G.R. No.

L-19190 November 29, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee,
vs.
VENANCIO CONCEPCION, defendant-appellant.

FACTS

By telegram and a letter of confirmation to the Aparri Branch of PNB (Philippine

National Bank) the defendant, President and member of the board of directors of PNB,
authorized an extension of credit in favor of "Puno y Concepcion, S. en C.",in the amount of
300,000.00,, a co-partnership where the wife of the defendant held one-half of the capital of this
partnership. This special authorization was essential in view of the memorandum order of the
defendant, limiting the discretional power of the local manager, to grant loans and discount
negotiable documents to P5,000.00.
​Pursuant to the authorization by the defendant, credit aggregating 300,000.00 was granted
the Firm, the only security required consisting of six (6) demand notes, together with the interest,
were taken up about two months later.
Defendant was found guilty for violating Sec. 35 of Act No. 2747 which state that
“The National Bank shall not, directly or indirectly, grant loans to any of the members of
the Board of Directors of the bank nor to agents of the branch banks.” This Section was in effect
in 1919 but was repealed in Act No. 2938 approved on January 30, 1921.

ISSUE/S

I. Was the granting of a credit of P300,000 to the co-partnership a "loan" within the
meaning of section 35 of Act No. 2747 or only a concession of credit?
II. Were the demand letter signed by the firm a loan or a discount?
III. WON the defendant be convicted of a violation of section 35 of Act No. 2747 in
relation with section 49 of the same Act, when these portions of Act No. 2747
were repealed by Act No. 2938, prior to the finding of the information and the
rendition of the judgment.

RULING

I. The concession of a credit necessarily involves the granting of “loans” up to the limit
of the amount fixed in the “credit”.
II. The demand notes signed by the firm were not discount paper but were mere
evidences of indebtedness, because (1) interest was not deducted from the face of
the notes, but was paid when the notes fell due; and (2) they were single-name
and not double-name paper.
III. In the interpretation and construction, the primary rule is to ascertain and give effect
to the intention of the Legislature. Section 49 in relation to Sec. 25 of Act
No. 2747 provides a punishment for any person who shall violate any provisions
of the Act. Defendant contends that the repeal of these Sections by Act No. 2938
has served to take away basis for criminal prosecution. The Court holds that
where an act of the Legislature which penalizes an offense repeals a

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 former act which penalized the same offense, such repeal does not have the
effect of thereafter depriving the Courts of jurisdiction to try, convict and
sentence offenders charged with violations of the old law.

G.R. No. L-33084 November 14, 1988

ROSE PACKING COMPANY, INC., petitioner,
vs.
THE COURT OF APPEALS, HON. PEDRO C. NAVARRO, Judge of the Court of First
Instance of Rizal (Br. III), PHILIPPINE COMMERCIAL & INDUSTRIAL BANK &
PROVINCIAL SHERIFF OF RIZAL, respondents.
FACTS

​This is a petition for review on certiorari of the decision of the Court of Appeals in CA-
G.R. No. 431 98-12 promulgated on December 16, 1070.
On December 12, 1962 respondent bank Philippine Commercial and Industrial Bank (PCIB)
approved a letter request by petitioner for the reactivation of its overdraft line of P50,000.00,
discounting line of P100,000.00 and a letter of credit-trust receipt line of P550,000.00 as well as
an application for loan of P300,000.00 on fully secured real estate and chattel mortgage and on
the further condition that respondent PCIB appoint its executive vice-president Roberto S.
Benedicto as its representative in petitioner’s board of directors.
On November 3, 1965 the National Investment and Development (NIDC), approved a P2.6
million loan application of petitioner with certain conditions. The NIDC released to petitioner the
amount of P 100,000.00. Petitioner purchased five (5) parcels of land in Pasig, Rizal making
down payment thereon.
August 3, 1966 and October 5,, 1966, respondent PCIB approved additional accommodations to
petitioner consisting of P 710,000.00 loan for the payment of the balance of the purchase price of
those lots in Pasig. However, PCIB released only P 300,000.00 of the P 710,000.00 on approved
loan for the payment of the Pasig lands and some P 300, 000.00 for operating capital.
On June 29 1967, the Development Bank of the Philippines approved on application by
petitioner for a loan of P 1,840,000.00 and a guarantee for $ 652,682.00 for the purchase of can
making equipment. Petitioner advised respondent PCIB of the availability of P 800,000.00 to
partially pay off its account and requested the release of the titles to the Pasig lots for delivery to
the DBP.
On January 5, 1968 respondent PCIB filed a complaint against petitioner and Rene Knecht, its
president for the collection of petitioner’s indebtedness to respondent bank. The PCIB gave
petitioner notice that it would cause the real estate mortgage to be foreclosed at an auction sale.
Petitioner filed a complaint in the Court of First Instance of Rizal to enjoin respondents PCIB
and the sheriff from the proceeding with the foreclosure sale, and to ask the lower court to fix a
new period for the payment of the obligations of petitioner to PCIB. The lower court issued an
order denying the petition. The petitioner filed with respondent Court of Appeals a petition for
certiorari with application for restraining order and preliminary injunction. Hence, the petition is
also denied.

ISSUE
​Whether or not private respondent have the right to the extra-judicial foreclosure sale of
petitioner’s mortgaged properties before trial on the merits.

RULING

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 ​(1) The decision of the Court of Appeals is REVERSED insofar as it sustained (a) the
lower court’s denial of petitioner’s application for preliminary injunction and (b) the validity of
the foreclosure sale; (2) the lower court is ordered to proceed with the trial on the merits of the
main case together with a determination of exactly how much are petitioner’s liabilities in favor
of respondent bank PCIB so that proper measures may be taken for their eventual liquidation; (3)
the preliminary
Injunction issued by this Court on April 28, 1971 remains in force until the merits of the main
case are resolved; and (4) the motion of respondent bank dated April 1, 1981, for leave to lease
the real properties in custodia legis is denied.
The loans of petitioner corporation from respondent bank were supposed to become due only at
the time that if receives from the NIDC and PDCP the proceeds of the approved scheme. As it is,
the conditions did not happen.
For an obligation to become due there must generally a demand. Default generally begins from
the moment the creditor demands the performance of the obligation. Without such demand,
judicial or extra-judicial, the effects of default will not arise.

​ ​ ​ ​ ​ ​ ​ ​
GR No. 133632, 15 February 2002
377 SCRA 117

BPI INVESTMENT CORPORATION

VS.
COURT OF APPEALS

FACTS

Frank Roa obtained a loan from Ayala Investment and Development Corporation (AIDC), for the
construction of his house. Said house and lot were mortgaged to AIDC to secure the loan. Roa
sold the properties to ALS and Litonjua, the latter paid in cash and assumed the balance of Roa’s
indebtedness wit AIDC. AIDC was not willing to extend the old interest to private respondents
and proposed a grant of new loan of P500,000 with higher interest to be applied to Roa’s debt,
secured by the same property. Private respondents executed a mortgage deed containing the
stipulation. The loan contract was signed on 31 March 1981 and was perfected on 13 September
1982, when the full loan was released to private respondents.

BPIIC, AIDC’s predecessor, released to private respondents P7,146.87, purporting to be what

was left of their loan after full payment of Roa’s loan. BPIIC filed for foreclosure proceedings on
the ground that private respondents failed to pay the mortgage indebtedness. Private respondents
maintained that they should not be made to pay amortization before the actual release of the
P500,000 loan. The suit was dismissed and affirmed by the CA.

ISSUE
WON a contract of loan is a consensual contract

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 RULING

​A loan contract is not a consensual contract but a real contract. It is perfected upon
delivery of the object of the contract. Although a perfected consensual contract can give rise to
an action for damages, it does not constitute a real contract which requires delivery for
perfection. A perfected real contract gives rise only to obligations on the part of the borrower.
In the present case, the loan contract was only perfected on the date of the second release of the
loan.A contract of loan involves a reciprocal obligation, wherein the obligation or promise of
each party is the consideration for that of the other. It is a basic principle in reciprocal obligations
that neither party incurs in delay, if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Only when a party has performed his part of
the contract can he demand that the other party also fulfills his own obligation and if the latter
fails, default sets in.

​ ​ ​ ​ ​ ​ ​ ​
CENTRAL BANK OF THE PHILIPPINES V. CA, 139 SCRA 46 (1985)

FACTS
Tolentino made a loan from Island Savings Bank secured by a mortgage. The Bank did
not release the whole amount but only a portion thereof. Later, the Bank experienced liquidity
problems and the Monetary Board of Central Bank prohibited it from making new loans and
much later, from doing business in the Philippines. Thereafter, the Acting Superintendent of
Central Bank took charge of its assets. Upon expiration of the loan term, the Bank filed
extrajudicial foreclosure of the mortgage.

ISSUE
Whether or not there was a perfected contract of loan when only a portion of the amount
was delivered?

RULING
The Supreme Court held that there was only partial delivery. As such, the contract is
deemed perfect only in so far as what has been delivered. The mortgage cannot be entirely
foreclosed, except for up to the amount of the actual amount released, but the Bank can recover
the interest of the partial loan. Tolentino cannot anymore demand the remaining amount of the
loan from the Bank because he defaulted on his payment. His liability offsets the liability of the
Bank to him.

BONNEVIE V. CA, GR NO. L-49101 OCTOBER 24, 1983

FACTS

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 Spouses Lozano mortgaged their property to secure the payment of a loan amounting to
75K with private respondent Philippine Bank of Communication (PBCom). The deed of
mortgage was executed on 12-6-66, but the loan proceeeds were received only on 12-12-66. Two
days after the execution of the deed of mortgage, the spouses sold the property to the petitioner
Bonnevie for and in consideration of 100k—25K of which payable to the spouses and 75K as
payment to PBCom. Afterwhich, Bonnevie defaulted payments to PBCom prompting the latter to
auction the property after Bonnivie failed to settle despite subsequent demands, in order to
recover the amount loaned. The latter now assails the validity of the mortgage between Lozano
and Pbcom arguing that on the day the deed was executed there was yet no principal obligation
to secure as the loan of P75,000.00 was not received by the Lozano spouses, so that in the
absence of a principal obligation, there is want of consideration in the accessory contract, which
consequently impairs its validity and fatally affects its very existence.

ISSUE
Whether or not there was a perfected contract of loan?

RULING
Yes. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage
deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that
the latter did not collect from the respondent Bank the consideration of the mortgage on the date
it was executed is immaterial. A contract of loan being a consensual contract, the herein contract
of loan was perfected at the same time the contract of mortgage was executed. The promissory
note executed on December 12, 1966 is only an evidence of indebtedness and does not indicate
lack of consideration of the mortgage at the time of its execution.

PAJUYO V. CA, GR NO. 146364 JUNE 3, 2004

FACTS
Pajuyo entrusted a house to Guevara for the latter's use provided he should return the
same upon demand and with the condition that Guevara should be responsible of the
maintenance of the property. Upon demand Guevara refused to return the property to Pajuyo.
The petitioner then filed an ejectment case against Guevara with the MTC who ruled in favor of
the petitioner. On appeal with the CA, the appellate court reversed the judgment of the lower
court on the ground that both parties are illegal settlers on the property thus have no legal right so
that the Court should leave the present situation with respect to possession of the property as it is,
and ruling further that the contractual relationship of Pajuyo and Guevara was that of a
commodatum.
ISSUE
Whether or not the contractual relationship of Pajuyo and Guevara that of a
commodatum?

RULING
No. The Court of Appeals’ theory that the Kasunduan is one of commodatum is devoid of
merit. In a contract of commodatum, one of the parties delivers to another something not
consumable so that the latter may use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of

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 the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return
of the thing loaned until after expiration of the period stipulated, or after accomplishment of the
use for which the commodatum is constituted. If the bailor should have urgent need of the thing,
he may demand its return for temporary use. If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case the contractual relation is
called a precarium. Under the Civil Code, precarium is a kind of commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition of this obligation makes the
Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment has treated relationship based on
tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission
would result in the termination of the lease. The tenant’s withholding of the property would then
be unlawful.

PRODUCERS BANK OF THE PHILIPPINES VS. COURT OF APPEALS AND

FRANKLIN VIVES
G.R. NO. 115324, FEBRUARY 19, 2003

FACTS
In 1979, private respondent Franklin Vives was asked by Angeles Sanchez to help Col.
Arturo Doronilla, in incorporating his business, the Sterela Marketing and Services (Sterela for
brevity). Specifically, Sanchez asked private respondent to deposit in a bank a certain amount of
money in the bank account of Sterela for purposes of its incorporation. She assured private
respondent that he could withdraw his money from said account within a month’s time.
Relying on the assurances and representations of Sanchez and Doronilla, private respondent
issued a check in the amount of P200,000.00 in favor of Sterela. Private respondent’s wife, Mrs.
Inocencia Vives accompanied Sanchez in opening a savings account in the name of Sterela in
Producers Bank of the Philippines. They had with them an authorization letter from Doronilla
authorizing Sanchez and her companions, in coordination with Mr. Rufo Atienza, to open an
account for Sterela Marketing Services in the amount of P200,000.00. In opening the account,
the authorized signatories were Inocencia Vives and/or Angeles Sanchez. A passbook for
Savings Account No. 10-1567 was thereafter issued to Mrs. Vives.
When private respondent subsequently learned that Sterela was no longer holding office in
the address previously given to him, he and his wife went to the Bank to verify if their money
was still intact. The bank manager referred them to Mr. Rufo Atienza, the assistant manager, who
informed them that part of the money in Savings Account No. 10-1567 had been withdrawn by
Doronilla, and that only P90,000.00 remained therein. He likewise told them that Mrs. Vives
could not withdraw said remaining amount because it had to answer for some postdated checks
issued by Doronilla. According to Atienza, after Mrs. Vives and Sanchez opened Savings
Account No. 10-1567, Doronilla opened Current Account No. 10-0320 for Sterela and
authorized the Bank to debit Savings Account No. 10-1567 for the amounts necessary to cover
overdrawings in Current Account No. 10-0320. In opening said current account, Sterela, through
Doronilla, obtained a loan of P175,000.00 from the Bank. To cover payment thereof, Doronilla
issued three postdated checks, all of which were dishonored. Atienza also said that Doronilla
could assign or withdraw the money in Savings Account No. 10-1567 because he was the sole
proprietor of Sterela.
Private respondent tried to get in touch with Doronilla through Sanchez. On August 13,
1979, Doronilla issued a postdated check for P212,000.00 in favor of private
respondent. However, upon presentment thereof by private respondent to the drawee bank, the
check was dishonored. Doronilla requested private respondent to present the same check on
September 15, 1979 but when the latter presented the check, it was again dishonored.

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 Private respondent referred the matter to a lawyer, who made a written demand upon
Doronilla for the return of his client’s money. Doronilla issued another check for P212,000.00 in
private respondents favor but the check was again dishonored for insufficiency of funds.

ISSUES

1. Whether or not the transaction between Doronilla and Vives was one of simple loan.
2. Whether or not the petitioner is jointly and severally liable with the other defendants.

RULING

1. No. The transaction between Doronilla and Vives was a commodatum and not a mutuum.A
circumspect examination of the records reveals that the transaction between them
wasa commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:
By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which
case the contract is called a commodatum; or money or other consumable thing, upon
the condition that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable
thing, such as money, the contract would be a mutuum. However, there are some instances where
a commodatum may have for its object a consumable thing. Article 1936 of the Civil Code
provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is
not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention
of the parties is to lend consumable goods and to have the very same goods returned at the end of
the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial consideration
in determining the actual character of a contract. In case of doubt, the contemporaneous and
subsequent acts of the parties shall be considered in such determination.
As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows
that private respondent agreed to deposit his money in the savings account of Sterela specifically
for the purpose of making it appear that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned within thirty (30) days.Private
respondent merely accommodated Doronilla by lending his money without consideration, as a
favor to his good friend Sanchez. It was however clear to the parties to the transaction that the
money would not be removed from Sterela’s savings account and would be returned to private
respondent after thirty (30) days.
Doronillas attempts to return to private respondent the amount of P200,000.00 which the
latter deposited in Sterela’s account together with an additional P12,000.00, allegedly
representing interest on the mutuum, did not convert the transaction from a commodatum into
a mutuum because such was not the intent of the parties and because the additional P12,000.00

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 corresponds to the fruits of the lending of the P200,000.00. Article 1935 of the Civil Code
expressly states that the bailee in commodatum acquires the use of the thing loaned but not its
fruits. Hence, it was only proper for Doronilla to remit to private respondent the interest accruing
to the latter’s money deposited with petitioner.
2. Yes. The petitioner is jointly and severally liable with the other defendants.
The nature of said transaction, that is, whether it is a mutuum or a commodatum, has no
bearing on the question of petitioners liability for the return of private respondents money
because the factual circumstances of the case clearly show that petitioner, through its employee
Mr. Atienza, was partly responsible for the loss of private respondents money and is liable for its
restitution.
Petitioner’s rules for savings deposits written on the passbook it issued to Mrs. Vives on
behalf of Sterela for Savings Account No. 10-1567 expressly states that:
Deposits and withdrawals must be made by the depositor personally or upon his written
authority duly authenticated, and neither a deposit nor a withdrawal will be permitted
except upon the production of the depositor savings bank book in which will be entered
by the Bank the amount deposited or withdrawn.
Said rule notwithstanding, Doronilla was permitted by petitioner, through Atienza, the
Assistant Branch Manager for the Buendia Branch of petitioner, to withdraw therefrom even
without presenting the passbook (which Atienza very well knew was in the possession of Mrs.
Vives), not just once, but several times. Both the Court of Appeals and the trial court found that
Atienza allowed said withdrawals because he was party to Doronillas scheme of defrauding
private respondent.
Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily liable
for damages caused by their employees acting within the scope of their assigned tasks. To hold
the employer liable under this provision, it must be shown that an employer-employee
relationship exists, and that the employee was acting within the scope of his assigned task when
the act complained of was committed. There is no dispute that Atienza was an employee of
petitioner. Furthermore, petitioner did not deny that Atienza was acting within the scope of his
authority as Assistant Branch Manager when he assisted Doronilla in withdrawing funds from
Sterela’s Savings Account No. 10-1567, in which account private respondents money was
deposited, and in transferring the money withdrawn to Sterela’s Current Account with
petitioner. Atienza’s acts of helping Doronilla, a customer of the petitioner, were obviously done
in furtherance of petitioners interests even though in the process, Atienza violated some of
petitioner’s rules such as those stipulated in its savings account passbook. It was established that
the transfer of funds from Sterela’s savings account to its current account could not have been
accomplished by Doronilla without the invaluable assistance of Atienza, and that it was their
connivance which was the cause of private respondent’s loss.
The foregoing shows that the Court of Appeals correctly held that under Article 2180 of the
Civil Code, petitioner is liable for private respondents loss and is solidarily liable with Doronilla
and Dumagpi for the return of the P200,000.00 since it is clear that petitioner failed to prove that
it exercised due diligence to prevent the unauthorized withdrawals from Sterela’s savings
account, and that it was not negligent in the selection and supervision of Atienza.
Petition is hereby denied.

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 QUINTOS AND ANSALDO VS BECK, G.R. NO. L-46240 NOVEMBER 3, 1939
FACTS
The defendant was a tenant of the plaintiff. Upon the novation of the contract of lease
between the plaintiff and the defendant, the former gratuitously granted to the latter the use of the
furniture, subject to the condition that the defendant would return them to the plaintiff upon the
latter's demand. The plaintiff sold the property to Maria Lopez and Rosario Lopez they notified
the defendant of the conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease. Thereafter, the plaintiff required the defendant to return all the
furniture transferred to him for them in the house where they were found.
The defendant wrote letter to the plaintiff informing her that he could not give up the
three gas heaters and the four electric lamps because he would use them until the lease was due
to expire. The plaintiff refused to get the furniture in view of the fact that the defendant had
declined to make delivery of all of them. Before vacating the house, the defendant deposited with
the Sheriff all the furniture belonging to the plaintiff and they are now on deposit in the
warehouse in the custody of the said sheriff.

ISSUE
Whether or not the defendant complied with his obligation to return the furniture upon
the plaintiff’s demand.

RULING
No.
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself to return the furniture to the
plaintiff, upon the latters demand. The obligation voluntarily assumed by the defendant to return
the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff
at the latter's residence or house. The defendant did not comply with this obligation when he
merely placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters
and the four electric lamps. The provisions of article 1169 of the Civil Code cited by counsel for
the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply with her obligation to get the furniture when they
were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff,
upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned
by the deposit of the furniture at the defendant's behest. The latter, as bailee, was not entitled to
place the furniture on deposit; nor was the plaintiff under a duty to accept the offer to return the
furniture, because the defendant wanted to retain the three gas heaters and the four electric
lamps.
The costs of litigation and deposit fee should be borne by the defendant because the
plaintiff is the prevailing party. The defendant was the one who breached the contract
of commodatum, and without any reason he refused to return and deliver all the furniture upon
the plaintiff's demand. In these circumstances, it is just and equitable that he pay the legal
expenses and other judicial costs which the plaintiff would not have otherwise defrayed.
The defendant is ordered to return and deliver to the plaintiff’s residence or house.
YONG CHAN KIM VS. PEOPLE OF THE PHILIPPINES, G.R. NO. 84719 JANUARY 25,
1991
FACTS

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 Petitioner Yong Chan Kim was employed as a Researcher at the Aquaculture Department
of the Southeast Asian Fisheries Development Center (SEAFDEC) with head station at
Tigbauan, Iloilo. As Head of the Economics Unit of the Research Division, he conducted prawn
surveys which required him to travel to various selected provinces in the country where there are
potentials for prawn culture.
On 15 June 1982, petitioner was issued Travel Order No. 2222 which covered his travels
to different places in Luzon from 16 June to 21 July 1982, a period of thirty five (35) days.
Under this travel order, he received P6,438.00 as cash advance to defray his travel expenses.
Within the same period, petitioner was issued another travel order, T.O. 2268, requiring
him to travel from the Head Station at Tigbauan, Iloilo to Roxas City from 30 June to 4 July
1982, a period of five (5) days. For this travel order, petitioner received a cash advance of
P495.00.
On 14 January 1983, petitioner presented both travel orders for liquidation, submitting
Travel Expense Reports to the Accounting Section. When the Travel Expense Reports were
audited, it was discovered that there was an overlap of four (4) days (30 June to 3 July 1982) in
the two (2) travel orders for which petitioner collected per diems twice. In sum, the total amount
in the form of per diems and allowances charged and collected by petitioner under Travel Order
No. 2222, when he did not actually and physically travel as represented by his liquidation papers,
was P1,230.00.
Petitioner was required to comment on the internal auditor's report regarding the alleged
anomalous claim for per diems. In his reply, petitioner denied the alleged anomaly, claiming that
he made make-up trips to compensate for the trips he failed to undertake under T.O. 2222
because he was recalled to the head office and given another assignment.
In September 1983, two complaints for Estafa were filed against the petitioner before the
Municipal Circuit Trial Court at Guimbal, Iloilo.

ISSUE
Whether or not petitioner is under obligation to return the same money (cash advance)
which he had received.

RULING
No.
Under Executive Order No. 10, dated 12 February 1980, all cash advances must be
liquidated within 30 days after date of projected return of the person. Otherwise, corresponding
salary deduction shall be made immediately following the expiration day.
Liquidation simply means the settling of an indebtedness. An employee, such as herein
petitioner, who liquidates a cash advance is in fact paying back his debt in the form of a loan of
money advanced to him by his employer, as per diems and allowances. In other words, the
money advanced by either party is actually a loan to the other. Hence, petitioner was under no
legal obligation to return the same cash or money, i.e., the bills or coins, which he received from
the private respondent.
Article 1933 and Article 1953 of the Civil Code define the nature of a simple loan.
Art. 1933. By the contract of loan, one of the parties delivers to another, either something
not consumable so that the latter may use the same for a certain time and return it, in
which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower.

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 Art. 1953. A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality.
The ruling of the trial judge that ownership of the cash advanced to the petitioner by
private respondent was not transferred to the latter is erroneous. Ownership of the money was
transferred to the petitioner.
Since ownership of the money (cash advance) was transferred to petitioner, no fiduciary
relationship was created. Absent this fiduciary relationship between petitioner and private
respondent, which is an essential element of the crime of estafa by misappropriation or
conversion, petitioner could not have committed estafa.
Additionally, it has been the policy of private respondent that all cash advances not
liquidated are to be deducted correspondingly from the salary of the employee concerned. The
evidence shows that the corresponding salary deduction was made in the case of petitioner vis-a-
vis the cash advance in question.
Petitioner is ACQUITTED of criminal charge filed against him.

CONSOLIDATED BANK VS CA, GR NO. 114286, 19 APRIL 2001, 356 SCRA 671

FACTS

Continental Cement Corp obtained from Consolidated Bank letter of credit used to
purchased 500,000 liters of bunker fuel oil. Respondent Corporation made a marginal deposit to
petitioner. A trust receipt was executed by Respondent Corporation, with respondent Gregory
Lim as signatory.

Claiming that respondents failed to turn over the goods or proceeds, petitioner filed a
complaint for sum of money before the RTC of Manila. In their answer, respondents aver that the
transaction was a simple loan and not a trust receipt one, and tht the amount claimed by
petitioner did not take into account payments already made by them.

The court dismissed the complaint, CA affirmed the same.

ISSUE

Whether or not the marginal deposit should not be deducted outright from the amount of
the letter of credit.

RULING

No. Petitioner argues that the marginal deposit should be considered only after computing
the principal plus accrued interest and other charges. It could be onerous to compute interest and
other charges on the face value of the letter of credit which a bank issued, without first crediting
or setting off the marginal deposit which the borrower paid to it-compensation is proper and
should take effect by operation of law because the requisited in Art. 1279 are present and should

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 extinguish both debts to the concurrent amount. Unjust enrichment.

​ ​ ​ ​ ​ ​ ​ ​

COLINARES V CA G.R. NO. 90828. SEPTEMBER 5, 2000

FACTS

Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s
convent at Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter of
credit with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in
favor of CM Builders Centre. PBC approved the letter of credit to cover the full invoice value of
the goods. Petitioners signed a pro-forma trust receipt as security.
​
​PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the loan.
After the initial payment, the spouses defaulted. PBC wrote to Petitioners demanding that the
amount be paid within seven days from notice. Instead of complying with PBC’s demand, Veloso
confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace
period of until 15 June 1980 to settle the account Colinares proposed that the terms of payment
of the loan be modified P2,000 on or before 3 December 1980, and P1,000 per month . Pending
approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981. Concurrently with the
separate demand for attorney’s fees by PBC’s legal counsel, PBC continued to demand payment
of the balance. On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115
(Trust Receipts Law) in relation to Article 315 of the Revised Penal Code

​During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per
verbal guarantee of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner Colinares
signed the documents without reading the fine print, only learning of the trust receipt implication
much later. When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust
receipt was a mere formality. The Trust Receipts Law does not seek to enforce payment of the
loan, rather it punishes the dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of another regardless of whether the latter is the owner. Here, it is crystal
clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the
handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their
obligations, as shown by several receipts issued by PBC acknowledging payment of the loan.

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 ISSUE

Whether or not the transaction of Colinares falls within the ambit of the Law on Trust
Receipt

RULING

Colinares received the merchandise from CM Builders Centre on 30 October 1979. On

that day, ownership over the merchandise was already transferred to Petitioners who were to use
the materials for their construction project. It was only a day later, 31 October 1979 that they
went to the bank to apply for a loan to pay for the merchandise. This situation belies what
normally obtains in a pure trust receipt transaction where goods are owned by the bank and only
released to the importer in trust subsequent to the grant of the loan.

The bank acquires a “security interest” in the goods as holder of a security title for the
advances it had made to the entrustee. The ownership of the merchandise continues to be vested
in the person who had advanced payment until he has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale should be turned over to him by the importer or by his
representative or successor in interest. To secure that the bank shall be paid, it takes full title to
the goods at the very beginning and continues to hold that title as his indispensable security until
the goods are sold and the vendee is called upon to pay for them; hence, the importer has never
owned the goods and is not able to deliver possession.

In a certain manner, trust receipts partake of the nature of a conditional sale where the
importer becomes absolute owner of the imported merchandise as soon as he has paid its price.
There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to deliver it to
the owner of the merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to “return” it to the owner. Failure of the entrustee to
turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to
return said goods if they were not disposed of in accordance with the terms of the trust receipt
shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of
proving intent to defraud.

PEOPLE OF THE PHILIPPINES vs. TERESITA PUIG and ROMEO PORRAS

G.R. NOS. 173654-765 AUGUST 28, 2008

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 FACTS

On 7 November 2005, the Iloilo Provincial Prosecutor's Office filed before RTC in
Dumangas, Iloilo, 112 cases of Qualified Theft against respondents Teresita Puig (Puig) and
Romeo Porras (Porras) who were the Cashier and Bookkeeper, respectively, of private
complainant Rural Bank of Pototan, Inc. It was alleged in the information that Teresita Puig and
Romeo Porras took away P15,000 without the consent of the owner Bank to the prejudice and
damage of the bank.
The RTC dismissed the case for insufficiency of the information ruling that the real
parties in interest are the depositors-clients and not the bankbecause the bank does not acquire
ownership of the money deposited in it. Hence, petitioner Rural Bank went directly to the court
via petition for certiorari. Petitioner explains that underArticle 1980 of the New Civil Code,
"fixed, savings, and current deposits of money in banks and similar institutions shall be governed
by the provisions concerning simple loans."

Corollary thereto, Article 1953 of the same Code provides that "a person who receives a
loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to
the creditor an equal amount of the same kind and quality." Thus, it posits that the depositors
who place their money with the bank are considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the money taken by respondents as
belonging to the bank.

ISSUE

Whether or not the Bank acquired ownership of the money deposited in it to be able
tohold the respondents liable for qualified theft which requires that there must be taking of the
money without the consent of the owners.

RULING

The petition is meritorious. Banks where monies are deposited, are considered the owners
thereof. This is very clear not only from the express provisions of the law, but from established
jurisprudence. The relationship between banks and depositors has been held to bethat of creditor
and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by
petitioner, provide as follows:

·Article 1953.A person who receives a loan of money or any other

Fungible thing acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality.
·Article 1980. Fixed, savings, and current deposits of money in banks andSimilar institutions
shall be governed by the provisions concerning loan.

In a long line of cases involving Qualified Theft, the Court has firmly established the
nature of possession by the Bank of the money deposits therein, and the duties being performed
by its employees who have custody of the money or have come into possession of it. The Court
has consistently considered the allegations in the Information that such employees acted with
grave abuse of confidence, to the damage and prejudice of the Bank, without particularly
referring to it as owner of the money deposits, as sufficient to make out acase of Qualified Theft.
In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank due to the

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 confidence reposed in them, occupy positions of confidence.
​

BPI FAMILY BANK VS. AMADO FRANCO AND CA

G.R. NO. 123498
NOVEMBER 23, 2007

FACTS

A case was filed for an ostensible fraud was allegedly perpetrated on the petitioner BPI
Family Bank (BPI-FB) byrespondent Amado Franco (Franco) in conspiracy with other
individuals, some of whom opened and maintainedseparate accounts with BPI-FB, San Francisco
del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a

savings and current accountwith BPI-FB. On August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a timedeposit account with the same branch of BPI-FB with a
deposit of ₱100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,
savings, and time deposit,with BPI-FB. The current and savings accounts were respectively
funded with an initial deposit of ₱500,000.00each, while the time deposit account had
₱1,000,000.00 with a maturity date of August 31, 1990. The total amountof ₱2,000,000.00 used
to open these accounts is traceable to a check issued by Tevesteco allegedly inconsideration of
Franco’s introduction of Eladio Teves, who was looking for a conduit bank to facilitate
Tevesteco’sbusiness transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch
Manager. The funding forthe ₱2,000,000.00 check was part of the ₱80,000,000.00 debited by
BPI-FB from FMIC’s time deposit account andcredited to Tevesteco’s current account pursuant
to an Authority to Debit purportedly signed by FMIC’s officers.

However, on September 4, 1989, upon being shown the Authority to debit to Antonio
Ong, declared that the signatures of FMIC’s officers on the Authority to Debit were forged.
Unfortunately, Tevesteco had already effected several withdrawals from its current
accountamounting to ₱37,455,410.54, includingthe ₱2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s
forgery claim, BPI-FB thru its Senior Vice-President, Severino Coronacion, instructed Jesus
Arangorinto debit Franco’s savings and currentaccounts for the amounts remaining therein.
However, Franco’s time deposit account could not be debited due tothe capacity limitations of
BPI-FB’s computer.

Apparently, Franco’s currentaccount was garnished by virtue of an Order of Attachment

issued by the Regional Trial Court of Makati (MakatiRTC) which had been filed by BPI-FB
against Franco et al., to recoverthe ₱37,455,410.54 representing Tevesteco’s total withdrawals
from its account which caused two of the checksdrawn by Franco against his BPI-FB current
account dishonored uponpresentment for payment, and stamped with a notation "account under
garnishment."

The dishonored checks were issued by Franco and presented for payment at BPI-FB prior
to Franco’sreceipt of notice that his accounts were under garnishment. In fact, at the time the
Notice of Garnishment datedSeptember 27, 1989 was served on BPI-FB, Franco had yet to be

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 impleaded in the Makati case where the writ ofattachment was issued.

It was only on May 15, 1990, through the service of a copy of the second amended
complaint that Franco was impleaded in the Makati case.Immediately, upon receipt of such copy,
Franco filed aMotion to Discharge Attachment which the Makati RTC granted on May 16, 1990.
The Order Lifting the Order ofAttachment was served on BPI-FB on even date, with Franco
demanding the release to him of the funds in hissavings and current accounts. Jesus Arangorin,
BPI-FB’s new manager, could not forthwith comply with the demandas the funds, as previously
stated, had already been debited because of FMIC’s forgery claim. As such, BPI-FB’s
computer at the SFDM Branch indicated that the current account record was "not on file."

With respect to Franco’s savings account, it appears that Franco agreed to an

arrangement, as a favor to Sebastian,whereby ₱400,000.00 from his savings account was
temporarily transferred to Domingo Quiaoit’s savings account,subject to its immediate return
upon issuance of a certificate of deposit which Quiaoit needed in connection with hisvisa
application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of
Quiaoit’s savingsaccount passbook to ensure that no withdrawal would be effected therefrom,
and to preserve Franco’s deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the
amount of ₱63,189.00 fromthe remaining balance of the time deposit account representing
advance interest paid to him.These transactions spawned a number of cases, some of which we
had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of ₱80,000,000.00
debited from its account which eventually reached this Court, and in BPI Family Savings Bank,
Inc. v. First Metro InvestmentCorporation, we upheld the finding of the courts below that BPI-
FB failed to exercise the degree of diligencerequired by the nature of its obligation to treat the
accounts of its depositors with meticulous care. Thus, BPI-FB wasfound liable to FMIC for the
debited amount in its time deposit. It was ordered to pay ₱65,332,321.99 plus interest at17% per
annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at
12% fromOctober 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica

(Buenaventura, et al.), recipients of a₱500,000.00 check proceeding from the ₱80,000,000.00
mistakenly credited to Tevesteco, likewise filed suit.Buenaventura et al., as in the case of Franco,
were also prevented from effecting withdrawalsfrom their currentaccount with BPI-FB,
Bonifacio Market, Edsa, Caloocan City Branch. When the case was elevated to this Court, we
ruled that BPI-FB had no right to freeze Buenaventura,et al.’s accounts and adjudged BPI-FB
liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be
the perpetrators of the multimillionpeso scam. In the criminal case, Franco, along with the other
accused, except for Manuel Bienvenida whowas still at large, were acquitted of the crime of
Estafa.However, the civil caseremains under litigation and the respective rights and liabilities of
the parties have yet to be adjudicated.

Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his

accounts and release hisdeposits therein, the latter filed on June 4, 1990 with the Manila RTC the
subject suit. In his complaint, Francoprayed for the following reliefs: (1) the interest on the
remaining balance of his current account which waseventually released to him on October 31,
1991; (2) the balance on his savings account, plus interest thereon; (3)the advance interest27 paid
to him which had been deducted when he pre-terminated his time deposit account; and
(4) the payment of actual, moral and exemplary damages, as well as attorney’s fees.

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 BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of
Franco and refusing torelease his deposits, claiming that it had a better right to the amounts
which consisted of part of the money allegedlyfraudulently withdrawn from it by Tevesteco and
ending up in Franco’s accounts. BPI-FB asseverated that theclaimed consideration of
₱2,000,000.00 for the introduction facilitated by Franco between George Daantos andEladio
Teves, on the one hand, and Jaime Sebastian, on the other, spoke volumes of Franco’s
participation in thefraudulent transaction.

Unsatisfied with the decision, both parties filed their respective appeals before the CA.
Franco confined his appealto the Manila RTC’s denial of his claim for moral and exemplary
damages, and the diminutive award of attorney’sfees. The appellate court affirmed the lower
court’s decision with modification.

Unsatisfied with the decision, BPI-FB filed a petition for review seeking for the reversal
of the decision of the CA.

ISSUES

1. Whether or not BPI-FB is liable for the loss due to its negligence to detect forgery
prior to clearing the check?

2. Whether or not Franco had a better right to the deposits in the subject accounts which
are part of the proceeds of a forged Authority to Debit?

RULING

Yes, BPI-FB is liable for the loss due to its negligence to detect forgery prior to clearing the
check.

In the modern world, banking system is an indispensable institution which plays a vital
role in the economic life ofevery civilized nation. Whether as mere passive entities for the
safekeeping and saving of money or as activeinstruments of business and commerce, banks have
become an ubiquitous presence among the people, who havecome to regard them with respect
and even gratitude and, most of all, confidence.

In which, depositor expects the bank to treat his account with the utmost fidelity, must
record every single transaction accurately, downto the last centavo, and as promptly as possible.
This has to be done if the account is to reflect at any given time theamount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it as and towhomever
directs. A blunder on the part of the bank, such as the dishonor of the check without good reason,
cancause the depositor not a little embarrassment if not also financial loss and perhaps even civil
and criminal litigation. Because of the nature of its function, banksare under obligation to treat
the accounts of its depositors with meticulous care, always having in mind the fiduciarynature of
their relationship.

In this case, BPI-FB is duty bound to know the signatures of itscustomers. Having failed
to detect the forgery in the Authority to Debit and in the process inadvertently facilitate
theFMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other
payees of checks issuedby Tevesteco, or prevent withdrawals from their respective accounts
without the appropriate court writ or a favorablefinal judgment.
.

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 It is questionable why BPI-FB didn’t delve into the authenticity of the signature in the
Authority toDebit, effected the transfer of the P80,000,000.00 from FMIC’s to Tevesteco’s
account, when FMIC’s account was atime deposit and it had already paid advance interest to
FMIC. Considering that there is as yet no indubitableevidence establishing Franco’s participation
in the forgery, he remains an innocent party. As between him and BPIFB,the latter, which made
possible the present predicament, must bear the resulting loss or inconvenience.

Yes, Franco has the better right to the deposits in the subject accounts which are part
of the proceeds of a forged authority to debit.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but
not as a legalconsequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account.
BPI-FB conveniently forgetsthat the deposit of money in banks is governed by the Civil Code
provisions on simple loan or mutuum. As there isa debtor-creditor relationship between a bank
and its depositor, BPI-FB ultimately acquired ownership of Franco’sdeposits, but such ownership
is coupled with a corresponding obligation to pay him an equal amount on demand.

Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from
demanding payment of BPI-FB’sobligation by drawing checks against his current account, or
asking for the release of the funds in his savingsaccount. Thus, when Franco issued checks
drawn against his current account, he had every right as creditor toexpect that those checks
would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of
Franco based on its meresuspicion that the funds therein were proceeds of the multi-million peso
scam Franco was allegedly involved in. Togrant BPI-FB, or any bank for that matter, the right to
take whatever action it pleases on deposits which it supposesare derived from shady transactions,
would open the floodgates of public distrust in the banking industry.

​ ​ ​ ​ ​ ​ ​ ​

DE LIMA VS LAGUNA TAYABAS CO

G.R. NO 35697
NOVEMBER 23, 2007

FACTS

On June 3, 1958 a passanger bus of Laguna Tayabas Bus Company and a delivery truck
of Seven Up Bottling Co., Philippines collided causing the death of Petra Dela Cruz and serious
physical injuries to Eladia De Lima and Nemesio Flores. Three suits were filed against the
respondents before the Court of First Instance of Laguna (San Pablo City)

On December 27, 1963, the court a quo rendered a decision in favour of the plaintiffs

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 specifying the indemnity afforded to them. However, the plaintiffs filed a motion for
reconsideration on the decision by the court a quo seeking award of legal interest on the
adjudged amount in their favour from the date of the said decision but their motion was not acted
upon by the said court.

All of the plaintiffs desisted from appealing with the hope that the defendant will comply
with the indemnity. But instead, the defendant filed an appeal in contrary to the motion for
reconsideration raised by the petitioners to the Court of Appeals. This appeal was pending for
around 30 years.

On December 1971, the petitioners filed a motion before the court of Appeals seeking the
grant of legal interest from the date of the decision of the Court a quo and increasing the civil
indemnity for the death of Petra Dela Cruz. The appellate court denied the motion on the
contention that the petitioners failed to make an appeal on the error on lower court’s ruling for
not awarding the legal interest and damages. The Supreme Court after thorough review and
analysis of the case GRANTED the petition of the petitioners with modifications on the amounts
previously specified by the court a quo.

ISSUES

Whether or not the petitioners should be granted legal interest on damages to start from
the date of trial court’s decision?

RULING

Yes, the petitioners should be granted legal interest on damages to start from the date of trial
court’s decision.

Even though it is a well-settled rule that a party cannot impugn the correctness of a
judgment not appealed from byhim, and while he may make counter assignment of errors, he can
do so only to sustain the judgment on othergrounds but not to seek modification or reversal
thereof, for in such case he must appeal. A party who does notappeal from the decision may not
obtain any affirmative relief from the appellate court other than what he hasobtained from the
lower court, if any, whose decision is brought up on appeal.

However in this case, respondents failed to note that the legal interest was awarded by the
Appellate Court in its discretionbased on equitable grounds which is duly sanctioned by Art.
2210 of the Civil Code which provides —

Interest may, in the discretion of the court, be allowed upon damages awarded for breach
of contract.

A further examination of the record will also show that the plaintiffs moved for the
reconsideration of the decision appealed from to include the award of legal intereston the
amounts adjudicated from the date of the decision, but said motion was not acted upon by the
court a quo. Although said plaintiffs failed to appeal on this issue, and did not file their brief to
reiteratetheir claim for interest thereon, plaintiff Nemesio Flores, filed his brief andprayed for the
imposition of interest from the date of the decision. We are not left without discretion to
resolve this issue, considering the provision of Article 2210, New Civil Code, stating that
"Interest may,in the petition of the court, be allowed upon damages awarded for breach of

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 contract." There is nodoubt that the damages awarded in these civil cases arise from the breach
of a contractual obligationon the part of the defendants- appellants. But to grant the imposition of
interest on the amountsawarded to and as prayed for by one of the plaintiffs and deny the same to
the others considering thatthe cases arose from one single incident would be, to Our mind, unfair
and inequitous. In the light,therefore, not only of the provision of the Civil Code above referred
to, but also the facts andcircumstances obtaining in these cases. We believe that on equitable
grounds legal interest, should beallowed on the amounts adjudged in favor of the plaintiffs from
the date of this decision up to the timeof actual payment thereof.

Under the circumstances of this case where the heirs of the victim in the traffic accident
chose not toappeal in the hope that the transportation company will pay the damages awarded by
the lower court butunfortunately said company still appealed to the Court of Appeals, which step
was obviously dilatory and oppressiveof the rights of the said claimants: that the case had been
pending in court for about 30 years from the date of theaccident in 1958 so that as an exception
to the general rule aforestated, the said heirs who did not appeal thejudgment, should be afforded
equitable relief by the courts as it must be vigilant for their protection. The claim for
legal interest and increase in the indemnity should be entertained in spite of the failure of the
claimants to appeal thejudgment.

We take exception to the ruling of the Appellate Court as to the date when the legal
interest should commence toran. In view of the consistent rulings of this Court, We hold that the
legal interest of six percent (6) 13 on the amountsadjudged in favor of petitioners should start
from the time of the rendition of the trial court's decision on December27, 1963 instead of
January 31, 1972, the promulgation of the decision of the Court of Appeals.

​ ​ ​ ​ ​ ​ ​ ​

PHILIPPINE AIRLINES v. CA 275 SCRA 621, G.R. No. 120262, 17 July 1997

FACTS
On 23 October 1988, Leovigildo A. Pantejo, boarded a PAL plane in Manila and
disembarked in Cebu City where he was supposed to take his connecting flight to Surigao City.
However, due to typhoon Osang, the connecting flight to Surigao City was cancelled. To
accommodate the needs of its stranded passengers, PAL initially gave out cash assistance
of P 100.00 and, the next day, P200.00, for their expected stay of 2 days in Cebu. Pantejo
requested instead that he be accommodated in a hotel at the PAL’s expense because he did
not have cash with him at that time, but PAL refused. Thus, Pantejo was forced to seek
and accept the generosity of a co-passenger, and he shared a room with the latter at Sky
View Hotel with the promise to pay his share of the expenses upon reaching Surigao. On
25 October 1988 when the flight for Surigao was resumed, Pantejo came to know that the hotel
expenses of his co-passengers, were reimbursed by PAL. At this point, Pantejo informed
Oscar Jereza, PAL’s Manager for Departure Services at Mactan Airport and who was in
charge of cancelled flights, that he was going to sue the airline for discriminating against
him. It was only then that Jereza offered to pay Pantejo P300.00 which, due to the ordeal
and anguish he had undergone, the latter declined. Pantejo filed a suit for damages
against PAL with the RTC of Surigao City which, after trial, rendered judgment,
ordering PAL to pay Pantejo P300.00 for actual damages, P150,000.00 as moral damages,

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 P100,000.00 as exemplary damages, P15,000.00 as attorney’s fees, and 6% interest from
the time of the filing of the complaint until said amounts shall have been fully paid, plus
costs of suit.
On appeal, the appellate court affirmed the decision of the court a quo, but with
the exclusion of the award of attorney’s fees and litigation expenses.

ISSUE
Whether or not petitioner airlines acted in bad faith when it failed and refused to
provide hotel accommodations for respondent Pantejo or to reimburse him for hotel
expenses incurred by reason of the cancellation of its connecting flight to Surigao City
due to force majeur.

RULING
Yes.
A contract to transport passengers is quite different in kind and degree from any
other contractual relation, and this is because of the relation which an air carrier sustains
with the public. Its business is mainly with the travelling public. It invites people to avail of the
comforts and advantages it offers. The contract of air carriage, therefore, generates a
relation attended with a public duty. Neglect or malfeasance of the carrier’s employees
naturally could give ground for an action for damages.
The discriminatory act of PAL against Pantejo ineludibly makes the former liable
for moral damages under Article 21 in relation to Article 2219 (10) of the Civil Code.
As held in Alitalia Airways vs.CA, et al., such inattention to and lack of care by the
airline for the interest of its passengers who are entitled to its utmost consideration,
particularly as to their convenience, amount to bad faith which entitles the passenger to
the award of moral damages.
Moral damages are emphatically not intended to enrich a plaintiff at the expense
of the defendant. They are awarded only to allow the former to obtain means, diversion,
or amusements that will serve to alleviate the moral suffering he has undergone due to
the defendant’s culpable action and must, perforce, be proportional to the suffering
inflicted.
However, substantial damages do not translate into excessive damages.
Herein,except for attorney’s fees and costs of suit, it will be noted that the Courts of
Appeals affirmed point by point the factual findings of the lower court upon which the
award of damages had been based.The interest of 6% imposed by the court should be computed
from the date of rendition of judgment and not from the filing of the complaint.
The rule has been laid down in Eastern Shipping Lines, Inc. Vs. Court of
Appeals, et. al. that “when an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the discretion
of the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.” This
is because at the time of the filling of the complaint, the amount of the damages to
which Pantejo may be entitled remains unliquidated and not known, until it is definitely
ascertained, assessed and determined by the court, and only after the presentation of proof
thereon
The Supreme Court affirmed the challenged judgment of Court of Appeals, subject
to the modification regarding the computation of the 6% legal rate of interest on the
monetary awards granted therein to Pantejo.

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 G.R. No. 141181 April 27, 2007
SAMSON CHING, Petitioner,
vs.
CLARITA NICDAO and HON. COURT OF APPEALS, Respondents

FACTS
Fourteen (14) other criminal complaints, also for violation of BP 22, were filed
against respondent Nicdao by Emma Nuguid, said to be the common law spouse of
petitioner Ching. Allegedly fourteen (14) checks, amounting to ₱1,150,000.00, were
issued by respondent Nicdao to Nuguid but were dishonored for lack of sufficient funds.
The complaints conveys that respondent and her husband approached went to
petitioner and asked to borrow a money to settle to her debts. The petitioner was
convinced to lent the respondent her money because of the close relationship between the
two. Every month, the petitioner, would lent P100, 000 to the respondent until reaching a
total of 1, 150,000.00. As a security, the respondent draw a n open dated checks for the
assurance of the P1,150,000.00 if the petitioner cannot paid it within 1 year.
Later, petitioner demanded payment of the sums above-mentioned, but respondent
refused to acknowledge the indebtedness. Thereafter, petitioner deposited all
aforementioned checks in the bank totaling P1,150,000.00. The checks were all returned
for having been drawn against insufficient funds.
Petitioner Ching claimed that he went back to respondent Nicdao several times
more but every time, she would tell him that she had no money. Then in September 1997,
respondent Nicdao allegedly got mad at him for being insistent and challenged him about
seeing each other in court. Because of respondent Nicdao's alleged refusal to pay her
obligations, on October 6, 1997, petitioner Ching deposited the checks that she issued to
him. As he earlier stated, the checks were dishonored by the bank for being "DAIF."
Shortly thereafter, petitioner Ching, together with Emma Nuguid, wrote a demand letter
to respondent Nicdao which, however, went unheeded. Accordingly, they separately filed
the criminal complaints against the latter.

ISSUE
Whether or not interests could be properly collected in the loan transactions
between petitioner Ching and respondent Nicdao.

RULING
The Court holds that the existence of respondent Nicdao’s civil liability to
petitioner Ching in the amount of ₱20,950,000.00 representing her unpaid obligations to
the latter has not been sufficiently established by preponderant evidence. Petitioner Ching
mainly relies on his testimony to establish the existence of these unpaid obligations. It
means, he testified that from October 1995 up to 1997, respondent Nicdao obtained loans
from him in the total amount of ₱20,950,000.00. As security for her obligations, she
issued eleven (11) checks which were invariably blank as to the date, amounts and payee.
When respondent Nicdao allegedly refused to pay her obligations despite his due
demand, petitioner filled up the checks in his possession with the corresponding amounts
and date and deposited them in his account. They were subsequently dishonored by the

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 HSLB for being "DAIF" and petitioner Ching accordingly filed the criminal complaints
against respondent Nicdao for violation of BP 22.
Further, the Court also agrees with the CA that the daily payments made by
Nicdao amounting to ₱5,780,000.00 cannot be considered as interest payments only.
However, as ruled by the CA, no interests could be properly collected in the loan
transactions between petitioner Ching and respondent Nicdao because there was no
stipulation therefor in writing. To reiterate, under Article 1956 of the Civil Code, "no
interest shall be due unless it has been expressly stipulated in writing."
Neither could respondent Nicdao be considered to be estopped from denying the
validity of these interests. Estoppel cannot give validity to an act that is prohibited by law
or one that is against public policy. Clearly, the collection of interests without any
stipulation therefor in writing is prohibited by law. Consequently, the daily payments
made by respondent Nicdao amounting to ₱5,780,000.00 were properly considered by the
CA as applying to the principal amount of her loan obligations.

​ ​ ​ ​ ​ ​ ​
PHILIPPINE PHOSPHATE G.R. NO. 165608
FERTILIZER CORPORATION,
- VERSUS -
KAMALIG RESOURCES, INC.,
PROMULGATED: DECEMBER 13, 2007

FACTS

​Kamalig purchased fertilizer products from Philphos for eventual sale to its customers.
The agreement consisted of advance payment to Philphos for Kamaligs purchases of fertilizer
products, followed by Philphos issuance of a Sales Official Receipt and an Authority to
Withdraw, indicating the kind of fertilizer product purchased and the location of the warehouse
where the merchandise would be picked up. Then, Kamalig would resell the fertilizer products
and issue to its customers the corresponding Delivery Orders signed only by its authorized
officers. The customers would then present the Delivery Orders to the proper Philphos
warehouse for the release of the fertilizer products.
​ Kamalig purchased and made advance payments for fertilizer products of various grades
to Philphos in the total sum of P4, 548,152.53. Before the release of fertilizer products, Kamalig
requested for a readjustment of the various fertilizer grades and a modification of the locations
from which the fertilizer stocks would be picked up. The request was contained in a letter. In a
subsequent letter, Kamalig requested another adjustment, this time a conversion of its stocks in
Davao to be delivered and picked up in Manila. All the letters were approved by Philphos.
In the letter dated 21 July 1986, Philphos informed Kamalig of its overwithdrawal of
various fertilizer stocks in the supply depots in Manila and Iloilo. According to Philphos, the cost
of these overwithdrawals by Kamalig amounted to P1,016,994.21. But since Philphos also had
an obligation to Kamalig in the amount of P470,348.91 representing the Capital Recovery
Component, partial compensation took place by operation of law thereby reducing Kamaligs
obligation to P546,645.30. Thus, Philphos demanded that this sum be settled on or before 31 July
1986, otherwise Kamalig would be charged 34% interest per annum. Kamalig, however, denied
that it had exceeded its withdrawals of fertilizer and thus contended that it should not be made

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 liable for any amount.
Thus, Philphos filed the case for collection of a sum of money against Kamalig.

ISSUE
Whether or not Kamalig would be charged of 34% per annum if it does not settle its
obligation from Philphos.

RULING
The petition filed is without merit.
The Supreme Court agree with CA that no evidence was presented that would show that
the parties stipulated on payment of 34% per annum claimed by Philphos. Under Article 1956 of
the Civil Code, no interest shall be due unless it has been expressly stipulated in writing.
Philphos presented only its demand letters insisting on payment of the value of the
overwithdrawals and imposition of 34% interest per annum if payment is not made in due time.
Said unilateral impositions of interest do not suffice as proof of agreement on the alleged 34%
per annum interest.

ROLANDO C. DE LA PAZ, PETITIONER, G.R. NO. 183360 SEPTEMBER 8, 2014

VS.L & J DEVELOPMENT COMPANY, RESPONDENT.

FACTS

On December 27, 2000, Rolando lent ₱350,000.00 without any security to L&J, a
property developer with Atty. Esteban Salonga (Atty. Salonga) as its President and General
Manager. The loan, with no specified maturity date, carried a 6% monthly interest, i.e.,
₱21,000.00. From December 2000 to August 2003, L&J paid Rolando a total of ₱576,000.007
representing interest charges.

Despite repeated demands, L&J failed to pay which lead Rolando to file a Complaint for
Collection of Sum of Money with Damages against L&J and Atty. Salonga in his personal
capacity. Rolando alleged that L&J’s debtas of January 2005, inclusive of the monthly interest,
stood at ₱772,000.00; that the 6% monthly interest was upon Atty. Salonga’s suggestion; and,
that the latter tricked him into parting with his money without the loan transaction being reduced
into writing.

In their Answer, L&J and Atty. Salonga denied Rolando’s allegations. While they
acknowledged the loan as a corporate debt, they claimed that the failure to pay the same was due
to a fortuitous event, that is, the financial difficulties brought about by the economic crisis. They
further argued that Rolando cannot enforce the 6% monthly interest for being unconscionable
and shocking to the morals. Hence, the payments already made should be applied to the
₱350,000.00 principal loan.

ISSUE
​
Whether or not the principal loan is deemed paid is dependent on the validity of the
monthly interest imposed.

RULING

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 ​The lack of a written stipulation to pay interest on the loaned amount disallows a creditor
from charging monetary interest.

Under Article 1956 of the Civil Code, no interest shall be due unless it has been expressly
stipulated in writing. Jurisprudence on the matter also holds that for interest to be due and
payable, two conditions must concur: a) express stipulation for the payment of interest; and b)
the agreement to pay interest is reduced in writing. Here, it is undisputed that the parties did not
put down in writing their agreement. Thus, no interest is due. The collection of interest without
any stipulation in writing is prohibited by law. Even if the payment of interest has been reduced
in writing, a 6% monthly interest rate on a loan is unconscionable, regardless of who between the
parties proposed the rate. Here, there was no specific period as to the payment of the loan.
Hence, levying 6% monthly or 72% interest per annumis "definitely outrageous and inordinate."
Although, it was the debtor who asserted on the interest rate will not exempt Rolando from a
ruling that the rate is void.
​
Moreover, the contention of Rolando alleging that Atty. Salonga taking his legal
knowledge to dupe him is immaterial. The Court, however, finds no deception on the partof L&J
and Atty. Salonga. For one, despite the lack of a document stipulating the payment of interest,
L&J nevertheless devotedly paid interests on the loan. It only stopped when it suffered from
financial difficulties that prevented it from continuously paying the 6% monthly rate.

Digested by: Dacuno, Danley

DARIO NACAR, PETITIONER, vs. GALLERY FRAMES AND/OR FELIPE BORDEY,
JR., RESPONDENTS.
G.R. No. 189871
August 13, 2013

FACTS
On January 24, 1997, Dario Nacar got dismissed by his employer, Gallery Frames. He
filed a complaint; the Labor Arbiter ruled that petitioner was dismissed without just cause. A
computation for the separation pay and back wages were made it amounted to Php 158,919.92.
The respondent sought appeal to the NLRC, CA and Supreme Court, but they were all dismissed,
thus the judgment became final on April 17, 2002.
During the execution of the final judgment, the petitioner filed a motion for the re-
computation of the damages. The amount previously computed includes the separation pay and
back wages up to the time of his dismissal. The petitioner argued that the damages should cover
the period until the date of final judgment. A re-computation was made and the damages was
increased to 471,320.31. Respondent prayed for the quashal of such motion on the ground that
the judgment made by the SC is already final and the amount should not be further altered.
Petitioner also filed another motion asking the court to order the respondent to pay the
appropriate legal interest of the damages from the date of final judgment until full payment.

ISSUES
1. Whether or not a subsequent correction of the damages awarded during the final
judgment of the Supreme Court violates the rule on immutability of judgments.
2. Whether or not the re-computation made by the Labor Arbiter is correct.
3. Whether or not appropriate interests may be claimed by the petitioner.
RULING
1. Whether or not a subsequent correction of the damages awarded during the final judgment of

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 the Supreme Court violates the rule on immutability of judgments.

The Supreme Court ruled that a correction in the computation of the damages does not
violate the rule on immutability of judgments. The final decision made by the Supreme Court to
award the petitioner with damages with regards to the dismissal without justifiable cause can be
divided into two important parts. One is the finding that an illegal dismissal was indeed made.
And the other is the computation of damages. According to a previous case of Session Delights
Ice Cream and Fast Foods v. Court of Appeals, the Supreme Court held that the second part of
the decision - being merely a computation of what the first part of the decision established and
declared - can, by its nature, be re-computed. The re-computation of the consequences of illegal
dismissal upon execution of the decision does not constitute an alteration or amendment of the
final decision being implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a violation of the principle of
immutability of final judgments.

2. Whether or not the re-computation made by the Labor Arbiter is correct.

The Supreme Court believes that the amount of 471,320.31 as damages is correct. According
to Article 279 of the Labor Code, reliefs in case of illegal dismissal continue to add up until its
full satisfaction. The original computation clearly includes damages only up to the finality of the
labor arbiter's decision. Therefore, the Supreme Court approves the decision confirming that a
re-computation is necessary. The labor arbiter re-computed the award to include the separation
pay and the back wages due up to the finality of the decision that fully terminated the case on the
merits.

3. Whether or not appropriate interests may be claimed by the petitioner.

The Supreme Court ruled that the petitioner shall be entitled to interest. In the case of
Eastern Shipping Lines, Inc. v. Court of Appeals, among the guidelines laid down by the
Supreme Court regarding the manner of computing legal interest is - when the judgment of the
court awarding a sum of money becomes final and executory, the rate of legal interest shall be
12% per annum from such finality until its satisfaction. In addition to this, the Bangko Sentral ng
Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013 declared
that the rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six
percent (6%) per annum. Consequently, the twelve percent (12%) per annum legal interest shall
apply until June 30, 2013. Afterwards, the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.
The respondent was ordered to pay interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30, 2013 and six percent (6%) per
annum from July 1, 2013 until their full satisfaction.

David VS CA, 310 SCRA 710

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 FACTS
This is a petition for review, under Rule 45 of the Rules of Court, seeking the reversal of
the Decision of the Court of Appeals dated May 30, 1994.
The parties do not dispute the facts in this case. The dispute concerns only the execution
of the Decision of the Regional Trial Court of Manila, Branch 27, in Civil Case No. 94781, dated
October 31, 1979, as amended by an Order dated June 20, 1980.
The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, issued a writ of
attachment over real properties covered by TCT Nos. 80718 and 10289 of private respondents. In
his Decision, Judge Diaz ordered private respondent Afa ble to pay petitioner P66, 500 .00 plus
interest from July 24, 1974, until fully paid, plus P5,000.00 as attorney’s fees, and to pay the
costs of suit. On June 20, 1980, Judge Diaz issued an Order amending said Decision, that the
legal rate of interest should be computed from January 4, 1966, instead of from July 24, 1974.
Respondent Afable appealed to the Court of Appeals and then to the Supreme Court. In
both instances, the decision of the lower court was affirmed. Entries of judgment were made and
the record of the case was remanded to Branch 27 by respondent Judge Edgardo P. Cruz for the
final execution of the Decision. Upon petitioner’s motion, respondent Judge issued an Alias Writ
of Execution by virtue of which respondent Sheriff Melchor P. Peña conducted a public auction.
Sheriff Peña informed the petitioner that the total amount of the judgment is P270, 940.52. The
amount included a computation of simple interest. Petitioner, however, claimed that the judgment
award should be P3, 027,238.50, because the amount due ought to be based on compounded
interest. Although the auctioned properties were sold to the petitioner, Sheriff Peña did not issue
the Certificate of Sale because there was an excess in the bid price in the amount of P2,941,524.
47, which the petitioner failed to pay despite notice. This excess was computed by the Sheriff on
the basis of petitioner’s bid price of P3,027,238.50 minus the amount of P270,940.52 computed
in the judgment award.
On May 18, 1993, petitioner filed a Motion praying that respondent Judge Cruz issue an
order directing respondent Sheriff Peña to prepare and execute a certificate of sale in favor of the
petitioner, placing therein the amount of the judgment as P3,027,238.50, the amount he bid
during the auction which he won. His reason is that compound interest, which is allowed by
Article 2212 of the Civil Code, should apply in this case.

ISSUE
Whether or not that the computation of the judgment award amount due be in a
compounded interest

RULING
The instant petition is DENIED.
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. 4 In his view, said article meant "compound interest".
Article 2212 was interpreted by the Court and was defined the standards for its
application in Philippine American Accident Insurance v. Flores, 97 SCRA 811. 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.
Note that in the case now before us, the Court of Appeals made the factual 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.

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 TOLOMEO LIGUTAN AND LEONIDAS DELA LLANA VS. CA AND SECURITY
BANK AND TRUST COMPANY
G.R NO. 138677
FEBRUARY 12, 2002

FACTS
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in
the amount of P120,000.00 from respondent Security Bank and Trust Company.
On November 3, 1982 the Security Bank and Trust Company filed a complaint in
Regional Trial Court of Makati against Tolomeo Ligutan and Leonidas dela Llana for obtaining a
loan which they executed a promissory note binding themselves, jointly and severally to pay the
sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of 5%
every month on the outstanding principal and interest in case of default but the petitioners
defaulted on their obligation. Two years later petitioners filed a motion for reconsideration but
the court denied the motion. Then the petitioners interposed an appeal with the Court of Appeals,
questioning the rejection by the trial court of their motion to present evidence and assailing the
imposition of the 2% service charge, the 5% per month penalty charge and 10% attorney’s fees.
In its decision on March 7, 1996, the appellate court affirmed the judgment of the trial court.

ISSUE
1. Whether or not the penalty is reasonable or iniquitous can be partly subjective and partly
objective.

RULING
The Court finds that its resolution would depend on such factors as, but not necessarily
confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of
breach and its consequences, the supervening realities, the standing and relationship of the
parties, and the like, the application of which, by and large, is addressed to the sound discretion
of the court. In Rizal Commercial Banking Corp. vs. Court of Appeals, just an example, the
Court has tempered the penalty charges after taking into account the debtor's pitiful situation and
its offer to settle the entire obligation with the creditor bank. The stipulated penalty might
likewise be reduced when a partial or irregular performance is made by the debtor. The stipulated
penalty might even be deleted such as when there has been substantial performance in good faith
by the obligor, when the penalty clause itself suffers from fatal infirmity, or when exceptional
circumstances so exist as to warrant it.
The Court of Appeals, exercising its good judgment in the instant case, has reduced the
penalty interest from 5% a month to 3% a month which petitioner still disputes. Given the
circumstances, not to mention the repeated acts of breach by petitioners of their contractual
obligation, the Court sees no cogent ground to modify the ruling of the appellate court.

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 SPOUSES EDUARDO and LYDIA SILOS vs. PNB G.R. No. 181045 July 2, 2014

FACTS
Spouses Eduardo and Lydia Silos have been in business for about two decades of
operating a department store and buying and selling. To secure a one-year revolving credit line of
₱150,000.00 obtained from PNB, petitioners constituted a Real Estate Mortgage over a lot in
Kalibo, Aklan covered by Transfer Certificate of Title. In July 1988, the credit line was increased
to ₱1.8 million and the mortgage was correspondingly increased to ₱1.8 million. And in July
1989, a Supplement to the Existing Real Estate Mortgage was executed to cover the same credit
line, which was increased to ₱2.5 million, and additional security was given in the form of a 134-
square meter lot covered by TCT T-16208. In addition, petitioners issued eight Promissory Notes
and signed a Credit Agreement. This July 1989 Credit Agreement contained a stipulation on
interest which provides as follows:
1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest
shall be payable in advance every one hundred twenty days at the rate prevailing at the time of
the renewal.
(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on
whatever policy the Bank may adopt in the future, including without limitation, the shifting from
the floating interest rate system to the fixed interest rate system, or vice versa. Where the Bank
has imposed on the Loan interest at a rate per annum, which is equal to the Bank’s spread over
the current floating interest rate, the Borrower hereby agrees that the Bank may, without need of
notice to the Borrower, increase or decrease its spread over the floating interest rate at any time
depending on whatever policy it may adopt in the future.
Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good
on the promissory notes, religiously paying the interests without objection or fail. But in 1997,
petitioners faltered when the interest rates soared due to the Asian financial crisis. Despite
demand, petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage.
Petitioners filed Civil, seeking annulment of the foreclosure sale and an accounting of the PNB
credit.
During trial, petitioner Lydia Silos testified that the Credit Agreement, were all prepared
by respondent PNB and were presented to her and her husband Eduardo only for signature; that
she was told by PNB that the latter alone would determine the interest rate.
For his part, PNB Kalibo Branch Manager Aspa, Jr., the sole witness for respondent,
stated that the determination of the prime rates of interest are a multitude of considerations which
determine the interest rate, such as the cost of money, foreign currency values, PNB’s spread,
bank administrative costs, profitability, and the practice in the banking industry; that in every
repricing of each loan availment, the borrower has the right to question the rates, but that this
was not done by the petitioners.

RULING OF THE REGIONAL TRIAL COURT

1) While the Credit Agreement allows PNB to unilaterally increase interest rate and
likewise allows for the decreaseare valid. 2) Banks are allowed to stipulate that interest rates on
loans need not be fixed; 3) PNB’s computation of the total amount of petitioners’ obligation is
correct;Judgment is hereby rendered in favor of the respondent. It ruled that:
4) Because the loan was admittedly due and demandable, the foreclosure was regularly made;

RULING OF THE COURT OF APPEALS

PNB is ordered to reimburse [petitioners] the excess in the bid price.And this is exclusive of
payments for insurance premiums, documentary stamp taxes, and penalty. All the while,
petitioners did not complain nor object to the imposition of interest; they in fact paid the same
religiously. The appellate court ruled that petitioners are thus estopped from questioning the
same. The CA then proceeded to declare valid the foreclosure and sale of properties which came
as a necessary result of petitioners’ failure to pay the outstanding obligation upon demand.

ISSUES

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 WON the CA and the Lower Court committed an error in not nullifying the interest rate
provision in the credit agreement which left to the sole unilateral determination of PNB the
fixing of interest rate and its increase.
WON the CA and the Lower Court committed an error not declaring that respondent is
not at all entitled to any interest except the legal rate from date of demand, and in not applying
the excess over the legal rate of the admitted payments made by petitioner[s].

PETITIONERS’ ARGUMENTS
Petitioners insist that the interest rate provision in the Credit Agreement and the
Amendment to Credit Agreement should be declared null and void, for they relegated to PNB the
sole power to fix interest rates; spaces for interest rates in the two Credit Agreements and the
promissory notes were left blank for PNB to unilaterally fill, and their consent was not obtained;
the interest rate is determined not by agreement of the parties but by PNB’s Treasury
Department. Petitioners conclude that by this method of fixing the interest rates, the principle of
mutuality of contracts is violated, and public policy as well as Circular 90549 of the then Central
Bank had been breached.

RESPONDENT’S ARGUMENTS
Respondent disputes petitioners’ claim that interest rates were unilaterally fixed by it,
taking relief in the CA pronouncement that petitioners are deemed estopped by their failure to
question the imposed rates and their continued payment thereof without opposition. Besides, the
increase or decrease in interest rates have been mutually agreed upon by the parties, as shown by
petitioners’ continuous payment without protest.
Respondent justifies the imposition and collection of a penalty as a normal banking
practice, and the standard rate per annum for all commercial banks, at the time, was 24%. The
imposition of the penalty or a penal clause for that matter is to ensure the performance of the
obligation and substitute for damages and the payment of interest in the event of non-
compliance.

SC RULING
The Court grants the petition.In a number of decided cases, the Court struck down
provisions in credit documents issued by PNB to, or required of, its borrowers which allow the
bank to increase or decrease interest rates "within the limits allowed by law at any time
depending on whatever policy it may adopt in the future." Thus, in Philippine National Bank v.
Court of Appeals, such stipulation and similar ones were declared in violation of Article 130865
of the Civil Code.
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time
without notice, beyond the stipulated rate of 12% but only "within the limits allowed by
law."Section 1 of P.D. No. 1684 also empowered the Central Bank’s Monetary Board to
prescribe the maximum rates of interest for loans and certain forbearances.
In Philippine National Bank v. Court of Appeals, et al., we held —The unilateral action
of the PNB in increasing the interest rate on the private respondent’s loan violated the mutuality
of contracts ordained in Article 1308 of the Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
In Almeda v. Court of Appeals, the Court invalidated the very same provisions in the
respondent’s prepared Credit Agreement, declaring thus:
The binding effect of any agreement between parties to a contract is premised on two
settled principles: (1) any obligation arising from contract has the force of law between the
parties; and (2) there must be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid.
This Court declared the increases unilaterally imposed by [PNB] to be in violation of the
principle of mutuality as embodied in Art.1308 of the Civil Code, which provides that "[t]he
contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them."

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 For this case, lack of consent by the petitioners is made obvious by the fact that they
signed the promissory notes in blank for the respondent to fill. We find credible the testimony of
Lydia in this respect. In fact, its witness PNB Kalibo Branch Manager Aspa admitted that interest
rates were fixed solely by its Treasury Department. The borrower’s current financial state, his
feedback or opinions, the nature and purpose of his borrowings, the effect of foreign currency
values or fluctuations on his business or borrowing, etc. are not factors. Clearly, respondent’s
method of fixing interest rates based on one-sided.
It appears that by its acts, respondent violated the Truth in Lending Act, or Republic Act
No. 3765, which was enacted "to protect citizens from a lack of awareness of the true cost of
credit to the user by using a full disclosure of such cost with a view of preventing the uninformed
use of credit to the detriment of the national economy."
With regard to interest, respondent should then refund the excess amount of interest that
it has illegally imposed upon petitioners. Petitioners claim that this penalty should be excluded
from the foreclosure amount or bid price because the Real Estate Mortgage and the Supplement
thereto did not specifically include it. Respondent’s justification for it to be included in the
secured amount valid and necessary, to ensure the performance of the obligation and substitute
for damages and the payment of interest in the event of non-compliance. Respondent adds that
the imposition and collection of a penalty is a normal banking practice.

​ ​ ​ ​ ​ ​ ​

SOLIDBANK CORPORATION v. PERMANENT HOMES GR No. 171925, Jul 23, 2010

FACTS
Permanent homes is a real estate development company, and to finance its housing
project known as the "Buena Vida Townhomes" it applied and was subsequently granted by
SOLIDBANK with an "Omnibus Line" credit facility in the total amount of 60 MILLION
PESOS. Of the entire loan, 59 MILLION as time loan for a term of up to 360 days, with interest
thereon at prevailing market rates, and subject to monthly repricing. The remaining 1 MILLION
was available for domestic bills purchase. To secure the aforesaid loan, PERMANENT HOMES
initially mortgaged three (3) townhouse units within the Buena Vida project in Paranaque. At the
time, the instant complaint was filed against SOLIDBANK, a total of thirty six (36) townhouse
units were mortgaged with said bank. Of the 60 million available to PERMANENT, it availed of
a total of 41.5 million pesos, covered by three (3) promissory notes, which contain the following
provisions, thus:
“We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate
agreed in this Note or Loan on the basis of, among others, prevailing rates in the local or
international capital markets... The adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the
notice was sent”.
“Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due
under this Note or Loan within thirty (30) days from the receipt by anyone of us of the written
notice. Otherwise, We/I shall be deemed to have given our consent to the interest rate
adjustment."
Contrary, however, there was a standing agreement by the parties that any increase or
decrease in interest rates shall be subject to the mutual agreement of the parties.
It is stand that SOLIDBANK unilaterally and arbitrarily accelerated the interest rates
without any declared basis of such increases, of which PERMANENT HOMES had not agreed
to, or at the very least, been informed of. This is contrary to their earlier agreement that any
interest rate changes will be subject to mutual agreement of the parties. PERMANENT HOMES

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 further admits that it was not able to protest such arbitrary increases at the time they were
imposed by SOLIDBANK, for fear that SOLIDBANK might cut off the credit facility it
extended to PERMANENT HOMES.
PERMANENT HOMES filed a case before the trial court seeking the following: (1) the
annulment of the increases in interest rates gives aground that it was violative of the principle of
mutuality of agreement of the parties, (2) the fixing of the interest rates at the applicable interest
rate, and (3) for the trial court to order SOLIDBANK to make an accounting of the payments it
made, so as to determine the amount of refund PERMANENT is entitled to.
SOLIDBANK, avers that PERMANENT HOMES has no cause of action against it, in
view of the pertinent provisions of the Omnibus Credit Line and the promissory notes agreed to
and signed by PERMANENT HOMES. Thus, in accordance with said provisions,
SOLIDBANK was authorized to, upon due notice, periodically adjust the interest rates on
PERMANENT HOMES' loan availments during the monthly interest repricing dates, depending
on the changes in prevailing interest rates in the local andinternational capital markets.
Ms. Lim's testimony (VP and Chief Financial Officer) centered on PERMANENT
HOMES' allegations that the repricing of the interest rates was done by SOLIDBANK without
any written agreement entered into between the parties. When PERMANENT HOMES called
SOLIDBANK's attention to the seemingly surging rates it imposed on its loan, SOLIDBANK
will merely answer that it was the bank's policy, without offering any basis for such increase.
Furthermore, It is PERMANENT HOMES' stand that since the purpose of the billing statements
was to inform them beforehand of the applicable interest rate for the period, the late billings will
clearly show SOLIDBANK's arbitrary imposition of the repriced interest rates. This practice,
according to Ms. Lim, clearly affected its operations, as the completion of its construction project
was unnecessarily delayed, to its prejudice and its buyers.
PERMANENT HOMES' final witness was Martha Julia Flores, its Treasury Officer, said
it was her who received the late billings from SOLIDBANK. She would also call up
SOLIDBANK to ask what the repriced interest rate for the coming interest period, to no avail, as
SOLIDBANK will merely fax its billings almost always, as abovementioned, late in the period.
SOLIDBANK, to establish its defense, presented its lone witness, Mr. Cesar Lugtu,
contrary to PERMANENT HOMES' assertions that it was not promptly informed of the repriced
interest rates, SOLIDBANK's officers verbally advised PERMANENT HOMES of the repriced
rates at the start of the period, and even added that their transaction[s] were based on trust.

TRIAL COURT’S RULING

The trial court promulgated its Decision in favor of Solidbank. It ratiocinated and ruled thus:
There is sufficient proof to show that the instant case was instituted by [Permanent] as an
after-thought and as an obvious subterfuge intended to completely lay on the defendant the
blame for the debacle of its Buena Vida project after it was having difficulty making the
amortization payments. Instead of blaming itself and its own business judgment that went sour,
would rather put the blame on Solidbank.

THE APPELLATE COURT'S RULING

The appellate court granted Permanent's appeal, and set aside the trial court's ruling. It
underscored the necessity of a basis for the increase in interest rates and of the principle of
mutuality of contracts.
1.Unless the parties herein subsequently enter into an express agreement regarding the
applicable interest rates on PERMANENT HOMES' loan availments subsequent to the initial
thirty-day (30) period, the legal rate of twelve percent (12%) per annum is hereby FIXED,
(2) SOLIDBANK is ordered to render an accounting of all the payments made by
PERMANENT HOMES, and in case there is excess payment it must be applied such amount
to the interest payment at the legal rate (3) SOLIDBANK is directed not to impose penalties,
particularly interest on interest, upon PERMANENT HOMES' loan, there being no evidence
that the latter was in default on its payments; (4) SOLIDBANK is hereby ordered to release
the remaining amount available under the omnibus credit line.

ISSUES
Solidbank raised the following issues in their petition:

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 (A) WON the increases in the interest rates on [Permanent's] loans are void for having been
unilaterally imposed without basis.

RULING
The petition has merit. The Usury Law had been rendered legally ineffective by
Resolution No. 224 of the Monetary Board of the Central Bank, and later by Central Bank
Circular No. 905. The effect of these circulars is to allow the parties to agree on any interest that
may be charged on a loan. The lender and the borrower should agree on the imposed rate, and
such imposed rate should be in writing.
The stipulations on interest rate repricing are valid because (1) the parties mutually
agreed on said stipulations; (2) repricing takes effect only upon Solidbank's written notice to
Permanent of the new interest rate; and (3) Permanent has the option to prepay its loan if
Permanent and Solidbank do not agree on the new interest rate. The phrases "irrevocably
authorize," "at any time" and “adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the
notice was sent," emphasize that Permanent should receive a written notice from Solidbank as a
condition for the adjustment of the interest rates.
In order that obligations arising from contracts may have the force of law between the
parties, there must be mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties is void. There was no showing that either Solidbank or
Permanent coerced each other to enter into the loan agreements. The terms of the Omnibus Line
Agreement and the promissory notes were mutually and freely agreed upon by the
parties.Moreover, Solidbank's range of lending rates were consistent with "prevailing rates in the
local or international capital markets.
We also recognize that Solidbank admitted that it did not promptly send Permanent
written repriced rates, but rather verbally advised Permanent's officers over the phone at the start
of the period. Solidbank advised Permanent on the repriced interest rate applicable for the 30-
day interest period only after the period had begun. Permanent presented a tabulation which
showed that Solidbank either did not send a billing statement, or sent a billing statement 6 to 33
days late.

[G.R. No. 119379. September 25, 1998]

RODELO G. POLOTAN, SR vs.CA, REGIONAL TRIAL COURT IN MAKATI CITY and
SECURITY DINERS INTERNATIONAL CORPORATION

FACTS

Private respondent Security Diners International Corporation (Diners Club), a credit card
company, extends credit accomodations to its cardholders for the purchase of goods and other
services from member establishments. Said goods and services are reimbursed later on by
cardholders upon proper billing.
Petitioner Polotan, Sr. applied for membership and credit accommodations with Diners
Club. The application form contained terms and conditions governing the use and availment of
the Diners Club card, among which is for the cardholder to pay all charges made through the use

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 of said card within the period indicated in the statement of account and any remaining unpaid
balance to earn 3% interest per annum plus prime rate of Security Bank & Trust Company. Upon
acceptance of his application the petitioner incurred credit charges plus appropriate interest and
service charges in the aggregate amount of P33,819.84 which had become due and demandable.
Demands for payment made against petitioner proved futile. Hence, private respondent
filed a Complaint for Collection of Sum of Money against petitioner before the lower court.
The lower court’s judgment is hereby rendered ordering defendants to pay jointly and
severally plaintiff:
a) The amount of P33,819.84 and interest of 3% per annum plus prime rate of Diners Club and
service charges of 2% per month until the entire obligation is fully paid; b) An amount
equivalent to 25% of any and all amounts due and payable as attorneys fees, plus costs of suit.
The Court of Appeals affirmed the ruling of the lower court.

ISSUES
1. Respondent CA committed an error of law in ruling as valid and legal the following
provision on interest in the diners card contract, to wit:
PAYMENT OF CHARGES - The Cardholder agrees to pay interest per annum at 3% plus the
prime rate of Security Bank and Trust Company. Provided that if there occurs any change in the
prevailing market rates the new interest rate shall be the guiding rate of computing the interest
due on the outstanding obligation without need of serving notice to the Cardholder other than the
required posting on the monthly statement served to the Cardholder.
The Cardholder hereby authorizes Security Diners to correspondingly increase the rate of
such interest in the event of changes in prevailing market rates and to charge additional service
fees as may be deemed necessary in order to maintain its service to the Cardholder.

RULING
This Court finds petitioners contentions without merit. The issues presented by petitioner
are clearly questions of law. The lower court and the Court of Appeals found that petitioner
indeed owed Diners Club the amount being demanded.
Be that as it may, this Court sees it fit and proper to discuss the merits of this petition
based on petitioners claim that since the contract he signed with Diners Club was a contract of
adhesion, the obscure provision on interest should be resolved in his favor.
A contract of adhesionis one in which one of the contracting parties imposes a ready-
made form of contract which the other party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party merely affixes his signature or his
adhesion thereto, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing.
Admittedly, the contract containing standard stipulations imposed upon those who seek to
avail of its credit services was prepared by Diners Club. Being a contract of adhesion, any
ambiguity in its provisions must be construed against private respondent.Indeed, the terms prime
rate, prevailing market rate, 2% penalty charge, service fee, and guiding rate are technical terms
which are beyond the ken of an ordinary layman. To be sure, petitioner hardly falls into the
category of an ordinary layman.
Nevertheless, these types of contracts have been declared as binding as ordinary
contracts, the reason being that the party who adheres to the contract is free to reject it entirely.
The binding effect of any agreement between parties to a contract is premised on two
settled principles: (1) that any obligation arising from a contract has the force of law between the
parties; and (2) that there must be mutuality between the parties based on their essential equality.
Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to
an unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid.
Petitioner further argues that the interest rate was unilaterally imposed and based on the
standards and rate formulated solely by Diners Club.
In Florendo v. CA, this Court has held that: The unilateral determination and imposition
of increased interest rates by the herein respondent bank is obviously violative of the principle of
mutuality of contracts ordained in Article 1308 of the Civil Code. As this Court held in PNB v.

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 CA (196 SCRA 536 [1991]):
In order that obligations arising from contracts may have the force of law between the
parties, there must be mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties, is void.
The contractual provision in question states that if there occurs any change in the
prevailing market rates, the new interest rate shall be the guiding rate in computing the interest
due on the outstanding obligation without need of serving notice to the Cardholder other than the
required posting on the monthly statement served to the Cardholder.
Admittedly, the second paragraph of the questioned proviso which provides that the
Cardholder hereby authorizes Security Diners to correspondingly increase the rate of such
interest in the event of changes in prevailing market rates is an escalation clause. However, it
cannot be said to be dependent solely on the will of private respondent as it is also dependent on
the prevailing market rates.

AURELIO G BRIONES vs PRIMITIVO P CAMMAYO ET AL (41 SCRA 404)

FACTS

​On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of
Manila against Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to
recover from them, jointly and severally, the amount of P1,500.00, plus damages, attorney's fees
and costs of suit. The defendants answered that a mortgage contract was executed for securing
the payment of Php 1500.00 for a period of 1 yr, w/o interest, but the plaintiff delivered only the
sum of Php 1200.00 & withheld the sum of P300.00 as advance interest for 1 yr. That on account
of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to the plaintiff during the period
from October 1955 to July 1956 the total sum of P330.00 which plaintiff, illegally and
unlawfully refuse to acknowledge as part payment of the account but as in interest of the said
loan for an extension of another term of one year. That said contract of loan entered into between
plaintiff and defendant Primitivo P. Cammayo is a usurious contract and is contrary to law,
morals, good customs, public order or public policy and is, therefore, in existent and void from
the beginning.

ISSUE
Whether or not the contract of loan in question was tainted with usury.

RULING
YES. Under Act 2655 a usurious contract is void; that the creditor had no right of action
to recover the interest in excess of the lawful rate; but that this did not mean that the debtor may
keep the principal received by him as loan — thus unjustly enriching himself to the damage of
the creditor.
Briones may recover from appellant the principal of the loan (P1,180.00) only, with
interest thereon at the legal rate of 6% per annum from the date of the filing of the complaint.

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 ​ ​

FIRST METRO INVESTMENT CORPORATION vs. ESTE DEL SOL MOUNTAIN

RESERVE, INC.,(369 SCRA 99)

FACTS
On January 31, 1978, FMIC granted respondent Este del Sol a loan of Seven Million
Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the
construction and development of the Este del Sol Mountain Reserve, a sports/resort complex
project located at Barrio Puray, Montalban, Rizal.
Interest on the loan was pegged at sixteen (16%) percent per annumbased on the
diminishing balance. In case of default, an acceleration clause was provided and the amount due
shall be subject to twenty (20%) percent one-time penalty on the amount due and such amount
shall bear interest at the highest rate permitted by law from the date of default until full payment
thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly
on the unpaid balance and accrued interests together with all the penalties, fees, expenses or
charges thereon until the unpaid balance is fully paid, plus attorneys fees equivalent to twenty-
five (25%) percent of the sum sought to be recovered.
Respondents also executed real estate mortgage, individual continuing suretyship &
underwriting & consultancy agreement.
FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980
for its failure to pay. FMIC was the highest bidder of the mortgaged properties for 9M. The total
amount Php3,188,630.75 was deducted therefrom, for publication fee, sheriffs fees & attorneys
leaving a balance of Php 6,863,297.73. Failing to pay for the remaining balance FMIC filled a
collection suit.
RTC rendered decision in favor of petitioner FMIC. CA reversed the RTC’s decision.
Hence this petition.

ISSUES
1. Whether or not Central Bank Circular No. 905 which took effect on January 1, 1983
and removed the ceiling on interest rates for secured and unsecured loans, regardless
of maturity, should be applied retroactively as in the case at bar.

2. Whether or not the Underwriting & Consultancy Agreements were mere subterfuges
to camouflage the usurious interest charged by the petitioner.

RULING
1. NO. CBC 905 did not repeal nor in any way amend the Usury Law but simply suspended
the latters effectivity. The illegality of usury is wholly the creature of legislation. A
Central Bank Circular cannot repeal a law. Only a law can repeal another law. Thus,
retroactive application of a Central Bank Circular cannot, and should not, be presumed.

2. YES. Underwriting and Consultancy Agreements were simply cloaks or devices to cover
an illegal scheme employed by petitioner FMIC to conceal and collect excessively
usurious interest and these are:

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 a. Underwriting and Consultancy Agreements are both dated January 31, 1978 which is
the same date of the Loan Agreement was executed.

b. Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of
an underwriting agreementand specifically mentioned that such underwriting
agreement is a condition precedent for FIMC to extends the loan.

Moreover Art. 1957 provides that: Contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury shall be void. The borrower may
recover in accordance with the laws on usury.
In usurious loans, the entire obligation does not become void because of an agreement for
usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to
the usurious interest is void, consequently, the debt is to be considered without stipulation as to
the interest.
SC find the stipulated penalties, liquidated damages and attorneys fees, excessive,
iniquitous and unconscionable and revolting to the conscience as they hardly allow the borrower
any chance of survival in case of default. We hold that 20% penalty on the amount due and 10%
of the proceeds of the foreclosure sale as attorneys fees would suffice to compensate the
appellee, especially so because there is no clear showing that the appellee hired the services of
counsel to effect the foreclosure; it engaged counsel only when it was seeking the recovery of the
alleged deficiency.

​ ​.

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 ANTONIO TAN vs. COURT OF APPEALS and the CULTURAL CENTER OF THE
PHILIPPINES(367 SCRA 571)

FACTS
Antonio Tan obtained two (2) loans each in the principal amount of Two Million Pesos
(P2,000,000.00), or in the total principal amount of Four Million Pesos (P4,000,000.00) from
CCP on May 14, 1978 & July 6, 1978. Petitioner defaulted but after a few partial payments he
had the loans restructured by respondent CCP. Still petitioner fails to pay. Hence on May 30,
1984, CCP demanded the full payment of the restructured loan amounting to Php 6,088,735.03.
On August 29, 1984, CCP filed in the RTC of Manila a complaint for collection of a sum
of money against the petitioner after Tan failed to settle his said restructured loan obligation. Tan
interposed the defense that he merely accommodated a friend, Wilson Lucmen, who is now
nowhere to be found. While the case was pending in the trial court, the petitioner filed a
Manifestation wherein he proposed to settle his indebtedness to respondent CCP by proposing to
make a down payment of Php140,000.00 and to issue twelve (12) checks every beginning of the
year to cover installment payments for one year, and every year thereafter until the balance is
fully paid. However, respondent CCP did not agree to his proposals and so the trial of the case
ensued.
RTC rendered in favor of CCP ordering defendant to pay Php7,996,314.67, representing
defendants outstanding account as of August 28, 1986, with the corresponding stipulated interest
and charges thereof, until fully paid, plus attorneys fees in an amount equivalent to 25% of said
outstanding account, plus P50,000.00, as exemplary damages, plus costs.
CA affirmed the RTC decision with modification of deleting the exemplary damages &
reducing the attorney’s fees to 5%. Hence, this petition.

ISSUES

1. W/N CA committed a mistake in giving its imprimatur to the decision of the trial court
which compounded interest on surcharges.

2. W/N CA erred in not suspending imposition of interest for the period of time that private
respondent has failed to assist petitioner in applying for relief of liability through the
Commission on Audit and the Office of the President.

3. W/N CA erred in not deleting award of attorney’s fees and in reducing penalties.

RULING

1. The petitioner imputes error on the part of the appellate court in not totally eliminating the
award of attorney’s fees and in not reducing the penalties considering that the petitioner,
contrary to the appellate courts findings, has allegedly made partial payments on the loan.
And if penalty is to be awarded, the petitioner is asking for the non-imposition of interest
on the surcharges inasmuch as the compounding of interest on surcharges is not provided in
the promissory note. We find no merit in the petitioner’s contention. Article 1226 of the
New Civil Code provides that:
In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is
guilty of fraud inthe fulfillment of the obligation.

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 In the case at bar, the promissory note expressly provides for the imposition of both interest
and penalties in case of default on the part of the petitioner in the payment of the subject
restructured loan.

​The stipulated fourteen percent (14%) per annum interest charge until full payment of the
loan constitutes the monetary interest on the note and is allowed under Article 1956 of the New
Civil Code. On the other hand, the stipulated two percent (2%) per month penalty is in the form
of penalty charge which is separate and distinct from the monetary interest on the principal of the
loan. Penalty clauses can be in the form of penalty or compensatory interest. Thus, the
compounding of the penalty or compensatory interest is sanctioned by and allowed.
However, SC find the continued monthly accrual of the two percent (2%) penalty charge
on the total amount due to be unconscionable considering petitioners several partial payments
hence, it is fair and equitable to reduce the penalty charge to a straight twelve percent (12%) per
annum on the total amount due starting August 28, 1986.

2. The running of the interest and surcharge was not suspended by the private respondents
promise to assist the petitioners in applying for relief therefrom through the COA & OP.
CCP correctly asserted that it was the primary responsibility of petitioner to inform the
COA and the OP of his application for condonation of interest and surcharge. It was
incumbent upon the petitioner to bring his administrative appeal for condonation of interest
and penalty charges to the attention of the said government offices.

3. SC, find that CA ruled correctly and justly in reducing the trial courts award of twenty-five
percent (25%) attorney’s fees to five percent (5%) of the total amount due.

​ ​ ​ ​ ​ ​ ​

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 LIAM LAW V. OLYMPIC SAWMILL CO., 129 SCRA 439

FACTS
On or about September 7, 1957, the petitioner loaned P10,000.00, without interest, to the
respondent. The loan became ultimately due on January 31, 1960 but was not paid. The
petitioner asked for a 3-month extension, or up to April 30, 1960. On March 17, 1960, the
parties executed another loan document for the payment of P10, 000.00 extended up to April 30,
1960 but the obligation was increased by P6,000.00 to answer for the attorney’s fees, legal
interest, and other cost incident thereto. The petitioner again failed to pay their obligation by
April 30, 1960.
On September 23, 1957, the respondent instituted a collection case. The petitioner
admitted the P10, 000.00 principal obligation but claimed that the additional P6, 000.00
constituted usurious interest.

ISSUE
Whether or not the additional P6, 000.00 constituted usurious interest.

RULING
No. Usury has been legally non-existent. Interest can now be charged as lender and
borrower may agree upon. In the present case, the petitioner had not proven that the P6, 000.00
additional obligation was illegal.

​ ​ ​ ​ ​ ​ ​
G.R. No. 186550 July 5, 2010
ASIAN CATHAY FINANCE AND LEASING CORPORATION, Petitioner,
vs.
SPOUSES CESARIO GRAVADOR and NORMA DE VERA and SPOUSES EMMA
CONCEPCION G. DUMIGPI and FEDERICO L. DUMIGPI, Respondents

FACTS
Petitioner Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of
Eight Hundred Thousand Pesos (₱800,000.00)4 to respondent Cesario Gravador, with
respondents Norma de Vera and Emma Concepcion Dumigpi as co-makers. The loan was

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 payable in sixty (60) monthly installments of ₱24,400.00 each. To secure the loan, respondent
Cesario executed a real estate mortgage5 over his property in Sta. Maria, Bulacan, covered by
Transfer Certificate of Title No. T-29234.6
Respondents paid the initial installment due in November 1999. However, they were
unable to pay the subsequent ones. Consequently, on February 1, 2000, respondents received a
letter demanding payment of ₱1,871,480.00 within five (5) days from receipt thereof.
Respondents requested for an additional period to settle their account, but ACFLC denied the
request. Petitioner filed a petition for extrajudicial foreclosure of mortgage with the Office of the
Deputy Sheriff of Malolos, Bulacan.
On April 7, 2000, respondents filed a suit for annulment of real estate mortgage and
promissory note with damages and prayer for issuance of a temporary restraining order (TRO)
and writ of preliminary injunction.
The RTC disposed thus: WHEREFORE, on the basis of the evidence on record and the
laws/jurisprudence applicable thereto, judgment is hereby rendered DISMISSING the complaint
in the above-entitled case for want of cause of action as well as the counterclaim of [petitioner]
Asian Cathay Finance & Leasing Corporation for moral and exemplary damages and attorney’s
fees for abject lack of proof to justify the same.

ISSUE
Was the decision of the CA to dismiss the respondent’s claim proper?

RULING
The appeal lacks merit.
It is true that parties to a loan agreement have a wide latitude to stipulate on any interest
rate in view of Central Bank Circular No. 905, series of 1982, which suspended the Usury Law
ceiling on interest rate effective January 1, 1983. However, interest rates, whenever
unconscionable, may be equitably reduced or even invalidated. In several cases,10 this Court had
declared as null and void stipulations on interest and charges that were found excessive,
iniquitous and unconscionable.
The imposition of an unconscionable rate of interest on a money debt, even if knowingly
and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor is there any reason whatsoever
which may justify such imposition as righteous and as one that may be sustained within the
sphere of public or private morals.
The supposed waiver by the mortgagors was contained in a statement made in fine print
in the REM. It was made in the form and language prepared by [petitioner]ACFLC while the
[respondents] merely affixed their signatures or adhesion thereto. It thus partakes of the nature of
a contract of adhesion. It is settled that doubts in the interpretation of stipulations in contracts of
adhesion should be resolved against the party that prepared them. This principle especially holds
true with regard to waivers, which are not presumed, but which must be clearly and convincingly
shown. [Petitioner] ACFLC presented no evidence hence it failed to show the efficacy of this
waiver.
Moreover, to say that the mortgagor’s right of redemption may be waived through a fine
print in a mortgage contract is, in the last analysis, tantamount to placing at the mortgagee’s
absolute disposal the property foreclosed. It would render practically nugatory this right that is
provided by law for the mortgagor for reasons of public policy. A contract of adhesion may be
struck down as void and unenforceable for being subversive to public policy, when the weaker
party is completely deprived of the opportunity to bargain on equal footing.
In fine, when the redemptioner chooses to exercise his right of redemption, it is the policy
of the law to aid rather than to defeat his right.15 Thus, we affirm the CA in nullifying the waiver
of the right of redemption provided in the real estate mortgage.

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 FRANCISCO HERRERA, plaintiff-appellant, vs. PETROPHIL CORPORATION

FACTS
On December 5, 1969, the plaintiff-appellant and ESSO Standard Eastern. Inc., (Petrophil
Corporation) entered into a Lease Agreement whereby the former leased to the latter a portion of
his property for a period of twenty (20) years from said date. On December 31, 1969, pursuant to
the said contract, the PETROPHIL CORPORATION paid to the HERRERA advance rentals for
the first eight years, subtracting therefrom the amount of P101,010.73, the amount it computed as
constituting the interest or discount for the first eight years, in the total sum P180,288.47. On
August 20, 1970, the defendant-appellee, explaining that there had been a mistake in
computation, paid to the appellant the additional sum of P2,182.70, thereby reducing the
deducted amount to only P98,828.03. On October 14, 1974, the plaintiff-appellant sued the
defendant-appellee for the sum of P98,828.03, with interest, claiming this had been illegally
deducted from him in violation of the Usury Law.
Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court
erred in the computation of the interest collected out of the rentals paid for the first eight years;
that such interest was excessive and violative of the Usury Law; and that he had neither agreed to
nor accepted the defendant-appellant's computation of the total amount to be deducted for the
eight years advance rentals. The defendant maintains that the correct amount of the discount is
P98,828.03 and that the same is not excessive and above that allowed by law.

ISSUE
​Whether or not the contract is a loan

RULING
No.
As its title plainly indicates, the contract between the parties is one of lease and not of
loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any
showing that the parties intended a loan rather than a lease. The provision for the payment of
rentals in advance cannot be construed as a repayment of a loan because there was no grant or
forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary,
the defendant-appellee was discharging its obligation in advance by paying the eight years
rentals, and it was for this advance payment that it was getting a rebate or discount.
There is no usury in this case because no money was given by the defendant-appellee to
the plaintiff-appellant, nor did it allow him to use its money already in his possession.
There was neither loan nor forbearance but a mere discount which the plaintiff-appellant
allowed the defendant-appellee to deduct from the total payments because they were being made
in advance for eight years. The discount was in effect a reduction of the rentals which the lessor
had the right to determine, and any reduction thereof, by any amount, would not contravene the
Usury Law.
​ ​ ​ ​ ​ ​Digested by: Costibolo, Chino
ADVOCATES OF TRUTH IN LENDING, INC. VS BANGKO SENTRAL MONETORY
BOARD
288 SCRA 530

FACTS

Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock

corporation organized to engage in pro bono concerns and activities relating to money lending
issues. It was incorporated on July 9, 2010, and a month later, it filed this petition, joined by its

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 founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.

Petitioners, claiming that they are raising issues of transcendental importance to the
public, filed directly with this Court this Petition for Certiorari under Rule 65 of the 1997 Rules
of Court, seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB),
replacing the Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No.
1
7653, has no authority to continue enforcing Central Bank Circular No. 905, issued by the CB-
MB in 1982, which "suspended" Act No. 2655, or the Usury Law of 1916.

R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed by the Usury
Law. Section 109 of R.A. No. 265 reads:

Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board may
fix the maximum rates of interest which banks may pay on deposits and on other
obligations.

On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No.
1684, giving the CB-MB authority to prescribe different maximum rates of interest which may
be imposed for a loan or renewal thereof or the forbearance of any money, goods or credits,
provided that the changes are effected gradually and announced in advance. Thus, Section 1-a of
Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate
or rates of interest for the loan or renewal thereof or the forbearance of any
money, goods or credits, and to change such rate or rates whenever warranted by
prevailing economic and social conditions: Provided, That changes in such rate or
rates may be effected gradually on scheduled dates announced in advance.

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing
the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof, Section
135, reads:
Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46 and
132 of this Act, Republic Act No. 265, as amended, the provisions of any other law,
special charters, rule or regulation issued pursuant to said Republic Act No. 265, as
amended, or parts thereof, which may be inconsistent with the provisions of this Act are
hereby repealed. Presidential Decree No. 1792 is likewise repealed.

Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No.
1684, the CB-MB was authorized only to prescribe or set the maximum rates of interest for a
loan or renewal thereof or for the forbearance of any money, goods or credits, and to change such
rates whenever warranted by prevailing economic and social conditions, the changes to be
effected gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB
to lift or suspend the limits of interest on all credit transactions, when it issued CB Circular No.
905. They further insist that under Section 109 of R.A. No. 265, the authority of the CB-MB was
clearly only to fix the banks’ maximum rates of interest, but always within the limits prescribed
by the Usury Law.

Thus, according to petitioners, CB Circular No. 905, which was promulgated without the
benefit of any prior public hearing, is void because it violated Article 5 of the New Civil Code,
which provides that "Acts executed against the provisions of mandatory or prohibitory laws shall
be void, except when the law itself authorizes their validity."

They further claim that just weeks after the issuance of CB Circular No. 905, the

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 14
benchmark 91-day Treasury bills (T-bills), then known as "Jobo" bills shot up to 40% per
annum, as a result. The banks immediately followed suit and re-priced their loans to rates which
were even higher than those of the "Jobo" bills. Petitioners thus assert that CB Circular No. 905
is also unconstitutional in light of Section 1 of the Bill of Rights, which commands that "no
person shall be deprived of life, liberty or property without due process of law, nor shall any
person be denied the equal protection of the laws."

Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to
Section 109 of R.A. No. 265, and therefore, in view of the repealing clause in Section 135 of
R.A. No. 7653, the BSP-MB has been stripped of the power either to prescribe the maximum
rates of interest which banks may charge for different kinds of loans and credit transactions, or to
suspend Act No. 2655 and continue enforcing CB Circular No. 905.

ISSUES

1.) WON R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or
constitutional authority to prescribe the maximum rates of interest for all kinds of
credit transactions and forbearance of money, goods or credit beyond the limits
prescribed in the Usury Law.
2.) If so, whether the CB-MB exceeded its authority when it issued CB Circular No.
905, which removed all interest ceilings and thus suspended Act No. 2655 as
regards usurious interest rates.
3.) R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905

RULING

The Petition is procedurally infirm.

As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal

exercising judicial or quasi-judicial functions. Judicial functions are exercised by a body or
officer clothed with authority to determine what the law is and what the legal rights of the parties
are with respect to the matter in controversy. Quasi-judicial function is a term that applies to the
action or discretion of public administrative officers or bodies given the authority to investigate
facts or ascertain the existence of facts, hold hearings, and draw conclusions from them as a basis
for their official action using discretion of a judicial nature.

The CB-MB (now BSP-MB) was created to perform executive functions with respect to
the establishment, operation or liquidation of banking and credit institutions, and branches and
agencies thereof. It does not perform judicial or quasi-judicial functions. Certainly, the issuance
of CB Circular No. 905 was done in the exercise of an executive function. Certiorari will not lie
in the instant case.

Petitioners have no locus standi to file the Petition.

Locus standi is defined as "a right of appearance in a court of justice on a given

question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that
"every action must be prosecuted or defended in the name of the real party in interest," who is
"the party who stands to be benefited or injured by the judgment in the suit or the party entitled
to the avails of the suit." Succinctly put, a party’s standing is based on his own right to the relief
sought.

Even in public interest cases such as this petition, the Court has generally adopted the
"direct injury" test that the person who impugns the validity of a statute must have "a personal

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 and substantial interest in the case such that he has sustained, or will sustain direct injury as a
result." Thus, while petitioners assert a public right to assail CB Circular No. 905 as an illegal
executive action, it is nonetheless required of them to make out a sufficient interest in the
vindication of the public order and the securing of relief. It is significant that in this petition, the
petitioners do not allege that they sustained any personal injury from the issuance of CB Circular
No. 905.

The Petition raises no issues of transcendental importance.

In the 1993 case of Joya v. Presidential Commission on Good Government, it was held
that no question involving the constitutionality or validity of a law or governmental act may be
heard and decided by the court unless there is compliance with the legal requisites for judicial
inquiry, namely: (a) that the question must be raised by the proper party; (b) that there must be an
actual case or controversy; (c) that the question must be raised at the earliest possible
opportunity; and (d) that the decision on the constitutional or legal question must be necessary to
the determination of the case itself.
The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905.

The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has
long been recognized and upheld in many cases. As the Court explained in the landmark case of
Medel v. CA, citing several cases, CB Circular No. 905 "did not repeal nor in anyway amend the
Usury Law but simply suspended the latter’s effectivity;" that "a CB Circular cannot repeal a
law, for only a law can repeal another law;" that "by virtue of CB Circular No. 905, the Usury
Law has been rendered ineffective;" and "Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon."

The BSP-MB has authority to enforce CB Circular No. 905.

Section 1 of CB Circular No. 905 provides that "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods,
or credits, regardless of maturity and whether secured or unsecured, that may be charged or
collected by any person, whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended." It does not purport to suspend the
Usury Law only as it applies to banks, but to all lenders.

Land Bank of the Philippines vs Ong, 636 SCRA 266

FACTS

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank
Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots,
five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan
would be short-term and would mature on February 28, 1997, while the balance of PhP 10
million would be payable in seven (7) years. The Notice of Loan Approval dated February 22,
1996 contained an acceleration clause wherein any default in payment of amortizations or other

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 charges would accelerate the maturity of the loan.
Subsequently, however, the Spouses Sy found they could no longer pay their loan. On
December 9, 1996, they sold three (3) of their mortgaged parcels of land for PhP 150,000 to
Angelina Gloria Ong, Evangelines mother, under a Deed of Sale with Assumption of Mortgage.
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about
the sale and assumption of mortgage. Atty. Edna Hingco, the Legazpi City Land Bank Branch
Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the
agreement with the Spouses Sy but provided them with requirements for the assumption of
mortgage. They were also told that Alfredo should pay part of the principal which was computed
at PhP 750,000 and to update due or accrued interests on the promissory notes so that Atty.
Hingco could easily approve the assumption of mortgage. Two weeks later, Alfredo issued a
check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt was issued for his
payment. He also submitted the other documents required by Land Bank, such as financial
statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of
the Spouses Sy would be transferred in his name but this never materialized. No notice of
transfer was sent to him.
Alfredo later found out that his application for assumption of mortgage was not approved
by Land Bank. The bank learned from its credit investigation report that the Ongs had a real
estate mortgage in the amount of PhP 18,300,000 with another bank that was past due. Alfredo
claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the
Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the
subject mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at
the RTC in Tabaco, Albay. Alfredos other counsel, Atty. Madrilejos, subsequently talked to Land
Banks lawyer and was told that the PhP 750,000 he paid would be returned to him.
On December 12, 1997, Alfredo initiated an action for recovery of sum of money with
damages against Land Bank in Civil Case No. T-1941, as Alfredos payment was not returned by
Land Bank. Alfredo maintained that Land Banks foreclosure without informing him of the denial
of his assumption of the mortgage was done in bad faith. He argued that he was lured into
believing that his payment of PhP 750,000 would cause Land Bank to approve his assumption of
the loan of the Spouses Sy and the transfer of the mortgaged properties in his and his wifes
name. He also claimed incurring expenses for attorneys fees of PhP 150,000, filing fee of PhP
15,000, and PhP 250,000 in moral damages.
According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan,
since the new borrower is considered a new client. They used character, capacity, capital,
collateral, and conditions in determining who can qualify to assume a loan. Alfredos proposal to
assume the loan, she explained, was referred to a separate office, the Lending Center. During
cross-examination, Atty. Hingco testified that several months after Alfredo made the tender of
payment, she received word that the Lending Center rejected Alfredos loan application. She
stated that it was the Lending Center and not her that should have informed Alfredo about the
denial of his and his wifes assumption of mortgage. She added that although she told Alfredo
that the agreement between the spouses Sy and Alfredo was valid between them and that the
bank would accept payments from him, Alfredo did not pay any further amount so the
foreclosure of the loan collaterals ensued. She admitted that Alfredo demanded the return of the
PhP 750,000 but said that there was no written demand before the case against the bank was filed
in court. She said that Alfredo had made the payment of PhP 750,000 even before he applied for
the assumption of mortgage and that the bank received the said amount because the subject
account was past due and demandable; and the Deed of Assumption of Mortgage was not used as
the basis for the payment.

On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP
750,000 made by Ong was one of the requirements for the approval of his proposal to assume the
mortgage of the Sy spouses; (2) erroneously ordering Land Bank to return the amount of PhP
750,000 to Ong on the ground of its failure to effect novation; and (3) erroneously affirming the
award of PhP 50,000 to Ong as attorneys fees and litigation expenses.

According to the appellate court, the payment of PhP 750,000 was for the approval of his
assumption of mortgage and not for payment of arrears incurred by the Sy spouses. As such, it

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 ruled that it would be incorrect to consider Alfredo a third person with no interest in the
fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not
bound by the Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo
and Land Banks active preparations for Alfredos assumption of mortgage essentially novated the
agreement.

ISSUES

1.) WON the Court of Appeals erred in holding that Art. 1236 of the Civil Code
does not apply and in finding that there is no novation.

2.) WON the Court of Appeals misconstrued the evidence and the law when it
affirmed the trial court decisions ordering Land Bank to pay Ong the amount of
Php750,000.00 with interest at 12% annum.

3.) WON the Court of Appeals committed reversible error when it affirmed the
award of Php50,000.00 to Ong as attorneys fees and expenses of litigation.

RULING
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo
should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides:

The creditor is not bound to accept payment or performance by a third

person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor.
​ ​
The SC agrees with Land Bank on this point as to the first part of paragraph 1 of
Art. 1236. Land Bank was not bound to accept Alfredos payment, since as far as the
former was concerned, he did not have an interest in the payment of the loan of the
Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was
not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a
conditional payment so that the properties subject of the Deed of Sale with Assumption
of Mortgage would be titled in his name. It is clear from the records that Land Bank
required Alfredo to make payment before his assumption of mortgage would be
approved. He was informed that the certificate of title would be transferred
accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor.

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of
the obligation of the Spouses Sy, since his interest hinged on Land Banks approval of his
application, which was denied. The circumstances of the instant case show that the
second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own
interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as
Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy,

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 what he has paid.

On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance
Corporation provides the following discussion:

Novation, in its broad concept, may either be extinctive or modificatory. It is

extinctive when an old obligation is terminated by the creation of a new obligation that
takes the place of the former; it is merely modificatory when the old obligation subsists to
the extent it remains compatible with the amendatory agreement. An extinctive novation
results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation would have dual functions ─
one to extinguish an existing obligation, the other to substitute a new one in its place ─
requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation.

In order that an obligation may be extinguished by another which

substitutes the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each
other. The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence.

The SC does not agree, then, with the CA in holding that there was a novation in
the contract between the parties. Not all the elements of novation were present. Novation
must be expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce
a clear and unequivocal intent by the parties to novate the old agreement.

The SC rules that Land Bank is still liable for the return of the PhP 750,000 based
on the principle of unjust enrichment. Land Bank is correct in arguing that it has no
obligation as creditor to recognize Alfredo as a person with interest in the fulfillment of
the obligation. But while Land Bank is not bound to accept the substitution of debtors in
the subject real estate mortgage, it is estopped by its action of accepting Alfredos
payment from arguing that it does not have to recognize Alfredo as the new debtor.

The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was
the banks Lending Center that should have notified Alfredo of his assumption of
mortgage disapproval is unavailing. The Lending Centers lack of notice of disapproval,
the Tabaco Branchs silence on the disapproval, and the banks subsequent actions show a
failure of the bank as a whole, first, to notify Alfredo that he is not a recognized debtor in
the eyes of the bank; and second, to apprise him of how and when he could collect on the
payment that the bank no longer had a right to keep.

No evidence was presented by Alfredo that he had sent a written demand to Land
Bank before he filed the collection suit. Only the verbal agreement between the lawyers
of the parties on the return of the payment was mentioned. Consequently, the obligation
of Land Bank to return the payment made by Alfredo upon the formers denial of the
latters application for assumption of mortgage must be reckoned from the date of judicial
demand on December 12, 1997, as correctly determined by the trial court and affirmed by
the appellate court.

Forbearance of money refers to the contractual obligation of the lender or creditor

to desist for a fixed period from requiring the borrower or debtor to repay the loan or debt
then due and for which 12% per annum is imposed as interest in the absence of a

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 stipulated rate. In the instant case, Alfredos conditional payment to Land Bank does not
constitute forbearance of money, since there was no agreement or obligation for Alfredo
to pay Land Bank the amount of PhP 750,000, and the obligation of Land Bank to return
what Alfredo has conditionally paid is still in dispute and has not yet been determined.
Thus, it cannot be said that Land Banks alleged obligation has become a forbearance of
money.

On a final note. The instant case would not have been litigated had Land Bank
been more circumspect in dealing with Alfredo. The bank chose to accept payment from
Alfredo even before a credit investigation was underway, a procedure worsened by the
failure to even inform him of his credit standings impact on his assumption of
mortgage. It was, therefore, negligent to a certain degree in handling the transaction with
Alfredo. It should be remembered that the business of a bank is affected with public
interest and it should observe a higher standard of diligence when dealing with the public.

SPOUSES SOLANGONVS SALAZAR (GR NO. 125944, JUNE 29, 2001)

FACTS

On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in
which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the defendant-
appellee, to secure payment of a loan of P60,000.00 payable within a period of four (4) months,
with interest thereon at the rate of 6% per month (Exh. "B").
On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in
which they mortgaged the same parcel of land to the defendant-appellee, to secure payment of a
loan of P136,512.00, payable within a period of one (1) year, with interest thereon at the legal
rate (Exh. "1").
On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage
in which they mortgaged the same parcel of land in favor of defendant-appellee, to secure
payment of a loan in the amount of P230,000.00 payable within a period of four (4) months, with
interest thereon at the legal rate (Exh. "2", Exh. "C").
This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the
mortgaged property. They alleged that they obtained only one loan form the defendant-appellee,

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 and that was for the amount of P60,000.00, the payment of which was secured by the first of the
above-mentioned mortgages. The subsequent mortgages were merely continuations of the first
one, which is null and void because it provided for unconscionable rate of interest. Moreover, the
defendant-appellee assured them that he will not foreclose the mortgage as long as they pay the
stipulated interest upon maturity or within a reasonable time thereafter. They have already paid
the defendant-appellee P78,000.00 and tendered P47,000.00 more, but the latter has initiated
foreclosure proceedings for their alleged failure to pay the loan P230,000.00 plus interest.
On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-
described mortgages were executed to secure three separate loans of P60,000.00 P136,512.00
and P230,000.00, and that the first two loans were paid, but the last one was not. He denied
having represented that he will not foreclose the mortgage as long as the plaintiffs-appellants pay
interest.

ISSUE
1.) WON the Court of Appeals erred in holding that three (3) mortgage contracts were
executed by the parties instead of one (1).
2.) WON the Court of Appeals erred in ruling that a loan obligation secured by a real
estate mortgage with an interest of 72% per cent per annum or 6% per month is
not unconscionable.
RULING
It is readily apparent that petitioners are raising issues of fact in this petition. In a petition
for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, only questions of
law may be raised and they must be distinctly set forth. The settled rule is that findings of fact of
the lower courts (including the Court of Appeals) are final and conclusive and will not be
reviewed on appeal except: (1) when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and such findings are
contrary to the admission of both appellant and appellee; (6) when the findings of the Court of
Appeals are contrary to those of the trial court; and (7) when the findings of fact are conclusions
3
without citation of specific evidence on which they are based.
None of these instances are extant in the present case.
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not
consider the rate ‘usurious’ because this Court has consistently held that Circular No. 905 of the
Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is now ‘legally inexistent.’
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the
Court held that CB Circular No. 905 did not repeal nor in any way amend the Usury Law but
simply suspended the latter’s effectivity. Indeed, we have held that ‘a Central Bank Circular can
not repeal a law. Only a law can repeal another law. In the recent case of Florendo v. Court of
Appeals, the Court reiterated the ruling that ‘by virtue of CB Circular 905, the Usury Law has
been rendered ineffective.’ ‘Usury Law has been legally non-existent in our jurisdiction. Interest
can now be charged as lender and borrower may agree upon.’
Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated upon
by the parties in the promissory note iniquitous or unconscionable, and hence, contrary to morals
(‘contra bonos mores’), if not against the law. The stipulation is void. The courts shall reduce
equitably liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.
In the case at bench, petitioners stand on a worse situation. They are required to pay the
stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and
inordinate. Surely, it is more consonant with justice that the said interest rate be reduced

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 equitably. An interest of 12% per annum is deemed fair and reasonable.

PRIVATE DEVELOPMENT CORPORATION OF THE PHILIPPINES (PDCP) v IAC

G.R. No. 73198 (213 SCRA 282)
September 2, 1992

FACTS
On May 21, 1974, Davao Timber Corporation (DATICOR) and Private Development
Corporation of the Philippines (PDCP) entered into a loan agreement in foreign currency and in
peso. It was stipulated in the loan agreement, that the foreign currency loan was to be paid with
an interest rate of eleven and three fourths (11-3/4%) per cent per annum on the disbursed
amount of the foreign currency; and the peso loan at the rate of twelve (12%) per cent per annum
on the disbursed amount of the peso loan outstanding, commencing on the several dates on
which disbursements of the proceeds of the loans were made. The loans were originally secured
by a first mortgage executed by Ernesto del Rosario, President of DATICOR, in his personal
capacity, and his sister, as third party mortgagors on a parcel of land which they owned in
common. The land was later on partitioned by the siblings. Thereafter, PDCP executed a partial
release of mortgage on the parcel of land owned by del Rosari’s sister and caused the DATICOR
to execute an additional mortgage of five parcel of land consisting prime industrial lands with
buildings thereon. DATICOR also executed a Deed of Chattel Mortgage on the machineries and
equipment attached to the land in Davao Oriental as added security for said loan. Additional fees
and charges were added to the loan interest so that, according to PDCP, DATICOR still has an
outstanding balance of almost Php 11 million despite paying Php 3 million of the original Php
4.4 million loan. PDCP then initiated extra-judicial foreclosure proceedings against the mortgage
properties of DATICOR. Private respondent then filed a complaint against the PDCP for
violation of the Usury Law, annulment of contract and damages with prayer for the issuance of a
writ of preliminary injunction the Court of First Instance (Manila) and Court of First Instance
(Davao). In the course of the trial, PDCP contended that DATICOR entered into a loan
agreement by which it incurred an outstanding balance justifying the extra-judicial foreclosure
proceedings, that Del Rosario is not a party-in-interest in the case, that the cause of action of Del
Rosario is barred by prescription and that there is a pending case before the CFI Davao.
DATICOR filed a case in the Court of First Instance of Davao Oriental seeking a writ of
injunction to prevent PDCP from foreclosing its properties in Davao, and likewise praying for
the annulment of the loan contract as it is in violation of the Usury Law and damages. It
contended that the stipulations on the interest of the loan agreement are contrary to law (being
violative of the Usury Law) therefore the loan agreement must be annulled. That PDCP‟s extra-
judicial foreclosure proceedings are not justified. PDCP must also be made liable for damages.
On the other hand, Petitioner’s contended that DATICOR entered into a loan agreement by
which it incurred an outstanding balance justifying the extra-judicial foreclosure proceedings.
That Del Rosario is not a party-in-interest in the case and that the cause of action of Del Rosario
is barred by prescription and that there is a pending case before the CFI Davao.. The then
Intermediate Appellate Court set aside the decision appealed declared the stipulations of interest
in the loan agreement between DATICOR and PDCP void and of no effect, as if the loan
agreement is without stipulation as to payment of interest." Hence, this instant petition.

ISSUES
1. Whether or not stipulations on usurious interest should be interpreted to mean forfeiture
even of the principal.
2. Whether or not prescription of action lies to annul usurious transactions.
3. Whether or not Del Rosario is not a party-in-interest in the case.

RULING
No. Inasmuch as the loan agreement herein was entered into on May 21, 1974, the
prevailing law applicable is Act No. 2655, otherwise known as the Usury Law, as amended by

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 P.D. No. 116, which took effect on January 29, 1974. Section 2 of Act No. 2655 provides: "No
person or corporation shall directly or indirectly take or receive money or other property, real or
personal, or choses in action, a higher rate of interest or greater sum of value including
commission premiums, fines and penalties for the loan or renewal thereof or forbearance of
money, goods or credit, where such loan or renewal or forbearance is secured in whole or in part
by a mortgage upon real estate, the title to which is duly registered or by a document conveying
such real estate at an interest, than twelve percent per annum." The usury law therefore, as
amended by Presidential Decree 116, fixed all interest rates for all loans with maturity of more
than 360 days at twelve (12%) per cent per annum including premiums, fines and penalties.
As held in Angel Jose Warehousing Co., Inc. v. Chelda Enterprises, et al: "In simple loan
with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which
is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to
the prestation to pay the stipulated interest: hence, being separable, the latter only should be
deemed void, since it is only one that is illegal.." . . "The foregoing interpretation is reached with
the philosophy of usury legislation in mind; to discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the loan becomes one without stipulation as to the
payment of interest. It should not, however, be interpreted to mean forfeiture even of the
principal, for this would unjustly enrich the borrower at the expense of the lender. Furthermore,
penal sanctions are available against a usurious lender, as a further deterrence to usury. "The
principal debt remaining without stipulation for payment of interest can thus be recovered by
judicial action."
With respect to prescription, the prescription of action does not lie to annul usurious
transactions. —Article 1957 of the Civil Code provides: ". . . contracts and stipulations, under
any cloak or device whatever, intended to circumvent the law against usury shall be void."
Furthermore, Article 1410 provides: "The action or defense for the declaration of the inexistence
of a contract does not prescribe." The aforesaid articles therefore state that all usurious
stipulations are void and as such, an action to annul such usurious stipulations does not prescribe.
As to the contention that Del Rosario is not a party-in-interest in the case: “Del Rosario
mortgaged his properties in his personal capacity to secure the debt of DATICOR. As such, the
creditor, PDCP, may proceed against Del Rosario or DATICOR or both of them simultaneously
for the payment of the loan or for the performance of obligation. In fact, PDCP filed for the
foreclosure of the real properties belonging to Del Rosario.” The principle of litis pendencia is
not applicable to the case at bar. The first case (CFI Manila) was against a natural person (Del
Rosario), while the second (CFI Davao), against a juridical person (DATICOR). “Clearly, there
is no identity of parties, hence litis pendencia cannot apply.”

BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS

G.R. NO. 104612
232 SCRA 302
MAY 10, 1994

FACTS
This petition is to review and set aside the amended Decision of 6 March 1992 of
respondent Court of Appeals in CA- G.R. CV No. 25739 which modified the Decision of 15
November 1990 of Branch 19 of the Regional Trial Court (RTC) of Manila. The Court of
Appeals had affirmed the dismissal of the complaint but had granted the defendants'
counterclaim for P331,261.44 which represents the outstanding balance of their account with the
plaintiff.
Private respondents Eastern Plywood Corporation and Benigno Lim as officer of the
corporation, had an “AND/OR” joint account with Commercial Bank and Trust Co (CBTC), the
predecessor-in-interest of petitioner Bank of the Philippine Islands. A joint checking account
("and" account) with Lim in the amount of P120,000.00 was opened by Mariano Velasco with
funds withdrawn from the account of Eastern and/or Lim. Various amounts were later deposited
or withdrawn from the joint account of Velasco and Lim and the money therein was placed in the
money market. When Velasco died in 1977, said joint checking account had P662,522.87. By

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 virtue of an Indemnity Undertaking executed by Lim and as President and General Manager of
Eastern withdrew one half of this amount and deposited it to one of the accounts of Eastern with
CBTC.
Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However,
Eastern and CBTC executed a Holdout Agreement providing that the loan was secured by the
“Holdout of the C/A No. 2310-001-42” referring to the joint checking account of Velasco and
Lim. For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00
payable on demand to the order of CBTC with interest at 14% per annum. The note was signed
by Lim both in his own capacity and as President and General Manager of Eastern. No reference
to any security for the loan appears on the note.
Meanwhile, a judicial settlement of the estate of Velasco ordered the withdrawal of the
balance of the account of Velasco and Lim.
Asserting that the Holdout Agreement provides for the security of the loan obtained by
Eastern and that it is the duty of CBTC to debit the account of respondents to set off the amount
of P73,000 covered by the promissory note, BPI filed the instant petition for recovery. Private
respondents Eastern and Lim, however, assert that the amount deposited in the joint account of
Velasco and Lim came from Eastern and therefore rightfully belong to Eastern and/or Lim. Since
the Holdout Agreement covers the loan of P73,000, then petitioner can only hold that amount
against the joint checking account and must return the rest.

ISSUE
1. Whether or not BPI can demand the payment of the loan despite the existence of the
Holdout Agreement.
2. Whether or not BPI is still liable to the private respondents on the account subject of the
withdrawal by the heirs of Velasco.

RULING
On the first issue, the Holdout Agreement conferred on CBTC the power, not the duty, to
set off the loan from the account subject of the Agreement. When BPI demanded payment of the
loan from Eastern, it exercised its right to collect payment based on the promissory note, and
disregarded its option under the Holdout Agreement. Therefore, its demand was in the correct
order.
The Holdout Agreement itself states that notwithstanding the agreement, CBTC was not
in any way precluded from demanding payment from Eastern and from instituting an action to
recover payment of the loan. What it provides is an alternative, not an exclusive, method of
enforcing its claim on the note. When it demanded payment of the debt directly from Eastern and
Lim, BPI had opted not to exercise its right to apply part of the deposit subject of the Holdout
Agreement to the payment of the promissory note for P73,000.00. Its suit for the enforcement of
the note was then in order and it was error for the trial court to dismiss it on the theory that it was
set off by an equivalent portion in C/A No. 2310-001-42 which BPI should have debited. The
Court of Appeals also erred in affirming such dismissal.
On the second issue, BPI was the debtor and Eastern was the creditor with respect to the
joint checking account. Therefore, BPI was obliged to return the amount of the said account only
to the creditor. As the ownership of the deposit remained undetermined, BPI, the debtor with
respect thereto, had no right to pay to persons other than those in whose favor the obligation was
constituted or whose right or authority to receive payment is indisputable. The payment of the
money deposited with BPI that will extinguish its obligation to the creditor-depositor is payment
to the person of the creditor or to one authorized by him or by the law to receive it. When it
allowed the withdrawal of the balance of the account by the heirs of Velasco, it made the
payment to the wrong party. The law provides that payment made by the debtor to the wrong
party does not extinguish its obligation to the creditor who is without fault or negligence. The
payment then by BPI to the heirs of Velasco, even if done in good faith, did not extinguish its
obligation to the true depositor. Therefore, BPI was still liable to the true creditor, Eastern.

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 CA-Agro Industrial Development Corp vs Court of Appeals
219 SCRA 426
March 3, 1993

FACTS
The petitioner (through its President- Sergio Aguirre) and the Spouses Ramon and Paula
Pugao entered into an agreement whereby the former purchase two parcel of lands from the
latter. It was paid of down payment while the balance was covered by their postdated checks.
Among the terms and conditions embodied in the agreement were the titles shall be transferred to
the petitioner upon full payment of the price and the owner's copies of the certificate of titles
shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos then rented
Safety Deposit box of private respondent Security Bank and Trust Company.
Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs Ramos
demand the execution of a deed of sale which necessarily entailed the production of the
certificate of titles. In view thereof, Aguirre, accompanied by the Pugaos, then proceed to the
respondent Bank to open the safety deposit box and get the certificate of titles. However, when
opened in the presence of the Bank's representative, the box yielded no such certificate. Because
of the delay in the reconstitution of the title, Mrs Ramos withdrew her earlier offer to purchase.
Hence, a suit was filed on 1 September 1980 for damages against the respondent Bank with the
Court of First Instance (now Regional Trial Court) of Pasig, Metro Manila which docketed the
same as Civil Case No. 38382.
In its Answer with Counterclaim, respondent Bank alleged that the petitioner has no
cause of action because of paragraphs 13 and 14 of the contract of lease,
Paragraph 13: The bank is not a depositary of the contents of the safe and it has neither
the possession nor control of the same.
Paragraph 14: The bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in connection therewith.
​Corollarily, loss of any of the items or articles contained in the box could not give rise to
an action against it. It then interposed a counterclaim for exemplary damages as well as
attorney's fees in the amount of P20,000.00. The trial court rendered a decision adverse to the
petitioner. Appeal was taken to the court of appeals but the respondent Court affirmed the
appealed decision principally on the theory that the contract executed by the petitioner and
respondent Bank is in the nature of a contract of lease by virtue of which the petitioner and its
co-renter were given control over the safety deposit box and its contents while the Bank retained
no right to open the said box because it had neither the possession nor control over it and its
contents.
​
ISSUE
Whether or not the contract of rent between a commercial bank and another party for the
use of safety deposit box can be considered alike to a lessor-lessee relationship.

RULING
The petitioner is correct in making the contention that the contract for the rent of the
deposit box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code.
However, the Court do not really subscribe to its view that the same is a contract of deposit that
is to be strictly governed by the provisions in 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 joint renters- the petitioner and the Pugaos. The guard key of the box remained

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 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 renter's key. The
Court further assailed that the petitioner is correct in applying American Jurisprudence. Herein,
the prevailing view is that the relation between a bank renting out safe deposits boxes and its
customer with respect to the contents of the box is that of a bail or/ and bailee, the bailment being
for hire and mutual benefits. That prevailing rule has been adopted in Section 72 of the General
Banking Act.
Section 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other that building and loan associations may perform the following
services:
(a) Receive in custody funds, document and valuable objects and rents safety
deposits taxes for the safeguard of such effects.
xxx xxx xxx
The bank shall perform the services permitted under subsections (a) (b) and (c) of
this section as depositories or as agents.
Furthermore, the renting out of the safety deposit boxes is not independent from, but
related to or in conjunction with, this principal function. A contract of deposit may be entered
into orally or in writing and, pursuant to Article 1306 of the Civil Code, the parties thereto may
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the
tenor of the agreement. In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed. Hence, any stipulation exempting the
depositary from any liability arising from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law and public policy. Hence, paragraph
13 and 14 were void being contrary contrary to law, morals, good customs, public order or public
policy as the said provisions are inconsistent with the respondent Bank's responsibility as a
depositary under Section 72(a) of the General Banking Act. Both exempt the latter from any
liability except as contemplated in condition 8 thereof which limits its duty to exercise
reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:
“The Bank shall use due diligence that no unauthorized person shall be admitted to any
rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented
from it.”
Undeniably, condition 13 stands on a wrong premise and is contrary to the actual practice
of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the
contents of the box since in fact, the safety deposit box itself is located in its premises and is
under its absolute control; moreover, the respondent Bank keeps the guard key to the said box.
As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by
presenting and using this guard key. Clearly then, to the extent above stated, the foregoing
conditions in the contract in question are void and ineffective.

SOUTHERN MOTORS VS.BARBOSA (99 PHIL 263)

FACTS

An Appeal from a decision of the First Instance of Iloilo, ordering the Defendant Eliseo
Barbosa to pay to the Court, for the benefit of the Plaintiff Southern Motors, Inc. within a period
of ninety (90) days from receipt by the Defendant hereof, the sum of P2,889.53, with interest at
of 12% per annum until fully paid; the sum of P200 by way of attorney’s fees, plus costs; and
upon failure of the Defendant to pay, ordering the land described in the complaint and subject of
the mortgage to be sold at public auction in accordance with law in order to realize the amount of
the judgment debt and costs.

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 Plaintiff, brought this action against Eliseo Barbosa, to foreclose a real estate mortgage,
constituted by the latter in favor of the former, as security for the payment of the sum of
P2,889.53 due to said Plaintiff from one Alfredo Brillantes, who had failed to settle his
obligation in accordance with the terms and conditions of the corresponding deed of mortgage.
Defendant Eliseo Barbosa filed an answer admitting the allegations of the complaint and
alleging, by way of “special and affirmative” defense

“That the Defendant herein has executed the deed of mortgage Annex A for the only
purpose of guaranteeing — as surety and/or guarantor — the payment of the above mentioned
debt of Mr. Alfredo Brillantes in favor of the Plaintiff.

ISSUES

1. WON Defendant-Appellant was not served with a copy thereof nor served with notice of
the hearing thereof.

2. WON a ‘judgment on the pleadings’ has been rendered in Appellee’s favor when no issue
was at all submitted to it for resolution, to the prejudice of the substantial rights of
Appellant.

3. WON the Defendant-Appellant has been deprived of his property rights without due
process of law.

RULING

1. The deed of mortgage executed by him specifically provides:

“That if said Mr. Alfredo Brillantes or herein mortgagor, his heirs, executors, administrators and
assigns shall well and truly perform the full obligations above-stated according to the terms
thereof, then this mortgage shall be null and void, otherwise it shall remain in full force and
effect, in which event herein mortgagor authorizes and empowers herein mortgagee-company to
take any of the following actions to enforce said payment;.

“(a) Foreclose, judicially or extrajudicially, the chattel mortgage above referred to and/or also
this mortgage, applying the proceeds of the purchase price at public sale of the real property
herein mortgaged to any deficiency or difference between the purchase price of said chattel at
public auction and the amount of P2,889.53, together with its interest hereby secured; chan
roblesvirtualawlibraryor

“(b) Simply foreclose this mortgage judicially in accordance with the provisions of section 2,
Rule 70, Rules of Court, or extra- judicially under the provisions of Act No. 3135 and Act No.
4118, to satisfy the full amount of P2,889.53, together with its interest of 12 per cent per
annum.”

2. The right of guarantors, under Article 2058 of the Civil Code of the Philippines, to demand
exhaustion of the property of the principal debtor, exists only when a pledge or a mortgage has
not been given as special security for the payment of the principal obligation. Guarantees,
without any such pledge or mortgage, are governed by Title XV of said Code, whereas pledges
and mortgages fall under Title XVI of the same Code, in which the following provisions, among
others, are found:chanroblesvirtuallawlibrary

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 ART. 2087. “It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated for the
payment to the creditor.”

ART. 2126. “The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it
was constituted.”

3. It has been held already (Saavedra vs. Price, 68 Phil., 688), that a mortgagor is not entitled to
the exhaustion of the property of the principal debtor.

4. Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said
guarantor, who shall be entitled, however, to a deferment of the execution of said judgment
against him until after the properties of the principal debtor shall have been exhausted to satisfy
the obligation involved in the case.

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 SOUTH CITY HOMES, INC. VS.BA FINANCE CORP. (G.R. NO. 135462, DECEMBER
7, 2001)

FACTS

On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed
in favor of plaintiff-appellant a Continuing Suretyship Agreement, in which he "jointly and
severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of
any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation. On
February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G.
Chua, George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of
plaintiff-appellant a Continuing Suretyship Agreement in which, said corporation "jointly and
severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of
any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of
Exhibits, pp. 19-20). On the same date, South City Homes, Inc. represented by Edgar C.
Rodrigueza and Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in
which said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and
prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to
BA Finance Corporation.

Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles
delivered to it by CARCO under which it agreed to remit to the Entruster (CARCO) the proceeds
of any sale and immediately surrender the remaining unsold vehicles. ). The drafts and trust
receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO.
Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due
under the drafts and to remit the proceeds of motor vehicles sold or to return those remaining
unsold in accordance with the terms of the trust receipt agreements, BA Finance Corporation sent
demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan
Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar
(Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their outstanding
account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of
money with prayer for preliminary attachment, with the Regional Trial Court of Manila.

ISSUE

WON respondent BAFC has a valid cause of action for a sum of money following the drafts
and trust receipts transactions.

RULING

As an entruster, respondent BAFC must first demand the return of the unsold vehicles from
Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so,

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 petitioners had no cause of action whatsoever against Fortune Motors Corporation and the action
for collection of sum of money was, therefore, premature.

A trust receipt is 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 through utilization, as collateral,
of the merchandise imported or purchased.9 In the event of default by the entrustee on his
obligations under the trust receipt agreement, it is not absolutely necessary that the entruster
cancel the trust and take possession of the goods to be able to enforce his rights thereunder.

ASIATIC PETROLEUM VS HIZON (45 PHIL 534)

FACTS

This civil action was instituted by the Asiatic Petroleum to recover of Justino A. David,
selling agent and as principal, and of Francisco Hizon y Singian, as security, the sum of
P51,560.12, an alleged balance due upon liquidation of accounts between the plaintiff and
David, and for which Francisco Hizon y Singian is alleged to be obligated as joint and several
surety with the principal debtor. At the hearing judgment was rendered in favor of the plaintiff to
recover of Justino A. David, as principal, the sum P40,786.98, and of Francisco Hizon y Singian,
as surety, a portion of the same debt not to exceed the sum of P5,000. From this judgment, David
did not appeal. As regards the liability declared by the trial court against Francisco Hizon y
Singian, an appeal was taken both by the plaintiff and by said Hizon, the plaintiff contending that
the court should have held Hizon jointly and severally responsible for the entire sum adjudged
against the principal debtor, while Hizon claims that he should have been wholly absolved.

The alleged liability of the appellant, Francisco Hizon y Singian, is planted upon a
document (Exhibit B-1), which, as appearing in evidence, is pasted to the Exhibit B. By the said
Exhibit B-1, Francisco Hizon y Singian obligates himself to answer jointly and severally with the
agent (Justino A. David) for all the obligations contracted or to be contracted by the latter in
accordance with the terms of the contract of agency (Exhibit B), and the said Francisco Hizon y
Singian further agrees finally to answer for any balance that should be due to the plaintiff from
said agent upon liquidation of the account, or accounts, between said two parties.

From the time demand was first made upon the present appellant, Hizon, for the
satisfaction of the balance due to the plaintiff upon liquidation of the account of David, the
appellant has insisted that he had obligated himself to answer for indebtedness to be incurred by
David as selling agent at and for the town of San Fernando and that he had been given to
understand, at the time he contracted the obligation, that the indebtedness so incurred would not
be in excess of P5,000.
In the course of the trial of this case, a duly authenticated copy of said contract, as appearing in
the official archives of said division, was introduced in evidence in this case; and upon
comparison of said copy with the Exhibit B, the two documents are found to differ in the sole
circumstance that the words Guagua, Angeles, San Simon, Capas, Magalang, and Mabalakat, are
wanting in the instrument now preserved in the division of archives.

ISSUE

WON the appellant Fracisco Hizon y Singian is completely absolved from the complaint.

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 RULING

The trial judge reached the conclusion that at the time the appellant signed and
acknowledged the contract of suretyship the principal contract made no mention of other places
than San Fernando; and that the names of the other places, after San Fernando, had been
interpolated in the document Exhibit B after the contract of suretyship had been acknowledged.
It was believed that there can be little doubt as to the correctness of this conclusion, and it
completely bears out the contention of the appellant to the effect that he really obligated himself
only to answer for such indebtedness as might be incurred by David as agent at San Fernando. It
may add that no witness was produced by the plaintiff for the purpose of explaining in any way
the discrepancy between the two documents above referred to. The conclusion upon a careful
consideration of the evidence is that, when the appellant acknowledged the contract of
suretyship, the principal contract was limited to the agency at that place and that the document
Exhibit B was subsequently amended by agreement between the plaintiff and Justino A. David,
but without the knowledge or consent of the appellant, by the insertion therein of the names of
the other places mentioned in said exhibit.

In doing so he proceeded upon the idea that the defendant admitted that he had intended
to obligate himself to the extent of P5,000, and his Honor concluded that by entering into the
contract of suretyship the defendant had induced the plaintiff to make the contract of agency
which appears to have been signed by the representative of the plaintiff after it had been signed
and acknowledged by David; for which reason his Honor considered it just to hold the defendant
to the extent at least in which he had intended to bind himself. The validity of this conclusion
cannot be admitted. The only obligation which was created on the part of the defendant was the
contract of suretyship (Exhibit B-1), and when that obligation was nullified by the subsequent
alteration of the principal contract, the appellant was discharged in toto.

In the course of this decision the fact has not escaped our attention that the answer of the
appellant does not specially plead the alteration of the contract of agency. But this is sufficiently
explained by the circumstance that the document which conclusively proves the fact of alteration
had not been discovered in the division of archives at the time the answer was filed. We note
further that when a copy of said document was finally produced, it was introduced in evidence
and admitted without question.

In the light of what has been said it becomes necessary to reverse the appealed judgment
in so far as it awards the sum of P5,000 against the appellant Francisco Hizon y Singian, and he
will be completely absolved from the complaint.

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 DEVELOPMENT BANK OF THE PHILIPHINES, petitioner,
Vs.
NATIONAL LABOR RELATIONS COMMISSIO N, LABOR ARBITER.(183 SCRA 328
and 242 SCRA 59)

FACTS
This Petition for Certiorari addresses itself to the 12 February 1986 Order of the National
Labor Relations Commission directing petitioner Development Bank of the Philippines (DBP) to
remit the sum of P6,292,380.00 "out of proceeds of the foreclosed properties of Lirag Textile
Mills Inc., sold at public auction in order to satisfy the judgment" in NLRC Cases Nos. NCR-3-
2581-82 and 2-2090-82.
The background facts of these two cases may be summarized as follows:
The complainants in the two cases filed below were former employees of Lirag Textile
Mills, Inc. (LIRAG, for short). LIRAG was a mortgage debtor of DBP. Private respondent Labor
Alliance for National Development (LAND, for brevity) was the bargaining representative of the
more or less 800 former rank and file employees of LIRAG. Around September 1981, LIRAG
started terminating the services of its employees on the ground of retrenchment. By December of
the said year there were already 180 regular employees separated from the service. LIRAG has
since ceased operations presumably due to financial reverses.
In February 1982, Joselito Albay, one of the employees dismissed in September 1981,
filed a complaint before the National Labor Relations Commission (NLRC) against LIRAG for
illegal dismissal (Case No. 2-2090-82). On 1 March 1982, LAND, on behalf of 180 dismissed
members, also filed a Complaint against LIRAG seeking separation pay, 13th month pay,
gratuity pay, sick leave and vacation leave pay and emergency allowance (Case No. 3-2581-82).
These two cases were consolidated and jointly heard by the NLRC. Said complainants have since
been joined by supervisors and managers.
In a Decision, dated 30 July 1982, Labor Arbiter Apolinar L. Sevilla ordered LIRAG to
pay the individual complainants. The NLRC (Third Division) affirmed the same on 28 March
1982. That judgment became final and executory.
On 15 April 1983, a Writ of Execution was issued. On the same day, DBP extrajudicial
foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage obligation. As the
only bidder at the foreclosure sale, DBP acquired said mortgaged properties for P31,346,462.90.
Since DBP was the sole mortgagee, no actual payment was made, the amount of the bid having
been merely credited in partial satisfaction of LIRAG's indebtedness.
By reason of said foreclosure, the Writ of Execution issued in favor of the complainants
remained unsatisfied. A Notice of Levy on Execution on the properties of LIRAG was then
entered. On 7 December 1984, LAND filed a "Motion for Writ of Execution and Garnishment"
of the proceeds of the foreclosure sale.On 30 May 1985, upon motion of LAND, Labor Arbiter
Apolinar L. Sevilla ordered the DBP impleaded "in the interest of justice and due process," and

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 required it to intervene.
On 12 February 1986, and over the opposition of DBP, Labor Arbiter Sevilla granted the
Writ of Garnishment and directed DBP to remit to the NLRC the sum of P6,292,380.00 out of
the proceeds of the foreclosed properties of LIRAG sold at public auction in order to satisfy the
judgment previously rendered.
DBP sought reconsideration of the above Order on the grounds of NLRC's lack of
jurisdiction over it since it was not a party to the case, and that it was deprived of its property
without due process of law. Public respondent, Labor Arbiter Isabel P. Ortiguerra denied
reconsideration on 25 May 1987. DBP appealed that denial to the NLRC.
In the meantime, on 3 February 1987, by virtue of Proclamation Nos. 50 and 50-A, the
Asset Privatization Trust (APT) became the transferee of the DBP foreclosed assets of LIRAG.
On 12 July 1989, by virtue of that transfer, we deemed APT impleaded as a party-petitioner and
gave it time within which to file its pleading. It submitted a Memorandum on 22 November
1989.
It appears that on 21 December 1987, a partial Compromise Agreement was entered into
between APT and LAND (Litex Chapter) whereby APT paid the complainants-employees, ex
gratia, the sum of P750,000.00 "in full settlement of their claims, past and present, with respect
to all assets of LITEX transferred by DBP to APT." That amount was received by LAND's local
President. Apparently, however, on 25 January 1988, LAND, through its national President, filed
its opposition to the Compromise Agreement for being contrary to law, morals and public policy.
On 25 March 1988, the NLRC (First Division) affirmed the appealed Order and
dismissed the DBP appeal.DBP is now before us seeking a review and reversal. On 30 January
1989, the Court resolved to give due course to the petition and to require the parties to submit
simultaneous memoranda. On 1 February 1990, the Court's Second Division referred the case to
the Court en banc, which the latter accepted on the same date.

ISSUES

​I. Whether or not the NLRC gravely abused its discretion in affirming the Order of the
Labor Arbiter granting the Writ of Garnishment out of the proceeds of LIRAG's properties
foreclosed by DBP to satisfy the judgment in these cases.

​II. Whether or not DBP, as foreclosing creditor can be held liable for the unpaid wage,
th
13 month pay, incentive leave pay, and separate pay of the employees of PCS.

RULING

​I. No, NLRC does not gravely abuse its discretion in affirming the Order of the Labor
Arbiter granting the Writ of Garnishment. Section 10, Rule III, Book III of the Omnibus Rules
Implementing the Labor Code has also been amended by Section 1 of the Rules and Regulations
Implementing RA 6715 as approved by the then Secretary of Labor and Employment on 24 May
1989, and now provides:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. —
In case of bankruptcy or liquidation of the employer's business, the unpaid wages
and other monetary claims of the employees shall be given first preference and
shall be paid in full before the claims of government and other creditors may be
paid.
In the event of insolvency, a principal objective should be to effect an equitable distribution of
the insolvent's property among his creditors. To accomplish this there must first be some
proceeding where notice to all of the insolvent’s creditors may be given and where the claims of
preferred creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938,
December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case
of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:

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 ​II. For the second issue, No. A preference of credit bestows upon the preferred creditor
an advantage of having his credit satisfied first ahead of other claims which may be established
against the debtor. Logically, it becomes material only when the properties and assets of the
debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various
creditors, if full, how can the necessity exist to determine which of his creditors shall be paid
first or whether they shall be paid out of the proceeds of the sale of the debtor’s specific
property? Indubitably, the preferential right of credit attains significance only after the properties
of the debtor have been inventoried and liquidated, and the claims held by his various creditors
have been established.
A distinction should be made between a preference of credit and a lien. A preference
applies only to claims which do not attach to specific properties. A lien creates a charge on a
particular property. The right of first preference as regards unpaid wages recognized by article
110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but
a preference of credit in their favor, a preference in application. It is a method adopted to
determine and specify the order in which credits should be paid in the final distribution of the
proceeds of the insolvent’s assets. It is a right to a preference in the discharge of funds of the
judgment debtor.
Article 110 of the labor code does not purport to create a lien in favor of workers or on
employees for unpaid wages either upon all of the properties or upon any particular property
owned b their employer. Claims for unpaid wages do not therefore fall within the category of
specially preferred claims established under articles 2241 and 2242 of the civil code, except to
the extent that such claims for unpaid wages are already covered by article 2241 number 6;
claims for laborer’s wages, on the goods manufactured or the work done; or by article 2242
number 3; claims of laborers and other workers engaged in the construction, reconstruction or
repair of buildings, canals and other works, upon said buildings, canals or other works. To the
extent that claims for unpaid wages fall outside the scope of article 2241, number 6 and article
2242 number 3, they would come within the ambit of the category of ordinary preferred credits
under article 2244.

BANCO FILIPINO SAVINGS AND MORTGADE BANK

Vs.
NATIONAL LABOR RELATION COMMISSION, LABOR ARBITERS (188 SCRA 700)

FACTS
After BANCO FILIPINO SAVINGS AND MORTGAGE BANK was placed under
receivership, and later ordered liquidated by the Monetary Board of the Central Bank,
FORTUNATO M. DIZON. Jr., who was then holding the position of Executive Vice President
and Chief Operating Officer of the bank, received a letter from the Central Bank appointed
liquidator, MS. CARLOTA P. VALENZUELA, informing him that all management authority in
the bank had been assumed by the Central Bank appointed liquidators and that his employment is
being terminated.
Mr. Dizon filed with the liquidator a request for the payment to him of the cash
equivalent of his vacation and sick leave credits and unexpended/unused reimbursable
allowance. His claims were not paid by the liquidator upon counsel's advice that Dizon's claim
should be treated as a claim of a creditor and should therefore be processed pursuant to the
liquidation plan as approved by the Monetary Board. Subsequent demands for payment having

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 been denied, Dizon filed on March 31, 1986 a complaint with the labor arbiter against the bank
for recovery of unpaid salary, the cash equivalent of his accumulated vacation and sick leaves,
termination pay under Article 283 of the Labor Code and moral damages and attorney's fees.
Representing the bank, the liquidator moved for the dismissal of the complaint refuting
the legal and factual bases thereof as well as the jurisdiction of the labor arbiter to entertain
Dizon's money claims because such pertains to the Regional Trial Court of Makati, Branch 146,
acting as the liquidation court.On November 14, 1986, the labor arbiter upheld her jurisdiction
and promulgated a decision in favor of Dizon but withheld his demand for payment of moral
damages and attorney's fees. Both parties appealed to the National Labor Relations Commission
which increased the award due Dizon and further ordered payment of actual and moral damages
and attorney's fees. The award of moral damages was later deleted in the resolution of February
24, 1988 of the Commission.
It is common knowledge that the taking over of the management and assets of Banco
Filipino by the Monetary Board of the Central Bank is being contested by some stockholders of
the bank who insist that the bank is solvent and in sound financial condition and that its closure
was illegal. The controversy has generated quite a number of cases in this Court and in one of
them, G.R. No. 70054, entitled Banco Filipino Savings and Mortgage Bank v. The Monetary
Board, et al., We adopted a resolution, dated August 29, 1985, enjoining the Monetary Board, its
officers, and the Central Bank appointed receivers "from executing further acts of liquidation of
a bank "save"acts such as receiving collectibles and receivables or paying off creditors claims
and other transactions pertaining to normal operations of a bank," and later, further ordered that a
hearing be conducted by the Regional Trial Court of Makati, Branch 146 to afford the former
management/stockholders of the bank an opportunity to prove that the bank's closure was illegal.
The temporary restraining order still stands and it appears that a report and recommendation on
the hearing has yet to be filed. For the moment, therefore, the bank is not being liquidated and
the possibility lurks that it might not be at all. Respondent Dizon, cognizant of these, argues that
it is the labor arbiter and the NLRC which has jurisdiction over his money claims since there is
no liquidation court to speak of.

ISSUES
I. Whether or not the jurisdiction of Dizon’s money claims belongs to the labors arbiter
and the NLRC.
II. Whether or not Dizon is entitle for the payment of the cash equivalent of his vacation
and seek leave credits and unexpected reimbursable allowance and attorney’s fee.

RULING
I. Yes, the jurisdiction of Dizon’s claim belongs to the labor arbiters and NLRC. We are
of the opinion that it is the NLRC which has jurisdiction over Dizon's money claims. Section 29
of the Central Bank Act (Republic Act No. 265) before its amendment by Executive Order No.
289 (September, 1987,) reads, to wit:
Sec. 29. Proceedings upon insolvency. — ... If the Monetary Board shall
determine and confirm within the said period that the bank or non-bank financial
intermediary performing quasi-banking functions is insolvent or cannot resume
business with safety to its depositors, creditors and the general public, it shall, if
the public interest requires, order its liquidation, indicate the manner of its
liquidation and approve a liquidation plan. The Central Bank shall, by the
Solicitor General, file a petition in the Court of First Instance reciting the
proceedings which have been taken and praying the assistance of the court in the
liquidation of such institution. The court shall have jurisdiction in the same
proceedings to adjudicate disputed claims against the bank or non-bank financial

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 intermediary performing quasibanking function and enforce individual liabilities
of the stockholders. and do all that is necessary to preserve the assets of such
institution and to implement the liquidation plan approved by the
Monetary Board. ... The liquidator shall with all convenient speed, convert the
assets of the banking institution or non-bank financial intermediary performing
quasi-banking functions to money or sell, assign or otherwise dispose of the same
to creditors and other parties for the purpose of paying the debts of such
institution and he may, in the name of the bank or non-bank financial intermediary
performing quasi-banking functions, institute such actions as may be necessary in
the appropriate court to collect and recover accounts and assets of such institution.
[Emphasis supplied]
There is nothing in Section 29 which suggests that the jurisdiction of the liquidation court to
adjudicate claims against the insolvent bank is exclusive. On the other hand, Article 217 of the
Labor Code explicitly provides that labor arbiters have original and exclusive jurisdiction, over
money claims of an employee against his employer, thus:
ART. 217. Jurisdiction of the Labor Arbiter and the Commission. (a) The Labor
Arbiter shall have the original and exclusive jurisdiction to hear and decide ... the
following cases involving all workers xxx xxx xxx All money claims of workers,
including those based on non-payment or underpayment of wages, overtime
compensation, separation pay and other benefits provided by law or appropriate
agreement, except claims for employee's compensation, social security, medicare
and maternity benefits.
II. Yes, Dizon is entitled for the paments of his claims. Article 110 of the Labor Code
before its amendment by Republic Act No. 6715 (March 2, 1989) reads as follows:
ART. 110. Worker Preference in case of Bankruptcy — In the event of bankruptcy
or liquidation of an employer's business, his workers shall enjoy first preference
as regards wages due them for services rendered during the period prior to the
bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Unpaid wages shall be paid in full before other creditors may establish any claim
to a share in the assets of the employer.

​This is a factual issue which We are not inclined to disturb. Also, since Dizon was forced
to litigate, he is entitled to attorney's fees.

REPULIC OF THE PHILIPINES

Vs.
HONORABLE E. L. PERALTA (150 SCRA 37)

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 FACTS

​The Republic of the Philippines seeks the review on certiorari of the Order dated 17
November 1980 of the Court of First Instance of Manila in its Civil Case No. 108395 entitled "In
the Matter of Voluntary Insolvency of Quality Tobacco Corporation, Quality Tobacco
Corporation, Petitioner," and of the Order dated 19 January 1981 of the same court denying the
motion for reconsideration of the earlier Order filed by the Bureau of Internal Revenue and the
Bureau of Customs for the Republic. In its questioned Order of 17 November 1980, the trial
court held that the above-enumerated claims of USTC and FOITAF (hereafter collectively
referred to as the "Unions") for separation pay of their respective members embodied in final
awards of the National Labor Relations Commission were to be preferred over the claims of the
Bureau of Customs and the Bureau of Internal Revenue. The trial court, in so ruling, relied
primarily upon Article 110 of the Labor Code.

​The Solicitor General, in seeking the reversal of the questioned Orders, argues that
Article 110 of the Labor Code is not applicable as it speaks of "wages," a term which he asserts
does not include the separation pay claimed by the Unions. "Separation pay," the Solicitor
General contends,is given to a laborer for a separation from employment computed on the basis
of the number of years the laborer was employed by the employer; it is a form of penalty or
damage against the employer in favor of the employee for the latter's dismissal or separation
from service.

ISSUES

​WON separation pay of their respective members embodied infinal awards of the NLRC
were to be preferred over the claims of the Bureau of Customs and the BIR (WON separation
pay is included in the term “wages”)

RULING

​Yes, for the specific purposes of Article 110 and in the context of insolvency termination
or separation pay is reasonably regarded as forming part of the remuneration or other money
benefits accruing to employees or workers by reason of their having previously rendered services
to their employer; as such, they fall within the scope of "remuneration or earnings — for
services rendered or to be rendered —.” So far as concerns the employees, however, separation
pay is additional remuneration to which they become entitled because, having previously
rendered services, they are separated from the employer's service. The relationship between
separation pay and services rendered is underscored by the fact that separation pay is measured
by the amount (i.e., length) of the services rendered.

​And the Solicitor General took a different view and there urged that the term "wages"
under Article 110 of the Labor Code may be regarded as embracing within its scope severance
pay or termination or separation pay. In PCIB, this Court agreed with the position advanced by
5
the Solicitor General. We see no reason for overturning this particular position.

​Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code
concerning the classification, concurrence and preference of credits, which provisions find
particular application in insolvency proceedings where the claims of all creditors, preferred or
7
non-preferred, may be adjudicated in a binding manner. It is thus important to begin by

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 outlining the scheme constituted by the provisions of the Civil Code on this subject

J.L. BERNARDO CONSTRUCTION VS. COURT OF APPEALS, G.R. NO. 105827,

JANUARY 31, 2000

FACTS
​The municipal government of San Antonio, Nueva Ecija approved the construction of the
San Antonio Public Market sometime in 1990. The construction of the market was to be funded
by the Economic Support Fund Secretariat (ESFS), a government agency working with the
USAID. Under ESFS "grant-loan-equity" financing program, the funding for the market would
be composed of a (a) grant from ESFS, (b) loan extended by ESFS to the Municipality of San
Antonio, and (c) equity or counterpart funds from the Municipality.
​Petitioners Santiago R. Sugay, Edwin A. Sugay, Fernando S.A. Erana and J.L. Bernardo
Construction, a single proprietorship owned by Juanito L. Bernardo, claimed that they entered
into a business venture for the purpose of participating in the bidding for the public market. It
was agreed by petitioners that Santiago Sugay would take the lead role and be responsible for the
preparation and submission of the bid documents, financing the entire project, providing and
utilizing his own equipment, providing the necessary labor, supplies and materials and making
the necessary representations and doing the liaison work with the concerned government
agencies.
​On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, submitted
its bid together with other qualified bidders. After evaluating the bids, the municipal pre-
qualification bids and awards committee, headed by respondent Jose L. Salonga (then incumbent
municipal mayor of San Antonio) as Chairman, awarded the contract to petitioners. On June 8,
1990, a Construction Agreement was entered into by the Municipality of San Antonio thru
respondent Salonga and petitioner J.L. Bernardo Construction.
​Petitioners allege that under this Construction Agreement, the Municipality agreed to
assume the expenses for the demolition, clearing and site filling of the construction site in the
amount of P1,150,000 and, in addition, to provide cash equity of P767,305.99 to be remitted
directly to petitioners.
​Petitioners claim that, although the whole amount of the cash equity became due, the
Municipality refused to pay the same, despite repeated demands and notwithstanding that the
public market was more than ninety-eight percent (98%) complete as of July 20, 1991.

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 Furthermore, petitioners maintain that Salonga induced them to advance the expenses for the
demolition, clearing and site filling work by making representations that the Municipality had the
financial capability to reimburse them later on. However, petitioners claim that they have not
been reimbursed for their expenses.
​On July 31, 1991, J.L. Bernardo Construction, Santiago Sugay, Edwin Sugay and
Fernando Erana, with the latter three bringing the case in their own personal capacities and also
in representation of J.L. Bernardo Construction, filed a complaint for breach of contract, specific
performance, and collection of a sum of money, with prayer for preliminary attachment and
enforcement of contractors lien against the Municipality of San Antonio, Nueva Ecija and
Salonga, in his personal and official capacity as municipal mayor. After defendants filed their
answer, the Regional Trial Court held hearings on the ancillary remedies prayed for by plaintiffs.
​On September 5, 1991, the Regional Trial Court issued the writ of preliminary attachment
prayed for by plaintiffs. It also granted J.L. Bernardo Construction the right to maintain
possession of the public market and to operate the same.
​The defendants moved for reconsideration of the trial courts order, to which the plaintiffs
filed an opposition. On October 10, 1991 the motion was denied. The following day, the trial
court approved the guidelines for the operation of the San Antonio Public Market filed by
plaintiffs.
​On October 21, 1991, during the pendency of his motion, respondent Salonga filed with
the Court of Appeals a petition for certiorari under Rule 65 with prayer for a writ of preliminary
injunction and temporary restraining order. Petitioners opposed the petition, claiming that
respondent had in fact a plain, speedy and adequate remedy as evidenced by the filing of a
motion to approve counter-bond with the trial court.
​On February 6, 1992, the Court of Appeals reversed the trial court's decision and ruled in
favor of Salonga. Hence, the petition.

ISSUE
​Whether or not the plaintiffs are entitled to obtain possession and use of the public
market, it not having been alleged in their pleadings that they have any rights as a mortgagee
under the contracts.

RULING
​It not having been alleged in their pleadings that they have any rights as a mortgagee
under the contracts, petitioners may only obtain possession and use of the public market by
means of a preliminary attachment upon such property, in the event that they obtain a favorable
judgment in the trial court. Under our rules of procedure, a writ of attachment over registered
real property is enforced by the sheriff by filing with the registry of deeds a copy of the order of
attachment, together with a description of the property attached, and a notice that it is attached,
and by leaving a copy of such order, description, and notice with the occupant of the property, if
any. If judgment be recovered by the attaching party and execution issue thereon, the sheriff may
cause the judgment to be satisfied by selling so much of the property as may be necessary to
satisfy the judgment. Only in the event that petitioners are able to purchase the property will they
then acquire possession and use of the same.
​Clearly, the trial courts order of September 5, 1991 granting possession and use of the
public market to petitioners does not adhere to the procedure for attachment laid out in the Rules
of Court. In issuing such an order, the trial court gravely abused its discretion and the appellate
courts nullification of the same should be sustained.

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 MANABAT VS. LAGUNA FEDERATION OF FACOMAS, INC., G.R. NO. L-23888,
MARCH 18, 1967

FACTS
​Laguna Federation of Facomas, Inc. filed a suit against Nieves M. Vda. de
Roxas,thereafter, a judgment for the plaintiff was rendered. And pursuant to it, a writ of
execution was issued on February, 8, 1960, by virtue of which Francisco Manabat, the provincial
sheriff, sold at public auction on November 24, 1960 all rights, titles and interests of Nieves M.
Vda. de Roxas in ten (10) parcels of land for a total price of P37,000.
​However, the sheriff instituted an action for interpleader on February 21, 1961 in the
same Court of First Instance of Laguna after discovering that the parcels of land sold were
subject to registered liens such as writs of execution and attachment annotated at the back of the
respective title certificates, for the different creditors or lienholders to litigate among themselves
and determine their rights to the P37,000 proceeds of the sale.
​After stipulation of facts and submission of documentary evidence by the parties, the
Court of First Instance ruled, in its decision of December 6, 1961, that the several defendants-
claimants are entitled to the proceeds of the sale in the order of preference in accordance with the
dates of the registration of their credits. Only Florentino Cayco and Jose Fernandez Zorilia
appealed from the said judgment. The only issue raised by the claimants is that the rule to follow
in the satisfaction of the credits involved is distribution pro rata and not of preference in the
order of dates of registration.

ISSUE
​Whether the rule to follow in the satisfaction of the credits involved is that of preference
in the order of dates of registration, as held by the court a quo, or distribution pro rata, as
appellants maintain.

RULING
​The rule of pro rata does not apply to the credits mentioned in subpar. (7) of Article 2242
of the Civil Code:
ART. 2242. With reference to specific immovable property and real rights of the debtor, the
following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on
the immovable or real right:
(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or
executions, upon the property affected, and only as to later credits.
​It being expressly provided that said credits are preferred "only as to later credits", it
follows that the same limitation applies as to their preference among themselves; i.e., for
purposes of satisfying several credits annotated by attachments or executions, the rule is still
preference according to priority of the credits in the order of time. For, otherwise, the result
would be absurd: the preference of an attachment or execution lien over later credits, as above
provided for, could easily be defeated by simply obtaining writs of attachment or execution, and
annotating them, no matter how much later.
​It not being disputed that appellants' credit is "later" than those of appellees Laguna
Federation of Facomas, Inc., Valeriana Lim-aco de Almeda and Cosmopolitan Insurance Co.,
Inc., the appellees' credits must be deemed preferred to that of appellants. To satisfy them pro
rata would erase the difference between earlier and later credits provided for by subpar. (7) of

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 Article 2242 aforementioned.

CHINA BANKING CORP. VS. LICHAUCO, G.R. NO. L-22001, NOVEMBER 4, 1924

FACTS
​Lichauco & Company, Inc., owed the plaintiff a large sum by way of loan. On September
5, 1921, Faustino Lichauco and wife Luisa F. de Lichauco executed a document in favor of the
plaintiff whereby they secured with a mortgage upon the property described in the document the
payment of a part of this loan in the amount of P50,000 with interest at 9 per cent per year. It was
agreed that in case of non-fulfillment of the contract, this mortgage would stand as security also
for the payment of all the costs of the suit and expenses of any kind, including attorney’s fees,
which by way of liquidated damages are fixed at 5 per cent of the principal. It is stated lastly in
this document that if Faustino Lichauco and Luisa F. de Lichauco should fail to pay this amount
of P50,000, the mortgage shall be in full force and effect.
​On the 20th of December, 1922, Lichauco & Co., Inc., Faustino Lichauco, and Luisa F.
de Lichauco executed another document in which, among other things, they ratified the former
mortgage and stated that the payment of the P50,000 shall continue to be secured in the same
manner and with the same property, and shall earn interest at 12 per cent per year from October
20, 1920.
​The appellants argue in this court that the obligation of Faustino Lichauco and Luisa F. de
Lichauco lacked consideration, because what they guaranteed with this mortgage was a debt of
Lichauco & Co., Inc.

ISSUE
​Whether or not the consideration of a mortgage, which is an accessory contract can be
avoided on the ground of lack of consideration.

RULING
​As a mortgage is an accessory contract, its consideration is the very consideration of the
principal contract, from which it receives its life, and without which it cannot exist as an
independent contract, although, as in the instant case, it may secure an obligation incurred by
another (art. 1857 of the Civil Code). That this amount of P50,000 is to earn interest, and that 5
per cent must be paid in addition for judicial expenses and attorney’s fees, was expressly
stipulated in the contract. The trial court, however, fixed this interest at 12 per cent from
September 5, 1921, which we believe is an error. In the contract of December 20, 1922, it was
stipulated that from October 20, 1920, the interest must be 12 per cent. Undoubtedly a clerical
error was committed in the writing of this date, inasmuch as then Faustino Lichauco and Luisa F.
de Lichauco had not executed the mortgage yet. The lower court held that this date must be
September 5, 1921, but this view is groundless, since in the contract of September 5, 1921, this

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 interest was fixed at 9 per cent. This date must, therefore, be construed to be the date of the
second contract, December 20, 1922, as it cannot be presumed that the parties ever intended to
make it effective from a former date.
​The consideration of a mortgage, which is an accessory contract, is that of the principal
contract, from which it receives its life, and without which it cannot exist as an independent
contract, even if the obligation thereby secured is of a third person, and therefore it will be valid,
if the principal one is valid, and cannot be avoided on the ground of lack of consideration.

Digested by: Agnila, Divine Grace

SORIANO VS. GALIT, G.R. NO. 156295 SEPTEMBER 23, 2003

FACTS
Ricardo Galit contracted a loan from petitioner Marcelo Soriano, evidencedby
four promissory notes. This loan was secured by a real estate mortgage over a
parcel of land covered by Original Certificate of Title No. 569. After he failed to
pay his obligation, Soriano filed a complaint for sum of money against him with
the Regional Trial Court of Balanga City.
Spouses Ricardo and Rosalina Galit failed to file their answer. Hence, upon
motion of Marcelo Soriano,the trial court declared the spouses in default and
proceeded to receive evidence for petitioner Soriano ex parte.
The RTC rendered judgment in favor of Soriano ordering Galit to pay. The
judgment became final and executory. Accordingly, the trial court issued a writ of
execution in due courseby virtueof which, Deputy Sheriff Renato E. Robles levied
on the following real properties of the Galit spouses:
1. A parcel of land covered by Original Certificate of Title No. T-569
2. STORE/HOUSE — constructed on Lot No. 1103
3. BODEGA — constructed on Lot No. 1103
At the sale of the above-enumerated properties at public auction held on
December 23, 1998, petitioner was the highestand only bidder. On February 23,
2001, ten months from the time the Certificate of Sale on Execution was
registered with the Registry of Deeds, petitioner moved for the issuance of a writ
of possession. He averred that the one-year period of redemptionhad elapsed
without the respondents having redeemed the properties sold at public auction;
thus, the sale of saidproperties had already become final. The motion for issuance
of writ ofpossession was granted. Subsequently, a writ of possession was issued.
Respondents filed a petition for certiorari with the Court of Appeals,assailing the
inclusion of the parcel of land covered by TCTNo. T-40785 (also known as Lot
No. 1103) among the list of realproperties in the writ of possession. Respondents
argued that said property was not among those sold on executionby Deputy
Sheriff Robles as reflected in the Certificate of Sale on Execution of Real
Property.
The Court of Appeals granted the petition and the writ of possession was declared
null and void.

ISSUE
(1) Whether or not the Court of Appeals erred in declaring the certificate of sale
on executionof real property as null and void and subsequently the writ of
possession
(2) Whether or not the land on which the buildings levied upon in execution is
necessarily included

RULING
(1) NO. The Supreme Court stated in its decision that:
There are actually two (2) copies of the Certificate of Sale on Execution of Real
Properties issued on February 4, 1999involved, namely: (a) copy which is on file
with the deputy sheriff; and (b) copy registered with the Registry of Deeds.

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 Theobject of scrutiny, however, is not the copy of the Certificate of Sale on
Execution of Real Properties issued by the deputy sheriff on February 4, 1999, but
the copy thereof subsequently registered by petitioner with the Registry of Deeds
on April 23, 1999, which included an entry on the dorsal portion of the first page
thereof describing a parcel of landcovered by OCT No. T-40785 not found in the
Certificate of Sale of Real Properties on file with the sheriff.
True, public documents by themselves may be adequate to establish the
presumption of their validity. However, theirprobative weight must be evaluated
not in isolation but in conjunction with other evidence adduced by the parties in
the controversy, much more so in this case where the contents of a copy thereof
subsequently registered for documentation purposes is being contested. No reason
has been offered how and why the questioned entry was subsequentlyintercalated
in the copy of the certificate of sale subsequently registered with the Registry of
Deeds. Absent anysatisfactory explanation as to why said entry was belatedly
inserted, the surreptitiousness of its inclusion coupled with the furtive manner of
its intercalation casts serious doubt on the authenticity of petitioner’s copy of the
Certificate ofSale. Thus, it has been held that while a public document like a
notarized deed of sale is vested with the presumption ofregularity, this is not a
guarantee of the validity of its contents.
It must be pointed out in this regard that the issuance of a Certificate of Sale is an
end result of judicial foreclosurewhere statutory requirements are strictly adhered
to; where even the slightest deviations therefrom will invalidate theproceeding
and the sale. Among these requirements is an explicit enumeration and correct
description of whatproperties are to be sold stated in the notice. The stringence in
the observance of these requirements is such that anincorrect title number together
with a correct technical description of the property to be sold and vice versa is
deemed asubstantial and fatal error which results in the invalidation of the sale.
The certificate of sale is an accurate record of what properties were actually sold
to satisfy the debt. The strictness inthe observance of accuracy and correctness in
the description of the properties renders the enumeration in thecertificate
exclusive. Thus, subsequently including properties which have not been explicitly
mentioned therein forregistration purposes under suspicious circumstances
smacks of fraud. The explanation that the land on which theproperties sold is
necessarily included and, hence, was belatedly typed on the dorsal portion of the
copy of the certificate subsequently registered is at best a lame excuse unworthy
of belief.
The appellate court correctly observed that there was a marked difference in the
appearance of the typewritten wordsappearing on the first page of the copy of the
Certificate of Sale registered with the Registry of Deeds and thoseappearing at the
dorsal portion thereof. Underscoring the irregularity of the intercalation is the
clearly devious attempt tolet such an insertion pass unnoticed by typing the same
at the back of the first page instead of on the second pagewhich was merely half-
filled and could accommodate the entry with room to spare.
(2) The provision of the Civil Code enumerates land and buildings separately.
This can only mean that a buildingis, by itself, considered immovable.Thus, it has
been held that —
. . . while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvementsthereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Suchmortgage would be
still a real estate mortgage for the building would still be considered immovable
property even ifdealt with separately and apart from the land. (Prudential Bank v.
Panis, G.R. No. L-50008, 31 August 1987, 153 SCRA 390, 396, citing Leung Yee
v.Strong Machinery Co., 37 Phil. 644 [1918].)
In this case, considering that what was sold by virtue of the writ of execution
issued by the trial court was merely the storehouse and bodega constructed on the
parcel of land covered by Transfer Certificate of Title No. T-40785, which
bythemselves are real properties of respondent spouses, the same should be
regarded as separate and distinct from theconveyance of the lot on which they

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 stand.

​Digested by: Araque, Jubelyn Jade

DILAG VS. HEIRS OF RESURRECCION, G.R. NO. 48941 MAY 6, 1946

FACTS
Before the year 1936 Laureano Marquez (Marquez) was indebted to Fortunato
Resurreccion (Resurreccion) in the sum of P5,000 as the balance of the purchase
price of a parcel of land which the former had bought and received from the latter.
Resurreccion in turn was indebted to the Luzon Surety Company in the same
amount, which was secured by a mortgage on three parcels of land, one of which
was that bought by Marquez from him. The formal deed of sale from
Resurreccion to Marquez was to have been executed after Marquez has fully paid
the purchase price and after Ressurreccion has secured the cancellation of the
mortgage by the Luzon Surety Company.
Marquez had agreed to pay Resurreccion's indebtedness of P5,000 to the Luzon
Surety Company by way of satisfaction of his own indebtedness to Resurreccion
in the same amount. Through a document signed on July 10, 1933, Marquez
bound himself to indemnify Resurreccion for all the damages he may suffer in the
event of his failure to pay, including the fees of the attorneys of Fortunato
Resurreccion in the suit brought by the Luzon Surety Company as well as in the
action that Fortunato Resurreccion may bring against him in relation to their
agreement.
On April 25, 1936, pending the foreclosure sale of the lands mortgaged by
Resurreccion to the Luzon Surety Company, Marquez executed and delivered to
Resurreccion another document evidencing his agreement to pay the indebtedness
of Resurreccion to Luzon Surety, executing another mortgage in favor of
Resurreccion over five (5) properties. Also stipulated in the fifth clause of said
document Marquez stipulated that inasmuch as the five parcels of land described
in the fourth clause were not sufficient to cover all his obligations in favor of
Resurreccion, he also constituted a mortgage in favor of the latter and his
assignees on any other property he then might have and on those he might acquire
in the future.
Marquez failed to pay the indebtedness of Resurreccion to the Luzon Surety
Company, and the latter filed an action to recover from Marquez the value of the
properties lost at public auction and to foreclose the mortgage executed by
Marquez in his favor. The trial court rendered judgment in favor of Resurreccion,
ordering the foreclosure of the five (5) properties plus other properties acquired
after the execution of the mortgage. The Court of Appeals affirmed the decision
allowing the auction of five (5) parcels of land which were acquired subsequent to
the mortgage. A petition for certiorari to review the decision of the CA was filed
before the Supreme Court.

ISSUE
th
Whether or not the stipulation on the 5 clause constitute a valid mortgage on the
parcels of land which were subsequently acquired by Marquez

RULING
NO. The Supreme Court ruled that future property cannot be the object of a
contract of mortgage since as provided by the Civil Code the mortgagor must be
the absolute owner of the thing mortgaged.
In the fifth clause of said document Marquez stipulated that inasmuch as the five
parcels of land described in the fourth clause were not sufficient to cover all his
obligations in favor of Fortunato Resurreccion, he also constituted a mortgage in
favor of the latter and his assignees on any other property he then might have and
on those he might acquire in the future. Such stipulation did not constitute a valid

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 mortgage on the five parcels of land which were subsequently acquired by
Marquez. Marquez could not legally mortgage any property he did not yet own.
Furthermore, in order that a mortgage may be validly constituted the instrument
by which it is created must be recorded in the registry of deeds; and so far as the
additional as parcels of land are concerned, the registration of the abovementioned
mortgage document did not affect and could not have affected them because they
were not specifically described therein.

PEOPLE'S BANK & TRUST CO. VS. DAHICAN LUMBER CO., G.R. NO. L-17500 MAY
16, 1967

FACTS
On September 8, 1948, Atlantic Gulf & Pacific Company of Manila
(ATLANTIC), a West Virginia corporation licensed to do business in the
Philippines sold and assigned all its rights in the DahicanLumber concession to
Dahican Lumber Company (DALCO) for the total sum of$500,000.00, of which
only the amount of $50,000.00 was paid. Thereafter, to develop the concession,
DALCOobtained various loans from the People's Bank & Trust Company
(BANK) amounting,as of July 13, 1950, to P200,000.00. In addition, DALCO
obtained, through the BANK, a loan of $250,000.00 from theExport-Import Bank
of Washington D.C., evidenced by five promissory notes of $50,000.00 each,
maturing ondifferent dates, executed by both DALCO and the Dahican America
Lumber Corporation (DAMCO), a foreign corporation and a stockholder of
DALCO, all payable to the BANK or its order.
As security for the payment of the abovementioned loans, on July 13, 1950
DALCO executed in favor of the BANK a deed of mortgagecovering five parcels
of land situated in the province of Camarines Norte together with all the buildings
and otherimprovements existing thereon and all the personal properties of the
mortgagor located in its place of business in the municipalities of Mambulao and
Capalonga, Camarines Norte. On the same date, DALCO executed asecond
mortgage on the same properties in favor of ATLANTIC to secure payment of the
unpaid balance of the saleprice of the lumber concession amounting to the sum of
$450,000.00. Both deeds contained provisions extending the mortgage lien to
properties to be subsequently acquired. Both mortgages were registered in the
Office of the Register of Deeds of Camarines Norte. In addition theretoDALCO
and DAMCO pledged to the BANK shares of stock of DALCO and shares of
DAMCO to secure thesame obligations.
Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its
maturity, the BANK paid the same tothe Export-Import Bank of Washington D.C.,
and the latter assigned to the former its credit and the first mortgagesecuring it.
Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay
the overdue promissorynote.
After July 13, 1950 — the date of execution of the mortgages mentioned above —
DALCO purchased variousmachineries, equipment, spare parts and supplies in
addition to, or in replacement of some of those already ownedand used by it on
the date aforesaid. Pursuant to the provision of the mortgage deeds quoted
theretofore regarding"after acquired properties," the BANK requested DALCO to
submit complete lists of said properties but the latterfailed to do so. In connection
with these purchases, there appeared in the books of DALCO as due to Connell
Bros.Company (Philippines) (CONELL) — a domestic corporation who was
acting as the general purchasing agent of DALCO —the sum of P452,860.55 and
to DAMCO, the sum of P2,151,678.34.
On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC,
demanded that said agreements becancelled but CONNELL and DAMCO refused
to do so. As a result, on February 12, 1953; ATLANTIC and the

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 BANK,commenced foreclosure proceedings in the Court of First Instance of
Camarines Norte against DALCO and DAMCO.
On August 30, 1958, upon motion of all the parties, the Court ordered the sale of
all the machineries, equipment andsupplies of DALCO, and the same were
subsequently sold for a total consideration of P175,000.00 which wasdeposited in
court pending final determination of the action. By a similar agreement one-half
(P87,500.00) of thisamount was considered as representing the proceeds obtained
from the sale of the "undebated properties" (thosenot claimed by DAMCO and
CONNELL), and the other half as representing those obtained from the sale of the
"afteracquired properties".
ISSUE
(1) Whether or not the "afteracquired properties" were subject to the deeds of
mortgage
(2) Whether or not the the mortgages valid and binding on theproperties aforesaid
inspite of the fact that they were not registered in accordance with the provisions
of the ChattelMortgage Law
RULING
(1) Under the fourth paragraph of both deeds of mortgage, it is crystal clear that
all property of every nature anddescription taken in exchange or replacement, as
well as all buildings, machineries, fixtures, tools, equipments, andother property
that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in
connection with thepremises — that is, its lumber concession — "shall
immediately be and become subject to the lien" of bothmortgages in the same
manner and to the same extent as if already included therein at the time of their
execution.
As the language thus used leaves no room for doubt as to the intention of the
parties, we see no useful purpose indiscussing the matter extensively. Suffice it to
say that the stipulation referred to is common, and we might saylogical, in all
cases where the properties given as collateral are perishable or subject to
inevitable wear and tear orwere intended to be sold, or to be used — thus
becoming subject to the inevitable wear and tear — but with theunderstanding —
express or implied — that they shall be replaced with others to be thereafter
acquired by themortgagor. Such stipulation is neither unlawful nor immoral, its
obvious purpose being to maintain, to the extentallowed by circumstances, the
original value of the properties given as security.
(2) Article 415 does not define real property but enumerates what are considered
as such, among them being machinery, receptacles, instruments or replacements
intended by owner of the tenement for an industry or workswhich may be carried
on in a building or on a piece of land, and shall tend directly to meet the needs of
the saidindustry or works.
On the strength of the above-quoted legal provisions, the lower court held that
inasmuch as "the chattels wereplaced in the real properties mortgaged to
plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art.2127
of the New Civil Code".In thepresent case, the characterization of the "after
acquired properties" as real property was made not only by one butby both
interested parties. There is, therefore, more reason to hold that such consensus
impresses upon theproperties the character determined by the parties who must
now be held in estoppel to question it.

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 COSIO AND DE RAMA VS. PALILEO 17 SCRA 196

FACTS
Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio (creditor-
mortgagee) praying that their transaction be one of a loan with an equitable mortgage to secure
the payment of the loan. The original counsel of Cosio Atty. Guerrero being appointed
Undersecretary of Foreign Affairs so she forgot the date of the trial and she was substituted.

It is a loan of P12,000 secured by a "Conditional Sale of Residential Building" with right

to repurchase. After the execution of the contract, Cosio insured in her name the building
with Associated Insurance & Surety Co. against fire.The building was partly destroyed by fire so
she claimed an indemnity of P13,107. Palileo demanded that the amount of insurance proceeds
be credited to her loan.

RTC decided that it is a loan with equitable mortgage so the insurance proceeds should be
credited to the loan and refund the overpayment.

ISSUE

Whether or not Cosio as mortgagee is entitled to the insurance proceeds for her own
benefit.

RULING

YES. Collection of insurance proceeds shall not be deemed to have compensated the
obligation of the Palileo to Cosio, but bars the Cosio from claiming its payment from the Palileo;
and Cosio shall pay to Palileo P810 representing the overpayment made by Palileo by way of
interest on the loan.

When the the mortgagee may insure his interest in the property independently of the
mortgagor , upon the destruction of the property the insurance money paid to the mortgagee will
not inure to the benefit of the mortgagor, and the amount due under the mortgage debt remains
unchanged. The mortgagee, however, is not allowed to retain his claim against the mortgagor,
but it passes by subrogation to the insurer, to the extent of the insurance money paid

It is true that there are authorities which hold that "If a mortgagee procures insurance on
his separate interest at his own expense and for his own benefit, without any agreement with the
mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to
have the insurance proceeds applied in reduction of the mortgage debt" But these authorities
merely represent the minority view.

SORIANO V. BAUTISTA 6 SCRA 946

FACTS
Spouses Bautista are the absolute and registered owners of a parcel of land. In May 30,

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 1956, the said spouses entered into an agreement entitled Kasulatan ng Sanglaan (mortgage) in
favor of spouses Soriano for the amount of P1,800. Simultaneously with the signing of the deed,
the spouses Bautista transferred the possession of the subject property to spouses Soriano. The
spouses Soriano have, since that date, been in possession of the property and are still enjoying
the produce thereof to the exclusion of all other persons
Sometime after May 1956, the spouses Bautista received from spouses Soriano the sum
of P450 pursuant to the conditions agreed upon in the document. However, no receipt was
issued. The said amount was returned by the spouses Bautista
In May 13, 1958, a certain Atty. Ver informed the spouses Bautista that the spouses
Soriano have decided to purchase the subject property pursuant to par. 5 of the document which
states that “…the mortgagees may purchase the said land absolutely within the 2-year term of the
mortgage for P3,900.”
Despite the receipt of the letter, the spouses Bautista refused to comply with Soriano’s
demand
As such, spouses Soriano filed a case, praying that they be allowed to consign or deposit
with the Clerk of Court the sum of P1,650 as the balance of the purchase price of the land in
question
The trial court held in favor of Soriano and ordered Bautista to execute a deed of absolute
sale over the said property in favor of Soriano.
Subsequently spouses Bautista filed a case against Soriano, asking the court to order
Soriano to accept the payment of the principal obligation and release the mortgage and to make
an accounting the harvest for the 2 harvest seasons (1956-1957).
CFI held in Soriano’s favor and ordered the execution of the deed of sale in their favor
Bautista argued that as mortgagors, they cannot be deprived of the right to redeem the
mortgaged property, as such right is inherent in and inseparable from a mortgage.

ISSUE
Whether or not spouses Bautista are entitled to redemption of subject property

RULING
No. While the transaction is undoubtedly a mortgage and contains the customary
stipulation concerning redemption, it carries the added special provision which renders the
mortgagor’s right to redeem defeasible at the election of the mortgagees. There is nothing illegal
or immoral in this as this is allowed under Art 1479 NCC which states: “A promise to buy and
sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral
promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if
the promise supported by a consideration apart from the price.”

In the case at bar, the mortgagor’s promise is supported by the same consideration as that
of the mortgage itself, which is distinct from the consideration in sale should the option be
exercised. The mortgagor’s promise was in the nature of a continuing offer, non-withdrawable
during a period of 2 years, which upon acceptance by the mortgagees gave rise to a perfected
contract of sale.

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 BUCTON v. RURAL BANK OF EL SALVADOR
G.R. No. 179625, February 24, 2014

FACTS

Petitioner is the owner of a parcel of land located in Cagayan de Oro. Concepcion

borrowed the title of the land on the pretext that she is going to show it to an interested buyer.
Concepcion obtained a loan from respondent bank and as a security for the loan, Concepcion
mortgaged the property of petitioner using a SPA which was allegedly executed in favor of
Concepcion. When Concepcion failed to pay the loan, the house and lot of petitioner were
foreclosed. Petitioner insisted that she did not obtain any loan from the bank and that her
signature was forged by Concepcion that the loan was entered into by the latter in her own
personal capacity. The bank on the other hand maintains that it was not negligent in inspecting
the properties and relied on the presumption of regularity of the notarized SPA.

ISSUE

Whether or not the Real Estate Mortgage was entered into by Concepcion in her personal
capacity. ​

RULING

Yes. In civil law, for the principal to be bound by a deed executed by an agent, the deed
must be signed by the agent for and in behalf of his principal.

As early as the case of Philippine Sugar Estates Development Co. v. Poizat, we already
ruled that in order to bind the principal by a deed executed by an agent, the deed must upon its
face purport to be made, signed and sealed in the name of the principal. In other words, the mere
fact that the agent was authorized to mortgage the property is not sufficient to bind the principal,
unless the deed was executed and signed by the agent for and on behalf of his principal.

In Philippine Sugar Estates Development Co., the wife authorized her husband to obtain
a loan and to secure it with mortgage on her property. Unfortunately, although the real estate
mortgage stated that it was executed by the husband in his capacity as attorney-in-fact of his
wife, the husband signed the contract in his own name without indicating that he also signed it as
the attorney-in-fact of his wife.

In Rural Bank of Bombon, the agent contracted a loan from the bank and executed a real
estate mortgage. However, he did not indicate that he was acting on behalf of his principal.

Similarly, in this case, the authorized agent failed to indicate in the mortgage that she was
acting for and on behalf of her principal. The Real Estate Mortgage explicitly shows on its face
that it was signed by Concepcion in her own name and in her own personal capacity. In fact,
there is nothing in the document to show that she was acting or signing as an agent of petitioner.
Thus, consistent with the law on agency and established jurisprudence, petitioner cannot be
bound by the acts of Concepcion.

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 In light of the foregoing, there is no need to delve on the issues of forgery of the SPA and
the nullity of the foreclosure sale. For even if the SPA was valid, the Real Estate Mortgage would
still not bind petitioner as it was signed by Concepcion in her personal capacity and not as an
agent of petitioner. Simply put, the Real Estate Mortgage is void and unenforceable against
petitioner.

Respondent bank has no one to blame but itself. Not only did it act with undue haste
when it granted and released the loan in less than three days, it also acted negligently in
preparing the Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and
on behalf of petitioner. We need not belabor that the words as attorney-in-fact of, as agent of, or
for and on behalf of, are vital in order for the principal to be bound by the acts of his agent.
Without these words, any mortgage, although signed by the agent, cannot bind the principal as it
is considered to have been signed by the agent in his personal capacity.

G.R. No. L-23352 December 31, 1925

THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., INC., plaintiff-
appellee,
vs.
JUAN M. POIZAT, ET AL., defendants.
GABRIELA ANDREA DE COSTER, appellant.

FACTS

​Doña Gabriela Andrea de Coster, appellant, executed to and in favor of her husband, Juan
M.Poizat, a general power of attorney which authorized him to do "in her name, place and stead,
and making use of her rights and actions"; to loan or borrow any amount in cash or fungible
conditions he may deem convenient collecting or paying the principal or interest, for the time,
and under the principal of the interest, when they respectively should or private documents, and
making these transactions with or without mortgage, pledge or personal securities.

Poizat obtained from the plaintiff a credit for the sum of 10,000 Pounds Sterling to be
drawn on the Banco Español del Rio de la Plata and to secure payment he executed a mortgage
upon the real property of his wife.Plaintiff then brought an action against the defendant for
failure to pay, to foreclose the mortgage.
The trial court's decision issued an order directing the sale of the mortgaged property to satisfy
the judgment. Thus, the property was sold to the plaintiff for P100,000.00. Appellant personally
appeared and opposed to the confirmation of the sale. She alleged that the mortgage in question

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 was illegally executed thus null and void because the appearance made by the attorneys for her
was collusive and fraudulent, and that it was made without her authority, and there may be some
truth in that contention. It is very apparent that the attorneys made no effort to protect or defend
her legal rights, but under our view of the case, that question is not material to this decision.
Such objections were overruled, which prompted the appellant to appeal.

ISSUE

Whether or not the act of defendant Poizat in his capacity as attorney in fact binds her
wife?

RULING

No the act of Poizat does not bind his wife.

SEC. 1093. Deed by agent must purport to be made and sealed in the name of the
principal. — It is a general rule in the law of agency that in order to bind the principal by a deed
executed by an agent, the deed must upon its grace purport to be made, signed and sealed in the
name of the principal. If, on the contrary, though the agent describes name, the words of grant,
covenant and the like, purport upon the face of the instrument to be his, and the seal purports to
be his seal, the deed will bind the agent if any one and not the principal.

Juan Poizat may have had the authority to borrow money and mortgage the real property
of his wife, but the law specifically provided how and in what manner it must be done. The law
requires that a power of attorney to mortgage or sell real property should be executed with all the
formalities required in a deed. In this case it was not exercised. His personal signature, standing
alone, does not bind his principal. The deed in its face does not purport to be the deed of the
principal, made and signed by him in his name and as his deed. The mortgage in question was
held to be executed by him only,thus it is not binding to his wife.

The mortgage is declared null and void ab initio. The sale is set aside.

​ ​ ​ ​ ​ ​ ​

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 G.R. No. L-38745 August 6, 1975
LUCIA TAN, plaintiff-appellee,
vs.
ARADOR VALDEHUEZA and REDICULO VALDEHUEZA, defendants-appellants.

FACTS

Lucia Tan, the plainti , was the highest bidder of a parcel of land described in a cause of
action which was the subject matter of the public auction sale and as such a Certificate of Sale
was executed in favor of herein plainti . Due to the failure of defendant Arador Valdehueza to
redeem the said land within the period of one year as being provided by law, an Absolute Deed
of Sale in favor of the plainti was executed. The defendants Valdeheuza have executed two
documents of Deed of Pacto de Retro Sale in favor of the plainti of two portions of a parcel of
land which is described in the second cause of action with the total amount of P1,500. From the
execution of the Deed of Sale with right to repurchase mentioned in the second cause of action,
defendants remained in the possession of the land.
The plaintiff files a complaint for injunction to order the Valdehuezas "from entering the
parcel of land and gathering the nuts therein ". The complaint and the counterclaim were later on
dismissed for failure of the parties to seek for immediate trial, thus evincing lack of interest on
their part to proceed with the case. The Deed of Pacto de Retro referred to was not registered in
the Registry of Deeds, while the second Deed of Pacto de Retro was registered.
The trial court rendered in favor of the plaintiff as an absolute owner of the property
described in the first cause of action of the amended complaint; and ordering the herein
defendants not to encroach and molest her in the exercise of her proprietary rights; and, from
which property they must be dispossessed. The Valdehueza then appealed.

ISSUE

Whether or not the transactions between the parties were simple loan?

RULING

No, the transactions were not simple loan.

Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for
the validity of a mortgage even as between the parties, but under article 2125 of the new Civil
Code (in e ect since August 30,1950), this is no longer so. If the instrument is not recorded, the
mortgage is nonetheless binding between the parties. (Article2125, 2nd sentence).

The Valdehueza as having remained in possession of the land and the realty taxes having
been paid by them, the contracts which purported to be pacto de retro transactions are presumed
to be equitable mortgages, whether registered or not, there being no third parties involved. Thus,
the judgment of the lower court is affirmed.

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 G.R. No. 176043 January 15, 2014
SPOUSES BERNADETTE and RODULFO VILBAR, Petitioners,
vs.
ANGELITO L. OPINION, Respondent.

FACTS:

Spouses Vilbar claimed that on July 10, 1979, they and Dulos Realty and Development
Corporation (Dulos Realty) entered into a Contract to Sell involving two (2) lots, LOT 20-b and
LOT 20-A. Sometime in August 1979, spouses Vilbar took possession of Lot 20-B in the concept
of owners and exercised acts of ownership thereon with the permission of Dulos Realty after
making some advance payment.

Upon full payment of the purchase price for Lot 20, or on June 1, 1981, Dulos Realty
executed a duly notarized Deed of Absolute Sale in favour of the spouses Vilbar and their co-
purchases Elena and surrendered and delivered the owners duplicate copy covering Lot 20 to
them. However, spouses Vilbar and Elena were not able to register and transfer the title in their
names because Dulos Realty allegedly failed to have the lot formally subdivided despite its
commitment to do so, until Juan Dulos (Juan) died without the subdivision being accomplished.

Spouses Vilbar and Dulos Realty also executed a Contract to Sell covering Lot 21. To pay
for the balance of the purchase price, spouses Vilbar obtained a housing loan from the
Development Bank of the Philippines (DBP) secured by a real estate mortgage over the said lot.
Dulos Realty facilitated the approval of the loan, the proceeds of which were immediately paid to
it as full payment of the purchase price.

In 1991, the spouses Vilbar were able to pay the loan in full and DBP issued the requisite
Cancellation of Mortgage. The spouses Vilbar have been in actual, open and peaceful possession
of Lot 21 and occupy the same as absolute owners since 1981.
In contrast, Opinion claimed that he legally acquired Lots 20 and 21 through extra-
judicial foreclosure of mortgage constituted over the said properties by Gorospes. They defaulted
in payment, prompting Opinion to file a petition for Extra-Judicial Foreclosure of Real Estate
Mortgage. Subsequently, the subject properties were sold at a public auction where Opinion
emerged as the highest bidder. A Certificate of Sale was issued in his favour on December
18,1995 and annotated on the TCTs of the properties. The Gorospes failed to redeem the
properties within the reglementary period resulting in the eventual cancellation of their titles.
Thus, the titles to Opinion were issued on January 22, 1997 by the Registry of Deeds of Las Piñas City.

February 13, 1997, Opinion filed a Petition for Issuance of a Writ of Possession against
the Gorospes. Branch 253initially issued a Writ of Possession and spouses Vilbar and Elena were
served with a notice to vacate the premises. However, the writ was quashed when spouses Vilbar
filed an urgent motion for the quashal of the writ and presented their title to Lot 21, while Elena
presented the Deed of Absolute Sale executed by Dulos Realty covering Lot 20. Consequently,
Opinion filed a Complaint for Accion Reinvindicatoria with Damages docketed as Civil Case
No. 98-0302 and raffled to Branch 255 of the RTC of Las Pis City for him to be declared as the
lawful owner and possessor of the subject properties and for his titles to be declared as authentic.
He likewise prayed for the cancellation of the titles of spouses Vilbar and Elena.

The RTC rendered its decision in favor of Opinion declaring that he lawfully acquired the
disputed properties and that his titles are valid, the sources of which having been duly
established.

The CA affirming the RTC ruling that Opinion validly acquired title over Lots 20 and 21

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 through a valid mortgage, extrajudicial foreclosure and eventual consolidation proceedings
instituted over the said properties.

ISSUE
Whether or not the CA seriously erred in finding that the respondent Opinion has a better
title and/or has preference over the subject properties identified as Lots 20 and 21.

RULING

The CA was correct.

Court recognizes the settled rule that levy on attachment, duly registered, takes
preference over a prior unregistered sale. This result is a necessary consequence of the fact that
the properties involved were duly covered by the Torrens system which works under the
fundamental principle that registration is the operative act which gives validity to the transfer or
creates a lien upon the land.

For some unknown reasons, the spouses Vilbar did not cause the transfer of the certificate
title in their name, or at the very least, annotate or register such sale in the original title in the
name of Dulos Realty. This, sadly, proved fatal to their cause. Time and time again, this Court
has ruled that a certificate of title serves as evidence of an indefeasible and incontrovertible title
to the property in favor of the person whose name appears therein. Having no certificate of title
issued in their names, spouses Vilbar have no indefeasible and incontrovertible title over Lot 20
to support their claim. Further, it is an established rule that registration isthe operative act which
gives validity to the transfer or creates a lien upon the land.

The spouses Vilbar do not even know if a Deed of Absolute Sale over Lot 21 was
executed in their favor. As the evidence extant on record stands, only a Contract to Sell which is
legally insufficient to serve as basis forthe transfer of title over the property is available. At most,
it affords spouses Vilbar an inchoate right over the property. Absent that important deed of
conveyance over Lot 21 executed between Dulos Realty and the spouses Vilbar, TCT No. 36777
issued in the name of Bernadette Vilbar cannot be deemed to have been issued in accordance
with the processes required by law.

Basically, the spouses Vilbar were not able to present material evidence to prove that
TCT of Lot 21 was issued in accordance with the land registration rules.

Petition for review on certiorari is DENIED.

​ ​ ​ ​ ​ ​ ​

ROSANA EREÑA VS. VIDA DANA QUERRER-KAUFFMAN, G.R. NO. 165853 JUNE
22, 2006

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 FACTS

Vida Dana Querrer-Kauffman is the owner of a residential lot with a house constructed
thereon located at Block 3, Lot 13, Marcillo corner Planza Streets, BF Resort Village, Talon, Las
Piñas City. The property is covered by Transfer Certificate of Title (TCT) No. T-48521. The
owner’s duplicate copy of the title as well as the tax declaration covering the property, were kept
in a safety deposit box in the house.

Sometime in February 1997, as she was going to the United States, Kauffman entrusted
her minor daughter, Vida Rose, to her live-in partner, Eduardo Victor. She also entrusted the key
to her house to Victor. She went back to the Philippines to get her daughter on May 13, 1997,
and again left for the U.S. on the same day. Later on, Victor also left for the U.S. and entrusted
the house and the key thereto to his sister, Mira Bernal.

Kauffman asked her sister, Evelyn Pares, to get the house from Bernal so that the
property could be sold. Pares did as she was told. Kauffman then sent the key to the safety
deposit box to Pares, but Pares did not receive it. Kauffman then asked Pares to hire a
professional locksmith who could open the safe.

When the safe was broken open, however, Pares discovered that the owner’s duplicate
title and the tax declarations, including pieces of jewelry were missing.

Kauffman learned about this on October 29, 1997 and returned to the Philippines on
November 9, 1997. She and Pares went to the Register of Deeds of Las Piñas City and found out
that the lot had been mortgaged to Rosana Ereña on August 1, 1997. It appeared that a "Vida
Dana F. Querrer" had signed the Real Estate Mortgage as owner-mortgagor, together with
Jennifer V. Ramirez, Victor’s daughter, as attorney-in-fact.

Kauffman and Pares were able to locate Bernal who, when asked, confirmed that Ramirez
had taken the contents of the safety deposit box. When Kauffman told Bernal that she would file
a case against them, Bernal cried and asked for forgiveness. Bernal admitted that Jennifer
Ramirez had been in a tight financial fix and pleaded for time to return the title and the jewelry.

On March 12, 1998, Kauffman filed a complaint against Ereña, Bernal and Jennifer
Ramirez for Nullification of Deed of Real Estate Mortgage and Damages with prayer for a
Temporary Restraining Order and Preliminary Mandatory Injunction in the RTC of Las Piñas
City.

The RTC denied the complaint which resulted for Kauffman to file a motion for
reconsideration of the decision. The RTC denied the motion, prompting Kauffman to file an
appeal with the CA. The CA rendered judgment in favor of Kauffman. Thus, a petition for
review on certiorari of the Decision of the Court of Appeals was filed by Ereña.

ISSUE

Whether or not the lower court erred in finding that defendant-appellant Rosana Ereña
who accepted the mortgage is a mortgagee in good faith

RULING

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 The trial court wrongly applied in this case the doctrine of "mortgagee in good faith"
which has been allowed in many instances but in a milieu dissimilar from this case. This
doctrine is based on the rule that persons dealing with properties covered by a Torrens certificate
of title are not required to go beyond what appears on the face of the title. But this is only in a
situation where the mortgagor has a fraudulent or otherwise defective title, but not when the
mortgagor is an impostor and a forger.

In a forged mortgage, as in this case, the doctrine of "mortgagee in good faith" cannot be
applied and will not benefit a mortgagee no matter how large is his or her reservoir of good faith
and diligence. Such mortgage is void and cannot prejudice the registered owner whose signature
to the deed is falsified. When the instrument presented is forged, even if accompanied by the
owner’s duplicate certificate of title, the registered owner does not lose his title, and neither does
the assignee in the forged deed acquire any right or title to the property. An innocent purchaser
for value is one who purchases a titled land by virtue of a deed executed by the registered owner
himself not a forged deed. As aforesaid, respondent’s signature on the Real Estate Mortgage
was forged by an impostor.

The petition is DENIED. The Decision of the Court of Appeals and Resolution are
AFFIRMED.

BANK OF COMMERCE VS. SPS. PRUDENCIO SAN PABL, JR., AND NATIVIDAD O.
SAN PABLO, G.R. NO. 167848APRIL 27, 2007

FACTS

Santos obtained a loan from Direct Funders Management and Consultancy Inc., (Direct
Funders) in the amount of ₱1,064,000.40.
As a security for the loan obligation, Natividad executed a SPA in favor of Santos,
authorizing the latter to mortgage to Direct Funders a paraphernal real property registered under
her name and covered by Transfer Certificate of Title (TCT) No. (26469)-75617 (subject
property).
In the Deed of Real Estate Mortgage executed in favor of Direct Funders, Natividad and
her husband, Prudencio, signed as the co-mortgagors of Santos. It was, however, clear between
the parties that the loan obligation was for the sole benefit of Santos and the spouses San Pablo
merely signed the deed in order to accommodate the former.
The aforesaid accommodation transaction was made possible because Prudencio and
Santos were close friends and business associates. Indeed, Prudencio was an incorporator and a
member of the Board of Directors of Intergems Fashion Jewelries Corporation (Intergems), a
domestic corporation in which Santos acted as the President.
Sometime in June 1995, the spouses San Pablo received a letter from Direct Funders

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 informing them that Santos failed to pay his loan obligation with the latter. When confronted
with the matter, Santos promised to promptly settle his obligation with Direct Funders, which he
actually did the following month.
Upon learning that Santos’ debt with Direct Funders had been fully settled, the spouses
San Pablo then demanded from Santos to turn over to them the TCT of the subject property but
the latter failed to do so despite repeated demands. Such refusal prompted the spouses San Pablo
to inquire as to the status of the TCT of the subject property with the Register of Deeds of
Mandaue City and to their surprise, they discovered that the property was again used by Santos
as collateral for another loan obligation he secured from the Bank of Commerce.
As shown in the annotation stamped at the back of the title, the spouses San Pablo
purportedly authorized Santos to mortgage the subject property to the Bank of Commerce, as
evidenced by the SPA allegedly signed by Natividad on 29 March 1995. It was further shown
from the annotation at the back of the title that the spouses San Pablo signed a Deed of Real
Estate Mortgage over the subject property in favor of Bank of Commerce, which they never did.
In order to free the subject property from unauthorized encumbrances, the spouses San
Pablo, on 22 December 1995, filed a Complaint seeking for the Quieting of Title and
Nullification of the SPA and the deed of real estate mortgage with the prayer for damages against
Santos and the Bank of Commerce before the MTC of Mandaue City, Branch 2.
During the pendency of the case, the Bank of Commerce, for non-payment of the loan,
initiated the foreclosure proceedings on the strength of the contested Deed of Real Estate
Mortgage. During the auction sale, the Bank of Commerce emerged as the highest bidder and
thus a Certificate of Sale was issued under its name. Accordingly, the spouses San Pablo
amended their complaint to include the prayer for annulment of the foreclosure sale.
In his Answer, Santos countered that the loan with the Bank of Commerce was
deliberately resorted to with the consent, knowledge and direct participation of the spouses San
Pablo in order to pay off the obligation with Direct Funders. In fact, it was Prudencio who
caused the preparation of the SPA and together with Santos, they went to the Bank of Commerce,
Cebu City Branch to apply for the loan. In addition, Santos averred that the spouses San Pablo
were receiving consideration from Intergems for extending accommodation transactions in favor
of the latter.
For its part, Bank of Commerce filed an Answer with Compulsory Counterclaim, alleging
that the spouses San Pablo, represented by their attorney-in-fact, Santos, together with Intergems,
obtained a loan in the amount of ₱1,218,000.00. It denied the allegation advanced by the spouses
San Pablo that the SPA and the Deed of Real Estate Mortgage were spurious. Since the loan
already became due and demandable, the Bank of Commerce sought the foreclosure of the
subject property.
The MTC rendered a Decision, dismissing the complaint for lack of merit.Aggrieved, the
spouses San Pablo appealed the adverse decision to the RTC of Mandaue City, Branch 56, which,
in turn, affirmed the unfavorable ruling of the MTC in its Decision. Similarly ill-fated was the
Motion for Reconsideration filed by the spouses San Pablo which was denied by the RTC for
lack of merit.
Unyielding, the spouses San Pablo elevated the matter before the Court of Appeals
through a Petition for Review under Rule 42 of the Revised Rules of Court, assailing the adverse
decisions of the MTC and RTC. The appellate court granted the petition filed by the spouses San
Pablo and reversed the decisions of the MTC and RTC.The Bank of Commerce is now before
this Court assailing the adverse decision rendered by the Court of Appeals.

ISSUE

Whether or not the Bank of Commerce is a mortgagee in good faith.

RULING

No. The Bank of Commerce clearly failed to observe the required degree of caution in
ascertaining the genuineness and extent of the authority of Santos to mortgage the subject

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 property. It should not have simply relied on the face of the documents submitted by Santos, as
its undertaking to lend a considerable amount of money required of it a greater degree of
diligence. That the person applying for the loan is other than the registered owner of the real
property being mortgaged should have already raised a red flag and which should have induced
the Bank of Commerce to make inquiries into and confirm Santos’ authority to mortgage the
Spouses San Pablo’s property. A person who deliberately ignores a significant fact that could
create suspicion in an otherwise reasonable person is not an innocent purchaser for value.

Since the Bank of Commerce is not a mortgagee in good faith or an innocent purchaser
for value on the auction sale, it is not entitled to the protection of its rights to the subject
property. Considering further that it was not shown that the Bank of Commerce has already
transferred the subject property to a third person who is an innocent purchaser for value (since
no intervention or third-party claim was interposed during the pendency of this case), it is but
proper that the subject property should be retained by the Spouses San Pablo.

The instant petition is denied. The Decision Court of Appeals is hereby AFFIRMED. The
SPA, the Deed of Real Estate Mortgage, and the Foreclosure Proceedings conducted in pursuant
to said deed, are hereby declared VOID AB INITIO. The Register of Deeds of Mandaue City is
hereby DIRECTED to cancel Entry Nos. 9089-V.9D.B and 9084-V.9-D.B annotated on TCT
No.-(26469)-7561 in the name of Natividad Opolontesima San Pablo. The Bank of Commerce is
hereby ORDERED to pay the spouses San Pablo ₱50,000.00 as moral damages,₱25,000.00 as
exemplary damages, ₱20,000.00 as attorney’s fees and ₱20,000.00 as litigation expenses. Cost
against the petitioner.

HOMEOWNERS SAVINGS AND LOAN BANK VS. ASUNCION P. FELONIA AND

LYDIA C. DE GUZMAN, REPRESENTED BY MARIBEL FRIAS
MARIE MICHELLE P. DELGADO, REGISTER OF DEEDS OF LAS PIÑAS CITY AND
RHANDOLFO B. AMANSEC, IN HIS CAPACITY AS CLERK OF COURT EX-OFFICIO
SHERIFF, OFFICE OF THE CLERK OF COURT, LAS PIÑAS CITY

FACTS

Felonia and De Guzman were the registered owners of a parcel of land consisting of 532
square meters with a five-bedroom house, covered by Transfer of Certificate of Title (TCT) No.
T-402 issued by the register of deeds of Las Piñas City.

Sometime in June 1990, Felonia and De Guzman mortgaged the property to Delgado to
secure the loan in the amount of ₱1,655,000.00. However, instead of a real estate mortgage, the
parties executed a Deed of Absolute Sale with an Option to Repurchase.

On 20 December 1991, Felonia and De Guzman filed an action for Reformation of

Contract (Reformation case) before the RTC of Manila. On the findings that it is "very apparent
that the transaction had between the parties is one of a mortgage and not a deed of sale with right

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 to repurchase,”. The RTC, on 21 March 1995 rendered a judgment favorable to Felonia and De
Guzman.

Aggrieved, Delgado elevated the case to the CA The CA affirmed the trial court’s
decision. The CA decision became final and executory.Inspite of the pendency of the
Reformation case in which she was the defendant, Delgado filed a "Petition for Consolidation of
Ownership of Property Sold with an Option to Repurchase and Issuance of a New Certificate of
Title" (Consolidation case) in the RTC of Las Piñas. After an ex-parte hearing, the RTC ordered
the issuance of a new title under Delgado’s name.

By virtue of the RTC decision, Delgado transferred the title to her name. Hence, TCT No.
T-402, registered in the names of Felonia and De Guzman, was canceled and TCT No. 44848 in
the name of Delgado, was issued.Delgado mortgaged the subject property to Homeowners
Savings and Loan Bank (HSLB) using her newly registered title. Three (3) days laterHSLB
caused the annotation of the mortgage.

The CA annulled and set aside the decision of the RTC, Las Piñas City in the
Consolidation case. The decision of the CA, declaring Felonia and De Guzman as the absolute
owners of the subject property and ordering the cancellation of Delgado’s title, became final and
executory.

Felonia and De Guzman caused the annotation of a Notice of Lis Pendens on Delgado’s
title.Felonia and De Guzman, represented by Maribel Frias (Frias), claiming to be the absolute
owners of the subject property, instituted the instant complaint against Delgado, HSLB, Register
of Deeds of Las Piñas City and Rhandolfo B. Amansec before the RTC of Las Piñas City for
Nullity of Mortgage and Foreclosure Sale, Annulment of Titles of Delgado and HSLB, and
finally, Reconveyance of Possession and Ownership of the subject property in their favor.After
trial, the RTC ruled in favor of Felonia and De Guzman as the absolute owners of the subject
property.

On appeal, the CA affirmed with modifications the trial court’s decision. Hence, a
petition for Review on Certiorari has been filed in this Court.

ISSUE

Whether or not HSLB is a mortgagee in good faith.

RULING

Arguably, HSLB was initially a mortgagee in good faith.However, the rights of the
parties to the present case are defined not by the determination of whether or not HSLB is a
mortgagee in good faith, but of whether or not HSLB is a purchaser in good faith. And, HSLB is
not such a purchaser.

A purchaser in good faith is defined as one who buys a property without notice that some
other person has a right to, or interest in, the property and pays full and fair price at the time of
purchase or before he has notice of the claim or interest of other persons in the property.

When a prospective buyer is faced with facts and circumstances as to arouse his
suspicion, he must take precautionary steps to qualify as a purchaser in good faith.In the case at

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 bar, HSLB utterly failed to take the necessary precautions. At the time the subject property was
mortgaged, there was yet no annotated Notice of Lis Pendens. However, at the time HSLB
purchased the subject property, the Notice of Lis Pendens was already annotated on the
title.Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the
annotated Notice of Lis Pendens. Instead of heeding the same, HSLB continued with the
purchase knowing the legal repercussions a notice of lis pendens entails. HSLB took upon itself
the risk that the Notice of Lis Pendens leads to.

The subject of the lis pendens on the title of HSLB’s vendor, Delgado, is the
"Reformation case" filed against Delgado by the herein respondents. The case was decided with
finality by the CA in favor of herein respondents. The contract of sale in favor of Delgado was
ordered reformed into a contract of mortgage. By final decision of the CA, HSLB’s vendor,
Delgado, is not the property owner but only a mortgagee. As it turned out, Delgado could not
have constituted a valid mortgage on the property.

Insofar as the HSLB is concerned, there is no longer any public interest in upholding the
indefeasibility of the certificate of title of its mortgagor, Delgado. Such title has been nullified in
a decision that had become final and executory. Its own title, derived from the foreclosure of
Delgado's mortgage in its favor, has likewise been nullified in the very same decision that
restored the certificate of title in respondents' name. There is absolutely no reasonthat can
support the prayer of HSLB to have its mortgage lien carried over and into the restored
certificate of title of respondents.

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals is

AFFIRMED.

Digested by: Candaza, Trina Marie M.

MACARIA ARGUELLES AND THE HEIRS OF THE DECEASED PETRONIO

ARGUELLES VS. MALARAYAT RURAL BANK, INC., G.R. NO. 200468, MARCH 19,
2014

FACTS

This is a petition for review on certiorari assailing the Decision of the Court of Appeals
reversing and setting aside the Decision of the Regional Trial Court of Taal, Batangas.

The late Fermina M. Guia was the registered owner of Lot 3, a parcel of agricultural land
as evidenced by OCT No. P-12930. On 1990, Fermina M. Guia sold the south portion of the land
to the spouses Petronio and Macaria Arguelles. Although the spouses Arguelles immediately
acquired possession of the land, the Deed of Sale was neither registered with the Register of
Deeds nor annotated on OCT No. P-12930. At the same time, Fermina M. Guia ordered her son
Eddie Guia and the latter's wife Teresita Guia to subdivide the land covered by OCT No. P-
12930 into three lots and to apply for the issuance of separate titles therefor, to wit: Lot 3-A, Lot
3-B, and Lot 3-C. Thereafter, she directed the delivery of the TCT corresponding to Lot 3-C to
the vendees of the unregistered sale or the spouses Arguelles. However, despite their repeated
demands, the spouses Arguelles claimed that they never received the TCT corresponding to Lot

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 3-C from the spouses Guia.

Nevertheless, the spouses Guia succeeded in cancelling OCT No. P-12930 and in
subdividing the lot in the following manner: Lot 3-A (TCT No. T-83943, Fermina Guia), Lot 3-B
(TCT No. T-83945, Spouses Datingaling, and Lot 3-C (TCT No. T-83944, Fermina Guia).

On 1997, the spouses Guia obtained a loan from the respondent Malarayat Rural Bank
and secured the loan with a Deed of Real Estate Mortgage over Lot 3-C. The loan and Real
Estate Mortgage were made pursuant to the Special Power of Attorney purportedly executed by
the registered owner of Lot 3-C, Fermina M. Guia, in favor of the mortgagors, spouses Guia. The
Real EstateMortgage and Special Power of Attorney were duly annotated in the memorandum of
encumbrances of TCT No. T-83944 covering Lot 3-C.

The spouses Arguelles alleged that it was only after seven years from the date of the
unregistered sale that they discovered the: (1) subdivision of Lot 3 into Lots 3-A, 3-B, and 3-C;
(2) issuance of separate TCTs for each lot; and (3) the annotation of the Real Estate Mortgage
and Special Power of Attorney over Lot 3-C covered by TCT No. T-83944. Two years thereafter,
the spouses Arguelles registered their adverse claim based on the unregistered sale over Lot 3-C.

The spouses Arguelles filed a complaint for Annulment of Mortgage and Cancellation of
Mortgage Lien with Damages against the respondent Bank. In asserting the nullity of the
mortgage lien, the spouses Arguelles alleged ownership over the land that had been mortgaged in
favor of the respondent. The respondent Bank filed an Answer arguing that the failure of the
spouses Arguelles to register the Deed of Sale was fatal to their claim of ownership.

The RTC ruled that the mortgage made by the defendant spouses Eddie Guia and Teresita
Guia in favor of defendant Malarayat Rural Bank is null and void. It set aside the foreclosure sale
and the issued corresponding certificate of sale. It further ordered the Register of Deeds to cancel
the annotation pertaining to the memorandum of encumbrances (entries no. 155686 and 155688)
appearing in TCT No. T-839[4]4.

The RTC found that the spouses Guia were no longer the absolute owners of Lot 3-C at
the time they mortgaged the same to the respondent. Thus, it annulled the real estate mortgage,
the subsequent foreclosure sale, and the corresponding issuance of the certificate of title.
Moreover, the RTC declared that the respondent Bank was not a mortgagee in good faith as it
failed to exercise the degree of diligence required from banking institutions.

The respondent filed an appeal with the CA wherein they reversed and set aside the
decision of the court stating that the failure of the spouses Arguelles to register their deed of sale,
the unregistered sale could not affect the respondent Bank. Thus, the respondent Bank has a
better right to the land mortgaged as compared to spouses Arguelles who were the vendees in the
unregistered sale. In addition, the CA found that the respondent Bank was a mortgagee in good
faith as it sufficiently demonstrated due diligence in approving the loan application of the
spouses Guia. Aggrieved, the petitioners filed this petition.

Petitioners imputed negligence on the part of respondent Bank when it approved the loan
of the spouses Guia pointing out that it failed to conduct a thorough ocular inspection of the land
and an extensive investigation of the title of the registered owner. And since the Bank cannot be
considered a mortgagee in good faith, petitioners argued that the unregistered sale in their favor
takes precedence over the duly registered mortgage lien. On the other hand, respondent Bank
claimed that it exercised the required degree of diligence before granting the loan, thus, it is a
mortgagee in good faith with a better right to the mortgaged land as compared to the vendees to
the unregistered sale.

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 ISSUES

Whether or not the respondent Malarayat Rural Bank is a mortgagee in good faith who is
entitled to protection on its mortgage lien.

RULING

The issue of whether a mortgagee is in good faith generally cannot be entertained in a

petition filed under Rule 45 of the 1997 Rules of Civil Procedure because the ascertainment of
good faith or the lack thereof, and the determination of negligence are factual matters which lay
outside the scope of a petition for review on certiorari. However, a recognized exception to this
rule is when the RTC and the CA have divergent findings of fact as in the present case.

The Court finds that the respondent Bank is not a mortgagee in good faith. Therefore, the
spouses Arguelles as vendees to the unregistered sale have a superior right to the mortgaged
land.

In Cavite Development Bank v. Spouses Lim, the Court explained the doctrine of
mortgagee in good faith, thus: “There is, however, a situation where, despite the fact that 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.
This doctrine is based on the rule that all persons dealing with the property covered by a Torrens
Certificate of Title, as buyers or mortgagees, are not required to go beyond the face of the title.
The public interest in upholding the indefeasibility of a certificate of title, as evidence of lawful
ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in
good faith, relied upon what appears on the face of the certificate of title.”

In Bank of Commerce v. Spouses San Pablo, Jr., it was declared that a mortgagee has a
right to rely in good faith on the certificate of title of the property offered as security, and in the
absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake
further investigation.However, the Court also ruled that in cases where the mortgagee does not
directly deal with the registered owner of the property, the law requires that a higher degree of
prudence be exercised by the mortgagee and that when the person applying for the loan is other
than the registered owner of the property being mortgaged, such fact should have already raised a
red flag and have induced the Bank to make inquiries into and confirm the authority to mortgage.
A person who deliberately ignores a significant fact that could create suspicion in an otherwise
reasonable person is not an innocent purchaser for value.
As held in the case of Abad v. Sps. Guimbci, while one who buys from the registered
owner does not need to look behind the certificate of title, one who buys from one who is not the
registered owner is expected to examine not only the certificate of title but all factual
circumstances necessary to determine if there are any flaws in the title of the transferor, or in the
capacity to transfer the land.

Thus, where the mortgagor is not the registered owner of the property but is merely an
attorney-in-fact of the same, it is incumbent upon the mortgagee to exercise greater care and a
higher degree of prudence in dealing with such mortgagor.

Moreover, it is a consistent rule that banks should exert a higher degree of diligence, care,
and prudence than individuals in handling real estate transactions.In Cruz v. Bancom Finance
Corporation, it was declared that since respondent is not an ordinary mortgagee but a mortgagee-
bank and that since its business is impressed with public interest, it is expected to exercise

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 greater care and prudence in its dealings, including those involving registered lands.

In Ursal v. Court of Appeals, it held that where the mortgagee is a bank, it cannot rely
merely on the certificate of title offered by the mortgagor in ascertaining the status of mortgaged
properties. The rule that person dealing with registered lands can rely solely on the certificate of
title does not apply to banks. Thus, before approving a loan application, it is a standard practice
for these institutions to conduct an ocular inspection of the property and to verify the
genuineness of the title to determine the real owners. The purpose of an ocular inspection is to
protect the "true owner" of the property as well as innocent third parties with a right, interest or
claim from a usurper who may have acquired a fraudulent certificate of title.

In this case, we find that the respondent Bank fell short of the required degree of
diligence, prudence, and care in approving the loan application of the spouses Guia.Respondent
should have diligently conducted an investigation of the land offered as collateral. Although the
report proved that the respondent Bank inspected the land, the respondent turned a blind eye to
the finding it is planted with sugarcane with annual yield (crops). The respondent's stance that
the mere planting and harvesting of sugarcane cannot reasonably trigger suspicion that there is
adverse possession over the land offered as mortgage is not correct. Such fact should have
immediately prompted them to conduct further inquiries since the spouses Guia were not the
registered owners of the land.

Since the subject land was not mortgaged by the owner thereof and since the respondent
Bank is not a mortgagee in good faith, said bank is not entitled to protection under the law. The
unregistered sale in favor of the spouses Arguelles must prevail over the mortgage lien of
respondent Malarayat Rural Bank.

WHEREFORE, the petition for review on certiorari is granted. The Decision and
Resolution of the Court of Appeals are reversed and set aside. The Decision of the Regional Trial
Court isreinstated and upheld.

LAND BANK OF THE PHILIPPINES VS. BARBARA SAMPAGA POBLETE, G.R. NO.
196577, FEBRUARY 25, 2013

FACTS

This Petition for Review on Certiorari seeks to reverse the Court of Appeals' Decision
and Resolution affirming in toto the Decision of the RTC of San Jose, Occidental Mindoro.

Petitioner Land Bank is a banking institution organized and existing under Philippine
laws. Respondent Barbara Sampaga Poblete is the registered owner of a parcel of land, (Lot No.
29), under OCT No. P-12026. In 1997, Poblete obtained a loan from Kabalikat ng Pamayanan ng

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 Nagnanais Tumulong at Yumaman Multi-Purpose Cooperative (Kapantay) and mortgaged Lot
No. 29 to guarantee payment of such loan. Kapantay, in turn, used OCT No. P-12026 as
collateral under its Loan Account No. 97-CC-013 with Land Bank-Sablayan Branch.

In 1998, Poblete decided to sell Lot No. 29 to pay her loan. She instructed her son-in-law
Domingo Balen to look for a buyer. Balen referred Angelito Joseph Maniego to Poblete, wherein
Maniego agreed to buy Lot No. 29 for ₱900,000.00, but he suggested that a deed of absolute sale
for ₱300,000.00 be executed instead to reduce the taxes. Thus, Poblete executed the Deed of
Absolute Sale with ₱300,000.00 as consideration. In the Deed, Poblete described herself as a
"widow." Poblete, then, asked Balen to deliver the Deed to Maniego and to receive the payment
in her behalf. Balen testified that he delivered the Deed to Maniego however; he did not receive
from Maniego the agreed purchase price. Maniego told Balen that he would pay the amount upon
his return from the United States. In an Affidavit, Poblete stated that she agreed to have the
payment deposited in her Land Bank Savings Account.

Based on a Certification issued by Land Bank-Sablayan Branch, Maniego paid

Kapantay’s Loan Account for ₱448,202.08. On 2000, Maniego applied for a loan of
₱1,000,000.00 with Land Bank, using OCT No. P 12026 as collateral. Land Bank alleged that as
a condition for the approval of the loan, the title of the collateral should first be transferred to
Maniego.

On 14 August 2000, pursuant to a Deed of Absolute Sale dated 11 August 2000, the
Register of Deeds of Occidental Mindoro issued TCT No. T-20151 in Maniego’s name. On 15
August 2000, Maniego and Land Bank executed a Credit Line Agreement and a Real Estate
Mortgage over TCT No. T- 20151 and the latter released the loan proceeds to Maniego.
Subsequently, Maniego failed to pay the loan. Land Bank, later, filed an Application for Extra-
judicial Foreclosure of Real Estate Mortgage.

Poblete filed a Complaint for Nullification of the Deed dated 11 August 2000 and TCT
No. T-20151, Reconveyance of Title and Damages with Prayer for Temporary Restraining Order
and/or Issuance of Writ of Preliminary Injunction. Poblete alleged that despite her demands, she
did not receive the consideration of ₱900,000.00 and that without her knowledge, Maniego used
the Deed dated 9 November 1998 to acquire OCT No. P-12026 from Kapantay. Poblete claimed
that the Deed dated 11 August 2000 bearing her and her deceased husband’s supposed signatures
was a forgery as their signatures were forged. As proof of the forgery, Poblete presented the
Death Certificate dated 27 April 1996 of her husband and a report showing that the signatures
were forgeries.

Land Bank filed its Answer claiming that it is a mortgagee in good faith and it observed
due diligence prior to approving the loan by verifying Maniego’s title with the Register of
Deeds.Maniego separately filed his Answer, denying the allegations of Poblete and alleging that
he paid the consideration of the sale to Poblete.

The RTC rendered a Decision in favor of Poblete, declaring the Deed of Sale dated
August 11, 2000 and the TCT No. T-20151 as null and void, it having been issued on the basis of
a forged document. The preliminary injunction issued directing the defendants to refrain from
proceedings with the auction sale was made permanent. The RTC found that Maniego failed to
pay the agreed consideration of ₱900,000.00 and that the signatures of Poblete and her deceased
husband were proven to be forgeries. The RTC also ruled that Land Bank was not a mortgagee in
good faith because it failed to exercise the diligence required of banking institutions.

The RTC denied the Motion for Reconsideration filed by Land Bank for want of merit.
Land Bank and Maniego separately challenged such Decision before the CA wherein it
affirmed in toto the Decision of the RTC. Land Bank and Maniego filed their Motions for
Reconsideration but the CA denied both motions.In a Resolution, the Second Division of this

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 Court denied the Petition for Review on Certiorari filed by Maniego. This Resolution became
final and executory on 19 January 2012. On the other hand, Land Bank filed this petition.

ISSUES

1. Whether or not the Court of Appeals erred in upholding the finding of the trial court
declaring TCT No. T-20151 as null and void. The Court of Appeals misconstrued and
misappreciated the evidence and the law in not finding TCT No. T-20151 registered in
the name of Angelito Joseph Maniego as valid.

2. Whether or not the Court of Appeals misconstrued the evidence and the law in not finding
Land Bank a mortgagee in good faith.

RULING

A petition for review under Rule 45 of the Rules of Court provides that only questions of
law may be raised, subject to exceptional circumstances which are not present in this case. In this
case, both the RTC and CA found that the signatures were forged by Maniego and that he did not
pay the consideration for the sale. Since the issue on the genuineness of the Deed is a question of
fact, the Court is not duty-bound to analyze and weigh the evidence again.

First. It is a well-entrenched rule that a forged or fraudulent deed is a nullity and conveys
no title. Moreover, where the deed of sale states that the purchase price has been paid but in fact
has never been paid, the deed of sale is void ab initio for lack of consideration. Since the Deed
dated 11 August 2000 is void, the corresponding TCT No. T-20151 issued pursuant to the same
deed is likewise void. In the case of Yu Bun Guan v. Ong, it was ruled that there was no legal
basis for the issuance of the certificate of title and the CA correctly cancelled the same when the
deed of absolute sale was completely simulated and void. In Ereña v. Querrer-Kauffman, the
Court held that when the instrument presented for registration is forged, even if accompanied by
the owner’s duplicate certificate of title, the registered owner does not thereby lose his title, and
neither does the mortgagee acquire any right or title to the property. In such a case, the
mortgagee under the forged instrument is not a mortgagee protected by law.

The issue on the nullity of Maniego’s title had already been foreclosed when his petition
was denied which already became final and executory. This is without prejudice, however, to the
right of Maniego to recover from Poblete what he paid to Kapantay for his account, otherwise
there will be unjust enrichment by Poblete.

Since TCT No. T-20151 has been declared void by final judgment, the Real Estate
Mortgage constituted over it is also void. In a real estate mortgage contract, it is essential that the
mortgagor be the absolute owner of the property to be mortgaged; otherwise, the mortgage is
void.

Second.There is indeed a situation where, despite that 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. This is the doctrine of "the
mortgagee in good faith" based on the rule that buyers or mortgagees dealing with property
covered by a Certificate of Title are not required to go beyond the face of the title. However, it
has been consistently held that this rule does not apply to banks, which are required to observe a
higher standard of diligence. A bank whose business is impressed with public interest is expected
to exercise more care and prudence in its dealings than a private individual, even in cases

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 involving registered lands. A bank cannot assume that, simply because the title offered as
security is on its face free of any encumbrances or lien, it is relieved of the responsibility of
taking further steps to verify the title and inspect the properties to be mortgaged. Applying said
principles, petitioner Land Bank is not a mortgagee in good faith.

Based on the evidence, Land Bank processed Maniego’s loan application upon his
presentation of OCT No. P-12026, which was still under the name of Poblete. In Bank of
Commerce v. San Pablo, Jr., it was held that when the person applying for the loan is other than
the registered owner of the real property being mortgaged, such fact should have already raised a
red flag and which should have induced the Bank to make inquiries into and the authority to
mortgage. A person who deliberately ignores a significant fact that could create suspicion in an
otherwise reasonable person is not an innocent purchaser for value.

The records do not show that Land Bank investigated and inspected the property to
ascertain its actual occupants, only mentioning that it inspected Lot No. 29 to appraise the value
of the property. The standard practice of banks before approving a loan is to send representatives
to the premises of the land offered as collateral to investigate its real owners. In Prudential Bank
v. Kim Hyeun Soon, the Court held that the bank failed to exercise due diligence although its
representative conducted an ocular inspection, because the representative concentrated only on
the appraisal of the property and failed to inquire as to who were the then occupants of the
property.

Because of Land Bank’s haste in granting the loan, it appears that Maniego’s loan was
already completely processed while the collateral was still in the name of Poblete. Where the
mortgagee acted with haste in granting the loan and did not ascertain the ownership of the land
being mortgaged, as well as the authority of the supposed agent executing the mortgage, it
cannot be considered an innocent mortgagee.

Since Land Bank is not a mortgagee in good faith, it is not entitled to protection. Since
Lot No. 29 has not been transferred to a third person who is an innocent purchaser for value,
ownership of the lot remains with Poblete. This is without prejudice to the right of either party to
proceed against Maniego.

WHEREFORE, petition is denied and the Decision and Resolution of the Court of
Appeals is affirmed. The injunction against the foreclosure proceeding is made permanent.

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 DEVELOPMENT BANK OF THE PHILIPPINES VS. COURT OF APPEALS AND
CARLOS CAJES, G.R. NO. 129471, APRIL 28, 2000

FACTS

This is a petition for certiorari seeking to reverse the decisionof the Court of Appeals
declaring private respondent the owner of the 19.4 hectares of land embraced in TCT No. 10101
and ordering the segregation and reconveyance of said portion to him.

The land in dispute, consisting of 19.4 hectares was originally owned by Ulpiano Mumar,
whose ownership since 1917 was evidenced by Tax Declaration No. 3840. In 1950, he sold the
land to private respondent who was issued Tax Declaration No. R-1475. The tax declaration was
later superseded by Tax Declaration Nos. R-799and D-2247. Private respondent occupied and
cultivated the land, planting cassava and camote in certain portions of the land.

In 1969, unknown to private respondent, Jose Alvarez succeeded in obtaining the

registration of a parcel of land with an area of 1,512,468.00 square meters. The parcel of land
included the 19.4 hectares occupied by private respondent. Alvarez never occupied nor
introduced improvements on said land. In 1972, Alvarez sold the land to the spouses Gaudencio
and Rosario Beduya to whom TCT No. 10101 was issued. The spouses Beduya obtained a loan
from petitioner DBP and, as security, mortgaged the land covered by TCT No. 10101 to the
bank. In 1978, the spouses Beduya personally executed another mortgage over the land in favor
of petitioner. The spouses Beduya later failed to pay their loans, to which, the mortgage was
foreclosed and petitioner was the highest bidder. As the spouses Beduya failed to redeem the
property, petitioner consolidated its ownership.

It appears that private respondent had also applied for a loan from petitioner in 1978,
offering his 19.4 hectare property under Tax Declaration No. D-2247 as security for the loan. As
part of the processing of the application, a representative of petitioner, Patton R. Olano,
inspected the land and appraised its value.Private respondent’s loan application was later
approved by petitioner. However after releasing the amount of the loan to private respondent,
petitioner found that the land mortgaged was included in the land covered by TCT No. 10101 in
the name of the spouses Beduya. Petitioner, therefore, cancelled the loan and demanded
immediate payment of the amount. Private respondent paid the loan to petitioner for which the
former was issued a Cancellation of Mortgage, releasing the property from encumbrance.

More than a year after the foreclosure sale, a re-appraisal of the property covered by TCT
No. 10101 was conducted by petitioner’s representatives. It was then discovered that private
respondent was occupying a portion of said land. Private respondent was informed that petitioner
had become the owner of the land he was occupying, and he was asked to vacate the property. As
private respondent refused to do so, petitioner filed a complaint for recovery of possession with
damages against him. The trial rendered a decision declaring petitioner the lawful owner of the
entire land covered by TCT No. 10101 on the ground that the decree of registration was binding
upon the land.

On appeal, the Court of Appeals reversed and gave judgment for private respondent,
declaring him the owner of the 19.4 hectares of land erroneously included in TCT No. 10101.
Petitioner moved for a reconsideration but its motion was denied.

ISSUES

1. Whether or not the decision of the respondent court is in accord with the applicable

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 provisions of law and the applicable decisions of the Supreme Court
2. Whether or not the respondent court overlooked the issues about the DBP being an
innocent mortgagee for value of the land in question and of having purchased later the
same during a public auction sale.

RULING

First. Petitioner invokes the ruling in Benin v. Tuason in support of its claim that its
predecessor-in-interest, Jose Alvarez, became the owner of the land by virtue of the decree of
registration issued in his name. Benin is distinguished from this case. It was not solely the decree
of registration which was considered in resolving the Benin case. What was considered decisive
was the valid title or right of ownership of J. M. Tuason & Co., Inc. and that of the other
innocent purchasers for value and in good faith compared to the failure of the claimants to show
their right to own or possess the questioned properties.

Petitioner maintains that the possession by private respondent and his predecessor-in-
interest for more than 30 years cannot overcome the decree of registration issued in favor of its
predecessor-in-interest. Petitioner insist that, by virtue of the decree of registration, Jose Alvarez
and those claiming title from himacquired ownership of the 19.4 hectares of land, despite the fact
that they neither possessed nor occupied these lands.This view is mistaken. It shows that a decree
of registration cut off a right acquired by a person when such right refers to a lien or
encumbrance on the land not to the right of ownership thereof which was not annotated on the
certificate of title issued thereon. Act No. 496 provides that “Every person receiving a certificate
of title in pursuance of a decree of registration, and every subsequent purchaser of registered land
who takes a certificate of title for value in good faith shall hold the same free of all
encumbrances except those noted on said certificate, and any of the following encumbrances
which may be subsisting: liens, claims, or rights arising or existing under the laws which the
statutes of the Philippine Islands cannot require to appear of record in the Registry, taxes within
two years after the same became due and payable, and, any public highway, way, private way
established by lawwhere it does not state that the boundaries have been determined.But if there
are easements or other rights appurtenant to a parcel of registered land which for any reason have
failed to be registered, such easements or rights shall remain so appurtenant notwithstanding
such failure, and shall be held to pass with the land until cut off or extinguished by the
registration of the servient estate, or in any other manner.” In Cid v. Javier, the Court ruled
that even an easement has been acquired, it had been cut off and extinguished by the registration
of the servient estate under the Torrens system without the easement being annotated on the
corresponding certificate of title.

But to make this principle applicable to a situation wherein title acquired by a person
through acquisitive prescription would be considered cut off and extinguished by a decree of
registration would run counter to established jurisprudence before and after the ruling
in Benin. Indeed, registration has never been a mode of acquiring ownership over immovable
property.

In the case of Angeles v. Samia, where land was erroneously registered in favor of
persons who neither possessed nor occupied the same, to the prejudice of the actual occupant, the
Court held that the purpose of the Land Registration Act, is not to create or vest title, but to
confirm and register title already created and already vested. The Act protects only the holders of
a title in good faith and does not permit its provisions to be used as a shield for the commission
of fraud, or that one should enrich himself at the expense of another (Gustilo vs. Maravilla, 48
Phil., 442; Angelo vs. Director of Lands, 49 Phil., 838). If he happened to obtain it by mistake or
to secure, to the prejudice of his neighbor, more land than he really owns, with or without bad
faith on his part, the certificate of title, which may have been issued to him under the
circumstances, may and should be cancelled or corrected (Legarda and Prieto vs. Saleeby, 31

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 Phil., 590).

In the present case, private respondent has been in actual, open, peaceful and continuous
possession of the property since 1950. This fact was corroborated by the testimony of Eleuterio
Cambangay who personally knew that Mumar transferred the land in favor of private
respondent. Private respondent’s claim is bolstered by tax declarations which were issued in his
name, which together with his actual possession of the land constitute strong evidence of
ownership of the land occupied by him. As said in the case of Republic vs. Court of Appeals,
although tax declarations of property are not conclusive evidence of ownership, nevertheless,
they are good indicia of possession in the concept of owner for no one in his right mind would be
paying taxes for a property that is not in his actual or at least constructive possession. They
constitute at least proof that the holder has a claim of title over the property. The voluntary
declaration of a piece of property for taxation purposes manifests one’s sincere and honest desire
to obtain title to the property and announces his adverse claim against the State and all other
interested parties.

It was also established that private respondent, having been in possession of the land
since 1950, was the owner of the property when it was registered by Jose Alvarez in 1969, his
possession tacked to that of his predecessor-in-interest, Mumar, which dates back to
1917. Clearly, more than 30 years had elapsed before a decree of registration was issued in favor
of Jose Alvarez. This uninterrupted adverse possession of the land for more than 30 years could
only ripen into ownership of the land through acquisitive prescription which is a mode of
acquiring ownership and other real rights over immovable property.

In contrast to private respondent, it has been shown that neither Jose Alvarez nor the
spouses Beduya were at any time in possession of the property. In fact, despite knowledge by
Gaudencio Beduya that private respondent occupied this 19.4 hectares included in the area
covered by TCT No. 10101, he never instituted any action to eject or recover possession from the
latter. Hence, it can be concluded that neither Jose Alvarez nor the spouses Beduya exercised any
right of ownership over the land.

Considering the circumstances pertaining in this case, therefore, the ownership of the
19.4 hectares of land occupied by private respondent was already vested in him and that its
inclusion in TCT No. 10101, was erroneous. Accordingly, the land in question must be
reconveyed in favor of private respondent, reconveyance being the proper remedy in this case.

Second. Petitioner’s contention that an action for reconveyance does not lie against it,
because it is an innocent purchaser for value in the foreclosure sale has no merit.

The Land Registration Act provides that if the court finds that the applicant or adverse
claimant has title, a decree of confirmation and registration shall be entered. It shall be
conclusive upon and against all persons. Such decree shall not be opened by reason of the
absence, infancy, or other disability of any person affected thereby, nor by any proceeding in any
court for reversing judgments or decrees; subject, however, to the right of any person deprived of
land or of any estate or interest therein by decree of registration obtained by fraud provided no
innocent purchaser for value has acquired an interest. If there is any such purchaser, the decree of
registration shall not be opened, but shall remain in full force and effect forever, subject only to
the right of appeal, however, no decree or certificate of title issued to persons not parties to the
appeal shall be cancelled or annulled. But any person aggrieved by such decree in any case may
pursue his remedy by action for damages against the applicant or any other person for fraud in
procuring the decree.

It provides that a certificate of title is conclusive and binding upon the whole world and a
buyer need not look behind the certificate of title in order to determine who the actual owner of
the land is. However, this is subject to the right of a person deprived of land through fraud to

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 bring an action for reconveyance, provided that it does not prejudice the rights of an innocent
purchaser for value and in good faith. "It is a condition sine qua non for an action for
reconveyance to prosper that the property should not have passed to an innocent purchaser for
value." The same rule applies to mortgagees, like petitioner. Thus, we held that where the
certificate of title is in the name of the mortgagor when the land is mortgaged, the innocent
mortgagee for value has the right to rely on what appears on the certificate of title. In the absence
of anything to excite suspicion, said mortgagee is under no obligation to look beyond the
certificate and investigate the title of the mortgagor appearing on the face of said certificate.

The evidence, however, indicates that petitioner is not a mortgagee in good faith. An
innocent mortgagee is not expected to conduct an exhaustive investigation on the mortgagor’s
title. Nonetheless, especially in the case of a banking institution, a mortgagee must exercise due
diligence before entering into said contract. A standard practice for banks before approving a
loan is to send representatives to the premises of the land offered as collateral and to investigate
who are the real owners thereof. Banks, their business being impressed with public interest, are
expected to exercise more care and prudence than private individuals in their dealings, even
those involving registered lands.

In this case, petitioner’s representative admitted that he came to know of the property for
the first time in 1979 when he inspected it to determine whether the portion was occupied by
private respondent. This means that when the land was mortgaged by the spouses Beduya in, no
investigation had been made by petitioner. It is clear, therefore, that petitioner failed to exercise
due care and diligence in establishing the condition of the land as regards its actual owners and
possessors before it entered into the mortgage contract with the Beduyas. For this reason,
petitioner cannot be considered an innocent purchaser for value.

Indeed, two circumstances negate petitioners claim that it was an innocent purchaser for
value when it bought the land, including the portion occupied by private respondent: (1)
petitioner was already informed by Beduya that private respondent occupied a portion of the
property; and (2) petitioner’s representative conducted an investigation of the property in 1979 to
ascertain whether the land mortgaged by private respondent was included in TCT No. 10101.
Petitioner was already aware that a person other than the registered owner was in actual
possession of the land when it bought the same at the foreclosure sale. A person who deliberately
ignores a significant fact which would create suspicion in an otherwise reasonable man is not an
innocent purchaser for value. "It is a well-settled rule that a purchaser cannot close his eyes to
facts which should put a reasonable man upon his guard, and then claim that he acted in good
faith under the belief that there was no defect in the title of the vendor."

Petitioner deliberately disregarded the fact that private respondent already occupied the
property and that he was claiming ownership over the same. It cannot feign ignorance of private
respondent’s claim to the land since the latter mortgaged the same land to petitioner as security
for the loan he contracted. Instead of inquiring into private respondent’s occupation over the
land, petitioner simply proceeded with the foreclosure sale, pretending that no doubts surround
the ownership of the land. Considering these circumstances, petitioner cannot be deemed an
innocent mortgagee/purchaser for value. As ruled:"The failure of appellees to take the ordinary
precautions which a prudent man would have taken under the circumstances, specially in buying
a piece of land in the actual, visible and public possession of another person, other than the
vendor, constitutes gross negligence amounting to bad faith.The actual possession by other than
the vendor should, at least put the purchaser upon inquiry."

For reasons aforestated, private respondent is the rightful owner of the 19.4 hectares
occupied by him. As a necessary consequence thereof, such portion of land included in TCT No.
10101 must be segregated and reconveyed in his favor.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto.

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 DEVELOPMENT BANK OF THE PHILIPPINES VS. COURT OF APPEALS,
CELEBRADA MANGUBAT AND ABNER MANGUBAT, G.R. NO. 110053 OCTOBER 16,
1995

FACTS

​A parcel of unregistered land identified as Lot 1, PSU-142380, situated in Camarines Sur,

is known to have been originally owned by one Presentacion Cordovez, whodonated it to
Luciano Sarmiento. On June 8, 1964, Luciano Sarmiento sold the land to Pacifico Chica.
On April 27, 1965, Pacifico Chica mortgaged the land to DBP to secure a loan of
P6,000.00. However, he defaulted in the payment of the loan, hence DBP caused the extrajudicial
foreclosure of the mortgage. In the auction sale held on September 9, 1970, DBP acquired the
property as the highest bidder and was issued a certificate of sale on September 17, 1970 by the
sheriff. The certificate of sale was entered in the Book of Unregistered Property on September
23, 1970. Pacifico Chica failed to redeem the property, and DBP consolidated its ownership over
the same.
On October 14, 1980, spouses Mangubat bought the property from DBP. On July 20,
1981, the deed of absolute sale was executed by DBP in favor of respondent spouses. Said
document contained a waiver of the seller's warranty against eviction.
Thereafter, respondent spouses applied for an industrial tree planting loan with DBP.
However, the Bureau of Forest issued a certificate attesting that the said property was classified
as timberland, hence not subject to disposition. The loan application was nevertheless eventually
approved by DBP in the sum of P140,000.00 despite the aforesaid certification of the bureau. To
secure payment of the loan, respondent spouses executed a real estate mortgage over the land on
March 17, 1982, which document was registered in the Registry of Deeds. The loan was then
released to respondent spouses on a staggered basis. After a substantial sum of P118,540.00 had
been received by private respondents, they asked for the release of the remaining amount of the
loan.
On July 7, 1983, respondent spouses filed a complaint against DBP in the trial court
seeking the annulment of the deed of absolute sale and alleged that petitioner acted fraudulently
and in bad faith by misrepresenting itself as the absolute owner of the land and in incorporating
the waiver of warranty against eviction in the deed of sale.
In its answer, DBP contended that it was actually the absolute owner of the land, having
purchased it for value at an auction sale pursuant to an extrajudicial foreclosure of mortgage and
that there was neither malice nor fraud in the sale of the land. It further averred that in the remote
possibility that the land is reverted to the public domain, the respondent spouses should be made
to immediately pay, jointly and severally, the total amount of P118,540.00 with interest at
15% per annum, plus charges and other expenses.

On May 25, 1990, the trial court rendered judgment annulling the subject deed of
absolute sale and ordering DBP to return the P25,500.00 purchase price, plus interest and
damages but did not order for the respondent to pay their loan obligation. DBP filed an appeal
but the Court of Appeals just modified the decision deleting the award of damages and attorney’s
fees. Hence, this appeal.

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 ISSUE
Whether or not spouses Mangubat should be ordered to pay DBP their loan obligation
due under the mortgage contract executed between them.

RULING
In its legal context, the contract of loan executed between the parties is entirely different
and discrete from the deed of sale they entered into. The annulment of the sale will not have an
effect on the existence and demandability of the loan. One who has received money as a loan is
bound to pay to the creditor an equal amount of the same kind and quality.

The fact that the annulment of the sale will also result in the invalidity of the mortgage
does not have an effect on the validity and efficacy of the principal obligation, for even an
obligation that is unsupported by any security of the debtor may also be enforced by means of an
ordinary action. Where a mortgage is not valid, as where it is executed by one who is not the
owner of the property, or the consideration of the contract is simulated or false, the principal
obligation which it guarantees is not thereby rendered null and void. That obligation matures and
becomes demandable in accordance with the stipulations pertaining to it.
Under the foregoing circumstances, what is lost is only the right to foreclose the
mortgage as a special remedy for satisfying or settling the indebtedness which is the principal
obligation. In case of nullity, the mortgage deed remains as evidence or proof of a personal
obligation of the debtor, and the amount due to the creditor may be enforced in an ordinary
personal action.
The mortgage contract which embodies the terms and conditions of the loan obligation of
respondent spouses, as well as respondent Celebrada Mangubat's admission in open court, are
more than adequate evidence to sustain petitioner's claim for payment of private respondents'
aforestated indebtedness and for the adjudication of DBP's claim in this action.
Therefore, respondent spouses Celebrada and Abner Mangubat are ordered to pay
petitioner Development Bank of the Philippines the amount of P118,540.00, representing the
total amount of the loan released to them, with interest of 15% per annum plus charges and other
expenses in accordance with their mortgage contract.

RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.

LAO VS. COURT OF APPEALS AND GOYU & SONS, INC., G.R. NO. 128833 APRIL 20,

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 1998

FACTS
GOYU applied for credit facilities and accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy
Chun Bing and Eli D. Lao, recommended GOYUs application for approval by RCBCs executive
committee. A credit facility in the amount of P30 million was initially granted. Upon GOYUs
application and Uys and Laos recommendation, RCBCs executive committee increased GOYUs
credit facility to P50 million, then to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real estate mortgages
and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds
at Valenzuela, Metro Manila. Under each of these four mortgage contracts, GOYU committed
itself to insure the mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU.
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity on account of the loss insured
against. MICO denied the claim on the ground that the insurance policies were either attached
pursuant to writs of attachments/garnishments issued by various courts.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds
of the insurance policies, but said claims were also denied for the same reasons.
On January 7, 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the
Manila RTC.
After trial, RTC of Manila rendered a decision in favor of GOYU. On appeal, the CA
modified ordering MICO to pay the plaintiff its fire loss claim in the total amount of
P74,040,518.58 less the amount of P50,505,594.60 plus damages by way of interest and ordering
RCBC to pay actual and compensatory damages. MICO and RCBC are likewise solidarily liable
to pay for exemplary damages and attorney’s fees. And on RCBCs Counterclaim, ordering the
plaintiff Goyu & Sons, Inc. to pay its loan obligation with RCBC in the amount of
P68,785,069.04 as of April 27, 1992 without any interest, surcharges and penalties.
RCBC and MICO elevated the case seeking review and consequent reversal of the
decision of the CA.

ISSUE
Whether or not RCBC, as mortgagee, has any right over the insurance policies taken by
GOYU, the mortgagor, in case of the occurrence of loss.

RULING
It is undisputed that the insured pieces of property were the subject of mortgage contracts
entered into between RCBC and GOYU in consideration of and for securing GOYUs credit
facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as
mortgagor, undertook to have the mortgaged property properly covered against any loss by an
insurance company acceptable to RCBC.

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 GOYU voluntarily procured insurance policies to cover the mortgaged property
from MICO, no less than a sister company of RCBC and definitely an acceptable insurance
company to RCBC. Endorsement documents were prepared by MICOs underwriter, Alchester
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU did
not assail, until of late, the validity of said endorsements.
GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the insurance
policies to be taken by GOYU to cover the mortgaged properties.
The laws evident intention to protect the interests of the mortgagee upon the mortgaged
property is expressed in Article 2127 of the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes due,
and to the amount of the indemnity granted or owing to the proprietor from the insurers
of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third person.
Therefore, to the extent of GOYUs outstanding obligation with RCBC, all the rest of the
other insurance policies above-listed which were endorsed to RCBC, are, therefore, to be
released from attachment, garnishment, and levy by the other creditors of GOYU.
On the actual amount of GOYU's liability to RCBC, the Court of Appeals erred in
placing much significance on the fact that the excluded promissory notes are dated after the
fire. The two courts below erred in failing to see that the promissory notes which they ruled
should be excluded for bearing dates which are after that of the fire, are mere renewals of
previous ones. The proceeds of the loan represented by these promissory notes were admittedly
received by GOYU.
It should, however, be quickly added that whatever amount RCBC may have recovered
from the other insurers of the mortgaged property will, nonetheless, have to be applied as
payment against GOYUs obligation. But, contrary to the lower courts findings, payments
effected by GOYU prior to January 21, 1993 should no longer be deducted. Such payments had
obviously been duly considered by GOYU, in its aforequoted letter dated March 9, 1993,
wherein it admitted that its past due account totaled P116,301,992.60 as of January 21, 1993.The
net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90.
For the computation of the interest due to be paid to RCBC, the following rules of thumb
laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234 SCRA 78
[1994]), shall apply, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts
or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on Damages of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e.,
a loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time the demand is

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 made, the interest shall begin to run only from the date of the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained).The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2,
above, shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
There being written stipulations as to the rate of interest owing on each specific
promissory note as summarized and tabulated by the trial court in its decision such agreed
interest rates must be followed. This is very clear from paragraph II, sub-paragraph 1 quoted
above.
On the issue of payment of surcharges and penalties, we partly agree that GOYUs pitiful
situation must be taken into account. We do not agree, however, that payment of any amount as
surcharges and penalties should altogether be deleted. Even assuming that RCBC, through its
responsible officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed its
assurance for assistance to GOYU immediately after the occurrence of the fire, we cannot accept
the lower courts finding that RCBC had thereby ipso facto effectively waived collection of any
additional interests, surcharges, and penalties from GOYU. Assurances of assistance are one
thing, but waiver of additional interests, surcharges, and penalties is another.

PHILIPPINE NATIONAL BANK VS. SPOUSES BERNARD AND CRESENCIA

MARAÑON, G.R. NO. 189316 JUNE 1, 2013

FACTS
The subject lot was among the properties mortgaged by Spouses Rodolfo and Emilie
Montealegre to PNB as a security for a loan. In their transactions with PNB, Spouses
Montealegre used TCT No. T-156512 over the subject lot purportedly registered in the name of
Emilie Montealegre.

When Spouses Montealegre failed to pay the loan, PNB initiated foreclosure proceedings.
In the auction sale held on August 16, 1991, PNB emerged as the highest bidder.

Before the expiration of the redemption period or on July 29, 1992, Spouses Marañon
filed before the RTC a complaint for Annulment of Title, Reconveyance and Damagesagainst
Spouses Montealegre, PNB and the Register of Deeds of Bacolod City. The complaint alleged
that Spouses Marañon are the true registered owners of the subject lot by virtue of TCT No. T-
129577 which was illegally cancelled by TCT No. T-156512 under the name of Emilie who used

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 a falsified Deed of Sale bearing the forged signatures to effect the transfer of title to the property
in her name.
While the trial proceedings were ongoing, Paterio Tolete, one of the tenants of the
building erected on the subject lot deposited his rental payments with the Clerk of Court of
Bacolod City which, as of October 24, 2002, amounted to ₱144,000.00.
The RTC rendered its decision that the signatures in the Deed of Sale were forged thereby
declaring Spouses Marañon to be the rightful owner of the said lot. Hence, the sale to be null and
void and as such it did not transfer any right or title in law. PNB was adjudged to be a mortgagee
in good faith whose lien on the subject lot must be respected. This decision became final and
executory since no appeal was filed.
On June 13, 2006, Spouses Marañon filed an Urgent Motion for the Withdrawal of
Deposited Rentalspraying that the ₱144,000.00 rental fees deposited by Tolete with the Clerk of
Court be released in their favor for having been adjudged as the real owner of the subject lot. The
RTC granted the motion in its Orderdated June 28, 2006. Spouses Marañon again filed with the
RTC an Urgent Ex-Parte Motion for Withdrawal of Deposited Rentals praying that the
₱30,000.00 rental fees paid to PNB by Tolete on December 12, 1999 be released in their favor.
The RTC again granted the motion in its Orderdated September 8, 2006 reasoning that pursuant
to its Decision dated June 2, 2006 declaring Spouses Marañon to be the true registered owners of
the subject lot, they are entitled to its fruits.
The PNB differed with the RTC’s ruling and moved for reconsideration averring that as
declared by the RTC in its Decision dated June 2, 2006, its mortgage lien should be carried over
to the new title reconveying the lot to Spouses Marañon. PNB further argued that with the
expiration of the redemption period on February 4, 1993, or one (1) year from the registration of
the certificate of sale, PNB is now the owner of the subject lot hence, entitled to its fruits.

ISSUE
Whether or not PNB is entitled to the fruits (rents) since it was adjudged as a mortgagee
in good faith whose lien shall subsist and be respected.

RULING

Rent is a civil fruitthat belongs to the owner of the propertyproducing it by right of

accession. The rightful recipient of the disputed rent in this case should thus be the owner of the
subject lot at the time the rent accrued. It is beyond question that Spouses Marañon never lost
ownership over the subject lot.

The protection afforded to PNB as a mortgagee in good faith refers to the right to have its
mortgage lien carried over and annotated on the new certificate of title issued to Spouses
Marañonas so adjudged by the RTC. Thereafter, to enforce such lien thru foreclosure
proceedings in case of non-payment of the secured debt,as PNB did so pursue.

Rent, as an accessory follow the principal.In fact, when the principal property is
mortgaged, the mortgage shall include all natural or civil fruits and improvements found thereon
when the secured obligation becomes due as provided in Article 2127 of the Civil Code, viz:

Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes due,
and to the amount of the indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.

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 However, the rule is not without qualifications. In Castro, Jr. v. CAthe Court explained that
Article 2127 is predicated on the presumption that the ownership of accessions and accessories
also belongs to the mortgagor as the owner of the principal. After all, it is an indispensable
requisite of a valid real estate mortgage that the mortgagor be the absolute owner of the
encumbered property.
Any evidence sufficiently overthrowing the presumption that the mortgagor owns the
mortgaged property precludes the application of Article 2127. Otherwise stated, the provision is
irrelevant and inapplicable to mortgages and their resultant foreclosures if the mortgagor is later
on found or declared to be not the true owner of the property, as in the instant case.

It is beyond question that PNB’s mortgagors, Spouses Montealegre, are not the true owners
of the subject lot much less of the building which produced the disputed rent. The foreclosure
proceedings on August 16, 1991 caused by PNB could not have, thus, included the building
found on the subject lot and the rent it yields. PNB’s lien as a mortgagee in good faith pertains to
the subject lot alone because the rule that improvements shall follow the principal in a mortgage
under Article 2127 of the Civil Code does not apply under the premises. Accordingly, since the
building was not foreclosed, it remains a property of Spouses Marañon; it is not affected by non-
redemption and is excluded from any consolidation of title made by PNB over the subject lot.
Thus, PNB’s claim for the rent paid by Tolete has no basis.

REPUBLIC PLANTERS BANK and PHILMAY PROPERTY, INC., vs.

VIVENCIO T. SARMIENTO, JESUSA N. SARMIENTO, JOSE N. SARMIENTO AND
ELIZABETH B. SARMIENTO 537 SCRA 303 (2007)

FACTS
On 13 March 1979, respondents spouses Vivencio and Jesusa Sarmiento, their son, Jose,
and the latter’s spouse, Elizabeth, executed a promissory note, obligating themselves to pay
Maybank then known as Republic Planters Bank, the amount of P80,000.00 due 360 days after
date plus interest at the rate of 12 percent per annum. Earlier, on 9 March 1979, all four
respondents executed a Real Estate Mortgage. The mortgage secured the payment of the
principal loan of P80,000.00 and all other obligations, overdrafts and other credit
accommodations obtained and those that may be obtained in the future from Maybank. The
following month the respondents amended it to P100,000. On the same month, Vivencio
executed a promissory note in which he undertook to pay the amount of P100,000.00 plus 14%
interest per annum on or before April 1981.
Vivencio was the owner of V. Sarmiento Rattan Furniture. On various occasions in 1981,
he incurred loan obligations from Maybank by way of export advances. As of 08 September
1982, the debts incurred under the export bills transactions totaled P1,281,748.
Respondents defaulted in the payment of the export advances, prompting Maybank to

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 institute an extrajudicial foreclosure of the real estate mortgage. At the foreclosure sale,
Maybank was awarded the property. Maricel Sarmiento, sister of respondent Jose, purchased a
manager’s check from Maybank in the amount of P300,000.00. A week later, respondent Jesusa
10
deposited the amount of P12,000.00. Maybank treated the total amount of P312,000.00 as a
deposit and did not grant respondents’ request for certificate of redemption releasing the
foreclosed property. Sometime in November 1983, Maybank demanded the payment of all
outstanding loans under the export bills transactions.
Maybank consolidated its ownership over the foreclosed property. Maybank and Philmay
executed a deed of absolute sale, transferring ownership of the foreclosed property to the latter.
Philmay sold the same to Fabra.
Respondents Vivencio and Jose instituted an action for specific performance against
Maybank, Philmay and Fabra. The Complaint, prayed for judgment directing Maybank to
execute a deed of redemption in favor of respondents and revoking the subsequent sale of the
property to Philmay and Fabra.
The RTC rendered its decision in favor of the respondents and the CA affirmed the
decision of the lower court.

ISSUE
Whether or not the deposits made by respondents constituted a valid tender of the redemption
price.

RULING
Maybank argues that respondents’ outstanding obligation amounted to more than P1
million as of the date of the foreclosure sale. Hence, the tender by respondents of an amount less
than that did not constitute a valid redemption of the foreclosed property. The petition is
meritorious.
The real estate mortgage provides:
xxx
That, for and in consideration of certain loans, overdrafts and other credit
accommodations obtained from the Mortgagee, and to secure the payment of the same
and those that may hereafter be obtained, the principal of all of which is hereby fixed
as EIGHTY THOUSAND ONLY Pesos (P80,000.00), Philippine Currency, as well as
those that the Mortgagee may extend to the Mortgagor, including interest and
expenses or any other obligation owing to the Mortgagee, whether direct or indirect,
principal or secondary, as appears in the accounts, books and records of the Mortgagee,
the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee,
its successor or assigns, the parcels of land which are described in the list inserted on the
16
back of this document, and/or appended hereto; x x x (Emphasis supplied)
The aforementioned clause is a "blanket mortgage clause." A blanket mortgage clause,
also known as a dragnet clause in American jurisprudence, is one that is specifically phrased to
subsume all debts of past or future origins.
Although at the time of the execution of the real estate mortgage the export advances had
not yet been incurred and the principal obligation was fixed at P80,000.00 and thereafter
amended to P100,000.00, the express tenor of the mortgage contract contemplated the inclusion
of future loans and obligations obtained from Maybank to be secured by the mortgaged property.
Nothing in the mortgage contract would suggest that the parties actually intended to limit the
security to only the principal amount of the loan fixed therein. The stipulations of the mortgage
contract being clear, there is no necessity to ascertain the real intention of the parties. Be that as
it may, nothing in the records would reveal that by the parties’ acts contemporaneous and
subsequent to the execution of the real estate mortgage, they intended to be bound by terms and
conditions other than those provided in the mortgage contract.
It is well settled that mortgages given to secure future advancements or loans are valid

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 and legal contracts, and that the amounts named as consideration in said contracts do not limit
the amount for which the mortgage may stand as security if from the four corners of the
20
instrument the intent to secure future and other indebtedness can be gathered. A mortgage given
to secure advancements is a continuing security and is not discharged by repayment of the
21
amount named in the mortgage, until the full amount of the advancements is paid.
At the time of the foreclosure sale of the mortgaged property, the outstanding obligation
arising from the export bills transactions had already amounted to more than P1 million. In
22
accordance with Section 78 of the General Banking Act, as amended, then governing the
foreclosure of the mortgaged property, redemption may only be made by paying the amount due
under the mortgage deed within one year from the sale of the property. Since respondents failed
to satisfy the full amount of the indebtedness to Maybank, the latter was justified in refusing to
grant respondents’ demand for redemption of the foreclosed property.

​ ​ ​ ​ ​ ​ ​ ​
PRUDENTIAL BANK VS ALVIAR 464 SCRA 353 (2005)

FACTS
Respondents, spouses Don A. Alviar and Georgia B. Alviar, are the registered owners of
a parcel of land in San Juan, Metro Manila. On 10 July 1975, they executed a deed of real estate
mortgage in favor of petitioner Prudential Bank to secure the payment of a loan
worth P250,000.00. On 4 August 1975, respondents executed a promissory note covering the
said loan, which provides that the loan matured on 4 August 1976 at an interest rate of 12% per
annum with a 2% service charge, and that the note is secured by a real estate mortgage as
aforementioned.
On 22 October 1976, Don Alviar executed another promissory note, signifying that the
loan was secured by a hold-out on the mortgagors foreign currency savings account with the
bank.
On 27 December 1976, respondent spouses executed for Donalco Trading another note.
As provided in the note, the loan is secured by Clean-Phase out TOD CA 3923, which means that
the temporary overdraft incurred by Donalco Trading, Inc. with petitioner is to be converted into
an ordinary loan in compliance with a Central Bank circular directing the discontinuance of
overdrafts.
On 06 March 1979, respondents paid petitioner P2,000,000.00, to be applied to the
obligations of G.B. Alviar Realty and Development, Inc. and for the release of the real estate
mortgage. The payment was acknowledged by petitioner who accordingly released the mortgage
over the two properties.
On 15 January 1980, petitioner moved for the extrajudicial foreclosure of the mortgage
on the property covered by TCT No. 438157. Per petitioners computation, respondents had the
total obligation of P1,608,256.68, covering the three (3) promissory notes plus assessed past due
interests and penalty charges.

Respondents filed a complaint for damages with a prayer for the issuance of a writ of
preliminary injunction with the RTC of Pasig, claiming that they have paid their principal loan
secured by the mortgaged property, and thus the mortgage should not be foreclosed.
RTC, on its final decision, favored respondents saying that the extrajudicial foreclosure w
as improper for the mortgage only covers the first loan of P250,000. On the other hand,
the P382,680.83 loan is secured by the foreign currency deposit account of Don A. Alviar, while
the P545,000.00 obligation was an unsecured loan, being a mere conversion of the temporary
overdraft of Donalco Trading, Inc. in compliance with a Central Bank circular. According to the
trial court, the blanket mortgage clause relied upon by petitioner applies only to future loans
obtained by the mortgagors, and not by parties other than the said mortgagors, such as Donalco
Trading, Inc., for which respondents merely signed as officers thereof. CA

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 affirmed the decision of the RTC.

ISSUE
Whether or not the blanket mortgage clause applies even to subsequent advancements for
which other securities were intended, or particularly, to PN BD#76/C-345.

Whether or not it was proper of the foreclosure of the mortgaged property for the non-
payment of the three loans.

RULING
In the case at bar, the subsequent loans obtained by respondents were secured by other
securities, thus: PN BD#76/C-345, executed by Don Alviar was secured by a hold-out on his
foreign currency savings account, while PN BD#76/C-430, executed by respondents for Donalco
Trading, Inc., was secured by Clean-Phase out TOD CA 3923 and eventually by a deed of
assignment on two promissory notes executed by Bancom Realty Corporation with Deed of
Guarantee in favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy and
transportation equipment. The matter of PN BD#76/C-430 has already been discussed.
Based on the reliance on the security test, the California court in the cited case made an
inquiry whether the second loan was made in reliance on the original security containing a
dragnet clause. Accordingly, finding a different security was taken for the second loan no intent
that the parties relied on the security of the first loan could be inferred, so it was held. The
rationale involved, the court said, was that the dragnet clause in the first security instrument
constituted a continuing offer by the borrower to secure further loans under the security of the
first security instrument, and that when the lender accepted a different security he did not accept
the offer.
In some instances, it has been held that in the absence of clear, supportive evidence of a
contrary intention, a mortgage containing a dragnet clause will not be extended to cover future
advances unless the document evidencing the subsequent advance refers to the mortgage as
providing security therefor.
It was therefore improper for petitioner in this case to seek foreclosure of the mortgaged
property because of non-payment of all the three promissory notes. The foreclosure of the
mortgaged property should only be for the P250,000.00 loan covered by PN BD#75/C-252, and
for any amount not covered by the security for the second promissory note.
One other crucial point. The mortgage contract, as well as the promissory notes subject of
this case, is a contract of adhesion, to which respondents only participation was the affixing of
their signatures or adhesion thereto A contract of adhesion is one in which a party imposes a
ready-made form of contract which the other party may accept or reject, but which the latter
cannot modify.
The real estate mortgage in issue appears in a standard form, drafted and prepared solely
by petitioner, and which, according to jurisprudence must be strictly construed against the party
responsible for its preparation. If the parties intended that the blanket mortgage clause shall
cover subsequent advancement secured by separate securities, then the same should have been
indicated in the mortgage contract. Consequently, any ambiguity is to be taken contra
proferentum, that is, construed against the party who caused the ambiguity which could have
avoided it by the exercise of a little more care. To be more emphatic, any ambiguity in a contract
whose terms are susceptible of different interpretations must be read against the party who
drafted it, which is the petitioner in this case.
Petitioner, however, is not without recourse. Both the Court of Appeals and the trial
court found that respondents have not yet paid the P250,000.00, and gave no credence to their
claim that they paid the said amount when they paid petitioner P2,000,000.00. Thus, the
mortgaged property could still be properly subjected to foreclosure proceedings for the
unpaid P250,000.00 loan, and as mentioned earlier, for any deficiency after D/A SFDX#129,
security for PN BD#76/C-345, has been exhausted, subject of course to defenses which are
available to respondents.

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 ​ ​ ​​
BLANCA CONSUELO ROXASvs.COURT OF APPEALS and RURAL BANK OF
DUMALAG, INC., 221 SCRA 729 (1993)

FACTS
Petitioner Blanca Consuelo Roxas is the owner of a parcel of land located at Tanza
Norte, Panay, Capiz. On December 22, 1969, she executed a special power of attorney
appointing her brother, the late Manuel Roxas, as her attorney-in-fact for the purpose of applying
for an agricultural loan with private respondent Rural Bank of Dumalag, Inc. using said land as
collateral. Armed with said special power of attorney, Manuel Roxas applied for, was granted
and received an agricultural loan in the amount of P2,000.00 from private respondent. As
security for the loan, he executed the corresponding real estate mortgage over the subject land.
On October 24, 1973, private respondent foreclosed the real estate mortgage for failure to
pay the loan on maturity. On January 7, 1974, the subject land was sold at public auction to
private respondent. For failure to exercise the right of redemption, private respondent
consilidated its ownership over the subject land.
On September 2, 1981, petitioner filed a complaint for cancellation of foreclosure of
mortgage and annulment of auction sale against private respondent before the Regional Trial
Court of Roxas City. In her complaint, petitioner claimed that Manuel Roxas never informed her
about the approval of the loan. When the loan matured, she did not received any demand for
payment from private respondent nor was there any information from Manuel Roxas about the
maturity of the loan. The foreclosure did not comply with the requirement of giving written
notices to all possible redemptioners, neither did Manuel Roxas inform her about the foreclosure.
In 1974. In that same year, she went to private respondent to inquire about the status of her loan,
that is, the amount of her total account and for that matter, she asked for a statement of account.
Her request was refused or ignored. Private respondent replied, informing petitioner that it
already foreclosed the subject land and it can no longer be redeemed since the redemption period
has expired on March 6, 1975. Petitioner was able to obtain her statement of account only on
August 19, 1981. She consigned with the trial court the amount of P4,194.50 as redemption price
of the subject land.
Refuting the claims of petitioner, private respondent contended in its answer that
petitioner never cared about the payment of her loan although she knew of the status of her
account; that she was duly notified of the foreclosure and public auction sale since notice to
Manuel Roxas, her agent, was notice to the principal; that the sheriff duly posted copies of the
notice of foreclosure sale in conspicuous public places before the actual auction sale; and that
she acted negligently in not taking steps to redeem the subject land.
The trial court rendered judgment in favor of petitioner.
On elevating the matter to the Court of Appeals, said court reversed the decision of the
trial court

ISSUE
• Whether or not it was proper to foreclose and auctioned the subject land despite failure to
post notices in the barrio where the land lies

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 RULING
Elaborating on these issues, petitioners asserts that the failure to post the notice in the
barrio where the mortgaged property is situated rendered the foreclosure and sale by public
auction void. She invokes Our ruling in the case of Tambunting, et al. v.Court of Appeals, et
5
al., which held that the statutory provisions governing publication of notice of mortgage
foreclosure sales must be strictly complied with, and that a slight deviation therefrom will
invalidate the notice and render the sale voidable. If recovery cannot be had under the strict
provisions of law, it must be allowed under the liberal consideration of equity in view of the
special circumstances in this case: first, private respondent admitted that it was always its
paractice of notifying mortgagors of the maturity of their loans, yet, in the case of petitioner, it
did not do so; second, despite earlier requests, private respondent gave the statement of account
only in 1981; third, even after the supposed foreclosure of the land in 1974, private respondent
allowed petitioner to have possession thereof, paying the taxes in her name until 1982, when
private respondent started to demand possession. The price paid by private respondent was only
P3,009.37 while the total area of the subject land is more than fourteen hectares and a fishpond at
the time of the sale in 1974.
It is settled doctrine that failure to publish notice of auction sale as required by the statute
6
constitutes a jurisdiction defects with invalidates the sale. Even slight deviations therefrom are
7
not allowed.
Section 5 of R.A. No. 720, as amended by R.A. No. 5939, provides that notices of
foreclosure should be posted in at least three (3) of the most conspicuous public places in the
municipality and barrio where the land mortgaged is situated.
In the case at bar, the Certificate of Posting which was executed by the sheriff states that
he posted three (3) copies of the notice of public auction sale in three (3) conspicuous public
places in the municipality of Panay, where the subject land was situated and in like manner in
8
Roxas City, where the public auction sale took place. It is beyond despute that there was a
failure to publish the notices of auction sale as required by law. Section 5 provides further that
proof of publication shall be accomplished by an affidavit of the sheriff or officer conducting the
foreclosure sale. In this case, the sheriff executed a certificate of posting, which is not the
affidavit required by law. The rationale behind this is simple: an affidavit is a sworn statement in
writing. Strict compliance with the aforementioned provisions is mandated. We, therefore, cannot
sustain the view of respondent court that there was substantial compliance with Section 5 of R.A.
No. 720, as amended, with respect to the affidavit of posting by the sheriff and the non-posting
of the required notice in the barrio where the land mortgaged is situated. Instead, We declare the
foreclosure and public auction sale of the subject land void.

​ ​ ​ ​ ​ ​ ​ ​
RURAL BANK OF TOBOSO, INC. VS. AGTOTO 646 SCRA 288 (2011)

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 FACTS
Agtoto executed a special power attorney (SPA) authorizing her husband, Rodney, to
secure a loan on her behalf and mortgage a registered land that she owned. Using the SPA,
Rodney got a loan of Php130,500.00 from the Rural Bank of Toboso Inc. with the Php61,068
portion secured by a real estate mortgage on his wife’s land. On the following day, he secured the
remaining Php69,432 of the loan with a chattel mortgage over two service boats and one Yamar
Marine engine.
Agtoto failed to pay the bank. The mortgage on her land was extrajudicially foreclosed,
pegging her debt plus stipulated interest. After notice and publication, sheriff foreclosed the
mortgage on the land and sold it at public auction. The bank made the highest bid so the sheriff
subsequently issued a certificate of sale in the bank’s favor.
Agtoto filed a complaint with RTC against the bank for the annulment of sale of her land,
damages and injunction with prayer for issuance of TRO. RTC rendered a decision in favor of
Agtoto, ordering the bank to pay the former Php305,000, which was the bid for her land, less
than the Php61,068 due from her loan. Agtoto appealed to CA from the decision, asserting that
the RTC erred in not declaring the foreclosure sale null and void.
CA affirmed the RTC’s decision with modifications. Both parties brought the case to SC
through petition for review. Hence, the present case.

ISSUE
Whether or not the Rural Bank of Toboso, Inc. validly foreclosed Agtoto’s mortgaged
land.

RULING
Yes, the bank validly foreclosed Agtoto’s mortgaged land. The power she vested in
Rodney as her attorney-in-fact in connection with the mortgage of her land included the power to
constitute the mortgage bank as Rodney’s attorney in fact for foreclosure purposes. The
constitution of the bank as attorney-in-fact for purposes of extrajudicial foreclosure was a
condition that Rodney accepted and it bound Agtoto as principal, the same being a legitimate
exercise of his powers under the SPA.
Furthermore, the foreclosure sale covering the land was valid, notwithstanding the chattel
mortgage that covered the Php69,432 portion of the loan of Php130,500. The chattel mortgage
was a contract distinct from the real estate mortgage, which latter mortgage covered the separate
amount of Php61,068. Thus, the bank had no right to include in the foreclosure of the land the
portion of the loan separately secured by the chattel mortgage. Since the bank collected the entire
amount of loan from the proceeds of the foreclosure sale, including the portion that was not
covered by the real estate mortgage, it must return such to Agtoto, which amounted to
Php189,497.10, less than the portion covered by the real estate mortgage.

​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​
AGBADA VS. INTER-URBAN DEVELOPERS, INC., 389 SCRA 430 (2002)

FACTS
Petitioner-spouses Guillermo Agbada and Maxima Agbada secured a loan from
respondent Inter-Urban Developers, Inc. through a real estate mortgage over a parcel of land and
the improvement thereon, payable within 6 months at 3 percent interest per month and with a
stipulation that failure to discharge the loan within the stipulated period will entitle respondent to
foreclose the mortgage judicially or extrajudicially. The petitioners failed to pay the loan within
the stipulated period.
Respondent filed with the RTC a complaint for foreclosure of real estate mortgage and
moved for summary judgment with the contention that the petitioners admit the amount of
indebtedness and the execution of the real estate mortgage contract in the latter's special and
affirmative defenses. RTC promulgated its summary judgment in favor of respondent. Petitioners

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 did not appeal the summary judgment nor did they pay the judgment debt. Instead, they
petitioned for annulment of summary judgment for alleged violation of their right to due process
arising from full-blown trial on genuine issue of fact.
The CA dismissed the petition. Hence, the appeal on the Supreme Court.

ISSUE

Whether or not the proper remedy to seek reversal of judgment in an action for
foreclosure of real estate mortgage is petition for annulment of judgment.

RULING

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

​ ​ ​ ​ ​ ​ ​
INGLES ET. AL. VS.ESTRADA, G.R. NO. 141809, APRIL 08, 2013

FACTS

Jose D. Ingles, Sr. (Jose) and his wife, petitioner Josefina F. Ingles (Josefina), were the
registered owners of a 2,265 square meter parcel of land in Quezon City per Transfer Certificate
of Title situated in the District of Diliman, Quezon City.

On 14 April 1993, Jose and Josefina obtained a loan in the amount of P6,200,000.00 from
respondent Charles J. Esteban (Charles) where they mortgaged their land. The Deed of Real
Estate Mortgage, the mortgaged land was mistakenly referred to as being covered by TCT No.
125141 PR-17485 instead of TCT No. 125341 PR-17485.

Moreover, the Deed of Real Estate Mortgage contained the following stipulation: “upon

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 the failure of the MORTGAGOR/S [Jose and Josefina] to pay [their loan] at maturity date x x x
the MORTGAGOR/S [Jose and Josefina] may elect or choose to foreclose [the] mortgage
judicially or extrajudicially x x x.”On 26 April 1993, Jose and Josefina requested the Register of
Deeds of Quezon City for the division of their land into ten (10) lots which was cancelled.

Upon maturity of their loan, they issued a check to Charles for P6, 200,000.00 but the
check bounced.On 13 July 1994, Charles sent to Josefina a letter demanding for the payment of
her and her late husband’s loan and will foreclose the mortgage of nonpayment (10) days from
her receipt of the letter. Josefina failed to pay.

On 12 July 1997, Charles petitioned Judge Estrada for the extrajudicial foreclosure of the
mortgage. The latter issued an order to proceed with the extrajudicial sale of the ten (10) lots
covered by TCT Nos. 85825-34.25. On 1 December 1997, Atty. Gatmaytan issued a Notice of
Sale setting the public auction on 6 January 1998 in which Charles, asthe highest bidder, was
given a Certificate of Sale.

On 17 December 1999, on the other hand, the Ingleses filed before the Court of Appeals a
petition for Annulment of Final orders. On 28 January 2000, the Court of Appeals issued a
Resolution denying the motion for reconsideration. In this later Resolution, however, the Court
of Appeals used a different, albeit a more fundamental rationale to maintain its dismissal of the
petition for Annulment of Final Orders.

On 2 April 2001, the RTC issued an Order requiring Charles to submit a memorandum in
support of his application for a writ of possession. The same order also required the Ingleses to
file a comment on Charles’ memorandum.

The proceedings in these consolidated cases were suspended until after the Honorable
Supreme Court shall have resolved the pending petitions before it, docketed as G.R. No. (sic)
141809 and 147186.90. Here, Charles filed a supplemental petition to his mandamus petition.

On 31 March 2006, the Court of Appeals rendered a Decision granting Charles’

mandamus petition. The Court of Appeals thus disposed. The Ingleses filed an appeal before the
court the third of three petitions consolidated herein.

ISSUE

Whether or not the Court of Appeals erred in dismissing the Ingleses’ petition for
Annulment of Final Orders.

RULING

No.

The subject of the Ingleses’ petition for Annulment of Final Orders are not the proper
subjects of a petition for annulment before the Court of Appeals. The assailed Orders of
Executive Judge Estrada are not the final orders in "civil actions" of "Regional Trial Courts" that
may be the subject of annulment by the Court of Appeals under Rule 47. There is a clear-cut
difference between issuances made in a "civil action" on one hand and orders rendered in a

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 proceeding for the extrajudicial foreclosure of a mortgage on the other.

"Civil actions" are suits filed in court involving either the enforcement or protection of a
right, or the prevention or redress of a wrong. They are commenced by the filing of an original
complaint before an appropriate court and their proceedings are governed by the provisions of
the Rules on Court on ordinary or special civil actions.”

In contrast, proceedings for the extrajudicial foreclosure of mortgages, as the name

already suggests, are not suits filed in a court. They are commenced not by the filing of a
complaint, but by submitting an application before an executive judge who, in turn, receives the
same neither in a judicial capacity nor on behalf of the court.The conduct of such proceedings is
not governed by the rules on ordinary or special civil actions, but by Act No. 3135, as amended,
and by special administrative orders issued by this Court.

Proceedings for the extrajudicial foreclosure of mortgages are also not adversarial; as the
executive judge merely performs therein an administrative function to ensure that all
requirements for the extrajudicial foreclosure of a mortgage are satisfied before the clerk of
court, as the ex-officio sheriff, goes ahead with the public auction of the mortgaged property.
Necessarily, the orders of the executive judge in such proceedings, whether they be to allow or
disallow the extrajudicial foreclosure of the mortgage, are not issued in the exercise of a judicial
function but, in the words of First Marbella Condominium Association, Inc. v. Gatmaytan:

x x x issued by the RTC Executive Judge in the exercise of his administrative function to
supervise the ministerial duty of the Clerk of Court as Ex Officio Sheriff in the conduct
of an extrajudicial foreclsoure sale x x x.121 (Emphasis supplied)

Verily, the Orders of Executive Judge Estrada cannot be the subject of a petition for
annulment before the Court of Appeals. Such orders, issued as they were by an executive judge
in connection with a proceeding for the extrajudicial foreclosure of a mortgage, evidently do not
fall within the type of issuances so carefully identified under Section 1 of Rule 47. The Court of
Appeals was, therefore, correct in postulating that the annulment of the assailed Orders is not
within their exclusive original jurisdiction per Section 9(2) of Batas Pambansa Blg. 129.

In fine, therefore, We see no reversible error on the part of the Court of Appeals in
dismissing the Ingleses’ petition for Annulment of Final Orders

PNB VS RABAT 344 SCRA 706 (2000)

FACTS
On 25 August 1979, respondent spouses Francisco and Merced Rabat (hereafter
RABATs) applied for a loan with PNB. Subsequently, the RABATs were granted on 14 January
1980 a medium-term loan of P 4.0 Million to mature three years from the date of
implementation.
On 28 January 1980, the RABATs signed a Credit Agreement and executed a Real Estate
Mortgage over twelve (12) parcels of land which stipulated that the loan would be subject to
interest at the rate of 17% per annum, plus the appropriate service charge and penalty charge of
3% per annum on any amount remaining unpaid or not renewed when due

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 On 25 September 1980, the RABATs executed another document denominated as
"Amendment to the Credit Agreement" purposely to increase the interest rate from 17% to 21%
per annum, inclusive of service charge and a penalty charge of 3% per annum to be imposed on
any amount remaining unpaid or not renewed when due. They also executed another Real Estate
Mortgage over nine parcels of land as additional security for their medium-term loan of Four
Million (P 4.0 M). These parcels of land are agricultural, commercial and residential lots situated
in Mati, Davao Oriental.
The several availments of the loan accommodation on various dates by the RABATs
reached the aggregate amount of THREE MILLION FIVE HUNDRED SEVENTEEN
THOUSAND THREE HUNDRED EIGHTY (P 3,517,380), as evidenced by the several
promissory notes, all of which were due on 14 March 1983.
The RABATs failed to pay their outstanding balance on due date. In a response to the
letter of the RABATs of 16 June 1986 requesting for more time within which to arrive at a viable
proposal for the settlement of their account, PNB informed the RABATs that their request has
been denied and gave the RABATs until 30 August 1986 to settle their account.
The PNB sent the letter to 197 Wilson Street, San Juan, Metro Manila.
For failure of the RABATs to pay their obligation, the PNB filed a petition for the
extrajudicial foreclosure of the real estate mortgage executed by the RABATs. After due notice
and publication, the mortgaged parcels of land were sold at a public auction held on 20 February
1987 and 14 April 1987. The PNB was the lone and highest bidder.
As the proceeds of the public auction were not enough to satisfy the entire obligation of
the RABATs, the PNB sent anew demand letters. The letter dated 15 November 1990 was sent to
the RABATs at 197 Wilson Street, San Juan, Metro Manila; while another dated 30 August 1991
was sent to the RABATs at 197 Wilson Street, Greenhills, San Juan, Metro Manila, and also in
Mati, Davao Oriental.
Upon failure of the RABATs to comply with the demand to settle their remaining
outstanding obligation which then including interest, penalties and other charges, PNB
eventually filed on 5 May 1992 a complaint for a sum of money before the Regional Trial Court
of Manila.
The RABATs filed their answer with counterclaim to which PNB filed its Reply and
Answer to Counterclaim. The RABATs filed an amended answer. The RABATs admitted their
loan availments from PNB and their default in the payment thereof. However, they assailed the
validity of the auction sales for want of notice to them before and after the foreclosure sales.
They further added that as residents of Mati, Davao Oriental since 1970 up to the present,
they never received any notice nor heard about the foreclosure proceeding in spite of the claim of
PNB that the foreclosure proceeding had been duly published in the San Pedro Times, which is
not a newspaper of general circulation.
The RABATs likewise averred that the bid price was grossly inadequate and
unconscionable.
Lastly, the RABATs attacked the validity of the accumulated interest and penalty charges
because since their properties were sold in 1987, and yet PNB waited until 1992 before filing the
case. Consequently, the RABATs contended that they should not be made to suffer for the
interest and penalty charges from May 1987 up to the present. Otherwise, PNB would be allowed
to profit from its questionable scheme.
The PNB filed its Reply to the Amended Answer and Answer to Counterclaim.
After appropriate proceedings, the trial court rendered a decision dismissing the
complaint. The two (2) auction sales of the mortgaged properties are set aside and ordering the
plaintiff to reconvey to the defendants the remaining properties after the sale [of] sufficient
properties for the satisfaction of the obligation of the defendants. the trial court ruled that while a
mortgagee is entitled to a deficiency judgment, it would be premature to adjudge it in the case
since the two auction sales in question are null and void.
Only PNB appealed from the judgment to the Court of Appeals.
In their Appellees Brief, the RABATs prayed for the appellate court to affirm in toto the
decision of the trial court.
The Court of Appeals rendered a decision affirming the trial court's ruling nullifying the
auction sales, but on a different ground.
The Court of Appeals discovered that the RABATs did not actually receive personal
notices concerning the foreclosure proceedings. Hence, they could not have known of said

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 foreclosure sales.

ISSUES
Whether or not the court of appeals may review and pass upon the trial courts finding and
conclusion on an issue which was never raised on appeal, and, therefore, had attained finality.
RULING
Section 8, Rule 51 of the 1997 Rules of Civil Procedure expressly provides:
SEC. 8. Questions that may be decided. -- No error which does not affect the
jurisdiction over the subject matter or the validity of the judgment appealed from or the
proceedings therein will be considered unless stated in the assignment of errors, or
closely related to or dependent on an assigned error and properly argued in the brief, save
as the court pass upon plain errors and clerical errors which now includes some
substantial changes in the rules on assignment of errors. The basic procedural rule is that
only errors claimed and assigned by a party will be considered by the court, except errors
affecting its jurisdiction over the subject matter. To this exception has now been added
errors affecting the validity of the judgment appealed from or the proceedings therein.
Also, even if the error complained of by a party is not expressly stated in his assignment
of errors but the same is closely related to or dependent on an assigned error and properly argued
in his brief, such error may now be considered by the court. These changes are of jurisprudential
origin.
It may also be observed that under Sec. 8 of this Rule, the appellate court is authorized to
consider a plain error, although it was not specifically assigned by the appellant otherwise it
would be sacrificing substance for technicalities.
It may at once be noticed that the exceptions are for the benefit of the appellant and not
for the appellee.
The RABATs did not appeal from the decision of the trial court. As a matter of fact, in
their Appellees Brief filed with the Court of Appeals they prayed that said decision be affirmed
in toto . As against the RABATs the trial courts findings of fact and conclusion are already
settled and final. More specifically, they are deemed to have unqualifiedly agreed with the trial
court that the foreclosure proceedings were valid in all respects, except as to the bid price.
On the other hand, PNB, the sole appellant, never raised the issue of lack of personal
notice to the RABATs. Neither is such issue closely related to or dependent on PNB's assigned
error on appeal nor is it an exception to Section 8 of Rule 51.
Needless to stress, the Court of Appeals erred in resolving PNBs appeal on the basis of an
issue which was not raised on appeal and whose resolution thereon by the trial court has long
become firm and final against the party adversely affected by the resolution.
Even granting arguendo that the issue of personal notice may be raised, still we cannot
agree with the Court of Appeals. In the first place, in extrajudicial foreclosure sales, personal
notice to the mortgagor is not necessary. Section 3 of Act No. 3135 reads:
Section 3. Notice shall be given by posting of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice shall be
published once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city.
Clearly personal notice to the mortgagor is not required. Second, the requirements of
posting and publication in a newspaper of general circulation were duly complied with by the
PNB as correctly found by the trial court, to which we accord great respect. A question of non-
compliance with the notice and publication requirements of an extrajudicial foreclosure sale is a
factual issue and the resolution thereof by the trial court is binding and conclusive upon us absent
any showing of grave abuse of discretion. WHEREFORE , the petition is GRANTED.

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 LIM VS DBP 700 SCRA 210 (2013)

FACTS
Petitioners Carlos, Consolacion, and Carlito, all surnamed Lim, obtained a loan of
₱40,000.00 (Lim Account) from respondent Development Bank of the Philippines (DBP) to
finance their cattle raising business. On the same day, they executed a Promissory Note
undertaking to pay the annual amortization with an interest rate of 9% per annum and penalty
charge of 11% per annum. A year later, the petitioners obtained another loan from DBP in the
amount of ₱960,000.00 (Diamond L Ranch Account). They also executed a Promissory Note,
promising to pay the loan annually from August 22, 1973 until August 22, 1982 with an interest
rate of 12% per annum and a penalty charge of 1/3% per month on the overdue amortization.
To secure the loans, petitioners executed a Mortgage in favor of DBP over real
properties. Due to violent confrontations between government troops and Muslim rebels in
Mindanao from 1972 to 1977, petitioners were forced to abandon their cattle ranch. As a result,
their business collapsed and they failed to pay the loan amortizations. In 1978, petitioners made a
partial payment in the amount of ₱902,800.00, leaving an outstanding loan balance of
₱610,498.30, inclusive of charges and unpaid interest. In 1989, petitioners, represented by
Edmundo Lim (Edmundo), requested from DBP Statements of Account for the "Lim Account"
and the "Diamond L Ranch Account."
Claiming to have already paid Edmundo requested for an amended statement of account
and made a follow-up on the request for recomputation of the two accounts. The DBP’s General
Santos Branch informed Edmundo that the Diamond L Ranch Account and that the mortgaged
properties located at San Isidro, Lagao, General Santos City, had been subjected to Operation
Land Transfer under the Comprehensive Agrarian Reform Program (CARP) of the government.
Edmundo was also advised to discuss with the Department of Agrarian Reform (DAR) and the
Main Office of DBP the matter of the expropriated properties.
Edmundo asked DBP how the mortgaged properties were ceded by DAR to other persons
without their knowledge and even signified petitioners’ intention to settle the Diamond L Ranch
Account. Again, no reply was made. Later, Edmundo received a Notice of Foreclosure
scheduled the following day. To stop the foreclosure, he was advised by the bank’s Chief Legal
Counsel to pay an interest covering a 60-days period to postpone the foreclosure for 60 days. He
was also advised to submit a written proposal for the settlement of the loan accounts. Petitioner,
then, proposed the settlement of the accounts through dacion en pago, with the balance to be paid
in equal quarterly payments over five years.
However, DBP rejected the proposal and informed Edmundo that unless the accounts are
fully settled as soon as possible, the bank will pursue foreclosure proceedings. Edmundo
proposed to pay the principal and the regular interest of the loans in equal monthly installments.
The DBP advised Edmundo to coordinate with Branch Head Bonifacio Tamayo, Jr., who
promised to review the accounts. Two months later, petitioner received another Notice from the
Sheriff that the mortgaged properties would be auctioned, which herein petitioner again paid as
additional interest to postpone the auction. But despite payment of the mortgaged properties were
still auctioned with DBP emerging as the highest bidder. However, the same was withdrawn by
DBP for lack of jurisdiction. Thereafter, Tamayo informed Edmundo of the bank’s new
guidelines for the settlement of outstanding loan accounts proposing that petitioners pay 10%
downpayment and the remaining balance in 36 monthly installments and that the bank would
immediately prepare the Restructuring Agreement upon receipt of the downpayment.
Tamayo informed Edmundo that the proposal was accepted with some minor adjustments
and that an initial payment should be made.
However, Edmundo paid the downpayment later than the agreed date and received a
letter from Tamayo informing him that the Regional Credit Committee rejected the proposed
Restructuring Agreement; that it required downpayment of 50% of the total obligation; that the

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 remaining balance should be paid within one year. Petitioner, in a letter asked for the restoration
of their previous agreement and was approved along with a reminder that upon failure to sign
and perfect the documents and comply with other conditions within (30) days from date of
receipt, the approved recommendation shall be deemed CANCELLED and the deposit of
₱362,271.75 shall be applied to the account.
No compliance was made by Edmundo and the latter received Notice that the
mortgaged properties were scheduled to be auctioned on that day. To stop the auction sale,
Edmundo asked for an extension which was approved provided that it will be the last and final
extension and that all amortizations due shall be paid including the additional interest computed
from date of your receipt of notice of approval.
The documents were forwarded to the Legal Services Department of DBP in Makati for
the parties’ signatures. At the same time, Edmundo was required to pay thedaily interest of
₱632.15 starting November 16, 1993 up to the date of actual payment of the said amount.
Edmundo received the draft of the Restructuring Agreement, however, Tamayo informed
Edmundo that the bank cancelled the Restructuring Agreement due to his failure to comply with
the conditions within a reasonable time. The DBP sent Edmundo a Final Demand Letter asking
that he pay the outstanding amount of ₱6,404,412.92, as of November 16, 1993, exclusive of
interest and penalty charges. Edmundo, in a letter, explained that his lawyer was not able to
review the agreement due to the Christmas holidays.
The Ex-Officio Sheriff conducted a public auction sale of the mortgaged properties for
the satisfaction of petitioners’ total obligations and the DBP was the highest bidder and the
Sheriff’s Certificate of Extra-Judicial Sale in favor of DBP covering 11 parcels of land. In a
letter, DBP informed Edmundo that their right of redemption over the foreclosed properties
would expire on July 28, 1995, on the same date petitioners filed before the RTC of General
Santos City, a Complaint against DBP for Annulment of Foreclosure and Damages with Prayer
for Issuance of a Writ of Preliminary Injunction and/or Temporary Restraining Order alleging
that DBP’s acts and omissions prevented them from fulfilling their obligation; thus, they prayed
that they be discharged from their obligation and that the foreclosure of the mortgaged properties
be declared void. They likewise prayed for actual damages for loss of business opportunities,
moral and exemplary damages, attorney’s fees, and expenses of litigation. On same date, the
RTC issued a Temporary Restraining Order directing DBP to cease and desist from
consolidating the titles over petitioners’ foreclosed properties and from disposing the same.
DBP filed its Answer, arguing that petitioners have no cause of action; that petitioners
failed to pay their loan obligation; that the DBP revived its application for foreclosure but it was
again held in abeyance upon petitioners’ request; that DBP gave petitioners written and verbal
demands as well as sufficient time to settle their obligations; and that under Act 3135, 93 DBP
has the right to foreclose the properties.
The RTC rendered a Decision in favor of the petitioners. On appeal, the CA reversed and
set aside the RTC Decision ordering the dismissal of the complaint.

ISSUES
1. Whether as a result of respondent’s said acts and omissions, petitioners’ obligations
should be deemed fully complied with and extinguished in accordance with the principle
of constructive fulfillment;

2. Whether the restructuring agreement reached and perfected between the petitioners and
the respondent novated and extinguished petitioners’ loan obligations to respondent under
the Promissory Notes sued upon;

3. Whether the return by the trial Court of the mortgaged properties to petitioners free from
mortgage liens constitutes unjust enrichment;

4. Whether respondent’s own wanton, reckless and oppressive acts and omissions in
discharging its reciprocal obligations to petitioners effectively prevented the petitioners
from paying their loan obligations in a proper and suitable manner;

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 RULING
​The Petition is partly meritorious. The obligation was not extinguished or discharged.
1. The Promissory Notes subject of the instant case became due and demandable as early as
1972 and 1976. The only reason the mortgaged properties were not foreclosed in 1977
was because of the restraining order from the court. In 1978, petitioners made a partial
payment, but no subsequent payments were made. It was only in 1989 that petitioners
tried to negotiate the settlement of their loan obligations. And although DBP could have
foreclosed the mortgaged properties, it instead agreed to restructure the loan. In fact, DBP
gave several extensions for petitioners to settle their loans, but they never did, thus,
prompting DBP to cancel the Restructuring Agreement.

Petitioners, however, insist that DBP’s cancellation of the Restructuring Agreement

justifies the extinguishment of their loan obligation under the Principle of Constructive
Fulfillment.
We do not agree. As aptly pointed out by the CA, Article 1186 of the Civil Code, which
states that "the condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment," does not apply in this case, viz:
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions,
which applies when the following three (3) requisites concur, viz: (1) The condition is
suspensive; (2) The obligor actually prevents the fulfillment of the condition; and (3) He acts
voluntarily. Suspensive condition is one the happening of which gives rise to the obligation. It
will be irrational for any Bank to provide a suspensive condition in the Promissory Note or the
Restructuring Agreement that will allow the debtor-promissor to be freed from the duty to pay
the loan without paying it. Besides, petitioners have no one to blame but themselves for the
cancellation of the Restructuring Agreement. It is significant to point out that when the Regional
Credit Committee reconsidered petitioners’ proposal to restructure the loan, it imposed additional
conditions. In fact, when DBP’s General Santos Branch forwarded the Restructuring Agreement
to the Legal Services Department of DBP in Makati, petitioners were required to pay the amount
of ₱1,300,672.75, plus a daily interest of ₱632.15 starting November 16, 1993 up to the date of
actual payment of the said amount. This, petitioners failed to do. DBP therefore had reason to
cancel the Restructuring Agreement.
2. Since the Restructuring Agreement was cancelled, it could not have novated or
extinguished petitioners’ loan obligation. And in the absence of a perfected Restructuring
Agreement, there was no impediment for DBP to exercise its right to foreclose the
mortgaged properties. The foreclosure sale is not valid.
But while DBP had a right to foreclose the mortgage, we are constrained to nullify the
foreclosure sale due to the bank’s failure to send a notice of foreclosure to petitioners.
We have consistently held that unless the parties stipulate, "personal notice to the
mortgagor in extrajudicial foreclosure proceedings is not necessary" because Section 3 of Act
3135 only requires the posting of the notice of sale in three public places and the publication of
that notice in a newspaper of general circulation.
The Act only requires (1) the posting of notices of sale in three public places, and (2) the
publication of the same in a newspaper of general circulation. Personal notice to the mortgagor is
not necessary. Nevertheless, the parties to the mortgage contract are not precluded from exacting
additional requirements. In this case, petitioner and respondent in entering into a contract of real
estate mortgage, agreed inter alia:
all correspondence relative to this mortgage, including demand letters, summonses, subpoenas,
or notifications of any judicial or extra-judicial action shall be sent to the MORTGAGOR at 40-
42 Aldeguer St. Iloilo City, or at the address that may hereafter be given in writing by the
MORTGAGOR to the MORTGAGEE.
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action
which petitioner might take on the subject property, thus according him the opportunity to
safeguard his rights. When petitioner failed to send the notice of foreclosure sale to respondent,
he committed a contractual breach sufficient to render the foreclosure sale on November 23,
1981 null and void.
In view of foregoing, the CA erred in finding the foreclosure sale valid.

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 3. Respondent bank admitted that the additional interests and penalties being charged
[petitioners] were not based on the stipulations in the Promissory Notes but were imposed
unilaterally as a matter of its internal banking policies. Petitioners, herein never agreed in
writing to pay the additional interest, or the penalties, as fixed by respondent bank; hence
imposition of additional interest and penalties is null and void. Consequently, this case
should be remanded to the RTC for the proper determination of petitioners’ total loan
obligation based on the interest and penalties stipulated in the Promissory Notes.

4. DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in cancelling
the Restructuring Agreement. As we have said, DBP had reason to cancel the
Restructuring Agreement because petitioners failed to pay the amount required by it
when it reconsidered petitioners’ request to restructure the loan.
Likewise, DBP’s failure to send a notice of the foreclosure sale to petitioners and its
imposition of additional interest and penalties do not constitute bad faith. There is no showing
that these contractual breaches were done in bad faith or in a wanton, reckless, or oppressive
manner.
Petition is partly granted. The assailed Decision of the CA is hereby MODIFIED in
accordance with this Decision. The case is hereby REMANDED to the RTC , for the proper
determination of petitioners’ total loan obligations based on the interest and penalties stipulated
in the Promissory Notes dated November 24, 1969 and December 30, 1970. The foreclosure sale
of the mortgaged properties held on July 11, 1994 is DECLARED void ab initio for failure to
comply with paragraph 11 of the Mortgage, without prejudice to the conduct of another
foreclosure sale based on the recomputed amount of the loan obligations, if necessary.

​ ​ ​ ​ ​ ​ ​ ​
DELOS SANTOS VS METROPILITAN BANK AND TRUST COMPANY 684 SCRA 410
(2012)

FACTS
From December 9, 1996 until March 20, 1998, the petitioners took out several loans
totaling P12,000,000.00 from Metrobank, Davao City Branch, the proceeds of which they would
use in constructing a hotel on their 305-square-meter parcel of land located in Davao City and
covered by Transfer Certificate of Title No. I-218079 of the Registry of Deeds of Davao City.
They executed various promissory notes covering the loans, and constituted a mortgage over
their parcel of land to secure the performance of their obligation. The stipulated interest rates
were 15.75% per annum for the long term loans (maturing on December 9, 2006) and 22.204%
per annum for a short term loan of P4,400,000.00 (maturing on March 12, 1999). The interest
rates were fixed for the first year, subject to escalation or de-escalation in certain events without
advance notice to them. The loan agreements further stipulated that the entire amount of the
loans would become due and demandable upon default in the payment of any installment,
interest or other charges. On December 27, 1999, Metrobank sought the extrajudicial foreclosure
of the real estate mortgage after the petitioners defaulted in their installment payments. The
petitioners were notified of the foreclosure and of the forced sale being scheduled on March 7,
2000. The notice of the sale stated that the total amount of the obligation was P16,414,801.36 as

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 of October 26, 1999. On April 4, 2000, prior to the scheduled foreclosure sale (i.e., the original
date of March 7, 2000 having been meanwhile reset to April 6, 2000), the petitioners filed in the
RTC a complaint (later amended) for damages, fixing of interest rate, and application of excess
payments (with prayer for a writ of preliminary injunction). They alleged therein that Metrobank
had no right to foreclose the mortgage because they were not in default of their obligations; that
Metrobank had imposed interest rates (i.e., 15.75% per annum for two long-term loans and
22.204% per annum for the short term loan) on three of their loans that were different from the
rate of 14.75% per annum agreed upon; that Metrobank had increased the interest rates on some
of their loans without any basis by invoking the escalation clause written in the loan agreement;
that they had paid P2,561,557.87 instead of only P1,802,867.00 based on the stipulated interest
rates, resulting in their excess payment of P758,690.87 as interest, which should then be applied
to their accrued obligation; that they had requested the reduction of the escalated interest rates on
several occasions because of its damaging effect on their hotel business, but Metrobank had
denied their request; and that they were not yet in default because the long-term loans would
become due and demandable on December 9, 2006 yet and they had been paying interest on the
short-term loan in advance.

ISSUE
Whether or not injunction may issue pending extrajudicial foreclosure.

RULING
Yes. The Court must find that the petitioners were not entitled to enjoin or prevent the
extrajudicial foreclosure of their mortgage by Metrobank. They were undeniably already in
default of their obligations the performance of which the mortgage had precisely secured. Hence,
Metrobank had the unassailable right to the foreclosure. In contrast, their right to prevent the
foreclosure did not exist. Hence, they could not be validly granted the injunction they sought.
The foreclosure of a mortgage is but a necessary consequence of the non-payment of an
obligation secured by the mortgage.Where the parties have stipulated in their agreement,
mortgage contract and promissory note that the mortgagee is authorized to foreclose the
mortgage upon the mortgagor’s default, the mortgagee has a clear right to the foreclosure in case
of the mortgagor’s default. Thereby, the issuance of a writ of preliminary injunction upon the
application of the mortgagor will beimproper. Mindful that an injunction would be a limitation
upon the freedom of action of Metrobank, the RTC justifiably refused to grant thepetitioners’
application for the writ of preliminary injunction. We underscore that the writ could be granted
only if the RTC was fully satisfied that the law permitted it and the emergency demanded it.
That, needless to state, was not true herein.
The petitioners’ claim of their lack of consent to the escalation clause is unsubstantiated.
They did not adduce evidence to show that they did not assent to the increases in the interest
rates. The records reveal instead that they requested only the reduction of the interest rate or the
restructuring of their loans. Moreover, the mere averment that the excess payments were
sufficient to cover their accrued obligation computed on the basis of the stipulated interest rate
cannot be readily accepted. Their computation, as their memorandum submitted to the RTC
would explain,was too simplistic, for it factored only the principal due but not the accrued
interests and penalty charges that were also stipulated in the loan agreements.
Escalation clauses are valid and do not contravene public policy. These clauses are
common in credit agreements as means of maintaining fiscal stability and retaining the value of
money on long-term contracts. To avoid any resulting one sided situation that escalation clauses
may bring, we required in Banco Filipino the inclusion in the parties’ agreement of a de-
escalation clause that would authorize a reduction in the interest rates corresponding to
downward changes made by law or by the Monetary Board.
The validity of escalation clauses notwithstanding, we cautioned that these clauses do not
give creditors the unbridled right to adjust interest rates unilaterally. As we said in the same
Banco Filipino case, any increase in the rate of interest made pursuant to an escalation clause
must be the result of an agreement between the parties. The minds of all the parties must meet on
the proposed modification as this modification affects an important aspect of the agreement.
There can be no contract in the true sense in the absence of the element of an agreement, i.e., the
parties’ mutual consent. Thus, any change must be mutually agreed upon, otherwise, the change

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 carries no binding effect. A stipulation on the validity or compliance with the contract that is left
solely to the will of one of the parties is void; the stipulation goes against the principle of
mutuality of contract under Article 1308 of the Civil Code.
As with all equitable remedies, injunction must be issued only at the instance of a party
who possesses sufficient interest in or title to the right or the property sought to be protected. It is
proper only when the applicant appears to be entitled to the relief demanded in the complaint,
which must aver the existence of the right and the violation of the right, or whose averments
must in the minimum constitute a prima facie showing of a right to the final relief sought.
Accordingly, the conditions for the issuance of the injunctive writ are: (a) that the right to be
protected exists prima facie; (b) that the act sought to be enjoined is violative of that right; and
(c) that there is an urgent and paramount necessity for the writ to prevent serious damage. An
injunction will not issue to protect a right not in esse, or a right which is merely contingent and
may never arise; or to restrain an act which does not give rise to a cause of action; or to prevent
the perpetration of an act prohibited by statute. Indeed, a right, to be protected by injunction,
means a right clearly founded on or granted by law or is enforceable as a matter of law.

UNITED COCONUT PLANTERS BANK VS SPOUSES BELUSO

530 SCRA 567 (2007)

FACTS
On April 1997, spouses Beluso constituted other than promissory notes, a real estate
mortgage over parcels of land. 3 of their promissory notes were renewed several times.
Subsequently, spouses failed to deliver payment upon UPCB’s demand. As a result, their
mortgage was foreclosed. Spouses filed Petition for Annulment, Accounting and Damages
against UCPB. Trial court ruled in favor of the spouses. CA affirmed the same decision.

ISSUE
Whether the contract between the spouses Beluso and UPCB is valid.

RULING
No. Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.
The provision stating that the interest shall be at the “rate indicative of DBD retail rate or
as determined by the Branch Head” is indeed dependent solely on the will of petitioner UCPB.
Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a
rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB
is given this choice, the rate should be categorically determinable in both choices. If either of
these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily
choose such an option, thus making the entire interest rate provision violative of the principle of
mutuality of contracts.

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 HI- CEMENT CORPORATION VS INSULAR BANK OF ASIA AND AMERICA
534 SRA 269 (2007)

FACTS
Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry
& Co., Inc. (E.T. Henry), a company engaged in the business of processing and distributing
bunker fuel. E.T. Henry's customers were Hi-Cement Corporation (Hi-Cement),Riverside Mills
Corporation (Riverside) and Kanebo Cosmetics Philippines, Inc. (Kanebo) who issued postdated
checks for their purchases. Sometime in 1979: Insular Bank of Asia and America (turned PCIB
then Equitable PCI-Bank) granted E.T. Henry a credit facility known as “Purchase of Short Term
Receivables.” (re-discounting arrangement) Through this, E.T. Henry was able to encash, with
pre-deducted interest, the postdated checks of its clients.For every transaction, E.T. Henry had to
execute a promissory note and a deed of assignment. In 1979-1981: E.T. Henry was able to re-
discount its clients' checks. February 1981: 20 checks of Hi-Cement (which were crossed and
which bore the restriction “deposit to payee’s account only”) were dishonored. So were the
checks of Riverside and Kanebo.Bank filed a complaint for sum of money in CFI against E.T.
Henry, the spouses Tan, Hi-Cement (including its general manager and its treasurer as signatories
of the postdated crossed checks), Riverside and Kanebo. CA Affirmed RTC: Ordering E.T.
Henry, spouses Tan, Hi-Cement, Riverside and Kanebo, jointly and severally, to pay bank
damages represented by the face value of the postdated checks plus interests, services, charges
and penalties until fully paid

Hi-Cement authorized its general manager and treasurer to issue the subject postdated
crossed checks. Hi-Cement was already estopped from denying such authority since it never
objected to the signatories' issuance of all previous checks to E.T. Henry.

ISSUE
Whether the bank was a holder in due course
Whether Hi-Cement can still be made liable for the checks
RULING
The CA AFFIRMED with MODIFICATION remanded to RTC for recomputation
The Bank was all too aware that subject checks were crossed and bore restrictions that
they were for deposit to payee's account only; hence, they could not be further negotiated to it.
The irregularity evidenced is that only the treasurer's signature appeared on the deed of
assignment. As a banking institution, it behooved respondent to act with extraordinary diligence
in every transaction. Its business is impressed with public interest, thus, it was not expected to be
careless and negligent, specially so where the checks it dealt with were crossed.It is then settled
that crossing of checks should put the holder on inquiry and upon him devolves the duty to
ascertain the indorser’s title to the check or the nature of his possession. - failure: guilty of gross
negligence amounting to legal absence of good faith
The drawer of the postdated crossed checks was not liable to the holder who was deemed
not a holder in due course. May recover from the party who indorsed/encashed the checks “if the
latter has no valid excuse for refusing payment - E.T. Henry had no justification to refuse
payment, it should pay.

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 BPI FAMILY SAVINGS BANK, INC. VS VDA. DE COSCULLUELA
493 SCRA 472 (2006)

FACTS
​Respondent and her late husband, Oscar, obtained an agricultural sugar crop loan from far
East Bankand Trust Co. (later on merged with BPI) for crop years 1997 and 1998. In the book of
Far East, the loan account was treated as a single account, and evidenced by 67 promissory
notes. Spouses Coscolluela executed a real estate mortgage in favor of FEBTC over their parcel
of land as security of loans on credit accommodation obtained and those that may be obtained.
Under the terms and conditions of the real estate mortgage, in the event of failure to pay the
mortgage obligation or any portion thereof, the entire principal, interest, penalties, and other
charges shall be immediately due; and Far East may foreclose the same extra judicially.
​For failure to settle outstanding obligation on the maturity dates, Far East sent a final
demand letter to respondent demanding payment, respondent failed to settle their obligation, Far
East filed a petition for the extrajudicial foreclosure of the mortgaged property but only for the
31 promissory notes. During the pendency of the case, Far East filed a complaint for collection
of money for the 36 promissory notes. Respondent alleged that the complaint was barred by litis
pendentia for the pending petition for the extrajudicial foreclosure of the real estate mortgage.
​The trial court denied the demurrer filed by the respondent stating that each promissory
note covered a loan distinct from the others. The respondent filed a Motion for Reconsideration
which was denied, hence the case at bar.

ISSUE
​Whether collection suit should be dismissed.
RULING
​Section 3, Rule 2 of the 1997 Rules of Civil Procedure provides that a party may institute
one suit for a single cause of action, and if two or more suits are instituted on the basis of the
same cause of action, the filling of one on a judgement upon the merits in any one is available as
a ground for the dismissal of others. The law does not permit the owner of a single of entire
cause of action or an entire or indivisible demand to divide and split the cause of action.
​As gleaned from the plain terms of the REM, the real estate of respondent served as a
continuing security liable for obligations already obtained and obligations obtained thereafter. In
this case, the action of petitioner is anchored on one and the same cause: the non-payment of
respondent. Though the debt may be covered by several promissory notes and is covered by a
real estate mortgage, the latter is subsidiary to the former and both refer to one and the same
obligation. A mortgage creditor may institute two alternative remedies against the debtor, either
to collect or to foreclose the mortgage, but not both.

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 FLORESCA VS. LINDO JR. 648 SCRA 772

FACTS

On October 1995, Edna Lindo obtained a loan amounting to P400k from Arturo Flores.
To secure the loan, Edna executed a deed of real estate mortgage on a property which is
however part of the conjugal property (it was both in her name and her husband’s name
Enrico Lindo). Only Edna signed the deed but on November 1995, Enrico executed a special
power of attorney authorizing Edna to mortgage the property.

Edna was not able to pay the loan despite repeated demands from Flores. Flores then
filed an action to foreclose the mortgage.

The trial court (RTC Manila, Branch 33) ruled that the action for foreclosure cannot
prosper because it appears that there was no valid mortgage between Edna and Flores. Edna
mortgaged the property without the consent of her husband and the special power of attorney
executed by Enrico a month after the execution of the deed did not cure the defect. The trial
court however ruled that Flores can instead file a personal action (collection suit) against
Edna.

Eventually, Flores filed a suit for collection of sum of money against Edna and Enrico.
The Lindo spouses filed a motion to dismiss on the ground of res judicata. The trial court
denied the motion. The spouses then filed a petition for certiorari with the Court of Appeals.

The CA ruled in favor of the spouses. It ruled that when Flores filed an action for the
foreclosure of the mortgage, he had abandoned the remedy of filing a personal action to
collect the indebtedness. These remedies are mutually exclusive.

ISSUE

Whether or not the Court of Appeals is correct.

RULING

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 No, the CA is not correct.

It is true that as a rule, a mortgagee-creditor has a single cause of action against a

mortgagor-debtor, that is, to recover the debt; and that he has the option of either filing a
personal action for collection of sum of money or instituting a real action to foreclose on the
mortgage security. These remedies are indeed mutually exclusive. However, in this case, the
Supreme Court made a pro hac vice decision (applicable only to this case and as an exception
to the rule) which allows Flores to recover via a personal action despite his prior filing of a
real action to recover the indebtedness. This procedural rule cannot be outweighed by the rule
on unjust enrichment. Here, Edna admitted her liability of indebtedness.
Further, the ruling of the Manila RTC Branch 33 is erroneous when it ruled that the
mortgage between Edna and Flores is invalid. It is true that a disposition (or in this case a
mortgage, which is an act of strict dominion) of a conjugal property by one spouse without the
consent of the other spouse is void. However, under the second paragraph of Article 124 of
the Family Code:
“Art. 124. The administration and enjoyment of the conjugal partnership property
shall belong to both spouses jointly. In case of disagreement, the husband’s decision
shall prevail, subject to recourse to the court by the wife for proper remedy, which must
be availed of within five years from the date of contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in
the administration of the conjugal properties, the other spouse may assume sole powers
of administration. These powers do not include disposition or encumbrance without
authority of the court or the written consent of the other spouse. In the absence of such
authority or consent the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court before the offer is
withdrawn by either or both offerors.”

Thus it is clear, the mortgage was void at the outset but it was ratified when a month
later, Enrico executed a special power of attorney authorizing Edna to mortgage the subject
property.

MAGLAQUE VS. PLANTERS DEVELOPMENT BANK 307 SCRA 156 (1999)

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 FACTS
The spouses Egmidio Maglaque and Sabina Payawal were the owners of a parcel of
land, situated in the municipality of San Miguel, province of Bulacan, with an area of Four
Hundred Sixty Four (464) square meters, more or less, and a residential house of strong
materials erected thereon.The said parcel of land was covered by TCT No. 28303 issued by
the Register of Deeds of Bulacan.
On March 19, 1974, the spouses Maglaque obtained a loan of two thousand
[6]
(P2,000.00) pesos from the Bulacan Development Bank evidenced by a promissory note,
payable on or before March 19, 1975, in two installments, the first payment of P1,000.00,
shall be due on September 19, 1974, and the second payment of P1,000.00, shall be due on
March 19, 1975, with interest at 12% per annum. To secure the loan, the spouses executed a
deed of real estate mortgage on the above-described parcel of land, including its
improvements.The borrowers failed to pay any of the payment agreed upon in the promissory
note and the real estate mortgage due to the untimely death of Sabina Payawal. On December
22, 1977, Egmidio Maglaque paid Planters Development Bank the amount of P2,000.00,
which the bank accepted.
On September 15, 1978, for non-payment in full of the loan, the bank extra-judicially
foreclosed on the real estate mortgage, through the Provincial Sheriff of Bulacan, who
conducted a public auction sale of the mortgaged property pursuant to the authority provided
for in the deed of real restate mortgage. The bank was the highest bidder.The one year period
allowed by law within which the delinquent borrowers should have exercised their right to
redeem expired without any redemption by them. Consequently, on March 24, 1980 the bank
consolidated its title on the property and became the registered owner of said property under
TCT No. T-259923 issued by the Register of Deeds of Bulacan on March 24, 1980.
On September 24, 1980, the bank sold the property to the spouses Angel S. Beltran and
Erlinda C. Beltran, for thirty thousand (P30,000.00) pesos.The Register of Deeds wrote a
letter dated September 8, 1980, informing the bank about a notice of lis pendens. However,
the records of the bank show that the letter was received only on November 19, 1981. On
March 16, 1984, Spouses Angel Beltran and Erlinda Beltran registered an adverse claim on
the property.
On February 28, 1989, the trial court rendered decision dismissing the complaint for lack
of merit or insufficiency of evidence. On March 27, 1989, plaintiffs appealed the case to the
Court of Appeals. After due proceedings, on March 26, 1993, the Court of Appeals rendered
decision affirming the appealed decision.

ISSUE
Whether or not the Honorable Court of Appeals erred in not finding that the Bank
should have filed its claim in the settlement of estate of the deceased mortgagors.

RULING
No, the CA did not erred in not finding that the Bank should have filed its claim in the
settlement of estate of the deceased mortgagors.
The rule is that a secured creditor holding a real estate mortgage has three (3) options in
case of death of the debtor. These are:
(l) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
(3) to rely on the mortgage exclusively, foreclosing the same at anytime before it is barred by
prescription, without right to file a claim for any deficiency.
In the case at bar, the respondent bank availed itself of the third option because the bank

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 extra-judicially foreclosed on the real estate mortgage, through the Provincial Sheriff of
Bulacan, in accordance with the specific authority provided for in the Deed of Real Estate
Mortgage as authorized by law. The formalities provided for by law were duly observed by
the defendant bank.

PHIL VETERANS BANK VS. MONILLAS 550 SCRA 252 (2008)

FACTS
Respondent, Benjamin Monillas executed a deed of sale of his share over the property
to his brother, Ireneo. Ireneo then caused the transfer of the title in his name. Ireneo
mortgaged twenty-two (22) lots to petitioner Philippine Veterans Bank (PVB). Benjamin
Monillas filed for the nullification of the deed of sale and for the recovery of the property,
which the RTC decided on his favor; hence, he filed for the declaration of the nullity of the
titles issued in PVB’s name. He caused the annotation of notices of lis pendens relating to the
said case on the titles of the lots. While the case remained pending, PVB foreclosed the
[5]
mortgage on June 2, 1984. In the foreclosure sale, petitioner was the highest bidder.

On September 29, 1988, the RTC ruled against PVB. The RTC rationalized that while
the annotation of the notices of lis pedens succeeded the registration of the mortgage, still the
effect of the notices was that PVB acquired knowledge of an impediment against its interest,
and as a matter of fact, PVB ignored the notices and slept on its rights, as it did not intervene
in the said civil case.

ISSUE

Whether or not the prior registered mortgage and the already concluded foreclosure
proceedings should prevail over the subsequent annotation of the notices of lis pendens on the
lot titles.

RULING

Yes, the prior registration of mortgage shall prevail over the belated annotation of a lis

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 pendens.

Prior registered mortgage of PVB and the foreclosure proceedings already conducted
prevail over Benjamin Monilla’s subsequent annotation of a lien creates a preference; hence,
the subsequent annotation of an adverse claim cannot defeat the rights of the mortgagee, or
the purchaser at the auction sale whose rights were derived from a prior mortgage validly
registered. A contrary rule will make a prior registration of a mortgage or any line nugatory or
meaningless.

ST. DOMINIC CORP. V. INTERMEDIATE APPELLATE COURT, G.R. NO. 70623 JUNE
30, 1987

FACTS

In 1961, the Peoples Homesite and Housing Corporation (PHHC) awarded a parcel of
land to Cristobal Santiago, who sold the same to the spouses Carlos Robes and Adelia Francisco.
The spouses Robes mortgaged the lot to Manufacturers Bank and Trust Company, and this fact
was duly annotated on the back of the TCT. Thereafter, Civil Case No. Q-11895, entitled
Ricardo Castulo and Juan V. Ebreo v. Carlos Robes, Adelia Francisco, and Peoples Homesite and
Housing Corporation, was filed seeking the cancellation of the title. Claiming legal interest in the
property, the Bustamante spouses were allowed to intervene in the case. A notice of lis pendens
was annotated on the title at the instance of the Bustamante spouses. For failure of the Robes
spouses to pay the mortgage obligation, Manufacturers Bank foreclosed the lot which was then
bought at public auction by Aurora Francisco, who was subsequently issued a certificate of sale.
As no redemption of the property was effected, TCT was issued in the name of the Robes
spouses was cancelled and a new TCT was issued to the buyer Aurora Francisco. The notice of
lis pendens was not carried over to the new TCT.

Aurora Francisco applied for, and was issued, a writ of possession for the property. The
Bustamante spouses filed a motion to quash the writ, which motion was denied by the lower
court. The spouses then filed a petition for certiorari with the Supreme Court. Thereafter, Aurora
Francisco sold the property to petitioner St. Dominic Corp, which was a TCT Again, no notice of
any lien or encumbrance appeared on the title.

Meanwhile, Civil Case No. Q-11895 was decided. RTC ruled that the sale by PHHC to
Cristobal Santiago was void and cancelled TCT. The sale of the same lot to the spouses Robes
was likewise declared void and TCT was cancelled. PHHC was ordered to process Bustamantes
application to purchase the lot and execute documents awarding the lot to her. A writ of
execution was issued to the Bustamante spouses, with the qualification, however, that the writ
could not be enforced against St. Dominic Corp. The spouses questioned the order via certiorari
with the Intermediate Appellate Court, which granted the writ of certiorari and ordered the trial
court to issue the writ of execution against St. Dominic Corp.

On appeal, this Court reversed the ruling of the Intermediate Appellate Court and held
that St. Dominic Corp. was not bound by the decision in that case because it was never
impleaded in Civil Case No. Q-11895. Anent the effect of the trial courts judgment on

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 Manufacturers Banks (mortgagee bank) rights and on the foreclosure of the property in question,
it was held that the invalidation of the title issued as a result of regular land registration
proceedings in the name of the mortgagor when given as a security for a loan would not nullify
the rights of a mortgagee who acted in good faith. The mortgagee is under no obligation to look
beyond the certificate of title and has the right to rely on what appears on its face.

ISSUE

Whether or not the writ of execution can be invoked against St. Dominic Corp.

RULING

YES.

Subsequent declaration as null and void of a Torrens title

issued as a result of regular land registration proceedings in the
name of the mortgagor when given as a security for a loan will
not nullify mortgagee’s rights who acted in good faith;
mortgagee is under no obligation to look beyond the certificate
of title and has the right to rely on what appears on its face.

The title to the property given as security to Manufacturers Bank by the spouses was
valid, regular, and free from any lien or encumbrance. The title of Aurora Francisco, as a
purchaser at the public auction sale of the property in question, could not be affected by any
adverse claim as the plaintiffs in the civil case. This is even more true with petitioner St.
Dominic Corp. which had acquired title from Francisco without any notice or flaw.

In the case of St. Dominic, when the property in question was mortgaged to
Manufacturers Bank, the title showed that it was valid, regular, and free from any lien or
encumbrance. When it was later foreclosed and sold at public auction and a new transfer
certificate of title was issued to the buyer, the notice of lis pendens was not carried over to the
new title. And, when the property was sold to petitioner St. Dominic Corp., which was again
issued TCT No. 22337, no notice of any lien or encumbrance appeared on the title. These factual
circumstances led the Court to conclude that the mortgagee bank and its subsequent transferrees
had acted in good faith

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 THE MALAYAN BANK VS.AGUSTIN LAGRAMA, G.R. NO. 144884 APRIL 27, 2001

FACTS

Demetrio Llego, one of the defendants, inherited from his father a portion of a parcel of
land situated in Mayao, Lucena City. This portion was part of a bigger parcel of land, the other
portions of which, in turn, were inherited by Llegos mother and siblings. The heirs undertook the
apportionment of the inherited parcel of land informally, without executing a written
extrajudicial partition thereof. As a result, title to the property remained in the name of Llegos
father. Llego then, sold to his uncle In installments, herein private respondent Agustin Lagrama,
and his aunt Paz Abastillas his share in the inherited parcel of land but did not execute a deed of
sale because the title was still in his father’s name but promised that as soon as the title was
transferred in his name, he would immediately execute a deed of absolute sale in favor of the
buyers, to which they agreed. Notwithstanding the absence of a deed of sale respondents entered
into and took possession of the portion of land sold to them by Llego. Lagrama and Abastillas
paid the balance of the purchase price of the lot sold to them. Llego and his co-heirs
extrajudicially partitioned the property left by their father. A new title was issued to Llego for his
share, i.e., the portion of the land he had previously sold to private respondent Lagrama.
But Llego, , mortgaged the land to the Republic Planters Bank for P45,000.00. As Llego failed to
pay his indebtedness to petitioner bank, the mortgage was foreclosed and the property was sold
to the bank as the highest bidder. It appears that Llego likewise failed to redeem the property.
Private respondents aggravated, filed a case of specific performance to compel Llego to execute
the DOAS, also impleaded Tan (atty in fact) and the petitioner bank.

​RTC ruled in favor of respondents. Petitioner bank appealed but was denied. However,
another issue arose when the writ of execution was not executed because the title was already
consolidated due to Llego’s failure to pay and redeem the property. Hence, Respondents asked
the court that Petitioner bank be the one to execute the title in their favor. Petitioner bank was
impleaded in the case

ISSUE

Whether or not petitioner bank may be compelled to execute a deed of reconveyance

transferring the parcel of land mortgaged to petitioner in favor of private respondents.

RULING

YES.

First, procedural matter. Petitioner bank is bound to the decision of the lower court
because it was properly impleaded. Although the bank filed an appeal, the decision became final
and executory because of the bank’s failure to file the brief on time.

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 Second. Petitioner bank was a transferee pendente lite whose title was subject to the
incidents and results of the pending litigation. Petitioner bank’s contention that it constituted the
mortgage more than a year before the private respondents action for specific performance was
filed and the fact that the foreclosure and public auction sale took place after the institution of the
case is immaterial since the foreclosure sale retroacts to the date of the constitution of the
mortgage. Petitioner cannot argue that it was a purchaser for value long before the filing of the
case and, therefore, it cannot be considered a transferee pendente lite because it acquired the
property only after the filing of private respondents case for specific performance. When the
mortgage was constituted, petitioner was not yet, properly speaking, a transferee, being a mere
mortgagee of the property. Only when petitioner acquired the property in the foreclosure sale and
subsequently consolidated its title did it become the transferee of the property.

Thus, petitioner bank is a transferee pendente lite of the property in litigation within the
contemplation of Rule 39, 47(b). As such, it is bound by the decision against Demetrio Llego.

Third. Petitioner insists that it is not a transferee pendente lite because it was a purchaser
for value long before the case for specific performance was filed. The contention is without
merit. Even if it is not a transferee pendente lite, petitioner nevertheless cannot claim a right
superior to that of private respondents because petitioner acted in bad faith when it foreclosed
and acquired the property. As CA pointed out, petitioner was aware of the charge of fraud against
Demetrio Llego in mortgaging the property to it despite the previous sale thereof to private
respondent Agustin Lagrama. The trial court found the existence of fraud in the transaction and
declared private respondents to be the absolute owners of the property. As already stated, this
decision of the trial court is now final and is binding on petitioner bank. In the meantime, the
bank consolidated its title over the property. Since the bank acquired the land in question with
knowledge of the fraud committed by Llego, it cannot claim to be a purchaser in good faith and,
therefore, to have a better right than its predecessor-in-interest.

JOSE DIZON VS. ALFREDO GABORRO, G.R. NO. L-36821 JUNE, 1978

FACTS

Petitioner, Jose P. Dizon, was the owner of the three parcels of land, situated in
Mabalacat, Pampanga. He constituted a first mortgage to DBP to secure a loan of P38,000.00 and
a second mortgage to PNB amounting P93,831.91.

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 Petitioner defaulted in the payment of his debt, therefore, the Development Bank of the
Philippines foreclosed the mortgage extrajudicially. Gaborro became interested in the lands of
Dizon. But since the property was already foreclosed by the DPB. They then entered into a
contract captioned as “Deed of sale with assumption of mortgage” and the second contract
executed the same day, is called “Option to Purchase Real Estate” After the execution of said
contracts, Alfredo G. Gaborro took possession of the three parcels of land.

After the execution of the contract and its conditions to him, Gaborro made several
payments to the DBP and PNB. He improved, cultivated the kinds raised sugarcane and other
crops produce.

Jose P. Dizon through his lawyer, wrote a letter to Gaborro informing him that he is
formally offering reimburse Gaborro of what he paid to the banks. Gaborro did not agreed to the
demands of the petitioner, hence, Jose P. Dizon instituted a complaint in the Court of First
Instance of Pampanga, alleging that the documents Deed of Sale With Assumption of Mortgage
and the Option to Purchase Real Estate did not express the true intention and agreement between
the parties. Petitioner, contended that the two deeds constitute in fact a single transaction that
their real agreement was not an absolute sale of the land but merely an equitable mortgage or
conveyance by way of security for the reimbursement or refund by Dizon to Gaborro of any and
all sums which the latter may have paid on account of the mortgage debts in favor of the DBP
and the PNB.

ISSUE

Whether or not the contract showed the true agreement between the parties.

RULING

NO.

The court held that the true agreement between the plaintiff and defendant is that the
defendant would assume and pay the indebtedness of the plaintiff to DBP and PNB, and in
consideration therefore, the defendant was given the possession and enjoyment of the properties
in question until the plaintiff shall have reimbursed to defendant fully the amount of P131,831.91
plus 8% interest per annum from October 6, 1959 until full payment, said right to be exercised
within one year from the date the judgment becomes final, if he fails to do so within the said
period, then he is deemed to have lost his right over the lands forever.

SERRA VS. RODRIGUEZ, ET AL., G.R. NO. L-25546 APRIL 22, 1974
This is an appeal by certiorari praying for the nullification of the order of respondent Judge
Rodriguez.

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 FACTS
On September 13, 1965, private respondents-spouses Manuel Loring Jr. and Milagros L.
Loring filed a complaint for the recovery of P101,000.00 against spouses Enrique Ordoñez and
Maria Ordoñez based on a promissory note. Upon motion of said private respondents-spouses as
plaintiffs in said civil case, a writ of preliminary attachment was issued and a notice of levy of
said attachment was registered covering the residential lot and house of strong materials thereon
of the Ordoñez spouses-debtors. Because the value of the debtors' real estate levied upon was
insufficient to satisfy the claim, their personal properties consisting of pieces of furniture,
chandeliers, silverware, electrical appliances, etc., were also attached.
On September 30, 1965, debtor Maria Ordoñez, without the prior consent of or authority
from her husband, Enrique, executed a deed of chattel mortgage over the aforementioned
personal properties in favor of herein petitioner Eva Serra allegedly as security for a loan of
P20,000.00 which was duly registered. By virtue of said chattel mortgage, 1 month and 2 days
from its execution, petitioner Serra filed a third-party claim over the attached personal assets
alleging that the aforementioned enlisted properties are valued no less than P35,000.00. By virtue
of the said third-party claim, the respondent provincial sheriff accordingly informed the Loring
spouses and required them to file a bond in the amount of P22,000.00 within three days from
receipt, otherwise, he will be obliged to turn over the personal properties to the third-party
claimant, Serra. Private respondents-spouses Loring moved for the disapproval of the third-party
claim of Serra as it was improper and invalid on the ground that Serra has neither title to the
personal assets of the debtors nor right of possession.

ISSUES
1. Whether or not petitioner, as a chattel mortgagee, is entitled to the property levied upon by
a writ of attachment.
2. Whether or not the remedy of appeal or certiorari is proper in petitioner’s case.

RULING
Petition denied and the order of the lower Court affirmed.
1. No. Under Sec 14 of Rule 57 of the Revised Rules of Court, a third-party claimant to a
property levied upon by a writ of attachment must show that he has title thereto or right
to the possession thereof. This excludes a chattel mortgagee because a chattel mortgage is
merely a security for a loan and does not transfer title of the property mortgaged to the
chattel mortgagee. Neither is a chattel mortgagee entitled to the possession of the
property upon the execution of the chattel mortgage for otherwise the contract becomes a
pledge and ceases to be a chattel mortgage. The old view that a chattel mortgage is a
conditional sale and therefore transfers immediately the title to the chattel mortgagee who
may thus properly file a third-party claim to a property subject matter of attachment has
been expressly repudiated by Art 2140 of the NCC:
ART. 2140. By chattel mortgage, personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation. If the
movable, instead of being recorded, is delivered to the creditor or a third person,
the contract is a pledge and not a chattel mortgage.
The change was deliberate according to the Code Commission, which categorically stated
that the definition of the chattel mortgage even in the Chattel Mortgage Law is inaccurate for it
considers a chattel mortgage as a conditional sale.
2. No. From the denial of a third-party claim to defeat the attachment caused to be levied by a
creditor, neither an appeal nor a petition by certiorari is the proper remedy. The remedy
of petitioner would be to file a separate and independent action to determine the
ownership of the attached property, or to file a complaint for damages chargeable against
the bond filed by the judgment creditor in favor of the provincial sheriff, or to file a
motion for intervention.
Moreover, in view of the provisions of the NCC, the chattel mortgage executed alone by the

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 wife, Maria, is of doubtful validity since only the husband, as administrator of the conjugal assets
has the power to dispose of the same for the benefit of the family. The wife,generally, cannot
bind the conjugal partnership without the husband's consent. There is no showing that the
consent of the husband was obtained for the wife to execute the chattel mortgage or that the wife
was granted special authority by the husband embodied in a public instrument to administer the
conjugal assets.Furthermore, the chattel mortgage may be rescinded on the ground that it refers
to things under litigation and entered into by the defendant debtor "without the knowledge and
approval of the litigants or of competent judicial authority" or that the same was executed "in
fraud of creditors when the latter cannot in any other manner collect the claim from them." The
personal assets were levied by virtue of the writ of preliminary attachment on Sept 14; while the
chattel mortgage was executed on Sept 30 and registered only on Oct 1. The execution of said
chattel mortgage was without the knowledge and approval of the private respondents-creditors
much less the court, which makes it rescissible under Art 1381 of the NCC. It may likewise be
rescinded as a fraudulent scheme to defeat the right of herein private respondents creditors if it is
shown that the creditor has no other remedy to completely recover his claim, or because it is
presumed to be fraudulent as the personal assets mortgaged had been levied upon under a writ of
attachment 16 days prior to the execution of the chattel mortgage.

FILIPINAS MABLE CORPORATION vs. THE HONORABLE INTERMEDIATE

APPELLATE COURT, et al. G.R. No. L-68010 May 30, 1986
This petition for review seeks to annul the decision of the appellate court which upheld the trial
court's decision denying the petitioner's prayer to enjoin the respondent from foreclosing on its
properties.
FACTS

Filipinas Marble Corporation (FMC) applied for a loan in the amount of $5 million with
respondent Development Bank of the Philippines (DBP) in its desire to develop the full
potentials of its mining claims and deposits. DBP granted the loan, however, subject to 60
onerous conditions, among which is the management agreement that the affairs of the petitioner
were placed under the complete control of DBP and Bancom including the disposition and
disbursement of the said loan.

Petitioner seeks the annulment of the deeds of mortgage and deed of assignment which it
executed in favor of DBP in order to secure the loan as it alleges that the DBP and Bancom
mismanaged and misspent the loan and instead of helping petitioner get back on its feet, DBP
completely abandoned the petitioner’s project and proceeded to foreclose the properties
mortgaged to it by petitioner without previous demand or notice.

Respondent DBP opposed the issuance of a writ of preliminary injunction stating that
under PD 385, DBP’s right to foreclose is mandatory as FMC’s arrearages had already reached at
least 20% of its total obligations; that under the same decree, no court can issue any restraining
order or injunction against it to stop the foreclosure.

The trial court decided in favor of respondents and against FMC. The appellate court
upheld said decision. Hence this petition for review.

ISSUES

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 1. Whether or not P.D. 385 will apply in this case.

2. Whether or not the chattel mortgage is valid.

RULING

The Court ruled in favor of petitioners and set aside the decisions of the lower courts.

1. Sections 1 and 2 of P.D. No. 385 respectively provide:

Sec 1. It shall be mandatory for government financial institutions after the lapse of 60
days from the issuance of this Decree, to foreclose the collaterals and/or securities for any
loan, credit accommodation, and/or guarantees granted by them whenever the arrearages on
such account, including accrued interest and other charges, amount to at least 20% of the
total outstanding obligations, including interest and other charges, as appearing in the book
of accounts and/or related records of the financial institution concerned. This shall be without
prejudice to the exercise by the government financial institution of such rights and/or
remedies available to them under their respective contracts with their debtors, including the
right to foreclose on loans, credits, accommodations, and/or guarantees on which the
arrearages are less than 20%.

Sec 2. No restraining order, temporary or permanent injunction shall be issued by the

court against any government financial institution in any action taken by such institution in
compliance with the mandatory foreclosure provided in Section 1 hereof, whether such
restraining order, temporary or permanent injunction is sought by the borrower(s) or any
third party or parties, except after due hearing in which it is established by the borrower, and
admitted by the government financial institution concerned that 20% of the outstanding
arrearages has been paid after the filing of foreclosure proceedings.

PD No. 385 was issued primarily to see to it that government financial institutions are not
denied substantial cash inflows, which are necessary to finance development projects all over the
country, by large borrowers who, when they become delinquent, resort to court actions in order
to prevent or delay the government’s collection of their debts and loans.

The government, however, is bound by basic principles of fairness and decency under the
due process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of
government lending institutions who take over the management of a borrower corporation, lead
that corporation to bankruptcy through mismanagement or misappropriation of its funds, and
who, after ruining it, use the mandatory provisions of the decree to avoid the consequences of
their misdeeds.

The designated officers of the government financing institution cannot simply walk away and
then state that since the loans were obtained in the corporation’s name, then P.D. 385 must be
peremptorily applied and that there is no way the borrower corporation can prevent the automatic
foreclosure of the mortgage on its properties once the arrearages reach 20% of the total
obligation no matter who was responsible.

It cannot yet be concluded respondents DBP and Bancom actually misappropriated and
misspent the $5 million loan in whole or in part although the trial court found that there is
“persuasive” evidence that such acts were committed by the respondent. This matter should
rightfully be litigated below in the main action. Only after trial on the merits of the main case can

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 the true amount of the loan which was applied wisely or not, for the benefit of the petitioner be
determined. Consequently, the extent of the loan where there was no failure of consideration and
which may be properly satisfied by foreclosure proceedings under P.D. 385 will have to await the
presentation of evidence in a trial on the merits.

2. As regards the second issue, the Court agreed with petitioner that a mortgage is a mere
accessory contract and, thus, its validity would depend on the validity of the loan secured
by it. But it rejected the petitioner’s argument that since the chattel mortgage involved
was not registered, the same is null and void. Art 2125 of the Civil Code clearly provides
that the non-registration of the mortgage does not affect the immediate parties. It states:

Art. 2125. In addition to the requisites stated in article 2085, it is indispensable, in

order that a mortgage may be validly constituted that the document in which it
appears be recorded in the Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the parties.

SERVICEWIDE SPECIALISTS, INC., vs. INTERMEDIATE APPELLATE COURT, et

al., G.R. No. 74553 June 8, 1989
This is a petition for review on certiorari of a decision of the Intermediate Appellate Court (now
Court of Appeals) affirming the decision of the RTC.
FACTS
Private respondentGalicano Siton purchased from Car Traders Philippines, Inc. (CTPI) a
vehicle and paid a downpayment of the price. The remaining balance includes not only the
remaining principal obligation but also advance interests and premiums for motor vehicle
insurance policies. Siton executed a promissory note in favor of Car Traders Philippines, Inc.
expressly stipulating that the face value of the note shall “be payable, without need of notice of
demand, in instalments.” There are additional stipulations in the Promissory Note consisting of,
among others, that if default is made in the payment of any of the installments or interest
thereon, the total principal sum then remaining unpaid, together with accrued interest thereon
shall at once become due and demandable.
As further security, Siton executed a Chattel Mortgage over the subject motor vehicle in
favor of CTPI. The credit covered by the promissory note and chattel mortgage executed by
Siton was first assigned by CTPI in favor of Filinvest Credit Corporation. Subsequently,
Filinvest likewise reassigned said credit in favor of petitioner Servicewide Specialists, Inc. Siton
was advised of this second assignment. When Siton failed to pay, Servicewide Specialists filed
this action against Galicano Siton and Justiniano de Dumo.

Inasmuch as he is in possession of the subject vehicle, de Dumo alleged that he has

bought the motor vehicle from Siton; that he and Siton went to a certain. Atty. Villa of Filinvest
advising the latter of the intended sale and transfer. Siton and de Dumo were accordingly advised
that the verbal information given to the corporation would suffice, and that it would be tedious
and impractical to effect a change of transfer of ownership as that would require a new credit
investigation as to the capacity and worthiness of de Dumo, being the new debtor. The further

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 suggestion given by Atty. Villa is that the account should be maintained in the name of Siton.De
Dumo also alleged that as such successor, he stepped into the rights and obligations of the seller;
that he has religiously paid the installments as stipulated upon in the promissory note.

The RTC denied the issuance of a Writ of Replevin and ordered defendants to pay. Not
satisfied with the decision of the trial court, the petitioner appealed to the Intermediate Appellate
Court. Respondent Appellate Court affirmed in toto the decision of the trial court. Hence, this
instant petition.

ISSUES

1. Whether or not the sale of the mortgaged vehicle between Siton and De Dumo was valid;
2. Whether or not petitioner and its predecessors are bound by such sale, even as neither
petitioner nor its predecessors had knowledge nor had they given their written or verbal
consent thereto;
3. Whether or not the non-issuance of a Writ of Replevin is proper;
4. Whether or not petitioner has the obligation to make demands to De Dumo for payment
on the Promissory Note when De Dumo is not privy thereto;

RULING
Petition is granted. The Court ordered private respondents Siton and de Dumo to pay to
petitioner Servicewide Specialists the total sum of the remaining unpaid balance with interest,
fees and damages.

1. Yes. The rule is that the chattel mortgagor continues to be the owner of the property, and
therefore, has the power to alienate the same; however, he is obliged under pain of penal
liability, to secure the written consent of the mortgagee. The absence of the written
consent of the mortgagee to the sale of the mortgaged property in favor of a third person,
therefore, affects not the validity of the sale but only the penal liability of the mortgagor
and the binding effect of such sale on the mortgagee. Thus, the instruments of mortgage
are binding, while they subsist, not only upon the parties executing them but also upon
those who later, by purchase or otherwise, acquire such properties.

2. Yes. In addressing the issue, the SC applied the doctrine of estoppel. The Court noted the
fact that petitioner has been accepting payments of some of the installments under the
promissory note by de Dumo through personal checks, which is an implied acceptance by
petitioner and its predecessors of the sale. If it is true that petitioner has not acquiesced in
the sale, then, it should have inquired as to why de Dumo's checks were being used to pay
Siton's obligations.
Moreover, before the sale, prompt inquiries were made by private respondents with
Filinvest regarding any possible future sale of the mortgaged property; and that it was upon the
advice of the company's credit lawyer that such a verbal notice is sufficient and that it would be
convenient if the account would remain in the name of the mortgagor Siton.

3. According to Art. 1484 of the NCC, there are 3 alternative remedies which a vendor may
pursue in a contract of sale of personal property which is payable in installments: 1) to
exact fulfillment of the obligation; 2) cancel the sale; and 3) foreclose the mortgage on
the thing sold.
It is clear from the prayer of petitioner in the appellate court that it had chosen the
remedy of fulfillment when it asked the appellate court to order private respondents to pay the

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 remaining unpaid sums under the promissory note thus, it has deemed waived the third remedy
of foreclosure.

4. No. The checks issued by the defendants as payment for the instalments were dishonored
and were not shown to have been replaced. According to the NCC, the delivery of
promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed. In the absence of
any showing that the aforestated checks were replaced and subsequently cashed, the
monthly unpaid installments remains unpaid.
The promissory note expressly stipulates that the unpaid balance shall be payable,
without need of notice or demand, in fixed monthly installments; and that if default be made in
the payment of any of the installments or interest thereon as and when the same becomes due and
payable as specified above, the total principal sum then remaining unpaid, together with accrued
interest thereon, shall at once become due and payable.

DY JR. VS. COURT OF APPEALS, 198 SCRA 826 (1991)

FACTS

The petitioner, Perfecto Dy and Wilfredo Dy are brothers. Sometime in 1979, Wilfredo
Dy purchased a truck and a farm tractor through financing extended by Libra Finance and
Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for
the loan. The petitioner wanted to buy the tractor from his brother so, he wrote a letter to Libra
requesting that he be allowed to purchase from Wilfredo Dy the said tractor and assume the
mortgage debt of the latter. Libra thru its manager, Cipriano Ares approved the petitioner’s
request. Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in
question. At this time, the subject tractor was in the possession of Libra Finance due to Wilfredo
Dy’s failure to pay the amortizations. Despite the offer of full payment by the petitioner to Libra
for the tractor, the immediate release could not be effected because Wilfredo Dy had obtained
financing not only for said tractor but also for a truck and Libra insisted on full payment for both.
Petitioner was able to convince his sister to purchase the truck so that full payment can be made
for both. A PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in
full the indebtedness of Wilfredo Dy with the financing firm. Libra insisted that it be cleared first
before releasing the chattels. Meanwhile, Civil Case entitled “Gelac Trading, Inc. v. Wilfredo
Dy”, a collection case to recover the sum of P12, 269.80 was pending in another court. On the
strength of an alias writ of execution issued, the provincial sheriff was able to seize and levy on
the tractor which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently
sold at public auction where Gelac Trading was the alone bidder. Later, Gelac sold the tractor to
one of its stockholders, Antonio Gonzales. It was only when the check was that the petitioner
learned about GELAC having already taken custody of the subject tractor. Petitioner filed an
action to recover the subject tractor against GELAC Trading.

ISSUE

​Whether or not William Dy is still the owner of the tractor when it was obtained through
the writ of execution.

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 RULING

​The tractor was not anymore in possession of William Dy when it was obtained by the
sheriff because he already sold it to his brother.

William Dy has the right to sell his property even though it was mortgage because in a
mortgage, the mortgagor doesn’t part with the ownership over the property. He is allowed to sell
the property as long as there is consent from the mortgagee such as in this case. But even if there
is no consent given, the sale would still be valid without prejudice to the criminal action against
the mortgagor.

When William Dy sold the tractor, he already transferred the ownership of it because
NCC states that the ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him or in any other manner signing an agreement that the possession is transferred
from the vendor to the vendee. In the instant case, actual delivery of the subject tractor could not
be made but there was constructive delivery already upon the execution of a public instrument
which in this case is a deed of sale.

The payment of the check was actually intended to extinguish the mortgage obligation.

The RTC rendered judgment in favor of the petitioner. Court of Appeals reversed the
decision of the RTC (held that the tractor in question still belonged to Wilfredo Dy when it was
seized and levied by the sheriff)

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 PHILIPPINE NATIONAL BANK VS. MANILA INVESTMENT AND CONSTRUCTION,
INC., 38 SCRA 462 (1971)

FACTS

Court of First Instance of Manila, Branch XV entitled "Philippine National Bank vs. Manila
Investment & Construction, Inc., et al.," decision was rendered on December 26, 1957, its
dispositive portion being partly as follows: IN VIEW WHEREOF, judgment is
rendered condemning defendants, jointly and severally, to pay plaintiff:(1)Under the first cause
of action the sum of P88,939.48 with daily interest of P12,77385plus 1/4% commission or
P194.6689 for every 30 days or a fraction thereof, plus 10% on the principal as attorney's fees
and the cost;(2)On the second cause of action the sum of P356,913.01, plus P48,464 03 and 1/4%
orP629.31 for every 30 days or fraction thereof that the amount remain outstanding and unpaid
plus 10% of the principal as attorney's fees, and the cost.

In case of non-payment of the amounts adjudged, the decision also provided for the sale at
public auction of the personal properties covered by the chattel mortgage executed by the
defendants in favor of the plaintiff PNB.

After the decision had become executory, instead of having the mortgaged personal
properties sold at public auction, the parties agreed to have them sold, and were in fact sold, at a
private sale. The net proceeds obtained therefrom amounting to P256, 941.70 were applied to the
partial satisfaction of the above judgment.

More than five years but less than ten years from the date when the decision aforesaid
became executory, PNB filed in the same Court of First Instance an action to revive the
judgement for the payment of the remaining sum of P382,388.47 left unsatisfied.

On this action for revival of judgment, the Court ordered the defendants to pay the
plaintiff, jointly and severally, the aforementioned amount.

The defendants appealed to secure a reversal of the above decision claiming:

1. That the action instituted is not the proper remedy
2. That the private sale of the mortgaged personal properties was null and void; and
3.That the appellee is not entitled to a deficiency judgment.

ISSUE(S)

​1) WON the action was the proper remedy.

2) WON the private sale was null and void.
3) WON PNB is not entitled to deficiency judgment.

RULING

​1. Yes, the action was the proper remedy since it was filed more than five years after the
judgment became executory.

Appellants contend that, instead of the action to revive the judgment rendered in its favor,
the appellee Bank should have filed a motion in the Court of First Instance of Manila for
the rendition of a deficiency judgment. The action for revival was instituted after the lapse of
five but of less than ten years from the time the decision sought to be revived became executory.

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 Having thus become stale or dormant, it was not subject to execution by mere motion.
Consequently, before the judgment creditor could move for the rendition of a deficiency
judgment and for the issuance of the corresponding writ of execution, it had to seek the revival of
the decision in accordance with law. A judgment foreclosing a mortgage which has lost
executory force by the lapse of five years may be revived by filing a COMPLAINT (not a
Motion)based thereon.

2. No, the private sale of the mortgage property was proper since it was done by
agreement between parties. The mortgaged personal properties were sold at a private sale by
agreement between the parties. We see nothing illegal, immoral or against public order in such
agreement entered into freely and voluntarily. In line with the Art. 1306 of NCC giving the
contracting parties full freedom to contract provided their agreement is not contrary to law,
morals, good customs, public order or public policy. The contracting parties may stipulate that
the creditor may sell, at private sale and without previous advertisement or notice, the whole or
part of the good mortgaged for the purpose of applying the proceeds thereof on the payment of
the debt. Since the private sale was by agreement between parties, appellants are now in estoppel
to question it except on the ground of fraud or duresspleas that they do not invoke.

3. Yes, PNB is entitled to deficiency judgment. Here we find that the provisions of the
Chattel Mortgage with regard to the effects of the foreclosure of a chattel mortgage are precisely
contrary to the provisions of Article 2115 which were applied by the trial Court. Art. 2115. The
sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of
the sale are equal to the amount of the principal obligation, interest and expenses in a proper
case. If the price of the sale is more than said amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor be
entitled to recover the deficiency, notwithstanding any stipulation to the contrary. Art. 2141. The
provisions of this Code on Pledge, insofar as they are not in conflict with the Chattel Mortgage
Law, shall be applicable to chattel mortgages. In case of a sale under a foreclosure of a chattel
mortgage, there is no question that the mortgagee or creditor may maintain an action for
the deficiency, if any should occur. And the fact that Act No. 1508permits a private sale, such
sale is not in fact, a satisfaction of the debt, to any greater extent than the value of the property at
the time of the sale. 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(Manila Trading and Supply Co., vs. Tamaraw Plantation Co., 47Phil.).
Hence, Art. 2115 does not apply. Therefore, the proceeds of the sale of the mortgaged
personal properties of the herein appellants constitute only a pro tanto satisfaction of the
monetary award made by the court and the appellee Bank PNB is entitled to collect the balance.

JOSE GARRIDO VS. PILAR G. TUASON, G.R. NO. L-23768 AUGUST 23, 1968

FACTS

​Jose Garrido commenced a civil case for the foreclosure of a chattel mortgage to

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 guarantee the payment of a debt in the sum of Php1, 000 as well as for the recovery of attorney’s
fees and the costs which was executed in his favour by defendant, Pilar G. Tuason. A decision
was rendered in favour of the plaintiff.
​Subsequently, a car of the defendant was sold by the Provincial Sheriff of Rizal at a
public auction to the plaintiff as the highest bidder for the sum of Php550 in compliance with the
writ of execution issued after the decision had become final. A month after, the plaintiff filed 2
motions, namely: One, praying that the sum of Php165 be added to the unsatisfied portion of the
aforementioned decision and another, for an alias writ of execution for the sum of Php1,290.58
as the aggregate outstanding balance allegedly due under said decision. Both motions were
denied.
​On April 1, 1960, plaintiff commenced Civil Case No. 76462 against the same defendant
whose husband was included as her co-defendant and on May 27, 1960, for the recovery of said
alleged balance of Php1, 290.58. Said complaint was dismissed upon motion by the defendants.
The former appealed the same but was also dismissed on the ground that the plaintiff has no
cause of action against the defendants.

ISSUE
Whether or not the plaintiff has a cause of action against the defendants pursuant to Article 2115
of the Civil Code

RULING
​No. The Court ruled that plaintiff, Jose Garrido, has no cause of action against the
defendants pursuant to Article 2115of the Civil Code. This for the reason that the decision
rendered for the foreclosure of the mortgage merely ordered the defendant to pay the sum of
Php1, 000 with interest thereon, in addition to attorney’s fees and costs. It neither ordered the
sale of the property mortgaged or of any particular property for the satisfaction of the plaintiff’s
credit nor purported to enforce plaintiff’s lien over the mortgaged property which therefore made
Article 2115 irrelevant and inapplicable. Moreover, upon the denial of the plaintiff’s motion for
the issuance of an alias writ of execution, he did not appeal from the order of said motion but
instead brought the case at bar, thereby allowing the said order to become final. Thus, the
principle of res adjudicate bars the present action. ​
​WHEREFORE, the decision appealed from is hereby AFFIRMED.
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

PASTOR TOLENTIONO VS. BASILIO BALTAZAR, DIRECTOR OF THE BUREAU OF

LANDS AND ESTATE OF ANGEL BALTAZAR G.R. NO. L-14597 MARCH 27, 1961

FACTS
​Angel Baltazar filed a homestead application which was approved by the Director of
Lands. Thereafter, he mortgaged the present and future improvements on said land to Pastor
Tolentino for the sum of Php1, 500, with the understanding that if the same were not paid within
6 years with interest thereon at the rate of 12% per year, the latter can either foreclose the
mortgage or to compel the debtor to execute a deed of absolute sale of said improvements. When
Angel Baltazar died, his son, Basilio Baltazar, filed with the Bureau of Lands a petition praying

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 that the homestead application in his father’s name be cancelled and instead his own application
be admitted. The petition was soon granted and Basilio Baltazar secured an Original Certificate
of Title No. P-790 in his name. Subsequently, an action for the cancellation of said Original
Certificate of Title was instituted by the plaintiff, Tolentino, on the ground of fraud. The
defendant, Basilio Baltazar, denied the allegation and maintained that the plaintiff had no cause
of action except against the deceased, Angel Baltazar, and that this is neither the proper action
nor the proper court to settle Tolentino’s claim.
​The Court of First Instance rendered a decision in favour of the defendant and dismissed
plaintiff’s complaint. Tolentino appealed and the Director of Lands, likewise, gave notice of his
intent to appeal therefrom and then asked that Tolentino’s record on appeal be considered his
own record on appeal. Although this request had not been officially approved, the clerk thereof
notified the parties that said record on appeal had been forwarded to the CA for purposes of the
appeal taken by Tolentino and the Director of Lands. However, the CA excused the SolGen from
filing a brief on behalf of the Director of Lands on the ground that his appeal had been duly
perfected. The Court of Appeals affirmed the decision of the Court of First Instance except as to
the Php1, 000 award of damages in favour of Basilio Baltazar.
​Aggrieved by the decision of the Court of Appeals, Tolentino appealed the case before
the Supreme Court via a petition for review by certiorari.

ISSUE
​Whether or not the Court of Appeals is correct in denying Tolentino’s appeal on the
ground that he had no personality in bringing an action

RULING
​No, the Supreme Court held that the legal provision granting said right exclusively to the
Director of Lands affects the plaintiff’s cause of action, not his personality to institute the present
case. Moreover, the Director of Lands did not abandon his appeal for the record shows that he
gave notice of his intention to appeal by asking that plaintiff’s record on appeal be considered as
his own record on appeal. While it is true that his petition was not officially approved by the
court, the Director of Lands had been led to believe the contrary for the clerk of Court of Nueva
Ecija notified the parties that the record on appeal had been forwarded to the CA for purposes of
the appeal taken by the plaintiff and the Director of Lands.
​Furthermore, even though Basilio Baltazar had not been guilty of fraud in securing the
homestead patent and the certificate of title in his favour, it has been established that when
plaintiff saw the children of Angel Baltazar shortly after his death, they promised to pay his debt
in favour of Pastor Tolentino which means that the defendant knew before he got said patent and
the certificate of title, that the present and future improvements on the land were subject to a
valid and subsisting mortgage in favour of Pastor Tolentino.
​WHEREFORE, the decision appealed from is hereby REVERSED.

RUBY L. TSAI vs. HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and
MAMERTO R VILLALUZ G.R. No. 120098, October 2, 2001

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 FACTS
Ever Textile Mills, Inc. (EVERTEX) obtained a loan from petitioner Philippine Bank of
Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a
deed of Real and Chattel Mortgage over the lot where its factory stands, and the chattels located
therein as enumerated in a schedule attached to the mortgage contract. PBCom granted a second
loan to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties
enumerated in a list attached thereto. The listed properties were similar to those listed in the first
mortgage deed. Due to business reverses, EVERTEX filed insolvency proceedings docketed.
The CFI issued an order on declaring the corporation insolvent. All its assets were taken into
the custody of the Insolvency Court, including the collateral, real and personal, securing the two
mortgages as abovementioned.
Upon EVERTEX’s failure to meet its obligation to PBCom, the latter commenced
extrajudicial foreclosure proceedings against EVERTEX. PBCom was the highest bidder. Thus,
PBCom consolidated its ownership over the lot and all the properties in it and leased the entire
factory premises to petitioner Ruby L. Tsai. PBCom sold the factory, lock, stock and barrel to
Tsai, including the contested machineries. EVERTEX filed a complaint for annulment of sale,
reconveyance, and damages with theRegional Trial Court against PBCom, alleging that the
extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. Further,
EVERTEX averred that PBCom, without any legal or factual basis, appropriated thecontested
properties, which were not included in the Real and Chattel Mortgage nor in the Chattel
Mortgage andneither were those properties included in the Notice of Sheriff’s. The disputed
properties, which were valued atP4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1
Jet Drying Equipment, 1 Dryer Equipment, 1 RaisinEquipment and 1 Heat set Equipment.
The trial court rendered in favor of EVERTEX. PBCom and Tsai appealed to the Court of
Appeals which affirmedRTC’s decision. Their Motion for reconsideration was also denied. Thus,
PBCom and Tsai filed their separatepetitions for review with this Court

ISSUE
*Whether or not the inclusion of the questioned properties in the foreclosed properties is proper
*Whether or not the sale of these properties to a third person by the bank through an irregular
foreclosure sale is valid.

RULING
Inasmuch as the subject mortgages were intended by the parties to involve chattels,
insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which
provides in Section 7 thereof that: “a chattel mortgage shall be deemed to cover only the
propertydescribed therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally mortgaged, anything in
the mortgage to the contrary notwithstanding.” And, since the disputed machineries were
acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was
consequently an error on the part of the Sheriff to include subject machineries with the properties
enumerated in said chattel mortgages. As the auction sale of the subject properties to PBCom is
void, no valid title passed in its favor.
The auction sale of the subject properties to PBCom is void. Inasmuch as the subject
mortgages were intended by the parties to involve chattels, insofar as equipment and machinery
were concerned, the Chattel Mortgage Law applies. Section 7 provides thereof that: "a chattel
mortgage shall be deemed to cover only the property described therein and not like or substituted
property thereafter acquired by the mortgagor and placed in the same depository as the property
originally mortgaged, anything in the mortgage to the contrary notwithstanding." Since the
disputed machineries were acquired later after the two mortgage contracts were executed, it was
consequently an error on the part of the Sheriff to include subject machineries with the properties
enumerated in said chattel mortgages.
Assuming that the properties were considered immovables, nothing detracts the
parties from treating it as chattels to secure an obligation under the principle of estoppel.

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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

TOP RATE INTERNATIONAL SERVICES, INC. vs. INTERMEDIATE APPELLATE

COURT and RODRIGO TAN, doing business under the name and style "ASTRO
AUTOMOTIVE SUPPLY,G.R. No. L-67496 ​July 7, 1986
TOP RATE INTERNATIONAL SERVICES, INC. vs. THE INTERMEDIATE
APPELLATE COURT and POLARIS MOTOR SUPPLY COMPANY,G.R. No. L-68257,
July 7, 1986

FACTS
In Civil Case No. 142443 now, G.R. No. 67496, the facts as found by the appellate court are:
Petitioner filed a complaint against Consolidated Mines Inc. and Jose Marino Olondriz,
the president of said corporation, for the payment of the purchase price of certain heavy
equipment, parts and accessories sold to Consolidated Mines, Inc. with a total cost of
P271,372.20. In said complaint, plaintiff asked that a writ of preliminary attachment be issued
against defendants on the ground that said defendants were guilty of fraud in securing said
equipment. Respondent Court granted plaintiff's motion for the issuance of a writ of preliminary
attachment upon plaintiff's posting of a bond in the amount of P 271,372.20. The sheriff served
notices of garnishment on the tenants of the building owned by defendant Consolidated Mines,
Inc. garnishing the rentals due from said tenants, but since there were earlier notices of
garnishment served upon said tenants issued in two (2) other cases, the sheriff was not able to
garnish any amount from said tenants. The sheriff levied on the properties of defendant
Consolidated Mines, Inc. and the notice of levy was duly annotated on Transfer Certificate of
Title No. S-68501 (143900) and Transfer Certificate of Title No. S-68500 (14329). The notice of
levy was not annotated on the transfer certificate of title of a third property covered by Transfer
Certificate of Title No. 79776, although notice of said levy was duly entered in the primary book
of the Registry of Deeds of Rizal.
Meanwhile, in Civil Case No. 142598 now, G.R. No. 68257, the appellate court made the
following findings:
The petitioner brought suit in the Court of First Instance of Manila against the
respondents Consolidated Mines, Inc. and its president Jose Marino Olondriz for the collection
of P71,855.20. The amount represents the price of the heavy equipment and accessories which
the respondent CMI had purchased from the petitioner. On November 3, 1981, the respondent
judge ordered the attachment of CMI's properties. On November 26, 1981, notice of the
attachment of real properties of the CMI was served on the Register of Deeds of Makati who on
December 9, 1981 annotated the levy on Transfer Certificate of Titles Nos. S-68500 (143929), S-
68501 (143900) and 79711.
On May 31, 1981, several banks, constituting the Consortium Banks, filed a third party
claim with the sheriff, alleging that they were the mortgagees of the real and personal properties
of the CMI. They claimed that their mortgage was evidenced by a deed executed on November
10, 1978. They, therefore, asked that the properties be released from attachment.
The petitioner filed a motion to quash the third party claim but its motion was denied by
the respondent judge. The personal properties were foreclosed by the Consortium Banks to
which the properties were sold as the highest bidder and the certificate of sale issued on July 6,
1982. The petitioner then asked that it be allowed to exercise its right of redemption. But the
Consortium Banks opposed the motion on the ground that there was an equity in redemption
only in case of foreclosure sale of real properties but not in the case of chattels
In the meantime, on March 17, 1982, the Court of First Instance of Rizal, Branch XXIII,

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 acting as an insolvency court, authorized in Sp. Proc. No. 9623 the sale of the properties of the
CMI. Accordingly, on September 17, 1982, the properties covered by TCT Nos. S-68500
(143929) and S-68501 (143900) were sold to the private respondent Top Rate International as
assignee of the El Grande Development Corp. On the basis of the sale to it, Top Rate
International filed a third party claim with the sheriff. It asked that the properties covered by
TCT No. S-68500 (143929) and S-68501 (143900) be discharged from attachment.
After hearing on the merits, the trial court in Civil Case No. 142598 ordered the lifting
and setting aside of the levy on attachment on the two properties involved while in Civil Case
No. 142443, the trial court issued the same order maintaining, however, the levy on attachment
on the property covered by TCT No. 79776 in favor of plaintiff Rodrigo Tan.
The plaintiffs in the above civil cases appealed to the Intermediate Appellate Court.

ISSUE
*Whether the sheriff should levy only on the right or equity of redemption and not on the
property itself.

RULING
Equity of redemption is the right of the mortgagor to redeem the mortgaged property after
his default in the performance of the conditions of the mortgage but before the sale of the
property or the confirmation of the sale, whereas the right of redemption means the right of the
mortgagor to repurchase the property even after confirmation of the sale, in cases of foreclosure
by banks, within one year from the registration of the sale. When herein private respondents
prayed for the attachment of the properties to secure their respective claims against Consolidated
Mines, Inc., the properties had already been mortgaged to the consortium of twelve banks to
secure an obligation of US$62,062,720.66. Thus, like subsequent mortgagees, the respondents'
liens on such properties became inferior to that of the banks, which claims in the event of
foreclosure proceedings, must first be satisfied. The appellate court, therefore, was correct in
holding that in reality, what was attached by the respondents was merely Consolidated Mines'
right or equity of redemption ​ ​ ​ ​

ACME SHOE, RUBBER AND PLASTIC CORPORATION VS CA

GR NO. 103576

FACTS

Chua Pac, president and general manager of Acme Shoe, Rubber and Plastic Corporation,
executed a chattel mortgage in favor of Producers Bank of the Philippines, as a security for a
corporate loan in the amount of P3M. The chattel mortgage contained a clause that provided for
the mortgage to stand as security for all other obligations contracted before, during and after the
constitution of the mortgage.
The P3M was paid. Subsequently, the corporation obtained additional financial
accommodations totalling P2.7M. This was also paid on the due date. Again, the bank extended
another loan to the corporation in the amount of P1M, covered by four promissory notes.
However, the corporation was unable to pay this at maturity. Thereupon, the bank applied for an
extra-judicial foreclosure of mortgage.

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 For its part, the corporation filed an action for injunction with prayer for damages. The
lower court ultimately dismissed the case and ordered the extra-judicial foreclosure of mortgage.
Hence, this appeal.

ISSUE

Would it be valid and effective to have a clause in a chattek mortgage that purports to
likewise extend its coverage to obligations yet to be contracted or incurred?

RULING

No. Contracts of security are either personal or real. In contracts of personal security,
such as a guaranty or suretyship, the faithful performance of the obligation by the principal
debtor is secured by the personal commitment of another (the guarantor or surety). In contracts
of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an
encumbrance of property -- in pledge, the placing of movable property in the possession of the
creditor; in chattel mortgage by the execution of the corresponding and substantially in the form
prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering
the real property covered thereby; and in antichresis, by a written instrument granting to the
creditor the right to receive the fruits of an immovable property with the obligation to apply such
fruits to the payment of interest, if owing, and thereafter to the principal of his credit -- upon the
essential condition that if the obligation becomes due and the debtor defaults, then the property
encumbered can be alienated for the payment of the obligation, but that should the obligation be
duly paid, then the contract is automatically extinguished proceeding from the accessory
character of the agreement. As the law so puts it, once the obligation is complied with, then the
contract of security becomes, ipso facto, null and void.

While a pledge, real estate mortgage, or antichresis may exceptionaly secure after-
incurred obligations so long as these future debts are accurately described, a chattel mortgage,
however, can only cover obligations existing at the time the mortgage is constituted. Although a
promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a
binding commitment that can be compelled upon the security itself, however, does not come into
existence or arise until after a chattel mortgage agreement covered the newly contracted debt is
executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the Chattel Mortgage Law. Refusal on the part of borrower to execute the
agreement so as to cover the after-incurred obligation can constitute as an act of default on the
part of the borrower of the financing agreement wherein the promise is written, but, of course,
the remedy of foreclosure can only cover the debts extant at the time of constitution and during
the life of the chattel mortgage sought to be foreclosed.
In the case at bar, the chattel mortgage was terminated when payment for the P3M loan
was made so there was no chattel mortgage to even foreclose at the time the bank instituted the
extra-judicial foreclosure.

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 ​ ​ ​ ​ ​ ​ ​

NORTHERN MOTORS, INC. VS COQUIA; 68 SCRA 374, DECEMBER 15 1975

FACTS
​
Manila Yellow Taxicab, executed a chattel mortgage over several taxicabs in favor of
Northern Motors. TROPICAL is a judgment creditor of Yellow Taxicab who assigned the
judgment to ONG. On December 12 1974, Sheriff then levied upon 20 taxicabs, 8 of which are
security for the chattel mortgage. Northern Motors filed an intervention on December 18, 1974;
however, the levied taxicabs were sold the same day at 2pm although agreement shows that it
should have happened at 4pm. Indemnity bond was posted by TROPICAL, but the bond was
cancelled after the sale without notice to Northern Motors. The petitioner now seek
reconsideration also on the reinstatement of the bond.A second levy was made upon 35 taxicabs,
7 of which are mortgaged to Northern Motors.

This is a motion for reconsideration in the SC decision pronouncing that the Mortgagee
has a better right than the judgment debtor over the taxicabs.

The taxies were levied and sold at an auction sale. Ong argues admits that the mortgagee
has a better right that the judgment creditor, but argues that the purchaser from the auction sale
must have a right superior to that of the mortgagee. The auction sale proceeded and the
purchasers were of unknown addresses, hence the 8 taxicabs cannot be recovered. The proceeds
of the auction were in contest and the sheriff is deducting the expenses of the execution sale from
the proceeds.

ISSUE/S

1. Whether the expenses for the execution sale should be deducted from the proceeds
thereof?

2. Whether the purchaser has a better right than the creditor?

3. Whether the bond should be reinstated?

RULING

st
1 :​No, it was already established that the levy on the property was illegal, it is therefore
improper to deduct the expenses of an illegal auction from the proceeds thereof. The mortgagee
can only able to collect the proceeds from the auction sale because the purchasers are of
unknown addresses. The full proceeds of the sale are due to the mortgagee without any
unreasonable and illegal deductions.

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 nd
2 :​No, the purchaser of the auction sale merely steps in the shoes of the judgment
creditor as they have been aware of the claim of the mortgagee. The mortgagee has a better right
to the possession of the taxicabs, however, since the addresses of the purchasers are unknown,
the proceeds of the sale must be delivered to the mortgagee.
rd
3 :​Yes, the bond should be reinstated, as it is to serve as indemnity for damages in cases
that the sold taxicabs cannot be recovered. Proceedings in the lower court would be an exercise
in futility if the bond will not be reinstated.

​ ​ ​ ​ ​ ​ ​ ​
ALLIED BANKING CORPORATION V. SALAS G.R. NO. L-49081 DECEMBER 13,
1988.

FACTS

General Bank and Trust Company granted Gencor Marketing, Inc., a time loan evidenced
by a Promissory Note executed by the latter through its President, Dr. Clarencio S. Yujuico. As
security for the time loan and pursuant to a resolution of the Board of Directors of Gencor
Marketing, a Deed of Chattel Mortgagewas executed by Gencor Marketing in favor of General
Bank and Trust Company (MBTC) involving the personal properties. The Deed of Chattel
Mortgage was duly recorded in the Chattel Mortgage Registry of Quezon City. On maturity date
of the Loan and allegedly after several subsequent extensions of time for Gencor to settle its
account, Gencor failed to pay its obligations either to General Bank and Trust Company or to
Allied Banking which took over the affairs and/or acquired all the assets and assumed the
liabilities of General Bank and Trust Company. Allied Banking extrajudicially foreclosed the
aforesaid Chattel Mortgage and requested the City Sheriff of Quezon City to effect the said
foreclosure. The City Sheriff of Quezon City, through Deputy Sheriff A. Tabbada levied upon the
afore-described mortgaged personal properties in question and issued the corresponding Notice
of Sheriff s Sale.
It appears, however, that prior to the extrajudicial foreclosure effected by Allied Banking
involving the personal properties in question, Metropolitan Bank and Trust Company filed an
action for a sum of money in the amount of with preliminary attachment against Clarencio
Yujuico and Jesus Yujuico, a writ of preliminary attachment was issued in said case and the
Sheriff of the Court of First Instance of Rizal levied upon the personal properties in question.
Thus, upon teaming of the Notice sent by City Sheriff Tabbada for the sale of the
foreclosed personal properties in question, MBTC filed an Urgent Motion to Enjoin the Sheriff
of Quezon City from foreclosing and selling at public auction the said properties, alleging that
the printing machineries and equipment previously levied and attached by the Sheriff of Rizal
belonged exclusively to defendant Clarencio S. Yujuico, doing business under the firm name of
Gencor Printing and as such, may not legally be foreclosed and sold at auction by the Sheriff of
Quezon City.
Meanwhile, Metropolitan Bank and Trust Company filed a Third Party Claim with the
Quezon City Sheriff ‘s Office over the personal properties in question levied upon and sought to
be sold at public auction by City Sheriff A.Tabbada, alleging that these same personal properties
had been previously levied upon by the Deputy sheriff of Branch I of the Court of First Instance
of Rizal, pursuant to a Writ of Attachment issued by herein respondent Judge Emilio V. Salas.
Allegedly to protect Allied Banking’s rights over the personal properties in question, Allied
banking’s counsel entered a special appearance during the scheduled hearing for the exclusive
purpose of opposing MBTC’s motion on jurisdictional grounds and gross irregularity of
procedure amounting to lack of jurisdiction.

ISSUE
Whether or not MBTC’s has better right to the mortgaged properties

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 RULING
Yes. The registration of the chattel mortgage more than three years prior to the writ of
attachment issued by respondent judge is an effective and binding notice to other creditors of its
existence and creates a real right or a lien, which being recorded, follows the chattel wherever it
goes. The chattel mortgage lien attaches to the property wherever it may be. Thus, private
respondent as attaching creditor acquired the properties in question subject to petitioner’s
mortgage lien as it existed thereon at the time of the attachment. In this regard, it must be
stressed that the right of those who so acquire said properties should not and cannot be superior
to that of the creditor who has in his favor an instrument of mortgage executed with the
formalities of law, in good faith, and without the least indication of fraud.

​ ​ ​ ​ ​ ​ ​ ​
JACA v. DAVAO LUMBER COMPANY
GR L-25771 March 29, 1982

FACTS

Urbano Jaca and Bonifacio Jaca are engaged in the logging business of producing timber and
logs for export and/or domestic purpose of which they had a business dealings with the
respondent,Davao Lumber Corp. Sometime in 1954, the parties entered into an agreement that
the company would provide for the materials, foodstuff and/or equipment and payment for such
is the logs or lumber produced by the plaintiffs. The defendant made Urbano Jaca execute a
chattel mortgage in its favor and the respondent company had never furnished them a copy
thereof. In 1963, plaintiffs requested a formal accounting of their business relationship but the
company persistently refused to do so. The plaintiffs, surprised, received demand letters
requesting them to pay their accounts to the respondent which according to the latter had long
been overdue.Plaintiffs claimed that they had overpaid and that there were many errors in the
monthly statements.Respondent company in its counterclaim stated that they are the ones who is
in debt due to the chatter mortgage of which the plaintiff executed.The RTC rendered a decision
in favor of the respondent.

ISSUE

Whether or not Davao Lumber Company is entitled to the appointment of a receiver.

RULING

No. It is an established rule that the applicant for receivership must have actual and
existing interest in the property for which a receiver is sought to be appointed. Respondent’s
proof of interest is the deed of chattel mortgage, executed by the plaintiff Urbano Jaca,in Davao
Lumber Company’s favor. Such deed of chattel mortgage is void because it provides that the
security stated therein is for the payment of any and all obligations herein before contracted and
which hereafter contracted by the Mortgagor in favor of the mortgagee.

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 ​ ​ ​ ​ ​ ​ ​ ​
CABRAL VS. EVANGELISTA, 28 SCRA 1000 [1969]
G.R. NO. L-26860 JULY 30, 1969
FACTS
On December 12, 1959, defendant George L. Tunaya had executed a chattel mortgage
covering a "MORRISON" English piano and a Frigidaire General Motors Electric Stove with
four burners and double oven, as security for payment to the plaintiffs-mortgagees of a
promissory note in the sum of P1,000.00 executed on the same date by said defendant Tunaya
with his wife, Esperanza N. Angeles. The chattel mortgage deed was duly inscribed in the
Chattel Mortgage Register of Rizal province on December 14, 1959.
Meanwhile, the Evangelista spouses, obtained on January 4, 1960, a final money
judgment against defendant Tunaya in Civil Case No. 5550 of the Court of First Instance of
Rizal. They caused the levy in execution on personal properties of said defendant Tunaya,
including the piano and stove mortgaged to plaintiffs. The said mortgaged chattels, together with
other personal properties of the judgment debtor, were sold at public auction on June 24, 1960,
after the corresponding notice of sheriff's sale, to the defendants-appellants as the highest bidders
for the total sum of P2,373.00. The judgment credit of defendants-appellants was paid and the
Sheriff of Rizal issued certificate of sale for it.
Eight months after the maturity, Cabrals filed their complaint in the City Court of Manila
against Tunaya and the Evangelista spouses. The City Court, on November 29, 1960, rendered
judgment in favor of plaintiffs against the mortgage debtor, Tunaya, on confession of the latter,
but granted the motion to dismiss of the defendants Evangelista spouses on the ground of failure
to state a cause of action and dismissed the complaint as against said spouses.
On appeal from the City Court's adverse decision, the court a quo upheld the superior
rights of plaintiffs-appellees as mortgage creditors to the personal properties in question, holding
that defenda nts-appellants, "being subsequent judgment creditors in another case, have only the
right of redemption." The counterclaim 2 of defendant Teodora Evangelista and Juan Evangelista
is dismissed.

ISSUE/S
1. WON the Evangelista spouses right’s over the mortgaged chattels as purchasers at the
public sale in execution of their judgment against Tunaya should be held subordinate to
the mortgage lien of Evangelista Spouses as mortgagees, by virtue of prescription and
laches on the part of said mortgagees as well as of their having purchased the chattels at a
public sheriffs sale.
2. WON the Evangelista Spouses are liable to pay solidarity with defendant Tunaya the
amount due on Tunaya's note in favor of plaintiffs, and in the event of their failure to pay,
to deliver the chattels to the Sheriff for sale at public auction.

RULING

1. No, the contentions have no merits. section 14 of the Chattel Mortgage Law (Act No.
1508) that "the mortgagee ... may after thirty days from the time of condition broken,
cause the mortgaged property, or any part thereof, to be sold at public auction." It does
not follow from this provision, as wrongly contended by appellants, that failure on the
part of plaintiff to immediately foreclose their chattel mortgage within the 30-day period
from February 12, 1960 (when the promisory note matured) to March 12, 1960, resulted
in the prescription of plaintiff's mortgage right and action.
Neither could laches properly be imputed against plaintiffs, who filed their action

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 promptly after they had been advised by their debtor, defendant Tunaya, of the public auction
sale on June 24, 1960 of the chattels at the instance of defendants-appellants as his judgment
creditors.
2. Yes. Article 559 of the Civil Code providing that "If the possessor of a movable lost or of
which the owner has been unlawfully deprived, has acquired it in good faith at a public
sale, the owner cannot obtain its return without reimbursing the price paid therefor..."
cited by appellants has no application in the present case. Appellants by their act of
disposition of the mortgaged chattels, whose value were admittedly more than adequate
to secure Tunaya's mortgage obligation, have thus practically nullified plaintiffs' superior
right to foreclose the mortgage and collect the amount due them. Considering the long
period that has elapsed since October 11, 1960 when plaintiffs tried to enforce their claim
and defendants-appellants' adamant resistance thereof and unjust refusal to recognize
plaintiffs' clearly superior right to the chattels, which appellants admittedly disposed of
without lawful right to other unknown persons obviously to defeat plaintiffs' right over
the same, we are satisfied that justice and equity justify the lower court's judgment
holding the defendants-appellants solidarily liable for the amount due plaintiffs-appellees.

​ ​

SPS. WILLIAM G. FRIEND

and MARIA RENEE FRIEND and JOHN DOE vs UNION BANK OF THE
PHILIPPINES,
G.R. No. 165767 November 29, 2005

FACTS

Spouses William G. Friend and Maria Renee Friend incurred a loan from Union Bank of
the Philippines in the original amount of P818,136.00. The money was used to purchase a
Hyundai Starex Van in January 1999. A Promissory Note was executed by appellants promising
to pay to the order of appellee.In order to secure the obligation, a chattel mortgage, embodied in
the same promissory note, was constituted on said Hyundai Starex Van.
Appellants defaulted in the payment of their obligation. Despite repeated demands to pay the
obligation or, in the alternative, to turn over the subject vehicle for foreclosure, appellants did not
comply. Due to such non-compliance, appellee instituted an action for collection of sum of
money with prayer for the issuance of a writ of replevin.

The writ of replevin was issued on September 11, 2000 ordering the sheriff of the RTC,
Branch 115 to take custody of the Hyundai Starex Van. Unfortunately, the sheriff was not able to

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 implement said writ because the vehicle could not be found at the residence of appellants.
Appellant William G. Friend admitted to the sheriff that he returned the vehicle to the dealer,
Drive Motors, Inc.

Appellants failed to file their answer within the reglementary period. On May 18, 2001,
appellee filed a motion to declare appellants in default. In its Order dated July 11, 2001, the RTC
granted appellees motion and declared appellants in default.

On November 29, 2001, the Regional Trial Court of Pasay Cityjudgment is rendered in
favor of the plaintiff Union Bank of the Philippines. Thereafter, Atty. Simon D. Victa
representing petitioners filed a notice of appeal with the Court of Appeals. After the appeal was
filed, petitioners changed their counsel. Their appeal was anchored on the alleged error of the
trial court in declaring them in default and in finding them liable under the loan-mortgage
agreement. On June 1, 2004, the Court of Appeals rendered its decision AFFIRMED with
MODIFICATION. Petitioners motion for reconsideration was denied in a resolution dated
October 21, 2004.

ISSUES

1. WON the Honorable Court of Appeals gravely erred in ruling that petitioners were not
denied due process for being declared as in default and for being denied the opportunity
to present evidence. Corollarily, whether or not petitioners are bound by the negligence of
their counsel.
2. WON the Honorable Court of Appeals gravely erred in ruling that petitioners Sps. Friend
are liable under the loan-agreement.

RULING

1. ​No. In Victory Liner, Inc. v. Gammad,[14] we held that:

... [T]o sustain petitioners arguments that it was denied due process of law due to
negligence of its counsel would set a dangerous precedent. It would enable every party to
render inutile any adverse order or decision through the simple expedient of alleging gross
negligence on the part of its counsel. The Court will not countenance such a farce which
contradicts long-settled doctrines of trial and procedure. The courtfind no reason to depart
from this ruling. Besides, there is no compelling reason to relax the rules in favor of
petitioners, who are not entirely blameless. Petitioners should have taken a more active role
in the proceedings of the case against them.

2. ​No. The action sought by the bank in the trial court was the payment of the amount
loaned to petitioners. As aptly observed by the Court of Appeals, the trial courts decision did
not even mention the vehicle but rather, ordered the payment of petitioners existing
obligation, damages and cost of suit. Thus, it matters not that the subject vehicle was already
sold to a third party because the suit was grounded on the promissory note executed by the
petitioners.The obligation to pay the bank rests primarily on petitioners and not on Drive
Motors or Dumaran who merely acted as an intermediary. Their unqualified reliance on
Dumaran could not exculpate them from their predicament. Petitioners had been informed
that the checks issued by Drive Motors in payment for the van bounced. Prudence dictates
that petitioners should have talked directly with a representative of Union Bank to check on
the status of their car loan. Instead, petitioners chose to take Dumarans word that she will
settle the problem. As signatories to a valid and subsisting promissory note, petitioners are

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 directly liable to Union Bank for the amount of the loan, regardless of their possession or
ownership of the subject vehicle.

CERNA VS. COURT OF APPEALS, 220 SCRA 517 [1993]

FACTS
Delgado borrowed money from Leviste. As payment, he made a promissory note in favor of
Leviste. To secure the note, Delgado executed a chattel mortgage over a jeep owned by him and
a car owned by Cerna (under a special power of Attorney).
Delgado defaulted. Leviste filed a collection suit against Delgado and Cerna as solidarily
debtors. Cerna filed a motion against him. The motion was denied and the CA held that
Delgado and Leviste are solidarily debtors.

ISSUE
Whether or not a third party, who is not a debtor under the note but mortgaged his property to
secure the paymentof the loan of another is solidarily liable with the principal debtor.

HELD
NO. There is no legal provision nor jurisprudence in our jurisdiction which makes a third
person who secures the fulfillment of another's obligation by mortgaging his own property to be
solidarily bound with the principal obligor. A chattel mortgagor may be an "accessory contract"
to a contract of loan, but that fact alone does not make a third party mortgagor solidarily bound
with the principal debtor in fulfilling the principal obligation of paying the loan. Moreover, it is
a basic precept that there is solidarily liability only when the obligation expressly so states or
when the law or nature of the obligation requires solidarity. A third party mortgagor becomes
liable only to the extent of the property mortgaged. It is only upon default of the principal debtor
that the creditor may have recourse on the mortgagor by foreclosing the mortgage properties in
lieu of an action for the recovery of the amount of the loan. And the liability of the third party
mortgagor extends only to the property mortgaged. Should there be any deficiency, the creditor
has recourse on the principal debtor.
The special power of attorney authorizing Delgado to mortgage Cerna's property as
security for Delgado's obligation does not itself make Cerna a co-mortgagor, especially so since
only Delgado signed the chattel mortgage as mortgagor. The special power of attorney did not
make Cerna as mortgagor, all it did was to authorize Delgado to mortgage certain properties
belonging to Cerna. And this is in compliance with the requirement in Article 2085 of the New
Civil Code, It is essential in mortgage (3) That the person constituting the pledge or mortgage
have the free disposal of their property, and in absence thereof, that they be legally authorized for
the purpose. Thus, it is clear that only Delgado was the sole mortgagor regardless of the fact that
he used properties belonging to a third person to secure the debt. Hence, even if Cerna was a co-
mortgagor, Cerna could not be held liable because the complaint was for recovery of a sum of
money and not for the foreclosure, thereby abandoning the chattel mortgage as basis for relief, he
clearly manifests his lack of desire and interest to go after the mortgaged property as security for
the promissory note.

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 IFC SERVICE LEASING and ACCEPTANCE CORPORATIONVSVENANCIO NERA.,
G.R. No. L-21720 January 30,1967

FACTS

This is an appeal from an order of the Court of First Instance of Rizal, denying
appellant’s motion to set aside the writ of possession issued by the court and the auction sale held
before that by the sheriff.Venancio Nera and Rosa F. Nera, situated at No. 9 Aleman Street,
Quezon City, appellee filed with the sheriff’s office in Quezon City a verified petition for the
extrajudicial foreclosure of the mortgage; that on October 27, 1961, after notice and publication,
the property (consisting of a house and lot) was sold to appellee as the highest bidder for
P28,451.77.
On March 6, 1963, appellant asked for a reconsideration of the order granting the writ of
possession on the ground that his failure to redeem the property was due to appellee’s
misrepresentation.On March 26, 1963, appellant filed another motion, an ex parte application to
set aside the writ of possession and the auction sale, on the ground that the court had no
jurisdiction to issue the writ and that the price at which the mortgaged property was sold was
grossly inadequate.

ISSUE
Whether or not in cases of extrajudicial foreclosure of real estate mortgages, a regular action
must be instituted in order to secure possession of the property sold.

RULING
The contention is without merit. The applicable provision of Act No. 3135 is Section 6
which provides that, in cases in which an extrajudicial sale is made, "redemption shall be
governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure in so far as these are not inconsistent with the
provisions of this Act." Sections 464-466 of the Code of Civil Procedure were superseded by
Sections 25- 27 and Section 31 of Rule 39 of the Rules of Court, which in turn were replaced by
Sections 29-31 and Section 35 of Rule 39 of the Revised Rules of Court. Section 35 of Rule 39
of the Revised Rules of Court expressly states that "If no redemption be made within twelve (12)
months after the sale, the purchaser, or his assignee, is entitled to a conveyance and possession of
the property. The possession of the property shall be given to the purchaser or last redemptioner
by the same officer unless a third party is actually holding the property adversely to the judgment
debtor.
Indeed, as this Court held in Tan Soo Huat v. Ongwico,
"There is no law in this jurisdiction whereby the purchaser at a sheriff’s sale of real property is
obliged to bring a separate and independent suit for possession after the one-year period for
redemption has expired and after he has obtained the sheriff’s final certificate of sale. There is
neither legal ground nor reason of public policy precluding the court from ordering the sheriff in
this case to yield possession of the property purchased at public auction where it appears that the
judgment debtor is the one in possession thereof and no rights of third persons are involved.
Moreover, if under Section 7 of Act No. 3135 the court has the power, on the ex parte
application of the purchaser, to issue a writ of possession during the period of redemption, there
is no reason why it should not also have the same power after the expiration of that period,
especially where, as in this case, a new title has already been issued in the name of the purchaser.
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