC which was signed by Go in behalf of
Daicor and in his personal capacity. However, the notes were not paid and RCBC filed a
complaint for a sum of money against Go and Chua. RCBC argues that Chua is liable
because the surety agreement is continuing and encompasses every other indebtedness of
Daicor incurred from RCBC.
Court below said that Chua was not liable because he did not sign the note.
Issue: Is Chua Liable to pay the note that he did not sign?
Was the comprehensive surety agreement applicable also to future debts and not only
existing ones?
Held: The comprehensive surety agreement was executed to cover both existing and future
obligations which Daicor may acquire from RCBC. The guaranty is a continuing one.
Therefore, the note having been executed during the surety, Chus is liable to pay the
amount of the promissory note. Refer to Art. 2053.
37) SOCONY VS. CHO SIONG Art. 2055 Rivas

Facts:
- Standard Oil and Cho Siong entered into contract whereby Cho Siong obligated himself
to sell as agent Standard Oilss petroleum pproducts
- Cho Siong guaranteed his obligation by giving a personal bond for the amount of 3,000,
subscribed by Ong Guan Can and 1,000 in cash he delivered to Standard Oil
- The 1,000 is applicable to the payment of any amount in which he may become indebted
- Cho Siong also bound himself to pay the attorneys fees, costs and other expenses in case
of his default
- Also signed by Cho Siong is an agreement wherein he assumed the responsibilities for all
the accounts that is owed by the former employee of Standard Oil for the amount of
3,132.
- Cho Siong received petroleum products worth 14,136 and was able to pay 14,072 leaving
a balance of 64
- Adding the 3,132 Cho Siong bound himself to pay and deducting the 1,000 deposited by
Cho Siong, total amount owed by Cho Siong to Standard Oil is 2,197
- RTC: Cho Siang and Ong Guan Can to pay Standard Oil the amount of 64. the 2,197 is
to be shouldered by Cho Siong solely
Issue:
- W/N Ong Guan Can is liable to pay Standard Oil
Held:
- NO! only Cho Siong must pay for the amount
- As a surety for the debts that Cho Siong might incur in the contract of agency, Ong Guan
Can does not answer for anything, Cho Siong not having incurred anything. He answered
for Cho Siong only ofr the latters acts by virtue of the contract of agency.
- The 64 balance is offset by the 1,000 deposit not making Cho Siong liable to Standard
Oil because of his own default. He became indebted for the amount of 2,197 because if
his promise to shoulder the amount owed by Standard Oils former employee. This
agreement is made without the knowledge of the surety
- A contract of suretyship is to be strictly interpreted and is not to be extended beyond its
terms.
38) PLARIDEL SURETY & INS. CO., INC. V. P.L. GALANG MACHINERY CO., INC.
Art.2055 Sarenas
Facts:
Galang Machinery entered into an agreement with Constancio San Jose. San Jose was to
cut, deliver and sell 2,550,000 board feet of logs.
Relying upon the agreement, Galang sold logs to Marubeni Co., Ltd. of Tokyo
To secure the performance of San Jose, Plaridel Surety put up a performance bond in the
sum of P30,600, binding itself jointly and severally with San Jose for the faithful
performance of the contract.
San Jose failed to deliver, despite extensions. Galang notified Plaridel and demanded
payment of the amount of the bond. Payment was refused.
CFI & CA: Plaridel, jointly and severally with San Jose, to pay Galang the sum of P30k
with legal interest plus 15% as attorneys fees.

Plaridel objected to the payment of interest and attorneys fees because (1) they were not
mentioned in the bond; and (2) the surety would become liable for more than the amount
stated in the contract of suretyship
Issue:
W/N Plaridel should pay interest and attorneys fees
Held:
The surety is made to pay interest, not by reason of the contract, but by reason of its
failure to pay when demanded and for having compelled the plaintiff to resort to the
courts to obtain payment.
Interest runs from the filing of the complaint.
39) REPUBLIC VS. PAL-FOX LUMBER Art. 2055 Beron
Facts:
- Pal-Fox Lumber was indebted to the BIR for forest charges and surcharges amounting to
11,851
- Far Eastern Surety was jointly and severally liable with the lumber company for charges
not exceeding 5,000.
- BIR commenced a suit against Pal-Fox and Far Eastern for the recovery of the charges
- CFI: Far Eastern and Pal-Fox are solidarily liable to pay BIR 5,000 with legal interest and
Pal-Fox must pay BIR the remaining 6,841.
- During the pendency of the case, Far Eastern expressed its willingness to pay the 5,000
under the surety agreement
- But BIR argued that Far Eastern was held to be liable for more than 5,000 since the
decision of the RTC was for Far Eastern to pay the 5,000 with legal interest.
Issue:
- W/N Far Eastern Surety is liable to pay legal interest rate in the 5,000 it guaranteed
making it more liable than the amount it guaranteed in the surety agreement
Held:
- Yes!
- Article 2055: if it (the guarantee) be simple or indefinite, it shall comprise not only the
principal obligation but also all its accessories, including judicial costs, provided with
respect to the latter, that the guarantor shall only be liable for those costs incurred after he
has been judicially required to pay.
- Interest is due on account of the failure to pay the principal obligation from and after the
same had fallen due and default had taken place.
40) NAMARCO VS. MARQUEZ Art. 2055 Calinisan
Facts:
A) Prelude: EO 350 and RA 1345: all rights and contracts of the PRATCO xxx has been
assumed by
NAMARCO.
B) Marquez secured from PRATRA 1 tractor and 1 rice thresher, with a total value of P20T. 8T
was already paid, balance of 12T remains.

C) P/N issued re the balance. It also stipulates an interest rate of 7% and attorney's fees of 10%
(P1T).
D) Marquez and Plaridel Surety and Insurance Co., as surety, executed Guarantee Bond in favor
of PRATRA. They bound themselves to pay, jointly and severally, the said amount of 12T.
E) Marquez defaulted in the payments.
F) NAMARCO demanded from Marquez and Plaridel payment of the outstanding obligation.
G) balance: P10T principal + P9990.91 accrued interest
Issue:
W/N Plaridel is liable on the instrument. Is the
interest included in the liability if ever?
Held:
A) Plaridel is liable.
B) If it (the guarantee) be simple or indefinite, it shall compromise not only the principal
obligation but
also all its accessories, including juridical costs, provided with respect to the latter, that the
guarentor shall only be liable for those costs incurred after he has been judicially required to pay.
C) Compensated sureties are not entitled to have their contracts interpreted strictissimi juris in
their favor.
41) VIZCONDE VS. IAC Art. 2055 Fernandez
Facts:
Perlas owns an 8-carat diamond ring that she delivered to Vizconde to be sold on
commission for 85,000. Pagulayan, then, claimed to have a sure buyer for the ring. So she
took it, gave Perlas a postdated check and, together with Vizconde, signed a receipt of the
ring.
The receipt indicates that Vizconde guarantees the delivery of the amount of the ring.
When the check matured, Perlas sought to encash it but was dishonored on the basis of
No arrangement.
Some time later, Pagulayan paid Perlas 5,000for the value of the ring and handed 3 titles
to real estate as guarantee. Receipt was signed.
The receipt indicates that Vizconde guaranteed the delivery of the remaining balance of
the amount of the ring.
Vizconde and Pagulayan failed to complete payment. Suit filed.
Trial Court and CA declared that there was a joint agency between Vizconde and
Pagulayan in favor of Perlas and that this relation made both of them liablecriminally.
Issue:
Is Vizconde criminally liable by virtue of the guaranty she signed on the receipt?
Held:
No.The joint and several undertaking assumed by Vizconde (written separately and below the
main body of the receipt) merely guaranteed the civil obligation of Pagulayan to pay Perlas the
value of the ring in the event of Pagulayans falure to return the same. It cannot be construed to
assume any criminal responsibility consequent upon Pagulayans failure.

Guaranty (or suretyship) creates purely civil obligation on the part of the guarantor (or surety). If
ever Vizconde is to be liable, conspiracy should have been shown. But there was no sufficient
proof of conspiracy between Vizconde and Pagulayan. It was error, therefore, to convict
Vizconde of estafa.
42) ESTATE OF HEMADY VS. LUZON SURETY Art. 2057 Del Socorro
Facts:
- Luzon Surety (Luzon) file a claim against the estate of Hemady based on 20 indemnity
agreements or counter bonds each subscribed by a principal and by the deceased Heamady, as
surety solidary guarantor, for Luzons having guaranteed the principals in favor of different
creditors
- Luzon claimed for allowance, as a contingent claim, of the value of the 20 bonds it executed in
favor of the counterbonds
- RTC: dismissed Luzons claim
- whatever losses may occur after Hermadys death, are not chargeable to his estate
because upon his death, he ceased to be a guarantor
- qualification of integrity of guarantor no longer present
Issue: W/N the guarantors liability is extinguished by his death
Held: NO. Civil Code does not provide such provision.
- General Rule: rights and obligations of parties are transmissible to successors
- Exceptions: Intransmissible because of:
1. nature of obligation
2. stipulation
3. provision of law
- qualifications of guarantor (Art. 2056) need to be present only upon perfection of contract of
guaranty
- based upon Art. 2057, the supervening dishonesty or insolvency of the debtor does not
terminate the contract but merely entitles the creditor to demand a replacement of the guarantor
- it is within the option of the creditor to demand replacement guarantor
- Art. 2057 negates the RTCs contention that the requirement of integrity in the guarantor or
surety makes the latters undertaking strictly personal so linked to his individuality that the
guaranty automatically terminated upon his death
- therefore, the liability of Hermady based upon the indemnity agreements passed to his heirs
upon his death
- Luzon has contingent claims against his estate
43) WISE & CO. VS. TANGLAO Art. 2058 Delgado
-
Wise obtained judgment against its agent Cornelio David for a sum of money; Wise
obtained a preliminary attachment of Davids property; to avoid execution of said
attachment, Atty. Tanglao execute a power of attorney mortagaging his lot in

Angeles; compromise signed by David confessing judgment for P640 and pledge as
security to properties not including the land of Tanglao
David paid P343 thus unpaid balance P297.
Doctrine:
Tanglao empowered David, in his name to enter into a contract of suretyship and
a contract of mortgagee of the property but it didnt enter into contract of suretyship; to
be such, it must be expressed since it cannot be presumed.
- Assuming arguendo Tanglao may be considered as a surety, the action against him
not yet lie on the ground that all the legal remedies against the debtor have not been
previously exhausted.
- David has still a property (2) which is in excess of the balance of the debt.
44) SOUTHERN MOTORS VS. BARBOSA - Art. 2058 Legaspi
Facts:
-
Alfredo Brillantes owed Southern Motors

Eliseo Barbosa constituted a real estate mortgage in favor of Southern Motors, as
security
Brillantes failed to pay; Southern Motors instituted an action to foreclose the
mortgage
Barbosa contends that Southern Motors did not exhaust all remedies
Southern Motors move for summary judgment was denied
Issue: w/n mortgage can be foreclosed without exhausting all remedies

Ruling The right of guarantors to demand exhaustion exists only when a mortgage has not been
given as a special security for the payment of the principal obligation
Since there was a mortgage in this case, the action to foreclose was valid
The ruling of the TC ordering Barbosa to pay is affirmed
(minor issue: Barbosa contends that he was not served a copy of the notice of plaintiffs
motion for reconsideration however, it was shown by evidence that the notice was sent to
his attorney in his office)
45) SAAVEDRA VS. PRICE Art. 58 Lopez
Facts:
- Saavedra owned a piece of land. The transfer certificate title of said land was annotated
with the mortgage constituted in favor of W. S. Price to secure payment of Php 15,000.
- The CFI of Leyte rendered a decision in the case filed by W.S. Price against Ceferino
Ibaez (husband of Saavedra) and Rafael Martinez ordering the latter to pay 15,000 to
W.S. Price.
- Ibaez and Martinez failed to pay the 15,000 so the mortgage on the land was foreclosed
and it was sold in public auction, acquired by W.S. Price.
Issue:

W/n Saavedra acted as mere surety to Martinez and that she is entitled to the benefit of
exhaustion of the property of the principal debtor.
Held:
- The lien on the property was legal and valid. It is true that the petitioner is a surety, and
as such, she is entitled to resort to the actions and remedies against the principal debtor
which the law affords her, but we should not lose sight of the fact that she was sued not
as a surety but as a mortgage debtor for being the owner of the mortgaged property.
Thus, W.S. Price can foreclose the mortgage on the property of Saavedra without
exhausting the property of the principal debtors.
46) CACHO VS. VALLES Art. 2059 Mendiola
Facts:National Sporting Club obligated itself by a promissory note to pay Cacho the sum of
Php9,360. the note was guaranteed by Valles and 2 others. The note was not paid at maturity. An
action was filed against National Sporting Club and the guarantors. The defense of Valles was
that if he were liable, he shall be liable only for his aliquot share in the debt and that the
properties of National Sporting should first be exhausted.
The trial court said that each guarantor shall pay his pro rata share and that in case
one of the sureties shall be insolvent, his part shall fall proportionately upon the other sureties.
Issue: In case of insolvency of one of several guarantors, can those who remain solvent be made
party to the debt? In other words, can the other solvent guarantors be liavle for more that their
aliquot share?
Held: It is true that several guarantors for one debtor and one debt are liable only for his share
and that the benefit of division ceases in the same cases and for the same reasons as the benefit
of excussion (Art 2065). According to Art. 2059, there is no excussion in case the debtor is
bankrupt. It is only in the combination of these two Articles where several sureties become liable
for his proportionate share of any of the co-sureties who has become bankrupt. But in the appeal,
Valles was made liable in case a co-surety is found to be insolvent. In this there was error. None
of the sureties had been declared bankrupt. The benefit of division had not been lost and the rule
declaring each co-surety liable only for his aliquot share must hold.
According to Manresa, the benefit of division is entitled to the guarantor from the time he
contracts the obligation; but if any of the circumstances in Art. 2059 appears, the benefit would
cease together with the benefit of the exhaustion of the debtors property.
47) IMPERIAL INSURANCE VS. DELOS ANGELES Art. 2059 Rivas
Facts:
- 2 cases obtained a writ of preliminary attachments levied upon all the properties of
Felicisimo Reyes.
- 2 defendants bonds for dissolution of attachments were issued by Felicisimo Reyes and
Imperial Insurance.
- The case were further heard and the RTC decided in favor of the plaintiffs Rosa Reyes
and Pedro Reyes

Court issued writs of execution of judgments on the two cases butt eh provincial sheriff
returned the writs of execution unsatisfied
Judge issued an order granting the issuance of the writ of execution against the surety
bonds filed by Felicisimo and Imperial Insurance
Felicisimo and Imperial a petition for preliminary injunction with the CA to restrain the
enforcement of the writ of execution
CA dismissed the petition
Felicisimo Reyes died during the pendency of the trial
Issue:
- W/N Rosa and Pedro Reyes can legally choose to go directly after Imperial Insurance
without prior exhaustion of Felicisimos properties
Held:
- Yes!
- The bonds issued by Felicisimo and Imperial Insurance for the dissolution of attachments
made Felicisimo and Imperial solidarily liable. As stipulated in the bond, it states that
Felicisimo as principal and Imperial Insurance as surety, , jointly and severally
- Article 2059 of the Civil Code states that previous exhaustion of the property of the
debtor shall not take place if the guarantor has bound himself solidarily with the debtor.
- As solidary debtors, Imperial Insurance is liable to pay the amount due on the bonds
should the creditors choose to go directly after it.
- To recover against the surety on its bonds, it is not necessary to file a separate action.
Recovery and execution may be had in the same case.
- It does not matter whether the sheriff served or did not serve a copy of the notice of
attachment to the administrator of the estate of Felicisimo. The liability of the surety
attaches upon the rendition of the judgment and the issuance of the execution should not
be a condition to the right to resort to the bonds
48) LUZON STEEL VS. SIA Art. 2060 Sarenas
Facts:
Luzon Steel Corporation sued metal Manufacturing of the Philippines and Jose Sia
(manager) for breach of contract and damages. Luzon Steel won.
A writ of preliminary attachment upon the properties of defendants. Attachment was
lifted upon a counterbond executed by Sia, as principal, and the Times Surety &
Insurance Co, as solidary guarantor
In the meanwhile (haha), subsequently, Luzon Steel and Sia (without intervention of
surety) entered into a compromise agreement. The compromise agreement was approved
by the court.
Sia failed to comply with the agreement. Luzon moved for and obtained a writ of
execution against defendant and the surety.
Surety moved to quash the execution against it because it was not a party to the
compromise. Motion was approved.

Issue:
W/N the compromise agreement discharged the surety from its obligation
W/N the writ of execution could be issued against the surety without previous exhaustion
of the debtors properties
Held:
Judgment can be issued against the surety that filed a counterbond to discharge a levy on
attachement of properties of debtor regardless how the judgment was obtained whether
after trial on the merits or upon compromise
The surety bound itself jointly and severally with the defendant. 2059 provides that
excusion shall not take place if the guarantor has bound himself solidarily with the debtor
2060 cannot be applied in the case. Even if the surety has not bound himself solidarily, it
may not demand exhaustion unless it points out sufficient leviable property of the debtor
within Philippine territory. This was not done by the surety.
Execution may proceed against the surety
49) ARROYO VS. JUNGSAY Art. 2060 Beron
Facts:
Plaintiff in this case is the guardian of Jocsing, an imbecile, appointed by the court to succeed
defendant Jungsay , former guardain who absconded with the funds of the ward. From a
judgement in favor of the plaintiff and agaist the defendants (Jungsay and bondsmen) for the sum
of P6000, together with interest and costs, the bodsmen appealed.
Issue:
W/n bondsmen should be credited with P4400 the alleged value of certain property attached as
that of the absconding guardian (Jungsay), all of which is in the exclusive possession of 3rd
parties under claim of ownership.
Held:
No. The properties pointed out by the sureties is not sufficient to pay the indebtedness. It is not
salable. It is so encumbered that 3rd parties have full possession under the claim of ownership
without leaving to the absconding guardian a fractional or reversionary interest. Sureties
(bondsmen) have failed to satisfy art 1832 (art 2060 of NCC) requirements.
50) MIRA HERMANOS VS. MANILA TOBACCONISTS Art. 2065 Calinisan
Facts:
A) Mira Hermanos., Inc (MH) and Manila Tobacconists entered into a written contract where
the former was to deliver merchandise for sale on consignment (as to what, not specified in the
case).
B) Manila Tobacconists (MT) agreed to pay on or before the 20th day of each month the invoice
value of all the merchandise sold during the preceding month.
C) This was secured by a P3T bond by Provident Insurance Co.

D) Due to an increase in business (volume), Hermanos required another bond. Manila

Compania de Seguros (MC) under the same terms and conditions secured the transactions for
P2T.
E) After a final and complete liquidation of all the business transactions, a debt of P2,272.79
remained. MT was not able to pay so MH demanded payment from the 2 surety companies.
F) Provident only paid 60%, and wanted MC to pay the balance. MC refused to pay, contending
that so long as the liabilityt of the Tobacconists did not exceed P3T, it was not bound to pay
anything because its bond referred only to the obligation of the Tobacconists in excess of P3T
and up to P5T.
Issue:
W/N MC is can be held liable for the P2,272.79 debt.
Held:
A) No.
B) If the purpose of the additional bond of P2T were to cover not the excess over and above P3T
but the first P2T of the obligation of the principal debtor like the bond of P3T which covered
only the first P3T of said obligation, then it would result that had the obligation of the
Tobacconistss exceeded P3T, neither of the 2 bonds would have responded for the excess, and
that was PRECISELY the event which Mira Hermanos WANTED to PROTECT itelf by
demanding the additional bond of P2T.
C) The applicable Civil Code Provision (old CC: Art 1837) is not applicable, since the sureties
do not guarantee the same debt. Provident the 1st P3T. MC the excess of P3T until P5T.
51) TUASON VS. MACHUCA Art. 2066 Fernandez
Facts:
Through a bond executed by Manila Compania de Seguros, Universal Trading Company
was allowed by Insular Collector of Customs to withdraw sundry goods consigned
through BPI.
The bond was actually guaranteed by Universal Trading and Tuason, Tuason and Co
solidarily.
It should be noted that Tuasons obligations to Manila Compania were to be reimbursed
by Universal and its President Antonio Machuca whether or not they have been actually
paid (agreement was evidenced by a document).
BPI collected from Compania. The latter, in turn, sought reimbursement from the
guarantors. When Universal was declared insolvent, an action was filed against Tuason.
So Tuason was ordered to pay Compania.
Later on, Tuason tried to recover from Machuca the sum it is bound to pay Compania
(together with the legal expenses).
Lower court ordered Machuca to pay. On appeal, Machuca contends that its obligation is
not yet due since the judgment is not yet paid by Tuason (the solidary guarantor)

Issue:
Can Machuca be ordered to reimburse Tuason even if the judgment obligation is not yet paid?
Held:
Yes. According to the document executed solidarily by Machuca and Universal, Tuason is to be
paid as soon as the latter may have become bound and liable, whether or not it shall have
actually paid. And it is indisputable that Tuason became bound by final judgment to pay the
value of the note to Compania.
However, Machuca cannot be made to pay the litigation expenses incurred by Tuason. The
litigation was originated by Tuason having failed to fulfill its obligation to Compania, and it
cannot charge Machuca with the expenses it was compelled to make by reason of its own fault.
52) PNB VS. LUZON SURETY Art.2066 Del Socorro
Facts:
- Villarosa applied for crop loan w/ PNB
- as a security, Villarosa executed a chattel mortgage over the standing crops
- Surety Bonds were also secured as provided by 3 different companies w/ respective amounts
- one of the surety company was Luzon Surety (Luzon) who gave a surety bond to the amount of
10T
- upon default, lower court ordered Villarosa and the 3 surety companies to pay
- only Luzon appealed
Issues: Luzon contends that
1. it is merely a guarantor, not a surety
2. because of the alteration in the Chattel Mortgage agreement w/o its consent, it was released
from its obligation as a surety
3. the lower court erred in ordering it to pay for interests aside from principal as it would be
liable for more than the amount of the bond
Held:
1. Luzon is a surety, not a mere guarantor, as stated clearly in the agreement
2. Luzon was not released
- for an alteration to release the obligation of the guarantors or sureties who did not give their
consent, such alteration must be material
- also, in this case it was shown that Luzon consented to such alteration
3. the increase of liability because of payment of interest was valid for the lower court to have
ordered
- if a surety upon demand, fails to pay, he is liable for interest, not because of contract but
because of default and the necessity of judicial collection
- interest computed at the legal rate shall run from the date of filing complaint
53) SAENZ VS. YAP CHUAN Art. 2067 Delgado

Facts: Engracio Palanca is the judicial administrator of the estate of Margarita Jose. He gave a
bond upon the order of the court as guaranty of his administration. The bond was executed along
with the petitioner saenz de Vizmanos. On the same day, Engracio Palanca executed a bond in
favor of Vizmanos along with Chuangco for P20T, Chutco for P5T, Yap Poco for P5T,
Tanguinlay for P5T and Lim Pongco for P5T. all of them signed the bond except the Chuangco.
The court ordered the state with Vizmanos in solidum to pay P41T plus interest. Vizmanos paid
P8T and is now seeking reimbursement from those who executed the bond. The CFI sentenced
each to pay P5T. they appeal claiming vizmanos cannot claim more than what he paid.
Issue: W/N Vizmanos can claim more than what he paid.
Held: NO. There is an existing subrogation in this case for Vizmanos became a surety of
Palanca, that the latter could not pay him, Palanca obligated himself by the four defendants, or,
better said, the four defendants assumed the obligation that rested upon Palanca to indemnify
Vizmanos for what the latter might pay for Palanca. By virtue of that payment, the surety is
subrogated in all the rights which the creditor had against the debtor. But this subrogation can
not be interpreted in such absolute terms as to include more than the surety has paid. To allow it
would be resulting to unjust enrichment to prejudice of the debtor, if the surety who pays for him
were permitted to claim more than what he paid.
54) MANILA SURETY VS. BATU CONSTRUCTION Art. 2071 Legaspi
Facts:
-
Batu Construction had a contract with the Government of the Phil. re: the
construction of the Bacarra Bridge in Ilocos Norte
Batu requested Manila Surety to post a bond for P8.812 in favor of the government to
secure their faithful performance of the contract
On the same date Batu and Manila executed an indemnity agreement to protect
Manila against damage, loss or expenses which it may sustain as a consequence of the
surety bond
Because of the unsatisfactory performance of Batu, the Director of Public Works
annulled the construction contract
The government notified Manila Surety that it would hold it liable for any amount
incurred by the government in excess of the contract price
Thereafter, Ricardo Fernandez and 105 other persons brought an action against Batu
Construction for the collection of un paid wages worth P5,960
Manila Surety prays that a writ of attachment be issued on the properties of defendant
since they are in imminent danger or insolvency and Batu is disposing of its
properties with the intent of defrauding creditors
Contentions of people from Batu:

- Andres Tunac: denies that he ever made an indemnity bond in favor of Manila Surety
and all allegations of the company and in the event the partnership is bound by the
indemnity agreement, he invokes his right of excussion Gonzalo Amboy and Carlos

Baquiran: deny the allegations and allege that there wasnt any liquidation of
properties that show their liability, if they are indeed liable, they are willing to pay
At the hearing, Amboy moved for a dismissal on the ground that the relief under the
last paragraph of art. 2071 may be availed of a guarantor only and not a surety
TC: upheld Amboys contentions and dismissed the complaint
Issue
w/n the last paragraph of art. 2071 may be availed of by a surety
Ruling
Yes, since the obligation of a surety is more onerous that a guarantor, he may also avail of the
remedies under the last paragraph
Manilas cause of action falls under par. 1 when he is sued for the payment since the action
brought by Fernandez is in connection with the construction of the bridge
The provision merely provides that the surety may avail of the remedy as long as he is sued for
the amount which the surety bond was put up
The case is remanded for determination of the amount of security that would protect the plaintiff
55) GENERAL INDEMNITY CO., INC. VS. Alvarez Art. 2071 Lopez
Facts:
- Alvarez had a loan in PNB. The payment of Alvarez is guaranteed with an indemnity
bond executed by General Indemnity. The indemnity bond is further secured with a
mortgage on Alvarez share in a parcel of land.
- Alvarez defaulted in the payment so General Indemnity was forced to pay the debt of
Alvarez to the PNB. General Indemnity thus, filed the case for the recovery of the sum
of the loan (2,000 pesos).
- CFI ruled for General Indemnity.
Issue:
- W/n Alvarez is liable to General Indemnity for the payment the latter made of the debt of
the former.
Held:
- Alvarez contention that he secured the loan merely to accommodate a 3rd party is
untenable because of the fact that a mortgage was executed in favor of General
Indemnity. This was an admission of Alvarez that he was the actual and only debtor of
General Indemnity and not a 3rd party.
- There is merit in Alvarez claim that there was no proof that General Indemnity indeed
paid PNB the amount of the loan of Alvarez. General Indemnity alleges that it has a
claim on the strength of Art. 2071 to the effect that a guarantor may proceed against the
principal debtor, even before having been paid, when the debt has become demandable.
But, the same article says that the only action a guarantor can claim under this article is to
obtain release from the guaranty, or to demand a security that shall protect him from any
proceeding by the creditor and from danger of insolvency of the debtor. Thus, an action
by the guarantor against the principal debtor for payment, before the former has paid the
creditor, is premature.

56) RADIO CORP. OF THE PHIL. VS. ROA Art. 2079 Mendiola
Facts:
Jesus Roa became indebted to Philippine Theatrical Enterprises in the sum of Php28,400
payable in 71 equal monthly installments. Philippine Theatrical Enterprises assigned all its rights
and interests in the contract to Radio Corp. of the Philippines. The contract had an acceleration
clause that in case of failure in any of the installments by Roa, the whole amount unpaid shall be
immediately be due and demandable. In this contract, Chavez, Andres Roa, and Manuel Roa
were the guarantors of the debt of Jesus Roa.
Roa was granted an extendion by Radio Corp. for the February installment. However,
there was failure to pay one of the snstallments. Radio Corp. filed suit. The lower court decreed
that the Roas and Chaves pay Radio Corp the amount of the debt.
Chaves, Andres Roa, and Manuel Roa appealed, saying that they were released as
sureties due to the extension given by Radio Corp. to Jesus Roa for the payment of one of the
installment.
Issue: Are the defendants released by virtue of the extension given by Radio Corp.?
Held:
They are released. The stipulation in the contract is that failure to pay any of the
installments when due tshall ipso facto make the other installments due and payable. In view of
the fact that under the abovementioned provision, the whole unpaid balance shall automatically
be due, the act of Radio Corp. in granting the extension, without the consent of the guarantors,
constituted an extension for the whole amount of the indebtedness. As such, the guarantors are
now released from liability. (This decision is not in derogation of the doctrine laid down in Villa
vs. Bosque that where surety is liable for several installments, en extension of time as to one of
more will not affect the liability of the surety for the others.)
The above principle will hold whether the extension is long or short. It is really
unimportant whether the extension given has actually proved prejudicial or beneficial to the
surety. The rule is quite independent form the event. The creditor has no right to change the
terms of the contract without the knowledge and consent of the surety.
57) VILLA VS. GARCIA BOSQUE Art. 2079 Rivas
Facts:
- Rosa Villa was the owner of a printing establishment and bookstore with the machinery,
motors, bindery, type material, furniture and stock appurtenant thereto.
- Pirretas, lawyer of Villa sold the establishment to Bosque, and Ruiz for 55,000 with
France and Goulette as solidary sureties
o 15,000 on Nov. 1
o 10,000 at 1 year from said date
o 15,000 at 2 years
o 15,000 at the end of the 3rd year
- Pirretas absented himself from the Philippines on a prolonged visit to Spain

He executed a document purporting to be a substantial substitution of agency whereby he

transferred to Figueras Hermanos the power to collect sums of money as may be de to
Villa by reason of the sale
Figueras allowed an extension for the payment of the second installment
Figueras entered into an agreement with Bosque and the new he partnership made with
regard to the remaining balance of the buyers
It is stated in the agreement that partnership Guillermo Garcia Bosque, S. en C., is
indebted to Villa for 32,000 and that the sureties France and Goulette are relieved from
the all liabilities as sureties
Issue:
- W/N agreement between Figueras and the partnership of Bosque is valid therefore
relieving the former sureties of their obligations
Held:
- agreement between the partnership and Figueras is null and void
o sole purpose of Pirretas in acquiring the help of Figueras was to help him collect
the balance due to Villa
o there is nothing that can be construed that authorized Figueras to discharge any of
the debtors or to novate the contract
- Sureties are still liable to pay Villa.
- Contention of the sureties that the acceptance of Villa of payment made the partnership
ratified the contract is untenable. By the assumption of the debts of the partnerships
predecessors, partnership had become a primary debtor of Villa making it lawful for Villa
to retain the money
- Sureties also claimed that the extension of the period of payment without the assent of the
sureties and new promissory notes issued without their knowledge cancelled their former
suretyship is also not valid. According to jurisprudence, where a surety is liable for
different payments, such as installments or upon a series of promissory notes, an
extension of time as to one or more will not affect the liability if the surety for the others.
- The extension granted relates only to the second installment of the original obligation.
Furthermore, the total amount of these notes were thereafter paid in full and they are not
the subject of the controversy now. It results that the extension thus affected could not
discharge the sureties from their liability as to the other installments.
58) HOSPICIO DE SAN JOSE VS. FIDELITY Art.2079 Sarenas
Facts:
Hospicio and Romulo Machetti entered into an agreement where Machetti is to build for
Hospicio a concrete building (accesorias) in Manila.
To guarantee faithful fulfiment of the obligation, a security was made by Fidelity and
Surety Co. of the Philippine Islands to the amount of P12800
Later on, Hospicio and Fidelity entered into another agreement for the creation of a
bodega at the rear part of the building that he is going to build
150 working days for the erecting of the building and one month after that for the bodega.

Machetti later on asked for an extension of 25 days. This was granted. This was obtained
without the consent of Fidelity.
Subsequently, it was found out that the building was not completed in accordance with
the plans and so was the bodega.
Payments were made to Machetti without the knowledge of Fidelity. Later on, Machetti
was found insolvent.
Hospicio claimed against Fidelity the bond it issued. Fidelity refused.
Issue:
W/N the extension granted to Machetti without the consent of Fidelity, extinguish
Fidelitys liability
Held:
Machetti only guaranteed the exact and specific performance of the obligation in
accordance with the PLANS and SPECIFICATIONS. The PLANS and
SPECIFICATIONS do not state the term within which the work must be completed
Machetti did not offer to give a bond for the 150 working days
The 25 days extension therefore did not extinguish the liability of Fidelity
59) PNB VS. MANILA SURETY Art. 2080 Beron
Facts:
The PNB had opened a letter of credit and advanced thereon $120,000 to Edgington Oil Refinery
for 8,000 tons of asphalt. Of this amount, 2,000 tons were released to ATACO under a trust
receipt guaranteed by Manila Surety. To pay for the asphalt ATACO constituted PNB as its
assignee to receive and collect from Bureau of Public Works out of funds payable to ATACO.
ATACO delivered to the Bureau of Public Works Asphalt. The Bank regularly collected until,
for unexplained reasons the Bank ceased to collect. It was later found that the Public Works
office allowed another creditor to collect the funds due to ATACO. Bank sued the ATACO and
surety for the balance it failed to collect.
Issue:
W/n PNB can collect from surety
Held:
No. The Bank have been neglligent in having stopped collecting from the Bureau of Public
Works thereby allowing such funds to be taken by other creditors to the prejudice of surety, and
such neglignece resulted in exoneration of Manila Surety.
The contention of the Bank that the assignment constituted was merely addtional surety is
untenable. Even if it be considered as additional security, by allowing the assigned funds to be
exhausted without notifying the surety, the Bank deprived the surety of any possiblity of
recoursing against that security.

60) ARENAS VS. RAYMUNDO Art. 2085 Calinisan

Facts:
Arenas owns a number of jewelry (gold rosaries, gold/silver hair fasteners, gold ring w a
diamond, gold bracelet, gold earrings) which she delivered to a certain de Vega to sell on
commission, who delivered it to a certain Perello.
Perello, then pledged the jewelry to Raymundos pawnshop, without Arenas consent.
Perello was later on convicted for estafa. Raymundo, on the otherhand, refuses to return
the jewelry to Arenas.
Issue:
W/N Raymundo ought to return such pledged jewelry owned by Arenas, but pledged by
another without Arenas consent.
Held:
The mere fact that Perello was convicted of estafa, the jewelry misappropriated must be
returned to the rightful owner, although the jewelry is found in the pawnshop of
Raymundo. Raymundo did not acquire said jewelry in a public sale.
Even if Raymundo is in good faith, he cannot retain the jewelry until Arenas reimburses
him. Arenas did not make contact with Raymundo that would obligate him to pay
Perellos loan.
The contract of pledge was null and void, and therefore the jewelry pawned cannot serve
as security for the payment of the sum loaned, nor the latter can be collected out of the
value of the said jewelry.
The thing pledged must belong to the person who pledges or mortgages it.
61) RURAL BANK OF CALOOCAN VS CA Art. 2085 Fernandez
Facts:
Castro went to the Rural Bank of Caloocan to obtain an industrial loan (3k). The
necessary documents were prepared by the Valencia spouses. Thereafter, a promissory
note in favor of the bank was executed.
The Valencia spouses also obtained a loan (3k) and another promissory note was made
with Valencia and Castro as co-makers.
These loans were secured by a Real Estate Mortgage on Castros house.
After a while, Castro was given a notice that the property would be sold at a public
auction. Reyes was the highest bidder and a deed of sale was issued to him. Later on, a
TCT was issued under his name.
Castro claims that she did not know that the encumbrance on her property was 6k and
that she was not aware of the second promissory note. At the time she filed a complaint,
Castro deposited the amount she owes the bank.
Castro alleged fraud and mistake. Castro is 70 yrs old, cannot read and write the English
language, and was induced by the Valencias to raise money to be invested in the latters

business. That she signed the documents with no one explaining to her the nature and
contents of the documents.
The CFI and CA favored herdeclared the 2nd PN as invalid; that the REM was invalid
in so far as the amount that exceeds 3k and; annulled the foreclosure sale.
Issue:
Was the 2nd promissory note valid? Was the mortgage contract valid up to 3k only?
Held:
The promissory note was not valid and the mortgage was only up to the personal liability of
Castro (3k).
The Valencias defrauded Castro by making her sign the promissory note and the mortgage
contract, and they also misrepresented to the bank Castros personal qualifications in order to
secure its consent to the loan. As a result of this fraud upon Castro and misrepresentation to the
bank, both Castro and the bank committed mistake in giving their consent to the contracts. Their
consents were vitiated by substantial mistake.
However, the negligence of the bank likewise made the fraud possible by not exercising the
highest order of care and prudence in its business dealings with the Valencias considering that it
is engage in the banking business. The bank should have inquired into the authority of the
Valencias with respect to the mortgage of the property of Castro. Castros consent to the
mortgage (for the second loan) was with a defect. Bank is to suffer the consequences of the
fraud.
62) CAVITE DEVELOPMENT BANK VS. SPOUSES LIM Art. 2085 Del Socorro
Facts:
- Rodolfo Guansing loaned from petitioner Cavite Development Bank (CDB)
- land mortgaged to secure loan
- Rodolfo defaulted; CDB foreclosed the mortgage; declared as highest bidder; land was sold to
CDB
- respondent Lim offered to buy the land from CDB; Lim gave option money
- Lim discovered that land was originally registered w/ Perfecto Guansing, Rodolfos father
- it appears that the father already instituted a case to cancel his sons title; RTC granted
cancellation as Rodolfos title was fraudulently secured
- Lim filed for specific performance and damages against CDB
Issues:
1. W/N there was a perfected contract of sale, or merely an option contract.
2. W/N the sale by CDB to Lim is valid.
3. W/N the mortgage to CDB is valid.
4. W/N CDB is a mortgagee in good faith.
Held:

1. There was a perfected contract of sale. The option money was in fact an earnest money which
indicates partial performance of the contract.
2. But relying upon Nool vs. CA and Dignos vs. CA, the sale is void as the seller of the land was
not its owner
- the sale by CDB to Lim of the mortgaged property is void because CDB did not have valid title
to the property
3. CDB never acquired a valid title to the property because the foreclosure sales, by w/c the
property had been awarded to CDB as the highest bidder, is also void since the mortgagor was
not the owner of the property foreclosed (one of the requisites of mortgage)
- one exception to the general rule is the doctrine of the mortgagee in good faith
- although the mortgagor is not the owner of the mortgaged property, his title being
fraudulent, the mortgage contract and any foreclosure sale arising therefrom are given effect by
reason of public policy
- CDB claims that as a mortgagee bank, it is not required to make a detailed investigation of the
history of the title of the property given as a security before accepting a mortgage
4. CDB is not a mortgagee in good faith
- although CDB is not expected to conduct an exhaustive investigation on the history of the
mortgagors title, it must exercise due diligence required of banking institutions
- banks are expected to exercise more case and prudence than private individuals in their
dealings, even those involving registered lands, for their business is affected w/ public interest
- in this case, CDB did not observe due diligence in ascertaining the validity of Rodolfos title
- Rodolfo obtained his fraudulent title by executing an extrajudicial settlement of the
estate making it appear that his father waived all his rights in favor of him
- the self-executed deed should have placed CDB on guarded against any possible defect
as the mortgagors title
- the alleged ocular inspection report by CDB was not offered as evidence
- CDB even admitted that it was aware that the land was being occupied by persons other
than Rodolfo
63) BUSTAMANTE VS. ROSEL Art. 2088 Delgado
Facts: Spouses Bustamante obtained a loan of P100,000 from Norma Rosel. The loan was to
mature within two years and is secured by a collateral lot in Congressional Avenue. In the
agreement, it is stated that in case the borrower cannot pay on the maturity period, the lender has
the option to buy the lot for the amount of P200,000 including therein the sum loaned.
When the loan is about to mature, the lender informed the borrower that they are exercising the
option but the borrower refused offering another lot in Project 8 for Rosel to buy. Rosel refused
claiming that the lot is occupied by squatters. On the maturity date, the borrower tendered
payment but Rosel refused insisting that the borrower sign the Deed of Absolute Sale.
Borrowers refused to do so prompting Rosel to file case for specific performance with
consignation. The RTC favored her but the CA reversed.

SC affirmed but Bustamante filed MR arguing that the stipulation is void for being a pacto
commissorium?
Issue: Yes. 1) there is a property mortgaged by way of security for the payment of obligation
and 2) there is a stipulation for automatic appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within the stipulated period.
There was intent to appropriate the property given as collateral in favor of the creditor appears to
be evident, for the debtor is obliged to dispose of the collateral at the pre-agreed consideration
amounting to practically the same amount as the loan. In effect, creditor acquires the collateral
in the event of non-payment of loans.
64) ALCANTARA VS. ALINEA Art. 2088 Legaspi
Facts
Alinea and Belarmino borrowed from Alcantara P480 payable in January 1905
Under the agreement, if at the expiration the amount should not be paid, it would be
understood that the house and lot be considered as absolutely sold to the plaintiff for the
said sum.
The defendants failed to pay the sum when it became due, they also refuse to deliver the
property to Alcantara.
Hence, Alcantara filed an action for the delivery or the properties plus the rent per month
from February 1905.
According to Alinea, the principal was only P200 and the interest was P280. they also
alleged that they offered to pay the sum to Alcantara but the latter refused.
TC: in favor of Alcantara
Issue: W/N stipulation that the house and lot be considered absolutely sold to the plaintiff is
valid.
Ruling: The property does not appear to be mortgage in favor of Alcantara; it is not registered
in the Registry of Property. It was also not a pledge since it is an immovable. It is also not a
contract of antichresis because Alcantara was never in the possession of the property, nor
received its rents. Pactum Commissorium indicates the existence of either a mortgage, pledge or
antichrresis. Hence, the prohibition does not apply in this case. Theagreement of the parties is
valid and binding.
Dissent: The contract violates the Spanish principle prohibiting a debtor to make an agreement
where mere failure to pay shall divest him of all his interest in the specific property mentioned in
the agreement.
65) MAHONEY VS. TUASON Art. 2088 Lopez
Facts:

P. Blanc obtained a loan from Chartered Bank of India, Australia and China. This was
secured by a guaranty from Mariano Tuason. In turn, P. Blanc secured his obligation to
pay Tuason (in case the latter is forced to pay) by a pledge of jewelry owned by P. Blanc.
The contract of pledge between P. Blanc (pledgor) and Tuason (pledge) contained a
stipulation that when Blanc fails to comply with his obligations, Tuason would be entitled
to retain the jewels in an amount which results after deducting the 50%, earlier
appropriated by Tuason to himself because of Blancs default.
P. Blanc failed to pay the bank so Tuason was forced to pay. Blanc also failed to pay his
obligation to Tuason. Tuason now claims that the pieces of jewelry are now owned by
him.
RTC ordered Tuason to return all the jewels he has acquired.
Issued:
- W/n Tuason is entitled to the pieces of jewelry pledged to him.
Held:
- SC says yes. Indeed, the stipulation regarding the appropriation of the pieces of jewelry
to Tuason upon failure of Blanc to fulfill his obligations is a void consideration. (It
violates Art. 2088). But this does not mean that the whole contract of pledge is deemed
to be null and void too. The contract of pledge was perfect in itself and could have
subsisted even if the parties had not agreed as to the manner the creditor could collect his
credit from the proceeds of the things pledged.
66) REYES VS. DE LEON Art. 2088 Mendiola
Facts: Lanuza and his wife owned a 2-storey house built on a lot of Maria Guizon Subdivision.
The spouses leased this lot from Consolidated Asiatic Co. Lanuza executed a document
entitled "Deed of Sale with Right to Repurchase" whereby he conveyed to Maria Bautista
Vda. de Reyes and Aurelia R. Navarro the house, together with the leasehold rights to the
lot for 3k. When the original period of redemption expired, the parties extended it to July
12, 1961 by an annotation on the left margin of the instrument. Lanuza's wife, who did not
sign the deed, this time signed her name below the annotation. It appears that after the
execution of this instrument, Lanuza and his wife mortgaged the same house in favor of
Martin de Leon.
As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's
office on October 5, 1962 a petition for the extra- judicial foreclosure of the mortgage. Reyes
and Navarro followed suit by filing in the Court of First Instance of Manila a petition for the
consolidation of ownership of the house on the ground that the period of redemption expired
on July 12, 1961 without the vendees exercising their right of repurchase. But the house was
sold to De Leon as the only bidder at the sheriff's sale. De Leon immediately took possession
of the house.
The lower court said that Reyes and Navarro were the owners. The court said that
although Lanuzas wife did not sign it at the time of execution, she ratified it by
subsequently signing. The court further stated that since the properties were already in
favor of the Reyeses, they could not have mortgaged it to de Leon.

Issue: Was the pacto de retro sale an equitable mortgage and therefore cannot be the basis of
a consolidation of ownership?
Held: We agree with the lower court that between an unrecorded sale of a prior date and a
recorded mortgage of a later date the former (sale) is preferred to the latter for the reason that
if the original owner had parted with his ownership of the thing sold then he no longer had
the ownership and free disposal of that thing so as to be able to mortgage it again.
But there is one aspect of this case which leads us to a different conclusion. We
refer to the nature of the so-called "Deed of Sale with Right to Repurchase. It is in reality
an equitable mortgage because of: (1) The gross inadequacy of the price., (2) The nontransmission of ownership to the vendees (Reyes), because of the stipulation that
automatic passing of title to Reyes will happen only when Lanuza failed to pay 3k., (3)
The delay in the filing of the petition for consolidation.
Thus, not only that this action for consolidation of ownership is improper as De
Leon claims, but, what is more, that between the unrecorded deed of Reyes and Navarro
which we hold to be an equitable mortgage, and the registered mortgage of De Leon, the
latter must be preferred.
67) PNB VS. AGUDELO Art. 2089 Rivas
Facts:
- Paz Agudelo Gonzaga and Amparo Garrucho gave Mauro Garrucho special power of
attorney sufficiently broad in scope to enable him to alienate, sell and mortgage all their
real estates
- Nothing in the special powers of attorney expressly authorized Mauro to contract any
loan nor to constitute a mortgage to secure his personal obligation
- Mauro obtained a loan from PNB wherein he mortgage the properties of Agudelo and
Amparo to secure his loan
- He authorized PNB to take possession of the mortgaged properties, and even use force if
necessary, in case he failed to pay his obligations
- Amparo sold her land to Agudelo wherein the latter executed an affidavit stating that she
agreed to the amount of lien stated in the mortgage deed in favor of PNB
- RTC: ordered Agudelo to pay all the loans obtained by Mauro
Issue:
W/N Agudelo is liable for the payment of the loans obtained by Mauro from PNB
Held:
- No! Agudelo is ony liable as to the extent of Mauros loan that she consented on the lot
she bought from Amparo
- Agudelos acknowledgement does not extend to the loans secured by Mauro using her
lots. Her only obligation is only as to the lien and not to principal obligation of Mauro.
- Agudelo is only subsidiarily liable as compared to Mauro who is principally liable.
- When an agent acts in his own name, the agent is directly liable to the person with whom
he has contracted as if the transactions were his own.

There is nothing to show that Mauro executed the loans for the account and at the request
of his principals. When Mauro obtained the loan under his own signature, without
authority from his principals, the obtained amount is binding upon his principals.
Mauro exceeded the scope of his authority and his principal is not liable for his acts.
Also, the bank must have inquired as to the extent of Mauros authority as an agent
before dealing with him. A banking institution is duty bound to do so.
68) CENTRAL BANK VS. CA Art. 2089 Sarenas

Facts:
April 1965: Island Savings Bank approved an P80K loan of Sulpicio Tolentino. To secure
the loan, Tolentino executed a real estate mortgage over his 100-hectare land in Agusan.
The loan was repayable in 3 years with 12% annual interest. This loan was to be
specifically used in developing Tolentinos other property into a subdivision
May 1965: only P17K was released to Tolentino and a promissory note was issued for
this amount. The remaining P63K was to be given to Tolentino when there are already
funds available
August 1965: the Monetary Board issued a resolution after finding that Island Savings
Bank was suffering liquidity problems. This resolution was to prohibit the bank from
further approving new loans but can still extend or renew current loans.
June 1968: Island Savings Bank was prohibited from doing business in the Philippines
due to its failure to restore its solvency
August 1968: Island Savings Bank applied for extra-judicial foreclosure of the mortgaged
property of Tolentino for non-payment of the P17K promissory note
January 1969: Tolentino filed a petition before the CFI of Agusan for injunction, specific
performance or rescission.
CFI: Tolentino should pay the P17K + legal interest and legal charges. The sheriff may
proceed with the foreclosure
CA: Tolentinos petition for specific performance is denied. However, Island Savings can
neither collect the P17K or foreclose the real estate mortgage
Issue:
W/N Tolentino is liable to pay the P17K debt covered by the PN
If the debt exists, can his real estate mortgage be foreclosed to satisfy the amount?
Held:
The loan agreement was a reciprocal obligation. The obligation of each party is the
consideration for the other. When Tolentino executed the real estate mortgage, the
obligation of Island Savings to release the loan accrued. Art. 1191 of CC, Tolentino may
choose between specific performance or recisssion with damages in either case
Recission is the only remedy left. But this only covers the remaining amount of P63K
because the bank is only in default to that amount
The PN gave rise to Tolentinos obligation to pay the P17K loan. Since he was in default,
Island Savings can also claim damages. Quits lang silang dalawa sa damages.

However the real estate mortgage cannot be completely foreclosed to satisfy the P17K
debt.
The consideration of a real estate mortgage is the same as that of the principal contract.
The consideration for the debtor in furnishing the mortgage is the existence of a valid,
voidable or unenforceable debt.
When there is partial failure of consideration, the mortgage becomes unenforceable to the
extent of such failure
P63K is 78.75% of P80K. 21.25 hectares of the land covers the P17K debt
The indivisibility of a real estate mortgage provided for in Article 2089 is not applicable
because it presupposes several heirs of the debtor or creditor which is not existing in this
case.
SC decision: Tolentino pay P17K + P41.2K as 12% interest/annum from May 65 to
August 85. 12% on the total until paid. If unable to pay, mortgage to the extent of 21.25
hectares only.
69) DAYRIT VS. CA Art. 2090 Beron

Facts: The defendants Dayrit, Sumbillo and Angeles entered into a contract with Mobil Oil Phil.,
Inc., entitled loan and mortgage agreement, wherein Mobil grants a loan to said borrowers
P150,000. Dayrit, together with other borrowers violated the Loan and Mortgage Agreement,
they having paid but one installment. Dayrit and others likewise failed to buy the quantities of
products as required in the Sales Agreement. Mobil demanded payment, which Dayrit answered
and acknowledged.
A complaint was filed against Dayrit ant the rest of the borrowers ruling in favor of Mobil and
ordering each of the defendants to pay 1/3 of the amount loaned and interest. The decision
became final and executory.
Dayrit opposed the execution of the judgment. Hence, this suit.
Dayrit prays that the entire mortgage collateral be released upon his payment of mere 1/3 of the
loan obligation.
Issue: W/N the respondent court erred in refusing to allow the alleged proposed deposit of a sum
equivalent to 1/3 of the loan agreed upon and in refusing to release forever the collaterals owned
by Dayrit, although the other 2/3 portion of the loan obligation had not been satisfied due to
insolvency of the other 2 co-defendants.
Held: while it is true that the obligation is merely joint and each of the defendants is obliged to
pay only his 1/3 share of the join obligation, the undisputed fact remains that the intent and
purpose of the agreement was to secure the entire loan of P150,000.
The fact also remains that Dayrit alone benefited from the proceeds of th loan of P150,000, the
said amount having been paid directly to the BPI to b ail out the same properties from a
mortgage that was about to be foreclosed.

A mortgage directly and immediately subjects the property upon which it is imposed, the same
being indivisible even though the debt may be divided and such indivisibility likewise being
unaffected by the fact that the debtors are not solidarily liable.
70) YULIONGSIU VS. PNB Art. 2093 Calinisan
Facts:
Pledge constituted between Yuliongsiu and the PNB.
Yuliongsiu is the owner of two vessels: M/S Surigao and the M/S Don Dino. He also
operated the FS 203, valued at P203T purchased from the Philippine Shipping
Commission on account. He was only able to pay P76T. The balance is payable at P50T
a year, due on or before the current year.
Yuliongsiu obtained a P50T loan from the PNB, Cebu. He pledged his vessels to secure
payment.
He merely paid P20T from this loan. The balance, evidenced by 2 P/Ns was not paid.
The vessels, though pledged, were still possessed by Yuliongsiu. There was only
constructive delivery to PNB. (I assume, through the execution of public documents)
PNB then took physical possession of the vessels, and sold them. PNB were also the
ones who bought them.
The stipulation in the contract between Yuliongsiu and PNB reads: xxx and in order to
guarantee the payment of this loan, the pledge contract, xxx (p 589)
Issues:
W/N what was executed between the parties was a mortgage or a pledge.
W/N PNB needs to be in actual possession/is actual delivery needed?
Held:
It was a pledge. As per the judicial admission of Yuliongsiu, as shown by the stipulation
of their contract.
Pledgor can temporarily entrust the physical possession of the chattels pledged without
invalidating the pledge. In such case, the pledgor is regarded as holding the pledged
property as trustee for the pledgee.
The type of delivery will depend on upon the nature and the peculiar circumstances of
each case.
o Movable: actual
o Impractical to deliver: constructive
Prohibition to sell to oneself only applies to RAL ESTATE MORTGAGES.
71) PNB VS. ATENDIDO Art. 2095 Fernandez

Facts:

Atendido obtained a loan from PNB. As guarantee, he pledged a warehouse receipt which
covers 2000 cavanes of palay deposited in a warehouse in Bulacan.
Before the loan matured, the palay disappeared for unknown reasons.
Debtor also failed to pay the loan.
When PNB tried to collect, debtor claimed, by virtue of the loss, that he was relieved
from liability already and is even entitled to indemnitythe difference in the value of the
palay lost and his debt.
Issue:
Whether the surrender of the warehouse receipt given as a security, endorsed in blank, has the
effect of transferring title to the bank, or was it just a guarantee to secure the payment of the
obligation.
Held:
Just a security. In relation to Art 2095, incorporeal rights evidenced by a warehouse receipt may
be pledged. The contract, in the case, expressly stated that the 2000 cavanes of palay covered by
the warehouse receipt was given as a collateral security. Where a warehouse receipt is
transferred or endorsed to a creditor only to secure the payment of a loan or debt, the transferee
does not automatically become the owner of the goods covered by the instrument, but he merely
retains the right to keep and with the consent of the owner to sell them to satisfy the obligation
from the proceeds of such sale. The endorsement, though blank, was only for the purpose of
transferring the juridical possession of the property. Since Atendido continued to be the owner of
the goods pledged, he bears the loss of the property. Hence, he is still liable to the bank.
72) OCEJO PEREZ VS. INTERNATIONAL BANK Art. 2096 del Socorro
Facts:
- Chong issued a promissory note to Int'l Bank (bank), attached therewith a private document
stating that Chong deposited w/ the bank as a security for the PN, 5T piculs of sugar w/c was
stored in the Binondo warehouse
- the bank never possessed the said document and made no effort to get it when it discovered that
the amount of sugar in the warehouse was only 1,800 piculs
- when the bank discovered that the sugar in the Binondo warehouse, Chong instructed the bank
that the 3,200 piculs of sugar was in the Muelle warehouse
- it appears that Chong previously bought from the petitioner Ocejo partnership 5T piculs of
sugar
- the sugar was delivered in the Muelle warehouse, but Chong did not pay for its price
- because of Chong's failure to pay and since the sugar was already in the hands of the bank,
Ocejo filed to replevin the sugar from the bank
- the bank contends that it rightfully foreclosed the sugar given as a security for the promissory
note
Issue: W/N there was a valid pledge on the sugar.
Held: NO.

- in the first place, Chong could not pledge such sugar because at the time the contract was
entered, Chong did not still own the sugar, w/c is a requirement for a pledge contract
- from the facts stated, there was no attempt on the part of the parties to enter into a pledge
- the bank took possession of the sugar erroneously under the belief that it was part
of the lot mentioned in the private document
- assuming that there was an attempt to pledge the sugar and that delivery was according to the
agreement, the pledge is void against third persons
- under Art. 1865, Old Civil Code: a pledge is without effect as against 3rd persons if the
certainty of the date does not appear by public instrument
- a pledge not entered in a public instrument is void against 3rd persons
- the seller of the thing pledged, seeking to recover the purchase price thereof, is a 3rd person
- the fact that the person claiming as pledgee has taken actual physical possession of the thing
sold will not prevent the pledge from being declared void as against the seller
- hence, the pledge asserted by the Bank is ineffacacious
73) CRUZ VS. LEE Art. 2099 Delgado
Facts:
Cornelio Cruz and wife pawned to Monte de Piedad and Tambunting pawnshops several
jewelry. To obtain another loan, the pawn tickets (6 Monte de Piedad) and bracelet with 17
diamonds, were presented as a pledge to Lee for the sum of 3T. Later, another sum of P3,500
given to Cruz and the latter pledging pawn tickets (2 Tambunting and 4 Monte de Piedad). It
appears that the pawn tickets are renewable. Lee files case against Cruz asking for the sum of
P6, 520. Plaintiff was granted, affirmed by SC, and ent back to CFI for execution. Cruz
contends and files case of his own for indemnity for the failure of Lee to renew the pawn tickets
causing the impairment of the pledge. CFI for Crua. Lee appeals to the SC.
Issue:
W/n Lee is obliged to renew those pawn tickets.
Held:
Yes. The creditor must take care of the thing with diligintissimi patris families. He shall be
entitled to recover any expenses incurred for its preservation and shall be liable for its loss and
deterioration.
The application of the doctrine above expounded to the case on hand leads the conclusion that
the defendant Chua A. H. Lee in the case before us is liable for the value of the securities lost by
his failure to keep the pledges alive in the extent of their actual value over the amounts for which
the same were pledged, and the trial court, in our opinion, committed no error in so holding.
There remains to be considered the question of the proper valuation of the jewelry sacreificed in
the manner above stated. Upon this point, we are of the opinion that the trial court was too
conservative in its estimate; and we find, upon the testimony of Manuel Javier, appraiser of the
La Insular Pawnshop, and Francisco Ferrer, a jewelry merchant of Manila supplemented by that
of the plaintiff, Cornelio Cruz, that the two diamond earrings represented by the tickets issued by
Tambuntings Pawnshop were fairly worth P14, 000. It is true that Cornelio Cruz testified that
these jewels cost him P11, 000, but he at the same time stated that they were at the time of the

trial in court below worth at least P15,000. Again, we are of the opinion that the jewels
represented by the ten pawn tickets of Monte de Piedad were worth, at a conservative estimate,
the sum of P4,040. In fixing these values, it must be remembered that it is not the practice of
pawnshops to advance more than from 35 to 50% of the true value upon pledges of jewels.
From the values of the jewelry, as estimated above, there is of course to be deducted the amounts
which had been advanced upon the pledges with interest thereon at the situated rate of 18% per
annum until the date when the offer was made by the plaintiff Cruz in writing to redeem the
jewelry. But it should be noted that the sum of P3,500 which the defendant advanced t Cruz
upon the pledge of the pawn tickets covering the earrings must not be deducted because the
defendant, in the prior action, has already recovered judgment for that amount.
74) SARMIENTO VS. JAVELLANA Art. 2105 Legaspi
Facts:
Sarmiento and Villasenor loaned 1,500 from Javellana with 25% interest per annum.
As guarantee, they pledged the following:
1. Large medal
2. diamond earrings
3. small comb with jewels
4. 2 diamond rings
Villasenor was unable to pay the loan so he asked for an extension, this was agreed by Javellana
provided that the interest of 25% will continue to accrue.
Afterwards, Villasenor went to the house of Javellana and offered to pay the loan and redeem the
jewels Javellana refused on the ground that the period for redemption has already elapsed.
According to Javellana, the jewels were actually sold by Sarmiento to her. However, her
testimony is not corroborated. And this will not be given weight as against the 2 documents
embodying the transaction.
Issue:
- W/n Sarmiento and Villasenor may compel Javellana to return the things.
Held:
If there was a sale, Sarmientowould have demandedthe surrender of the documents. There was
no sale.
The transaction was a pledge.
Javellana is bound to return the jewels upon payment by Sarmiento of the amount loaned.
75) MANILA SURETY VS. VELAYO Art. 2115 Lopez
Facts:
- Manila Surety executed a bond for Php2,800, upon request of Rodolfo Velayo, for the
dissolution of a writ of attachment obtained by Jovita Granados in a suit against Velayo.
- As collateral security and by way of pledge, Velayo delivered 4 pieces of jewelry to
Manila Surety, which had the authority to sell the jewelry in case it paid or became
obligated to pay any amount in connection with the bond.

Judgment was rendered against Velayo and in favor of Granados. The surety company
was forced to pay.
Velayo failed to pay Manila Surety when the latter tried to collect. Manila Surety sold
the jewelry but only received Php235 for them. So, Manila Surety is trying to collect the
balance of the amount they paid in connection with the bond.
MTC and RTC ruled for Manila Surety.
Issue:
- W/n Manila Surety can claim the difference of the amount they paid in relation with the
bond as compared to the amount they received from the sale of the jewelry.
Held:
- SC says Manila Surety cannot anymore collect. Art. 2115 is clear and unmistakable. BY
electing to sell the jewelry, the creditor has waived any other remedy (i.e. bring a suit on
the principal obligation), and must abide by the results of the sale. No deficiency is
recoverable. But, Manila Surety can still claim the amount of the principal obligation,
which is the bond subject to the agreement entered into with Velayo.
76) DILAG VS HEIRS OF RESSURECCION Art. 2124 Mendiola
Facts: Marquez was indebted to Resurreccion for 5k as the balance of the purchase price of a
parcel of land. Resurreccion was, in turn, indebted to the Luzon Surety Company for the
same amount, which was secured by a mortgage on 3 parcels of land, including the one
bought by Marquez.
Marquez agreed to pay Resurreccions debt by satisfying his own debt. However,
Marquez failed to make payment of Resurreccions debt to Luzon. Luzon foreclosed on
the 3 parcels including the land purchased by Marquez.
Resurreccion commenced an action against Marquez to recover the value of the
properties lost. The lower court decreed that Marquez must pay Resurreccion. Marquez
claims that the judgment of the CA to authorize the sale at a public auction of 5 parcels of
land mentioned in Resurreccions complaint is erroneous because these 5 parcels were not
specifically described in the mortgage deed.
Issue: Can the CA order the auction sale of the lands not described in the mortgage deed?
Held: In the 5th clause of the deed of mortgage, Marquez stipulated that inasmuch as the 5
parcels of land were not sufficient to cover his obligations in favor of Resurreccion, he also
constituted a mortgage on any other property he might have and might acquire in the future.
This stipulation does not constitute a valid mortgage on the 5 parcels of land subsequently
acquired by Marquez, because he could not legally mortgage anything that he does not
legally own. In the second place, the deed of mortgage must by registered in the Register of
Deeds; and insofar as the additional 5 parcels are concerned, the registration of the deed did
not affect them because they were not specifically described therein.
77) PHIL. BANK OF COMMERCE VS. MACADAEG Art. 2124 Rivas
Facts:

Bautista et al obtained a P100,000 loan from Philippine Bank of Commerce and secured
the debt with a land and 30 taxicabs used in their business
Bautista failed to pay so bank foreclosed the mortgaged land.
Instead of foreclosing the chattel mortgage over the taxicabs, PBC filed a collection case
against Bautista.
Favorable judgment was gathered by the bank and the court issued an order to execute
the judgment
Sheriff sold the rights, interest, or participation of Bautista in the certificate of public
convenience over the taxi operation business if Bautista to the bank as the highest bidder.
PBC sold its rights to Cruz
Bautista is now questioning the acts of the bank
RTC: issued an order setting aside the sheriffs sale
Issue:
W/N the courts decision is valid
Held:
- Courts decision is void
- The lower court could no longer set aside an execution sale consummated by the delivery
of a certificate of sale to the purchaser in execution on the ground of equity, to save
Bautista from financial damage
- The contention of Bautista that the real estate and chattel mortgage he issued to the bank
is indivisible is untenable. Both remained separate and distinct agreements, differing not
only in the subject matter of the contract but in the governing legal principles
- PBC has the right to foreclose the real estate mortgage and waive the chattel mortgage.
78) PEOPLE'S BANK AND TRUST CO. (BANK) VS. DAHICAN LUMBER COMPANY (DALCO)
Art. 2124 Sarenas/Lopez
Facts:
- DALCO buys Dahican Lumber concession from Atlantic Gulf & Pacific Company of Manila
(Atlantic). To develop the concession, they obtained various loans from the Bank. They also
acquired certain loans from foreign banks throught the help of Dahican American Lumber Corp.
(DAMCO), one of its stockholders.
- Both transactions above are secured by a mortgage over the same five pieces of land owned by
DALCO. The mortgage had a stipulation that all equipment and machinery acquired after the
institution of the mortgage will be included in the same.
- After the execution of the mortgage, DALCO buys several new equipment to replace the old
ones they had. In connection with these purchases, Connell Bros. Company appeared in the
books of DALCO as its general purchasing agent.
- Prior to the maturity of the mortgages, DALCO issues a resolution rescinding the purchase
agreements with Connell and DAMCO but the latter refuse to do so.
- Atlantic and the Bank then files foreclosure proceedings in the lower court after DALCO did
not push through with the rescission of the contract with Connell.
- Upon motion of the parties, the court orders that the equipment of DALCO be sold. This

amounted to Php 175,000.

- After due trial, the court issues its resolution ordering that DALCO pay its liabilities with the
Bank, Atlantic, DAMCO and Connell. Also, the court held that the 175k should be divided to
the previously mentioned four companies.
Issue:
- W/n the properties acquired after the mortgage are covered by the said mortgages.
- W/n the mortgages are binding even if they are not registered in accordance with the Chattel
Mortgage Law.
Held:
- The mortgages are clear that all equipment acquired after the execution of the mortgage would
be covered by the said mortgage.
- The mortgages are binding, there was no need to register them according to chattel mortgage
laws because the equipment are real property and not personal. The equipments were
immobilized by the fact that they were placed by the owner in the plant with the intention of
using them to meet the needs of the lumber company. (Art. 415 (5)).
- (side issue) The 175k should be given to the Bank and Atlantic. DAMCO and Connell did not
have a superior lien on the equipment. There was no clear proof that they were the providers of
the equipment to DALCO. DAMCO was actually a stockholder and Connell was a general agent
of DALCO, thus, it is doubtful that they really are the suppliers of the equipment for DALCO.
- (side issue) The action was not filed prematurely. Included in the aforementioned resolution of
DALCO was a statement that the company was insolvent and that the company did not anymore
expect any funds to come their way in the future. This statement authorized the Bank and
Atlantic to file the action to foreclose the mortgage.
- The general rule is that future property cannot be the subject of mortgage. However, a
stipulation subjecting to the mortgage lien properties which the mortgagor may subsequently
acquire, install or use in connection with real property, already mortgaged, belonging to the
mortgagor is valid
79) PRUDENTIAL BANK VS. PANIS Art. 2124 Beron/Rivas (yiheeee!)
-
On Nov. 19 71, spouses Magcale secured a loan for the sum of 70,00 from Prudential
Bank.
A deed of Real Estate Mortgage was executed in favor of the bank as a security for the
loan.
Included in the Real Estate Mortgage are the building and the lot on which building is
erected. A rider is also contained at the bottom of the reversed side of the document
which states that the Magcales filed a Miscellaneous Sale Application over the lot.
Secretary of Agriculture issued Miscellaneous Sale Patent over the parcel of land on
April 24 73.
On May 2 73, a second loan was asked by the Magcales from Prudential for the sum of
20,000 with another deed of Real Estate Mortgage over the same properties previously
mortgaged.
Mortgage was foreclosed and sale of the property was made because of Magcales failure
to pay its obligation
RTC declared that the deeds of Real Estate Mortgage was null and void.

ISSUE:
Whether or not a valid Real Estate Mortgage can be constituted on the building erected on the
land belonging to another.
HELD: Yes
RATIO:
- In the enumeration of properties under Art. 415, it is obvious that the inclusion of
building is separate and distinct from land, in said provision of law it can only mean that
a building is by itself an immovable object.
- Thus, while it is true that a mortgaged land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would still be
considered a Real Estate Mortgage for the building would still be considered real
property even if dealt with separately and apart from the land.
- The first Real Estate Mortgage was executed before the issuance of the final patent and
before the government was divested of its title to the land, an event which takes effect
only on the issuance of the sales patent and its subsequent registration in the Office of the
Register of Deeds. Mortgage executed by Magcale on his own building which was
erected on the land belonging to the government is to all intent valid.
- As to the second mortgage over the same property, it is evident that such mortgage was
executed after the issuance of the sales patent and of the Original Certificate of Title. It is
declared null and void for it falls squarely under the prohibition stated on Public Land
Act and RA 730.
80) SAMANILLA VS. CAJUCOM Art. 2125 Calinisan
Facts:
Issues:
Cajucom executed a real estate mortgage in favor of Samanilla to secure a loan of P10T.
Afterwards, Cajucom borrowed the title covering the mortgaged land from Samanilla on
the excuse that it was needed to segregate from the land the portion claimed by the other
persons.
When asked that the title be returned, so Samanilla can register the mortgage, Cajucom
refused.
Samanilla petitioned the court praying for the surrender of the OCT.
Cajucom opposed saying that:
o The mortgage in question was void ab initio for want of consideration, and that
the issues should be litigated in an ordinary civil action
o That they cannot be compelled to surrender their title for registration of the
mortgage until they are given an opportunity to show its invalidity in an ordinary
civil action, because registration is an essential element of a real estate mortgage
and the surrender of their title would complete this requirement of registration.
Lower court sided with Samanilla

W/N the unregistered mortgage is binding between the parties

W/N the mortgagor can be compelled to surrender the OCT so that the mortgagee can
register
W/N the mortgagee can assail the validity of the Deed of Mortgage
Held:
Yes, the mortgage, registered or not is binding between the parties, registration being
necessary only to make the same valid against third persons. Registration only operates
as a notice of the mortgage to others. It does not add to its validity nor convert an invalid
mortgage into a valid one between the parties.
Yes. Once a mortgage has been signed in due form, the mortgagee is entitled to its
registration as a matter of right.
Yes. Samanilla still has the right to show that the mortgage in question is invalid for lack of
consideration in an ordinary action and there ask for the avoidance of the deed and the
cancellation of its registration. But until such action is filed and decided, it would be too
dangerous to the rights of the mortgagee to deny registration of her mortgage, because her rights
can so easily be defeated by a transfer or conveyance of the mortgaged property to an innocent
3rd person.
81) MOBIL OIL VS. DIOCARES Art. 2125 Fernandez
Facts:
Diocareses (debtor-mortgagor) obtained a loan from Mobil Oil (creditor-mortgagee) and
also agreed to buy petroleum products from said company.
As security for the loan, a land owned by Diocares was mortgaged. The agreement
provided that if ever the mortgagor will fail to pay the loan, the mortgaged land will be
foreclosed.
As usual, debtor-mortgagor failed to pay. They also failed to buy, on cash basis, the
petroleum. So creditor-mortgagee sought foreclosure.
Lower court denied foreclosure on the ground that the mortgage was not registered. It
relied on first paragraph of Art 2125.
Issues:
Can creditor-mortgagee move to foreclose the mortgaged property?
Held:
Yes. The succeeding sentence of Art 2125 provides that: If the instrument is not recorded, the
mortgage is nevertheless binding between the parties. There is, thus, a binding relation between
the mortgagor and mortgagee despite the non-registration of the mortgage. While the law says
that registration is indispensable in order that the mortgage be validly constituted, yet, what is
indispensable may be dispensed with.

82) MCCULLOUGH VS. VELOSO Art. 2126 del Socorro

Facts:
- McCullough sold to Veloso land and building
- 50T as downpayment, 650T balance
- To secure payment, Veloso mortgaged the property to McCullough
- stipulated in the contract that in case Veloso fails to comply with his obligations in the
mortgage deed, all the installments with the interest shall become due, and the creditor shall have
the right to bring an action to collect the balance.
- Veloso sold the property to Serna, who agreed to respect the mortgage and to assume Velosos
obligation to pay the balance.
- Veloso paid another 50T, and Serna paid 250T
- but the last installment was not paid by any of them; hence, the whole obligation became due
- McCullough filed with the court to recover the balance
- RTC ordered Veloso to pay the balance within 3 months, and in case of failure to pay, the
property be mortgaged at public auction and the proceeds of the sale to be applied on the
payment of the judgment
- Veloso contends that since the property was already sold to Serna, there beinf novation, the
latter was obligated to pay the balance; Veloso already relieved
Issue:
- W/n Veloso still had the obligation to pay the balance despite of selling the mortgaged property
to Serna.
Held: Yes
- no novation took place as made without the express consent of the creditor McCullough
- it is immaterial that McCullough did not oppose the sale by Veloso to Serna
- the mortgage is merely an encumbrance upon the property and does not extinguish the title of
the debtor who does not lose his right to dispose the property he still owned
- such sale did not affect the mortgage which follows the property whoever the possessor may be
- the creditor may demand of the 3rd person in possession of the mortgaged property, payment of
such part of the debt, as is secured by the property in his possession, in the manner and form
established by law
- debtor Veloso must still pay the debt although the mortgaged property is in the hands of a 3rd
person
83) SANTIAGO VS. DIONISIO Art. 2126 Delgado
Facts:
Santiago applies fo original registration of the land in Bulacan. This was opposed by Dionisio
claiming that she bought the same land in a public auction. The original owner of the land was
San Diego. It was mortgaged by San Diego to Resurreccion to secure a loan. San Diego sold the
same land to Santiago later. Because of San Diegos default, Resurreccion foreclose it and was
sold on a public auction with Dionisio as the highest bidder. Santiago, upon learning of the
foreclosure, opposed the confirmation of the sale. The lower court however confirmed but took
note of the rights of Santiago. Trial court annulled the judgment on the foreclosure. Dionisio
appeals.

Issue: W/n Santiago is bound by the foreclosure judgment.

Held: No. Santiago was not made a party thereto.
While it is true that her interest in the land in question was subordinate to that of the mortgagee,
Eulalia Resurreccion, the rule of procedure in force at the time the foreclosure suit was instituted,
which was sec. 225 of Act 190, required that in an action for foreclosure all persons having or
claiming an interest in the premises subordinate in right to that of the holder of the mortgagebe
made defendants in the action.
This rule applied not only to a subordinate lien holder but also to a purchaser of real property
already mortgaged to and the effect of the failure to implead a subordinate lien holder or
subsequent purchaser or both is to render the foreclosure ineffective as against them, with the
result that there remains in their favor the unforeclosed equity of redemption. But the
foreclosure is valid as between the partied to the suit.
Dionisio entitled to the registration of the land subject to the right of Santiago to redeem it.
84) PHIL. SUGAR ESTATE VS. CAMPS Art. 2127 Legaspi
Facts:
As security for the payment of 30K plus a further specified sum of 3K, Camps mortgaged to
Phil. Sugar a parcel of land together with the buildings erected thereon.
On the date of execution, there was a lithographic plant standing on the land.
Before the mortgage period expired, the plant was torn down and the Cine Manila took its place.
Issue:
W/n the new building is included in the mortgage constituted prior to its creation.
Held:
The new building is considered as an improvement on the property.
The mortgage includes the new building
According to the court, it is to be believed that Camps acting in good faith proposed to substitute
the camarin specified in the mortgage with that of Cine Manila to avoid the depreciation of the
value of the security.
85) AFABLE VS. BELANDO Art. 2127 Lopez
Facts:
- Pursuant to a writ of attachment obtained by Afable, in a suit he brought against Belando
(for payment of a PN), several rents on lands owned by Belando were delivered to
Afable.
- Several days later, La Urbana was admitted as intervenor. It claims that the rents belong
to them by virtue of the mortgage they own over the lands owned by Belando, which they
foreclosed.
- Lower court ruled in favor of La Urbana.
Issue:
- W/n La Urbana had a claim over the rents by virtue of the mortgage in their favor.
Held:

The rents belong to La Urbana. The writ of attachment in favor of Afable was only
granted after the La Urbana had already foreclosed the mortgage. Thus, when the Afable
attached these rents, Belandos obligation to La Urbana had already fallen due. Art. 1877
of the Old Civil Code states that a mortgage includes all the rents on the mortgaged
property not collected when the obligation falls due, and all rents payable until the credit
is satisfied. Thus, when the rents were attached, they were already liable for the
mortgage in favor of La Urbana , and could not have been legally attached by Afable.
86) TADY-Y VS. PNB Art. 2127 Mendiola

Facts: Swansing (acting for himself and as atty.-in-fact of Cabasaan) obtained an agricultural
loan from PNB. He mortgaged to PNB a land. The mortgage was in a deed and registered.
Swansing contracted another loan from Aguirre (P1,600) and secured it by mortgaging the
same lot. Aguirre then assigned his rights and interests in the mortgage to Tady-Y.
Swansing defaulted. PNB foreclosed the first mortgage. The land was sold by the
sheriff in a public auction. Tady-Y filed an action against PNB praying that PNB be
ordered to deliver P2,868 plus P800 atty.s fees. The amount was based on the argument
that the auction proceeds minus the credit of PNB resulted in a surplus to which Tady-Y
was entitled (P5,093.45 P1,759.60). Tady-Y said that as to the surplus, he was entitled
to P2,868, which is the amount corresponding to his credit.
Issue: Is Tady-Y entitled to the surplus?
Held: Tady-Y is not entitled to the surplus in the sale of the land.
The scrutiny of the mortgage deed between Swansings and PNB show that the land was
intended to secure the payment of P840 as well as those that the Mortgagee (PNB) may
extend to the Mortgagor (Swansing), including interest and expenses or any other obligation
owing to the Mortgagee whether direct of indirect, principal or secondary, as appears in the
accounts, books and records of the Mortgagee. This provision including as part of the
obligation future amounts that may be borrowed by Swansing (which amounted to
P9,579.08) from PNB is not improper. Because the debt is much greater that the auction
price, there is no surplus that Tady-Y may claim.
Tady-Y contends that the subsequent loans must have been annotated in
the TCT. However, there is no necessity to do this, as it appears in the title that other
obligations will also be secured by the mortgage. It was incumbent upon any subsequent
mortgagee of the property to have examined the books of PNB.
However, Tady-Y is entitled to the surplus of the sale of the chattel mortgage on
crops after the satisfaction of Swansings obligations to PNB.
87) VELASCO VS. CA Art. 2127 Rivas
Facts:
- Alta Farms secured from GSIS an P8.3 million loan secured by 2 mortgages.

Alta Farms defaulted and it executed s Deed of Sale with Assumption of Mortgage in
favor of Asian Engineering, without the approval of GSIS and in direct violation with
their mortgage agreement
Asian Engineering, also without the approval of GSIS, executed an Exclusive Sales
Agency, Management and Administration Contract in favor of Laigo Realty. It is
stipulated that Laigo was to develop the property into a subdivision.
To implement Laigos obligation, it entered into a contract to construct for the home
buyers houses on the subdivision to the petitioners (Velasco, Lumanlan, etc.) herein.
In all the contracts entered into by Laigo and the petitioners, payment is based on a turnkey agreement.
Laigo issued checks as payment but all checks bounced leaving the petitioners unpaid.
Thereafter, GSIS did not approve the Deed of Sale with Assumption of Mortgage
between Alto Farm and Asian Engineering.
Because of Alta Farms default, GSIS foreclosed the mortgage together with all the
improvements therein.
Petitioners fialed to collect form Laigo, the home owners and GSIS
GSIS: there is no privity between GSIS and the petitioners. Also, Laigo executed in its
favor a Deed of Quitclaim freeing GSIS from any and all claims arising out of the
suppliers, contractors, home builders in the mortgaged land
RTC: for GSIS to pay the petitioners
CA: reversed the decision of the RTC
Issue:
W/N GSIS is liable to pay the petitioners of the amount the Laigo failed to pay
Held:
- Yes!
- The reliance of GSIS on the Deed of Quit Claim is actually wrong for the deed is
evidence against it. In the Deed of Quitclaim, GSIS agreed to receive and actually
received the benefits of petitioners works
- The deed is an implied assumption of liability of GSIS on any claims against Laigo.
- GSIS assumed ownership of the property although it must be collecting the installments
on the lots. All GSIS has to do is pass to the homeowners the obligation to pay the
petitioners.
- GSIS benefited as a buyer of the mortgaged subdivision in the constructions made by
petitioners while it was still owned by Laigo Realty. As owner, it is required to pay for
the improvements.
- It the court will allow the petitioners to remain unpaid, it is to allow the homeowners,
GSIS and Laigo to be unjustly enriched.
88) LOPEZ VS. ALVAREZ Art. 2128 Sarenas
Facts:

April 24,1901: Vicente Lopez executed a mortgage deed in favor of Evaristo Alvarez for
the sum of P13,300 and a fraction of his estate named Bunglas (with 20 castrated
carabaos, 10 female carabaos and an 8-hp steam engine)
The term for payment expired without the debt being paid and shortly after, Vicente died
Alvarez assigned, conveyed and transferred to Manuel Lopez all his rights and actions to
and in the estate of the deceased Vicente Lopez
The other defendant, J.H. Grindrod also had claims on the lien, and this is before the
assignment to Manuel Lopez
Alvarez failed to appear during the trial in the lower court. So Grindrod was left to
defend himself.
Lower court: Manuel has no cause of action
Issue:
Who has a better right to the mortgage
Held:
Art. 2128 provides that a mortgage credit may be alienated or assigned to a third person,
wholly or partially, with the formalities required by law
The sale made by the sheriff for Grindrod was not valid. Lopez already filed a complaint
in intervention, so the sale should have been suspended.
At the time of attachment, the property to be attached should be owned by the debtor. At
the time of attachment, assignment was already made to Lopez. Therefore the attachment
was not proper.
89) BPI VS. CONCEPCION Art. 2129 Beron
Facts:
The Concepcios executed a Promissory note in favor of BPI payable on demand and as security
for payment deposited 600 shares of PNB and gave BPI a mortgage on a parcel of land.
Concepcions defaulted in the payment of note. BPI thereafter instituted foreclosure proceedings.
Elser entered into negotiations with the Concepcions and offered to take over the mortgaged
property and assume the debt. This negotiation was embodied in a letter sent by Elser to BPI, to
which letter no answer was given be bank, and from the evidence, it shows that the bank was
unwilling to release the Concepcions from liability.
Later on, Elser entered into an agreement in the form of a bilateral deed of sale with the
Concepcions. The bank never gave notice of its conformity to said agreement.
A complaint was then filed against the Concepcions who claimed that Elser be substituted as
defendants to which the trial court respondent by granting such claim.
Elser answered claiming that he is of unsound mind when the parties (elser and concepcion)
agreed on Elser's assumption of the mortgage.

Issue:
W/n BPI can hold Elser liable...
Held:
The bank claims that the agreement (deed of sale) contains a stipulation pour autrui in favor of
BPI, and therefore can validly sue Elser, who was subrogated to the rights/obligation of
Concepcion, the court said that there is no stipulation pour autrui. Neither Elser nor the
Concepcions intended to confer benefit to BPI. The fact that there is no acceptance on the part
of BPI, negates that contention of BPI that there is a stipulation pour autrui.
BPi further contends that the purchaser of mortgaged property who assumes payment of debt
may be sued for debt by the creditor.
The court in answer to this contention states that the obligation of the new possessor to pay debt
originated only form the right of the creditor to demand payment of him, it being necessary that a
demand for payment should have previously been made and even if these requirements were
complied with, still Elser may abandon the property mortgaged and in that case is is considered
to be in possession of debtor.
Therefore BPI has no claim against Elser.
90) LITONJUA VS. L&R CORPORATION Art. 2130 Calinisan
Facts:
The Litonjua spuses obtained 2 loans each amounting to P200T from L&R. Both were
secured by a real estate mortgage on 2 parcels of land plus improvements thereon situated
in Cubao.
The duly registered mortgage contract contained a provision that the mortgagees prior
written consent is necessary in case of subsequent encumbrance or alienation of the said
properties. The mortgage contract also granted a right of first refusal to L&R.
In violation of said provision, the spouses sold for P430T to PWHAS the parcels they had
previously mortgaged to L&R. The sale was annotated at the back of the TCTs
Spouses defaulted on their payment of loans. L&R initiated extrajudicial foreclosure
proceedings with ex-officio sheriff of QC, which sold the properties in public auction.
L&R was the only bidder.
When L&R presented the Certificate of Sale to the RD (Register of Deeds), it learned for
the first time that the land was already sold to PWHAS. L&R wrote to the RD requesting
for the cancellation of the annotation of the prior sale to PWHAS invoking the provision
of the mortgage contract. It was argued that since the sale was made without its prior
consent, the sale should not have been annotated/registered.
PWHAS, in behalf of the spouses, tendered payment to L&R which refused. Paid with
the Sheriff instead. Sheriff informed L&R of the redemption, and advised L&R to claim
the payment upon surrender of the TCTs. L&R refused.

RD refused to annotate adverse claim on the title in favor of L&R.

Pending the resolution of the case, L&R was able to obtain cancellation of the TCTs and
issuance of new TCTs in its favor free from any lien or encumbrance. (Sale of PWHAS
not annotated)
The spouses and PWHAS filed for quieting of title, annulment of title and damages.
Issues:
W/N the stipulation requiring prior written consent of the mortgagee before the
mortgaged land can be sold is valid.
W/N the redemption by PWHAS in behalf of the spouses is valid
W/N the right of first refusal of L&R was violated.
Held:
No. The stipulation is in violation of Art 2130. The sale is valid even if done in violation
of the prohibition against subsequent encumbrance or alienation without prior consent of
mortgagee.
To allow the prohibition, is to practically give the mortgagee the sole prerogative to
prevent any sale of the mortgaged property to a third party.
Permissible: prevent the owner from constituting a later mortgage over the property
registered under the Torrens Act.
Impermissible: Forbidding the owner from alienating the immovable mortgaged
The redemption by the PWHAS was valid. It acted as spouses successor in interest, the
sale to them being valid.
The sale was in violation of L&Rs right of first refusal. Even though the sale to
PWHAS was valid, the sale prejudiced the rights of L&R, therefore, the sale is
rescissible.
91) PIANO VS. CAYANONG Art. 2131 Fernandez
Facts:
Piano is indebted to Cayanong, by virtue of a contract, in the amount of 2k pesos. To
secure the obligation, debtor mortgaged a land in Ormoc city.
For failure to pay, mortgagee moved to foreclose the land. A compromise was reached
and this became the basis of a trial court decision decreeing Pianos obligation to pay.
The compromise, however, was not observed. So the property was sold in an auction. The
judicial sale was confirmed, and a writ of possession was issued in favor of Cayanong.
Piano consigned an amount, in court, as redemption money. Pilapil, a 3rd party who has
an encumbrance over the property, also redeemed the property and alleged that Piano
cannot redeem the land as the judicial sale was confirmed.
Issues:
Is the decision of the trial court regarding the foreclosure proper considering that it was based on
a of the compromise agreement?

Held:
Yes. A compromise agreement between parties to a case on which the decision of the court was
based has upon the parties the effect and authority of res judicata. There is no necessity for such
court to make another finding of facts. A judgment on a compromise is not appealable and is
immediately executory unless there a motion to dismiss on the ground of fraud, mistake, or
duress. And there is no such motion in this case. The execution of judgment in a foreclosure of
mortgage can only be made in the manner prescribed by the law on mortgages and parties are not
authorized to change such procedure.
Moreover, in a foreclosure of mortgage under the Rules of Court, there is no right of redemption
after the sale is confirmed (exceptions would be that of foreclosure mortgages in favor of bank
and credit institutions, PNB, or extrajudicial foreclosures). Once the judicial sale is confirmed by
the court, the rights are vested in the purchaser.
In essence, the case illustrates the point of Art 2131 that the form, extent, and consequences of a
mortgage (from its constitution to extinguishment) is governed by the Mortgage Law, Land
Registration Law, and Rules of Court (especially on judicial foreclosure).
92) UNION BANK VS. CA Art. 2131 del Socorro
Facts:
Spouses Leopoldo and Jessica Dario (mortgagors) loaned 3M from Unionbank (bank),
and to secure payment, a real estate mortgage was executed.
For non-payment of loan, the bank extrajudicially foreclosed the property mortgaged and
sold the same at public auction, with itself posting the highest bid.
A week before the redemption period has expired, respondent Fermina and Reynaldo
(also) Daario filed a complaint with the RTC against the mortgagors, the bank, the RD,
and the sheriff to annul the sale and real estate mortgage because the mortgagors are not
the real owners of the property.
RTC issued a TRO enjoining the redemption and consolidation
The complaint of private respondents was dismissed for non-compliance with
certification of non-forum shopping
Private respondents filed a motion for reconsideration of the dismissal and prayed to
amend their complaint to comply with the certification of forum shopping
In the meantime, without notifying private respondents, the bank consolidated its title
over the foreclosed property; old TCT was cancelled and a new TCT was issued to the
bank
Respondents contend that the banks consolidation of the title in its name was made in
bad faith vitiated by a standing TRO, is against the law, hence, void
Issues: W?N the banks consolidation of title was proper.
Held: YES.

The buyer in a foreclosure sale becomes the absolute owner of the property purchased if
it is not redeemed during the period of 1 yr. after the registration of the sale
Consolidation took place as a matter or right since there was no redemption of the
foreclosed property and the TRO expired upon dismissal of the complaint
The bank need not inform private respondents that it was consolidation its tile over the
property, upon the expiration of the redemption period, without the judgment debtor
having made use of his right of redemption, the ownership of the property sold becomes
consolidated in the purchaser
Notice to the mortgagors and with more to private respondent, who are not even parties to
the mortgage contract nor to the extrajudicial sale is not necessary
93) LUCENA VS. CA Art. 2131 Delgado

Facts: Lucena , mortgagor, obtained a loan from Rural Bank of Naujan, mortgagee, for a sum of
P3T. the loan was secured with the land they owned in Naujan, Oriental Mindoro. The spouses
paid P2,009 pesos leaving a balance of P1T. Lucena defaulted so the Rural Bank foreclosed the
property and was sold on public auction. The bank bought it being the highest bidder and
consolidated the title to its name. Later on, the bank sold the land to Baja spouses. Lucena
assailing the validity of the extra-judicial foreclosure sale not being published in a newspaper of
general circulation and there was no posting in the barrio where the land was located. RURAL
BANK: the law on publication not applicable since balance of the loan is only P1000 and the
law requires it for P3000 above. RTC for Lucena. CA reversed.
Held: 1) The law provides that notice to the barrio where the land is located is necessary. The
postings were only in a) municipal building, b) bus station and c) public market.
2) On the issue of publication, the law did not stipulate that the determinant is balance
due. It speaks of the amount borrowed. Lucena borrowed P3009 including the
interest so the requirement of publishing it in a newspaper of general circulation is
indispensable.
3) Baja spouses were in bad faith because they are aware that the Lucenas are
occupying the said lot. Their failure to inquire about the status of the possession of
the Lucenas constitutes gross negligence amounting to bad faith. Hence,
reconveyance is available for the Lucenas.
What Law? RA720 Act Providing for the Creation, Organization & Operation of Rural Banks,
and for other purposes
94) CRISTOBAL VS. CA Art. 2131 Legaspi
Facts: The Cristobals, mortgagor, are engaged in the buying and selling of palay. They
contracted 2 loans with the Rural Bank of Malolos, mortgagee
1st loan for 30K secured by 1 parcel of land
2nd loan for 70K secured by 4 parcels of land

The Cristobals failed to pay so the bak extrajudicially foreclosed the mortgage. The
Crustibals filed an action impugning the validity of the foreclosure bases on the following
ground:
They were not furnished a copy of the application for foreclosure
The bank did not comply with the requirements of act 3135
There were not notified of the expiration of the period of redemption
The interest due was bloated
Issue: w/n there was substantial compliance with the notice and publication requirements of act
3135
Ruling: A certificate of posting is not indispensable for the validity of a foreclosure sale. The
sale was published in the Mabuhay newspaper, a newspaper of general circulation, this alone is
sufficient compliance with the requirement. There is a presumption of regularity on the part of
the sheriff who executed the notice and publication requirements, a mortgagor who alleges the
absence of such has the burden of establishing such fact.
95) COMETA VS. CA Art. 2131 Lopez
Facts:
- By virtue of a judgment in a case for damages in favor of Jose Franco, certain parcels of
land owned by Zacarias Cometa were levied on. The lots were sold at a public auction to
Franco on Oct. 1978.
- On Nov. 1981, Herco Realty & Agricultural Development Corp. (Herco) files a separate
case questioning the levy on execution and sale at public auction.
- Franco filed a motion for the issuance of a writ of possession, which was dismissed by
the RTC and affirmed by the SC because of the pending case filed by Herco.
- The case of Herco was subsequently dismissed for lack of interest to prosecute.
- Franco again filed a motion for issuance of a writ of possession which was opposed by
Cometas heirs because they wanted to redeem the land.
- Cometas heirs consigned in court the 38+k as purchase price of the lots. This was done
in 1997 already.
- RTC ordered the issuance of a writ of possession. This was affirmed by the CA saying
that the period of redemption has not been suspended by the filing of the adverse case by
Herco because at the time of the filing of that case (1978 ung sale, 1981 na-file ung case),
the period for redemption has already expired. Thus, there is no more period to suspend.
Issue:
- W/n the heirs of Cometa can still redeem their properties.
Held:
- SC says they can still can. First, the court said that rules on procedure should not be
strictly construed to defeat the rights protected by them. The spirit rather than the letter
of the statute determines its construction. A case should not be dismissed on mere
technicalities but should be upon the merits.
- The court took notice of the very iniquitous price at which the lots were sold. They were
situated in Guadalupe and were valued at 500k but were only sold for 57+k. The court

held that while there is no dispute that mere inadequacy of the price per se will not set
aside a judicial sale, nevertheless, where the inadequacy is purely shocking to the
conscience, the sale would be set aside.
Also, the manner that the lots were levied on was questionable. They were sold en masse
when the Rules of Court provides that lots are to be sold separately.
The SC took cognizance of the earnest desire of the heirs of Cometa to redeem the lots.
This was shown by their consignation of an amount in court. SC said that the rule on
redemption is liberally construed in favor of the original owner of the property and the
policy of the law is to aid rather that defeat him in the exercise of his right of redemption.
Thus, allowing parties to perfect their right of redemption even beyond the period
prescribed therefore has been done by the SC.
96) DBP VS. AGUIRRE Art. 2131 Mendiola

Facts: DBP granted a loan to Aguirre in the amount of P 95,000. This loan was secured by a
mortgage of Aguirres land. Aguirre defaulted in the payment of the installments. Aguirre
offered to restructure her loan, but the DBP did not respond to Aguirres proposal. DBP
proceeded to foreclose the land. The notice of the foreclosure sale to be held on
September 25, 1985 was published in a newspaper of general circulation called the
Mabuhay. However, the foreclosure sale did not take place on the date stated in the
publication. The sale was done on January 7, 1986, with DBP as the highest bidder.
On the day when DBP was about to sell the land through an auction, Aguirre filed
suit. Aguirre seeks the annulment of the sale done on January 7, 1986. She claims that the
loan was not yet due, since it was structured.
The trial court held that the publication was complied with by DBP and that
Aguirre failed to overcome the presumption. The CA reversed by saying that DBP failed
to give evidence to present proof of posting of notice of sale, which made sale invalid.
Issue: Was the extra-judicial foreclosure by DBP null and void on the ground that there was
no posting of the notice?
Held: Under Act No. 3135, Sec. 3, if the value of the property subject of the foreclosure is more
than P 400, the notice must be published and posted. But the failure to post the notice is
not per se a ground for invalidating the sale, provided that the notice was published in a
newspaper of general circulation. (Reason: newspaper publications have more far-reaching
effects than posting on bulletin boards in public places. Publication alone is more than
sufficient compliance with the notice-posting requirement of the law.)
However, the time delay (more than 2 months) between the date of the sale
published and the actual date of the sale renders the sale void (based on the case of
Masantol Rural Bank vs. CA).
97) PNB VS. NEPOMUCENO PRODUCTIONS, INC. Art. 2131 Rivas
Facts:

PNB granted Nepomuceno Productions credit line application for P4 million for a the
movie Pacific Connection
Loan was secured by mortgages on Nepomucenos real and personal properties
Mortgagor defaulted so PNB sought the foreclosure of the properties
Foreclosure sale was scheduled and published.
But foreclosure sale was re-scheduled without republication, as stipulated in the
Agreement to Postpone Sale
Foreclosure sale finally took place with PNB as the highest bidder
Nepomuceno seek for the annulment of the sale with damages
RTC and CA: ordered for the annulment of the foreclosure sale
Issue:
W/N the parties in a mortgage agreement can validly waive the posting and publication
requirement mandated by Act No. 3135
Held:
- No!
- Parties to a mortgage agreement have absolutely no right to waive the posting and
publication requirement as stipulated in Act No. 3135
- The act of PNB in not republishing the foreclosure sale when it was re-scheduled is void
and against the law
- Although Art 6 on the Civil Code established that rights may be waived, it is also
explicitly provided in the said article that such waiver is subject to the condition that it is
not contrary to law, public order, public policy, morals, or good customs, or prejudicial to
a third person with a right recognized by law.
- The objective of the notice of sale in a foreclosure of mortgage is not for the mortgagors
benefit but for the public or third persons.
- In fact, personal notice to the mortgagor in extra-judicial foreclosure proceedings is not
even necessary, unless stipulated.
98) DELA VEGA VS. BALLILOS Art. 2132 Sarenas
Facts:
Plaintiffs in this case are the heirs of Victor de la Vega
Victor de la Vega acquired a loan from Tomas Ballilos for the amount of P430 and
conveyed to Ballilos land nos. 1, 4 and 6.
Subsequently he borrowed another P118 and gave under the antichresis lot nos. 2, 3 and
7.
Plaintiffs offered to pay the amount due but defendant is refusing to give them back the
parcels of land
Defendant is saying that the lands became his property because the contract was one of
mortgage. And that there is a pacto de retro sale but plaintiffs never bought their property
back.
Lower court: defendant should return the lots to the plaintiffs

Issue:
W/N the contract was indeed one of mortgage or antichresis
Held:
The contract is antichresis
To determine the nature of a contract, it is not the name that the parties give to the
contract but the intent of the parties that will be followed.
There is no mortgage because it was not a public instrument and not recorded in the
property registry.
The instrument recites that the debtor ceded and conveyed his ownership and possession
in the said parcels of land to the creditor in order that the creditor might manage and
enjoy the lands.
Nowhere in the instrument does it say that it is a pacto de retro sale.
99) BARRETTO VS. BARRETTO Art. 2132 Beron
Facts:
Juan Antonio Grandpre jr. declaring himself to be the absolute owner of all the hacienda
borrowed money in the sum of P11000 from Antonio Vicente Barretto and as a guaranty for said
loan he mortgaged the cultivated half of the hacienda and to this effect the brothers of said Juan
Antonio Grandpre as co-owners intervened and consented to the loan agreement.
For failure to pay the debt, Antonio Vicente Barretto (creditor) brought an action to foreclose the
property mortgaged. However, said half of hacienda could not be sold in spite of the fact that it
has been auctioned 3 times. The property was then adjudicated in favor of Antonio Vicented
Barretto (creditor) as part payment.
Not being able to pay the balance of the debt, the entire hacienda was conveyed to creditor.
Heirs of Antonio Vicente Barretto (creditor) upon death of latter sold to plaintiff Alberto Barretto
2/3 of the hacienda while the other 1/3 was also conveyed to Alberto Barretto thru donation.
Alberto was disturbed in his possession of the property when Leonardo Barretto, one of the
brother-debtors (of Juan Antonio Grandpre) usurped certain portions claiming that he is owner of
said hacienda.
Issue:
Whether or not Leonardo can validly claim ownership over the hacienda...
Held:
NO.
When the entire hacienda was placed in the possession of Antonio Vicente Barretto (creditor)
administration was placed on him and he received the products of the hacienda for the purpose of
collecting his credit and interest. He held it in usufruct with the knowledge and consent of the
brothers including Leonardo Barrtto (the usurper).

The agreement is antichretic in nature. Debtors limited themselves to give creditor the right ot
collect his credit from the fruits of hacienda. As it does not appear in any way that the debt for
the payment of which the whole hacienda was delivered in antichresis, has been paid, it is
doubtless that Leonardo Barretto (usurper) acted without just reason and in contravention of the
provisions of law.
100) LEGAZPI & SALCEDO VS. CELESTIAL Art. 2132 Calinisan
Facts:
Legaspi and Salcedo (L & S) sued Celestial for the collection of the sum of P557, plus
the corresponding legal interest thereon from the date of the filing of the complaint, until
fully paid, and the costs.
Celestial, claiming that the contract that they entered into was a Contract of Antichresis,
states that L & S were bound to render an account of the products of the 5 salt beds (in
the possession of (L & S).
L & S sued again, this time for P7637, and that upon failure of Celestial to pay, that the
mortgage be foreclosed.
Again, Celestial claims that it was a Contract of Antichresis. That the 65 salt beds in the
possession of L & S, which yields 6,500 cavans of salt every 6 months at P1 a cavan, be
applied to the payment of his loan or debt. That if this is done, he is entitled to collect
from L & S P4806.
L & S claims on the other hand that the salt gathered were not for their exclusive use and
they were not obliged to submit a liquidation of the salt produced and gathered.
Issue:
W/N the contract entered into was a K of Mortgage or Antichresis.
Held:
Mortgage.
It is not stipulated that the net produce of the salt beds shall first be applied to the
payment of interest, if any and afterwards to that of the payment of the principal.
Possession of L & S is not contrary to the essential requisites of a mortgage.
When a contracts of loan with security does not stipulate the payment of interest but
provides for the delivery to the creditor by the debtor of the real property constituted as
security for the payment thereof, in order that the creditor may administer the same and
avail himself of its fruits, without stating that said fruits are to be applied to the
payment of interest, if any, and afterwards to that of the principal of the credit, the
contract shall be considered to be one of mortgage and not of antichresis.
101) PANDO VS. GIMENEZ Art. 2135 Fernandez

Facts:
Gimenez is indebted to Pando for P8k. This was secured by a real estate mortgage on
Gimenezs property.
Since debtor will be leaving the city, he gave the creditor full control, and complete and
absolute administration of the building and its land (Hacienda Tuason). This was under
the condition that creditor would attend to the administration and care of the property,
pay the insurance, pay the lessor of the land, and the taxes. And that the rents that would
be collected from the building should be applied to the payment of the expenses
necessary for the propertys preservation.
Creditor failed to pay the taxes and the lessor of the land on which the building is erected.
Thereafter, the City of Manila sold the building at a public auction to satisfy the taxes.
Teague became the purchaser.
The lease contract with the lessor of the land was cancelled for failure to pay the rents. A
suit was also filed against the debtor (lessee of the land).
Debtor raises the defense that it was entirely creditors fault and that he should be
indemnified for damages suffered. CFI dismissed debtors claims and ruled in favor of
creditorordering Gimenez to pay Pando and upholding the sale to Teague.
Issue:
Who should be held liable for the delinquency in the payment of the taxes and the rent on the
lot? What was the nature of the transaction (specifically on the administration) between Pando
and Gimenez?
Held:
Pando is liable. The agreement between the parties, as evidenced by a letter, show that even
though at first creditor only undertook the collection of rents, he later on assumed the obligation
to pay the tax and the rent on the lot. The administration of the property was antichretic in
character, therefore justice and equity demands that Art 2135 should be applied. And since
creditor failed in his obligation, he is by law required to pay indemnity.
*Art 2135 says that the creditor is obliged to pay the taxes and charges which burden the estate,
in the absence of an agreement to the contraryCreditor is also obliged to pay the necessary
expenses
102) PERALTA VS. QUIMPO Art. 2137 del Socorro
Facts: Lawyer Peralta alleges that:
A house and lot was given by Cristeta Fuentes and Mabasa as an antichresis in favor or
Bernardina as a security fro a loan to spend for Consuelo Fuentes tuition
Loan not paid, the court ordered the property to be delivered to Casia (the sister and sole
heir of Bernardina also appointed as judicial adminitratrix of the latters estate)
Casia sold to Peralta the property
Peralta leased a portion of the lot to Tam Seng

o Consuelo, Estrella, and Isidra claim to be the owners of the land

- they were occupying the land and even fenced its western and southern
sides
o Peralta ffiles with the court to be declared the true owner of the land, and
for Tam Seng to pay the rent
Issue: W/N Peralta is the true owner of the land, as stemming from the alleged deed of
antichrises by Cristeta Fuentes to Bernardina.
Held: NO.
1. Cristeta is not shown in the certificate of title to be a co-owner of the lot and could not
have validly executed the antichresis to Bernardina
2. No evidence that Cristeta benefited from the loan
3. Cristeta and Mabasa had no right to cede in antichresis Consuelo Fuentes interests in the
lot
4. it is not possible that the loan was spent for Consuelo fuentes studies because the
antichresis was executed long after she graduated from school
- because of these, Bernrdina or her successor Casia did not have any right to the
property against its true owners
- hence, Peralta was never substituted as an antichretic creditor
- he cannot order Tam Seng to pay rent
Additional notes on antichresis:
- in an antichresis, as the creditor does not own the immovable by non-payment of
the debt, his only right is to hold the property until with its fruits, interest, if any is
stipulated, and afterwards the principal debt is paid; or in case that he doe not get
the fruits from the property and the debt is not paid otherwise, the creditor may
bring an action for payment of the land and have the property sold on execution to
realize payment.
103) VILLANUEVA VS. IPONDO Art. 2139 Delgado
FactsL Villaueva, the executrix of the estate of Raymundo Melliza, files a case against Ipondo
and onlu for illegal detainer. Subjects of the case are the three haciendas in Jordan, Iloilo in
Guimaras Island owned by the deceased Melliza. Sometime in 1923, Melliza placed the
management of these properties to his brother-in-law Eusebio Conlu. Conlu spent considerable
amount for the management of the haceienda. As reimbursement, Melliza executed two
documents covering the two haciendas to be conveyed to Conlu. Plaintiff alleged that the
agreements were just merely for administration of the properties, used to deliver fruits to
plaintiff. Defendants deny claiming that the documents embodied that they are allowed to stay
for a lifetime until being reimbursed by the plaintiff. CFI in favor the defendant.
Issue: W/N the defendant has lawful possession.

Held: YES. Although the agreement was labeled as mortgage, it is in reality an antichresis
because the Conlus are allowed to apply 1/3 of the net proceeds to the debt of Melliza amounting
to P20,000. More so, it did not fix the date when the creditor can institute foreclosure and that
the payment of indebtedness is optional. The only remedy granted to them is to appropriate 1/3
of the net proceeds, which coupled by possession, is a feature of an antichresis.
Normally, the feature of antichresis is tha appropriation of the entire proceeds. But the
fact that parties stipulate that only 1/3 will be applied for the claim or debt does not alter the
nature of the contract.
It follows that when the documents were executed in 1940, the debtor lost their right to
oust the creditor from the land since the essence of antichresis that debtor cannot recover the
enjoyment of the land involved without first paying the creditor in full.
Executrix must respect the independent right of possession of Conlu. Likewise, that of
Ipondo as tenant of Conlu.
104) ALEMAN VS. CATERA Art. 2140 Legaspi
Facts:
Catera owned and operated passenger trucks
While one of his passenger trucks was driven by Amborgo, it fell into the ditch because of
overspeeding
As a result, 2 passengers and the Aleman child died. Florentina Aleman (mother) was injured.
Catera and Amborgo were sentenced to pay
In order to secure payment, Aleman filed for a writ of attachment over one of the trucks
Southern Motors opposed contending that it has a preferred right over the truck.
According to Southern Motors, Defensor bought the truck from them. A chattel mortgage was
executed in favor of the latter and this was registered in the registry of deeds. Since Defensor
failed to pay the whole amount, as creditor, they have a preferred right.
Aleman contends that they should be preferred. When Southern Motors allowed Defensor to sell
the bus to Catera and the latter to record in the Motor Vehicles Office, they waived their
mortgage lien on the bus.
Issue: Who has a preferred right over the truck
Ruling:
Mortgage over a motor vehicle is binding upon the third persons when it is registered in the
registry of deed and recorded in the motor vehicles office.
Since Southern Motors failed to comply with the 2md requisite, the mortgage is ineffective
insofar as third parties are concerned. Their right cannot prevail over that of the Alemans who,
though judgment creditors, may be deemed to be innocent purchasers.
104) ALEMAN VS. CATERA Art. 2140 Lopez
Facts:
- Presentacion de Catera owned and operated several passenger trucks.

One of her trucks, Catera No. 5, fell into a ditch because of the recklessness of its driver.
This resulted in the death of a bystander, injuries to the son of the bystander and the death
of 2 passengers on the truck.
The heirs of the deceased filed civil cases against Catera. Another trck, Catera No. 4,
was attached. The cases were consolidated. The heirs won.
Prior to the ruling of the lower court, Southern Motors filed a motion for intervention.
This was granted. Southern Motors alleges that a certain Wenceslao Defensor bought the
truck from them and as security for the purchase price, Defensor mortgaged the same
truck to Southern Motors. Subsequently, Defensor sold the truck to Catera. Southern
Motors now questions the attachment of the trucks in the Civil cases saying that it has a
better right to that truck.
Issue:
- Who has the better right to the truck?
Held:
- SC says that the accident victims have a better right. A mortgage in order to affect third
persons should not only be registered in the Chattel Mortgage Registry but also in the
Motor Vehicles Office as required by sec. 5(e) of the Revised Motor Vehicles Law.
Here, Southern Motors failed to register the mortgage in the MVO. Thus, the mortgage
cannot affect the accident victims.
105) MONTANO VS. LIM Art. 2140 Mendiola
Facts: Montano brought his Cadillac to the Philippines. He sold the car to Jose Lim Ang and his
wife for the sum of P28,000.00. Lim Ang executed on the same date a chattel mortgage on
the car in favor of Montano. This mortgage was registered in the office of the register of
deeds, but Montano failed to notify the Motor Vehicles Office.
The following transfers occurred: Lim Ang to Villanueva to Santos to Manila
Trading to Tinio. Tinio also executed a chattel mortgage on the car. This mortgage was
registered both in the office of the register of deeds, also in the Motor Vehicles Office.
However, Jose Lim Ang failed to pay the balance of the purchase price to
Montano. Montano requested the sheriff of Manila to sell the car. Since the car was no
longer in the possession of Lim Ang, Montano commenced the present action of replevin.
The lower court ruled that the spouses and Tinio to deliver the car back to Montano.
Furthermore, the court ordered that every seller reimburse his buyer.
Issue: W/N Lim Angs chattel mortgage valid despite the non-registration in Angs name.
W/N the chattel mortgage executed by Jose Lim Ang is binding against third persons even if
they failed to give notice thereof to the Motor Vehicles Office.
Held: The chattel mortgage by the spouses is valid.
It is a fact that that when the parties agreed over the car and the price, the contract
became perfected. And when part of the purchase price was paid and the car was delivered
upon the execution of the promissory note and the mortgage, the sale became
consummated. Hence, the spouses could have validly executed a chattel mortgage. "The

registry of the transfer of automobiles and of the certificates of license for their use in
the Bureau of Public Works (now Motor Vehicles Office) merely constitutes an
administrative proceeding which does not bear any essential relation to the contract
of sale entered into between the parties."
However, the chattel mortgage executed by the spouses is not binding against
third persons. As between Montano whose mortgage over the car was not recorded in the
Motor Vehicles Office and Tinio who notified said office of his purchase and registered
the car in his name, the Tinio is entitled to preference considering that the mere
registration of the chattel mortgage in the office of the register of deeds is in itself not
sufficient to hold it binding against third persons.
105) MONTANO VS. LIM Art. 2140 Rivas
Facts:
- Montano sold to Lim Ang a Cadillac for P28,000, payable in installments
- Lim Ang executed a chattel mortgage on the car in favor of Montano
- Mortgage was registered in the office of the register of deeds but not in the Motor
Vehicles Office
- Lim Ang transferred the certificate to Villanueva
- Villanueva sold the car to Santos
- Santos sold car to Manila Trading which sold the car to Tinio on the very same day
- Tinio made a down payment and executed a chattel mortgage on the car in favor of
Manila Trading.
- Mortgage was registered in office of the register of deeds and in the Motor Vehicles
Office
- Tinio was able to pay the amount in full and he acquired full ownership over the Cadillac
- All the owners never checked the right of Lim Ang over the Cadillac
- But Lim Ang failed to pay Montano and Montano sought to foreclose the mortgage
- CFI: ordered Lim Ang and Tinio to deliver the Cadillac back to Montano
Issue:
- W/N the chattel mortgage executed by Lim Ang and Montano is binding to third parties
- W/N a mortgage by Lim Ang prior to the registration of the object in their name is valid
Held:
- Chattel mortgage is not binding to third parties
- It is preferred that the chattel mortgage be registered not only in the office of the register
of deeds but also in the Motor Vehicles Office
-
registration prior to mortgage is of no moment

registration is merely an administrative proceeding which does not bear any essential
relation to the contract of sale entered into by the parties
even if there is a flaw, this was corrected when after the registration of the mortgage the
registration title was transferred to the purchaser

106) MAKATI LEASING VS. WEAREVER TEXTILES Art. 2140 Sarenas

Facts:
Wearever?! Ang talino naman ng nagisip ng pangalan nito
Wearever borrowed some money from Makati Leasing and Finance Corporation
(MFLC). Wearever discounted and assigned to MFLC several receivables under a
Receivable Purchase Agreement.
To secure the collection of receivables, Wearever executed a chattel mortgage over
certain raw materials as well as machinery (Artos Aero Dryer Stentering Range)
Siyempre di nakapagbayad to si Wearever. MFLC wanted to extrajudicially foreclose but
Mr. Sheriff couldnt get into the premises to seize the machinery.
So MFLC filed for a judicial foreclosure. RTC approved, sheriff then was allowed to
break into the premises to seize the main drive motor of the machinery.
But the CA ordered that the motor be returned, Ibalik niyo yan, considered immovable
na yang machinery eh (kaya nga yun motor lang nakuha ni sheriff kasi naka-bolt yung
machine to the ground)
Binalik naman yung motor. Mabait na bata.
Issue:
W/N the machinery could be a valid subject matter for a chattel mortgage
Held:
Yup, although it is considered an immovable it can still be a valid subject matter of a
chattel mortgage.
SC: sa Tumalad case nga eh naconsider yun bahay na personal property, bakit hindi
pwede ditto na machinery lang ang pinapagusapan natin
Estoppel applies in this case, because the parties are estopped from denying what they
have agreed upon. And they have agreed to treat the machinery as personal property.
Characterization of the subject machinery as chattel by the private respondent is
indicative of intention and impresses upon the property the character determined by the
parties.
Touch move!
107) MACONDRAY VS. RUIZ Art. 2141 Beron
Facts:
Macondray sold to Antonio Ruiz an automobile. A down payment was made and for the
balance several promissory notes were executed. Ruiz executed jointly with Ramon Borromeo
27 PN wherein both undertook to pay jointly and severally. In addition, Ruiz mortgaged the
automobile.
Ruiz made partial payments and then subsequently, the parties agreed to execute another contract
whereby Ruiz and another person (Cuisia) would sign the PN for the balance
Ruiz and Cuisia signed the PN. The mortgage on the automobile was left to stand.

Ruiz and Cuisia failed to pay. Macondray then foreclosed the mortgage and as a result of the
auction, the automobile was awarded to Macondray.
After application of the proceeds, there was a deficiency left, Macondray then brought this action
to recover the amount.
Trial court dismissed the action.
Issue:
W/N Macondray can recover the deficiency
Held:
NO.
The court absolved Ruiz and Cuisia because in its opinion the first mortgage and the PNs signed
by Ruiz and Borromeo were substituted and novated by the deed executed by Ruiz and Cuisia
and because during the execeution of 2nd deed
Act no. 4122 was already in force under which the plaintiff Macondray cannot maintain the
present action for the recovery from defendants of the balance owing after it had elected to
foreclose the mortgage.
The subsequent contract took place on March 14, 1934 and said law having come to effect on
December 9, 1933 it was doubtless applicable.
108) ABLAZA VS. IGNACIO Art. 2141 Calinisan
This is an unreported case. This was just copied exactly from the Phil Reports.
Appeal from a decision dismissing the complaint for deficiency arising from a foreclosure of a
chattel mortgage. As ground for dismissal, the court ruled that under Arts 2141 and 2115 of the
new Civil Code, plaintiff is not entitled to deficiency judgment notwithstanding defendant being
declared in default for the reason that it is manifestly against the law. The court dismissed the
case in spite of the fact that defendant was declared in default and plaintiff presented enough
evidence to support his claim because, being an action for deficiency on a chattel mortgage, it
opined that the mortgage creditor is no longer entitled to it under the provisions of the new code.
The trial court is in error. It is clear from Art 2141 that the provisions of the new Civil Code on
pledge shall apply to a chattel mortgage only in so far as they are not in conflict with the Chattel
Mortgage Law. The provisions of the latter law with regard to the effects of the foreclosure of a
chattel mortgage are contrary to the provisions of Article 2115 which were applied by the trial
court. This can be seen from Sec 14 of the said law. The amount received at the time of the sale,
of course, always requiring good faith and honesty in the sale, is only a payment, pro tanto, and
an action may be maintained for a deficiency in the debt.
This decision appealed from is reversed, and judgment is hereby rendered ordering defendant to
pay to plaintiff the amount of P2675 with interest thereon from January 3, 1955, and the costs of
action.
109) SERVICEWIDE VS. CA Art. 2141 Fernandez

Facts:
Ponce spouses bought a Torana (siguro parang Touareg to..hehe) vehicle from Tecson
Enterprises.
A PN and chattel mortgage on the vehicle was executed in favor of Tecson Enterprises to
secure payment.
On the same day, Tecson Enterprises assigned the PN and the chattel mortgage to
Filinvest Credit. This was with the consent of the spouses.
Later on, the spouses sold the vehicle (w/ assumption of mortgage) to Conrado Tecson
(siya din ang may-ari ng Tecson Enterprises). Filinvest, meanwhile, assigned all its rights
over the PN and mortgage to Servicewide without notice to spouses.
For failure of the spouses to pay installments, a complaint for replevin was filed. Spouses
denied any liability by claiming that they already returned the car to Tecson.
Issue:
Whether or not the assignment of credit requires notice to the debtor in order to bind him. Is the
debtor-mortgagor who sold the property to another entitled to notice of the assignment of credit
made by creditor to another party to maintain liability on the mortgage?
On the other hand, is the consent of the creditor-mortgagee necessary when the debtor-mortgagor
alienates the property to a third person?
Held:
Only notice to the debtor of the assignment of credit is required (consent is not). But consent of
the creditor-mortgagee to the alienation of the mortgaged property is necessary to bind said
creditor.
Art 2141 states that the provisions concerning a contract of pledge shall be applicable to a chattel
mortgage insofar as there is no conflict with the Chattel Mortgage Law. Art 2096 in relation to
Art 2141 says that a thing pledge may be alienated by the pledgor/owner with the consent of the
pledgee. Moreover, the sale with assumption of mortgage is tantamount to a substitution of
debtors. Hence, notice to the creditor is not enough, his consent is always necessary as provided
in Art 1293.
Though there was no knowledge, on the part of the spouses, of the assignment to Servicewide,
they should have obtained the consent of Filinvest since they are already aware of the assignment
to the latter. So insofar as Filinvest is concerned, the spouses are still the debtors because of the
absence of its consent to the sale.
The assignee (Servicewide), having stepped in the shoes of Filinvest, acquired the same defenses
available to the latter against the spouses. Sale by spouses to Tecson is not binding to
Servicewide.
110) DE BARRETTO VS. VILLANUEVA Art 2237 del Socorro
Facts 1:
- case: a resolution on motion to reconsider

- Cruzado mortgaged the property to the Rehabilitation Finance Corporation (RFC) to secure a
loan
- as Cruzado defaulted, RFC foreclosed the mortgage, and acquired the property
- a new certificate of title was issued to RFC
- RFC sold back the property to Cruzado, payable in installments subject to the condition that the
title to the property shall remain in RFC until after the obligation of Cruzado has been fully paid
- Cruzado defaulted, so RFC rescinded the sale, and forfeited the payments made according to
the terms of the contract
- 2 yrs after, Cruzado sold the registered parcel of land and the house thereon for 19T to Pura
Villanueva
- Villanueva made a downpayment of 1.5T and made a promissory note for the 17.5T balance
- Villanueva could only pay 5.5T on account of the note, so Cruzado obtained judgment for the
unpaid balance of 12T
- in the meantime, Villanueva secured a certificate of title and mortgaged the property to
Magdalena Barretto to secure a loan, said mortgage having been duly recorded
- Villanueva defaulted so Barretto foreclosed the mortgage in her favor, obtained judgment, and
upon its becoming final, asked for execution
- Cruzado filed a motion for recognition of her vendors lien, invoking Arts. 2242, 2243, & 2249
- the lower court ordered the line annotated on the back of the certificate of title to the property
w/ the proviso that in case of sale under the foreclosure decree, the vendors lien and the
mortgage credit should be paid pro rata from the proceeds.
Issue 1: W/N the order of the lower court decreeing that the proceeds of the foreclosure sale be
apportioned between Cruzado and Barretto is correct.
Held 1: NO.
- the SC reconsidered its original decision due to the changes of the brought about by the New
Civil Code on the pertinent provision and the order of preference of credits
- under the NCC, only taxes enjoy absolute preference; all the remaining 12 classes of preferred
creditors under Art. 2242 enjoy no priority among themselves, but must be paid pro rata (in
proportion to the amount of their respective credits)
- to make this prorating fully effective, the preferred creditors under Art. 2242, Nos. 2-14 must
necessarily be convened, and their claims ascertained
- for Arts. 2249 and 2242 to be applicable, there must be first some proceeding where the claims
of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of
a decedent's, or other liquidation proceedings
- one preferred creditor's third-party claim to the proceeds of a foreclosure sale, such as in this
case, is not the proceeding contemplated by law for the enforcement of preferences under Art.
2242, unless the claimant were enforcing a credit for taxes that enjoy absolute priority
- if none of the claims is for taxes, a dispute between two creditors will not enable the Court to
ascertain the pro rata dividend corresponding to each, because the rights of the other creditors
likewise enjoying preference under Article 2242 can not be ascertained
- in the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's
estate ), the conflict between the parties in this case must be decided pursuant to the well
established principle concerning registered lands: that a purchaser in good faith and for value

takes registered property free from liens and encumbrances other than statutory liens and those
recorded in the certificate of title
- there being no insolvency or liquidation, the claim of Cruzado, as unpaid vendor, did not
acquire the character and rank of a statutory lien co-equal to the mortgagee Barretto's recorded
encumbrance, and must remain subordinate to the latter
- if a person dealing with registered land were to be held to take it in every instance subject to all
the fourteen preferred claims enumerated in Art. 2242, even if the existence and import thereof
can not be ascertained from the records, all confidence in Torrens titles would be destroyed, and
credit transactions on the faith of such titles would be hampered
- moreover, it is not excessively burdensome to require the privileged creditors to cause their
claims to be recorded in the books of the Register of Deeds should they desire to protect their
rights even outside of insolvency liquidation proceedings
Issue 2: W/N Cruzado is an unpaid vendor of the property so as to be entitled to preference under
Art. 2242.
Held 2: NO.
- ownership of the property had passed to RFC since 1950, when it consolidated its purchase at
the foreclosure sale, and obtained a certificate of title in its corporate name
- the subsequent resale to the Cruzados did not revest ownership in them, since they failed to
comply with its terms and conditions, and the contract itself provided that the title should remain
in the name of the RFC until the price was fully paid
- Cruzados merely assigned whatever rights or claims they might still have thereto; the
ownership of the property rested with the RFC.
- the operative sale was that from the RFC to the latter, and it was the RFC that should be
regarded as the true vendor of the property
- at most, the Cruzados transferred to Villanueva an option to acquire the property, but not the
property itself, and their credit, therefore, can not legally constitute a vendor's lien on the corpus
of that property that should stand on an equal footing with the mortgaged credit held by
appellants Barretto
110) DE BARRETTO VS. VILLANUEVA Art 2237 Delgado
Barretto vs. Villanueva (Delgado)
Facts: Rosario Cruzado in her behalf and as an administrator of her deceased husbands estate
obtained a loan from Rehabilitation Finance Co. for a sum of P11T. she mortgaged a land
registered in her name and of his deceased husband. As she defaulted in paying the installments,
RFC foreclosed the mortgage and consolidated title in its own name.. However, it would later
be resold to Cruzado conditionally for the sum of P14T good for seven years. Two years
thereafter, the probate court allowed Cruzado, as guardian of the minor, to sell the land with the
permission of RFC. It was sold to Pura Villanueva with the condition that the vendee would
assume payment to RFC for the remaining balance of the resale. Villanueva paid several
installments to Cruzado and later was able to transfer title to its own name. Villanueva

mortgaged the same land to Barretto. Since Pura Villanueva defaulted, Cruzado files case
against her and pending the resolution of the case, a lien upon the property was constituted.
Meanwhile, since Villanueva also defaulted to its obligation to Barretto, the latter institutes
action to foreclose mortgage. Barrette was able to foreclose it and consolidate title to her name
but was subjected to vendors lien of Cruzado who shall be credited pro-rata from the proceeds
of the sale. Barrette is now appealing to this court.
Held: Appeal cannot be sustained. The argument of Barretto that the lien is not registered is of
no moment since law does not provide for it. The law does not make any distinction between
registered and unregistered lien, which only goes to show that any lien of that kind enjoys the
preferred credit status. Also, the argument that it only applies to insolvent cases cannot be
countenanced since to allow so would make creditor-debtor relationships where there are
concurrence of credits would be left without governing rules.
Motion for Reconsideration (J.B.L. Reyes)
Reversed. Theres no vendors lien to speak about since Cruzado failed to perform its obligation
to RFC to pay the balance of the resale of the land so the property remained with the lender.
What Cruzado transferred to Villanueva, at most, is the right to reacquire the property hence the
mortgage credit of Barretto is still superior.
111) SAMPAGUITA PICTURES VS. JALWindor Art 2241 Legaspi
Facts:
Sampaguita pictures owned a roof deck that was leased by Capitol 300
The premises were used by Capitol for social purposes exclusively and all permanent
improvements shall belong to Sampaguita
Capitol purchases on credit from Jalwindor glass and wooden jalousies. These were delivered
and installed in the leased premises
Capitol failed to pay so Jalwindor filed an action for the collection of a sum of money
They entered into a compromise agreement were Capitol promised to pay the indebtednss and all
the materials will be considered as a security for the undertaking.
Likewise, Capitol was not able to pay Sampaguita for the rentals, water and electric bills.
Sampaguita filed a complaint for ejectment and for the collecton of a sum of money.
When Capitol failed to comply with the indebtedness, the sheriff levied on the glass and wooden
jalousies.
Sampaguita sought to nullify the Sheriffs sale in favor of Jalwindor
TC: dismissed
Issue:
w/n Sampaguita erred in demanding the return of the materials
Ruling:

Capitol became the owner of the glass and wooden jalousies when they were delivered and
installed in the leased premises. Payment of the materials would not bar ownership by Capitol at
the time of the delivery.
Since there is a stipulation in the lease agreement that the improvements shall belong to the
lessor effectively, Sampaguita automatically became the owner of the materials
Hence, when the levy was made on the improvements, the debtor was no longer the owner of the
jalousies
Execution sales affect the rights of the judgment debtor only. Jalwindor in this case acquired
only the right that the debtor had at the time of the sale. Since Sampaguita was the owner at that
point, the levy and auction sale are null and void.
Sampaguita has a right to demand from Jalwindor the return of the materials. The movables in
this case were wrongfully taken.
112) UY VS. ZAMORA Art 2241 Lopez
Facts:
- Uy instituted a suit against Zamora in the MTC for a sum of money. A car of Zamora
was attached on Aug. 11, 1960. Uy won.
- The car was already sold for 2,500 to prevent further depreciation.
- Zamora appealed to the RTC. Allied Finance Inc. intervened saying that it had a claim
on the car that was attached.
- Uy and Zamora submitted tot eh RTC a compromise agreement with Zamora
acknowledging his debt to Uy (total of 2,500).
- The RTC ruled that Zamora was indebted to Uy for 2,500 and to Allied Finance for
P2,451.93 (as the balance of a loan received by Zamora for which the latter mortgaged
the car)
- The RTC ruled that Allied Finances claim cannot be considered as specially preferred in
Art 2214(4) because the chattel mortgage was not registered. But the RTC still held that
Allied had a better right to the proceeds of the sale of the car because of Art 2244(14).
(the mortgage was notarized earlier than the writ of attachment)
Issue:
- Who has the better right to the proceeds of the sale of the car.
Held:
- Uy has the better right. The intervenor affirmed that the chattel mortgage in its favor was
only registered on August 42, 1960. Thus, the writ of attachment (Aug. 11, 1960) was
actually the first to be constituted. Notarization is not the act which gives effect to a
chattel mortgage. It is the registration in the Chattel Mortgage Registry.
- Furthermore, it has not been proven that the mortgage in favor of Allied was registered in
the Motor Vehicles Office. Registration in the said office is mandatory as held in other
cases.
113) PHIL. SAVINGS BANK VS. LANTIN Art 2242 Mendiola
Facts: The spouses Tabligan owned a duplex-apartment house. This house was built for the
spouses by Ramos for P32,927.00. The spouses was only able to give Ramos P7,139

only; hence, Ramos used his own money. Meanwhile, the spouses obtained a loan
(secured by a registered real estate mortgage) from PS Bank for 35,000 for the
purpose of completing the construction.
Spouses failed to pay PS bank. Hence, PS bank foreclosed on the mortgages. PS
bank eventually consolidated title to its favor.
It was that time when Ramos filed an action to collect the unpaid cost of the
construction. Ramos obtained a writ of attachment over the property. Ramos won in the
Civil Case. But since spouses no longer had any property, Ramos asked PS bank to
deliver to him his pro rata share.
Issue: W/N Ramos is entitled to claim a pro rata share in the value of the property in
question.
Held: Ramos is not entitled to a pro rata share.
Contentions
PS Bank: There must be an insolvency proceeding. In the present case, there is no
insolvency proceeding because there were only 2 creditors.
Ramos: The proceedings in the lower court can qualify as a general liquidation.
The proceedings below do not partake of insolvency proceedings. The action filed
by Ramos was only to collect the unpaid cost of the construction of the apartment. The
decision of this court must be in accordance with the Barreto doctrine stating that for there
to be application of Articles 2242 and 2249, there must be first some proceeding where the
claims so all the preferred creditors may be bindingly adjudicated.
Since the action filed by Ramos is not one that can be considered as equivalent
to general liquidation having the same import as an insolvency settlement, we must apply
the rule that a purchaser in good faith and for value takes the registered land free from all
liens and encumbrances other than statutory liens recorded in the Certificate of Title.
114) MANABAT VS. LAGUNA FEDERATION OF FACOMAS, INC. Art 2242 Rivas
Facts:
- Laguna Federation was the creditor of Roxas
- Laguna won over Roxas in a collection case and the sheriff levied 10 lands of Roxas for
P37,000
- After the sale, the sheriff discovered that the lands sold were subject to several registered
liens
- Sheriff institutes an interpleader for the different creditors to determine among
themselves their rights over the P37,000
- RTC: order of the date of registration with Laguna Federation as the first creditor in line
and Cayco as the 4th
Issue:
- W/N preference in date or pro rata, as suggested by Cayco, is the rule to be followed

Held:
- Preference in date of registration
- As stated in A2242 paragraph 7, credits annotated in the Registry of Property in virtue of
a judicial order, attachments or execution, upon the property affected and ONLY AS TO
LATER CREDITS
- To follow the pro rata rule, absurdities is to happen. The purpose if the section is easily
defeated by simply obtaining writs of attachments or execution lien over later credits
115) PCIB VS. NAMAWU Art 2244 Sarenas
Facts:
National Mines & Allied Workers Union (NAMAWU) obtained a decision from the
NLRC where Phil. Iron Mines (PIM) was ordered to pay the union P4,298,307.77 as
severance pay
Several machinery and equipment of PIM was sold to Atlas Mining in a foreclosure sale
to satisfy debts of PIM to PCIB. Said sale was in the amount of P30M
Payment of Atlas to PCIB was ordered garnished to the amount of P4,298,307.77 to
satisfy the judgment of the NLRC. A check was issued for this amount.
PCIB is asking for injunction but proceeds of the check were already distributed to the
former employees of PIM
PCIBs contention: that they are separate debtors and should therefore not be liable to pay
the former workers of PIM
Issue:
W/N PCIB is liable to the former employees of PIM
Held:
PCIB is still liable because under 2244 of the CC, employees enjoy first preference
regarding wages due prior to the bankruptcy or liquidation as against other creditors
Although the foreclosure of the properties in favor of PCIB was days before the NLRC
decision, nonetheless the properties were already encumbered to NAMAWU by force of
law.
116) CENTRAL BANK VS. MORFE Art 2245 Beron
Facts:
The Monetary Board found the Fidelity Savings Bank to be insolvent. The Board directed the
Superintendent of Banks to take charge of its assets.
Prior to institution of the liquidation proceeding but after the declaration of insolvency, the
spouses Elizes filed a complaint against Fidelity for the recovery of a sum as a balance of their
time deposits. In the judgment rendered, Fidelity was ordered to pay.

In another case, spouses Padilla secured a judgment against Fidelity an amount representing the
balance of their time deposits.
Upon motion of Elizes and Padillas and over the opposition of the Central Bank, the court
ordered the Central Bank as liquidator to pay the spouses their time deposits as preferred credits,
evidenced by final judgments, within the meaning of art 2244(14)(b) of the civil code.
Central Bank appealed.
Issue:
W/n a final judgment for the payment of a time deposit in a savings bank which judgment was
obtained after the bank was declared insolvent, is a preferred claim against the bank...
Held:
NO.
It should be noted that the fixed, savings and current deposits of money in banks and similar
institutions are not true deposits. They are considered simple loans and as such are not preferred
credits.
The Central Bank's charter explicitly provides that when a bank is found to be insolvent, the
Monetary Board shall forbid it to do business and shall take charge of its assets. Evidently, the
purpose of prohibiting the insolvent bank from doing business is to prevent some depositors from
having an undue or fraudulent preference over other depositors. That purpose would be nullified
if, as in this case, after the bank is declared insolvent, suits by some depositors could be
maintained and judgments would be rendered for the payment of their deposits and then such
judgments would be considered preferred credits under art 2244(14)(b). Such judgments cannot
be considered preferred and that art 2244(14)(b) does not apply to judgments for the payment of
the deposits in an insolvent savings bank which were obtained after the declaration of
insolvency.
117) CHING VS. LAND BANK OF THE PHILIPPINES Insolvency Law Calinisan
Facts:
Land Bank of the Philippines (LBP) extended a P10M loan to Finland Manufacturing and
Estate Development Co., Inc and Emilio CHING.
Due to the failure to pay of the abovementioned respondents, a collection case was
instituted by LBP.
During the pendency of the case, the abovementioned respondents with Inai The (Chings
wife) and Top Construction Enterprises filed a proceeding for declaration of insolvency.
Allegedly since they are unable to pay the debts and liabilities that they have incurred,
spurred by the Holiday Plaza Building fire (owned by Finland) and by the death of Sen.
Ninoy Aquino.
The Pasay Court which handled the insolvency case declared the petitioners insolvent.

Land Bank appeals the said order. It claims that the SEC rather than the RTC has
jurisdiction over the petition for declaration of insolvency. Allegedly, PD 902-A
repealed the Insolvency Law (Act 1956).
Issue:
W/N the SEC or the RTC has jurisdiction over the case.
Held:
The RTC has jurisdiction.

Under the Insolvency Law, jurisdiction over proceedings for suspension of payments,
voluntary and involuntary insolvency are exclusively vested in the regular courts.
However, PD 1978 added to the exclusive and original jurisdiction of the SE, defined and
delineated in Sec 5 of PD 902-A, the following:
o (d) Petitions for the declaration of a state of suspension of payments in cases
where the corporations, partnership or association possesses sufficient property to
cover all its debts but forsees the impossibility of meeting them when they
respectively fall due or in cases they have no sufficient assets to cover its
liabilities, but is under the management of a rehabilitation receiver or
management committee created pursuant to this decree.
The SEC like other any administrative body is a tribunal of limited jurisdiction. Sec 5,
par (d) should be construed as vesting upon the SEC original and exclusive jurisdiction
ONLY over petitions to be declared in a state of suspension of payments, which may
either be:
o (a) simple petition for suspension of payments based on the provisions of the
Insolvency Law, or
o (b) a similar petition accompanied by a prayer for the creation/appointment of a
management committee and/or rehabilitation receiver based in the provision of
PD 902-A.
If it a DECLARATION of INSOLVENCY, and not merely a SUSPENSION of
PAYMENTS, Act 1956 on voluntary insolvency will govern.
The powers given to the SEC are mere ancillary powers, to be exercised only in
connection with an action pending before the SEC.
118) CALIBO VS. CA Art 1962 Fernandez

Facts
Pablo Abella is the owner of a certain agricultural tractor.
Pablos son, Mike rented a house owned by Calibo Jr. After this, Pablo brought his
tractor to the garage of Mikes rented house for safekeeping.
After some time, Mike failed to pay the rent and electric/water bills. Mike told Calibo
that he will be leaving the house soon and gave an assurance that the accounts will be
settled with the tractor as security. Mike also told Calibo to look for a buyer of the
tractor.
When a new tenant moved to the house, Calibo brought the tractor in his fathers house.
A possible buyer was found but the transaction did not push through.

Pablo now wants to take possession of the tractor and gave Calibo certain checks for the
payment of Mikes obligations. But the two did not arrive at an agreement.
Pablo instituted an action to recover he tractor. Calibo claims that the same was pledged
to him, and in the alternative, as deposit.
Issue
Was the tractor pledged by Mike to Calibo? Was there a deposit?
Held
No pledge and no deposit. Mike cannot validly pledge the tractor as he was not the owner of the
thing. On the argument that Mike was an agent of Pablo, the agency relationship was not
established. As for the contention that there was a deposit, a look at the Civil Code provision
states that in a contract of deposit, a person receives an object belonging to another with the
obligation of safely keeping it and of returning the same. But Calibo received the tractor as a
form of security for the payment of Mikes obligations. There is no deposit where the principal
purpose for receiving the object is not safekeeping. Calibo has no right to refuse delivery of the
tractor to its rightful owner.
119) BISHOP OF JARO VS. DELA PEA Art 1972 del Socorro
Facts:
- Fr. De la Pea possessed 6T as trustee or agent of the Roman Catholic Bishop of Jaro, Iloilo for
the construction of a leper hospital
- Fr. De la Pea deposited in his personal account 19T including the 6T held in trust by him w/
the Hongkong and Shanghai Bank (Bank)
- during the Phil-Am war, Fr. De la Pea was arrested by the Americans for cooperating w/ the
insurgents, and held as a political prisoner
- his account w/ the bank was confiscated by the US Govt
- the trust funds were part of the funds deposited and w/c were confiscated by the US military
- Roman Catholic Bishop of Jaro files to recover the 6T deposited to Fr. De la Pea
Issue: W/N Fr. De la Pea is responsible for the loss of the money.
Held: No. He is exempted from his obligation to return the money because of a fortuitous event.
- by placing the money in the bank and mixing it w/ his personal funds, Fr. De la Pea did not
assume an obligation different from that under w/c he would have lain if such deposit had not
been made, nor did he make himself liable to repay the money at all hazards
- if the money had been forcibly taken from his pocket or from his house by the military, he is
exempt from responsibility
- placing the trust fund in the bank in his personal account does not add to his responsibility
Dissent of Trent:
- when Fr. De la Pea mixed the trust fund w/ his own and deposited the whole in the bank to his
personal account, he stamped on the said fund his own private marks and unclothed it of all the
protection it had

- if this money had been deposited in the name of Fr. De la Pea as trustee or agent of the Roman
Catholic Bishop of Jaro, the military would not have confiscated it because they were only
looking for insurgent funds
120) CA AGRO VS. CA Art 1975 Delgado
Facts: CA Agro, through its president, entered into a contract with spouses Pugao for the
purchase of lots owned by the Pugaos. A down payment was paid and for the balance, three
postdated checks were issued by CA Agro. In the contract, it is stipulated that the titles to the
lots shall be transferred to the petitioner upon full payment of the purchase price and that these
will be deposited in a safety box of any bank. The parties then rented a safety box in Security
Bank and the contract of lease states that the bank is not a depositary of the titles; it has no
interest therein and assumes no liability since it is not in control of these titles. Two renters
keys were given to the buyer and seller and a gurad key is left with the bank. A certain Mrs.
Ramos offered to buy the lots for a lower price than Agro will have to pay the seller Pugaos so it
would earn profit. Mrs. Ramos demanded the execution of the deed of sale so president of CA
Agro accompanied by Pugaos went to the bank to open the box but yielded no document.
Because of the delay of the reconstitution, Mrs. Ramos backed-out of the sale prompting CA
Agro to sue for damages. RTC ruled against CA Agro based on the stipulations in the contract.
CA affirmed the decision of the lower court based on provisions on lease that petitioner and
renter were given control over the safety deposit box because it had neither the possession nor
control over its contents.
Issue: W/N the contract executed is of a lease or deposit
Held: We agree with the petitioners contention that the contract for the rent of the safety
deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code.
However, we do not fully subscribe to it view that the same is a contract of deposit that is to be
strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is
a special kind of deposit. It cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of the safety deposit box was
not given to the renters---the petitioner and the Pugaos. The guard key of the box remained with
the respondent Bank; without this key, neither of the renters could open the box. On the other
hand, the respondent Bank could not likewise open the box without the renters key. In this case,
the said key had a duplicate which was made so that both renters could have access to the box.
Neither could Article 1975, also relied upon by the respondent Court, be invoked as an
Argument against the deposit theory. Obviously, the first paragraph of such provision cannot
apply to a depositary of certificates, bonds, securities or instruments which earn interest if such
document ate kept in a rented safety deposit box. It is clear that the depositary cannot open the
box without the renter being present.
SC: petition dismissed but not based on the reasoning of the lower court and CA but on the
failure to prove that bank committed fraud or was negligent in its obligation.
121) JAVELLANA VS. LIM Art 1977 Legaspi

Facts:
Jose Lim, et. al. received from Javellana as a deposit without interest P2,686.58
They were bound to return said sum on Jan 20, 1898
When the obligation fell due, Lim et al asked for an extension of time for payment. They bound
themselves to pay a 15% interest on the amount of their debt.
Afterwards, they paid around 1K. the balance was not paid.
Javellana filed a complaint claiming the sum of money.
Lim denies that there was an agreement extending the loan plus payment of an interest.
He alleges that on account of his various payments to Javellana amounting to 5K, it is the latter
that is indebted to him, the obligation being for 2K only.
Eveidence shows that Lim went to Javellana to ask for an extension in view of the fact that
money was scarce. They could not return the money deposited. This goes to show that they
used or disposed the deposited amount.
Issue:
1. w/n Lim et al had the authority to make use of the amount deposited
2. w/n Lim is liable to pay Javellana for the remaining amoun
Ruling:
1. The original contract eveidenced a contract of deposit. However, when Lim asked for an
extension of time obligating himself to pay additional interest, it became a contract of
loan. Hence, Lim et al were lawfully authorized to make use of the amount deposited.
2. As to the contention that Javellana was the one who owed Lim, the latted failed to prove
that he actually paid 5K to Javellana previously. Lim et al are bound to pay the balance
amount owed plus interest.
122) GAVIERES VS. TAVERA Art 1978 Lopez
Facts:
- Doa Ignacia de Gorricho (predecessor-in-interest of Don Manuel Gavieres) allegedly
deposited the amount of 3,000 to Don Felix Pardo de Tavera (predecessor-in-interest of
Trinidad Pardo de Tavera). This agreement was in writing and made on Oct. 31, 1859.
- Gavieres brought this action on Jan. 10, 1900 against Tavera for the recovery of the
balance of the said sum.
- Lower Court ruled in favor of Tavera.
Issue:
- W/n the contract was indeed one for deposit.
Held:
- SC says no. The contract was a loan and not deposit. The obligation of the depositary to
pay interest at the rate of 6% to the depositor suffices to cause the obligation to be
considered a loan
- Furthermore, it makes it evident that it was the intention of the parties that the depositary
should have the right to make use of the amount deposited, since it was stipulated that the
amount could be collected after notice of 2 months in advance. And according to Art.

1978, such fact makes the contract lose the concept of a deposit and it then becomes a
loan.
123) BARON VS. DAVID Art 1978 Mendiola
Facts:
This is a consolidated action brought by Silvestra and Guillermo against Pablo for the
purpose of recovering the value of the palay allegedly sold by Silvestra and Guillermo to Pablo.
Pablo had been running a rice mil in Pampanga. Silvestra (aunt of Pablo) placed a
quantity of palay in Pablos mill. Guillermo (Pablos uncle) also placed a quantity of palay in the
mill. No compensation was ever received by Silvestra for the palay placed. However, Guillermo
received advancements amounting to P2,800. Unfortunately, some moths later, a fire ravaged the
mill and destroyed all the equipment and play stored.
Both Silvestra and Guillermo claim that the palay that they delivered had already been
sold by Pablo; and should, therefore, be paid by Pablo. On the other hand, Pablo claims that the
palay was only deposited; and, therefore, not liable for the loss due to the fortuitous event.
Issue: W/N Pablo is liable for the palay placed in his mill.
Held:
Pablo is responsible and liable for the palay.
It is unquestionable the palay was placed in the mill of Pablo with an understanding that
Pablo was at liberty to convert it into rice and dispose of it. Since palay was coming day in and
out, it was impossible to physically segregate the palay of Guillermo and Silvestra. By the way in
which the palay was handled in the mill, it is quite certain that all of the palay placed by Silvestra
and Guillermo had been disposed long before the fire broke out.
Even supposing that the palay delivered was by way of deposit, nevertheless, if it was
understood that Pablo might mill the palay and appropriate it for his own use, Pablo is of course
bound to account for its value. Under Art. 1978, when the depositary has permission to use the
thing deposited, the contract loses the character of mere deposit and becomes a loan or
commodatum. Because, Pablo had appropriated the palay, he is liable for its value.
124) US VS. IGPAURA Art 1978 Rivas
Facts:
- Igpaura received from Veraguth and Montanilla P2,500 for no other purpose bu to take
care of the amount
- Restitution was demanded by Veraguth and Montanilla but Igpaura refused
- Igpaura was convicted of estafa for swindling Veraguth and Montanilla
- Igpaura claimed that the contract is not for safekeeping but for a loan because Veraguth
and Montanillo failed to claim the money at once.
Issue:

W/N the failure of Vegaruth and Montanilla to claim the money at once gave permission
to Igpaura to use the money
Held:
- No!
- Failure to claim the money at once in demanding the restitution of the thing deposited
does not imply such permission to use the thing deposited and convert the contract into a
loan
- Demand could be made anytime after restitution and this does not operate against the
depositor nor does it signify anything
- The RPC provides that one who uses the thing deposited to the prejudice of the depositor
and deny having received the deposit is guilty of estafa
- It is not the failure to return the deposit that makes one guilty of estafa, it is the
appropriation of the deposit to himself
125) PALACIO VS. SUDARIO Art 1979 Sarenas
Facts:
Palacio made an arrangement with Sudario
o Sudario to raise 81 heads of cattle
o Palacio will give to Sudario of the calves that may be born and pay Sudario 50
cents for each calf branded
Later on, Palacio wants the 81 returned but only 48 were given. Hence the action for the
recovery of the 31 left.
Issue:
W/N Sudario is liable for the remaining cattle
Held:
Yes
Sudarios defense: the 31 cows drowned and some were killed by disease. This was not
sufficiently proven, that some cows were still alive upon the surrender of the 48
Presuming that it is a contract of deposit, the burden of explaining the loss rested upon
the depositary and the fault is presumed to be his. Loss to fortuitous event was not proven
by Sudario.
126) GULLAS VS. NATIONAL BANK Art 1980 Beron
Facts:
The Treasurer of the US for the US Veterans Bureau issued warrant in the amount of $361,
payable to the order of Francisco Bacos. Paulino Gullas and Pedro Lopez signed as indorsers of
this check. Thereupon it was cashed by the PNB. The treasury warrant was dishonored by the
Insular Treasurer.

The Bank on learning of the dishonor of the treasury warrant sent notices by mail to Gullas
which could not be delivered to him at that time because he was in Manila. The bank in that
notice stated that they have applied that outstanding balance in Gullas' accounts.
Checks issued by Gullas against that accounts bounced by reason of the insufficiency of funds
resulting from the application, by the bank, of such account.
Issue:
W/n PNB has the right to apply (compensation) a deposit to the debt of a depositor to the bank.
Held:
YES.
Compensation shall take place when two persons are reciprocally creditor and debtor of each
other. In this connection, it has been held that the relation existing between a depositor and a
bank is that of creditor and debtor. PNB therefore has the right to off set.
However, the remedy of compensation was not properly enforced. Prior to the mailing of notice
of dishonor, and without waiting for any action by Gullas, the bank made use of the money
standing in his account to make good for the treasury warrant
Gullas has a right of action against the bank for its refusal to pay the checks he issued in the
absence of notice to him that the bank has applied the funds so deposited in extinguishment of
past due claims.
127) SERRANO VS. CENTRAL BANK Art 1980 Calinisan
Facts:
Manuel Serrano made a time deposit with the Overseas Bank of Manila for P150T, for
one year at 6% interest.
Concepcion Maneja, wife of FELIXBERTO Serrano, also made a time deposit of P200T
for one year for6 % interest. She later on assigned and conveyed to Manuel her time
deposit.
Notwithstanding series of demands for encashment of the time deposits, not a single one
of them was honored by the Overseas Bank of Manila.
Even before the time deposits were made, the Central Bank decided in its Resolution No.
322 to prohibit the Overseas Bank of Manila from making new loans and investments in
view of its chronic reserve deficiencies against its deposit liabilities.
The Central Bank a few years after its resolution and slightly over a year from the time
deposits made stated above, wanted to close and declare as insolvent the Overseas Bank
of Manila. It also wanted to liquidate its assets.
Serrano wanted to intervene in the case to prevent that eventuality, hence this case.
Obviously, it wanted to get paid. It claimed that the Central Bank should be liable to it as
guarantor, or as form of constructive trust.
Issue:
W/N a constructive trust was formed by the bank and the Central Bank with Serrano.

Held:
No.
Bank deposits are in the nature of irregular deposits. They are really LOANS because
they earn interest. All kinds of bank deposits, whether fixed, savings or current are to be
treated as loans and are to be covered by the law on loans.
Serrano was in reality a creditor, and not a depositor.
Failure of the Overseas Bank to honor the time deposit is failure to pay its obligation as a
debtor and NOT a breach of trust arising from a depositarys failure to return the subject
matter of the deposit.
128) ABOITIZ VS. OQUIENA & CO. Art 1988 Fernandez
Facts:
Aboitiz is the administrator of the estate of Juan Ibaez de Aldecoa (Aboitiz was
appointed, after the first administratorAnastacio de Aldecoadied.)
When Juan de Aldecoa died, Anastacio was able to collect a certain sum (P9k+) from the
formers life insurance. This money was deposited with Oquiena & Co. This was
evidenced by a receipt.
Aboitiz filed a suit to claim this amount plus sum other amount coming from Aldecoas
business with Oquiena.
Lower court favored Aboitiz. On appeal, Oquiena claims that Aboitiz cannot simply
withdraw the amount without a judicial order since the receipt did not give a specific
time.
Issue:
Can Aboitiz withdraw the amount deposited with Oquiena?
Held:
Yes. The document clearly shows that the contract was a deposit without a fixed time. But
exactly for being such, the sum deposited may be withdrawn at any time (Art 1766 of the CC,
now Art 1988 of NCC). The other amount being claimed was a consequence of the continuance
of the transactions between the parties and the account books clearly show this fact.
*Side issue (hindi na sectrans)
There was an issue as to whether Aboitiz can claim from Oquiena & Co (Ltd.) considering that
it was Oquiena & Co. who transacted with Aldecoa. It was proved, however, that when
Oquiena & Co. was dissolved, Oquiena & Co (Ltd.) assumed all the obligations and rights of
the former voluntarily and in good faith. Hence, Aboitiz can claim from it.
129) DELOS SANTOS VS. TAN KHEY Art 1998 del Socorro
Facts:
- Romeo de los Santos was a lodger of the International Hotel owned by Tan Khey

- after arrival, de los Santos left the hotel, depositing his revolver and bag w/ the person in charge
of the hotel
- he returned at night and took back the revolver and bag, and went to his room; he locked the
door before sleeping
- he placed his bag under the bed; inside his bag were his gun, a birthstone ring, eyeglass,
pocketbook containing cash
- when he woke up, the door was open and his pants and bag where he placed his gun were
missing;
- he reported the matter to the assistant manager, who reported to Tan Khey (owner of the hotel),
who also reported to the police
- it was found out that the wall of room was only 7 ft. high w/ an open space above through w/c
one could enter from the outside
- Tan Khey denies liability because de los Santos did not deposit his properties w/ the manager
despite a notice to that effect posted in the hotel
Issue: W/N the hotel is absolved from liability because of the theft of the items inside the
lodgers room.
Held: NO. The hotel is liable for the gun, bag, and pants; but not for the eyeglass, ring, and cash.
- it is not necessary in order to hold an innkeeper liable that the effects of the guest be actually
delivered to him or his employees; it is enough that they are within the inn
- it is the nature of the business of an innkeeper to provide not only lodging for travelers but also
securities to their persons and effects
- the hotel failed to provide adequate security for the protection of the persons and effects of its
guests, despite the exercise of necessary diligence of de los Santos w/ respect to the care and
vigilance of his things (by locking his door and placing the things under his bed)
- but de los Santos may only claim for the value of his bag, gun, and pants
- the requirement by the hotel regulation of actual deposit w/ the manager is unreasonable in this
case, as there is no reason for de los Santos to still deposit his pants and bag
- however, the hotel is not liable for the eyeglass, ring and cash as Tan Khey or the manger was
not notified of these
- the value of the things lost to be compensated is based upon the acquisition price, not the
market value as there is no proof thereof
130) COMMISSIONER OF INTERNAL REVENUE VS. HAWAIIAN-PHILIPPINES CO. Sec. 1
Delgado
Facts:
Hawaiian-Philippine is a sugar central operating in Silay City, Negros Occidental. It produces
centrifugal sugar from the sugarcane planted by the sugar planters or sacadas. The processed
sugar is then divided between the planters and the petitioner. The sugar are stored in the
warehouses of Hawaiian-Philippine free of charge for the first 90 days then if not withdrawn
after the lapse of 90 days, charges P0.30 per month per picul. From 1949-1957, it was able to
collect storage fees as much as P200T. CIR taxed it with P8T as tax for warehouseman as

stipulated in the Internal Revenue Code. Petitioner deposits the amount in the treasurer of Silay
but appeals case to CTA which upheld the decision.
Issue: W/N it is a warehouseman.
Held: YES. A warehouseman has been defined as one who receives and stores goods of another
for compensation.
It is clear from the facts of the case that, after manufacturing the sugar of its planters, respondent
stores it in its warehouses and issues the corresponding quedans to the planters who own the
sugar, that while the sugar is stored free during the first 90 days from the date the quedans are
issued, the undisputed fact is that, upon the expiration of said period, respondent charges and
collects storage fees; that for the period beginning 1949 to 1957, respondents total gross receipts
from this particular enterprise amounted to P212,853.
That respondent stores its planters sugar free of charge for the first 90 days does not exempt it
from liability under the legal provisions under consideration. Were such fact sufficient for that
purpose, the law imposing the tax would be rendered ineffectual.
Nether is the fact that respondents warehousing business is carried in addition to, or in relation
with, the operation of its sugar central sufficient to exempt is from payment of the tax prescribed
in the legal provisions quoted heretofore.
The tax on business is payable for every separate or distinct establishment or place where
business subject to the tax is conducted; and one line of business or occupation does not become
exempt by being conducted with some other business or occupation for which such tax has been
paid.
131) GONZALES VS. GO TIONG Sec. 2 Legaspi
Facts
Go Tiong owned a rice mill and a warehouse
This was secured by a bond executed by Luzon Surety
Prior to the issuance of a license for his business, he recelived 368 sacks from Gonzales
After the licensed was issued, he received an additional 492 sacks
The deliveries had a total of 860 sacks valued at P8,600. This was evidenced by an ordinary
receipt issued to Gonzales.
On March 15, 1953 Gonzales demanded the value of the sacks. He was asked to return after
2 days
Gonzales returned but Go Tiong was unable to pay
Go Tiong also had been accepting deliveries in excess of the 5,000 sacks authorized by his
license
After a few days, the warehouse burned to the ground.
Gonzales files an action to recover the sum of money.
Go Tiong: Gonzales should claim under the civil code because the receipts were ordinary
ones

While the case was pending, there was also an amicable settlement entered into. However,
Go Tiong failed to pay so Gonzales continued prosecuting the case.
CFI: Go Tiong and Luzon Surety should pay
Issue
1. w/n the nature of the receipts would preclude Gonzales from claiming under the warehouse
receipts law
2. w/n the burning of the warehouse would discharge Go Tiong from liability
3. w/n the amicable settlement discharged Luzon Surety
Ruling
1. Gonzales can claim under the warehouse receipts law
the nature of the receipts is not material, the provisions under the law are not mandatory
section 1 also gives the impression that the issuance of a warehouse receipt is merely permissive
because it refers to any receipt
Go Tiong had repeatedly promised Gonzales that he should not worry that the receipts were
ordinary because it was his habit to issue such receipts.
2. The fortuitous event does not discharge Go Tiong because he was already in delay
The trial court also ruled that the fact that he exceeded the limit of the authorized deposit must
have increased the risk and would militate against his defense of non-liability
3. The amicable settlement did not discharge Luzon because the settlement was never
consummated.
132) ROMAN VS. ASIA BANKING CORP. Sec. 7 Lopez
Facts:
- A certain U. de Poli was adjudged an insolvent. This case involves the claims of two of
his creditors over 576 bales of tobacco in U. de Polis possession.
- Felisa Roman claims the tobacco on the strength of Exh. A, which embodied an
agreement between Roman and U. de Poli where the former sold to the latter 2,777 bales
of tobacco (the 576 bales remaining was part of this). The SC said that this sale has
already been consummated by the execution of each ones obligation (4 notes were
issued by U. de Poli as payment for the balance). The claim then of Roman is as to the
remaining balance of the purchase price, which is called a vendors lien.
- Asia Banking Corporation claims the tobacco on the strength of Exh. D, which was a
quedan endorsed in blank by U. de Poli and delivered to Asia Banking. This quedan
stated that the tobacco was transferred to Asia Banking by U. de Poli as security for a
loan extended by the former to the latter.
- The lower court ruled that Roman has a better claim on the tobacco.
Issue:
- Who has a better right to the tobacco?
- W/n the warehouse receipt is negotiable.

Held:
- SC says Asia Banking has the better right. Sec. 49 of Act 2137 says that when a
negotiable receipt has been issued for goods, no sellers lien shall defeat the rights of
any purchaser for value in good faith to whom such receipt has been negotiated. Since,
purchaser in the warehouse receipts law includes a mortgagee and pledgee, the only
thing to be proved is the 2nd issue.
- SC says that it is negotiable. First, the words por orden1 in the warehouse receipt
should be construed as saying a la orden2. This can be gleaned from the evident intent
of the receipt that U. de Poli would have the authority to endorse and deliver the receipt.
Otherwise, then nobody would have the power to do so. Second, the endorsement of the
warehouse receipt was done on the same say of its issuance. Thus, the intent was clear to
make the receipt negotiable. Last, the receipt was not marked non-negotiable
anywhere on it. Thus, according to Sec. 7, it should be treated as negotiable in the
absence of any such indication on its face.
- Thus, Asia Banking Corp. has a better right to the bales of tobacco.
133) BANK OF P. I. VS. HERRIDGE Sec. 7 Mendiola
Facts: Poli was engaged in exportation of Manila hemp and also a licensed warehouseman. In
order to finance his operations, Poli established credits with some leading banks. Poli opened
a current account credit with BPI against which he drew checks in payment of products
bought by him for export. Upon Polis purchase of the products for export, he stored them in
one of his warehouses and warehouse receipts were issued and endorsed by him to the bank.
Poli was declared insolvent. Among the property taken over by the
assignee was the merchandise stored in the various warehouses of Poli. The various banks
holding warehouse receipts lay claim on the merchandise by virtue of the receipts endorsed
to them. The other creditors claim that the receipts were non-negotiable and that their
endorsement conveyed no title; hence, the banks are not entitled to the merchandise.
The lower court adjudged that the merchandise claimed by the banks be
distributed to the banks proportionately.
Issue: W/N the negotiable instruments are negotiable as to give the banks title over the
goods.
Held: The receipts were negotiable. The banks are entitled to the merchandise.
The warehouse receipts were styled quedan and contains all the requisites
mandated by Sec. 2, except that it does not state whether the goods are to be delivered to
bearer or to a specified person or to his order. However, the intention to make it a
negotiable warehouse receipt appears.
1
2
By order
At your service

The warehouse receipts state that he is the owner of the goods, and that there is no
statement that it is to be delivered to bearer of to a specified person or his order. As the
owner of the goods, Poli had full control over them. It cannot be assumed that is was the
intention to have the goods in the warehouse subject to ones orders. That the receipts
were intended to be negotiable is further shown by the fact that they were not marked
nonnegotiable
The contention that the transfer of the receipts as mere securities were of no effect
without a chattel or pledge does not hold water. According to Sec. 58 the purchase
includes mortgage and that the purchaser includes the mortgagee.
134) PNB VS. PRODUCERS WAREHOUSE ASSN. Sec. 8 Rivas
Facts:
Producer's Warehouse Association (PWA) appointed Produce Company as general

manager of its warehouse business subject only to the control of the board of directors of
PWA
Produce Company issued in its own name several quedans or warehouse receipts of PWA
and pleged the quedans to PNB as security to its existing debts
PNB received the quedans in good faith
PNB brought an action against PWA for collection under the said quedans but PWA
refused to deliver
PWA: quedans were invalid and wrongfully issued by Produce Company

: the goods stated in the quedans were not in the warehouse of PWA
Issue:
W/N PWA is bound by the acts of Produce Company and is liable under the said quedans
Held:
Yes!
PWA having alleged that the quedans were invalid and wrongfully issued and that the
copras described were not in his warehouse us estopped from claiming the Produce
Company did not comply with any condition precedent
A person has no legal right to deny the existence of the instrument on which it is based
and them claim that the plaintiff has not complied with the provisions of the instrument
135) CRUZ VS. VALERO Sec. 8 Sarenas
Facts:
Alfredo Cruz deposited in the Luzon Sugar Companys warehouse 1,545 piculs of
centrifugal sugar. He also had a share of 284 more piculs of sugar due to his shares in the
1940-41 crop, and also 5,594 gallons of molasses.
Cruz withdrew certain amounts of sugar and molasses but there were still some amount
left.

When Cruz wanted to withdraw the sugar and molasses that he had stored, Luzon Sugar
was not able to give it to him because Valero, the manager, apparently already sold them
Luzon Sugar on the other hand is contending that they had enough amount of sugar in
their warehouse when Cruz wanted to withdraw. But at the last minute, Japanese planes
bombed the warehouse, which rendered the duty to deliver impossible.
Issue:
W/N Luzon Sugar is liable to Cruz for the sugar
Held:
No, they are not liable for the sugar that was lost.
Using preponderance of evidence, it was shown that indeed Luzon Sugar had enough
sugar in its warehouse to satisfy delivery to Cruz. And that the warehouse was bombed
which made the obligation impossible due to loss of the sugar stored.
It was due to war or fortuitous event.
136) ESTRADA VS. CAR Sec. 8 Beron
Facts:
This is petition filed by the petitioners asking that the manager of the Moncada Bonded
Warehouse and respondent Galvan be declared in contempt of court.
The SC issued a resolution ordering owner or manager of the Moncada Bonded Warehouse to
release and give to Estrada the remaining deposits - 10% of the net produce of the 1st crop minus
P300 and 15% of the net produce of the 2nd crop minus P200. Manager of the Moncada refused
to comply with the said resolution claiming that the original of the receipts of the palay deposits
be presented and surrendered to him.
A resolution was then issued ordering Galvan the surrender of the original of the receipts of the
palay deposits to the manager or owner of the warehouse.
In spite of repeated demands the manager refused to comply with the said orders. He claims that
petitioners could not surrender to him the original of the warehouse receipts. On the other hand,
Galvan's refusal is based on his claim that he could not locate any more receipts as they were lost
when the contents of the Office of Galvan were being desperately evacuated during the fire
which burned Divisoria market.
Held:
The excuses offered by the manager and Galvan are with some merits. The manager has the
right to protect the interests of the bonded warehouse, as the warehouse receipts issued for the
palay might have been negotiated for value in favor of innocent 3rd parties.
Such incidents, however, do not constitute a valid excuse to evade compliance with the order of
this court that the palay be delivered to the petitioner, and considering that the petitioners are in
dire need of said palay for their subsitence.

The court in the dispositive portion of the case, ordered the release of the palays upon the
issuance by said petitioners or their duly authorized representative of the corresponding receipts,
without the necessity of producing and surrendering the original receipts.
137) DMG INC. VS. CONSOLIDATED TERMINALS Sec. 9 Calinisan
Facts:
DMG ordered from Henchel, Werke of Germany certain replacement parts for diesel
conversion engines.
It was shipped by in two cases via the S/S Hamburg. It arrived in Manila intact. It was
immediately placed in the bonded warehouse.
Problem is, when DMG demanded its delivery from Consolidated Terminals (CT), CT
alleges that it had already been released to DMG. DMG says it was an unauthorized
release.
How it was discovered: Mr. Hipolito of DMG went to Consolidated, met with Ms
Torres, who informed him that on the basis of the original delivery permit and a letter of
authority to release the goods signed by one Mr Alteza, the goods were released to one
Mr Sandoval. (Mr Sandoval even had no ID with him, and it was his first time to transact
business with CT)
There is no DMG employee with the name of Mr. Alteza.
Issue:
W/N CT is not liable for releasing/delivering the goods to Mr. Sandoval.
Held:
CT is liable. It was negligent. It did not faithfully comply with its duties and obligations
outlined in the Warehouse Receipts Law (particularly Sec 9).
Mere presentment of the WH receipt is not sufficient. The law requires that the person to
who, the goods should be delivered is one who is either himself entitled to delivery or
who has written authority from the person so entitled.
Presentment of the receipt must be coupled with an ascertainment that the person so
presenting it is rightfully entitled to take delivery of the goods covered by the receipt.
MERE PERMIT TO DELIVER IMPROTED GOODS duly approved by the Bureau of
Customs is NOT ENOUGH.
In case of misdelivery of goods, contributory negligence as a defense must be previously
shown to have been committed; the burden of proof is in himself who alleges it as a
defense; it can not be inferred simply from the fact that, as in the case at bar, persons
other than the consignee or owner were able to take possession of the shipping documents
or the permit papers which were supposed to be in the latters custody; for other
inferences could be equally possible, such as fraud, theft, etc.
CT did not know Mr. Alteza, not did CT call up DMG to ascertain the genuineness of the
authority in writing before delivering the articles.
138) CONSOLIDATED TERMINALS (CTI) VS. ARTEX DEVELOPMENT Sec. 10 Fernandez

Facts:
CTI operates a customs bonded warehouse in Manila.
CTI received 193 bales of raw cotton and agreed that it would keep such goods in behalf
of Luzon Brokerage until Paramount Textile had opened a letter of credit in favor of the
shipper Adolph Hanslik Cotton.
Allegedly by virtue of a forged permit, purportedly issued by the Bureau of Customs,
Artex was able to obtain the cotton after paying storage and handling charges to CTI.
(During this time, the letter of credit had not yet been opened and the corresponding taxes
had not been paid)
CTI moved to recover possession of the cotton plus damages.
The lower court said that CTI has no cause of action.
CTI, on appeal, cites Sec 10 of the Warehouse Receipts Law which provides that when a
warehouseman delivers the goods to one who is not lawfully entitled to possession of
them, such warehouseman shall be liable as for conversion to all having a right of
property or possession in the goods.
Issue:
Can CTI recover the cotton it released to Artex? Can it, likewise, claim for damages?
Held:
No. CTI did not clearly show that, as warehouseman, it has a cause of action for damages against
Artex. The real parties interested in the cotton were Luzon (depositor), Paramount (consignee),
Adolph (shipper) and the Commissioners of Custom and Internal Revenue (for the corresponding
taxes). These parties have not sued CTI for damages or for recovery of the bales of cotton or the
corresponding taxes and duties. Hence, the warehouseman has no cause of action for
repossession and damages.
It would have been different if CTI was held liable on the cotton by the aforementioned parties.
In such case, CTI can sensibly go after Artex for having wrongfully obtained custody of the
goods. (in this case, makulit lang talaga si CTI at pinangunahan pa ang real parties in interest.
Akala niya pwede na siya umaksyon kasi na-peke siya ni Artex)
139) LUA KIAN VS. MRR Sec. 17 del Socorro
Facts:
- Manila Port Service (MPS) as a subsidiary of Manila Railroad Co. operated an arrastre service
pursuant to a Management Contract w/ the Bureau of Customs
- MPS received a shipment of 5,000 cases of Carnation Milk
- 3,171 cases marked for Cebu United Enterprises
- 1,829 cases marked for Lua Kian
- but accdg. to the bill of lading:
- 3,000 cases to Cebu United
- 2,000 cases to Lua Kian
- MPS actually delivered:

- 3,171 cases to Cebu United (excess over 171, as per bill of lading)
- 1,913 cases to Lua Kian (short of 87, as per bill of lading)
- Lua Kian sues to recover the value of the 87 cases short-delivered by MPS
Issue: W/N MPS is liable to Lua Kian for the undelivered cases of milk.
Held: YES.
- the bill of lading in favor of Cebu United indicated that only 3,000 cases were due to said
consignee, although 3,171 cases were marked in its favor
- the excess 171 cases marked "Cebu United" placed MPS in a dilemma, for should it
deliver them to Lua Kian the goods could be claimed by the consignee Cebu United whose
markings they bore, and should it deliver according to markings, to Cebu United, it might be
sued by the consignee, Lua Kian, whose bill of lading indicated that it should receive 171 cases
more
*Solution to the dilemma:
- the legal relationship between an arrastre operator and the consignee is llike that of a depositor
and warehouseman
- as custodian of the goods discharged from the vessel, it was MPS duty, like that of any
ordinary depository, to take good care of the goods and to turn them over to the party entitled to
their possession
- MPS should have withheld delivery because of the discrepancy between the bill of lading and
the markings and conducted its own investigation, like that under Sec. 18 of the Warehouse
Receipts Law, or called upon the parties to interplead, such as in a case under Sec. 17, in order to
determine the rightful owner of the goods
- although the Management Contract exempts the arrastre operator from responsibility for
misdelivery or non-delivery due to improper or insufficient markings, MPS is not excused from
liability because the bill of lading showed that only 3,000 cases were consigned to Cebu United
- the fact that the excess of 171 cases were marked for Cebu United and that the
consignment to Lua Kian was 171 cases less than the 2,000 in the bill of lading, should have
been sufficient reason for the defendant Manila Port Service to withhold the goods pending
determination of their rightful ownership
- MPS is liable without prejudice to its remedy of recovering the excess delivered to Cebu United
140) AMERICAN FOREIGN BANKING CORP. VS. HERRIDGE Sec. 20 Delgado
Facts: U. de Poli, a licensed public warehouseman issued quedan for 560 bales of tobacco
Cagayan Tobacco with specified marks thereon. De Poli certified it, endorsed in blank and
sent to American Foreign Banking Corp. as security for his overdraft of P40T. AFBC asked that
the assignee be ordered to deliver to said bank the tobacco upon surrender of the original of the
warehouse receipt. Assignee denies that is constitutes a negotiable warehouse receipt under the
law. He also averred that De Poli didnt deliver the receipt to transfer ownership but only as
collateral of his overdraft. U de Poli testified that the draft is genuine; tobacco in the bodega is
Calle Azcarraga has been booked and stripped that the amount in the receipt will not coincide
with the quantity in existence. The receipt calls for a Cagayan Tobacco but this case stipulated

that it is Isabela Tobacco. The insolvent U. de Poli explained that he put little importance on
the class of tobacco because he was more concerned on the grade and on its urgency to be
delivered as a collateral security.
Issue: The only question left for consideration is whether the use of the word Cagayan instead
of Isabela in describing the tobacco in the quedan renders the quedan null and void as a
negotiable warehouse receipt intended to be covered by it.
Held: The insolvent, U. de Poli, testified positively that this quedan referred to the tobacco in the
Azcarraga warehouse, and he explained the discrepancy in the description.
The then assignee (Mr. Bayne) was evidently convinced that this lot of tobacco belonged to the
claimant bank, because he pointed it out to one of the banks employees, who noted the tags
thereon bearing the initials of the claimant bank.
The court is of the opinion that the intention of the partied to the transaction must prevail against
such a technical objection as to the sufficiency of the description of the tobacco. It might be
different if there had been Cagayan tobacco in the warehouse at the time of the issuance of the
quedan, Exh. A, or if there were any doubt whatever as to the identity of the tobacco intended to
be covered by the quedan. The assignee stands in the shoes of the insolvent, and, while it is his
duty to protect the general creditors, he is not in the position of a judgment creditor with and
unsatisfied execution.
141) PNB VS. SAYO Sec. 29 Legaspi
Facts:
- Noahs Ark refinery issued quedans to the RNC Merchandising and St. Therese Merchandising.
- These quedans were negotiated to Ramos and Zoleta.
- Both used the quedans as security for their loan agreements with PNB.
- They failed to pay so PNB demanded delivery of the quedans from Noah.
- Noah refused alleging ownership over the goods because the checks drawn by the RNC and St
Therese were dishonored due to insufficiency of funds.
- PNB filed a complaint for specific performance.
The court upheld the lien of Noah. It said that the warehousemans lien is lost when possession
of the goods is surrendered.
- Noah sought to execute the lien, Judge Sayo granted the motion for execution.
- The sheriff levied on the properties of PNB amounting to 734M
Issue:
W/n PNB is liable for storage fees.
Held:
- The fact that the receipt was delivered and endorsed n blank does not alter the situation, the
purpose of the indorsement being merely to transfer juridical possession of the goods to the
pledge and forestall any possible disposition of the part thereof. PNB in this case was a mere
pledgee.
- Where a valid demand by the lawful holder of the quedans is refused by the warehouseman
despite the absence of a lawful excuse provided by the statue itself, the warehousemans lien is

thereafter concomitantly lost. An adverse claim of ownership is not considered as a valid

excuse.
The lies should not go beyond the value of the credit in favor of the pledge. The lien in this case
should be confined to the amount as of the date when Noahs Ark refused to deliver the goods
upon PNBs demand.
- Case is remanded to determine the amount of the lien.
142) PNB VS. ATENDIDO Sec. 38 Lopez
Facts:
- Laureano Atendido obtained a 3,000 loan from PNB.
- To guarantee payment, Atendido pledged 2,000 cavanes of palay, which were then
deposited in the warehouse of Cheng Siong Lam & Co. Atendido endorse the warehouse
receipt to PNB.
- The cavanes of palay mysteriously disappeared.
- When the loan matured, Atendido failed to pay so the present action was instituted.
- Atendido claims that by his delivery of the warehouse receipt to PNB, he also transferred
ownership. He then claims that since PNB was now the owner, that it should be liable for
the loss of the palay and that he should be absolved from liability.
- Lower court ruled in favor of PNB.
Issue:
- W/n Atendido transferred ownership to PNB.
Held:
- SC says no. The 2,000 cavanes of palay covered by the warehouse receipt were given to
PNB only as a guaranty to secure the fulfillment of Atendidos obligation. The very
nature of a pledge is that ownership remains in the pledgor subject only to foreclosure in
case of non-fulfillment of the obligation secured.
- The delivery of the warehouse receipt did not change such. The purpose of the
endorsement of the receipt was merely to transfer juridical possession of the property.
There was no actual transfer of the goods because of the intent to only pledge them and
not to sell.
- Because of this, the cavanes of palay still belonged to Atendido so he should bear the
loss.
143) MARTINEZ VS. PNB Sec. 39 Mendiola
Facts: Rodriguez is indebted to PNB because of a crop loan. The administratrix, Martinez,
endorsed and delivered 2 quedans issued by Bogo-Medellin Milling Co. However, during the
war, the sugar covered by the quedans were lost while in the warehouse of Bogo-Medellin.
According to the CFI, the transfer of the warehouse receipt to PNB did not transfer
ownership of the sugar and consequently, the loss should be borne by Martinez.
Martinez contends that the endorsement and delivery of the quedan to the
bank transferred ownership of the sugar to the bank; hence, the bank should bear the loss.
Martinez made reference to Sec. 41.

Issue: W/N the transfer of the quedans operated as a transfer of ownership of the goods to
PNB.
Held: The transfer of the quedans did not operate as a transfer of ownership of the goods to
PNB.
The transaction involved in the transfer of the quedan is not a sale but a pledge or
security. The transferee or the pledgee doe not become owner of the goods. He may only
have the property sold and then satisfy the obligation from the proceeds of the sale. It is
clear that at the time the sugar was lost during the war, the estate of Pedro Rodriguez was
still the owner of the goods.
The warehouse receipt is transferred to a creditor only to secure payment of a loan
or debt. The transferee does not automatically become the owner of the goods covered by
the receipt. He merely retains the right to keep them and to sell them. If the property is
lost without fault on the part of the transferee, the goods are said to be lost on account of
the real owner.
144) SIY CONG BIENG VS. HONGKONG SHANGHAI BANK Sec. 40, 41, 42 Rivas
Facts:
- Otto Ranft purchased abaca from Siy Cong Bieng & Co.
- The warehouse receipts together with the invoice were sent to Ranft even though payment was
not yet been made by the Ranft. It was understood that the payment of Ranft will be made after
the delivery of the quedans on the very same day of the delivery, Ranft pledged the quedans to
HSBC to secure his preexisting debts with the latter that very same night, Ranft died
- Siy Cong, upon learning of Ranft's death immediately demanded the return of the quedans but
was told that the quedans were already in the possession of HSBC
- HSBC refused to return the quedans to Siy Cong
- RTC: ruled in favor of Siy Cong and ordered HSBC to return the quedans to the former
Issue:
W/N HSBC has the right over the quedans
Held:
YES!
- It must be noted the quedans were negotiable, it was rightfully pledged by Ranft to HSBC, and
the quedans were indorsed by Siy Cong and Ranft
- The delivery of the quedans to the bank, the said quedans were no longer the property of
indorser but of the bank
SEC 40 - Ranft can negotiate the quedans as stated in this section par 2
SEC 41 - because Siy Cong allowed Ranf to have possession over the quedans, the said quedans
were representation of title upon which bona fide purchasers for value (HSBC) are entitled to

rely despite breach of trust between the Siy Cong and Ranft
- As between 2 innocent persons, the loss must be placed upon him whose misplaced
confidence made the loss possible
SEC 47 - the negotiation of the receipt to a purchaser for value without notice is not impaired by
the fact that there is breach of duty or that the owner of the receipt was induced by fraud.

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Security Transactions (Atty.

Lerma): Case Digests

1) PEOPLE V CONCEPCION ART. 1933 (CALINISAN)

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

D) Mina and Pascual, are virtually the owners of the warehouse.

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

9) TAN VS. VALDEHUEZ Art. 1956 Beron

Security Transactions (Atty. Lerma): Case Digests

11) SONCUYA VS. AZARRAGA Art. 1956 Fernandez

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

14) OVERSEAS BANK VS. CORDERO Art. 1956 Legaspi

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

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- attorneys fees equivalent to 25% of the sum to be recovered

Security Transactions (Atty. Lerma): Case Digests

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Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

principal to be computed from date of demand. This interest will

26) EASTERN ASSURANCE AND SURETY VS. CA Usury Mendiola

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Machetti filed a complaint. Hospicio filed a counterclaim for non-compliance of the

29) LIRAG TEXTILE VS. SSS Art. 2047 Beron

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Alfredo Brillantes owed Southern Motors

Issue: w/n mortgage can be foreclosed without exhausting all remedies

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

D) Due to an increase in business (volume), Hermanos required another bond. Manila

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Contentions of people from Batu:

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

He executed a document purporting to be a substantial substitution of agency whereby he

Security Transactions (Atty. Lerma): Case Digests

Security Transactions (Atty. Lerma): Case Digests

60) ARENAS VS. RAYMUNDO Art. 2085 Calinisan